[Federal Register Volume 80, Number 65 (Monday, April 6, 2015)]
[Notices]
[Pages 18473-18490]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-07750]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74617; File No. SR-BX-2015-015]


Self-Regulatory Organizations; NASDAQ OMX BX Inc.; Notice of 
Proposed Rule Change To Amend and Restate Certain Rules That Govern the 
NASDAQ OMX BX Equities Market

March 31, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on March 20, 2015, NASDAQ OMX BX, Inc. (``Exchange'' or ``BX'') 
filed with the Securities and Exchange Commission (the ``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.
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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

    BX proposes to amend and restate certain BX rules that govern the 
NASDAQ OMX BX Equities Market in order to provide a clearer and more 
detailed description of certain aspects of its functionality. The text 
of the proposed rule change is available at nasdaq.cchwallstreet.com, 
at the Exchange's principal office, 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, BX 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. BX 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 and restate certain Exchange rules 
that govern the NASDAQ OMX BX Equities Market in order to provide a 
clearer and more detailed description of certain aspects of its 
functionality. The proposed rule change is responsive to the request of 
Commission Chair White that each self-regulatory organization (``SRO'') 
conduct a comprehensive review of each order type offered to members, 
and how it operates in practice.\3\ The Exchange believes that its 
current rules and other public disclosures provide a comprehensive 
description of the operation of the NASDAQ OMX BX Equities Market, so 
that members and the investing public have an accurate understanding of 
its market structure. Nevertheless, the Exchange has concluded that a 
restatement of certain rules will further enhance their clarity. In 
particular, the Exchange believes that providing

[[Page 18474]]

additional examples of order type operation in the rule text will 
promote greater understanding of the Exchange's market structure. In 
addition, the Exchange notes that certain functionality added to its 
market in past years has been described as an ``order type'' but would 
be more precisely described as an attribute that may be added to a 
particular order. Accordingly, the restated rules will distinguish 
between ``Order Types'' and ``Order Attributes,'' while providing a 
full description of the Order Attributes that may be attached to 
particular Order Types. Except where specifically stated otherwise, all 
proposed rules are restatements of existing rules and therefore do not 
reflect substantive changes in the rule text or in the operation of the 
Exchange.
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    \3\ See 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.
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General Framework for Rule Restatement
    At present, most of the rules governing Order Types and Order 
Attributes are found in Rule 4751 (Definitions). The Exchange is 
proposing to restate Rule 4751 as Rule 4701, which is currently not in 
use, with certain amended definitions being adopted therein. The 
Exchange is also proposing to remove definitions pertaining to Order 
Types and Order Attributes and adopt them as separate new Rules 4702 
(Order Types) and 4703 (Order Attributes). While the Exchange is also 
proposing certain conforming changes to other rules, in subsequent 
proposed rule changes the Exchange plans to restate the remainder of 
the rules numbered 4752 through 4780 so that they appear sequentially 
following Rule 4703.
Definitions
    New Rule 4701 will adopt revised definitions applicable to the Rule 
4000 Series of the Exchange rules: \4\
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    \4\ Other definitions in current Rule 4751 are being superseded 
by descriptions of Order Types and Order Attributes in Rules 4702 
and 4703, or are being eliminated because they are no longer used. 
In addition, Rule 4755 (Order Entry Parameters) is being deleted 
because the material contained therein is superseded by proposed 
Rules 4702 and 4703.
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    <bullet> The terms ``Best Bid'', ``Best Offer'', ``National Best 
Bid and National Best Offer'', ``Protected Bid'', ``Protected Offer'', 
``Protected Quotation'', and ``Intermarket Sweep Order'' shall have the 
meanings assigned to them under Rule 600 under SEC Regulation NMS; \5\ 
provided, however, that the terms ``Best Bid'', ``Best Offer'', 
``Protected Bid'', ``Protected Offer'', and ``Protected Quotation'' 
shall, unless otherwise stated, refer to the bid, offer, or quotation 
of a market center other than the Exchange. The term ``NBBO'' shall 
mean the ``National Best Bid and National Best Offer''.
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    \5\ 17 CFR 242.600.
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    <bullet> The term ``NASDAQ OMX BX Equities Market,'' or ``System'', 
which defines the components of the securities execution and trade 
reporting system owned and operated by the Exchange, is being modified 
to state that the System includes a montage for ``Quotes'' and 
``Orders'', referred to as the ``Exchange Book'', that collects and 
ranks all Quotes and Orders submitted by ``Participants''.\6\ The 
definition is further being modified to make it clear that data feeds 
made available with respect to the System disseminate depth-of-book 
data regarding Quotes and ``Displayed'' Orders \7\ and also such 
additional information about Quotes, Orders, and transactions within 
the System as shall be reflected in the Exchange Rules.
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    \6\ The modified definitions of ``Quotes'' and ``Orders'' are 
described below. The term ``Participant'', which is being amended 
only to add a clarifying reference to Regulation NMS and to Market 
Makers, means an entity that fulfills the obligations contained in 
Rule 4611 regarding participation in the System, and includes 
Equities ECNs, Market Makers, and Order Entry Firms.
    \7\ As provided in proposed Rule 4703, a Displayed Order is an 
Order with a Display Order Attribute that allows its price and size 
to be disseminated to Participants.
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    <bullet> The term ``Quote'' is being modified to make it clear that 
a Quote is an Order with Attribution (as defined in Rule 4703) entered 
by a Market Maker or Equities ECN for display (price and size) next to 
the Participant's MPID in the Exchange Book. Accordingly, all Quotes 
are also Orders.
    <bullet> The definition of the term ``Order'' is being amended to 
mean an instruction to trade a specified number of shares in a 
specified System Security \8\ submitted to the System by a Participant. 
An ``Order Type'' is a standardized set of instructions associated with 
an Order that define how it will behave with respect to pricing, 
execution, and/or posting to the Exchange Book when submitted to the 
System. An ``Order Attribute'' is a further set of variable 
instructions that may be associated with an Order to further define how 
it will behave with respect to pricing, execution, and/or posting to 
the Exchange Book when submitted to the System. The available Order 
Types and Order Attributes, and the Order Attributes that may be 
associated with particular Order Types, are described in Rules 4702 and 
4703.
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    \8\ The definition of a ``System Security,'' which is not being 
modified, includes ``any NMS stock, as defined in SEC Rule 600 
except securities specifically excluded from trading via a list of 
excluded securities posted on www.nasdaqtrader.com.''
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    <bullet> The term ``ET'' means Eastern Standard Time or Eastern 
Daylight Time, as applicable.
    <bullet> The term ``Market Hours'' is being defined to mean the 
period of time beginning at 9:30 a.m. ET and ending at 4 p.m. ET (or 
such earlier time as may be designated by the Exchange on a day when 
the Exchange closes early). The term ``System Hours'' means the period 
of time beginning at 7 a.m. ET and ending at 7 p.m. ET (or such earlier 
time as may be designated by the Exchange on a day when the Exchange 
closes early). The term ``Pre-Market Hours'' means the period of time 
beginning at 7 a.m. ET and ending immediately prior to the commencement 
of Market Hours. The term ``Post-Market Hours'' means the period of 
time beginning immediately after the end of Market Hours and ending at 
7 p.m. ET.\9\
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    \9\ The proposed definition further notes that in certain 
contexts, times cited in the Exchange Rules may be approximate.
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    <bullet> The term ``marketable'' with respect to an Order to buy 
(sell) means that, at the time it is entered into the System, the Order 
is priced at the current Best Offer or higher (at the current Best Bid 
or lower).
    <bullet> The term ``market participant identifier'' or ``MPID'' 
means a unique four-letter mnemonic assigned to each Participant in the 
System. A Participant may have one or more than one MPID.
    <bullet> The term ``minimum price increment'' means $0.01 in the 
case of a System Security priced at $1 or more per share, and $0.0001 
in the case of a System Security priced at less than $1 per share.
    <bullet> The definition of the term ``System Book Feed'', which 
means a data feed for System Securities, is being amended to clarify 
that it is the data feed generally known as the BX TotalView ITCH feed.
Order Types
    Proposed Rule 4702 provides that Participants may express their 
trading interest in the NASDAQ OMX BX Equities Market by entering 
Orders. The NASDAQ OMX BX Equities Market offers a range of Order Types 
that behave in the manner specified for each particular Order Type. 
Each Order Type may be assigned certain Order Attributes that further 
define its behavior. All Order Types and Order Attributes operate in a 
manner that is reasonably designed to comply with the requirements of 
Rules 610 and 611 under Regulation NMS. Specifically, Orders are 
reasonably designed to

[[Page 18475]]

prevent trade-throughs of Protected Quotations to the extent required 
by Rule 611 under Regulation NMS, and to prevent the display of 
quotations that lock or cross Protected Quotations to the extent 
required by Rule 610 under Regulation NMS.\10\ Each Order must 
designate whether it is to effect a buy, a long sale, a short sale, or 
an exempt short sale.
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    \10\ It should be noted that Rule 4613(e), the Exchange's rule 
with respect to locked and crossed markets, as adopted pursuant to 
Rule 610(d) under Regulation NMS and approved by the Commission, 
applies only during Market Hours (approved in Securities Exchange 
Act Release No. 59154 (December 23, 2008), 73 FR 80468 (December 31, 
2008) (SR-BSE-2008-48)). Note also that Rule 600 under Regulation 
NMS defines a ``trade-through'' as ``the purchase or sale of an NMS 
stock during regular trading hours, either as principal or agent, at 
a price that is lower than a protected bid or higher than a 
protected offer.'' ``Regular trading hours'' are defined, in 
pertinent part, as ``the time between 9:30 a.m. and 4:00 p.m. 
Eastern Time.'' 17 CFR 242.600.
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    Proposed Rule 4702 further provides that the Exchange maintains 
several communications protocols for Participants to use in entering 
Orders and sending other messages to the System:
    <bullet> OUCH is an Exchange proprietary protocol.
    <bullet> RASH is an Exchange proprietary protocol.
    <bullet> FLITE is an Exchange proprietary protocol.
    <bullet> FIX is a non-proprietary protocol.
    Except where otherwise stated, all protocols are available for all 
Order Types and Order Attributes.
    Upon entry, an Order is processed to determine whether it may 
execute against any contra-side Orders on the Exchange Book in 
accordance with the parameters applicable to the Order Type and Order 
Attributes selected by the Participant and in accordance with the 
priority for Orders on the Exchange Book provided in Rule 4757.\11\ 
Thus, for example, a ``Price to Comply Order'' would be evaluated for 
potential execution in accordance with different criteria than a 
``Post-Only Order.'' \12\ In addition, the Order may have its price 
adjusted in accordance with applicable parameters and may be routed to 
other market centers for potential execution if designated as 
``Routable.'' \13\ The Order may then be posted to the Exchange Book if 
consistent with the parameters of the Order Type and Order Attributes 
selected by the Participant. For example, an Order with a ``Time-in-
Force'' of ``Immediate or Cancel'' would not be posted.\14\
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    \11\ Under Rule 4757, the order in which Orders on the Exchange 
Book are presented for execution against incoming Orders is 
determined first by price (with better priced Orders presented 
first). As among equally priced Orders, priority is determined by 
Display characteristics and timestamps. Thus, Displayed Orders at a 
given price are processed first based on their timestamps, with 
earlier Orders processed first. Finally, Orders with a Non-Display 
Attribute (including the Non-Displayed portion of an Order with 
Reserve Size) are processed based on their respective timestamps. 
The Exchange is amending Rule 4757 to make wording changes to 
improve the clarity of the rule.
    \12\ These Order Types are described below and in proposed Rule 
4702.
    \13\ The Routing Order Attribute is described below, in proposed 
Rule 4703, and in current Rule 4758.
    \14\ Available Times-in-Force are described below and in 
proposed Rule 4703.
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    Thereafter, as detailed in proposed Rules 4702 and 4703, and 
current Rule 4758 (Order Routing), there are numerous circumstances in 
which the Order on the Exchange Book may be modified and receive a new 
timestamp. The sole instances in which the modification of an Order on 
the Exchange Book will not result in a new timestamp are: (i) A 
decrease in the size of the Order due to execution or modification by 
the Participant or by the System, and (ii) a redesignation of a sell 
Order as a long sale, a short sale, or an exempt short sale.\15\ 
Whenever an Order receives a new timestamp for any reason, it is 
processed by the System as a new Order with respect to potential 
execution against Orders on the Exchange Book, price adjustment, 
routing, reposting to the Exchange Book, and subsequent execution 
against incoming Orders, except where otherwise stated. Thus, for 
example, if an Order with a ``Pegging'' Order Attribute had its price 
changed due to a change in the NBBO,\16\ it would be processed by the 
System as a new Order with respect to potential execution, price 
adjustment, routing, reposting to the Exchange Book, and subsequent 
execution against incoming Orders. An exception to the general rule is 
noted in Rule 4703(h) with respect to Orders with ``Reserve Size'' \17\ 
that have a Routing Order Attribute; such Orders are not routed if 
reentered due to a replenishment of the Order's Displayed Size.
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    \15\ Accordingly, there are no circumstances in which an Order 
that was previously entered but not displayed on the Exchange Book 
would be displayed without also receiving a new timestamp, and thus 
no possibility for a Participant to ``jump the queue'' with respect 
to other Orders.
     The Exchange is amending Rule 4756 to make it clear that the 
redesignation of a sell Order as a long sale, short sale, or exempt 
short sale can be done only with respect to Orders entered through 
OUCH or FLITE; Orders entered through RASH or FIX would have to be 
cancelled and reentered to change their designation. Similarly, Rule 
4756 is being amended to clarify that modification of an Order by 
the Participant to decrease its size is not possible with respect to 
a Pegged Order (including a Discretionary Order that is Pegged). 
Such an Order would have to be cancelled and reentered by the 
Participant to reduce its size.
    \16\ The Pegging Order Attribute adjusts the price of the Order 
based on changes in the NBBO and is described below and in proposed 
Rule 4703.
    \17\ The Reserve Size Order Attribute is described below and in 
Rule 4703.
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    In addition, the proposed rule notes that all Orders are also 
subject to cancellation and/or repricing and reentry onto the Exchange 
Book in the circumstances described in Rule 4120(a)(13) (providing for 
compliance with Plan to Address Extraordinary Market Volatility) and 
Rule 4763 (providing for compliance with Regulation SHO). In all 
circumstances where an Order is repriced pursuant to those provisions, 
it is processed by the System as a new Order with respect to potential 
execution against Orders on the Exchange Book, price adjustment, 
routing, reposting to the Exchange Book, and subsequent execution 
against incoming Orders. If multiple Orders at a given price are 
repriced, the Order in which they are reentered is random, based on the 
respective processing time for each such Order; \18\ provided, however, 
that in the case of Price to Comply Orders and Post-Only Orders that 
have their prices adjusted upon entry because they lock a Protected 
Quotation but that are subsequently displayed at their original entered 
limit price as provided in Rules 4702(b)(1)(B) and (4)(B),\19\ they are 
processed in accordance with the time priority under which they were 
previously ranked on the Exchange Book. If an Order is repriced and/or 
reentered 10,000 times for any reason, the Order will be cancelled. 
This restriction is designed to conserve System resources by limiting 
the persistence of Orders that update repeatedly without any reasonable 
prospect of execution.
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    \18\ This is the case because when Orders are repriced, multiple 
instructions to reprice are sent simultaneously through multiple 
System gateways in order to modify the Orders as quickly as possible 
and thereby minimize the possibility that they will be disadvantaged 
vis-[agrave]-vis newly entered Orders.
    \19\ Governing handling of Price to Comply and Post-Only Orders 
when formerly unavailable price levels become available.
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    Proposed Rule 4702 further describes the behavior of each Order 
Type. Except where otherwise stated, each Order Type is available to 
all Participants, although certain Order Types and Order Attributes may 
require the use of a specific protocol. As a result, a Participant 
would be required to use that protocol in order to use Order Types and 
Order Attributes available through it. Moreover, a small number of 
Order Types and Order Attributes are available only to registered 
Market Makers in the security for which they are registered.

