[Federal Register Volume 79, Number 216 (Friday, November 7, 2014)]
[Notices]
[Pages 66423-66440]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-26463]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73511; File No. 4-657]


Joint Industry Plan; BATS Exchange, Inc., BATS Y-Exchange, Inc., 
Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., 
Financial Industry Regulatory Authority, Inc., NASDAQ OMX BX, Inc., 
NASDAQ OMX PHLX LLC, The Nasdaq Stock Market LLC, New York Stock 
Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc.; Notice of Filing of 
Proposed National Market System Plan To Implement a Tick Size Pilot 
Program on a One-Year Pilot Basis

November 3, 2014.

I. Introduction

    Pursuant to Section 11A of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 608 thereunder \2\, notice 
is hereby given that, on August 25, 2014, NYSE Group, Inc., on behalf 
of BATS Exchange, Inc., BATS Y-Exchange, Inc., Chicago Stock Exchange, 
Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., Financial Industry 
Regulatory Authority, Inc., NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, 
the Nasdaq Stock Market LLC, New York Stock Exchange LLC, NYSE MKT LLC, 
and NYSE Arca, Inc. (collectively ``SROs'' or ``Participants''), filed 
with the Securities and Exchange Commission (``Commission'') a proposed 
national market system (``NMS'') Plan to Implement a Tick Size Pilot 
Program (``Plan''). A copy of the proposed Plan, which includes the 
details of a proposed Tick Size Pilot Program (``Pilot'') is attached 
as Exhibit A hereto. The Commission is publishing this notice to 
solicit comments on the proposed Plan and Pilot.
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    \1\ 15 U.S.C. 78k-1.
    \2\ 17 CFR 242.608.
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II. Background

    On June 24, 2014, the Commission issued an order pursuant to 
Section 11A(a)(3)(B) of the Act \3\ directing the Participants to act 
jointly in developing and filing with the Commission a NMS plan to 
implement a pilot program that, among other things, would widen the 
quoting and trading increment for certain small capitalization stocks 
as described in the order by August 25, 2014 (``Order'' or ``Tick Size 
Pilot Plan Order'').\4\ Pursuant to the Order, the SROs filed the 
proposed Plan, which includes the proposed Pilot as described below.
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    \3\ 15 U.S.C. 78k-1(a)(3)(B).
    \4\ See Securities Exchange Act Release No. 72460, 79 FR 36840 
(June 30, 2014).
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III. Description of the Plan

    Section III is the statement of purpose of the proposed Plan, along 
with the information required by Rule 608(a)(4) and (5) under the Act. 
The remainder of Section III appears exactly as prepared and submitted 
by the Participants.\5\
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    \5\ See Letter from Brendon J. Weiss, Vice President, 
Intercontinental Exchange, Inc., to Secretary, Commission, dated 
August 25, 2014 (``Transmittal Letter'').
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* * * * *

A. Statement of Purpose

    The Participants are filing the proposed Plan in order to implement 
a pilot program for a one-year pilot period (``Pilot Period'') that, 
among other things, would widen the quoting and trading increments for 
certain small capitalization stocks (``Tick Size Pilot Program''). The 
purpose of the Plan, and the Tick Size Pilot Program it contains, is to 
assist the Commission, market participants, and the public in studying 
and assessing the impact of increment conventions on the liquidity and 
trading of stocks of small capitalization companies. The Plan sets 
forth proposed procedures for selecting a representative group of 
stocks of small capitalization companies (``Pilot Securities'') and 
subjecting groups of those Pilot Securities (``Test Groups'') to 
various requirements with regards to quoting and trading increments. As 
set forth in more detail in the Plan, Participants will be required to 
adopt rules to ensure that Pilot Securities in the Test Groups are 
quoted and traded in permitted increments.\6\
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    \6\ Participants operating trading centers will be required, 
pursuant to the Plan, to ensure that Pilot Securities in the Test 
Groups are quoted and traded in permitted increments. As applicable, 
members of Participants will be required, pursuant to rules of self-
regulatory organizations, to ensure that Pilot Securities in the 
Test Groups are quoted and traded in permitted increments.
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Selection of Pilot Securities for Inclusion in the Tick Size Pilot 
Program
    Pilot Securities will consist of those NMS common stocks \7\ that 
satisfy the following criteria: (1) A market capitalization of $5 
billion or less on the

