8734 Federal Register / Vol. 80, No. 32 / Wednesday, February 18, 2015 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Exchange Rule 1.5(aa) defines ‘‘System’’ as ‘‘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.’’ 

4See Mary Jo White, Chair, Commission, Speech 

at the Sandler O’Neill & Partners, L.P. Global 

Exchange and Brokerage Conference, (June 5, 2014) 

(available at http://www.sec.gov/News/Speech/

Detail/Speech/1370542004312#.VD2HW610w6Y). 

5Exchange Rule 1.5(aa) defines ‘‘System’’ as ‘‘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.’’ 

6See Rule 11.9(c)(6). 

7As defined in Rule 1.5(e). 

8As defined in Exchange Rule 1.5(cc), a User is 

‘‘any Member or Sponsored Participant who is 

authorized to obtain access to the System pursuant 

to Rule 11.3.’’ 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74250; File No. SR–BYX– 

2015–07) 

Self-Regulatory Organizations; BATS 

Y–Exchange, Inc.; Notice of Filing of a 

Proposed Rule Change to Rules 11.9 of 

BATS Y–Exchange, Inc. 

February 11, 2015. 

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 January 

30, 2015, BATS Y–Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BYX’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II and III 

below, which Items have been prepared 

by the Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of the Substance 

of the Proposed Rule Change 

The Exchange filed a proposal to 

amend Rules 11.9, 11.12, and 11.13 to 

clarify and to include additional 

specificity regarding the current 

functionality of the Exchange’s System,3

including the operation of its order 

types and order instructions, as further 

described below. 

The text of the proposed rule change 

is available at the Exchange’s Web site 

at www.batstrading.com, at the 

principal office of the Exchange, and at 

the Commission’s Public Reference 

Room. 

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 

Exchange 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 

Exchange has prepared summaries, set 

forth in Sections A, B, and C below, of 

the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

On June 5, 2014, Chair Mary Jo White 

asked all national securities exchanges 

to conduct a comprehensive review of 

each order type offered to members and 

how it operates.4 The proposals set forth 

below, therefore, are the product of a 

comprehensive review of Exchange 

system functionality conducted by the 

Exchange and are intended to add 

additional clarity and specificity 

regarding the current functionality of 

the Exchange’s System,5 including the 

operation of its order types and order 

instructions. The Exchange is not 

proposing any substantive modifications 

to the System. 

The changes proposed below are 

designed to update the rulebook to 

reflect current System functionality and 

include: (i) Making clear that orders 

with a Time-in-Force (‘‘TIF’’) of 

Immediate-or-Cancel (‘‘IOC’’) can be 

routed away from the Exchange; (ii) 

specifying the methodology used by the 

Exchange to determine whether BATS 

Post Only Orders 6 will remove liquidity 

from the BATS Book; 7 (iii) adding 

additional detail to and re-structuring 

the description of Pegged Orders; (iv) 

adding additional detail to the 

description of Mid-Point Peg Orders; (v) 

adding additional detail to the 

description of Discretionary Orders; (vi) 

amending Rule 11.12, Priority of Orders, 

and Rule 11.13, Order Execution, to 

provide additional specificity and 

enhance the structure of Exchange rules 

describing the process for ranking, 

executing and routing orders; (vii) 

adding additional detail to the 

description of orders subject to Re-Route 

functionality; and (viii) making a series 

of conforming changes to Rules 11.9, 

11.12 and 11.13 to update crossreferences. 

Routable Orders With Time in Force of 

Immediate-or-Cancel 

The Exchange proposes to modify 

Rule 11.9(b)(1) to update the description 

of the TIF of IOC to make clear that 

orders with a TIF of IOC are routable 

even though such TIF indicates an 

instruction to execute an order 

immediately in whole or in part and/or 

cancel it back. Under current rules, the 

TIF of IOC indicates that an order is to 

be executed in whole or in part as soon 

as such order is received and the 

portion not executed is to be cancelled. 

The Exchange proposes to expand upon 

the description of IOC to specify that an 

order with such TIF may be routed away 

from the Exchange but that in no event 

will an order with such TIF be posted 

to the BATS Book. The Exchange notes 

that IOC orders routed away from the 

Exchange are in turn routed as IOC 

orders. The Exchange also notes that 

current Rule 11.13(a)(2) already 

includes reference to routable IOCs, and 

the proposed modifications to the rule 

text are intended to add further 

specificity that IOCs are routable. 

In addition to the change described 

above, the Exchange proposes to make 

clear in Rule 11.9(b)(6) that an order 

with a TIF of FOK is not eligible for 

routing. Although orders with a TIF of 

FOK are generally treated the same as 

IOCs, the Exchange does not permit 

routing of orders with a FOK because 

the Exchange is unable to ensure the 

instruction of FOK (i.e., execution of an 

order in its entirety) through the routing 

process. 

Finally, in connection with these 

changes, the Exchange also proposes to 

modify current Rule 11.13(a)(2) (to be 

re-numbered as Rule 11.13(b)(2)) to add 

the cancellation of an unfilled balance 

of an order as one possible outcome 

after an order has been routed away. 

Rule 11.13(a)(2) currently describes 

other variations of how the Exchange 

handles an order after it has been routed 

away, but does not specifically state that 

it may be cancelled after the routing 

process, which would be the case with 

an order submitted to the Exchange with 

a TIF of IOC. 

Computation of Economic Best Interest 

for BATS Post Only Orders 

The Exchange proposes to modify 

Rule 11.9(c)(6) to specify the 

methodology used by the Exchange to 

determine whether BATS Post Only 

Orders will remove liquidity from the 

Exchange’s order book. Under the 

Exchange’s current rules, a BATS Post 

Only Order is an order that an entering 

User 8 intends to be posted to the BATS 

Book, and thus will not ordinarily 

remove liquidity from the Exchange. 

However, BATS Post Only Orders will 


emcdonald on DSK67QTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 32 / Wednesday, February 18, 2015 / Notices 8735 

9See Securities Exchange Act Release No. 67092 

(June 1, 2012), 77 FR 33800 (June 7, 2012) (SR– 

BYX–2012–009) (notice of filing and immediate 

effectiveness of rule change to amend the operation 

of BATS Post Only Orders). 

