[Federal Register Volume 82, Number 20 (Wednesday, February 1, 2017)]
[Notices]
[Pages 8968-8970]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02088]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79884; File No. SR-BatsBZX-2016-61]
Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Order
Granting Approval of Proposed Rule Change, as Modified by Amendment No.
1, To Amend Exchange Rule 11.23, Auctions, To Enhance the Reopening
Auction Process Following a Trading Halt Declared Pursuant to the Plan
To Address Extraordinary Market Volatility Pursuant to Rule 608 of
Regulation NMS
January 26, 2017.
I. Introduction
On October 13, 2016, Bats BZX Exchange, Inc. (``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change related to the Exchange's re-opening process
following a trading halt declared pursuant to the National Market
System Plan to Address Extraordinary Market Volatility (``Plan''). The
proposed rule change was published for comment in the Federal Register
on November 1, 2016.\3\ On December 14, 2016, the Commission extended
the time period within which to approve the proposed rule change,
disapprove the proposed rule change, or institute proceedings to
determine whether to disapprove the proposed rule change to January 30,
2017.\4\ On January 24, 2017, the Exchange filed Amendment No. 1 to the
proposed rule change.\5\ The Commission received no
[[Page 8969]]
comments on the proposed rule change. This order approves the proposed
rule change, as modified by Amendment No. 1.
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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. 79162 (October 26,
2016), 81 FR 75875 (``Notice'').
\4\ See Securities Exchange Act Release No. 79552, 81 FR 92928
(December 20, 2016).
\5\ In Amendment No. 1, the Exchange stated that it anticipates
implementing the proposed rule change in the second half of 2017,
and most likely within the third quarter, assuming the Securities
Information Processors have implemented their changes and the other
primary listing exchanges are able to implement their proposed rule
changes simultaneously with the Exchange. The Exchange also updated
the text of BZX Rule 11.23(d)(2)(E) to reflect the changes made by
SR-BatsBZX-2016-81. See Securities Exchange Act Release No. 79467
(December 5, 2016), 81 FR 89176 (December 9, 2016). The Exchange
stated that the changes from SR-BatsBZX-2016-81 do not impact the
same language as the current proposal and do not conflict with the
current proposal. Because Amendment No. 1 does not materially alter
the substance of the proposed rule change or raise unique or novel
regulatory issues, Amendment No. 1 is not subject to notice and
comment. Amendment No. 1 is available at: https://www.sec.gov/comments/sr-batsbzx-2016-61/batsbzx201661.htm.
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II. Description of the Proposed Rule Change, as Modified by Amendment
No. 1
In conjunction with the Twelfth Amendment to the Plan,\6\ the
Exchange proposes to revise its re-opening process following a trading
halt declared pursuant to the Plan (``Trading Pause'') and to make
related changes.
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\6\ See Securities Exchange Act Release No. 79845 (January 19,
2017) (File No. 4-631).
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Auction Reference Price and Auction Collar for Halt Auctions Following
a Trading Pause
The Exchange proposes to establish a ``Halt Auction Reference
Price'' and a ``Halt Auction Collar'' for Halt Auctions following a
Trading Pause. Specifically, the Halt Auction Reference Price would be
equal to the price of the Upper or Lower Price Band that triggered the
Trading Pause.\7\ With respect to Halt Auction Collars, if the Halt
Auction Reference Price is the Lower (Upper) Price Band, the initial
lower (upper) Halt Auction Collar would be 5 percent less (greater)
than the Halt Auction Reference Price, rounded to the nearest minimum
price variation, and the upper (lower) Halt Auction Collar would be the
Upper (Lower) Price Band.\8\ For securities with a Halt Auction
Reference Price of $3.00 or less, the initial lower (upper) Halt
Auction Collar would be $0.15 less (greater) than the Halt Auction
Reference Price, rounded to the nearest minimum price variation, and
the upper (lower) Halt Auction Collar would be the Upper (Lower) Price
Band.\9\
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\7\ See proposed BZX Rule 11.23(d)(2)(C)(i). The proposed
definition of Halt Auction Reference Price for a Trading Pause is
designed to be consistent across listing exchanges.
\8\ See id.
\9\ See id. These proposed Halt Auction Collars are designed to
be consistent across listing exchanges. The Exchange also proposes
to make conforming changes in renumbered BZX Rule 11.23(d)(2)(E).