[[Page 66424]]

last day of the Measurement Period,\8\ where market capitalization is 
calculated by multiplying the total number of shares outstanding on 
such day by the Closing Price \9\ of the security on such day; (2) A 
Closing Price of at least $2.00 on the last day of the Measurement 
Period; (3) A Closing Price on every trading day during the Measurement 
Period that is not less than $1.50; (4) A Consolidated Average Daily 
Volume (``CADV'') during the Measurement Period of one million shares 
or less, where the CADV is calculated by adding the single-counted 
share volume of all reported transactions in the NMS common stock 
during the Measurement Period and dividing by the total number of U.S. 
trading days during the Measurement Period; and (5) A Measurement 
Period Volume-Weighted Average Price (``Measurement Period VWAP'') of 
at least $2.00, where the Measurement Period VWAP is determined by 
calculating the VWAP of the NMS common stock for each U.S. trading day 
during the Measurement Period, summing the daily VWAP across the 
Measurement Period, and dividing by the total number of U.S. trading 
days during the Measurement Period.\10\
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    \7\ NMS common stock is defined in the Plan as NMS stock that is 
common stock of an operating company.
    \8\ Measurement Period is defined in the Plan as the U.S. 
trading days during the three-calendar-month period ending at least 
30 days prior to the effective date of the Pilot Period.
    \9\ Closing Price is defined in the Plan as the closing auction 
price on the primary listing exchange, or if not available, then the 
last regular-way trade reported by the processor prior to 4:00 p.m. 
ET.
    \10\ For purposes of the CADV and Measurement Period VWAP 
calculations, U.S. trading days during the Measurement Period with 
early closes will be excluded.
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    The Participants believe that the above criteria will result in the 
selection of those stocks that are most likely to benefit from a larger 
tick size because such stocks will tend to have higher average 
effective spreads. Additionally, the criteria should help to ensure 
that those stocks most likely to fall below $1.00 during the Pilot 
Period are not included in the Tick Size Pilot Program.\11\
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    \11\ While the criteria are designed to avoid selecting an NMS 
common stock likely to fall below $1.00, a Pilot Security that falls 
below $1.00 during the Pilot Period will remain in the Tick Size 
Pilot Program.
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    The Participants have decided not to include any NMS common stock 
that has its initial public offering within six months of the start of 
the Pilot Period. Such stocks will not have the full set of data 
required to be collected under the Plan for the six-month period before 
the start of the Tick Size Pilot Program. The Participants believe that 
the value of subjecting such stocks to the quoting and trading 
requirements of the Plan is diminished because market participants will 
not be able to analyze the effects of the quoting and trading 
requirements against a sufficient baseline.
    Once the complete list of Pilot Securities is determined, the 
Participants will select, by means of a stratified random sampling 
process, the Pilot Securities to be placed into the three Test Groups. 
Those Pilot Securities not placed into the three Test Groups will 
constitute the Control Group. To effect the stratified random sampling, 
the Pilot Securities will be categorized based on price, market 
capitalization, and trading volume, and each of those three categories 
will be further subdivided into low, medium, or high subcategories.\12\ 
As a result, the Pilot Securities will be grouped into a total of 27 
categories.
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    \12\ Low, medium, and high subcategories will be established by 
dividing the categories into three parts, each containing a third of 
the population.
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    The Tick Size Pilot Plan Order called for the selection of Pilot 
Securities by means of a stratified random sampling process with the 
Pilot Securities categorized based on only price and market 
capitalization.\13\ The Plan also requires categorization by trading 
volume. The Participants believe that the addition of the trading 
volume category will create more detailed groups of Pilot Securities 
that will, in turn, lead to a diverse set of stocks selected for 
inclusion into each Test Group. The Participants believe that the more 
detailed groups will aid in the assessment process described below by 
permitting the Commission, market participants, and the public to 
review the effects of the quoting and trading increment requirements on 
stocks with a variety of characteristics.
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    \13\ See Tick Size Pilot Plan Order at 36844.
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    A random sample of Pilot Securities from each of the 27 categories 
will be placed into the three Test Groups in a number proportional to 
the category's size relative to the population of Pilot Securities. So, 
for example, if the category consisting of high priced, high market 
capitalization, and medium trading volume Pilot Securities contained 5% 
of the Pilot Securities, that category would make up 5% of each Test 
Group. Further, a primary listing market's stocks will be selected from 
each category and included in the three Test Groups in the same 
proportion as that primary listing market's stocks comprise each 
category of Pilot Securities.
    Each Test Group will consist of 400 Pilot Securities and the 
Control Group will consist of the remaining Pilot Securities. The 
Participants believe that including 400 Pilot Securities in each Test 
Group will allow each Test Group to be statistically large enough to 
generate data to reliably test for the effects of a larger tick size. 
Additionally, if any Pilot Securities need to be removed from the data 
analysis due to unforeseen events, the Participants believe that 
including 400 Pilot Securities in each Test Group will ensure that the 
data on the remaining Pilot Securities will be sufficient to complete 
the required assessments.
    Each primary listing exchange will make publicly available for free 
on its Web site a list of those Pilot Securities listed on that 
exchange and included in the Control Group and each Test Group. The 
list will be adjusted for ticker symbol changes and relevant corporate 
actions and will contain the data specified in Appendix A to the Plan.
Control and Test Groups' Increment Conventions and Trade-at 
Restrictions
    During the Pilot Period, the Control Group and Test Groups will be 
subjected to quoting and trading increment requirements designed to 
allow the Commission, market participants, and the public to assess the 
effect of pricing increment decimalization on small capitalization 
companies.
    Pilot Securities in the Control Group may be quoted and traded at 
any price increment that is currently permitted.\14\ Maintaining the 
Control Group with the current quoting and trading increments will 
provide a baseline to analyze the economic effects of the wider quoting 
and trading increments required by the Test Groups.
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    \14\ Consistent with Rule 612(b) of Regulation NMS, bids or 
offers, orders, or indications of interest priced less than $1.00 
per share for Pilot Securities in the Control Group may be 
displayed, ranked, or accepted in $0.0001 increments.
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    Pilot Securities in Test Group One will be quoted in $0.05 minimum 
increments but may continue to trade at any price increment that is 
currently permitted. Participants will adopt rules prohibiting 
Participants or any member of a Participant from displaying, ranking, 
or accepting from any person any displayable and non-displayable bids 
or offers, orders, or indications of interest in any Pilot Security in 
Test Group One in price increments other than $0.05. However, orders 
priced to execute at the midpoint and orders entered into a 
Participant-operated retail liquidity program may be ranked and 
accepted in increments of less than $0.05.
    Pilot Securities in Test Group Two will be subject to the same 
quoting

