[Federal Register Volume 85, Number 39 (Thursday, February 27, 2020)]
[Notices]
[Pages 11426-11436]
[FR Doc No: 2020-03915]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88261; File No. SR-CboeEDGA-2019-012]

Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Order
Disapproving Proposed Rule Change To Introduce a Liquidity Provider
Protection Delay Mechanism on EDGA

February 21, 2020.

I. Introduction

    On June 7, 2019, Cboe EDGA Exchange, Inc. (``EDGA'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to introduce a delay mechanism on
EDGA. The proposed rule change was published for comment in the Federal
Register on June 26, 2019.\3\ On August 5, 2019, pursuant to Section
19(b)(2) of the Exchange Act,\4\ the Commission designated a longer
period within which to approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether the
proposed rule change should be disapproved.\5\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 86168 (June 20,
2019), 84 FR 30282 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 86567 (Aug. 5,
2019), 84 FR 39385 (Aug. 9, 2019). The Commission designated
September 24, 2019, as the date by which it should approve,
disapprove, or institute proceedings to determine whether to
disapprove the proposed rule change.
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    On September 24, 2019, the Commission instituted proceedings to
determine whether to approve or disapprove the proposed rule
changes.\6\ On December 16, the Commission designated a longer period
for Commission action on the proposed rule change.\7\ This order
disapproves the proposed rule change.
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    \6\ See Securities Exchange Act Release No. 87096, 84 FR 51657
(September 30, 2019) (``Order Instituting Proceedings'' or ``OIP'').
    \7\ See Securities Exchange Act Release No. 87757, 84 FR 70231
(December 20, 2019).
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II. Description of the Proposed Rule Change

    The Exchange proposes to adopt the Liquidity Provider Protection
(``LP2'') delay mechanism in order ``to protect liquidity providers and
thereby enable those liquidity providers to make better markets in
equity securities traded on the Exchange.'' \8\ As described in detail

in the Notice,\9\ the LP2 delay mechanism would delay all incoming
executable orders that would remove liquidity from the EDGA Book, but
not incoming or outgoing market data, for up to four milliseconds.
Under the proposal, if book conditions changed such that an incoming
order was no longer executable against orders resting on the EDGA Book
(e.g., resting orders on the book are cancelled or modified such that
they are no longer marketable against the delayed incoming order), the
incoming order would be released from the queue prior to the completion
of the 4 millisecond delay.\10\ The LP2 delay mechanism would also
apply to the cancel, cancel/replace, or modification messages that are
associated with liquidity taking orders.\11\ The Exchange would apply
such messages after the liquidity taking order is released from the
delay mechanism.\12\ At the end of the delay period, incoming orders,
cancel, cancel/replace, and modification messages subjected to the
delay mechanism would be processed after the System\13\ has processed,
if applicable, all messages in the security received by the Exchange
during such delay period.\14\
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    \8\ See Notice, 84 FR at 30282.
    \9\ See id. at 30283-89.
    \10\ See id. at 30284.
    \11\ See id.
    \12\ See id.
    \13\ The term ``System'' refers to the electronic communications
and trading facility designated by the Board through which
securities orders of Users are consolidated for ranking, execution
and, when applicable, routing away. See EDGA Rule 1.5(cc).
    \14\ See Notice, 84 FR at 30284, n. 11. According to the
Exchange, an incoming message may be delayed for longer than four
milliseconds depending on the volume of messages being processed by
the Exchange. Id.
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    Certain order types, or orders with instructions, that are not
eligible for execution upon entry would become subject to the LP2 delay
mechanism when a potential execution is triggered by a subsequent
incoming order. For example, orders entered with either a Stop Price or
Stop Limit Price instruction would not be executed until elected, and
would only be subject to the delay mechanism after the order is
converted to either a Market Order or Limit Order. Similarly, orders
entered with a time-in-force instruction of Regular Hours Only would be
subjected to the delay mechanism when entered into the EDGA Book after
an opening or re-opening process.\15\
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    \15\ See EDGA Rule 11.7 relating to the opening and re-opening
process.
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    An incoming order that is not executable upon entry would not be
subject to the delay mechanism. For example, orders with instructions
that are not executable when entered due to its order instructions
(e.g., Minimum Quantity and Post Only) would not be subject to the LP2
Delay Mechanism. In addition, incoming routable orders that bypass the
EDGA book would not be subject to the LP2 delay mechanism, but any
returning, executable remainder of such a routed order would be subject
to the delay mechanism. The sole exception to a non-executable incoming
order being subject to the delay would be incoming orders with the
EdgeRisk Self Trade Protection (``ERSTP'') modifier. ERSTP modifiers
are an optional risk protection that prevents the execution of orders
originating from the same market participant identifier, Exchange
Member identifier or ERSTP Group identifier.\16\ The ERSTP modifier
would be applied to the order after it is delayed.
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    \16\ See Notice, 84 FR at 30283-84.
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Market Data

    The Exchange proposes that the LP2 delay mechanism would not apply
to inbound or outbound market data. Current, un-delayed data, would be
used for all purposes including regulatory compliance and the pricing
of pegged orders and the quotation and trade data would continue to be
disseminated, without delay, to the applicable securities information
processor (``SIP'') and direct market data feeds.\17\
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    \17\ See id.
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Regulation NMS

    In conjunction with the proposed LP2 delay mechanism, the Exchange
proposes to disseminate a manual, unprotected quotation to the SIP.\18\
In addition, because certain Regulation NMS rules related to locked and
crossed markets would apply differently to EDGA's manual, unprotected
quotation, compared to its current automated, protected quotation, the
Exchange proposed to make the two rule changes described below.
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    \18\ Rule 600(a)(37) defines a ``manual quotation'' as any
quotation other than an automated quotation.
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    First, the Exchange proposes to add new EDGA Rule 11.10(a)(6) to
provide that a bid (offer) on the EDGA Book is eligible to remain
posted to the EDGA Book for one second after such bid (offer) is
crossed by a Protected Offer (Protected Bid). The bid (offer) on the
EDGA Book will be cancelled if it continues to be higher (lower) than a
Protected Offer (Protected Bid) after this one second period. Because
the delayed cancellation behavior set forth by proposed EDGA Rule
11.10(a)(6) would allow bids and offers on EDGA to remain posted and
executable for up to one second if crossed by a Protected Bid or
Protected Offer of another market, the Exchange also proposes to amend
EDGA Rule 11.10(a)(2) to provide that the Exchange will not execute any
portion of a bid or offer at a price that is more than the greater of
five cents or 0.5 percent through the lowest Protected Offer or highest
Protected Bid, as applicable.
    Second, the Exchange proposes to amend EDGA Rule 11.10(f) related
to the dissemination and display of Locking Quotations or Crossing
Quotations.\19\ Because the Exchanges' quotations would be marked
manual, Rule 610(d)(1)(ii) of Regulation NMS requires that the Exchange
avoid locking or crossing any quotation in an NMS stock disseminated
pursuant to an effective national market system plan. The Exchange
proposes to amend EDGA Rule 11.10(f)(3) to provide that an EDGA
quotation would not be considered a Locking or Crossing Quotation if
the quotation being locked or crossed is a manual quotation that is
allowed to be locked or crossed pursuant to an exemption request
submitted by the Exchange.\20\
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    \19\ A ``Locking Quotation'' is the display of a bid for an NMS
stock at a price that equals the price of an offer for such NMS
stock previously disseminated pursuant to an effective national
market system plan, or the display of an offer for an NMS stock at a
price that equals the price of a bid for such NMS stock previously
disseminated pursuant to an effective national market system plan in
violation of Rule 610(d) of Regulation NMS. See EDGA Rule 11.6(g). A
``Crossing Quotation'' is the display of a bid (offer) for an NMS
stock at a price that is higher (lower) than the price of an offer
(bid) for such NMS stock previously disseminated pursuant to an
effective national market system plan in violation of Rule 610(d) of
Regulation NMS. See EDGA Rule 11.6(c).
    \20\ See Notice, 84 FR at 30285. In the Notice, the Exchange
notes that it submitted an exemption request to the Commission
pursuant to Rule 610(e) of Regulation NMS that, if granted by the
Commission, would permit the Exchange to lock or cross manual
quotations disseminated by the New York Stock Exchange LLC
(``NYSE''). Id.; see also Letter from Adrian Griffiths, Assistant
General Counsel, Cboe, to Vanessa Countryman, Acting Secretary,
dated June 7, 2019 (requesting exemptive relief from certain
requirements related to locked and crossed markets pursuant to Rule
610(e) of Regulation NMS).
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Eliminate or Modify Certain Order Types and Instructions

    The Exchange proposes to eliminate or modify certain order types
and instructions to reduce System complexity in light of the operation
of the proposed LP2 delay mechanism. Specifically, the Exchange
proposes to eliminate the:

     Discretionary Range instruction \21\ and the MidPoint
Discretionary Order (``MDO''); \22\
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    \21\ Discretionary Range is an optional instruction that a User
may attach to an order to buy (sell) a stated amount of a security
at a specified, displayed or non-displayed ranked price with
discretion to execute up (down) to another specified, non-displayed
price. See EDGA Rule 11.6(d).
    \22\ A Midpoint Discretionary Order is a limit order to buy that
is pegged to the NBB, with discretion to execute at prices up to and
including the midpoint of the NBBO, or a limit order to sell that is
pegged to the NBO, with discretion to execute at prices down to and
including the midpoint of the NBBO. See EDGA Rule 11.8(e).
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     Pegged instruction,\23\ including the Market Peg \24\ and
Primary Peg \25\ instruction;
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    \23\ Pegged is an instruction to automatically re-price an order
in response to changes in the NBBO, and can be entered as either a
Market Peg or Primary Peg. See EDGA Rule 11.6(j).
    \24\ Market Peg is an order instruction to peg an order to the
NBB, for a sell order, or the NBO, for a buy order. See EDGA Rule
11.6(j)(1).
    \25\ Primary Peg is an order instruction to peg an order to the
NBB, for a buy order, or the NBO, for a sell order. See EDGA Rule
11.6(j)(2).
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     Supplemental Peg Orders; \26\ and
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    \26\ Supplemental Peg Orders are non-displayed Limit Orders that
are eligible for execution at the NBB for a buy order and NBO for a
sell order against an order that is in the process of being routed
to an away Trading Center if such order that is in the process of
being routed away is equal to or less than the aggregate size of the
Supplemental Peg Order interest available at that price. See EDGA
Rule 11.8(g).
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     Non-Displayed Swap and Super Aggressive instructions.\27\
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    \27\ Currently, when an order entered with an NDS or Super
Aggressive instruction is locked by an incoming order with a Post
Only instruction that would not remove liquidity based on the
economic impact of removing liquidity on entry compared to resting
on the order book and subsequently providing liquidity, the order
with the NDS or Super Aggressive instruction is converted to an
executable order and will remove liquidity against such incoming
order. If an order that does not contain a Super Aggressive
instruction maintains higher priority than one or more Super
Aggressive eligible orders, the Super Aggressive eligible order(s)
with lower priority will not be converted and the incoming order
with a Post Only instruction will be posted or cancelled in
accordance with Rule 11.6(n)(4). This does not apply to orders
entered with an NDS instruction. See EDGA Rule 11.6(n)(2), (n)(7).
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    In addition, the Exchange proposes to modify the:
     MidPoint Peg Order (``MPO'') \28\ by eliminating the
optional functionality that allows a User to: (1) Peg the order to the
less aggressive midpoint or one minimum price variation inside the same
side of the NBBO, and (2) opt for executions during a locked market;
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    \28\ MPOs are non-displayed, market or limit orders with an
instruction to execute at the midpoint of the NBBO, or,
alternatively, pegged to the less aggressive of the midpoint of the
NBBO or one minimum price variation inside the same side of the NBBO
as the order. See EDGA Rule 11.9(c)(9).
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     Price Adjust \29\ and Display-Price Sliding \30\
instructions to eliminate the functionality to allow orders with these
instructions to adjust multiple times to a more aggressive price in
response to changes to the prevailing NBBO; \31\
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    \29\ Price Adjust is an order instruction requiring that where
an order would be a locking quotation or crossing quotation of an
external market if displayed by the System on the EDGA Book at the
time of entry, the order will be displayed and ranked at a price
that is one minimum price variation lower (higher) than the locking
price for orders to buy (sell). See EDGA Rule 11.6(l)(1)(A).
    \30\ Display-Price Sliding is an order instruction requiring
that where an order would be a locking quotation or crossing
quotation of an external market if displayed by the System on the
EDGA Book at the time of entry, will be ranked at the locking price
in the EDGA Book and displayed by the System at one minimum price
variation lower (higher) than the locking price for orders to buy
(sell). See EDGA Rule 11.6(l)(1)(B).
    \31\ See EDGA Rule 11.6(l)(1)(A)(i),(B)(iii).
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     Post Only \32\ instruction to (1) limit the use of the
instruction to displayed orders and MPOs and (2) eliminate the ability
of such orders to execute on an incoming basis; and
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    \32\ Post Only is an order instruction that would allow an
otherwise marketable incoming order to (1) cancel or (2) post to the
System in a manner that complies with Regulation NMS and forego an
execution with a resting order on the EDGA book unless the execution
would be economically beneficial when considered in tandem with the
applicable Exchange fee or rebate for taking liquidity. See EDGA
Rules 11.6(n)(4), 11.9, and 11.10(a)(4).
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     Market Maker Peg Orders to require the use of a Post Only
instruction with such orders.\33\
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    \33\ A Market Maker Peg Order is designed to assist market
makers maintain compliance with their continuous quoting
obligations. Specifically, it is a limit order that is automatically
priced by the System at the Designated Percentage away from the then
current NBB (in the case of an order to buy) or NBO (in the case of
an order to sell), or if there is no NBB or NBO at such time, at the
Designated Percentage away from the last reported sale from the
responsible single plan processor.
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    Finally, the Exchange proposes conforming changes to rules
referencing the current Post Only functionality that would permit an
incoming order to be executed.\34\
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    \34\ See e.g., EDGA Rule 11.6(l)(A)(4),(B)(4) and EDGA Rule
11.8(c)(5).
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III. Discussion

A. The Applicable Standard for Review

    Under Section 19(b)(2)(C) of the Exchange Act,\35\ the Commission
shall approve a proposed rule change of a self-regulatory organization
(``SRO'') if it finds that such proposed rule change is consistent with
the requirements of the Exchange Act and the rules and regulations
thereunder that are applicable to such organization.\36\ The Commission
shall disapprove a proposed rule change if it does not make such a
finding.\37\ Rule 700(b)(3) of the Commission's Rules of Practice
states that the ``burden to demonstrate that a proposed rule change is
consistent with the [Exchange Act] and the rules and regulations issued
thereunder . . . is on the self-regulatory organization that proposed
the rule change'' and that a ``mere assertion that the proposed rule
change is consistent with those requirements . . . is not
sufficient.''\38\ Rule 700(b)(3) also states that ``the description of
a proposed rule change, its purpose and operation, its effect, and a
legal analysis of its consistency with applicable requirements must all
be sufficiently detailed and specific to support an affirmative
Commission finding.'' \39\ Any failure of an SRO to provide this
information may result in the Commission not having a sufficient basis
to make an affirmative finding that a proposed rule change is
consistent with the Exchange Act and the applicable rules and
regulations.\40\ Moreover, ``unquestioning reliance'' on an SRO's
representations in a proposed rule change is not sufficient to justify
Commission approval of a proposed rule change.\41\
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    \35\ 15 U.S.C. 78s(b)(2)(C).
    \36\ 15 U.S.C. 78s(b)(2)(C)(i).
    \37\ 15 U.S.C. 78s(b)(2)(C)(ii); see also 17 CFR 201.700(b)(3).
    \38\ 17 CFR 201.700(b)(3).
    \39\ Id.
    \40\ See id.
    \41\ Susquehanna Int'l Group, LLP v. Securities and Exchange
Commission, 866 F.3d 442, 447 (DC Cir. 2017).
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    The Commission concludes that the Exchange has not met its burden
to show that approval of the proposed rule change is consistent with
the requirements of the Exchange Act and the rules and regulations
thereunder applicable to a national securities exchange.\42\ In
particular, as discussed below, the Exchange has not met its burden
with respect to Section 6(b)(5) of the Exchange Act, which requires,
among other things, that the rules of a national securities exchange be
designed to remove impediments to and perfect the mechanism of a free
and open market and a national market system, to promote just and
equitable principles of trade, and, in general, to protect investors
and the public interest

and not to permit unfair discrimination between customers, issuers,
brokers, or dealers.\43\
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    \42\ In disapproving the proposed rule change, the Commission
has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f). The
Commission recognizes that some commenters stated that the proposal
would help foster competition. See, e.g., Letter from Steve
Crutchfield, Head of Market Structure, CTC Trading Group, LLC, dated
October 28, 2019 (``CTC Letter II'') at 1-2. But, for the reasons
discussed throughout, the Commission is disapproving the proposed
rule change because the Exchange has not met its burden to
demonstrate that the proposed rule change is consistent with the
Exchange Act.
    \43\ 15 U.S.C. 78f(b)(5).
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B. Whether EDGA Has Met Its Burden To Demonstrate That the Proposal Is
Designed Not To Permit Unfair Discrimination

    The proposed rule change is discriminatory in that the Exchange
would delay incoming executable orders by 4 milliseconds, which would
allow market participants with orders on the EDGA book that are not
subject to the delay up to 4 milliseconds to cancel or modify their
orders. A discriminatory proposal, however, is not inconsistent with
the Exchange Act if the discrimination permitted is not unfair. The
Commission has previously stated that ``a proposed access delay that is
only imposed on certain market participants or certain types of orders
would be scrutinized to determine whether or not the discriminatory
application of that delay is unfair.'' \44\ In analyzing whether the
Exchange has met its burden to demonstrate that its proposal is
consistent with Section 6(b)(5) of the Exchange Act,\45\ the Commission
examines below whether the record supports the Exchange's assertions
that the LP2 delay mechanism is designed to not permit unfair
discrimination.
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    \44\ See Securities Exchange Act Release No. 78102; 81 FR 40785,
40792 n.75 (June 23, 2016) (Commission Interpretation Regarding
Automated Quotations Under Regulation NMS). See also Securities
Exchange Act Release No. 77406, 81 FR 15765 (Mar 24, 2016) (File No.
10-222) (Order Instituting Proceedings on IEX's Form 1 with
discussion related to the potentially unfair discriminatory
application of an access delay to advantage an affiliated outbound
routing broker).
    \45\ 15 U.S.C. 78f(b)(5).
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1. The Exchange's Basis for a Four Millisecond Delay