10The Exchange notes that its current fee 

structure does not have a variable fee depending on 

trading activity during the month. If, in the future, 

the Exchange implements such a fee structure the 

Exchange will use the highest possible fee for 

purposes of Rule 11.9(c)(6). 

remove liquidity from the BATS Book if 

such execution is in the economic best 

interests of the User entering the BATS 

Post Only Order, taking into account 

applicable fees and rebates.9

Specifically, as set forth in Rule 

11.9(c)(6), BATS Post Only Orders 

remove liquidity from the BATS Book if 

the value of ‘‘price improvement’’ 

associated with such execution equals 

or exceeds the sum of fees charged for 

such execution and the value of any 

rebate that would be provided if the 

order posted to the BATS Book and 

subsequently provided liquidity. The 

Exchange proposes three changes to the 

description of BATS Post Only Orders 

to make clear the methodology used in 

calculating whether a BATS Post Only 

Order should remove liquidity on entry. 

The Exchange notes that each of these 

changes will conform the Exchange’s 

rule governing BATS Post Only Orders 

with Rule 11.6(n)(4) of the Exchange’s 

affiliate, EDGX Exchange, Inc. 

(‘‘EDGX’’). 

First, the Exchange proposes to clarify 

that rather than requiring price 

improvement, which indicates an 

execution at a better price level than an 

order’s limit price, the Exchange 

calculates the value of the overall 

execution taking into account applicable 

fees and rebates. Accordingly, to the 

extent the fee and rebate structure on its 

own (i.e., even at the limit price) makes 

it economically advantageous to remove 

liquidity rather than post to the BATS 

Book and subsequently provide 

liquidity, the Exchange will allow a 

BATS Post Only Order to remove 

liquidity. The Exchange notes that 

under its current fee structure, which 

provides a rebate for orders that remove 

liquidity and a fee for orders that add 

liquidity, this, in turn, results in an 

execution of a BATS Post Only Order 

upon entry any time that there is contraside liquidity. The Exchange proposes 

the changes herein and to generally 

maintain BATS Post Only Orders, 

however, to reflect the actual 

functionality of the System, which does 

perform the specified economic best 

interest analysis and also in the event 

the Exchange’s fees change. 

Second, the Exchange proposes to 

make clear that this methodology is 

applied only to securities priced at 

$1.00 and above, and thus, that all 

BATS Post Only Orders in securities 

priced below $1.00 remove contra-side 

liquidity. The Exchange believes it is 

reasonable to allow BATS Post Only 

Orders to remove liquidity in lower 

priced securities because the Exchange’s 

fee structure never has provided a 

significant rebate or charged a 

significant fee for such orders. Because 

the execution cost economics are 

relatively flat, the Exchange believes it 

is more efficient to simply allow all 

orders in such securities to remove 

liquidity. 

Third, the Exchange proposes to make 

clear its methodology for determining 

the applicable fees and rebates given the 

fact that the Exchange maintains a tiered 

pricing structure. Under the Exchange’s 

current tiered pricing structure, an 

entering User may receive a variable 

rebate for adding liquidity depending on 

the User’s volume during the month in 

question. The Exchange determines 

whether Users qualify for higher rebates 

at the end of the month, looking back at 

the User’s activity during the month. To 

account for this variable rebate structure 

and to ensure that the Exchange does 

not determine that an execution is in an 

entering User’s economic best interests 

when, in fact, it is not due to a different 

rebate or fee 10 ultimately achieved by 

the User, the Exchange applies the 

highest possible rebate provided and 

highest possible fee charged for such 

executions on the Exchange. The 

Exchange proposes to make this rebate 

and fee assumption clear in the 

Exchange’s rule text. 

Pegged Orders 

The Exchange proposes to restructure 

Rule 11.9(c)(8), related to Pegged 

Orders, and to add additional detail to 

such Rule regarding the handling of 

such orders. With respect to 

restructuring, the Exchange currently 

offers two types of Pegged Orders 

pursuant to Rule 11.9(c)(8), Primary 

Pegged Orders and Market Pegged 

Orders, and believes that each types of 

Pegged Order would be easier to 

understand if described in separate 

paragraphs. Given the proposal to split 

the Rule to address Primary Pegged 

Orders and Market Pegged Orders 

separately, the Exchange also proposes 

to add an additional lead-in sentence 

that summarizes the operation of Pegged 

Orders generally. 

Mid-Point Peg Orders 

The Exchange proposes to add 

additional specificity regarding MidPoint Peg Orders and the handling of 

such orders when the market is locked 

or crossed. Specifically, the Exchange 

proposes to add language stating that 

upon instruction from a User Mid-Point 

Peg Orders will not execute when the 

market is locked. The Exchange makes 

this feature optional because while 

some Users may prefer not to execute in 

a locked market given that there is no 

real mid-point in such a situation and 

it might be evidence of a pricing 

disparity in a security, other Users may 

prefer an execution. The Exchange also 

proposes to state that Mid-Point Peg 

Orders are not eligible to execute when 

the NBBO is crossed. The Exchange 

does not execute Mid-Point Peg Orders 

in a crossed market because the pricing 

of the mid-point, and the security 

generally, is uncertain in such a 

situation. 

Discretionary Orders 

The Exchange proposes to amend the 

description of Discretionary Orders 

contained in Rule 11.9(c)(10) and to add 

additional detail regarding the 

execution of such orders, as set forth 

below. First, the current description 

indicates that a Discretionary Order has 

a displayed price and size and a nondisplayed ‘‘discretionary price.’’ The 

Exchange proposes to make clear that 

although a Discretionary Order may 

have a displayed price and size as well 

as a discretionary price, a Discretionary 

Order may also be fully non-displayed, 

and thus, will have a non-displayed 

ranked price as well as a discretionary 

price. In addition to reflecting the 

ability to have a non-displayed 

Discretionary Order, the Exchange 

proposes various minor wording 

changes to improve the description of 

Discretionary Orders to make clear that 

such orders use the minimum amount of 

discretion when executing against 

incoming orders. 

The Exchange also proposes to make 

clear how a Discretionary Order 

interacts with a BATS Post Only Order 

or Partial Post Only at Limit Order 

entered at the displayed or nondisplayed ranked price of such 

Discretionary Order that does not 

remove liquidity on entry pursuant to 

Rule 11.9(c)(6) or Rule 11.9(c)(7), 

respectively, by stating that the 

Discretionary Order is converted to an 

executable order and will remove 

liquidity against such incoming order. 

Similar to the Re-Route functionality 

described below, due to the fact that 

Discretionary Orders contain more 

aggressive prices at which they are 

willing to execute, the Exchange treats 

Discretionary Orders as aggressive 

orders that would prefer to execute at 

their displayed or non-displayed ranked 

price than to forgo an execution due to 


emcdonald on DSK67QTVN1PROD with NOTICES
8736 Federal Register / Vol. 80, No. 32 / Wednesday, February 18, 2015 / Notices 

applicable fees or rebates. Accordingly, 

in order to facilitate transactions 

consistent with the instructions of its 

Users, the Exchange executes resting 

Discretionary Orders (and certain orders 

with a Re-Route instruction, as 

described below) against incoming 

orders, when such incoming orders 

would otherwise forego an execution. 