[[Page 18476]]

Price To Comply Order
    The Price to Comply Order is an Order Type designed to comply with 
Rule 610(d) under Regulation NMS by having its price and display 
characteristics adjusted to avoid the display of quotations that lock 
or cross any Protected Quotation in a System Security during Market 
Hours. The Price to Comply Order is also designed to provide potential 
price improvement. The Exchange does not have a ``plain vanilla'' limit 
order that attempts to execute at its limit price and is then posted at 
its price or rejected if it cannot be posted; rather, the Price to 
Comply Order, with its price and display adjustment features, is one of 
the primary Order Types used by Participants to access and display 
liquidity in the System. The price and display adjustment features of 
the Order Type enhance efficiency and investor protection by offering 
an Order Type that first attempts to access available liquidity and 
then to post the remainder of the Order at prices that are designed to 
maximize their opportunities for execution.
    When a Price to Comply Order is entered, the Price to Comply Order 
will be executed against previously posted Orders on the Exchange Book 
that are priced equal to or better than the price of the Price to 
Comply Order, up to the full amount of such previously posted Orders, 
unless such executions would trade through a Protected Quotation. Any 
portion of the Order that cannot be executed in this manner will be 
posted on the Exchange Book (and/or routed if it has been designated as 
Routable).\20\
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    \20\ See Rule 4703(f) and 4758.
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    During Market Hours, the price at which a Price to Comply Order is 
posted is determined in the following manner. If the entered limit 
price of the Price to Comply Order would lock or cross a Protected 
Quotation and the Price to Comply Order could not execute against an 
Order on the Exchange Book at a price equal to or better than the price 
of the Protected Quotation, the Price to Comply Order will be displayed 
on the Exchange Book at a price one minimum price increment lower than 
the current Best Offer (for a Price to Comply Order to buy) or higher 
than the current Best Bid (for a Price to Comply Order to sell) but 
will also be ranked on the Exchange Book with a non-displayed price 
equal to the current Best Offer (for a Price to Comply Order to buy) or 
to the current Best Bid (for a Price to Comply Order to sell). The 
posted Order will then be available for execution at its non-displayed 
price, thus providing opportunities for price improvement to incoming 
Orders.
    For example, if a Price to Comply Order to buy at $11 would lock a 
Protected Offer of $11, the Price to Comply Order will be ranked at a 
non-displayed price of $11 but will be displayed at $10.99. An incoming 
Order to sell at a price of $11 or lower would execute against the 
Price to Comply Order at $11.\21\
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    \21\ Unless the incoming Order was an Order Type that was not 
immediately executable, in which case the incoming Order would 
behave in the manner specified for that Order Type. For example, in 
some circumstances discussed below, a Post-Only Order would be 
repriced and posted rather than executing.
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    During Pre-Market Hours and Post-Market Hours, a Price to Comply 
Order will be ranked and displayed at its entered limit price without 
adjustment. This is the case because the Exchange's rule with respect 
to locked and crossed markets, as adopted pursuant to Rule 610(d) under 
Regulation NMS and approved by the Commission, applies only during 
Market Hours.\22\
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    \22\ See supra n. 10.
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    Depending on the protocol used to enter a Price to Comply Order, 
Participants have different options with respect to adjustment of the 
Price to Comply Order following its initial entry and posting to the 
Exchange Book. Specifically, if a Price to Comply Order is entered 
through RASH or FIX, during Market Hours the price of the Price to 
Comply Order will be adjusted in the following manner after initial 
entry and posting to the Exchange Book (unless the Order is assigned a 
Routing Order Attribute that would cause it to be routed to another 
market center rather than remaining on the Exchange Book):
    <bullet> If the entered limit price of the Price to Comply Order 
locked or crossed a Protected Quotation and the NBBO changes, the 
displayed and non-displayed price of the Price to Comply Order will be 
adjusted repeatedly in accordance with changes to the NBBO; provided, 
however, that if the quotation of another market center moves in a 
manner that would lock or cross the displayed price of a Price to 
Comply Order, the prices of the Price to Comply Order will not be 
adjusted. For example, if a Price to Comply Order to buy at $11.02 
would cross a Protected Offer of $11, the Order will be ranked at a 
non-displayed price of $11 but will be displayed at $10.99. If the Best 
Offer then moves to $11.01, the displayed price will be changed to $11 
and the Order will be ranked at a non-displayed price of $11.01. 
However, if another market center then displays an offer of $11 
(thereby locking the previously displayed price of the Price to Comply 
Order, notwithstanding Rule 610(d) under Regulation NMS), the price of 
the Price to Comply Order will not be changed.\23\ The Order may be 
repriced repeatedly until such time as the Price to Comply Order is 
able to be ranked and displayed at its original entered limit price 
($11.02 in the example). The Price to Comply Order receives a new 
timestamp each time its price is changed.
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    \23\ This means that, in general, the price of the Price to 
Comply Order will move toward, but not away from, its original 
entered limit price. Because a Price to Comply Order is removed from 
the Exchange Book while it is being repriced, however, it is 
possible that the Order's price will move away from its original 
entered limit price in the case of a ``race condition'' where the 
NBBO changes again while the Order is not on the Exchange Book.
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    <bullet> If the original entered limit price of the Price to Comply 
Order would no longer lock or cross a Protected Quotation, the Price to 
Comply Order will be ranked and displayed at that price and will 
receive a new timestamp, and will not thereafter be adjusted under this 
provision.\24\
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    \24\ Thus, the price of the Order will not move beyond its limit 
price.
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    If a Price to Comply Order is entered through OUCH or FLITE, during 
Market Hours the price of the Price to Comply Order may be adjusted in 
the following manner after initial entry and posting to the Exchange 
Book:
    <bullet> If the entered limit price of the Price to Comply Order 
crossed a Protected Quotation and the NBBO changes so that the Price to 
Comply Order could be displayed at a price at or closer to its entered 
limit price without locking or crossing a Protected Quotation, the 
Price to Comply Order may either remain on the Exchange Book unchanged 
or may be cancelled back to the Participant, depending on its choice. 
For example, if a Price to Comply Order to buy at $11.02 would cross a 
Protected Offer of $11, the Order will be ranked at a non-displayed 
price of $11 but will be displayed at $10.99. If the Best Offer changes 
to $11.01, the Order will not be repriced, but rather will either 
remain with a displayed price of $10.99 but ranked at a non-displayed 
price of $11 or be cancelled back to the Participant, depending on its 
choice. A Participant's choice with regard to maintaining the Price to 
Comply Order or cancelling it is set in advance for each port through 
which the Participant enters Orders.
    <bullet> If the entered limit price of the Price to Comply Order 
locked a Protected Quotation, the price of the Price to Comply Order 
will be adjusted after initial entry only as follows. If the entered 
limit price would no longer lock

[[Page 18477]]

a Protected Quotation, the Price to Comply Order may either remain on 
the Exchange Book unchanged, may be cancelled back to the Participant, 
or may be ranked and displayed at its original entered limit price, 
depending on the Participant's choice. For example, if a Price to 
Comply Order to buy at $11 would lock a Protected Offer of $11, the 
Price to Comply Order will be ranked at a non-displayed price of $11 
but will be displayed at $10.99. If the Best Offer changes to $11.01, 
the Price to Comply Order may either remain with a displayed price of 
$10.99 but ranked at a non-displayed price of $11, be cancelled back to 
the Participant, or be ranked and displayed at $11, depending on the 
Participant's choice. A Participant's choice with regard to maintaining 
the Price to Comply Order, cancelling it, or allowing it to be 
displayed is set in advance for each port through which the Participant 
enters Orders. If the Price to Comply Order is ranked and displayed at 
its original entered limit price, it will receive a new timestamp, and 
will not thereafter be adjusted under this provision.\25\
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    \25\ Thus, the price of the Order will not move beyond its limit 
price.
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    With regard to the foregoing options, it is important to emphasize 
that the Price to Comply Order receives a new timestamp whenever its 
price is changed, and also receives a new timestamp if the Price to 
Comply Order would no longer lock a Protected Quotation and is 
therefore displayed at its original entered limit price. Thus, there 
are no circumstances under which a Price to Comply Order that 
originally locked or crossed a Protected Quotation would ``jump the 
queue'' and be displayed at its original entered limit price while 
retaining its original time priority. In fact, as discussed throughout 
this filing, the Exchange does not offer any functionality that enables 
a Participant to ``jump the queue'' by displaying a previously entered 
non-displayed Orders without also receiving a new timestamp.\26\
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    \26\ As a result, it is possible that a new Order that is 
entered while previously booked Orders are being repriced may be 
placed on the Exchange Book ahead of them.
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    The following Order Attributes may be assigned to a Price to Comply 
Order. The effect of each Order Attribute is discussed in detail below 
with respect to proposed new Rule 4703.
    <bullet> Price. As described above, the price of the Order may be 
adjusted to avoid locking or crossing a Protected Quotation, and may 
include a displayed price as well as a non-displayed price.
    <bullet> Size.
    <bullet> Reserve Size (available through RASH and FIX only).
    <bullet> A Time-in-Force other than ``Immediate or Cancel'' 
(``IOC'').\27\
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    \27\ As discussed below, IOC is a Time-in-Force under which an 
Order is evaluated to determine if it is marketable, with unexecuted 
shares cancelled. A Price to Comply Order entered with a Time-in-
Force of IOC would be accepted but would be processed as a Non-
Displayed Order with a Time-in-Force of IOC.
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    <bullet> Designation as an ``ISO''. In accordance with Regulation 
NMS, a Price to Comply Order designated as an ISO would be processed at 
its entered limit price, since such a designation reflects a 
representation by the Participant that it has simultaneously routed one 
or more additional limit orders, as necessary, to execute against the 
full displayed size of any Protected Quotations that the Price to 
Comply Order would lock or cross.
    <bullet> Routing (available through RASH and FIX only).
    <bullet> ``Primary Pegging'' and ``Market Pegging'' (available 
through RASH and FIX only).
    <bullet> ``Discretion'' (available through RASH and FIX only).\28\
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    \28\ Primary Pegging, Market Pegging, and Discretion are 
discussed below and in proposed Rule 4703.
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    <bullet> Display. A Price to Comply Order is always displayed, 
although, as provided above, it may also have a non-displayed price 
and/or Reserve Size.
Price to Display Order
    A ``Price to Display Order'' is an Order Type designed to comply 
with Rule 610(d) under Regulation NMS by avoiding the display of 
quotations that lock or cross any Protected Quotation in a System 
Security during Market Hours. Price to Display Orders are available 
solely to Participants that are Market Makers and are always 
Attributable.\29\ Like a Price to Comply Order, a Price to Display 
Order is another form of priced Order that first accesses available 
liquidity and then posts remaining shares, with price adjustment 
features similar to those of the Price to Comply Order that provide a 
means to post displayed Orders at prices that are designed to maximize 
their opportunities for execution.
---------------------------------------------------------------------------

    \29\ As described below and in proposed Rule 4703, Attribution 
is an Order Attribute that allows for display of the price and size 
of an Order next to a Market Maker's MPID. In the current rule, the 
Price to Display Order is referred to as the ``Price to Comply Post 
Order.'' The fact that this Order Type is Attributable and available 
only to registered Market Makers reflects a substantive 
clarification to the language of the existing rule.
---------------------------------------------------------------------------

    When a Price to Display Order is entered, if its entered limit 
price would lock or cross a Protected Quotation, the Price to Display 
Order will be repriced to one minimum price increment lower than the 
current Best Offer (for a Price to Display Order to buy) or higher than 
the current Best Bid (for a Price to Display Order to sell). For 
example, if a Price to Display Order to buy at $11 would cross a 
Protected Offer of $10.99, the Price to Display Order will be repriced 
to $10.98. The Price to Display Order (whether repriced or not 
repriced) will then be executed against previously posted Orders on the 
Exchange Book that are priced equal to or better than the adjusted 
price of the Price to Display Order, up to the full amount of such 
previously posted Orders, unless such executions would trade through a 
Protected Quotation. Any portion of the Order that cannot be executed 
in this manner will be posted on the Exchange Book (and/or routed if it 
has been designated as Routable).\30\
---------------------------------------------------------------------------

    \30\ See Rules 4703(f) and 4758.
---------------------------------------------------------------------------

    During Market Hours, the price at which a Price to Display Order is 
displayed and ranked on the Exchange Book will be its entered limit 
price if the Price to Display Order was not repriced upon entry, or the 
adjusted price if the Price to Comply Order was repriced upon entry, 
such that the price will not lock or cross a Protected Quotation. 
During Pre-Market Hours and Post-Market Hours, a Price to Display Order 
will be displayed and ranked at its entered limit price without 
adjustment.
    As is the case with a Price to Comply Order, a Price to Display 
Order may be adjusted after initial entry.\31\ Specifically, if a Price 
to Display Order is entered through RASH or FIX, during Market Hours 
the Price to Display Order may be adjusted in the following manner 
after initial entry and posting to the Exchange Book (unless the Order 
is assigned a Routing Order Attribute that would cause it to be routed 
to another market center rather than remaining on the Exchange Book):
---------------------------------------------------------------------------