    The Exchange stated that the proposal is designed to protect
liquidity providers by reducing the effectiveness of certain harmful
latency arbitrage strategies employed by a small number of liquidity
takers and thereby promote improvements to market quality.\46\
Specifically, the Exchange asserted that the reduced risk of adverse
selection for market makers would result in increased displayed
liquidity with tighter spreads and greater size on the Exchange.\47\
According to the Exchange, the potential for trading at stale prices
increases risk for firms that wish to provide liquidity to the market,
and harms market quality by causing liquidity providers to enter quotes
with either a wider spread or a smaller size than they may otherwise
display.\48\ The Exchange believes that a ``meaningful portion'' of any
savings earned by liquidity providers would be passed on to investors
in the form of better market quality and benefit the majority of
investors.\49\
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    \46\ See Letters from Adrian Griffiths, Assistant General
Counsel, Cboe Global Markets, dated August 22, 2019 (``Exchange
Response Letter I'') at 1, and dated December 20, 2019 (``Exchange
Response Letter II'') at 4.
    \47\ See Exchange Response Letter I at 1.
    \48\ See Notice at 30289. The Exchange also stated ``that the
LP2 delay mechanism would promote liquidity provision without
unfairly discriminating against specific segments of the market''
and that it is appropriate to provide protection for orders that
provide liquidity because these orders provide an important service
to the market and face asymmetric risks due to the fact that the
market may move while they are posted to the order book. See id. at
30290.
    \49\ See Exchange Response Letter II at 5.
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    A commenter supporting the proposal asserted that the term latency
arbitrage ``generally means using dedicated microwave towers to
transmit order information from one location to another to trade the
same or correlated financial instrument based on information that is a
few milliseconds away from becoming available to all market
participants.'' \50\ This commenter stated that the 4 millisecond delay
``would neutralize the difference between commodity fiber connections
and microwave networks.'' \51\ In contrast, several commenters opposing
the proposal asserted that the proposed rule change did not identify
the problem (i.e., cross-asset latency arbitrage) with sufficient
specificity or detail to establish the scope of the problem to be
addressed or the magnitude of the problem on the Exchange.\52\ Five
commenters indicated that the data provided by EDGA was inadequate to
establish the extent of the negative impact of cross-asset latency
arbitrage on the EDGA market.\53\ Two commenters indicated that the
term ``latency arbitrage'' was too broad and not clearly defined, and
expressed concern that beneficial hedging activity for Exchange Traded
Funds (``ETFs'') or by options liquidity providers in the underlying
markets could be caught in the definition of latency arbitrage.\54\ Two
commenters did not believe that EDGA offered credible evidence to
establish how the proposal would reduce cross-market latency
arbitrage.\55\
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    \50\ See Letter from Eric Swanson, CEO, XTX Markets LLC
(Americas), dated July 16, 2019 (``XTX Letter I'') at 2.
    \51\ See XTX Letter I at 5.
    \52\ See Letters from: Stephen John Berger, Managing Director,
Global Head of Government and Regulatory Policy, Citadel Securities,
dated July 16, 2019 (``Citadel Letter I'') at 6-7; Joanna Mallers,
Secretary, FIA Principal Traders Group, dated July 16, 2019 (``FIA
Letter I'') at 2; ''); Joanna Mallers, Secretary, FIA Principal
Traders Group, dated October 21, 2019 (``FIA Letter II'') at 1-2;
Tyler Gellasch, Executive Director, Healthy Markets, dated July 16,
2019 (``Healthy Markets Letter I'') at 6; Tyler Gellasch, Executive
Director, Healthy Markets Association, dated Oct. 21, 2019
(``Healthy Markets Letter II'') at 2; R.T. Leuchtkafer, dated
October 21, 2019 (``Leuchtkafer Letter IV'') at 1, 3; Theodore R.
Lazo, Managing Director and Associate General Counsel, SIFMA, dated
July 18, 2019 (``SIFMA Letter'') at 2.
    \53\ See Citadel Letter I at 6-7; FIA Letter I at 2; FIA Letter
II at 1-2; Healthy Markets Letter I at 6; Healthy Markets Letter II
at 2; Leuchtkafer Letter IV at 1, 3; SIFMA Letter at 2.
    \54\ See Citadel Letter II at 3 n.5; FIA Letter II at 1-2.
    \55\ See Healthy Markets Letter II at 2; Letter from R.T.
Leuchtkafer, dated February 7, 2020 (``Leuchtkafer Letter V'') at 2.
One of these commenters also believed that EDGA did not establish
the taxonomy of cross-market latency arbitrage that the proposal
would seek to address, or to what extent market participants would
use the ``time advantage'' contemplated by the proposal. Healthy
Markets Letter II at 2.
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    In order to (1) establish the extent of the latency arbitrage issue
on EDGA, (2) explain how the LP2 delay mechanism would resolve the
latency arbitrage issue without permitting unfair discrimination, and
(3) demonstrate that 4 milliseconds was an appropriate duration for the
LP2 delay mechanism, the Exchange provided a markout analysis (i.e., an
analysis of execution costs) for EDGA liquidity providers in SPY during
July 2019.\56\ The Exchange stated that the charts demonstrated whether
a liquidity provider attempted and failed to cancel or replace their
quotation within 4 milliseconds after an execution and the price
differential between the execution price and the midpoint price at the
time of the trade and the milliseconds following an execution.\57\ The
Exchange also asserted that the charts showed that ``the midpoint price
move[d] dramatically in the milliseconds immediately following
transactions in this category, and often involved a handful of faster
firms that are routinely able to predict and profit from prices that
are about to change.'' \58\ According to the Exchange, the markout
analysis represented ``the majority of trading activity conducted on
the Exchange, [and] showed relatively stable prices following an
execution.'' \59\ The Exchange also included a similar markout analysis
for other securities during July 2019.\60\ The Exchange concluded,
based on the markout analysis, that investors that are not actively
engaging in latency arbitrage would not be harmed by the LP2 delay
mechanism and would continue to be able to access liquidity at similar
prices

after the 4 millisecond delay because ``published quotations are
relatively stable immediately following an execution.'' \61\ The
Exchange also concluded that concerns related to ``the possibility that
a published quotation may not be accessible because a liquidity
provider cancels its orders before an investor can access the published
bid or offer'', were unwarranted because the data showed that prices
are ``relatively stable for most investors'' after an execution, and
the liquidity would likely be available notwithstanding the
introduction of the delay.\62\ The Exchange stated that ``the
[p]roposal is likely to make it less profitable to engage in latency
arbitrage while not materially affecting the ability of ordinary
investors to access liquidity on EDGA.'' \63\
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    \56\ See Exchange Response Letter I at 3.
    \57\ See id. at 3-4.
    \58\ See id. at 3.
    \59\ See id. at 4.
    \60\ See id. at Appendix.
    \61\ See id. at 5.
    \62\ See id.
    \63\ See Exchange Response Letter I at 5-6.
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    In response to the Exchange's markout analysis, one commenter
supporting the proposal stated that the Exchange's markout analysis
could be used to measure the reduction in adverse selection on executed
transactions.\64\ In contrast, two commenters opposing the proposal did
not believe that the Exchange's markout analysis established the
latency arbitrage problem on the Exchange or that the proposal would
necessarily provide an effective counter measure.\65\ One commenter
suggested that the Exchange's markout analysis did not necessarily show
stale quotes being picked off by latency arbitrageurs out of Chicago,
but rather may demonstrate that either (1) the SPY signal for the
cancellation of orders is coming from somewhere geographically closer
than Chicago, or (2) that EDGA market makers could be utilizing
connections that are faster than fiber.\66\ This commenter believed
that the Exchange's markout analysis could be evidence that the
proposal may provide EDGA market makers with an ``investor-funded
subsidy'' of $900 a day or more in SPY.\67\ This commenter also
suggested that the data likely shows the effect of investor equities
market sweeps as opposed to latency arbitrage activity based on the
futures markets in Chicago.\68\ Another commenter believed that the
markout data did not provide evidence of stale prices, but rather
showed that liquidity providers try, but fail, to cancel their quotes
before receiving an execution more often when the price is moving
compared to when the price is stable.\69\ This commenter believed that
the execution prices for failed cancellations ``very likely matched the
executed prices on other exchanges as investors executed orders against
existing market-maker quotes and other resting orders.'' \70\ This
commenter also believed the data was consistent with the ``standard''
broker-dealer practice of sweeping the top-of-book across all exchanges
on behalf of both institutional and retail investors seeking to fill
orders that are equal to, or larger than, the size at the NBB or
NBO.\71\
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    \64\ See Letter from Eric Swanson, CEO, XTX Markets LLC
(Americas), dated October 18, 2019 (``XTX Letter III'') at 2.
    \65\ See FIA Letter II at 2; Letter from R.T. Leuchtkafer, dated
September 9, 2019 (``Leuchtkafer Letter III'') at 2-3; Leuchtkafer
Letter IV at 4-5; Leuchtkafer Letter V at 2.
    \66\ See Leuchtkafer Letter III at 2-3; Leuchtkafer Letter IV at
4-5.
    \67\ See Leuchtkafer Letter III at 5; Leuchtkafer Letter IV at
9.
    \68\ See Leuchtkafer Letter III at 6.
    \69\ See FIA Letter II at 2.
    \70\ See id. at 2.
    \71\ See id.
---------------------------------------------------------------------------

    In response, the Exchange disagreed with the comment related to its
markout analysis that reducing adverse selection risk for liquidity
providers would effectively serve as a ``subsidy'' for liquidity
providers.\72\ The Exchange stated that ``only a very small minority of
market participants are capable of targeting millisecond or microsecond
level price changes, and the benefits the [p]roposal would offer in
terms of reduced adverse selection risk for liquidity providers would
come primarily from the reduced ability of those firms to continue
engaging in potentially harmful latency arbitrage strategies.'' \73\
The Exchange also stated that liquidity providers would not benefit at
the expense of investors, but rather that investors could ``more
accurately'' be considered the ultimate beneficiaries of the
proposal.\74\ The Exchange also stated that while certain commenters
were dubious as to whether the benefits received by a liquidity
provider under the proposal would be passed on to investors, such
factual questions could only be answered ``with finality'' by
implementing the proposed delay mechanism and attempting to improve the
market.\75\
---------------------------------------------------------------------------

    \72\ See Exchange Response Letter II at 5.
    \73\ See id. at 5.
    \74\ See id. at 5.
    \75\ See id. at 5-6.
---------------------------------------------------------------------------