The Exchange notes that the 

determination of whether an order 

should execute on entry against resting 

interest, including against resting 

Discretionary Orders, is made prior to 

determining whether the price of such 

an incoming order should be adjusted 

pursuant to the Exchange’s price sliding 

functionality pursuant to Rule 11.9(g). 

In other words, an execution will have 

already occurred as set forth above 

before the Exchange would consider 

whether an order could be displayed 

and/or posted to the BATS Book, and if 

so, at what price. 

Examples—Discretionary Order 

Executes Against BATS Post Only 

Orders 

Assume that the NBBO is $10.00 by 

$10.05, and the Exchange’s BBO is $9.99 

by $10.06. Assume that the Exchange 

receives a non-routable order to buy 100 

shares of a security at $10.00 per share 

designated with discretion to pay up to 

an additional $0.05 per share. 

• Assume that the next order received 

by the Exchange is a BATS Post Only 

Order to sell 100 shares of the security 

at priced at $10.03 per share. The BATS 

Post Only Order would not remove any 

liquidity upon entry pursuant to the 

Exchange’s economic best interest 

functionality, and would post to the 

BATS Book at $10.03. This would, in 

turn, trigger the discretion of the resting 

buy order and an execution would occur 

at $10.03. The BATS Post Only Order to 

sell would be treated as the adder of 

liquidity and the buy order with 

discretion would be treated as the 

remover of liquidity. 

• Assume the same facts as above, but 

that the incoming BATS Post Only 

Order is priced at $10.00 instead of 

$10.03. As described above, under the 

Exchange’s current fee structure, which 

provides a rebate for orders that remove 

liquidity and a fee for orders that add 

liquidity, the BATS Post Only Order 

would execute on entry at $10.00 

against the buy order with discretion 

pursuant to the Exchange’s best interest 

functionality. The buy order with 

discretion would be treated as the adder 

of liquidity and the BATS Post Only 

Order to sell would be treated as the 

remover of liquidity. Assume, however, 

for purposes of this example that the 

BATS Post Only Order would not 

remove any liquidity upon entry 

pursuant to the Exchange’s economic 

best interest functionality. Rather than 

cancelling the incoming BATS Post 

Only Order to sell back to the User, 

particularly when the resting order is 

willing to buy the security for up to 

$10.05 per share, the Exchange executes 

at $10.00 the BATS Post Only Order 

against the resting buy order with 

discretion. As is true in the example 

above, the BATS Post Only Order to sell 

would be treated as the liquidity adder 

and the buy order with discretion would 

be treated as the liquidity remover. As 

set forth in more detail below, if the 

incoming order was not a BATS Post 

Only Order to sell, the incoming order 

could be executed at the ranked price of 

the Discretionary Order without 

restriction and would therefore be 

treated as the liquidity remover. 

Additionally, the Exchange proposes 

to codify the process by which it 

handles all incoming orders that interact 

with Discretionary Orders. First, the 

Exchange proposes to codify its 

handling of a contra-side order that 

executes against a resting Discretionary 

Order at its displayed or non-displayed 

ranked price or that contains a time-inforce of IOC or FOK and a price in the 

discretionary range by expressly stating 

that such an incoming order will 

remove liquidity against the 

Discretionary Order. Second, the 

Exchange proposes to codify its 

handling of orders that are intended to 

post to the BATS Book at a price within 

a Discretionary Order’s discretionary 

range. This includes, but is not limited 

to, BATS Post Only Orders and Partial 

Post Only at Limit Orders. Specifically, 

the Exchange proposes to codify current 

System functionality whereby any 

contra-side order with a time-in-force 

other than IOC or FOK and a price 

within the discretionary range but not at 

the displayed or non-displayed ranked 

price of a Discretionary Order will be 

posted to the BATS Book and then the 

Discretionary Order will remove 

liquidity against such posted order. 

Examples—Discretionary Order 

Executes Against Non-Post Only Orders 

Assume that the NBBO is $10.00 by 

$10.05, and the Exchange’s BBO is $9.99 

by $10.06. Assume that the Exchange 

receives an order to buy 100 shares of 

a security at $10.00 per share designated 

with discretion to pay up to an 

additional $0.05 per share. 

• Assume that the next order received 

by the Exchange is a BATS Only Order 

to sell 100 shares of the security with a 

TIF other than IOC or FOK priced at 

$10.03 per share. The BATS Only Order 

would not remove any liquidity upon 

entry and would post to the BATS Book 

at $10.03. This would, in turn, trigger 

the discretion of the resting buy order 

and an execution would occur at $10.03. 

The BATS Only Order to sell would be 

treated as the adder of liquidity and the 

buy order with discretion would be 

treated as the remover of liquidity. 

• Assume the same facts as above, but 

that the incoming BATS Only Order is 

priced at $10.00 instead of $10.03. The 

BATS Only Order would remove 

liquidity upon entry at $10.00 per share 

pursuant to the Exchange’s order 

execution rules, as described in detail 

below. Contrary to the examples set 

forth above, the BATS Only Order to 

sell would be treated as the liquidity 

remover and the resting buy order with 

discretion would be treated as the 

liquidity adder. The Exchange notes that 

this example operates the same whether 

an order contains a TIF of IOC, FOK or 

any other TIF. 

The Exchange also proposes to modify 

the current description of the 

Discretionary Order by eliminating 

language stating, ‘‘[i]f a Discretionary 

Order is not executed in full, the 

unexecuted portion of the order is 

automatically re-posted and displayed 

in the BATS Book with a new 

timestamp, at its original displayed 

price, and with its non-displayed 

discretionary price offset.’’ The 

Exchange believes this language is 

unnecessarily confusing because the 

unexecuted portion of Discretionary 

Orders does not actually re-post solely 

because part of the order was executed. 

Rather, the remaining portion will 

remain resting on the BATS Book 

without being removed from the BATS 

Book. 

Finally, because Discretionary Orders 

have both a price at which they will be 

ranked and an additional discretionary 

price, the Exchange proposes to 

expressly state how the Exchange 

handles a routable Discretionary Order 

by stating that such an order will be 

routed away from the Exchange at its 

full discretionary price. As an example, 

assume the NBBO is $10.00 by $10.05 

and the Exchange’s BBO is $9.99 by 

$10.06. If the Exchange receives a 

routable Discretionary Order to buy at 

$10.00 with discretion to pay up to an 

additional $0.05 per share, the Exchange 

would route the order as a limit order 

to buy at $10.05. Any unexecuted 

portion of the order would be posted to 

the BATS Book with a ranked price of 

$10.00 and discretion to pay up to 

$10.05. 