    \31\ These adjustments reflect a substantive clarification to 
the language of the existing rule.
---------------------------------------------------------------------------

    <bullet> If the entered limit price of the Price to Display Order 
locked or crossed a Protected Quotation and the NBBO changes, the price 
of the Order will be adjusted repeatedly in accordance with changes to 
the NBBO; provided, however, that if the quotation of another market 
center moves in a manner that would lock or cross the price of a Price 
to Display Order, the price of the Price to Display Order will not be 
adjusted.\32\

[[Page 18478]]

For example, if a Price to Display Order to buy at $11.02 would cross a 
Protected Offer of $11, the Order will be displayed and ranked at 
$10.99. If the Best Offer then moves to $11.01, the displayed/ranked 
price will be changed to $11. However, if another market center then 
displays an offer of $11 (thereby locking the previously displayed 
price of the Price to Display Order, notwithstanding Rule 610(d) under 
Regulation NMS), the price of the Price to Display Order will not be 
changed. The Order may be repriced repeatedly until such time as the 
Price to Display Order is able to be displayed and ranked at its 
original entered limit price ($11.02 in the example). The Price to 
Display Order receives a new timestamp each time its price is changed.
---------------------------------------------------------------------------

    \32\ This means that, in general, the price of the Price to 
Display Order will move toward, but not away from, its original 
entered limit price. Because a Price to Display Order is removed 
from the Exchange Book while it is being repriced, however, it is 
possible that the Order's price will move away from its original 
entered limit price in the case of a ``race condition'' where the 
NBBO changes again while the Order is not on the Exchange Book.
---------------------------------------------------------------------------

    <bullet> If the original entered limit price of the Price to 
Display Order would no longer lock or cross a Protected Quotation, the 
Price to Display Order will be displayed and ranked at that price and 
will receive a new timestamp, and will not thereafter be adjusted under 
this provision.\33\
---------------------------------------------------------------------------

    \33\ Thus, the price of the Order will not move beyond its limit 
price.
---------------------------------------------------------------------------

    If a Price to Display Order is entered through OUCH or FLITE, 
during Market Hours the Price to Display Order may be adjusted in the 
following manner after initial entry and posting to the Exchange Book:
    <bullet> If the entered limit price of the Price to Display Order 
locked or crossed a Protected Quotation and the NBBO changes so that 
the Price to Display Order could be ranked and displayed at a price at 
or closer to its original entered limit price without locking or 
crossing a Protected Quotation, the Price to Display Order may either 
remain on the Exchange Book unchanged or may be cancelled back to the 
Participant, depending on the Participant's choice. For example, if a 
Price to Display Order to buy at $11.02 would cross a Protected Offer 
of $11, the Order will be ranked and displayed at $10.99. If the Best 
Offer changes to $11.01, the Price to Display Order will not be 
repriced, but rather will either remain at its current price or be 
cancelled back to the Participant, depending on its choice. A 
Participant's choice with regard to maintaining the Price to Display 
Order or cancelling it is set in advance for each port through which 
the Participant enters Orders.
    The following Order Attributes may be assigned to a Price to 
Display Order:
    <bullet> Price. As described above, the price of the Order may be 
adjusted to avoid locking or crossing a Protected Quotation.
    <bullet> Size.
    <bullet> Reserve Size (available through RASH and FIX only).
    <bullet> A Time-in-Force other than IOC.\34\
---------------------------------------------------------------------------

    \34\ A Price to Display Order entered with a Time-in-Force of 
IOC would be processed as a Non-Displayed Order with a Time-in-Force 
of IOC.
---------------------------------------------------------------------------

    <bullet> Designation as an ISO. In accordance with Regulation NMS, 
a Price to Display Order designated as an ISO would be processed at its 
entered limit price, since such a designation reflects a representation 
by the Participant that it has simultaneously routed one or more 
additional limit orders, as necessary, to execute against the full 
displayed size of any Protected Quotations that the Price to Display 
Order would lock or cross.
    <bullet> Routing (available through RASH and FIX only).\35\
---------------------------------------------------------------------------

    \35\ The availability of routing for Price to Display Orders 
reflects a substantive clarification to the language of the existing 
rule.
---------------------------------------------------------------------------

    <bullet> Primary Pegging and Market Pegging (available through RASH 
and FIX only).
    <bullet> Discretion (available through RASH and FIX only).
    <bullet> Attribution. All Price to Display Orders are Attributable 
Orders.
    <bullet> Display. A Price to Display Order is always displayed (but 
may also have Reserve Size).
Non-Displayed Order
    A ``Non-Displayed Order'' is an Order Type that is not displayed to 
other Participants, but nevertheless remains available for potential 
execution against incoming Orders until executed in full or cancelled. 
Thus, the Order Type provides a means by which Participants may access 
and/or offer liquidity without signaling to other Participants the 
extent of their trading interest. The Order may also serve to provide 
price improvement vis-[agrave]-vis the NBBO. Under Regulation NMS, a 
Non-Displayed Order may lock a Protected Quotation and may be traded-
through by other market centers.\36\ In addition to the Non-Displayed 
Order Type, there are other Order Types that are not displayed on the 
Exchange Book. Thus, ``Non-Display'' is both a specific Order Type and 
an Order Attribute of certain other Order Types.
---------------------------------------------------------------------------

    \36\ Rule 611 requires exchanges to adopt rules that ``require . 
. . members reasonably to avoid . . . [d]isplaying quotations that 
lock or cross any protected quotations'' (emphasis added). 
Similarly, under Rule 600, a Non-Displayed Order is not a Protected 
Quotation because it is not displayed. Accordingly, the definition 
of trade-through does not apply to a transaction at a price that is 
worse than the price of a Non-Displayed Order. Thus, in opting to 
use a Non-Displayed Order, a Participant must balance the benefits 
of not disclosing its trading intentions against the loss of trade-
through protection. However, because a Non-Displayed Order may not 
itself trade-through a Protected Quotation, as described below, the 
System protects against such trade-throughs by repricing and/or 
cancelling Non-Displayed Orders that cross or are crossed by a 
Protected Quotation.
---------------------------------------------------------------------------

    When a Non-Displayed Order is entered, the Non-Displayed Order will 
be executed against previously posted Orders on the Exchange Book that 
are priced equal to or better than the price of the Non-Displayed 
Order, up to the full amount of such previously posted Orders, unless 
such executions would trade through a Protected Quotation. Any portion 
of the Non-Displayed Order that cannot be executed in this manner will 
be posted to the Exchange Book (unless the Non-Displayed Order has a 
Time-in-Force of IOC) and/or routed if it has been designated as 
Routable.\37\
---------------------------------------------------------------------------

    \37\ See Rules 4703(f) and 4758.
---------------------------------------------------------------------------

    During Market Hours, the price at which a Non-Displayed Order is 
posted is determined in the following manner. If the entered limit 
price of the Non-Displayed Order would lock a Protected Quotation, the 
Non-Displayed Order will be placed on the Exchange Book at the locking 
price. If the Non-Displayed Order would cross a Protected Quotation, 
the Non-Displayed Order will be repriced to a price that would lock the 
Protected Quotation and will be placed on the Exchange Book at that 
price.\38\ For example, if a Non-Displayed Order to buy at $11 would 
cross a Protected Offer of $10.99, the Non-Displayed Order will be 
repriced and posted at $10.99. A Non-Displayed Order to buy at $10.99 
would also be posted at $10.99. During Pre-Market Hours and Post-Market 
Hours, a Non-Displayed Order will be posted at its entered limit price 
without adjustment.
---------------------------------------------------------------------------

    \38\ Repricing the crossing Non-Displayed Order helps ensure 
that the Non-Displayed Order will not trade-through the Protected 
Quotation.
---------------------------------------------------------------------------

    As is the case with a Price to Comply Order, a Non-Displayed Order 
may be adjusted after initial entry.\39\ Specifically, if a Non-
Displayed Order is entered through RASH or FIX, during Market Hours the 
Non-Displayed Order may be adjusted in the following manner after 
initial entry and posting to the Exchange Book (unless the Order is 
assigned a Routing Order Attribute that would cause it to be routed to 
another market center rather than remaining on the Exchange Book):
---------------------------------------------------------------------------

    \39\ These adjustments reflect a substantive clarification to 
the language of the existing rule.
---------------------------------------------------------------------------

    <bullet> If the original entered limit price of a Non-Displayed 
Order is higher than the Best Offer (for an Order to buy) or lower than 
the Best Bid (for an Order to sell) and the NBBO moves toward the 
original entered limit price of the Non-

[[Page 18479]]

Displayed Order, the price of the Non-Displayed Order will be adjusted 
repeatedly in accordance with changes to the NBBO. For example, if a 
Non-Displayed Order to buy at $11.02 would cross a Protected Offer of 
$11, the Non-Displayed Order will be priced and posted at $11. If the 
Best Offer then changes to $11.01, the price of the Non-Displayed Order 
will be changed to $11.01. The Order may be repriced repeatedly in this 
manner, receiving a new timestamp each time its price is changed, until 
the Non-Displayed Order is posted at its original entered limit 
price.\40\ The Non-Displayed Order will not thereafter be repriced 
under this provision, except as provided below with respect to crossing 
a Protected Quotation.
---------------------------------------------------------------------------

    \40\ Note that because the Order receives a new timestamp, it is 
processed like a new Order when it is repriced.
---------------------------------------------------------------------------

    <bullet> If, after being posted to the Exchange Book, the NBBO 
changes so that the Non-Displayed Order would cross a Protected 
Quotation, the Non-Displayed Order will be repriced at a price that 
would lock the new NBBO and receive a new timestamp.\41\ For example, 
if a Non-Displayed Order to buy at $11 would lock a Protected Offer of 
$11, the Non-Displayed Order will be posted at $11. If the Best Offer 
then changes to $10.99, the Non-Displayed Order will be repriced at 
$10.99, receiving a new timestamp. The Non-Displayed Order may be 
repriced and receive a new timestamp repeatedly.
---------------------------------------------------------------------------

    \41\ Id. As noted above, the cancellation of a Non-Displayed 
Order in this circumstance helps ensure that the Non-Displayed Order 
will not trade through a Protected Quotation.
---------------------------------------------------------------------------

    If a Non-Displayed Order is entered through OUCH or FLITE, during 
Market Hours the Non-Displayed Order may be adjusted in the following 
manner after initial entry and posting to the Exchange Book:
    <bullet> If the original entered limit price of the Non-Displayed 
Order locked or crossed a Protected Quotation and the NBBO changes so 
that the Non-Displayed Order could be posted at a price at or closer to 
its original entered limit price without crossing a Protected 
Quotation, the Non-Displayed Order may either remain on the Exchange 
Book unchanged or may be cancelled back to the Participant, depending 
on its choice. For example, if a Non-Displayed Order to buy at $11.02 
would cross a Protected Offer of $11, the Order will be priced at $11. 
If the Best Offer changes to $11.01, the Order will not be repriced, 
but rather will either remain at its current $11 price or be cancelled 
back to the Participant, depending on its choice. A Participant's 
choice with regard to maintaining the Non-Displayed Order or cancelling 
it is set in advance for each port through which the Participant enters 
Orders.
    <bullet> If, after a Non-Displayed Order is posted to the Exchange 
Book, the NBBO changes so that the Non-Displayed Order would cross a 
Protected Quotation, the Non-Displayed Order will be cancelled back to 
the Participant. For example, if a Non-Displayed Order to buy at $11 
would lock a Protected Offer of $11, the Non-Displayed Order will be 
posted at $11. If the Best Offer then changes to $10.99, the Non-
Displayed Order will be cancelled back to the Participant.
    <bullet> If a Non-Displayed Order entered through OUCH or FLITE is 
assigned a Midpoint Pegging Order Attribute,\42\ and if, after being 
posted to the Exchange Book, the NBBO changes so that the Non-Displayed 
Order is no longer at the Midpoint between the NBBO, the Non-Displayed 
Order will be cancelled back to the Participant. In addition, if a Non-
Displayed Order entered through OUCH or FLITE is assigned a Midpoint 
Pegging Attribute and also has a limit price that is lower than the 
midpoint between the NBBO for an Order to buy (higher than the midpoint 
between the NBBO for an Order to sell), the Order will nevertheless be 
accepted at its limit price and will be cancelled if the midpoint 
between the NBBO moves lower than (higher than) the price of an Order 
to buy (sell).
---------------------------------------------------------------------------

    \42\ Midpoint Pegging is described below and in proposed Rule 
4703. Specifically, an Order with the Midpoint Pegging Attribute 
that is entered through OUCH or FLITE is priced upon entry but is 
not repriced based on changes to the NBBO. Accordingly, the Order is 
cancelled if it is no longer at the midpoint between the NBBO.
---------------------------------------------------------------------------

    The following Order Attributes may be assigned to a Non-Displayed 
Order:
    <bullet> Price. As described above, the price of the Order may be 
adjusted to avoid crossing a Protected Quotation.
    <bullet> Size.
    <bullet> ``Minimum Quantity''.\43\
---------------------------------------------------------------------------

    \43\ The Minimum Quantity Order Attribute is described below and 
in proposed Rule 4703.
---------------------------------------------------------------------------

    <bullet> Time-in-Force.
    <bullet> Designation as an ISO. In accordance with Regulation NMS, 
a Non-Displayed Order designated as an ISO would be processed at its 
entered limit price, since such a designation reflects a representation 
by the Participant that it has simultaneously routed one or more 
additional limit orders, as necessary, to execute against the full 
displayed size of any Protected Quotations that the Non-Displayed Order 
would cross. As discussed above, a Non-Displayed Order would be 
accepted at a price that locked a Protected Quotation, even if the 
Order was not designated as an ISO, because the non-displayed nature of 
the Order allows it to lock a Protected Quotation under Regulation NMS. 
Accordingly, the System would not interpret receipt of a Non-Displayed 
Order marked ISO that locked a Protected Quotation as the basis for 
determining that the Protected Quotation had been executed for purposes 
of accepting additional Orders at that price level.\44\
---------------------------------------------------------------------------

    \44\ For example, if a Non-Displayed Order to buy at $11 would 
lock the price of a Protected Offer at $11, the Non-Displayed Order 
could be posted at $11 regardless of whether it was marked as an 
ISO. Accordingly, even if the Non-Displayed Order was marked as an 
ISO, the System would not accept a Displayed Order priced at $11 
unless (i) the Displayed Order was itself marked as an ISO, or (ii) 
market data received by the System demonstrated that the Protected 
Offer had been removed.
---------------------------------------------------------------------------

    <bullet> Routing (available through RASH and FIX only).
    <bullet> Primary Pegging and Market Pegging (available through RASH 
and FIX only).
    <bullet> Pegging to the Midpoint.\45\
---------------------------------------------------------------------------

    \45\ Pegging to the Midpoint is described below and in proposed 
Rule 4703. The full functionality of Midpoint Pegging is available 
through RASH and FIX, and more limited functionality is available 
through OUCH and FLITE.
---------------------------------------------------------------------------

    <bullet> Discretion (available through RASH and FIX only).