    Certain commenters cited to studies suggesting that the TSX Alpha
speedbump (i.e., an intentional, asymmetric delay for otherwise
marketable orders in a market with a taker/maker or inverted fee
structure) increased transaction costs and decreased market quality in
the Canadian equities markets.\76\ In response, the Exchange stated
that these commenters failed to mention the results of a subsequent
study by Canadian regulators that found that the TSX Alpha speedbump
``did not adversely affect the quality of Canadian equity markets'' or
the results of an analysis that found ``no evidence'' of market quality
being negatively impacted.\77\ While the Exchange acknowledged the
material differences between the instant proposal and the randomized 1-
3 millisecond, asymmetric, intentional delay implemented on TSX Alpha
as well as significant differences between the U.S. and Canadian
equities markets,\78\ it also stated that to the extent that the
analysis by the Canadian regulators is instructive it demonstrates the
value of market innovation similar to the instant proposal.\79\
---------------------------------------------------------------------------

    \76\ See e.g., Chen, Haoming et al., The value of a Millisecond:
Harnessing Information in Fast, Fragmented Markets, SSRN (Nov. 18,
2017), available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2860359 (``Australian Study''); see also OIP
supra note 6, notes 139-146 and accompanying text, for a summary of
the comments referenced by the Exchange.
    \77\ See Exchange Response Letter I at 10. The Exchange
referenced a joint study on the impact of the TSX Alpha redesign,
which included the implementation of a randomized 1-3 millisecond
speedbump, conducted by the Investment Industry Regulatory
Organization of Canada (``IIROC'') and the Bank of Canada, as well
as a review of the market quality impact of the TSX Alpha speedbump
conducted by the Ontario Securities Commission (``Canadian
Studies''). See id. at 10-11; see also Exchange Response Letter II
at 10.
    \78\ See Exchange Response Letter I at 11.
    \79\ See id.
---------------------------------------------------------------------------

    Four commenters opposing the proposal did not believe that the
analyses conducted by Canadian regulators, and referenced by the
Exchange, necessarily supported the Exchange's assertions.\80\ One
commenter stated that the empirical data obtained from the asymmetric
delay introduced by TSX Alpha in the Canadian equity markets is not
sufficient or conclusive as to whether an asymmetric delay should be
introduced in U.S. equity markets.\81\ This commenter emphasized that
the IIROC and Bank of Canada study found ``no evidence'' that the TSX
Alpha speedbump impacted certain market-

wide measures.\82\ One commenter noted that while the IIROC and Bank of
Canada study did not find that the TSX Alpha speedbump impacted market-
wide liquidity, it did find that certain market participants, such as
buy-side investors, were negatively impacted by higher price impacts
and effective spreads.\83\ Another commenter stated that the IIROC and
Bank of Canada study ``fails to provide evidence that the proposed
speedbump will actually benefit investors.'' \84\ Another commenter
stated that the evidence from the ``reasonably comparable'' asymmetric
delay implemented on the TSX Alpha exchange in the Canadian equity
market showed that institutional and retail investor concerns related
to an increase in quote fading and a decline in fill rates were
legitimate.\85\ This commenter stated that neither of the Canadian
Studies disputed the conclusion of the Australian study \86\ that the
implementation of the asymmetric speedbump enabled fast liquidity
providers to ``fade'' away from liquidity taking orders across multiple
venues and quote fading increased by 46% on average.\87\ This commenter
did a separate analysis of quote fading on TSX Alpha using Canadian
exchange data and reached conclusions that it believed were consistent
with the Australian study.\88\ Two commenters pointed out that, as per
an Ontario Securities Commission review, market participants reported a
decrease in fill rates on TSX Alpha, particularly for orders that were
expected to sweep through multiple price levels or be routed to
multiple marketplaces simultaneously (e.g., institutional orders).\89\
---------------------------------------------------------------------------

    \80\ See Letter from Stephen John Berger, Managing Director,
Global Head of Government and Regulatory Policy, Citadel Securities,
dated October 21, 2019 (``Citadel Letter II'') at 4; Leuchtkafer
Letter IV at 7; Letter from Rick A. Fleming, Investor Advocate,
Office of the Investor Advocate at the U.S. Securities and Exchange
Commission, dated December 13, 2019 (``Investor Advocate Letter'')
at 8; Letter from Doug Clark, Chairman, and James Toes, President &
CEO, Security Traders Association, dated October 21, 2019 (``STA
Letter'') at 2.
    \81\ See STA Letter at 2.
    \82\ See id. at 4.
    \83\ See Leuchtkafer Letter IV at 7.
    \84\ Investor Advocate Letter at 8.
    \85\ See Citadel Letter II at 4.
    \86\ See note 77 supra.
    \87\ See Citadel Letter II at 4.
    \88\ See id. The commenter found the following for price-level
depleting trade clusters based on their analysis: (1) Quote fading
on TSX Alpha ``immediately and significantly'' increased following
the implementation of the asymmetric speedbump in September 2015;
(2) these elevated quote fading rates persisted, as data over the
last 12 months showed that approximately 70-80% of the quoted volume
on TSX Alpha is being cancelled without executing; and (3) this
contrasts with quote fading rates of approximately 30% on other
inverted venues and approximately 20% on maker-taker venues. See id.
at 4-5.
    \89\ See Citadel Letter II at 4; Leuchtkafer Letter IV at 7.
---------------------------------------------------------------------------

    The Exchange responded that the analysis of the Canadian market
conducted by one commenter \90\ was ``unhelpful'' and had ``fundamental
flaws''.\91\ The Exchange stated that evidence from the Canadian
markets suggests that investors using a combination of strategies
designed to take advantage of the TSX Alpha speedbump ``may benefit
from improved market quality without sacrificing order interaction.''
\92\ The Exchange stated that evidence from Canadian market studies had
shown an increase in trade size on TSX Alpha following the introduction
of its speedbump, and suggested that market participants may be able to
get their orders filled on a single venue such as EDGA due to the
expected increase in liquidity.\93\ The Exchange indicated that
although a chart published by TSX Alpha in December 2019 shows that
proprietary and high speed participants may experience lower order
interaction rates, as intended, order interaction rates remain high for
retail and institutional orders routed by broker-dealers ``that have
taken appropriate steps'' to account for the TSX Alpha speedbump.\94\
The Exchange believed that, while broker-dealers may need to change
their routing methodologies, a delay mechanism similar to that on TSX
Alpha could benefit U.S. equities investors ``without harming their
ability to access needed liquidity.'' \95\
---------------------------------------------------------------------------

    \90\ See Citadel Letter II at 4.
    \91\ Exchange Response Letter II at 11.
    \92\ See id. at 11.
    \93\ See id.
    \94\ See id. at 12.
    \95\ See id.
---------------------------------------------------------------------------

    One commenter stated that while the EDGA proposal is designed to
reduce the overall execution risk for a certain class of liquidity
providers (i.e., market makers), with the ``hope'' that these market
makers voluntarily respond by taking on the additional risk of quoting
tighter spreads for longer durations and with greater size, there is no
requirement for them to do so, and furthermore the likelihood that
these market makers will use the speedbump to avoid the execution risk
presented by the orders of ordinary investors should be considered.\96\
This commenter also stated that although the proposal describes
potential benefits for retail and institutional investors in the
market, there is no guarantee that such improvements would occur.\97\
One commenter opposing the proposal believed that overall market
quality would not improve because EDGA liquidity providers would tend
to join existing quotes in order to maximize their ability to observe
away executions.\98\ Two commenters believed the proposal was unlikely
to incentivize EDGA liquidity providers to set new price levels that
would establish the NBBO, and would instead more often result in EDGA
liquidity providers posting prices equal to or inferior to the NBBO set
by liquidity providers on other exchanges.\99\ One commenter stated
that EDGA did not analyze its key assertion that the application of the
LP2 delay mechanism would improve market quality in the light of the
Exchange's inverted (i.e., taker/maker) fee structure,\100\ and one
commenter stated that inverted markets set new prices only ``a very
small amount of the time'' because typically liquidity providers that
are improving price on an inverted venue do not also pay to post,
because to do so is to pay twice.\101\ The latter commenter expected
that to the extent EDGA remains an inverted venue and the proposal does
not contemplate a change in fee type, EDGA would rarely set new
prices.\102\ One commenter believed EDGA did not provide ``any data or
analysis regarding how many members could be expected to increase
quoting as a result'' of the proposal,\103\ while another commenter
indicated that EDGA did not provide ``any estimate of what its market
makers will return to investors via tighter spreads and larger
quotes.'' \104\ This commenter also noted that the proposal would not
require market makers to improve their quotes, and suggested that more
stringent quoting obligations could be added to EDGA's rulebook.\105\
Another commenter indicated the proposal could potentially lead to
decreased fill rates, misleading market-wide statistics, and altered
execution prices.\106\ Two commenters expressed concern about the
proposal's potential impact on transaction costs,\107\ and one of these
commenters referenced a study on the impact of the intentional,
randomized, asymmetric delay implemented on TSX Alpha which purportedly
concluded that there was a negative impact on

liquidity in the Canadian equities market and increased, market-wide
costs for liquidity takers.\108\ In response to concerns about whether
there would be market quality improvements, the Exchange suggested that
reducing the cost of adverse selection for liquidity providers would
allow them to improve their quotations and increase available liquidity
throughout the trading day.\109\
---------------------------------------------------------------------------

    \96\ Investor Advocate Letter at 4-5.
    \97\ See id.
    \98\ See Letter from Mark D. Epley, Executive Vice President &
Managing Director, General Counsel, and Jennifer W. Han, Associate
General Counsel, Managed Funds Association, dated October 22, 2019
(``MFA Letter II'') at 3.
    \99\ See Citadel Letter II at 8; FIA Letter II at 2. One
commenter explained that because EDGA is an inverted venue, matching
the NBBO may also result in being routed to first in light of the
rebate provided to the liquidity taker. See Citadel Letter II at 8
    \100\ See Citadel Letter I at 10.
    \101\ See STA Letter at 5.
    \102\ See id.
    \103\ See Healthy Markets Letter I at 7.
    \104\ See Leuchtkafer Letter V at 1.
    \105\ See id. at 1-2.
    \106\ See Healthy Markets Letter II at 8.
    \107\ See Letter from Tim Lang, Chief Executive Officer, ACS
Execution Services, dated Oct. 21, 2019 (``ACS Letter'') at 2; MFA
Letter II at 2.
    \108\ See ACS Letter at 2.
    \109\ See Exchange Response Letter II at 4; see also Section
III.B.1.a supra for further discussion of market quality
improvements that the Exchange anticipates would result from the
proposed LP2 delay mechanism.
---------------------------------------------------------------------------

