[Federal Register Volume 78, Number 128 (Wednesday, July 3, 2013)]
[Notices]
[Pages 40227-40230]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-15912]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69875; File No. SR-EDGX-2013-23]
Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
EDGX Rule 11.5(c), NBBO Offset Peg Order
June 27, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on June 24, 2013, EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 11.5(c), which describes the
manner in which the NBBO Offset Peg Order operates. All of the changes
described herein are applicable to EDGX Members. The text of the
proposed rule change is available on the Exchange's Internet Web site
at www.directedge.com, at the Exchange's principal office, and at the
Public Reference Room of the Commission.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in sections A, B and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 11.5(c)(15), the NBBO Offset
Peg Order, to state that the order type will: (1) Only be eligible for
execution once the Market Maker quoting obligations under Rule 11.21(d)
are triggered; (2) not be repriced when it would establish the National
Best Bid or Offer (``NBBO''); and (3) delay the implementation date of
the order type [sic] from April 15, 2013 to no later than October 31,
2013.
On September 25, 2012, the Exchange filed for immediate
effectiveness a proposed rule change to adopt the NBBO Offset Peg
Order.\3\ The NBBO Offset Peg Order will enable Users \4\ to submit buy
and sell orders to the Exchange that are pegged to a designated
percentage away from the NBB and NBO, respectively, while providing
them full control over order origination and order marking.\5\ This
retention of control, in turn, is designed to allow Market Makers \6\
to comply independently with the requirements of Regulation SHO \7\
under the Act and Rule 15c3-5 \8\ under the Act (the ``Market Access
Rule''). The Exchange subsequently amended the text of Rule 11.5(c)(15)
to remove the ability of Users to cancel or reject NBBO Offset Peg
Orders under certain circumstances.\9\
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\3\ See Securities Exchange Act Release No. 67959 (October 2,
2012), 77 FR 61449 (October 9, 2012) (SR-EDGX-2012-44) (notice of
filing and immediate effectiveness of the proposal to adopt the NBBO
Offset Peg Order) (``EDGX Adopting Release'').
\4\ ``User'' is defined as ``any Member or Sponsored Participant
who is authorized to obtain access to the System pursuant to Rule
11.3.'' EDGX Rule 1.5(ee).
\5\ See EDGX Rule 11.5(c)(15).
\6\ ``Market Maker'' is defined as ``a Member that acts as a
Market Maker pursuant to Chapter XI.'' EDGX Rule 1.5(l).
\7\ 17 CFR 242.200 through 242.204.
\8\ 17 CFR 242.15c3-5.
\9\ See Securities Exchange Act Release No. 68596 (January 7,
2013), 78 FR 2477 (January 11, 2013) (SR-EDGX-2012-49) (notice of
filing and immediate effectiveness).
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When is a NBBO offset peg order eligible for execution?
First, the Exchange proposes that the NBBO Offset Peg Order will
only be eligible for execution once the Market Maker quoting
obligations under Rule 11.21(d) are triggered. Currently, Rule
11.5(c)(15) allows Users to submit NBBO Offset Peg Orders at the
beginning of the Pre-Opening Session,\10\ but states that the order is
not executable or automatically priced until the beginning of Regular
Trading Hours.\11\ However, a Market Maker's quoting obligations under
Rule 11.21(d) do not commence during any trading day until after the
first regular way transaction on the primary listing market in the
security as reported by the responsible single plan processor.\12\ Such
a transaction may not occur until after the start of Regular Trading
Hours. Therefore, the Exchange proposes to amend the text of Rule
11.5(c)(15) to state that an NBBO Offset Peg Order is not executable
until after the first regular way transaction on the primary listing
market in the security, as reported by the responsible single plan
[[Page 40228]]
processor, rather than the beginning of Regular Trading Hours.