Priority and Execution Algorithm 

With respect to the Exchange’s 

priority and execution algorithm, the 


emcdonald on DSK67QTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 32 / Wednesday, February 18, 2015 / Notices 8737 

Exchange is proposing various minor 

and structural changes that are intended 

to emphasize the processes by which 

orders are accepted, priced, ranked and 

executed, as well as a new provision 

related to the ability of orders to rest at 

locking prices that is consistent with the 

changes to provisions related to the 

operation of Discretionary Orders 

described above. First, the Exchange 

proposes to modify Rule 11.12, Priority 

of Orders, to make clear that the ranking 

of orders described in such rule is in 

turn dependent on Exchange Rule 

11.13(a) which discusses the pricing 

and execution of orders. The Exchange 

believes that this has always been the 

case under Exchange rules based on the 

reference to the ‘‘Execution Process’’ in 

Rule 11.12; however, this reference did 

not include a cross-reference to Rule 

11.13. The Exchange also proposes to 

change the reference within Rule 11.12 

to refer to ranking rather than executing 

equally priced trading interest, as the 

Rule as a whole is intended to describe 

the manner in which resting orders are 

ranked and maintained, specifically in 

price and time priority, while awaiting 

execution against incoming orders. The 

Exchange does not believe that the 

proposed modifications substantively 

modify the operation of the rules; 

however, the Exchange believes that it 

is important to clarify that the ranking 

of orders is a separate process from the 

execution of orders. 

The Exchange also proposes to specify 

in Rule 11.12(a)(2)(C) that the priority 

afforded to Pegged Orders is applicable 

to all non-displayed Pegged Orders. The 

Exchange recently began accepting 

Primary Pegged Orders that can be 

displayed, and if so displayed, the 

Exchange ranks such orders with all 

other displayed orders. Thus, the 

Exchange proposes to clarify that 

reference to Pegged Orders in 

11.12(a)(2)(C), which have lower 

priority than the displayed size of limit 

orders and non-displayed orders, is a 

reference specifically to non-displayed 

Pegged Orders. 

Further, the Exchange proposes to 

adopt new Rule 11.12(a)(3), which 

recognizes existing match trade 

prevention rules that optionally prevent 

the execution of orders from the same 

User (i.e., based on the User’s ‘‘Unique 

Identifier’’, as set forth in Rule 11.9(f)) 

by stating that in such a case the System 

will not permit such orders to execute 

against one another regardless of 

priority ranking. Proposed Rule 

11.12(a)(3) is based on EDGX Rule 

11.9(a)(3). The Exchange also proposes 

changes to current Rule 11.9(a)(3) and 

(a)(4) to re-number such rules as (a)(4) 

and (a)(5) as well as to clarify that 

orders retain and lose ‘‘time’’ priority 

under certain circumstances, as opposed 

to priority generally, because retaining 

or losing price priority does not require 

the same descriptions, as price priority 

will always be retained unless the price 

of an order changes. 

Next, the Exchange proposes to restructure Rule 11.13, which currently 

governs both execution and routing 

logic on the Exchange, by more clearly 

delineating between execution (to be 

contained in new paragraph (a)) and 

routing (to be contained in new 

paragraph (b)) and by adding additional 

sub-headings to the execution section. 

In this connection, the Exchange 

proposes to move language contained 

within Rule 11.13 to the beginning of 

new paragraph (a) such that the 

language is more generally applicable to 

the rules governing execution. 

Specifically, the Exchange proposes to 

relocate language stating that any order 

falling within the parameters of this 

paragraph shall be referred to as 

‘‘executable’’ and that an order will be 

cancelled back to the User if, based on 

market conditions, User instructions, 

applicable Exchange Rules and/or the 

Act and the rules and regulations 

thereunder, such order is not 

executable, cannot be routed to another 

Trading Center pursuant to Rule 

11.13(b) (as proposed to be renumbered) or cannot be posted to the 

BATS Book. The proposed sub-headings 

for paragraph (a) regarding order 

execution are intended to delineate 

between the various rules and National 

Market System (‘‘NMS’’) plans that may 

render an order executable or not, 

including Regulation NMS and 

Regulation SHO. The Exchange is 

proposing to add a cross-reference in 

Rule 11.13(a)(3) to its rules related to 

the Limit Up-Limit Down Plan, which is 

contained in Rule 11.18(e). 

The Exchange proposes to adopt 

paragraph (C) of Rule 11.13(a)(4) to 

provide further clarity regarding the 

situations where orders are not 

executable, which although covered in 

other existing rules, would focus on the 

incoming order on the same side of a 

displayed order rather than the resting 

order that is rendered not executable 

because it is opposite such displayed 

order. The proposed provision would 

replace existing text set forth in Rule 

11.13(a)(1) to acknowledge that, under 

certain circumstances, there can be 

locking interest on the Exchange but 

that such interest will not be displayed 

by the System as a locked market. 

Proposed paragraph (C) would further 

state that if an incoming order is on the 

same side of the market as an order 

displayed on the BATS Book and upon 

entry would execute against contra-side 

interest at the same price as such 

displayed order, such incoming order 

will be cancelled or posted to the BATS 

Book and ranked in accordance with 

Rule 11.12. The Exchange does not 

allow non-displayed interest that locks 

a contra-side displayed order to execute 

at such price to avoid an apparent 

priority issue. 

To demonstrate the functionality in 

place on the Exchange described above, 

assume the NBBO is $10.10 by $10.11. 

Assume the Exchange has a posted and 

displayed bid to buy 100 shares of a 

security priced at $10.10 per share and 

a resting non-displayed bid to buy 100 

shares of a security priced at $10.11 per 

share. For purposes of this example, 

assume the resting non-displayed bid 

has not selected the Re-Route 

functionality, which, as described in 

further detail below, could make a 

resting order executable against an 

incoming BATS Post Only Order under 

certain circumstances. 

• Assume that the next order received 

by the Exchange is a BATS Post Only 

Order to sell 100 shares of the security 

priced at $10.11 per share. As described 

above, under the Exchange’s current fee 

structure, which provides a rebate for 

orders that remove liquidity and a fee 

for orders that add liquidity, the BATS 

Post Only Order would execute on entry 

at $10.11 against the resting nondisplayed bid pursuant to the 

Exchange’s best interest functionality. 