    The Commission concludes that the Exchange has not met its burden
to demonstrate that the proposed rule change is consistent with Section
6(b)(5) of the Exchange Act,\110\ and the applicable rules and
regulations thereunder. In particular, the Commission does not believe
that the Exchange has supported its assertions and demonstrated that
the LP2 delay mechanism is appropriately tailored to address latency
arbitrage and not permit unfair discrimination. Commenters raised
questions as to whether the proposed LP2 delay mechanism is
appropriately tailored to its stated purpose, which is to reduce the
risk of adverse selection to market makers, improve displayed liquidity
on the Exchange, and thereby potentially enable market makers to offer
tighter quotes and greater size. The Exchange has not demonstrated why,
in light of these questions, the proposal is consistent with the Act.
For example, the Exchange points to the differentials between the
geographical latencies for microwave and fiber optic connections
currently experienced between the Chicago Mercantile Exchange (``CME'')
data center in Aurora, IL and the Exchange's primary data center in
Secaucus, NJ with the apparent assumption, unsupported by analysis or
evidence, that opportunistic trading firms use the latest microwave
connections and EDGA liquidity providers use traditional fiber
connections. The Exchange, however, fails to demonstrate why it is
appropriate to apply the 4 millisecond delay to incoming executable
orders that would remove liquidity from the EDGA Book for all equities
securities traded on the Exchange instead of limiting the application
of the delay to incoming, executable orders for those securities that
have a futures counterpart, or other relationship to trading on the
CME, and generate opportunities for latency arbitrage from that venue.
In addition, the Exchange has not demonstrated the extent to which
latency arbitrage is a problem on its market or how the proposal is
tailored to the problem by, for instance, providing an estimate of the
percentage of trading activity on the Exchange (for example, orders,
trades, share volume, or dollar volume) affected by signals from the
futures markets.
---------------------------------------------------------------------------

    \110\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The limited empirical information provided by the Exchange does not
adequately demonstrate either the extent of the problem of latency
arbitrage that the Exchange seeks to address or that the proposal would
be sufficiently tailored to address the identified problem. As noted
above, the Exchange provided markout data to (1) establish the extent
of the latency arbitrage issue on EDGA, (2) explain how the LP2 delay
mechanism would resolve the latency arbitrage issue without permitting
unfair discrimination, and (3) demonstrate that 4 milliseconds was an
appropriate duration for the LP2 delay mechanism. The charts provided
by the Exchange showed trading activity for three ETFs that are often
traded in relation to an actively traded futures contract (SPY, TLT,
and GLD) and three common stocks included in the S&P 500 index (CCI,
MSFT, and UTX). The Exchange concluded that trades were likely executed
at a stale price where prices immediately moved against the resting
order in the milliseconds following the trade on EDGA (i.e., the
Exchange contends that the missed cancel analysis illustrates the
impact of trades where the liquidity provider understands that it is
quoting a stale price but is unable to revise its published bid or
offer before its quotation is accessed by a faster market participant).
However, because the Exchange did not (1) explain why it chose these
six symbols, (2) explain why these symbols are representative of
equities securities that are traded on the Exchange for which the LP2
delay mechanism would apply, or (3) provide data on the relative sizes
of the two groups of orders in its analysis, it is not possible to
fully analyze the charts or to independently verify the Exchange's
conclusions. Accordingly, the EDGA markout analysis does not provide a
sufficient basis to support an affirmative finding that the proposed
rule change is consistent with the Act.\111\
---------------------------------------------------------------------------

    \111\ See 17 CFR 201.700(b)(3).
---------------------------------------------------------------------------

    The Exchange stated that the results of the Canadian studies
related to the TSX Alpha speedbump could be instructive with regard to
demonstrating the value of introducing innovative market structure
solutions similar to the instant proposal to the U.S. equities markets.
However, the Commission believes that because the delay on TSX Alpha is
a shorter, randomized delay of 1-3 milliseconds, and there are material
differences between the Canadian and U.S. equities markets, the effects
of the intentional delay on TSX Alpha in the Canadian equities market
are not wholly relevant to assess the potential impact of this proposed
rule change on the U.S. equities markets, in general, and market
quality (e.g., width, displayed size, and effective spreads during
different periods of market volatility) in particular. Accordingly,
given the failure of the Exchange to demonstrate why the differences
between the fixed LP2 delay mechanism and the randomized TSX Alpha
delay mechanism are immaterial, the Commission does not believe that
the findings and conclusions of the various TSX Alpha studies provide a
sufficient basis to support an affirmative finding that this proposed
rule change is consistent with the Act.\112\
---------------------------------------------------------------------------

    \112\ See id.
---------------------------------------------------------------------------

    The Exchange and supporting commenters assert that the proposal
will bolster EDGA market quality and reduce the existing problem of
latency arbitrage and argue that therefore the proposal would not
permit unfair discrimination. However, such assertions do not
demonstrate that the proposal would not permit unfair discrimination.
Specifically, as noted above, the Commission does not believe that the
EDGA markout analysis or the TSX Alpha studies can be relied upon to
determine that the proposed rule change is consistent with the
Act.\113\
---------------------------------------------------------------------------

    \113\ See id.#
---------------------------------------------------------------------------

2. Discrimination Between Liquidity Takers and Liquidity Providers
    Commenters supporting the proposal believed that the intentional 4
millisecond delay was a ``reasonable'' \114\ or ``appropriate'' \115\
length because the time correlates to the transmission of data between
data centers located in the New York-New Jersey metro area and those
located in the Chicago area.\116\ One of these commenters indicated
that latencies related to matching engines occur naturally during the
course of normal operation for ``many . . . exchanges'', and these
natural latencies could exceed the duration of the LP2 delay mechanism
by several orders of magnitude.\117\ A commenter opposing the proposal
indicated that the proposed 4 millisecond delay did not appear to

exceed the stated transmission time from Illinois to New Jersey, and on
that basis questioned how the proposal could achieve its stated
objective.\118\ This commenter did not believe that the proposed rule
change should be tied to the use and operation of current technology
and questioned whether the length of the delay would need to be
modified as technology and the time required to transmit data
evolves.\119\
---------------------------------------------------------------------------

    \114\ See CTC Letter II at 4.
    \115\ See XTX Letter III at 5.
    \116\ See CTC Letter I at 3; XTX Letter I at 5.
    \117\ See CTC Letter II at 5.
    \118\ See Healthy Markets Letter II at 3 n.6. In the Notice, the
Exchange stated that the proposed delay would negate the advantages
that ``opportunistic trading firms that use the latest microwave
connections have over liquidity providers using traditional fiber
connections.'' Notice at 30284. The Exchange stated that Quincy Data
advertised a latency of 4.005 milliseconds for its high speed
microwave connection, or about half the 7.75 milliseconds of latency
experienced over a fiber connection provided by ICE Global Network.
See Notice, 84 FR at 30284 n.10.
    \119\ See Healthy Markets Letter II at 4.
---------------------------------------------------------------------------

    The Exchange restated its belief that an intentional delay of four
milliseconds is an appropriate duration in order to negate the
advantages that opportunistic trading firms using the latest microwave
connections have over liquidity providers using traditional fiber
connections.\120\ In response to whether the proposal would
successfully protect liquidity providing orders on the EDGA book given
that the length of the delay is shorter than the transmission time from
Illinois to New Jersey, the Exchange stated that a four millisecond
delay is appropriate because the respective transmission times over
fiber and high speed microwave connections is approximately 7.75
milliseconds and 4.005 milliseconds, and opportunistic trading firms
with microwave connections use the resulting 3.745 millisecond
``advantage'' to ``race to the equities market and trade at potentially
stale prices'' before EDGA liquidity providers can update their
quotations.\121\
---------------------------------------------------------------------------

    \120\ See Exchange Response Letter II at 8.
    \121\ See id. at 9.
---------------------------------------------------------------------------

    The Exchange also stated that its own analysis suggested that a
four millisecond delay would not be material for investors with long
term investment horizons because these investors would not be sensitive
to millisecond level price changes.\122\ The Exchange stated that such
investors should have the ability to make tradeoffs in the public
markets similar to those that are available in OTC markets, where a
number of broker-dealers offer conditional orders that are only
executable after a firm-up period that can range between 500
milliseconds and two seconds depending on the firm.\123\ The Exchange
stated that market participants that choose to use this functionality
in OTC markets have decided that the value of the execution provided by
such orders outweighs the time it may take to receive that execution
(i.e., they value the quality of the execution over its
immediacy).\124\ The Exchange also stated that broker-dealers often
make tradeoffs between the speed of an execution and other factors,
such as price improvement and liquidity, and noted that NASDAQ
introduced a midpoint extended life order that contains a built-in
speedbump of 500 milliseconds.\125\
---------------------------------------------------------------------------

    \122\ See id.
    \123\ See id. at 10.
    \124\ See Exchange Response Letter II at 10.
    \125\ See id. at 9.
---------------------------------------------------------------------------