Accordingly, the amended text would read as follows:
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\10\ ``Pre-Opening Session'' is defined as ``the time between
8:00 a.m. and 9:30 a.m. Eastern Time.'' EDGX Rule 1.5(s).
\11\ ``Regular Trading Hours'' is defined as ``the time between
9:30 a.m. and 4:00 p.m. Eastern Time.'' EDGX Rule 1.5(y).
\12\ Under Exchange Rule 11.21(d)(2), the pricing obligations
for Market Makers ``(i) shall not commence during any trading day
until after the first regular way transaction on the primary listing
market in the security, as reported by the responsible single plan
processor, and (ii) shall be suspended during a trading halt,
suspension, or pause, and shall not re-commence until after the
first regular way transaction on the primary listing market in the
security following such halt, suspension, or pause, as reported by
the responsible single plan processor.'' Securities Exchange Act
Release No. 65964 (December 15, 2011), 76 FR 79254 (December 21,
2011) (order approving SR-EDGX-2011-28).
Users may submit NBBO Offset Peg Orders to the Exchange starting
at the beginning of the Pre-Opening Session, but the order is not
executable or automatically priced until after the first regular way
transaction on the primary listing market in the security, as
reported by the responsible single plan processor and expires at the
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end of Regular Trading Hours (emphasis added).
The Exchange believes that the proposed amendment is necessary
because it clarifies that the NBBO Offset Peg Order would only be
eligible for execution once the quoting obligations for Market Makers
apply. While use of the NBBO Offset Peg Order would not be limited to
Market Makers, the Exchange believes that Market Makers would likely be
the predominant, if not exclusive, users of the order type. Thus, the
NBBO Offset Peg Order is designed such that its price would be
automatically set and adjusted, both upon entry and at any time
thereafter, in order to comply with the Exchange's Market Maker
quotation requirements.\13\
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\13\ Exchange Rule 11.21 describes the obligations of Members
registered with the Exchange as Market Makers. Among other things,
Market Makers are required to maintain continuous, two-sided
quotations consistent with the requirements of paragraph (d) of Rule
11.21, which generally states that such quotations must be priced
within a designated percentage of the NBB for buy quotations, and
the NBO for sell quotations.
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Repricing When NBBO Offset Peg Order Establishes NBBO
Second, the Exchange proposes to amend Rule 11.5(c)(15) to make
clear that a NBBO Offset Peg Order will not use its own pegged price as
the basis for adjusting the order's price. Where there is no NBBO and a
NBBO Offset Peg Order, whether upon entry or already on the EDGX
Book,\14\ is pegged to the last reported sale from the single plan
processor, the NBBO Offset Peg Order will be reported to the
responsible securities information processors and will be disseminated
to the Exchange as the NBBO. The Exchange proposes that if after entry,
the NBBO Offset Peg Order is priced based on the consolidated last sale
and such NBBO Offset Peg Order establishes the NBBO, the NBBO Offset
Peg Order will not be subsequently adjusted in accordance with the
proposed rule until either there is a new consolidated last sale, or a
new NBB or NBO is established by a national securities exchange. The
Exchange believes that not adjusting the price in this instance is
consistent with the intent of the NBBO Offset Peg Order (i.e., keeping
the order a certain percentage away from the inside market) while also
avoiding a situation where the order would use its own pegged price as
a basis for adjusting the price of the order. The Exchange notes that
the proposal amends the functionality of the NBBO Offset Peg Order to
more closely resemble analogous order types offered by The NASDAQ Stock
Market LLC (``Nasdaq''),\15\ BATS Exchange, Inc. (``BATS''),\16\ and
BATS Y-Exchange, Inc. (``BYX'').\17\
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\14\ ``EDGX Book'' is defined as ``the System's electronic file
of orders.'' EDGX Rule 1.5(d).