The non-displayed bid would be treated 

as the adder of liquidity and the BATS 

Post Only Order to sell would be treated 

as the remover of liquidity. Assume, 

however, for purposes of this example 

that the BATS Post Only Order would 

not remove any liquidity upon entry 

pursuant to the Exchange’s economic 

best interest functionality. With that 

assumption, the BATS Post Only Order 

would instead post to the BATS Book, 

and would be displayed at $10.11. The 

display of this order would, in turn, 

make the resting non-displayed bid not 

executable at $10.11. 

• Assume the next order received by 

the Exchange is an order to sell 100 

shares of the security priced at $10.11 

per share. The order would not remove 

any liquidity upon entry because there 

is a displayed order to sell at $10.11 

posted on the BATS Book and thus, by 

rule, the Exchange does not maintain 

any executable buy interest priced at 

$10.11. If the later arriving order to sell 

at $10.11 contained a TIF other than 

IOC or FOK, it would be posted to the 

BATS Book and displayed at $10.11. If 

the later arriving order to sell at $10.11 

contained a TIF of IOC or FOK, it would 

be cancelled back to the User. 


emcdonald on DSK67QTVN1PROD with NOTICES
8738 Federal Register / Vol. 80, No. 32 / Wednesday, February 18, 2015 / Notices 

11The Exchange notes that an incoming order for 

purposes of comparison to a resting order can be 

any incoming order unless the terms of that 

incoming order itself preclude execution. For 

instance, in this example, an incoming buy order 

could be routable or non-routable, the order could 

be selected for potential display or could include 

instructions not to display the order, the order 

could have a discretionary price, or several other 

characteristics. Upon entry, unless the terms of the 

order preclude removing liquidity, such as a BATS 

Post Only order, the characteristics that govern the 

way that the order may be handled once posted to 

the Exchange’s order book are irrelevant and any 

incoming buy order priced at $10.11 or higher will 

execute against the resting offers. 

12Market orders are also routed away pursuant to 

Rule 11.13, however the Exchange is not proposing 

any changes to the treatment of routed market 

orders at this time. 

• To the extent the BATS Book is in 

the state set forth to conclude the 

examples above, with a non-executable 

bid to buy at $10.11 and one or more 

offers to sell displayed by the Exchange 

at $10.11; there are several potential 

outcomes. For instance, any incoming 

order to buy at $10.11 or higher 11 will 

execute against the displayed order(s) to 

sell, as such resting orders are fully 

executable and displayed as available 

offers on the BATS Book. Once all 

displayed liquidity to sell at $10.11 has 

been executed on the Exchange, the 

resting non-displayed bid to buy at 

$10.11 will again be fully executable. 

Similarly, if the resting displayed orders 

to sell that are priced at $10.11 are 

cancelled then the resting nondisplayed bid to buy at $10.11 will 

again be fully executable at that price. 

As described in the text and examples 

below, an incoming sell order priced at 

$10.10 or better will execute against the 

resting bid at $10.105. Finally, the User 

representing the non-displayed bid to 

buy at $10.11 could cancel the order. 

The Exchange is also proposing to 

modify and place in new paragraph (D) 

rule language contained in current Rule 

11.13(a)(1) that governs the price at 

which non-displayed locking interest is 

executable in order to further clarify 

such rule text. Specifically, for bids or 

offers equal to or greater than $1.00 per 

share, in the event that an incoming 

order is a market order or is a limit 

order priced more aggressively than an 

order displayed on the Exchange, the 

Exchange will execute the incoming 

order at, in the case of an incoming sell 

order, one-half minimum price variation 

less than the price of the displayed 

order, and, in the case of an incoming 

buy order, at one-half minimum price 

variation more than the price of the 

displayed order. As is true under 

existing functionality, this order 

handling is inapplicable for bids or 

offers under $1.00 per share. Proposed 

paragraph (D) does not substantively 

modify the existing operation of the 

System but is intended to better 

describe in rule text the process for 

matching an incoming order against an 

order on the BATS Book when there is 

a displayed order on the same side of 

the market as the incoming order. 

To demonstrate the operation of this 

provision, again assume the NBBO is 

$10.10 by $10.11. Assume the Exchange 

has a posted and displayed bid to buy 

100 shares of a security priced at $10.10 

per share and a resting non-displayed 

bid to buy 100 shares of a security 

priced at $10.11 per share. 

• Assume that the next order received 

by the Exchange is a BATS Post Only 

Order to sell 100 shares of the security 

priced at $10.11 per share. As described 

above, under the Exchange’s current fee 

structure, which provides a rebate for 

orders that remove liquidity and a fee 

for orders that add liquidity, the BATS 

Post Only Order would execute on entry 

at $10.11 against the resting nondisplayed bid pursuant to the 

Exchange’s best interest functionality. 

The non-displayed bid would be treated 

as the adder of liquidity and the BATS 

Post Only Order to sell would be treated 

as the remover of liquidity. Assume, 

however, for purposes of this example 

that the BATS Post Only Order would 

not remove any liquidity upon entry 

pursuant to the Exchange’s economic 

best interest functionality. With that 

assumption, the BATS Post Only Order 

to sell would post to the BATS Book 

and would be displayed at $10.11. The 

display of this order would, in turn, 

make the resting non-displayed bid not 

executable at $10.11. 

• If an incoming offer to sell 100 

shares at $10.10 is entered into the 

BATS Book, the resting non-displayed 

bid originally priced at $10.11 will be 

executed at $10.105 per share, thus 

providing a half-penny of price 

improvement as compared to the order’s 

limit price of $10.11. The execution at 

$10.105 per share also provides the 

incoming offer with a half-penny of 

price improvement as compared to its 

limit price of $10.10. The result would 

be the same for an incoming market 

order to sell or any other incoming limit 

order offer priced at $10.10 or below, 

which would execute against the nondisplayed bid at a price of $10.105 per 

share. As above, an offer at the full price 

of the resting and displayed $10.11 offer 

would not execute against the resting 

non-displayed bid, but would instead 

either cancel or post to the BATS Book 

behind the original $10.11 offer in 

priority. 

The Exchange notes that it is 

proposing to add descriptive titles to 

paragraphs (A) and (B) of Rule 

11.13(a)(4), which describe the process 

by which executable orders are matched 

within the System. Specifically, so long 

as it is otherwise executable, an 

incoming order to buy will be 

automatically executed to the extent 

that it is priced at an amount that equals 

or exceeds any order to sell in the BATS 

Book and an incoming order to sell will 

be automatically executed to the extent 

that it is priced at an amount that equals 

or is less than any order to buy in the 

BATS Book. These rules further state 

that an order to buy shall be executed 

at the price(s) of the lowest order(s) to 

sell having priority in the BATS Book 

and an order to sell shall be executed at 

the price(s) of the highest order(s) to buy 

having priority in the BATS Book. The 

Exchange emphasizes these current 

rules only insofar as to highlight the 

interconnected nature of the priority 

rule. 