Post-Only Orders

    A ``Post-Only Order'' is an Order Type designed to have its price 
adjusted as needed to post to the Exchange Book in compliance with Rule 
610(d) under Regulation NMS by avoiding the display of quotations that 
lock or cross any Protected Quotation in a System Security during 
Market Hours, or to execute against locking or crossing quotations in 
circumstances where economically beneficial to the Participant entering 
the Post-Only Order. Post-Only Orders are always displayed, although as 
discussed below, they may also have a non-displayed price in 
circumstances similar to a Price to Comply Order. Post-Only Orders are 
thus designed to allow Participants to help control their trading 
costs, while also ``provid[ing] displayed liquidity to the market and 
thereby contribut[ing] to public price discovery--an objective that is 
fully consistent with the Act.'' \46\ In addition, under some 
circumstances, Post-Only Orders provide price improvement.
---------------------------------------------------------------------------

    \46\ Securities Exchange Act Release No. 73333 (October 9, 
2014), 79 FR 62223 (October 16, 2014) (SR-NYSE-2014-32 and SR-
NYSEMKT-2014-56) (hereinafter ``SR-NYSE-2014-32 Approval Order'') 
(approving ``Add Liquidity Only'' modifier that operates in a manner 
similar to Post-Only Order).
---------------------------------------------------------------------------

    During Market Hours, a Post-Only Order is evaluated at the time of 
entry

[[Page 18480]]

with respect to locking or crossing other Orders on the Exchange Book, 
Protected Quotations, and potential execution as follows: \47\
---------------------------------------------------------------------------

    \47\ Details regarding the processing of a Post-Only Order that 
locks or crosses both a Protected Quotation and an Order on the 
Exchange Book; the potential execution of a Post-Only Order priced 
at more than $1 per share; and the processing of a Post-Only Order 
with a Time-in-Force of IOC reflect substantive clarifications to 
the language of the existing rule.
---------------------------------------------------------------------------

    <bullet> If a Post-Only Order would lock or cross a Protected 
Quotation, the price of the Order will first be adjusted. If the Order 
is Attributable, its adjusted price will be one minimum price increment 
lower than the current Best Offer (for bids) or higher than the current 
Best Bid (for offers). If the Order is not Attributable, its adjusted 
price will be equal to the current Best Offer (for bids) or the current 
Best Bid (for offers). However, the Order will not post or execute 
until the Order, as adjusted, is evaluated with respect to Orders on 
the Exchange Book.
    [cir] If the adjusted price of the Post-Only Order would not lock 
or cross an Order on the Exchange Book, the Order will be posted in the 
same manner as a Price to Comply Order (if it is not Attributable) or a 
Price to Display Order (if it is Attributable). Specifically, if the 
Post-Only Order is not Attributable, it will be displayed on the 
Exchange Book at a price one minimum price increment lower than the 
current Best Offer (for bids) or higher than the current Best Bid (for 
offers) but will be ranked on the Exchange Book with a non-displayed 
price equal to the current Best Offer (for bids) or to the current Best 
Bid (for offers). For example, if a Post-Only Order to buy at $11 would 
lock a Protected Offer of $11, the Order will be ranked at a non-
displayed price of $11 but will be displayed at $10.99. If the Post-
Only Order is Attributable, it will be ranked and displayed on the 
Exchange Book at a price one minimum increment lower than the current 
Best Offer (for bids) or higher than the current Best Bid (for offers). 
Thus, in the preceding example, the Post-Only Order to buy would be 
ranked and displayed at $10.99.
    [cir] If the adjusted price of the Post-Only Order would lock or 
cross an Order on the Exchange Book, the Post Only Order will be 
repriced, ranked, and displayed at one minimum price increment below 
the current best-priced Order to sell on the Exchange Book (for bids) 
or above the current best-priced Order to buy on the Exchange Book (for 
offers); provided, however, the Post-Only Order will execute if (i) it 
is priced at $1.00 or more,\48\ or (ii) it is priced below $1.00 and 
the value of price improvement associated with executing against an 
Order on the Exchange Book (as measured against the original limit 
price of the Order) 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 Exchange Book and subsequently provided liquidity. 
For example, if a Participant entered a Non-Attributable Post-Only 
Order to buy at $11.01, another market center is displaying a Protected 
Offer at $11, and there is a Non-Displayed Order on the Exchange Book 
to sell at $11, the adjusted price of the Post-Only Order will be $11. 
However, because the Post-Only Order would be executable against the 
Non-Displayed Order on the Exchange Book, the Post-Only Order would 
execute.
---------------------------------------------------------------------------

    \48\ This is the case because the Exchange's fees for securities 
priced at $1 or more reflect a ``taker/maker'' pricing structure in 
which Orders that access liquidity are paid a rebate. As a result, 
it is always economically beneficial for an Order to execute against 
posted liquidity and receive a rebate, even if the Order receives no 
price improvement. In the event that the Exchange modified its 
pricing structure so as to remove the applicable rebate, it would 
also amend the rules governing Post-Only Orders to provide that 
securities priced at $1 or more would execute against Orders on the 
Exchange Book only if they would receive price improvement of $0.01 
or more per share.
---------------------------------------------------------------------------

    <bullet> If the Post-Only Order would not lock or cross a Protected 
Quotation but would lock or cross an Order on the Exchange Book, the 
Post Only Order will be repriced, ranked, and displayed at one minimum 
price increment below the current best-priced Order to sell on the 
Exchange Book (for bids) or above the current best-priced Order to buy 
on the Exchange Book (for offers); provided, however, the Post-Only 
Order will execute if (i) it is priced at $1.00 or more,\49\ or (ii) it 
is priced below $1.00 and the value of price improvement associated 
with executing against an Order on the Exchange Book (as measured 
against the original limit price of the Order) 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 Exchange Book and 
subsequently provided liquidity. For example, if a Participant entered 
a Post-Only Order to buy at $11.02, the Best Offer was $11.04, and 
there was a Non-Displayed Order on the Exchange Book to sell at $11.02, 
the Post-Only Order would execute.\50\
---------------------------------------------------------------------------

    \49\ Id.
    \50\ Thus, in circumstances where a Post-Only Order would lock 
or cross an Order on the Exchange Book, the Post-Only Order will 
either execute or post and offer displayed liquidity. A Post-Only 
Order is not cancelled back to the Participant that entered it if it 
cannot post at its original price. Thus, the Order Type does not 
provide a means to ascertain the existence of locking or crossing 
Orders on the Exchange Book without the Participant also committing 
to execute against such Orders or display and potentially provide 
liquidity at the Exchange's best price.
---------------------------------------------------------------------------

    <bullet> If a Post-Only Order is entered with a Time-in-Force of 
IOC, the price of an Order to buy (sell) will be repriced to the lower 
of (higher of) (i) one minimum price increment below (above) the price 
of the Order or (ii) the current Best Offer (Best Bid). The Order will 
execute against any Order on the Exchange Book with a price equal to or 
better than the adjusted price of the Post-Only Order. If the Post-Only 
Order cannot execute, it will be cancelled. For example, if a Post-Only 
Order to buy at $11 with a Time-in-Force of IOC was entered and the 
current Best Offer was $11.01, the Order would be repriced to $10.99; 
however, if the Best Offer was $10.98, the Order would be repriced to 
$10.98.\51\
---------------------------------------------------------------------------

    \51\ This functionality reflects the overall purpose of the 
Post-Only Order, which is not to post to the Exchange Book in all 
circumstances, but rather to assist Participants in controlling 
execution costs by allowing consideration of price improvement, 
fees, and rebates in the handling of the Order. Thus, entering a 
Post-Only Order with a Time-in-Force of IOC allows a Participant to 
stipulate that an Order will execute only if it receives price 
improvement.
---------------------------------------------------------------------------

    <bullet> If a Post-Only Order would not lock or cross an Order on 
the Exchange Book or any Protected Quotation, it will be posted on the 
Exchange Book at its entered limit price.
    During Pre-Market and Post-Market Hours, a Post-Only Order will be 
processed in a manner identical to Market Hours with respect to locking 
or crossing Orders on the Exchange Book, but will not have its price 
adjusted with respect to locking or crossing the quotations of other 
market centers.
    If a Post-Only Order is entered through RASH or FIX, during System 
Hours the Post-Only Order may be adjusted in the following manner after 
initial entry and posting to the Exchange Book: \52\
---------------------------------------------------------------------------

    \52\ These adjustments reflect a substantive clarification to 
the language of the existing rule.
---------------------------------------------------------------------------

    <bullet> If the original entered limit price of the Post-Only Order 
is not being displayed, the displayed (and non-displayed price, if any) 
of the Order will be adjusted repeatedly in accordance with changes to 
the NBBO or the best price on the Exchange Book, as applicable; 
provided, however, that if the quotation of another market center moves 
in a manner that would lock or cross the displayed price of a Post-Only 
Order, the price(s) of the Post-Only Order will not be adjusted.\53\ 
For

[[Page 18481]]

example, if a Non-Attributable Post-Only Order to buy at $11.02 would 
cross a Protected Offer of $11, the Order will be ranked at a non-
displayed price of $11 but will be displayed at $10.99. If the Best 
Offer then moves to $11.01, the displayed price will be changed to $11 
and the non-displayed price at which the Order is ranked will be 
changed to $11.01. However, if another market center then displays an 
offer of $11 (thereby locking the previously displayed price of the 
Post-Only Order, notwithstanding Rule 610(d) under Regulation NMS), the 
price of the Post-Only Order will not be changed. The Order may be 
repriced repeatedly until such time as the Post-Only Order is able to 
be displayed at its original entered limit price ($11.02 in the 
example). The Post-Only Order receives a new timestamp each time its 
price is changed. If the original entered limit price of the Post-Only 
Order would no longer lock or cross a Protected Quotation or an Order 
on the Exchange Book, the Post-Only Order will be ranked displayed at 
that price and will receive a new timestamp, and will not thereafter be 
adjusted under this provision.\54\
---------------------------------------------------------------------------

    \53\ This means that, in general, the price of the Post-Only 
Order will move toward, but not away from, its original entered 
limit price. Because a Post-Only Order is removed from the Exchange 
Book while it is being repriced, however, it is possible that the 
Order's price will move away from its original entered limit price 
in the case of a ``race condition'' where the NBBO changes again 
while the Order is not on the Exchange Book.
    \54\ Thus, the price of the Order will not move beyond its limit 
price.
---------------------------------------------------------------------------

    If a Post-Only Order is entered through OUCH or FLITE, the Post-
Only Order may be adjusted in the following manner after initial entry 
and posting to the Exchange Book: \55\
---------------------------------------------------------------------------

    \55\ These adjustments reflect a substantive clarification to 
the language of the existing rule.
---------------------------------------------------------------------------

    <bullet> During Market Hours, if the original entered limit price 
of the Post-Only Order locked or crossed a Protected Quotation, the 
Post-Only Order may be adjusted after initial entry in the same manner 
as a Price to Comply Order (or a Price to Display Order, if it is 
Attributable). Thus, in the case of a Non-Attributable Post-Only Order 
that crossed a Protected Quotation, if the NBBO changed so that the 
Post-Only Order could be ranked and displayed at a price at or closer 
to its original entered limit price without locking or crossing a 
Protected Quotation, the Post-Only Order may either remain on the 
Exchange Book unchanged or may be cancelled back to the Participant, 
depending on its choice. In the case of a Non-Attributable Post-Only 
Order that locked a Protected Quotation, if the limit price would no 
longer lock a Protected Quotation, the Post-Only Order may either 
remain on the Exchange Book unchanged, may be cancelled back to the 
Participant, or may be ranked and displayed at its original entered 
limit price, depending on the Participant's choice, and will not 
thereafter be adjusted under this provision.\56\ If the Post-Only Order 
is displayed at its original entered limit price, it will receive a new 
timestamp. Finally, in the case of an Attributable Post-Only Order that 
locked or crossed a Protected Quotation, if the NBBO changed so that 
the Post-Only Order could be ranked and displayed at a price at or 
closer to its original entered limit price without locking or crossing 
a Protected Quotation, the Post-Only Order may either remain on the 
Exchange Book unchanged or may be cancelled back to the Participant, 
depending on the Participant's choice. A Participant's choice with 
regard to adjustment of Post-Only Orders is set in advance for each 
port through which the Participant enters Orders.
---------------------------------------------------------------------------

    \56\ Thus, the price of the Order will not move beyond its limit 
price.
---------------------------------------------------------------------------