\15\ See NASDAQ Rule 4751(f)(15). See also Securities Exchange
Act Release No. 67584 (August 2, 2012), 77 FR 47472 (August 8, 2012)
(SR-NASDAQ-2012-066) (order approving Nasdaq's Market Maker Peg
Order available for exchange market makers) (``Nasdaq Approval
Order'').
\16\ See BATS Rule 11.9(c)(16). See also Securities Exchange Act
Release No. 67756 (August 29, 2012), 77 FR 54633 (September 5, 2012)
(SR-BATS-2012-026) (order approving BATS's Market Maker Peg Order
available for exchange market makers) (``BATS Approval Order''); and
Securities Exchange Release No. 69310 (April 4, 2013), 78 FR 21447
(April 10, 2013) (SR-BATS-2013-022) (notice of filing and immediate
effectiveness to amend BATS' Market Maker Peg Order).
\17\ See BYX Rule 11.9(c)(16). See also Securities Exchange Act
Release No. 67755 (August 29, 2012), 77 FR 54630 (September 5, 2012)
(SR-BYX-2012-012) (order approving BYX's Market Maker Peg Order
available for exchange market makers) (``BYX Approval Order''); and
Securities Exchange Act Release No. 69309 (April 4, 2013), 78 FR
21455 (April 10, 2013) (SR-BYX-2013-011) (notice of filing and
immediate effectiveness to amend the BYX Market Maker Peg Order).
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Implementation Date Delay
The Exchange originally proposed to implement the NBBO Offset Peg
Order on or about November 19, 2012 \18\ and later delayed the
implementation date to on or about April 15, 2013.\19\ The Exchange now
proposes to further delay the implementation date to no later than
October 31, 2013. The Exchange anticipates uniform industry-wide
amendments to the market making quoting requirements' Designated
Percentages \20\ and Defined Limits \21\ to realign the percentages
based on the Appendix A Percentage Parameters of the National Market
System Plan to Address Extraordinary Market Volatility (the ``Limit-Up/
Limit-Down Plan'').\22\ This additional time will enable the Exchange
to make the necessary system changes to implement the NBBO Offset Peg
Order to accommodate those amendments.
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\18\ See EDGX Adopting Release, supra note 3.
\19\ See Securities Exchange Act Release No. 68596, supra note
9.
\20\ ``Designated Percentage'' is defined as ``8% with respect
to securities included in the S&P 500[supreg] Index and the Russell
1000[supreg] Index, as well as a pilot list of Exchange Traded
Products for securities subject to an individual stock pause trigger
under the applicable rules of a primary listing market (``Original
Circuit Breaker Securities''). For times during Regular Trading
Hours when stock pause triggers are not in effect under the rules of
the primary listing market, the Designated Percentage shall be 20%
for Original Circuit Breaker Securities.'' EDGX Rule 11.21(d)(2)(D).
\21\ ''Defined Limit'' is defined as ``9.5% for Original Circuit
Breaker Securities. For times during Regular Trading Hours when
stock pause triggers are not in effect under the rules of the
primary listing market, the Defined Limit shall be 21.5% for
Original Circuit Breaker Securities.'' EDGX Rule 11.21(d)(2)(F).
\22\ See Securities Exchange Act Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012) (approving the Limit-Up/Limit-Down
Plan on a pilot basis).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \23\ and furthers the objectives of
Section 6(b)(5) of the Act,\24\ in that it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanisms of a free and open
market and a national market system, and, in general, to protect
investors and the public interest.
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\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that proposing that the order type will only
be eligible for execution once the Market Maker quoting obligations
under Rule 11.21(d) are triggered makes the order type consistent with
when market making obligations begin \25\ and therefore, simplifies its
functionality. While use of the NBBO Offset Peg Order would not be
limited to Market Makers, the Exchange believes that Market Makers
would likely be the predominant, if not exclusive, users of the order
type. Thus, the NBBO Offset Peg Order is designed such that its price
would be automatically set and adjusted, both upon entry and at any
time thereafter, in order to comply with the Exchange's Market Maker
quotation requirements.\26\ Therefore, the Exchange believes the
proposed rule change is designed to promote just and equitable
principles of trade, foster cooperation and coordination with persons
engaged in facilitating transactions in securities, and remove
impediments to and perfect the mechanisms of a free and open market and
a national market system, and, in general, protect investors and the
public interest.