The Exchange also proposes to modify 

existing paragraph (b) of Rule 11.13 to 

re-number it as paragraph (b)(5) and to 

clarify the Exchange’s rule regarding the 

priority of routed orders. Paragraph (b) 

currently sets forth the proposition that 

a routed order does not retain priority 

on the Exchange while it is being routed 

to other markets. The Exchange believes 

that its proposed clarification to 

paragraph (b) is appropriate because it 

more clearly states that a routed order 

is not ranked and maintained in the 

BATS Book pursuant to Rule 11.12(a), 

and therefore is not available to execute 

against incoming orders pursuant to 

Rule 11.13. 

Re-Route Functionality 

The Exchange currently allows Users 

to submit various types of limit orders 

to the Exchange that are processed 

pursuant to current Exchange Rule 

11.13, as described elsewhere in this 

proposal. To the extent an order has not 

been executed in its entirety against the 

BATS Book, Rule 11.13 describes the 

process of routing marketable limit 

orders 12 to one or more Trading 

Centers, including a description of how 

the Exchange treats any unfilled balance 

that returns to the Exchange following 

the first attempt to fill the order through 

the routing process. If not filled through 

routing, and based on the order 

instructions, the unfilled balance of the 

order may be posted to the BATS Book. 

Pursuant to Exchange Rule 11.13(a)(4) 

(to be re-numbered as Rule 11.13(b)(4) 

pursuant to this proposal), under certain 

circumstances the Exchange will reroute an order that has been posted to 

the BATS Book if subsequently locked 

or crossed by another accessible Trading 

Center. The Exchange offers two 


emcdonald on DSK67QTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 32 / Wednesday, February 18, 2015 / Notices 8739 

13The Exchange notes that pursuant to Rule 

11.9(c)(6), BATS Post Only Orders remove liquidity 

in certain circumstances based on an economic 

analysis that takes into account applicable fees and 

rebates. The Exchange has proposed clarifications 

to this economic analysis as described above. 

Similarly, Partial Post Only at Limit Orders are 

permitted to remove price improving liquidity as 

well as a User-selected percentage of the remaining 

order at the limit price if, following such removal, 

the order can post at its limit price. See Rule 

11.9(c)(7). 

14See id. 

15As described above, an incoming BATS Post 

Only Order to sell would in fact remove on entry 

at $10.10 based on the Exchange’s current fee 

structure and economic best interest functionality. 

optional Re-Route instructions, the 

Super Aggressive Re-Route instruction 

and the Aggressive Re-Route 

instruction. The Super Aggressive ReRoute instruction reflects the 

willingness of the sender of the routable 

order posted to the BATS Book to route 

to away Trading Centers and to remove 

liquidity from such Trading Centers any 

time such order is locked or crossed 

(i.e., rather than passively waiting for an 

execution on the BATS Book). The 

Aggressive Re-Route instruction subjects 

an order to the routing process after 

being posted to the BATS Book only if 

the order is subsequently crossed by an 

accessible Trading Center (rather than if 

the order is locked or crossed). The 

Exchange proposes two changes to its 

rules to reflect current operation of the 

System in connection with Re-Route 

functionality, as described below. 

Non-Displayed Routable Orders 

First, the Exchange proposes to add 

language to the Aggressive Re-Route 

instruction that makes clear that any 

routable non-displayed limit order 

posted to the BATS Book that is crossed 

by another accessible Trading Center 

will be automatically routed to that 

Trading Center. As described in Rule 

11.9(g)(4), the Exchange re-prices nondisplayed orders to the extent they are 

crossed by another Trading Center to 

avoid trading-through Protected 

Quotations displayed by such Trading 

Center. In the process of such price 

sliding, to the extent a non-displayed 

order is routable, the Exchange will 

attempt to route the order to the Trading 

Center displaying the crossing quotation 

that prompted the price sliding process. 

As an example of a routable nondisplayed order that is handled 

consistent with the Aggressive Re-Route 

instruction, assume the Exchange 

receives a non-displayed order to buy 

300 shares of a security at $10.10 per 

share. Assume further that the NBBO is 

$10.09 by $10.10 when the order is 

received, and the Exchange’s lowest 

priced offer is priced at $10.11. The 

Exchange will route the order away 

from the Exchange as a bid to buy 300 

shares at $10.10. Assume that the order 

obtains one 100 share execution through 

the routing process and then returns to 

the Exchange. The Exchange will post 

the order as a non-displayed bid to buy 

200 shares at $10.10. If displayed 

liquidity then appears at one or more 

Trading Centers priced at $10.09 or 

lower (i.e., crossing the posted bid to 

buy at $10.10), the Exchange will take 

the non-displayed bid off of the BATS 

Book and again route such order to the 

displayed liquidity at other Trading 

Centers. 

Second, the Exchange proposes to 

codify existing System functionality by 

adding rule text to state that, consistent 

with the Super Aggressive Re-Route 

instruction described in Rule 

11.13(b)(4)(B), when any order with a 

Super Aggressive Re-Route instruction 

is locked by an incoming BATS Post 

Only Order or Partial Post Only at Limit 

Order that does not remove liquidity 

pursuant to Rule 11.9(c)(6) or Rule 

11.9(c)(7), respectively,13 the Re-Route 

order is converted to an executable 

order and will remove liquidity against 

such incoming order. The Exchange 

applies this logic in order to facilitate 

executions that would otherwise not 

occur due to the instruction of a BATS 

Post Only Order or Partial Post Only at 

Limit Order to not remove liquidity. 

Because a Super Aggressive Re-Route 

eligible order is willing to route to an 

away Trading Center and remove 

liquidity (i.e., pay a fee at such Trading 

Center) when locked or crossed, the 

Exchange believes it is reasonable and 

consistent with the instruction to force 

an execution between an incoming 

BATS Post Only Order and an order that 

has been posted to the BATS Book with 

the Super Aggressive Re-Route 

instruction. The Exchange notes that the 

determination of whether an order 

should execute on entry against resting 

interest, including against resting orders 

with a Super Aggressive Re-Route 

instruction, is made prior to 

determining whether the price of such 

an incoming order should be adjusted 

pursuant to the Exchange’s price sliding 

functionality pursuant to Rule 11.9(g). 