    <bullet> During System Hours, if the original entered limit price 
of the Post-Only Order locked or crossed an Order on the Exchange Book 
and did not execute, and the Exchange Book changes so that the original 
entered limit price would no longer lock or cross an Order on the 
Exchange Book, the Post-Only Order may either remain on the Exchange 
Book unchanged or may be cancelled back to the Participant, depending 
on the Participant's choice. For example, if a Post-Only Order to buy 
at $0.98 would lock an Order on the Exchange Book priced at $0.98, the 
Post-Only Order will be ranked and displayed at $0.9799. If the Order 
at $0.98 is cancelled or executed, the Post-Only Order may either 
remain with a displayed price of $0.9799 or be cancelled back to the 
Participant, depending on the Participant's choice. A Participant's 
choice with regard to maintaining the Post-Only Order or cancelling it 
is set in advance for each port through which the Participant enters 
Orders.
    The following Order Attributes may be assigned to a Post-Only 
Order:
    <bullet> Price. As described above, the price of the Order may be 
adjusted to avoid locking or crossing a Protected Quotation, and may 
include a displayed price as well as a non-displayed price.
    <bullet> Size.
    <bullet> Time-in-Force.
    <bullet> Designation as an ISO. In accordance with Regulation NMS, 
a Post-Only Order designated as an ISO that locked or crossed a 
Protected Quotation would be processed at its entered limit price, 
since such a designation reflects a representation by the Participant 
that it has simultaneously routed one or more additional limit orders, 
as necessary, to execute against the full displayed size of any 
Protected Quotations that the Post-Only Order would lock or cross. 
However, as described above, a Post-Only Order designated as an ISO 
that locked or crossed an Order on the Exchange Book would either 
execute at time of entry or would have its price adjusted prior to 
posting. Accordingly, the System would not interpret receipt of a Post-
Only Order marked ISO that had its price adjusted prior to posting as 
the basis for determining that any Protected Quotation at the Order's 
original entered limit price level had been executed for purposes of 
accepting additional Orders at that price level. However, if the Post-
Only Order is ranked and displayed at its adjusted price, the System 
would consider the adjusted price level to be open for purposes of 
accepting additional Orders at that price level. For example, assume 
that there is a Protected Offer at $0.98 and a Participant enters a 
Post-Only Order marked ISO to buy at $0.98. If there are no Orders to 
sell at $0.98 on the Exchange Book, the Order to buy will be displayed 
and ranked at $0.98, since the designation of the Order as an ISO 
reflects the Participant's representation that it has routed one or 
more additional limit orders, as necessary, to execute against the full 
displayed size of any Protected Quotations that the Post-Only Order 
would lock or cross. However, if there was also an Order to sell at 
$0.98 on the Exchange Book, the Post-Only Order may be repriced, 
ranked, and displayed at $0.9799. In that case, the mere fact that the 
Post-Only Order was designated as an ISO would not allow the Exchange 
to conclude that the $0.98 price level was ``open'' for receiving 
orders to buy at that price; the $0.98 price level would be considered 
open only if market data received by the System demonstrated that the 
Protected Offer at $0.98 had been removed or if a subsequent Displayed 
Order marked ISO was received and ranked at that price.
    <bullet> Attribution.
    <bullet> Display. A Post-Only Order is always displayed, although, 
as provided above, it may also have a non-displayed price.

[[Page 18482]]

Retail Price Improving Order and Retail Order \57\
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    \57\ The definitions of Retail Price Improving Order and Retail 
Order are currently found in Rule 4780. Accordingly, conforming 
amendments are proposed to that rule to reflect the adoption of the 
proposed new definitions in Rule 4701.
---------------------------------------------------------------------------

    A ``Retail Price Improving Order'' or ``RPI Order'' is an Order 
Type with a Non-Display Order Attribute that is held on the Exchange 
Book in order to provide liquidity at a price at least $0.001 better 
than the NBBO through a special execution process described in Rule 
4780. A Retail Price Improving Order may be entered in price increments 
of $0.001. RPI Orders collectively may be referred to as ``RPI 
Interest.''
    An RPI Order will be posted to the Exchange Book regardless of its 
price, but an RPI Order may execute only against a Retail Order, and 
only if its price is at least $0.001 better than the NBBO.
    The following Order Attributes may be assigned to an RPI Order:
    <bullet> Price. The price of an RPI Order must be at least $0.001 
better than the NBBO in order to execute.
    <bullet> Size.
    <bullet> A Time-in-Force other than IOC.
    <bullet> Primary Pegging (available through RASH and FIX only).
    <bullet> Midpoint Pegging (available through RASH and FIX only).
    <bullet> Non-Display. All RPI Orders are Non-Displayed.
    A ``Retail Order'' is an Order Type with a Non-Display Order 
Attribute submitted to the Exchange by a Retail Member Organization (as 
defined in Rule 4780). A Retail Order must be an agency Order, or 
riskless principal Order that satisfies the criteria of FINRA Rule 
5320.03. The Retail Order must reflect trading interest of a natural 
person with no change made to the terms of the underlying order of the 
natural person with respect to price (except in the case of a market 
order that is changed to a marketable limit order) or side of market 
and that does not originate from a trading algorithm or any other 
computerized methodology.
    A Retail Order may be designated as either a Type-1 Retail Order or 
a Type-2 Retail Order. Upon entry, a Type-1 Retail Order will attempt 
to execute against RPI Orders and any other Orders on the Exchange Book 
with a price that is (i) equal to or better than the price of the Type-
1 Retail Order and (ii) at least $0.001 better than the NBBO. A Type-1 
Retail Order is not Routable and will thereafter be cancelled.
    Upon entry, a Type-2 Retail Order will first attempt to execute 
against RPI Orders and any other Orders on the Exchange Book with a 
price that is (i) equal to or better than the price of the Type-2 
Retail Order and (ii) at least $0.001 better than the NBBO and will 
then attempt to execute against any other Order on the Exchange Book 
with a price that is equal to or better than the price of the Type-2 
Retail Order, unless such executions would trade through a Protected 
Quotation. A Type-2 Retail Order may be designated as Routable.
    The following Order Attributes may be assigned to a Retail Order:
    <bullet> Price.
    <bullet> Size.
    <bullet> A Time-in-Force of IOC.
    <bullet> Routing (available through RASH and FIX only).
    <bullet> Midpoint Pegging (available through RASH and FIX only).
    <bullet> Non-Display. All Retail Orders are Non-Displayed.
Order Attributes
    Proposed Rule 4702 lists the Order Attributes that may be assigned 
to specific Order Types. Proposed Rule 4703 details the parameters of 
each Order Attribute.
Time-in-Force
    The ``Time-in-Force'' assigned to an Order means the period of time 
that the System will hold the Order for potential execution. 
Participants specify an Order's Time-in-Force by designating a time at 
which the Order will become active and a time at which the Order will 
cease to be active. The available times for activating Orders are:
    <bullet> The time of the Order's receipt by the System;
    <bullet> the beginning of Market Hours;
    <bullet> the end of Market Hours;
    <bullet> the resumption of trading, in the case of a security that 
is the subject of a trading halt.
    The available times for deactivating Orders are:
    <bullet> ``Immediate'' (i.e., immediately after determining whether 
the Order is marketable);
    <bullet> the end of Market Hours;
    <bullet> the end of System Hours;
    <bullet> one year after entry; or
    <bullet> a specific time identified by the Participant; provided, 
however, that an Order specifying an expire time beyond the current 
trading day will be cancelled at the end of the current trading day.
    Notwithstanding the Time-in-Force originally designated for an 
Order, a Participant may always cancel an Order after it is entered.
    The following Times in Force are referenced elsewhere in the 
Exchange's Rules by the designations noted below:
    <bullet> An Order that is designated to deactivate immediately 
after determining whether the Order is marketable may be referred to as 
having a Time in Force of ``Immediate or Cancel'' or ``IOC''. Any Order 
with a Time-in-Force of IOC entered between 9:30 a.m. ET and 4 p.m. ET 
may be referred to as having a Time-in-Force of ``Market Hours 
Immediate or Cancel'' or ``MIOC''. An Order with a Time-in-Force of IOC 
that is entered at any time between 7 a.m. ET and 7 p.m. ET may be 
referred to as having a Time-in-Force of ``System Hours Immediate or 
Cancel'' or ``SIOC''.
    <bullet> An Order that is designated to deactivate at 7 p.m. may be 
referred to as having a Time in Force of ``System Hours Day'' or 
``SDAY''.
    <bullet> An Order that is designated to deactivate one year after 
entry may be referred to as a ``Good-till-Cancelled'' or ``GTC'' Order. 
If a GTC Order is designated as eligible for execution during Market 
Hours only, it may be referred to as having a Time in Force of ``Market 
Hours Good-till-Cancelled'' or ``MGTC''. If a GTC is designated as 
eligible for execution during System Hours, it may be referred to as 
having a Time in Force of ``System Hours Good-till-Cancelled'' or 
``SGTC''.
    <bullet> An Order that is designated to deactivate at the time 
specified in advance by the entering Participant may be referred to as 
having a Time-in-Force of ``System Hours Expire Time'' or ``SHEX''.
    <bullet> An Order that is designated to activate at any time during 
Market Hours and deactivate at 4 p.m. ET may be referred to as having a 
Time-in-Force of ``Market Hours Day'' or ``MDAY''. An Order entered 
with a Time-in-Force of MDAY after 4 p.m. ET will be accepted but given 
a Time-in-Force of IOC.
    <bullet> An Order that is designated to activate when entered and 
deactivate at 4 p.m. ET may be referred to as having a Time in Force of 
``Good-till-Market Close'' or ``GTMC''. GTMC Orders entered after 4 
p.m. ET will be treated as having a Time-in-Force of SIOC.
Size
    Except as otherwise provided, an Order may be entered in any whole 
share size between one share and 999,999 shares. Orders for fractional 
shares are not permitted. The following terms may be used to describe 
particular Order sizes:
    <bullet> ``normal unit of trading'' or ``round lot'' means the size 
generally employed by traders when trading a particular security, which 
is 100 shares in most instances;
    <bullet> ``mixed lot'' means a size of more than one normal unit of 
trading but not a multiple thereof; and

[[Page 18483]]

    <bullet> ``odd lot'' means a size of less than one normal unit of 
trading.
Price
    With limited exceptions, all Orders must have a price, such that 
they will execute only if the price available is equal to or better 
than the price of the Order. The maximum price that the System will 
accept is $199,999.99. Certain Orders have a price that is determined 
by the System based on the NBBO or other reference prices, rather than 
by the Participant. As described below with respect to the Pegging 
Order Attribute, an Order may have a price that is pegged to the 
opposite side of the market, in which case the Order will behave like a 
``market order'' or ``unpriced order'' (i.e., an Order that executes 
against accessible liquidity on the opposite side of the market, 
regardless of its price).
Pegging
    Pegging is an Order Attribute that allows an Order to have its 
price automatically set with reference to the NBBO; provided, however, 
that if the Exchange is the sole market center at the Best Bid or Best 
Offer (as applicable), then the price of any Displayed Order with 
Pegging will be set with reference to the highest bid or lowest offer 
disseminated by a market center other than the Exchange.\58\ An Order 
with a Pegging Order Attribute may be referred to as a ``Pegged 
Order.'' The price to which an Order is pegged is referred to as the 
Inside Quotation, the Inside Bid, or the Inside Offer, as appropriate. 
There are three varieties of Pegging:
---------------------------------------------------------------------------

    \58\ This is the case because otherwise the Pegged Order would 
become pegged to itself if it set the NBBO.
---------------------------------------------------------------------------

    <bullet> Primary Pegging means Pegging with reference to the Inside 
Quotation on the same side of the market. For example, if the Inside 
Bid was $11, an Order to buy with Primary Pegging would be priced at 
$11.
    <bullet> Market Pegging means Pegging with reference to the Inside 
Quotation on the opposite side of the market. For example, if the 
Inside Offer was $11.06, an Order to buy with Market Pegging would be 
priced at $11.06.
    <bullet> Midpoint Pegging means Pegging with reference to the 
midpoint between the Inside Bid and the Inside Offer (the 
``Midpoint''). Thus, if the Inside Bid was $11 and the Inside Offer was 
$11.06, an Order with Midpoint Pegging would be priced at $11.03. An 
Order with Midpoint Pegging is not displayed. An Order with Midpoint 
Pegging may be executed in sub-pennies if necessary to obtain a 
midpoint price.
    Pegging is available only during Market Hours. An Order with 
Pegging may specify a limit price beyond which they Order may not be 
executed; provided, however, that if an Order has been assigned a 
Pegging Order Attribute and a Discretion Order Attribute, the Order may 
execute at any price within the discretionary price range, even if 
beyond the limit price specified with respect to the Pegging Order 
Attribute. If an Order with Pegging is priced at its limit price, the 
price of the Order may nevertheless be changed to a less aggressive 
price based on changes to the Inside Quotation.\59\ In addition, an 
Order with Primary Pegging or Market Pegging may specify an Offset 
Amount, such that the price of the Order will vary from the Inside 
Quotation by the selected Offset Amount. The Offset Amount may be 
either aggressive or passive. Thus, for example, if a Participant 
entered an Order to buy with Primary Pegging and a passive Offset 
Amount of $0.05 and the Inside Bid was $11, the Order would be priced 
at $10.95. If the Participant selected an aggressive Offset Amount of 
$0.02, however, the Order would be priced at $11.02. An Order with 
Primary Pegging and an Offset Amount will not be Displayed, unless the 
Order is Attributable. An Order with Midpoint Pegging will not be 
Displayed. An Order with Market Pegging and no Offset behaves as a 
``market order'' with respect to any liquidity on the Exchange Book at 
the Inside Quotation on the opposite side of the market because it is 
immediately executable at that price. If, at the time of entry, there 
is no price to which a Pegged Order can be pegged, the Order will be 
rejected. In the case of an Order with Midpoint Pegging, if the Inside 
Bid and Inside Offer are locked, the Order will be priced at the 
locking price, if the Inside Bid and Inside Offer are crossed, the 
Order will nevertheless be priced at the midpoint between the Inside 
Bid and Inside Offer, and if there is no Inside Bid and/or Inside 
Offer, the Order will be rejected.
---------------------------------------------------------------------------

    \59\ For example, if an Order to buy with Primary Pegging is 
entered with a limit price of $11.05 at a time when the Inside Bid 
is $11, the initial price of the Order will be $11. If, thereafter, 
the Inside Bid changes to $11.05, $11.06, and $11.04, the price of 
the Order at such times will be $11.05, $11.05, and $11.04.
---------------------------------------------------------------------------