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Extension of Re-Opening Time and Expansion of Halt Auction Collars for
Halt Auctions
Under the proposal, the Exchange would provide a 5-minute Quote-
Only Period \10\ prior to a Halt Auction following a Trading Pause.\11\
This Quote-Only Period would be extended for an additional 5 minutes
(``Initial Extension Period'') if a Halt Auction could not be conducted
due to a Market Order imbalance under BZX Rule 11.23(d)(2)(B)(i) \12\
or if the Indicative Price,\13\ before being adjusted for Halt Auction
Collars, is outside the Halt Auction Collars set forth in proposed BZX
Rule 11.23(d)(2)(C)(i) and (ii) (either, an ``Impermissible
Price'').\14\ After the Initial Extension Period, the Quote-Only Period
would be extended for additional 5-minute periods if a Halt Auction
could not be conducted due to an Impermissible Price (``Additional
Extension Period'') until a Halt Auction occurs.\15\
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\10\ See proposed BZX Rule 11.23(d)(2)(C). BZX Rule 11.23(a)(17)
defines ``Quote-Only Period'' to mean a designated period of time
prior to a Halt Auction, a Volatility Closing Auction, or an IPO
Auction during which Users may submit orders to the Exchange for
participation in the auction.
\11\ See proposed BZX Rule 11.23(d)(2)(C).
\12\ BZX Rule 11.23(d)(2)(B)(i) refers to circumstances where
there are unmatched market orders on the Auction Book associated
with the auction.
\13\ BZX Rule 11.23(a)(10) defines ``Indicative Price'' to mean,
in part, the price at which the most shares from the Auction Book
and the Continuous Book would match.
\14\ See proposed BZX Rule 11.23(d)(2)(C). The Quote-Only Period
would not be extended and the Halt Auction may occur where there is
a Limit Order imbalance, but no Market Order imbalance exists and
the Indicative Price is inside the thresholds set forth in proposed
BZX Rule 11.23(d)(2)(C). See Notice, supra note 3, at 75877.
\15\ The Exchange would attempt to conduct a Halt Auction during
the course of each Additional Extension Period. See proposed BZX
Rule 11.23(d)(2)(C).
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Under the proposal, at the beginning of the Initial Extension
Period, the upper (lower) Halt Auction Collar would be increased
(decreased) by 5 percent in the direction of the Impermissible Price,
rounded to the nearest minimum price variation.\16\ For securities with
a Halt Auction Reference Price of $3.00 or less, the Halt Auction
Collar would be increased (decreased) in $0.15 increments in the
direction of Impermissible Price.\17\ At the beginning of each
Additional Extension Period, the Halt Auction Collar would be widened
in the same manner and by the same amount as the Initial Extension
Period.\18\
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\16\ See proposed BZX Rule 11.23(d)(2)(C)(ii).
\17\ See id.
\18\ See id. The proposed extensions and widening of the Halt
Auction Collars are designed to be consistent across listing
exchanges.
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As proposed, a Halt Auction for a security would be cancelled at
3:50 p.m. eastern time, at which time the auction for the security
would be conducted pursuant to the Volatility Closing Auction process
under BZX Rule 11.23(e).\19\
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\19\ See proposed BZX Rule 11.23(d)(2)(C). The concept of
holding a closing auction instead of a re-opening auction if a
Trading Pause exists in the last ten minutes of trading is designed
to be consistent across listing exchanges and to reflect the Twelfth
Amendment to the Plan.
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Other Changes Relating to the Halt Auction
The Exchange proposes to amend BZX Rule 11.23(d)(2)(A) regarding
the publication of BZX Auction Information. BZX Rule 11.23(d)(2)(A)
currently states that, coinciding with the beginning of the Quote-Only
Period for a security and updated every five seconds thereafter, the
Reference Price, Indicative Price, Auction Only Price, and the lesser
of Reference Buy Shares and Reference Sell Shares associated with the
Halt Auction will be disseminated via electronic means.\20\ The
Exchange now proposes to amend BZX Rule 11.23(d)(2)(A) to include the
Halt Auction Reference Price and Halt Auction Collars as part of the
information to be disseminated.\21\
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\20\ See BZX Rules 11.23(a)(2) (defining ``Auction Only
Price''); 11.23(a)(18) (defining ``Reference Buy Shares'');
11.23(a)(19) (defining ``Reference Price''); and 11.23(a)(21)
(defining ``Reference Sell Shares'').
\21\ See proposed BZX Rule 11.23(d)(2)(A). The Exchange also
proposes to make clear that it would notify market participants of
the circumstances and length of an extension of the Quote-Only
Period as set forth in BZX Rules 11.23(d)(2)(B) and (C). See
proposed BZX Rule 11.23(d)(2)(D).
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The Exchange proposes to amend BZX Rule 11.17(a) to provide that
executions as a result of a Halt Auction under BZX Rule 11.23(d) are
not eligible for a request to review as clearly erroneous under BZX
Rule 11.17(b).\22\
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\22\ The proposal to exclude re-opening auction trades from the
clearly erroneous execution rule is designed to be consistent across
listing exchanges.