The Exchange has limited the proposed 

language to BATS Post Only Orders that 

lock orders with a Super Aggressive ReRoute instruction because BATS Post 

Only Orders that cross resting orders 

will always remove liquidity because it 

is in their economic best interest to do 

so.14 Similarly, Partial Post Only Limit 

Orders execute against crossing interest 

as set forth in Rule 11.9(c)(7)(A). The 

Exchange also proposes to make clear 

that although it will execute an order 

with a Super Aggressive Re-Route 

instruction against a BATS Post Only 

Order that would lock it, if an order that 

does not contain a Super Aggressive ReRoute instruction maintains higher 

priority than one or more Super 

Aggressive Re-Route eligible orders, the 

Super Aggressive Re-Route eligible 

order(s) with lower priority will not be 

converted, as described above, and the 

incoming BATS Post Only Order or 

Partial Post Only at Limit Order will be 

posted or cancelled in accordance with 

Rule 11.9(c)(6) or Rule 11.9(c)(7), 

respectively. The Exchange believes it is 

necessary to avoid applying the ReRoute functionality to Re-Route eligible 

orders that are resting behind orders 

that are not Re-Route eligible orders to 

avoid violating the Exchange’s priority 

rule, Rule 11.12. 

Example—Super Aggressive Re-Route 

and BATS Post Only Orders 

Assume that the Exchange receives an 

order to buy 300 shares of a security at 

$10.10 per share designated with a 

Super Aggressive Re-Route instruction. 

Assume further that the NBBO is $10.09 

by $10.10 when the order is received, 

and the Exchange’s lowest offer is 

priced at $10.11. The Exchange will 

route the order away from the Exchange 

as a bid to buy 300 shares at $10.10. 

Assume that the order obtains one 100 

share execution through the routing 

process and then returns to the 

Exchange. The Exchange will post the 

order as a bid to buy 200 shares at 

$10.10. If the Exchange subsequently 

receives a BATS Post Only Order to sell 

priced at $10.09 per share, such order 

will execute against the posted order to 

buy with an execution price of $10.10. 

The posted buy order will be treated as 

the liquidity provider and the incoming 

BATS Post Only Order to sell will be 

treated as the liquidity remover, based 

on the Exchange’s rules that execute 

BATS Post Only Orders on entry if such 

execution is in their economic interest. 

However, assuming the same facts as 

above, if the incoming BATS Post Only 

Order to sell is priced at $10.10 and also 

assuming that the incoming BATS Post 

Only Order does not remove liquidity 

pursuant to the economic best interest 

functionality,15 the posted order with a 

Super Aggressive Re-Route instruction 

will execute against such order at 

$10.10. In this scenario, the posted 

order to buy will be treated as the 

liquidity remover and the incoming 

BATS Post Only Order to sell will be 

treated as the liquidity provider. 

Finally, assume that the NBBO is 

$10.10 by $10.11 and that the Exchange 

has a displayed bid to buy 100 shares 


emcdonald on DSK67QTVN1PROD with NOTICES
8740 Federal Register / Vol. 80, No. 32 / Wednesday, February 18, 2015 / Notices 

16 Id. 

17 15 U.S.C. 78f(b). 

18 15 U.S.C. 78f(b)(5). 

19 15 U.S. C. 78k–1(a)(1). 

of a security at $10.10 and a displayed 

offer to sell 100 shares of a security at 

$10.11. Assume that the displayed bid 

has not been designated with the Super 

Aggressive Re-Route instruction. 

Assume next that the Exchange receives 

a second displayable bid to buy 100 

shares of the same security at $10.10 

that has been designated as routable and 

subject to the Super Aggressive ReRoute instruction. Because there is no 

liquidity to which the Exchange can 

route the order, the second order will 

post to the BATS Book as a bid to buy 

at $10.10 behind the original displayed 

bid to buy at $10.10. If the Exchange 

then received a BATS Post Only Order 

to sell 100 shares at $10.10 then no 

execution would occur assuming again 

that the incoming BATS Post Only 

Order cannot remove liquidity at $10.10 

based on the economic best interest 

analysis,16 the first order with priority 

to buy at $10.10 was not designated 

with the Super Aggressive Re-Route 

instruction and the second booked order 

to buy at $10.10 is not permitted to 

bypass the first order as this would 

result in a violation of the Exchange’s 

priority rule, Rule 11.12. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule changes are consistent 

with Section 6(b) of the Securities 

Exchange Act of 1934 (the ‘‘Act’’) 17 and 

further the objectives of Section 6(b)(5) 

of the Act 18 because they are designed 

to promote just and equitable principles 

of trade, to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, to foster cooperation and 

coordination with persons engaged in 

facilitating transactions in securities, 

and, in general, to protect investors and 

the public interest. The proposed rule 

changes are also designed to support the 

principles of Section 11A(a)(1) 19 of the 

Act in that they seek to assure fair 

competition among brokers and dealers 

and among exchange markets. 

The modifications related to routable 

orders with a TIF of IOC, Pegged Orders, 

Mid-Point Peg Orders, Discretionary 

Orders, and the Exchange’s priority, 

execution and routing rules are each 

designed to add clarity and 

transparency regarding Exchange 

System functionality without 

substantively modifying such 

functionality. Specifically, the Exchange 

believes that the proposed rule changes 

will provide additional clarity and 

specificity regarding the functionality of 

the System and thus would promote just 

and equitable principles of trade and 

remove impediments to a free and open 

market. The Exchange also believes that 

the proposed amendments will 

contribute to the protection of investors 

and the public interest by making the 

Exchange’s rules easier to understand. 

With respect to the additional 

specificity proposed in connection with 

BATS Post Only Orders, the Exchange 

believes that the proposed rule change 

is consistent with the Act in that the 

change will help to clarify the 

methodology used by the Exchange to 

determine whether BATS Post Only 

Orders will remove liquidity from the 

BATS Book. The Exchange again notes 

that any methodology other than using 

the highest possible rebate and highest 

possible fee could result in the 

Exchange determining that an execution 

was in an entering User’s economic best 

interest when, in fact, it was not. For the 

reasons articulated above, the Exchange 

believes that the proposal is consistent 

with and supports just and equitable 

principles of trade, removes 

impediments to, and helps to perfect the 

mechanism of, a free and open market 

and a national market system, and, in 

general, protects investors and the 

public interest. 