    Commenters supporting the proposal asserted that the proposed rule
change is not unfairly discriminatory toward any particular type of
market participant.\126\ Specifically, one of these commenters stated
that the LP2 delay mechanism is a targeted response to a known problem
(i.e., latency arbitrage) and that the mechanism would reduce costs for
most market participants, enhance market quality in the form of better
displayed prices and larger size, and lower the barrier to entry for
new market making firms.\127\ This commenter also stated that the
proposed delay mechanism: (1) Targets the particular trading activity
of latency arbitrage as opposed to a type of market participant, and
(2) protects all liquidity adding orders as opposed to orders from a
subset of market participants.\128\ In addition, the commenter stated
that market participants that engage in latency arbitrage may not be
readily defined or grouped by one aspect of their overall trading
activity, and will typically adapt their businesses and activities to
accommodate the specific market structure of each product and
market.\129\ The other commenter argued that the proposal was not
unfairly discriminatory because all market participants who send limit
orders would be treated ``equally and therefore fairly,'' since all
limit orders from all of these market participants would be eligible
for protection by the LP2 delay mechanism.\130\ This commenter also
stated that the proposal was not unfairly discriminatory because
liquidity providers may be picked off by participants with speed
advantages related to exchange connectivity or market data processing
and therefore incur greater risks than liquidity takers.\131\ The
commenter stated that reducing the degree of an existing disparity
(i.e., reducing the magnitude of the risk being assumed by liquidity
providers) could not constitute unfair discrimination.\132\ This
commenter further stated that as long as the orders of liquidity takers
are not correlated with microsecond-level price dislocations, they
should expect to receive the same fill rate under the proposal as they
receive today.\133\ The commenter stated that the likelihood of a
market maker backing away during the delay would be small because the
``natural liquidity demands'' of investors and end users are
uncorrelated with microsecond or millisecond level price
dislocations.\134\
---------------------------------------------------------------------------

    \126\ See CTC Letter II at 3; XTX Letter III at 3.
    \127\ See XTX Letter III at 3.
    \128\ See id.
    \129\ See XTX Letter III at 3.
    \130\ See CTC Letter II at 3.
    \131\ See id.
    \132\ See id.
    \133\ See id. at 4.
    \134\ See id. at 2.
---------------------------------------------------------------------------

    In contrast, other commenters raised concerns that the proposed
rule change would permit unfair discrimination against liquidity takers
because EDGA liquidity providers could use the 4 millisecond delay to
observe executions on other venues, and then cancel their displayed
quotes in anticipation of a similar order being routed to EDGA.\135\
Several of these commenters expressed concern that EDGA liquidity
providers would be able to modify or cancel their displayed quotes
while an executable, incoming order was being subjected to the LP2
delay mechanism, indicating that this capability would allow liquidity
providers to back away from their quotes while creating uncertainty for
liquidity takers, including many retail and institutional investors, in
terms of their ability to access publicly displayed orders, which could
serve to degrade quote quality on EDGA.\136\ Another commenter asserted
that the proposed LP2 delay mechanism ``essentially provides all market
participants with resting orders a free option to modify or cancel
their orders before execution,'' and thus ``[s]ometimes a liquidity
taking order would receive an execution, and other times it would
not.'' \137\ Several commenters believed that such quote fading could
lead to poor execution outcomes for institutional investors,

such as a decline in fill rates,\138\ and two commenters indicated that
this would negatively impact firms that send orders simultaneously to
more than one execution venue in order to obtain the desired size
through mechanisms such as intermarket sweep orders.\139\ A commenter
characterized the 4 millisecond window afforded by the delay as the
``economic equivalent of a `last look' '' since a liquidity provider
could use market data to anticipate the timing of incoming orders
delayed by the speedbump.\140\ A commenter suggested that the
differential in the execution prices related to quote fading by
liquidity providers would be akin to a fee that is imposed on
institutional investors.\141\ A commenter stated that EDGA did not
provide data to evaluate the proposal's impact on different types of
market participants, for example, the Exchange did not evaluate the
frequency with which liquidity providers would reprice or cancel orders
as a result of the LP2 delay mechanism, the impact on retail and
institutional orders, and the impact on ETF market makers.\142\
---------------------------------------------------------------------------

    \135\ See ACS Letter at 2; Citadel Letter II at 6, 10; Letter
from Ray Ross, Chief Technology Officer, Clearpool, dated Oct. 21,
2019 (``Clearpool Letter II'') at 3; FIA Letter II at 2; Healthy
Markets Letter II at 3; ICI Letter at 1; Leuchtkafer Letter IV at 1-
2; MFA Letter II at 1-2.
    \136\ See ACS Letter at 2; Citadel Letter II at 2; ICI Letter at
2; MFA Letter II at 3; STA Letter at 3.
    \137\ See Healthy Markets Letter III at 8.
    \138\ See Citadel Letter II at 2; Clearpool Letter II at 3; MFA
Letter II at 1-2.
    \139\ See Citadel Letter II at 10; MFA Letter II at 1-2.
    \140\ See Citadel Letter II at 6.
    \141\ See MFA Letter II at 2.
    \142\ See Citadel Letter I at 7.
---------------------------------------------------------------------------

    In response to comments that the proposal would permit unfair
discrimination, the Exchange acknowledged that the instant proposal is
different than the Commission-approved delays on IEX and American and
stated that the differences associated with the LP2 delay mechanism
would serve to ``enhance displayed liquidity and benefit investors.''
\143\ The Exchange also stated that the commenters ``miss[ed] the
point'' because a ``truly symmetric delay would do nothing to protect
investors' orders.'' \144\ The Exchange noted that the LP2 delay
mechanism, like the delays on IEX and American, would protect resting
orders, but unlike the IEX and American delays, this proposal would not
rely on exchange driven algorithms and would enable liquidity providers
to ``improve displayed prices.'' \145\ The Exchange also asserted that
the proposal is not unfairly discriminatory because the LP2 delay
mechanism would apply to a subset of orders on EDGA (i.e., liquidity
taking orders) but not others (i.e., liquidity adding orders), because
the relevant differences between such orders, and in particular the
``free option'' provided by price-setting quotations, justifies
protecting orders that provide liquidity to investors (i.e., liquidity
adding orders).\146\ The Exchange stated that (1) ``all market models
necessarily involve treating certain orders differently from others in
some manner based on one or more identifiable characteristics,'' (2)
market operators must make certain determinations about what sort of
market model would promote the maintenance of fair, orderly, and
efficient markets, and (3) competitive forces, measured by order flow
and market share, would ultimately dictate the efficacy of the market
model.\147\ The Exchange also stated that while liquidity providers are
most directly impacted by latency arbitrage, ``market participants that
access . . . liquidity on national securities exchanges'' are also
affected because the ``ability for investors to trade with a published
quotation and obtain a quality execution depends on the ability for
liquidity providers to offer their best prices and sizes to the
market.'' \148\ The Exchange stated it was important to protect
liquidity providers ``given the service that they provide to the
market, and the asymmetric risks'' they assume.\149\ The Exchange
stated that the LP2 delay mechanism should largely eliminate adverse
selection risks for liquidity providers, who otherwise must price such
risks into their posted quotations--and the benefits of this reduced
risk would accrue to investors as well as liquidity providers, since
liquidity providers would be competing to offer the best quoted prices
on the EDGA book.\150\ The Exchange stated that reducing the cost of
adverse selection for liquidity providers would allow them to improve
their quotations and increase available liquidity throughout the
trading day.\151\
---------------------------------------------------------------------------

    \143\ See Exchange Response Letter I at 6.
    \144\ See id.
    \145\ See Exchange Response Letter I at 7.
    \146\ See Exchange Response Letter II at 2-3.
    \147\ Exchange Response Letter II at 3.
    \148\ See Exchange Response Letter I at 7.
    \149\ See id.
    \150\ See Exchange Response Letter II at 5.
    \151\ See id. at 4.
---------------------------------------------------------------------------

    The Exchange also stated that the crux of the disagreement about
whether the proposal was unfairly discriminatory was substantively
related to ``who would benefit'' and ``whether the Exchange would
ultimately be successful in its goal of improving market quality for
investors.'' \152\ The Exchange asserted that the proposal is ``plainly
not unfairly discriminatory'' because it ``would offer strong
incentives for liquidity providers to improve quote quality, and hence
execution quality for investors, and would do so by offering an
innovative solution to investors on a purely voluntary basis.'' \153\
The Exchange stated that all market participants that are not engaged
in the latency arbitrage strategies could benefit from the proposal,
``either th[r]ough submitting liquidity providing orders that benefit
directly from the LP2 delay mechanism, or through submitting liquidity
removing orders that may benefit from improved market quality.'' \154\
The Exchange also referenced a prior comment letter to convey that
although high-frequency liquidity providers may be the immediate
beneficiaries of the asymmetric speedbump, benefits are likely to be
passed on to investors as well.\155\ The Exchange also stated that the
proposal is distinguishable from ``last look'' functionality on the
foreign exchange markets because EDGA liquidity providers would not
have the opportunity to avoid executions with an incoming marketable
order after it has been presented for execution.\156\ Rather, the
Exchange stated that liquidity providers would continue to set quoted
prices based on available market information, and the liquidity taking
order would only become known when the order is presented for execution
after exiting the delay mechanism.\157\
---------------------------------------------------------------------------

    \152\ See Exchange Response Letter II, supra note 9, at 3; see
also Section III.B.1.d supra for further discussion of the impact of
the proposal on market quality.
    \153\ Exchange Response Letter I at 9.
    \154\ Exchange Response Letter II at 2.
    \155\ See Exchange Response Letter II at 4 (referencing the
letter from Joshua Mollner, Assistant Professor, Kellogg School of
Management, Northwestern University, and Markus Baldauf, Assistant
Professor, Sauder School of Business, University of British
Columbia, dated September 12, 2019 (``Mollner & Baldauf Letter'').
    \156\ See Exchange Response Letter I at 15.
    \157\ See id. at 15-16.
---------------------------------------------------------------------------

    As expressed by certain concerned commenters, unfair discrimination
against liquidity takers could result because EDGA liquidity providers
could use the 4 millisecond delay to observe executions on other venues
and then cancel or modify their displayed quotes in anticipation of a
similar order being routed to EDGA.\158\ The Exchange has identified
that it could be problematic for a market participant to observe an
execution on one exchange and use such market information in
conjunction with its speed advantage to effect an execution against a
soon to be stale quotation on another exchange (i.e., latency
arbitrage). However, the Exchange has not demonstrated why a 4
millisecond delay, that is designed to mimic the differentials in the

geographic latency between data centers located in northern New Jersey
and Illinois, is also appropriate to protect against latency arbitrage
when the relevant data centers are both located in northern New Jersey
and the geographic latency differential would presumably be less than 4
milliseconds.
---------------------------------------------------------------------------