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\25\ The Exchange notes while use of the NBBO Offset Peg Order
would not be limited to Market Makers that Market Makers would
likely be the predominant, if not exclusive, users of the order
type.
\26\ EDGX Rule 11.21(d)(2).
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The Exchange also believes that the proposed amendment removes
impediments to and perfects the
[[Page 40229]]
mechanisms of a free and open market and a national market system
because it clarifies that a NBBO Offset Peg Order will not use its own
pegged price as the basis for adjusting the order's price. The Exchange
notes that the proposed clarification is substantially similar to that
for similar order types (Market Maker Peg Orders) on Nasdaq, BATS, and
BYX.\27\ Further, clarifying when a NBBO Offset Peg Order would not be
re-priced to align with the functionality of similar order types on
other exchanges fosters cooperation and coordination with persons
engaged in facilitating transactions in securities, and removes
impediments to a free and open market and a national market system
because it will result in a continuing benefit to market participants
by simplifying the functionality of the order type and its complexity
of implementation.
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\27\ Nasdaq Rule 4751(f)(15); BATS Rule 11.9(c)(16); BYX Rule
11.9(c)(16). The Exchange has previously noted that such Market
Maker Peg Orders are similar in functionality to the NBBO Offset Peg
Order. See EDGX Adopting Release, supra note 3.
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Lastly, the Exchange believes that the delay of the implementation
date is also consistent with Section 6(b)(5) of the Act \28\ because it
is designed to coordinate the implementation of the NBBO Offset Peg
Order with anticipated changes to market making quoting requirements in
response to the Limit-Up/Limit-Down Plan. Thus, the Exchange believes
that the proposed rule change promotes the efficient execution of
investor transactions, and thus investor confidence, over the long
term.
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\28\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed rule change
would increase intermarket competition among the exchanges because the
NBBO Offset Peg Order will directly compete with similar existing order
types offered by Nasdaq, BATS and BYX.\29\ Amending Rule 11.5(c)(15),
to clarify that the NBBO Offset Peg Order will not use its own pegged
price as the basis for adjusting the order's price is similar to the
functionality of the Market Maker Peg Order on Nasdaq, BATS, and BYX;
\30\ and, therefore, reduces the potential for confusion amongst market
participants. In addition, the Exchange believes proposing that the
NBBO Offset Order will only be eligible for execution once its Market
Maker quoting obligations under Rule 11.21(d) are triggered simplifies
the functionality and corresponding complexity of implementation. The
proposed rule change would not burden intramarket competition because
the NBBO Offset Peg Order would be available to all Members \31\ on a
uniform basis.
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\29\ Nasdaq Rule 4751(f)(15); BATS Rule 11.9(c)(16); BYX Rule
11.9(c)(16).
\30\ Id.
\31\ ``Member'' is defined as ``any registered broker or dealer,
or any person associated with a registered broker or dealer, that
has been admitted to membership in the Exchange. A Member will have
the status of a ``member'' of the Exchange as that term is defined
in Section 3(a)(3) of the Act.'' EDGX Rule 1.5(n).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to Section 19(b)(3)(A) of the Act \32\ and Rule 19b-4(f)(6)
\33\ thereunder.
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\32\ 15 U.S.C. 78s(b)(3)(A).
\33\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within sixty (60) days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \34\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\34\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-EDGX-2013-23 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-EDGX-2013-23. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-EDGX-2013-23 and should be
submitted on or before July 24, 2013.
[[Page 40230]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-15912 Filed 7-2-13; 8:45 am]
BILLING CODE 8011-01-P