The Exchange also believes it is 

consistent with the Act to execute 

Discretionary orders and orders with a 

Super Aggressive Re-Route instruction 

against marketable liquidity (i.e., BATS 

Post Only Orders and Partial Post Only 

Orders) when an execution would not 

otherwise occur is consistent with both: 

(i) The Act, by facilitating executions, 

removing impediments and perfecting 

the mechanism of a free and open 

market and national market system; and 

(ii) a User’s instructions, which have 

evidenced a willingness by the User to 

pay applicable execution fees and/or 

execute at more aggressive prices than 

they are currently ranked in favor of an 

execution. The Exchange also believes 

that the proposed rule change provides 

additional specificity regarding the 

functionality of the System with regard 

to routable non-displayed orders that 

have been crossed by another accessible 

Trading Center, thereby promoting just 

and equitable principles of trade and 

removing impediments to a free and 

open market. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule changes will result in 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. The 

proposed rule changes are not designed 

to address any competitive issue but 

rather to add specificity and clarity to 

Exchange rules, thus providing greater 

transparency regarding the operation of 

the System. 

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 changes. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the Exchange consents, 

the Commission will: (a) By order 

approve or disapprove such proposed 

rule change, or (b) institute proceedings 

to determine whether the proposed rule 

change should be disapproved. 

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 rule-comments@

sec.gov. Please include File Number SR– 

BYX–2015–07 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–BYX–2015–07. 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 


emcdonald on DSK67QTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 32 / Wednesday, February 18, 2015 / Notices 8741 

20 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 73299 

(October 3, 2014), 79 FR 61120 (October 9, 2014) 

(Notice of Filing and Immediate Effectiveness of 

File No. SR–FINRA–2014–041); see also Securities 

Exchange Act Release No. 67208 (June 15, 2012), 77 

FR 37458 (June 21, 2012) (Order Approving File No. 

SR–FINRA–2011–058, as amended). 

4See Securities Exchange Act Release No. 65568 

(October 14, 2011), 76 FR 65307 (October 20, 2011) 

(Notice of Filing of File No. SR–FINRA–2011–058). 

5 ‘‘OTC Equity Security’’ means any equity 

security that is not an ‘‘NMS stock’’ as that term is 

defined in Rule 600(b)(47) of SEC Regulation NMS; 

provided, however, that the term OTC Equity 

Security shall not include any Restricted Equity 

Security. See FINRA Rule 6420. 

6FINRA believes that adequate data with which 

to assess the impact of the Pilot has been collection 

and analyzed, and, therefore, will cease the 

collection of Pilot data for submission to the 

Commission as of February 13, 2015. 

7The assessment is part of the SEC’s comment file 

for SR–FINRA–2011–058 and also is available on 

FINRA’s Web site at: http://www.finra.org/Industry/ 

Regulation/RuleFilings/2011/P124615 (‘‘Pilot 

Assessment’’). 

8See Securities Exchange Act Release No. 70839 

(November 8, 2013), 78 FR 68893 (November 15, 

2013) (Notice of Filing and Immediate Effectiveness 

of File No. SR–FINRA–2013–049). 

9 15 U.S.C. 78o–3(b)(6). 

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 at 100 F Street NE., 

Washington, DC 20549–1090 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of such 

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–BYX– 

2015–07, and should be submitted on or 

before March 11, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.20

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–03223 Filed 2–17–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74251; File No. SR–FINRA– 

2015–002] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Extend the Tier Size 

Pilot of FINRA Rule 6433 (Minimum 

Quotation Size Requirements for OTC 

Equity Securities) 

February 11, 2015. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on January 

29, 2015, the Financial Industry 

Regulatory Authority, Inc. (‘‘FINRA’’) 

filed with the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

the proposed rule change as described 

in Items I and II below, which Items 

have been prepared by FINRA. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of the Substance 

of the Proposed Rule Change 

FINRA is proposing to amend FINRA 

Rule 6433 (Minimum Quotation Size 

Requirements for OTC Equity 

Securities) to extend the Tier Size Pilot, 

which currently is scheduled to expire 

on February 13, 2015, for an additional 

three months, until May 15, 2015. 

The text of the proposed rule change 

is available on FINRA’s Web site at 

http://www.finra.org, at the principal 

office of FINRA and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

FINRA 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. FINRA 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 

FINRA proposes to amend FINRA 

Rule 6433 (Minimum Quotation Size 

Requirements for OTC Equity 

Securities) (the ‘‘Rule’’) to extend, until 

May 15, 2015, the amendments set forth 

in File No. SR–FINRA–2011–058 (‘‘Tier 

Size Pilot’’ or ‘‘Pilot’’), which currently 

are scheduled to expire on February 13, 

2015.3

The Tier Size Pilot was filed with the 

SEC on October 6, 2011,4 to amend the 

minimum quotation sizes (or ‘‘tier 

sizes’’) for OTC Equity Securities.5 The 

goals of the Pilot were to simplify the 

tier structure, facilitate the display of 

customer limit orders, and expand the 

scope of the Rule to apply to additional 

quoting participants. During the course 

of the pilot, FINRA collected and 

provided to the SEC specified data with 

which to assess the impact of the Pilot 

tiers on market quality and limit order 

display.6 On September 13, 2013, 

FINRA provided to the Commission an 

assessment on the operation of the Tier 

Size Pilot utilizing data covering the 

period from November 12, 2012 through 

June 30, 2013.7 As noted in the 2013 

Assessment, FINRA believed that the 

analysis of the data generally showed 

that the Tier Size Pilot had a neutral to 

positive impact on OTC market quality 

for the majority of OTC Equity 

Securities and tiers; and that there was 

an overall increase of 13% in the 

number of customer limit orders that 

met the minimum quotation sizes to be 

eligible for display under the Pilot tiers. 

In the 2013 Assessment, FINRA 

recommended adopting the tiers as 

permanent, but extended the pilot 

period to allow more time to gather and 

analyze data after the November 12, 

2012 through June 30, 2013 assessment 

period.8 Most recently, on October 9, 

2014, FINRA further extended the Pilot 

period to permit FINRA and the 

Commission to consider the 

implications of the data collected since 

June 30, 2013. FINRA has reviewed this 

post-June 30, 2013 data, and believes 

that the impact described in the 2013 

Assessment has continued to hold (and 

has improved in certain areas). 

The purpose of this filing is to extend 

the operation of the Tier Size Pilot for 

an additional three month period, until 

May 15, 2015, to provide FINRA with 

additional time to finalize its 

recommendation with regard to the Tier 

Size Pilot. 

FINRA has filed the proposed rule 

change for immediate effectiveness. The 

effective date of the proposed rule 

change will be the date of filing. 

2. Statutory Basis 

FINRA believes that the proposed rule 

change is consistent with the provisions 

of Section 15A(b)(6) of the Act,9 which 

requires, among other things, that 

FINRA rules must be designed to 


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