    Primary Pegging and Market Pegging are available through RASH and 
FIX only. An Order entered through OUCH or FLITE with Midpoint Pegging 
will have its price set upon initial entry to the Midpoint, unless the 
Order has a limit price that is lower than the Midpoint for an Order to 
buy (higher than the Midpoint for an Order to sell), in which case the 
Order will be ranked on the Exchange Book at its limit price. 
Thereafter, if the NBBO changes so that the Midpoint is lower than 
(higher than) the price of an Order to buy (sell), the Pegged Order 
will be cancelled back to the Participant.
    An Order entered through RASH or FIX with Pegging will have its 
price set upon initial entry and will thereafter have its price reset 
in accordance with changes to the relevant Inside Quotation. An Order 
with Pegging receives a new timestamp whenever its price is updated and 
therefore will be evaluated with respect to possible execution (and 
routing, if it has been assigned a Routing Order Attribute) in the same 
manner as a newly entered Order. If the price to which an Order is 
pegged is not available, the Order will be rejected.
    Pegging functionality allows a Participant to have the System 
adjust the price of the Order continually in order to keep the price 
within defined parameters. Thus, the System performs price adjustments 
that would otherwise be performed by the Participant through 
cancellation and reentry of Orders. The fact that a new timestamp is 
created for a Pegged Order whenever it has its price adjusted allows 
the Order to seek additional execution opportunities and ensures that 
the Order does not ``jump the queue'' with respect to any Orders that 
were previously at the Pegged Order's new price level.
    If an Order with Primary Pegging is updated 1,000 times, it will be 
cancelled; if an Order with other forms of Pegging is updated 10,000 
times, it will be cancelled. This restriction is designed to conserve 
System resources by limiting the persistence of Orders that update 
repeatedly without any reasonable prospect of execution.
Minimum Quantity
    Minimum Quantity is an Order Attribute that allows a Participant to 
provide that an Order will not execute unless a specified minimum 
quantity of shares can be obtained. Thus, the functionality serves to 
allow a Participant that may wish to buy or sell a large amount of a 
security to avoid signaling its trading interest unless it can purchase 
a certain minimum amount. An Order with a Minimum Quantity Order 
Attribute may be referred to as a ``Minimum Quantity Order.'' For 
example, a Participant could enter an Order with a Size of 1000 shares 
and specify a Minimum Quantity of 500 shares. In that case, upon entry, 
the System would determine whether there were posted Orders executable 
against the incoming Order with a size

[[Page 18484]]

of at least 500 shares.\60\ If there were not, the Order would post on 
the Exchange Book in accordance with the characteristics of its 
underlying Order Type. Once posted to the Exchange Book, the Minimum 
Quantity Order retains its Minimum Quantity Order Attribute, such that 
the Order may execute only against incoming Orders with a size of at 
least the minimum quantity condition. An Order that has a Minimum 
Quantity Order Attribute and that posts to the Exchange Book will not 
be displayed.
---------------------------------------------------------------------------

    \60\ As reflected in the proposed rule, the System currently 
allows an incoming Order with a Minimum Quantity to execute if one 
or more Orders on the Exchange Book satisfy the Minimum Quantity 
condition.
---------------------------------------------------------------------------

    Upon entry, an Order with a Minimum Quantity Order Attribute must 
have a size of at least one round lot. An Order entered through OUCH or 
FLITE may have a minimum quantity condition of any size of at least one 
round lot. An Order entered through RASH or FIX must have a minimum 
quantity of one round lot or any multiple thereof, and a mixed lot 
minimum quantity condition will be rounded down to the nearest round 
lot. In the event that the shares remaining in the size of an Order 
with a Minimum Quantity Order Attribute following a partial execution 
thereof are less than the minimum quantity specified by the Participant 
entering the Order, the minimum quantity value of the Order will be 
reduced to the number of shares remaining. An Order with a Minimum 
Quantity Order Attribute may not be displayed; if a Participant marks 
an Order with both a Minimum Quantity Order Attribute and a Display 
Order Attribute, the System will accept the Order but will give a Time-
in-Force of IOC, regardless of the Time-in-Force marked by the 
Participant. An Order marked with a Minimum Quantity Order Attribute 
and a Routing Order Attribute will be rejected.
Routing
    Routing is an Order Attribute that allows a Participant to 
designate an Order to employ one of several Routing Strategies offered 
by the Exchange, as described in Rule 4758; such an Order may be 
referred to as a ``Routable Order.'' Upon receipt of an Order with the 
Routing Order Attribute, the System will process the Order in 
accordance with the applicable Routing Strategy. In the case of a 
limited number of Routing Strategies, the Order will be sent directly 
to other market centers for potential execution. For most other Routing 
Strategies, the Order will attempt to access liquidity available on the 
Exchange in the manner specified for the underlying Order Type and will 
then be routed in accordance with the applicable Routing Strategy. 
Shares of the Order that cannot be executed are then returned to the 
Exchange, where they will (i) again attempt to access liquidity 
available on the Exchange and (ii) post to the Exchange Book or be 
cancelled, depending on the Time-in-Force of the Order. Under certain 
Routing Strategies, the Order may be routed again if the System 
observes an accessible quotation of another market center, and returned 
to the Exchange again for potential execution and/or posting to the 
Exchange Book.
    In connection with the trading of securities governed by Regulation 
NMS, all Orders shall be routed for potential execution in compliance 
with Regulation NMS. Where appropriate, Routable Orders will be marked 
as Intermarket Sweep Orders.
Discretion
    Discretion is an Order Attribute under which an Order has a non-
displayed discretionary price range within which the entering 
Participant is willing to trade; such an Order may be referred to as a 
``Discretionary Order.'' \61\ Thus, an Order with Discretion has both a 
price (for example, buy at $11) and a discretionary price range (for 
example, buy up to $11.03). Depending on the Order Type used, the price 
may be displayed (for example, a Price to Display Order) or non-
displayed (for example, a Non-Displayed Order). The discretionary price 
range is always non-displayed. In addition, it should be noted that the 
Discretion Order Attribute may be combined with the Pegging Order 
Attribute, in which case either the price of the Order or the 
discretionary price range or both may be pegged in the ways described 
in Rule 4702(d) with respect to the Pegging Order Attribute. For 
example, an Order with Discretion to buy might be pegged to the Best 
Bid with a $0.05 passive Offset and might have a discretionary price 
range pegged to the Best Bid with a $0.02 passive Offset. In that case, 
if the Best Bid was $11, the price of the Order would be $10.95, with a 
discretionary price range up to $10.98. If the Best Bid moved to 
$10.99, the price of the Order would then be $10.94, with a 
discretionary price range up to $10.97. Alternatively, if the price of 
the Order was pegged but the discretionary price range was not, the 
price of the Order would be $10.94, but the discretionary price range 
would continue to range up to $10.98. Likewise, if the discretionary 
price range was pegged but the price of the Order was not, the Order 
would remain priced at $10.95 but with a discretionary price range of 
up to $10.97. A Participant may also specify a limit price beyond which 
the discretionary price range may not extend.
---------------------------------------------------------------------------

    \61\ The proposed rule text reflects a substantive clarification 
to the existing description of Discretionary Orders.
---------------------------------------------------------------------------

    Under the circumstances described below, the System processes an 
Order with Discretion by generating a Non-Displayed Order with a Time-
in-Force of IOC (a ``Discretionary IOC'') that will attempt to access 
liquidity available within the discretionary price range. The 
Discretionary IOC will not be permitted to execute, however, if the 
price of the execution would trade through a Protected Quotation. If 
more than one Order with Discretion satisfies conditions that would 
cause the generation of a Discretionary IOC simultaneously, the order 
in which such Discretionary IOCs are presented for execution is random, 
based on the respective processing time for each such Order. Whenever a 
Discretionary IOC is generated, the underlying Order with Discretion 
will be withheld or removed from the Exchange Book and will then be 
routed and/or placed on the Exchange Book if the Discretionary IOC does 
not exhaust the full size of the underlying Order with Discretion, with 
its price determined by the underlying Order Type and Order Attributes 
selected by the Participant.\62\ Because the circumstances under which 
a Discretionary IOC will be generated are dependent upon a range of 
factors, several specific scenarios are described below.
---------------------------------------------------------------------------

    \62\ It should be noted that a Discretionary IOC is deemed to be 
accessing liquidity for purposes of the Exchange's schedule of fees 
and rebates, unless one Discretionary IOC executes against another 
Discretionary IOC, in which case the Order that had reached the 
Exchange Book first would be deemed to provide liquidity. Because 
the Exchange has a ``taker/maker'' pricing model under which a 
Participant that accesses liquidity receives a rebate, a rebate 
would be paid with respect to a Discretionary IOC.
---------------------------------------------------------------------------

    <bullet> If an Order has been assigned a Discretion Order 
Attribute, but has not been assigned a Routing Order Attribute, upon 
entry of the Order, the System will automatically generate a 
Discretionary IOC with a price equal to the highest price for an Order 
with Discretion to buy (lowest price for an Order with Discretion to 
sell) within the discretionary price range and a size equal to the full 
size of the underlying Order to determine if there are any Orders 
within the discretionary price range on the Exchange Book. If the 
Discretionary IOC does not exhaust the

[[Page 18485]]

full size of the Order with Discretion, the remaining size of the Order 
with Discretion will post to the Exchange Book in accordance with the 
parameters that apply to the underlying Order Type. Thus, for example, 
if a Participant enters a Price to Display Order to buy at $11 with a 
discretionary price range of up to $11.03, upon entry the System will 
generate a Discretionary IOC to buy priced at $11.03. If there is an 
Order on the Exchange Book to sell priced at $11.02 and an execution at 
$11.02 would not trade through a Protected Quotation, the Discretionary 
IOC will execute against the Order on the Exchange Book, up to the full 
size of each Order. Any remaining size of the Price to Display Order 
would post to the Exchange Book in accordance with its parameters.
    <bullet> After the Order posts to the Exchange Book, the System 
will examine whether at any time there is an Order on the Exchange Book 
with a price in the discretionary price range against which the Order 
with Discretion could execute. In doing so, the System will examine all 
Orders (including Orders that are not Displayed). If the System 
observes such an Order, it will generate a Discretionary IOC with a 
price equal to the highest price for an Order to buy (lowest price for 
an Order to sell) within the discretionary price range and a size equal 
to the full size of the Order.
    <bullet> If an Order that uses a passive routing strategy (i.e., a 
strategy such as BSCN \63\ that does not seek routing opportunities 
after posting to the Exchange Book) has been assigned a Discretion 
Order Attribute but does not have a pegged discretionary price range, 
upon entry of the Order, the System will examine all Orders (including 
Orders that are not Displayed) on the Exchange Book to determine if 
there is an Order on the Exchange Book with a price in the 
discretionary price range against which the Order with Discretion could 
execute. If the System observes such an Order, it will generate a 
Discretionary IOC with a price equal to the price of the Order on the 
Exchange Book and a size equal to the applicable size of the Order on 
the Exchange Book. The System will also determine if there are any 
accessible quotations with prices that are within the discretionary 
price range at destinations on the applicable routing table for the 
selected routing strategy. If there are such quotations, the System 
will generate one or more Discretionary IOCs to route to such 
destinations, with a price and size that match the price and size of 
the market center's quotation. If necessary to maximize execution 
opportunities and comply with Regulation NMS, the System's routing 
broker may mark such Discretionary IOCs as Intermarket Sweep Orders. If 
the Discretionary IOC(s) do not exhaust the full size of the Order with 
Discretion, the remaining size of the Order with Discretion will post 
to the Exchange Book in accordance with the parameters that apply to 
the underlying Order Type. The System will then examine whether at any 
time there is an Order on the Exchange Book with a price in the 
discretionary price range against which the Order with Discretion could 
execute. In doing so, the System will examine all Orders (including 
Orders that are not Displayed). If the System observes such an Order, 
it will generate a Discretionary IOC with a price equal to the price of 
the Order on the Exchange Book and a size equal to the applicable size 
of the Order on the Exchange Book.
---------------------------------------------------------------------------

    \63\ The BSCN routing strategy is described in Rule 4758.
---------------------------------------------------------------------------

    <bullet> If an Order that uses a reactive routing strategy (i.e., a 
strategy such as BSTG \64\ that seeks routing opportunities after 
posting to the Exchange Book) has been assigned a Discretion Order 
Attribute but does not have a pegged discretionary price range, upon 
entry of the Order, the System will examine all Orders (including 
Orders that are not Displayed) on the Exchange Book to determine if 
there is an Order on the Exchange Book with a price in the 
discretionary price range against which the Order with Discretion could 
execute. If the System observes such an Order, it will generate a 
Discretionary IOC with a price equal to the price of the Order on the 
Exchange Book and a size equal to the applicable size of the Order on 
the Exchange Book. The System will also determine if there are any 
accessible quotations with prices that are within the discretionary 
price range at destinations on the applicable routing table for the 
selected routing strategy. If there are such quotations, the System 
will generate one or more Discretionary IOCs to route to such 
destinations, with a price and size that match the price and size of 
the market center's quotation. If necessary to maximize execution 
opportunities and comply with Regulation NMS, the System may mark such 
Discretionary IOCs as Intermarket Sweep Orders. If the Discretionary 
IOC(s) do not exhaust the full size of the Order with Discretion, the 
remaining size of the Order with Discretion will post to the Exchange 
Book in accordance with the parameters that apply to the underlying 
Order Type. The System will then examine whether at any time there is 
an Order on the Exchange Book or an accessible quotation at another 
trading venue with a price in the discretionary price range against 
which the Order with Discretion could execute. In examining the 
Exchange Book, the System will examine all Orders (including Orders 
that are not Displayed). If the System observes such an Order or 
quotation, it will generate a Discretionary IOC with a price equal to 
the price of such the Order or quotation and a size equal to the 
applicable size of the Order on the Exchange Book or the displayed size 
of the quotation.
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    \64\ The BSTG routing strategy is described in Rule 4758.
---------------------------------------------------------------------------

    <bullet> If an Order that uses a passive routing strategy has been 
assigned a Discretion Order Attribute and does have a pegged 
discretionary price range, upon entry of the Order, the System will 
examine all Orders (including Orders that are not Displayed) on the 
Exchange Book to determine if there is an Order on the Exchange Book 
with a price in the discretionary price range against which the Order 
with Discretion could execute. If the System observes such an Order, it 
will generate a Discretionary IOC with a price equal to the price of 
the Order on the Exchange Book and a size equal to the applicable size 
of the Order on the Exchange Book. The System will also determine if 
there are any accessible quotations with prices that are within the 
discretionary price range at destinations on the applicable routing 
table for the selected routing strategy. If there are such quotations, 
the System will generate one or more Discretionary IOCs to route to 
such destinations, with a price and size that match the price and size 
of the market center's quotation. If necessary to maximize execution 
opportunities and comply with Regulation NMS, the System may mark such 
Discretionary IOCs as Intermarket Sweep Orders. If the Discretionary 
IOC(s) do not exhaust the full size of the Order with Discretion, the 
remaining size of the Order with Discretion will post to the Exchange 
Book in accordance with the parameters that apply to the underlying 
Order Type. Thereafter, the Order will not generate further 
Discretionary IOCs unless the Order is updated in a manner that causes 
it to receive a new timestamp, in which case the Order will behave in 
the same manner as a newly entered Order.
    <bullet> If an Order that uses a reactive routing strategy has been 
assigned a Discretion Order Attribute and does have a pegged 
discretionary price range,