    \158\ See ACS Letter at 2; Citadel Letter II at 6, 10; FIA
Letter II at 2; Healthy Markets Letter II at 3; ICI Letter at 1;
Leuchtkafer Letter IV at 1-2; MFA Letter II at 1-2.
---------------------------------------------------------------------------

    The Exchange \159\ and supporting commenters \160\ reason that the
LP2 delay mechanism applies equally to all market participants
submitting incoming executable orders and therefore the proposal would
not permit unfair discrimination. However, the Exchange has not
provided specific analysis or demonstrated that the proposed rule
change would not permit unfair discrimination against liquidity taking
orders that are not related to latency arbitrage as they would be
treated in the same manner as orders engaged in latency arbitrage that
the Exchange seeks to target in its effort to protect EDGA liquidity
providers.\161\
---------------------------------------------------------------------------

    \159\ See Notice, 84 FR at 30290-1.
    \160\ See note 123, supra.
    \161\ See 17 CFR 201.700(b)(3).
---------------------------------------------------------------------------

    The Exchange and supporting commenters also suggest that the
proposal would not permit unfair discrimination because liquidity
providers provide a valuable service to the market and assume
disproportionate risks compared to liquidity takers. While the
Commission agrees that liquidity providers add value to the markets and
assume certain financial risks in providing liquidity, the Commission,
for the reasons described above, concludes that the Exchange has not
provided sufficiently detailed and specific analysis that demonstrates
that the LP2 delay mechanism's benefits to liquidity providers makes
the discriminatory impact on liquidity takers not unfair.\162\ The
Exchange also has not explained why providing a benefit without a
corresponding obligation (e.g., quoting or enhanced quoting
obligations) to liquidity providers is consistent with the Act when the
proposed rule permits discrimination against liquidity takers.
---------------------------------------------------------------------------

    \162\ See id.
---------------------------------------------------------------------------

    Lastly, the Exchange and supporting commenters state that the
proposal would not permit unfair discrimination because liquidity
takers would be able to adapt to better use the LP2 delay mechanism.
However, a market participant's ability to adapt its business model or
alter its trading strategies in response to this proposed rule does
not, by itself, demonstrate that the proposal would not permit unfair
discrimination, and the Exchange has not provided adequate analysis to
support its assertion.\163\
---------------------------------------------------------------------------

    \163\ See 17 CFR 201.700(b)(3).
---------------------------------------------------------------------------

3. Discrimination Between Slow and Fast Liquidity Providers
    Supporting commenters did not believe that the proposal would
increase the risk of adverse selection for market participants unable
to update their quotes within the four millisecond delay period.\164\
One of these commenters characterized the concern that the proposal
favored sophisticated traders and would result in the orders of
institutional investors being left to absorb the negative impact of
latency arbitrage strategies as ``meritless.'' \165\
---------------------------------------------------------------------------

    \164\ See CTC Letter II at 4; XTX Letter III at 4.
    \165\ See XTX Letter III at 4.
---------------------------------------------------------------------------

    In contrast, several commenters opposing the proposal expressed
concern that slower liquidity providers on EDGA could be unfairly
discriminated against due to continued exposure to adverse selection
risk as a result of the delay.\166\ Specifically, any investor with a
limit order at the EDGA BBO who does not have the ability to cancel or
modify such order within 4 milliseconds would be at risk of receiving
an adverse execution because of opportunistic traders.\167\ A commenter
believed that in order to take advantage of the proposal, liquidity
providers would likely need high-speed data feeds from EDGA and the
CME, high-speed networks between Chicago and New Jersey, and co-located
servers in EDGA's data center, among other items.\168\ This commenter
indicated that because retail market participants cannot compete on
millisecond timeframes, and ``only a very small minority of market
participants are certain to directly benefit'' from the proposal, the
proposal is unfairly discriminatory.\169\ A commenter stated that ``the
facially neutral proposal appears tailored to have a disparate impact
on various EDGA liquidity providers'' although the proposal ties its
benefit to a specific market behavior (i.e., the ability to react to
price movements within 4 milliseconds), rather than limiting the
benefit to specified market participants, such as registered market
makers.\170\ This commenter believed that the proposal intentionally
discriminates in favor of liquidity providers that can modify their
quotes within 4 milliseconds of a price change, and that the resting
orders of all other classes of investors would be left exposed to the
``alleged predatory arbitrage behavior.'' \171\
---------------------------------------------------------------------------

    \166\ See ACS Letter at 2; Citadel Letter II at 6-7; Healthy
Markets Letter II at 4; ICI Letter at 1-2; Investor Advocate Letter
at 4-5; Leuchtkafer Letter IV at 3; MFA Letter II at 2.
    \167\ See ICI Letter at 2; Investor Advocate Letter at 4.
    \168\ See Leuchtkafer Letter IV at 2-3.
    \169\ See Leuchtkafer Letter V at 1. This commenter also
distinguished the instant proposal from a recent IEX proposal to add
a discretionary limit order type designed to protect liquidity
providers from potential adverse selection by latency arbitrage
trading strategies, noting that the IEX proposal would be
``available to everyone'' as opposed to a smaller group of market
participants. See id. at 3.
    \170\ Investor Advocate Letter at 4-5.
    \171\ See id. at 4.
---------------------------------------------------------------------------

    In response to commenter concerns that certain liquidity providers
would be unable to react to cross-market signals and modify or cancel a
quote during the four millisecond delay, the Exchange stated that
liquidity providers could submit midpoint peg orders that would
automatically reprice during the four millisecond delay and indicated
that ``a very significant amount of institutional order flow is managed
through broker-dealer algorithms that could respond to market
information in less than this timeframe.'' \172\ Two commenters
supporting the proposal stated that agency brokers could utilize
commercially available passive algorithms that could process market
signals to reprice or cancel orders within the four millisecond delay
period in order to benefit investors.\173\ A commenter stated that
various service providers, broker-dealers, and even exchanges (i.e.,
IEX) could provide such an algorithm to effect cancels in the case of
various adverse market signals, including price moves in correlated
instruments or ``crumbling quotes.'' \174\ This commenter also stated
that under the proposal a broader group (i.e., everyone able to cancel
or modify an order within the 4 millisecond during the LP2 delay),
beyond just the fastest firms, would be able to benefit.\175\ A
commenter also stated that while institutional investors that send an
order to sweep the top of book liquidity across multiple exchanges
could see a decline in fill rates, these market participants could
adapt their routing strategies to attain higher fill rates.\176\

The Exchange also stated that, just as in other instances where market
participants have adapted in response to a market structure initiative,
broker-dealers may need to modify their order handling procedures to
make the ``best use'' of the LP2 delay mechanism by, for instance,
accounting for the 4 millisecond delay when routing orders to multiple
exchanges the way many broker-dealers currently monitor latency on a
real-time basis using heat maps or other strategies to improve order
routing outcomes and obtain best execution for clients.\177\
---------------------------------------------------------------------------

    \172\ See Exchange Response Letter I at 10.
    \173\ See CTC Letter II at 4; XTX Letter III at 4.
    \174\ See CTC Letter II at 4.
    \175\ See id.
    \176\ See Letter from Eric Swanson, CEO, XTX Markets LLC
(Americas), dated July 31, 2019 (``XTX Letter II'') at 3-4; XTX
Letter III at 3. Specifically, this commenter suggested that (1)
orders could be ``staged'' into the marketplace to account for the
LP2 delay (e.g., route order to EDGA first, wait out the duration of
the LP2 delay mechanism, and then route additional orders to other
exchanges), or (2) in the absence of staging the sweep,
institutional investors could seek to access EDGA liquidity when
EDGA could fulfill the size of what previously would have been a
market sweep order. See XTX Letter II at 3-4.
    \177\ See Exchange Response Letter II at 11.
---------------------------------------------------------------------------

    A commenter opposing the proposal contended that, notwithstanding
unsupported claims to the contrary (by the Exchange and supporters of
the proposal), ``substantially all commercially available algorithms
are unable to process and respond to cross-asset and cross-market
signals within 4 milliseconds the way [supporters of the proposal
can],'' which would result in retail and institutional investors being
disadvantaged.\178\ Another opposing commenter disagreed with a prior
commenter that suggested institutional investors modify their routing
strategies to mitigate the potential impact of quote fading.\179\ This
commenter stated that this suggestion asks institutional investors ``to
assume the risk that the market will move against them while holding
back on sending orders to all exchanges other than EDGA'' and suggested
the proposed workaround would be ineffective, especially if other
exchanges were to introduce similar asymmetric speedbumps.\180\
---------------------------------------------------------------------------

    \178\ See Citadel Letter II at 7.
    \179\ See MFA Letter II at 2.
    \180\ See id.
---------------------------------------------------------------------------

    The Commission concludes that the proposal is discriminatory and
the Exchange has not demonstrated that the proposal would not be
unfair. The Exchange has not demonstrated that the proposal is
sufficiently tailored to its stated purpose, which is to improve
displayed liquidity on the Exchange by reducing the risk of adverse
selection to liquidity providers, thereby potentially enabling
liquidity providers to offer tighter quotes and greater size. For
instance, as discussed above, the Exchange has not provided support for
a fundamental premise of this proposed rule change--that liquidity
takers use the latest microwave connections and EDGA liquidity
providers use traditional fiber connections, and liquidity takers are
able to use the resulting speed differential to effect latency
arbitrage on the Exchange. The Exchange does not differentiate between
latency arbitrage and other trading activity such as hedging activity
by ETFs or options liquidity providers. Further, the Exchange does not
provide specific analysis as to why it is appropriate to apply the 4
millisecond delay to all incoming executable orders that would remove
liquidity from the EDGA Book from all market participants as opposed to
tailoring a response to target the trading of a relatively small number
of market participants who engage in latency arbitrage. In addition,
the Exchange has not demonstrated why a 4 millisecond delay is
sufficient time to effectively protect a wide range of market
participants from the latency arbitrage issue identified by the
Exchange as the basis for the proposed rule change.\181\
---------------------------------------------------------------------------