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Other Changes Relating to Trading Pauses
The Exchange proposes that if a Trading Pause is triggered by the
Exchange or if the Exchange is unable to re-open trading at the end of
the Trading Pause due to a systems or technology issue, the Exchange
would immediately notify the single plan processor responsible for
consolidation of information for the security pursuant to Rule 603 of
Regulation NMS under the Act.\23\
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\23\ See proposed BZX Rule 11.23(d)(2)(F). This change is
designed to be consistent across listing exchanges and to reflect
the Twelfth Amendment to the Plan.
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The Exchange states that it will announce the implementation date
of the proposed rule change via a trading notice to be issued after
this proposed rule change is approved by the Commission.\24\ The
Exchange anticipates that this implementation will occur within the
second half of 2017, and most likely within the third quarter, assuming
the Securities Information Processors have implemented their changes
and the
[[Page 8970]]
other primary listing exchanges are able to implement their proposed
rule changes simultaneously with the Exchange.\25\
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\24\ See Notice, supra note 3, at 75877.
\25\ See Amendment No. 1, supra note 5. For a more detailed
description of the proposed rule change, see Notice, supra note 3.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\26\ In particular, the
Commission finds that the proposed rule change is consistent with
Section 6(b)(5) of the Act,\27\ which requires, among other things,
that the rules of a national securities exchange be 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, to
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, to protect
investors and the public interest. As noted above, the Commission
received no comment letters regarding the proposed rule change.
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\26\ In approving this 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).
\27\ 15 U.S.C. 78f(b)(5).
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The Commission notes that the proposed rule change is designed,
together with the Twelfth Amendment to the Plan,\28\ to address the
issues experienced on August 24, 2015 by reducing the number of repeat
Trading Pauses in a single NMS Stock.\29\ The Commission notes that the
proposed rule change is also designed to further the goal of
establishing a standardized approach for how Primary Listing Exchanges
would conduct certain aspects of an automated re-opening following a
Trading Pause, which should provide certainty for market participants
regarding how a security would re-open following a Trading Pause,
regardless of the listing exchange.\30\
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\28\ See, supra note 6.
\29\ See Notice, supra note 3, at 75878.
\30\ See id.
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With respect to the proposed Halt Auction Reference Price and Halt
Auction Collars, the Commission finds reasonable the Exchange's belief
that the price of the limit state that preceded the Trading Pause
(i.e., either the Lower or Upper Price Band price) would better reflect
the most recent price of the security, and therefore should be used as
the Halt Auction Reference Price.\31\ Moreover, the Commission believes
that the proposed method for calculating the initial Halt Auction
Collars (i.e., the Halt Auction Collar on the opposite side of the
trading pressure would be the Price Band in place before the Trading
Pause was triggered) would address the concept of mean reversion, as
well as avoid a security from trading outside of a price that it would
have been permitted to trade before the Trading Pause.\32\
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\31\ See id.
\32\ See id.
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The Commission believes that extending the Trading Pause and
widening the Halt Auction Collar on the side of the Impermissible Price
would be a measured approach to provide additional time to attract
offsetting interest, to help to address an imbalance that may not be
resolved within the prior Halt Auction Collars, and to reduce the
potential for triggering another Trading Pause.\33\ Also, as the
Exchange noted, widening the Halt Auction Collar only in the direction
of the imbalance would address issues relating to the concept of mean
reversion.\34\ Moreover, the Commission notes that the proposal to
cancel the Halt Auction at 3:50 p.m. and instead conduct the Volatility
Closing Auction under BZX Rule 11.23(e) would be consistent with the
Twelfth Amendment to the Plan.
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\33\ See id.
\34\ See id.
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The Commission believes that precluding members from requesting
review of a Halt Auction as a clearly erroneous execution is
appropriate. The Commission notes that the proposed re-opening
procedures would allow for widened collars, which may result in a re-
opening price away from prior trading prices, but the re-opening price
would be a result of a measured and transparent process that reduces
the potential that such trade would be considered erroneous.\35\
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\35\ See id.
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The Commission believes that the proposed enhancements to the
information that would be disseminated for a Halt Auction would further
promote transparency around a Halt Auction.
Finally, the Commission notes that proposed BZX Rule 11.23(d)(2)(F)
is consistent with the Twelfth Amendment to the Plan.
Based on the Exchange's representations mentioned above and in the
Notice, and for the foregoing reasons, the Commission finds that the
proposed rule change, as modified by Amendment No. 1, is consistent
with Section 6(b)(5) of the Act \36\ and the rules and regulations
thereunder applicable to a national securities exchange.
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\36\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\37\ that the proposed rule change (SR-BatsBZX-2016-61), as
modified by Amendment No. 1, be, and hereby is, approved.
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\37\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
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\38\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-02088 Filed 1-31-17; 8:45 am]
BILLING CODE 8011-01-P