[[Page 18486]]

upon entry of the Order, the System will examine all Orders (including 
Orders that are not Displayed) on the Exchange Book to determine if 
there is an Order on the Exchange Book with a price in the 
discretionary price range against which the Order with Discretion could 
execute. If the System observes such an Order, it will generate a 
Discretionary IOC with a price equal to the price of the Order on the 
Exchange Book and a size equal to the applicable size of the Order on 
the Exchange Book. The System will also determine if there are any 
accessible quotations with prices that are within the discretionary 
price range at destinations on the applicable routing table for the 
selected routing strategy. If there are such quotations, the System 
will generate one or more Discretionary IOCs to route to such 
destinations, with a price and size that match the price and size of 
the market center's quotation. If necessary to maximize execution 
opportunities and comply with Regulation NMS, the System may mark such 
Discretionary IOCs as Intermarket Sweep Orders. If the Discretionary 
IOC(s) do not exhaust the full size of the Order with Discretion, the 
remaining size of the Order with Discretion will post to the Exchange 
Book in accordance with the parameters that apply to the underlying 
Order Type. The System will then examine whether at any time there is 
an Order on the Exchange Book or an accessible quotation at another 
trading venue with a price in the discretionary price range against 
which the Order with Discretion could execute. In examining the 
Exchange Book, the System will examine Displayed Orders but will not 
examine Non-Displayed Orders. If the System observes such an Order or 
quotation, it will generate a Discretionary IOC with a price equal to 
the price of such the Order or quotation and a size equal to the 
applicable size of the Order on the Exchange Book or the displayed size 
of the quotation.
Reserve Size
    Reserve Size is an Order Attribute that permits a Participant to 
stipulate that an Order Type that is displayed may have its displayed 
size replenished from additional non-displayed size. An Order with 
Reserve Size may be referred to as a ``Reserve Order.'' At the time of 
entry, the displayed size of such an Order selected by the Participant 
must be one or more normal units of trading; an Order with a displayed 
size of a mixed lot will be rounded down to the nearest round lot. A 
Reserve Order with displayed size of an odd lot will be accepted but 
with the full size of the Order displayed. Reserve Size is not 
available for Orders that are not displayed; provided, however, that if 
a Participant enters Reserve Size for a Non-Displayed Order with a 
Time-in-Force of IOC, the full size of the Order, including Reserve 
Size, will be processed as a Non-Displayed Order.
    Whenever a Participant enters an Order with Reserve Size, the 
System will process the Order as two Orders: A Displayed Order (with 
the characteristics of its selected Order Type) and a Non-Displayed 
Order. Upon entry, the full size of each such Order will be processed 
for potential execution in accordance with the parameters applicable to 
the Order Type. For example, a Participant might enter a Price to 
Display Order with 200 shares displayed and an additional 3,000 shares 
non-displayed. Upon entry, the Order would attempt to execute against 
available liquidity on the Exchange Book, up to 3,200 shares. 
Thereafter, unexecuted portions of the Order would post to the Exchange 
Book as a Displayed Price to Display Order and a Non-Displayed Order; 
provided, however, that if the remaining total size is less than the 
display size stipulated by the Participant, the Displayed Order will 
post without Reserve Size. Thus, if 3,050 shares executed upon entry, 
the Price to Display Order would post with a size of 150 shares and no 
Reserve Size.
    When an Order with Reserve Size is posted, if there is an execution 
against the Displayed Order that causes its size to decrease below a 
normal unit of trading, another Displayed Order will be entered at the 
level stipulated by the Participant while the size of the Non-Displayed 
Order will be reduced by the same amount. Any remaining size of the 
original Displayed Order will remain on the Exchange Book. The new 
Displayed Order will receive a new timestamp, but the Non-Displayed 
Order (and the original Displayed Order, if any) will not; although the 
new Displayed Order will be processed by the System as a new Order in 
most respects at that time, if it was designated as Routable, the 
System will not automatically route it upon reentry.\65\ For example, 
if a Price to Comply Order with Reserve Size posted with a Displayed 
Size of 200 shares, along with a Non-Displayed Order of 3,000 and the 
150 shares of the Displayed Order was executed, the remaining 50 shares 
of the original Price to Comply Order would remain, a new Price to 
Comply Order would post with a size of 200 shares and a new timestamp, 
and the Non-Displayed Order would be decremented to 2,800 shares.\66\
---------------------------------------------------------------------------

    \65\ Of course, if the Order uses a reactive routing strategy, 
such as BSTG, that routes out whenever the System observes a 
quotation against which the Order is marketable at another market 
center, the Order could be routed at any time.
    \66\ Because the Displayed Order is reentered and the Non-
Displayed Order is not, there are circumstances in which the 
Displayed Order may receive a different price than the Non-Displayed 
Order. For example, if, upon reentry, a Price to Display Order would 
lock or cross a newly posted Protected Quotation, the price of the 
Order will be adjusted but its associated Non-Displayed Order would 
not be adjusted. In that circumstance, it would be possible for the 
better priced Non-Displayed Order to execute prior to the Price to 
Display Order.
---------------------------------------------------------------------------

    A Participant may stipulate that the Displayed Order should be 
replenished to its original size. Alternatively, the Participant may 
stipulate that the original and subsequent displayed size will be an 
amount randomly determined based on factors selected by the 
Participant.\67\ Specifically, the Participant would select both a 
theoretical displayed size and a range size, which may be any share 
amount less than the theoretical displayed size. The actual displayed 
size will then be determined by the System within a range in which the 
minimum size is the theoretical displayed size minus the range size, 
and the maximum size is (i) the minimum size plus (ii) an amount that 
is two times the range size minus one round lot. For example, if the 
theoretical displayed size is 600 shares and the range size is 500, the 
minimum displayed size will be 100 shares (600-500), and the maximum 
size will be 1,000 shares ((600-500) + ((2 x 500)-100)).
---------------------------------------------------------------------------

    \67\ The ability to specify a random size reflects a substantive 
clarification of existing rules.
---------------------------------------------------------------------------

    When the Displayed Order with Reserve Size is executed and 
replenished, applicable market data disseminated by the Exchange will 
show the execution and decrementation of the Displayed Order, followed 
by replenishment of the Displayed Order. In all cases, if the remaining 
size of the Non-Displayed Order is less than the fixed or random amount 
stipulated by the Participant, the full remaining size of the Non-
Displayed Order will be displayed and the Non-Displayed Order will be 
removed.
Attribution
    Attribution is an Order Attribute that permits a Participant to 
designate that the price and size of the Order will be displayed next 
to the Participant's MPID in market data disseminated by the Exchange. 
An Order with Attribution is referred to as an ``Attributable Order'' 
and an Order without attribution is referred to as a ``Non-Attributable 
Order.''

[[Page 18487]]

Intermarket Sweep Order
    Designation of an Order as an Intermarket Sweep Order, or ISO, is 
an Order Attribute that allows the Order to be executed within the 
System by Participants at multiple price levels without respect to 
Protected Quotations of other market centers within the meaning of Rule 
600(b) under Regulation NMS. ISOs are immediately executable within the 
System against Orders against which they are marketable. An Order 
designated as an ISO may not be assigned a Routing Order Attribute.\68\ 
In connection with the trading of securities governed by Regulation 
NMS, Intermarket Sweep Orders shall be executed exclusively within the 
System and the entering Participant shall be responsible for compliance 
with Rules 610 and 611 under Regulation NMS with respect to order 
protection and locked and crossed markets with respect to such Orders.
---------------------------------------------------------------------------

    \68\ However, Orders that are assigned a Routing Order Attribute 
may be designated as ISOs by the Exchange when routed to other 
market centers to maximize their opportunities for execution.
---------------------------------------------------------------------------

    Simultaneously with the routing of an ISO to the System, one or 
more additional limit orders, as necessary, are routed by the entering 
Participant to execute against the full displayed size of any Protected 
Quotation with a price that is superior to the price of the Order 
identified as an Intermarket Sweep Order (as defined in Rule 600(b) 
under Regulation NMS). These additional routed orders must be 
identified as Intermarket Sweep Orders.
    Upon receipt of an ISO, the System will consider the stated price 
of the ISO to be available for other Orders to be entered at that 
price, unless the ISO is not itself accepted at that price level (for 
example, a Post-Only Order that has its price adjusted to avoid 
executing against an Order on the Exchange Book) or the ISO is not 
Displayed.\69\
---------------------------------------------------------------------------

    \69\ Thus, for example, a Non-Displayed Order with a Time-in-
Force of IOC marked ISO could execute against Orders on the Exchange 
Book. However, the price level of the Non-Displayed Order would be 
considered open for Orders to post only if applicable market data 
showed that the price level was available.
---------------------------------------------------------------------------

    In addition, as described with respect to various Order Types, such 
as the Price to Comply Order, Orders on the Exchange Book that had 
their price adjusted may be eligible to be reentered at the stated 
price of the ISO. For example, if a Price to Comply Order to buy at $11 
would lock a Protected Offer at $11, the Price to Comply Order will be 
posted with a non-displayed price of $11 and a displayed price of 
$10.99. If the System then receives an ISO to buy at $11, the ISO will 
be posted at $11 and the Price to Comply Order will be reentered at $11 
(if the Participant opted to have its Orders reentered). The respective 
priority of such reentered Orders will be maintained among multiple 
repriced Orders; however, other new Orders may also be received after 
receipt of the ISO but before the repricing of the Price to Comply 
Order is complete; accordingly, the priority of an Order on the 
Exchange Book vis-[agrave]-vis a newly entered Order is not guaranteed.
Display
    Display is an Order Attribute that allows the price and size of an 
Order to be displayed to market participants via market data feeds. All 
Orders that are Attributable are also displayed, but an Order may be 
displayed without being Attributable. As discussed in Rule 4702, a Non-
Displayed Order is a specific Order Type, but other Order Types may 
also be non-displayed if they are not assigned a Display Order 
Attribute; however, depending on context, all Orders that are not 
displayed may be referred to as ``Non-Displayed Orders.'' An Order with 
a Display Order Attribute may be referred to as a ``Displayed Order.''
Statistics on Order Types Usage
    Although the Exchange, like many exchanges, offers a wide range of 
possible combinations of Order Types and Order Attributes in order to 
provide options that support of a range of legitimate trading 
strategies, the Exchange believes that an analysis of the extent of 
usage of particular Order Type permutations is important to promoting a 
deeper understanding of current market structure. Based on analysis of 
a month of data for the period from August 26, 2013 through September 
29, 2013, the Exchange offers the following observations about the 
usage of different Order Types on its market:
    <bullet> 38.63% of entered Order volume was Price to Comply Orders 
with no Order Attributes other than price and size. Such Orders were 
involved in 28.38% of execution volume.\70\
---------------------------------------------------------------------------

    \70\ Data about executions reflect both sides of a trade in 
instances where trades executed on the Exchange and one side of a 
trade in instances where a Routable Order executed at another market 
center. The data does not include information about Orders with a 
Time-in-Force of GTC to the extent that such Orders executed on a 
day after the day of their original entry.
---------------------------------------------------------------------------

    <bullet> 0.02% of entered Order volume was Post-Only Orders with no 
Order Attributes other than price and size. Such Orders were involved 
in 0.69% of execution volume.
    <bullet> Non-Displayed Orders with a Time-in-Force of IOC and no 
special Order Attributes accounted for 9.84% of entered Order volume 
and 21.58% of execution volume. Non-Displayed Orders with a Time-in-
Force of IOC marked as ISOs but with no other special Order Attributes 
accounted for 1.44% of entered Order volume and 25.02% of execution 
volume.
    <bullet> Non-Displayed Orders with a Time-in-Force longer than IOC 
but no special Order Attributes accounted for 25.58% of entered Order 
volume and 3.25% of execution volume.
    <bullet> Use of Post-Only Orders marked ISO but with no other 
special Order Attributes accounted for less than 0.01% of entered Order 
volume and execution volume. Price to Comply Orders marked ISO but with 
no other special Order Attributes accounted for 17.8% of entered Order 
volume and 13.42% of execution volume.
    <bullet> All other Order Type and Order Attribute combinations 
accounted for 6.68% of entered Order volume and 7.66% of execution 
volume.
    Thus, while a range of combinations of Order Types and Order 
Attributes can exist on the Exchange, the Exchange believes that these 
data support the conclusion that many of these possible combinations 
are not used to any appreciable extent. Rather, the vast majority of 
Order entry and Order execution volume is attributable to a small 
number of simple combinations: IOC Orders designed to access posted 
liquidity and various forms of priced limit Orders designed to access 
available liquidity and thereafter post to the Exchange Book to provide 
liquidity, which promote price discovery by offering displayed 
liquidity at a price that may narrow the bid/offer spread on the 
Exchange and/or provide price improvement to subsequent Orders. The 
inclusion of an ISO Order Attribute on Orders is done in full 
compliance with Regulation NMS and serves to provide notice to the 
Exchange that liquidity has been accessed liquidity on other markets at 
a given price level in order to allow it to post liquidity on the 
Exchange at that price. While the Exchange does not believe that its 
Order Type offerings are excessively complex, given the relatively 
limited usage of certain Order Types and Order Attributes, the Exchange 
is continuing to analyze whether changes may be made to eliminate any 
Order Types, Order Attributes, or permissible combinations in a manner 
that would further promote the goals of transparency and ease of use 
for Participants.