    \181\ See 17 CFR 201.700(b)(3).
---------------------------------------------------------------------------

    Finally, certain commenters expressed concern that if certain
liquidity providers were unable to cancel or modify their quotes during
the 4 millisecond delay but other liquidity providers were able to do
so, the slower liquidity providers would continue to face the risk of
adverse selection after the implementation of the LP2 delay mechanism.
In other words, the proposal could unfairly discriminate against slower
liquidity providers because they would be exposed to bear the full
brunt of the latency arbitrage problems on the Exchange. While the
Exchange, and commenters supporting of the proposal, stated that
existing, commercially available algorithms could level the playing
field against sophisticated (i.e., fast) liquidity providers, other
commenters question the viability of these algorithms. Notably, the
Exchange provided no evidence to support its assertion relating to the
viability of commercially available algorithms such as, for instance,
availability, cost, performance or actual use of these algorithms.\182\
---------------------------------------------------------------------------

    \182\ See id.
---------------------------------------------------------------------------

C. Other Comments

    Other issues have been raised by commenters, including the
potential impact of the proposal on competition \183\ and broker-dealer
obligations related to best execution,\184\ whether EDGA's manual,
unprotected quotes should be included in the SIP,\185\ and whether
certain aspects of the proposal would increase the complexity of the
national market system.\186\ Ultimately, however, additional discussion
on these topics is unnecessary, as they do not bear on the basis for
the Commission's decision to disapprove the proposal. On the record
before us, for the independently sufficient reasons discussed in more
detail above, we have concluded that the Exchange has not met its
burden to show that approval of the proposed rule change is
appropriate. Accordingly, it is not necessary for us to consider either
the relevance of such other concerns to our statutory review of this
proposed rule change or the merits of the concerns themselves.
---------------------------------------------------------------------------

    \183\ See ACS Letter at 2; Citadel Letter II at 6, 8-10; CTC
Letter II at 1-2, 6-7; Exchange Response Letter I at 8-9; ICI Letter
at 2; STA Letter at 2, 4; XTX Letter III at 8.
    \184\ See ACS Letter at 2; Citadel Letter II at 2-3; CTC Letter
II at 6; Citadel Letter II at 5, 11; Healthy Markets Letter II at 7;
ICI Letter at 1; Leuchtkafer Letter IV at 11; STA Letter supra note
8; XTX Letter III at 7.
    \185\ See ACS Letter at 2; Citadel Letter II at 11; Clearpool
Letter II at 1-2; CTC Letter II at 5; Healthy Markets Letter II at
6; Leuchtkafer Letter IV at 9-11; Leuchtkafer Letter V at 2-3; STA
Letter at 3; XTX Letter III at 6.
    \186\ See Clearpool Letter II at 3; Letter from Tom Quaadman,
Executive Vice President, Center for Capital Markets
Competitiveness, U.S. Chamber of Commerce (dated October 18, 2019)
(``CMC Letter); ICI Letter at 1, 3; Investor Advocate Letter at 6.
---------------------------------------------------------------------------

IV. Conclusion

    For the reasons set forth above, the Commission does not find,
pursuant to Section 19(b)(2) of the Exchange Act, that the proposed
rule change is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange, and, in particular, with Sections 6(b)(5) of the Act.\187\
---------------------------------------------------------------------------

    \187\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\188\ that the proposed rule change (SR-CboeEDGA-2019-012) be, and
hereby is, disapproved.
---------------------------------------------------------------------------

    \188\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\189\
---------------------------------------------------------------------------

    \189\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-03915 Filed 2-26-20; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 80, Number 118 (Friday, June 19, 2015)]
[Notices]
[Pages 35355-35356]
[FR Doc No: 2015-15178]

-----------------------------------------------------------------------

ENVIRONMENTAL PROTECTION AGENCY

[EPA-HQ-SFUND-2006-0361; FRL--9929-32-OSWER]

Proposed Information Collection Request; Comment Request; Trade
Secret Claim Submissions under the Emergency Planning and Community
Right-to-Know Act.

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice.

-----------------------------------------------------------------------

SUMMARY: The Environmental Protection Agency (EPA) is planning to
submit an information collection request (ICR), ``Trade Secret Claims
Submitted under the Emergency Planning and Community Right-to-Know
Act.'' (EPA ICR No. 1428.10, OMB Control No. 2050-0078) to the Office
of Management and Budget (OMB) for review and approval in accordance
with the Paperwork Reduction Act. Before doing so, EPA is soliciting
public comments on specific aspects of the proposed information
collection as described below. This is a proposed extension of the ICR,
which is currently approved through December 31, 2015. An Agency may
not conduct or sponsor and a person is not required to respond to a
collection of information unless it displays a currently valid OMB
control number.

DATES: Comments must be submitted on or before August 18, 2015.

ADDRESSES: Submit your comments, referencing Docket ID No. EPA-HQ-
SFUND-2006-0361, online using www.regulations.gov (our preferred
method), by email to<EMAIL_ADDRESS>or by mail to: EPA
Docket Center, Environmental Protection Agency, Mail Code 28221T, 1200
Pennsylvania Ave. NW., Washington, DC 20460.
    EPA's policy is that all comments received will be included in the
public docket without change including any personal information
provided, unless the comment includes profanity, threats, information
claimed to be Confidential Business Information (CBI) or other
information whose disclosure is restricted by statute.

FOR FURTHER INFORMATION CONTACT: Sicy Jacob, Office of Emergency
Management, Mail Code 5104A, Environmental Protection Agency, 1200
Pennsylvania Ave. NW., Washington, DC 20460; telephone number: (202)
564-8019; fax number:<PHONE_NUMBER>; email address:
<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: Supporting documents which explain in detail
the information that the EPA will be collecting are available in the
public docket for this ICR. The docket can be viewed online at
www.regulations.gov or in person at the EPA Docket Center, WJC West,
Room 3334, 1301 Constitution Ave. NW., Washington, DC. The telephone
number for the Docket Center is<PHONE_NUMBER>. For additional
information about EPA's public docket, visit http://www.epa.gov/dockets.
    Pursuant to section 3506(c)(2)(A) of the PRA, EPA is soliciting
comments and information to enable it to: (i) evaluate whether the
proposed collection of information is necessary for the proper
performance of the functions of the Agency, including whether the
information will have practical utility; (ii) evaluate the accuracy of
the Agency's estimate of the burden of the proposed collection of
information, including the validity of the methodology and assumptions
used; (iii) enhance the quality, utility, and clarity of the
information to be collected; and (iv) minimize the burden of the
collection of information on those who are to respond, including
through the use of appropriate automated electronic, mechanical, or
other technological collection techniques or other forms of information
technology, e.g., permitting electronic submission of responses. EPA
will consider the comments received and amend the ICR as appropriate.
The final ICR package will then be submitted to OMB for review and
approval. At that time, EPA will issue another Federal Register notice
to announce the submission of the ICR to OMB and the opportunity to
submit additional comments to OMB.
    Abstract: This information collection request pertains to trade
secrecy claims submitted under Section 322 of the Emergency Planning
and Community Right-to-Know Act of 1986 (EPCRA).
    EPCRA contains provisions requiring facilities to report to State
and local authorities, and EPA, the presence of extremely hazardous
substances (Section 302), inventory of hazardous chemicals (Sections
311 and 312) and manufacture, process and use of toxic chemicals
(Section 313).
    Section 322 of EPCRA allows a facility to withhold the specific
chemical identity from these EPCRA reports if the facility asserts a
claim of trade secrecy for that chemical identity. The provisions in
Section 322 establish the requirements and procedures that facilities
must follow to request trade secrecy treatment of chemical identities,
as well as the procedures for submitting public petitions to the Agency
for review of the ``sufficiency'' of trade secrecy claims.
    Trade secrecy protection is provided for specific chemical
identities contained in reports submitted under each of the following:
(1) Section 303 (d)(2)- Facility notification of changes that have or
are about to occur, (2) Section 303 (d)(3)--Local Emergency Planning
Committee (LEPC) requests for facility information to develop or
implement emergency plans, (3) Section 311--Material Safety Data Sheets
(MSDSs) submitted by facilities, or lists of those chemicals submitted
in place of the MSDSs, (4) Section 312--Emergency and hazardous
chemical inventory forms (Tier I and Tier II), and (5) Section 313
Toxic chemical release inventory form.
    Form Number: EPA Form 9510-1.
    Respondents/affected entities: Entities potentially affected by
this action are manufacturers or non-manufacturers subject to reporting
under Sections 303, 311/312 or 313 of the Emergency Planning and
Community Right-to-Know Act (EPCRA).
    Respondent's obligation to respond: Mandatory if the respondents
would like to claim the chemical identity for any of the chemicals as
trade secret in any of the reports required to be submitted under
EPCRA.
    Estimated number of respondents: 332 (total).
    Frequency of response: Annual for claims submitted under EPCRA
Sections 312 and 313.
    Total estimated burden: 3,154 hours (per year). Burden is defined
at 5 CFR 1320.03(b).
    Total estimated cost: $206,155 (per year). No capital and operation
and

maintenance costs are associated with any requirements in this ICR.
    Changes in Estimates: The burden hours and cost indicated in this
Federal Register Notice is taken from ICR 1428.09 that is currently
approved by OMB. EPA is requesting comments on the ICR currently
approved by OMB. The supporting statement for the ICR can be viewed at
www.regulations.gov by searching ``ICR 1428.09.''

    Dated: June 4, 2015.
Reggie Cheatham,
Acting Director, Office of Emergency Management.
[FR Doc. 2015-15178 Filed 6-18-15; 8:45 am]
BILLING CODE 6560-50-P