[[Page 18488]]

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\71\ in general, and with 
Section 6(b)(5) of the Act \72\ in particular, in that the proposal 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 regulating, clearing, 
settling, processing information with respect to, and 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. The proposed 
rule change also is designed to support the principles of Section 
11A(a)(1) \73\ of the Act in that it seeks to assure fair competition 
among brokers and dealers and among exchange markets. In particular, 
the Exchange believes that the reorganized and enhanced descriptions of 
its Order Types, Order Attributes, and related System functionality 
will promote just and equitable principles of trade and perfect the 
mechanisms of a free and open market and the national market system by 
providing greater clarity concerning certain aspects of the System's 
operations. The Exchange further believes that the proposed rule change 
will contribute to the protection of investors and the public interest 
by making the Exchange's rules easier to understand. The Exchange 
further believes that the proposed rules, together with the presented 
statistics regarding Order Type and Order Attribute usage, will promote 
the efficient execution of investor transactions and further enhance 
public understanding of the Exchange's operations, and thereby 
strengthen investor confidence in the Exchange and in the national 
market system. In addition, the Exchange believes that additional 
specificity in its rules will promote a better understanding of the 
Exchange's operation, thereby facilitating fair competition among 
brokers and dealers and among exchange markets.
---------------------------------------------------------------------------

    \71\ 15 U.S.C. 78f.
    \72\ 15 U.S.C. 78f(b)(5).
    \73\ 15 U.S.C. 78k-1(a)(1).
---------------------------------------------------------------------------

    Most of the System functionality described in the proposed rule 
change has already been described in previous proposed rule changes by 
the Exchange and approved or permitted to take effect on an immediate 
basis by the Commission. However, the Exchange believes that the 
reiteration of several principles underlying its Order Types and Order 
Attributes might be helpful in promoting a fuller understanding of 
these rules' operation and their consistency with the Act.
    The functionality underlying Price to Comply Orders and Price to 
Display Orders provides a means by which Participants may enter a 
displayed limit order in compliance with Regulation NMS without the 
Participant definitively ascertaining whether the price of the Order 
would lock or cross a Protected Quotation. In the absence of the 
repricing functionality associated with the Order, the Exchange would 
need to reject the Order if it locked or crossed a Protected Quotation.
    By accepting a Price to Comply Order with a locking, non-displayed 
price and displayed price that is one minimum increment inferior to the 
locking price, the Exchange allows this Order Type to achieve several 
purposes. First, the displayed price of the Order promotes price 
discovery by establishing a new NBBO or adding to liquidity available 
at the NBBO. Second, the non-displayed price of the Order allows the 
Order to provide price improvement when the Order is executed. A Price 
to Display Order similarly promotes price discovery by establishing a 
new NBBO or adding liquidity available at the NBBO. It also provides 
one of the Order Types through which a Market Maker may offer displayed 
liquidity that is Attributable to its MPID. Notably, given the price 
adjustment functionality of the Order, it allows a Market Maker to 
offer Attributable liquidity at the NBBO.
    In addition, the repricing functionality associated with Price to 
Comply Orders and Price to Display Orders, whereby an Order that has 
been repriced by the System upon entry may be cancelled or reentered if 
a previously unavailable price level becomes available, promotes price 
discovery and provision of greater liquidity by facilitating the 
display of an Order at its chosen limit price. Because a reentered 
Order always receives a new timestamp, moreover, the functionality does 
not present fairness concerns that might arise if an Order that was not 
displayed became displayed at a different price level while retaining 
the timestamp that it received when originally entered.
    The Non-Displayed Order provides a means by which Participants may 
access and/or offer liquidity without signaling to other Participants 
the extent of their trading interest. Moreover, because the Non-
Displayed Order may lock a Protected Quotation, it provides a means by 
which a Participant may provide price improvement. For example, if the 
Best Bid was $11 and the Best Offer was $11.01, a Non-Displayed Order 
to buy at $11.01 would provide $0.01 price improvement to an incoming 
sell Order priced at the Best Bid.
    In addition, the repricing functionality associated with Non-
Displayed Order promotes provision of greater liquidity and eventual 
price discovery (via reporting of Order executions) because it 
facilitates the posting of a Non-Displayed Order at its chosen limit 
price. In addition, the functionality that cancels Non-Displayed Orders 
when crossed by a Protected Quotation helps to prevent trade-throughs 
by ensuring that a Non-Displayed Order will not execute at a price 
inferior to the Price of a Protected Quotation. Because a reentered 
Order always receives a new timestamp, moreover, the functionality does 
not present fairness concerns that might arise if an Order was able to 
move price while retaining an earlier timestamp.
    The primary purpose of Post-Only Orders is to ``provide displayed 
liquidity to the market and thereby contribute to public price 
discovery--an objective that is fully consistent with the Act.'' \74\ 
The Post-Only Order also allows a Participant to control its trading 
costs by giving consideration to such costs when determining if the 
Order may be executed. However, the manner in which the Post-Only Order 
operates ensures that a Post-Only Order that locks or crosses an Order 
on the Exchange Book will either execute upon entry or post at a 
displayed price that potentially provides liquidity.\75\ Moreover, 
because a Post-Only Order does not cancel back to the Participant if it 
cannot post or execute at its limit price, it does not provide a means 
to ascertain the existence of locking or crossing Orders without also 
reflecting a commitment to execute or post and display. Similarly, the 
functionality that allows a Post-Only Order to be marked IOC does not 
provide information regarding the existence of locking or crossing 
Orders on the Exchange Book since the Order has its price adjusted 
automatically, without reference to the price of any other Orders other 
than Orders at the NBBO.
---------------------------------------------------------------------------

    \74\ SR-NYSE-2014-32 Approval Order.
    \75\ Due to BX's current pricing structure, Post-Only Orders 
priced at $1 or more are executable against Orders on the Exchange 
Book.
---------------------------------------------------------------------------

    In addition, the processing of Post-Only Orders with respect to 
locking or crossing Protected Quotations serves the same purposes as 
the processing discussed above with respect to Price to Comply Orders 
and Price to Display

[[Page 18489]]

Orders. By accepting a Non-Attributable Post-Only Order that locks or 
crosses a Protected Quotation with a locking, non-displayed price and 
displayed price that is one minimum increment inferior to the locking 
price, the Exchange allows the displayed price of the Order to promote 
price discovery by establishing a new NBBO or adding to liquidity 
available at the NBBO, while also allowing the non-displayed price of 
the Order to provide price improvement when the Order is executed. An 
Attributable Post-Only Order similarly promotes price discovery by 
establishing a new NBBO or adding liquidity available at the NBBO.
    The repricing functionality associated with Post-Only Orders, 
whereby an Order that has been repriced by the System upon entry may be 
cancelled or reentered if a previously unavailable price level becomes 
available, promotes price discovery and provision of greater liquidity 
by facilitating the display of an Order at its chosen limit price. 
Because a reentered Order always receives a new timestamp, moreover, 
the functionality does not present fairness concerns that might arise 
if an Order that was not displayed became displayed at a different 
price level while retaining the timestamp that it received when 
originally entered.
    A Post-Only Order may be designated as an ISO and accepted at a 
price that locks or crosses a Protected Quotation, since such 
designation reflects a representation by the Participant that it has 
simultaneously routed one or more additional limit orders, as 
necessary, to execute against the full displayed size of any Protected 
Quotations that the Post-Only Order would lock or cross.\76\ Because 
the Exchange maintains an active regulatory surveillance and 
enforcement program to verify that Participants are not improperly 
designating Orders as ISOs, the possibility for a Participant to 
systematically use a Post-Only Order marked ISO to occupy a price level 
while locking Protected Quotations is mitigated. Moreover, the System 
does not interpret a Post-Only Order that is marked ISO but that has 
its price adjusted prior to posting as the basis for accepting 
additional Orders at the Order's limit price level, thereby providing 
further assurance against the use of an ISO designation for an improper 
purpose.
---------------------------------------------------------------------------

    \76\ See SR-NYSE-2014-32 Approval Order (affirming that 
exchanges may adopt rules allowing market participants to ``ship and 
post'').
---------------------------------------------------------------------------

    Retail Orders and RPI Order provide a mechanism for all 
Participants to offer, and Participants representing retail customers 
to receive, price improvement of at least $0.001. The Exchange believes 
that the Order Types may therefore reduce trading costs for such retail 
customers and encourage the interaction of their Orders in an exchange-
trading environment.
    Several of the available Order Attributes merely provide means to 
designate the basic parameters of any Order: These include price, size, 
Time-in-Force, Attribution, and Display. The proposed rules clearly 
state limitations applicable to each of these parameters, such as 
available Times-in-Force and limitations on the permissible prices and 
sizes of Orders.
    The Pegging Order Attribute allows a Participant to have the System 
adjust the price of the Order continually in order to keep the price 
within defined parameters. Thus, the System performs price adjustments 
that would otherwise be performed by the Participant through 
cancellation and reentry of Orders. The fact that a new timestamp is 
created for a Pegged Order whenever it has its price adjusted allows 
the Order to seek additional execution opportunities and ensures that 
the Order does not ``jump the queue'' with respect to any Orders that 
were previously at the Pegged Order's new price level. Thus, while the 
Order Attribute may be seen as introducing additional complexity with 
respect to the operation of the Exchange, it is in effect merely a 
process for removing and entering Orders at new prices based on changed 
market conditions.
    The Minimum Quantity Order Attribute allows a Participant that may 
wish to buy or sell a large amount of a security to avoid signaling its 
trading interest unless it can purchase a certain minimum amount. Thus, 
the Order Attribute supports the interest of institutional investors 
and others in being able to minimize the impact of their trading on the 
price of securities.
    The Routing Order Attribute, which is thoroughly described in 
existing Rule 4758, provides an optional means by which a Participant 
may direct the Exchange to seek opportunities to execute an Order at 
other market centers. The System is designed to pursue execution 
opportunities on behalf of Participants in an aggressive manner by, in 
most instances, first obtaining shares available on the Exchange Book, 
then routing to other market centers in accordance with the strategy 
designated by the Participant, then returning the Exchange Book as if a 
new Order before posting to the Exchange Book. In addition, to maximize 
execution opportunities, the System will, as appropriate and in 
accordance with Regulation NMS, designate a Routable Order as an 
Intermarket Sweep Order.
    The Discretion Order Attribute allows a Participant to expand 
opportunities for an Order to access liquidity by allowing it to 
execute at any price within a specified range. Thus, while there is 
some complexity associated with the processing of Discretionary Orders, 
the Order Attribute merely allows the System to ascertain whether, 
under the conditions provided for in the rule, the Participant could 
access liquidity at a price within the range that the Participant has 
designated. If so, the Order Attribute generates an IOC Order to access 
the liquidity. Moreover, it should be noted that although in some 
circumstances, the System will examine Orders on the Exchange Book that 
are not Displayed to ascertain the existence of execution 
opportunities, the System would convey information to the Participant 
regarding such Orders only by executing against them. Thus, the 
discretionary price range reflects an actionable commitment by the 
Participant to trade at prices in that range. As a result, the Order 
Attribute promotes price discovery through executions that occur in the 
price range. Finally, it should be noted that Discretionary IOCs access 
liquidity. Because the Exchange has a ``taker/maker'' pricing structure 
under which liquidity accessing Orders receive a rebate, the Order 
Attribute does allow a Participant to obtain a rebate with respect to 
executions against previously posted Orders; however, this aspect of 
the Order Attribute is fully consistent with the Exchange's overall 
pricing structure.
    The Reserve Size Order Attribute allows a Participant to display 
trading interest at a given price while also posting additional non-
displayed trading interest. The functionality assists the Participant 
in managing this trading interest by eliminating the need for the 
Participant to enter additional size following the execution of the 
displayed trading interest. Thus, the functionality achieves a balance 
between promoting price discovery through displayed size and allowing a 
Participant to guard against price impact by hiding the full extent of 
its trading interest. The random reserve feature of the Order further 
assists a Participant in not revealing the extent of its trading 
interest because it diminishes the likelihood that other Participants 
will conclude that the Order is a Reserve Size Order if they repeatedly 
view it being replenished at the same size. Similarly, the manner in 
which the Exchange disseminates data regarding

[[Page 18490]]

the execution and replenishment of a Reserve Size Order ensures that 
the process is indistinguishable to other Participants from the 
execution of an Order without Reserve Size followed by the entry of a 
new Order; this processing also ensures that only the displayed portion 
of the Reserve Size Order is treated as a Protected Quotation.
    The Intermarket Sweep Order attribute is a function of Regulation 
NMS, which provides for an Order to execute without respect to 
Protected Quotations if it is designated as an ISO and if one or more 
additional limit orders, as necessary, are routed to execute against 
the full displayed size of any Protected Quotation with a price that is 
superior to the price of the Order identified as an ISO. As recently 
reaffirmed by the Commission, Regulation NMS allows such additional 
orders to be routed by an exchange or by the Participant that enters 
the ISO.\77\ Accordingly, the exchange receiving an ISO may accept the 
receipt of the Order as a representation that the Participant entering 
it has satisfied its obligations; provided, however, that the exchange 
itself maintains a surveillance and enforcement program to verify that 
the Participant is not acting in violation of this requirement. For 
this reason, it is also consistent with the Act for a Participant to 
designate an Order with a Time-in-Force longer than IOC, or an Order 
with functionality such as the Post-Only Order, as an ISO.\78\ 
Specifically, attaching an ISO designation to such Order reflects a 
representation that the Participant has determined that Protected 
Quotations at the price of the Order have been eliminated, such that 
the Order is entitled to post and provide liquidity. In the case of a 
Post-Only Order, however, if the Order's price is adjusted to avoid 
executing against an Order on the Exchange Book, the Exchange will not 
consider the ISO designation in determining whether the Post-Only 
Order's limit price level is now open, since the Post-Only ISO itself 
is not actually posting at that price. Accordingly, in that 
circumstance the use of a Post-Only ISO cannot be used to open a price 
level to additional Orders unless the Exchange ascertains through 
market data provided by other exchanges that the price level actually 
is open.
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    \77\ SR-NYSE-2014-32 Approval Order.
    \78\ Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. As previously stated, the 
Exchange is not proposing substantively to modify the operation of any 
of its current Order Types or Order Attributes or the operation of the 
System; rather, the proposed rule change is intended to provide more 
detail regarding the System's functionality. The proposed rule change 
is not designed to address any competitive issues, but rather to 
provide additional specificity and transparency to Participants and the 
investing public regarding the Exchange's Order Types, Order 
Attributes, and System functionality. Since the Exchange does not 
proposed substantively to modify the operation of Order Types, Order 
Attributes, or System functionality, the proposed changes will not 
impose any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

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 shall: (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

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#a9dbdcc5cc84cac6c4c4ccc7dddae9daccca87cec6df"><span class="__cf_email__" data-cfemail="bdcfc8d1d890ded2d0d0d8d3c9cefdced8de93dad2cb">[email protected]</span></a>. Please include 
File Number SR-BX-2015-015 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-BX-2015-015. 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 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal offices 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-BX-2015-015, and should be 
submitted on or before April 27, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\79\
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    \79\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-07750 Filed 4-3-15; 8:45 am]
BILLING CODE 8011-01-P


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