[[Page 66425]]

requirements as Test Group One, along with the applicable quoting 
exceptions. In addition, Pilot Securities in Test Group Two may only be 
traded in $0.05 minimum increments. Participants will adopt rules 
prohibiting trading centers \15\ operated by Participants and members 
of Participants from executing orders in any Pilot Security in Test 
Group Two in price increments other than $0.05.
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    \15\ Trading center is defined in the Plan as having the same 
meaning as that provided in Rule 600(b)(78) of Regulation NMS under 
the Exchange Act.
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    The $0.05 minimum trading increment will apply to brokered cross 
trades.\16\ Pilot Securities in Test Group Two may trade in increments 
less than $0.05 under the following circumstances:
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    \16\ A brokered cross trade is defined in the Plan as a trade 
that a broker-dealer that is a member of a Participant executes 
directly by matching simultaneous buy and sell orders for a Pilot 
Security.
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    (1) Trading may occur at the midpoint between the National Best Bid 
and the National Best Offer (``NBBO'') or the midpoint between the best 
protected bid and the best protected offer;
    (2) Retail Investor Orders \17\ may be provided with price 
improvement that is at least $0.005 better than the best protected bid 
or the best protected offer; and
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    \17\ A Retail Investor Order is defined in the Plan as an agency 
order or a riskless principal order originating from a natural 
person, provided that, prior to submission, no change is made to the 
terms of the order with respect to price or side of market and the 
order does not originate from a trading algorithm or any other 
computerized methodology. Such orders include those retail orders 
entered into Participant-operated retail liquidity programs. The 
Participant that is the Designated Examining Authority of a member 
of a Participant operating a trading center executing a Retail 
Investor Order will require such trading center to sign an 
attestation that substantially all orders to be executed as Retail 
Investor Orders will qualify as such under the Plan.
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    (3) Negotiated Trades \18\ may trade in increments less than $0.05.
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    \18\ A Negotiated Trade is defined in the Plan as: (i) A 
Benchmark trade, including, but not limited to, a Volume-Weighted 
Average Price trade or a Time-Weighted Average Price trade, provided 
that, if such a trade is comprised of two or more component trades, 
each component trade complies with the quoting and trading increment 
requirements of the Plan, or with an exception to such requirements, 
or (ii) a Pilot Qualified Contingent Trade. A Benchmark Trade is 
defined in the Plan as the execution of an order at a price that was 
not based, directly or indirectly, on the quoted price of a Pilot 
Security at the time of execution and for which the material terms 
were not reasonably determinable at the time the commitment to 
execute the order was made. A Pilot Qualified Contingent Trade is 
defined in the Plan as a transaction consisting of two or more 
component orders, executed as agent or principal, where: (1) At 
least one component order is in an NMS common stock; (2) all 
components are effected with a product or price contingency that 
either has been agreed to by the respective counterparties or 
arranged for by a broker-dealer as principal or agent; (3) the 
execution of one component is contingent upon the execution of all 
other components at or near the same time; (4) the specific 
relationship between the component orders (e.g., the spread between 
the prices of the component orders) is determined at the time the 
contingent order is placed; (5) the component orders bear a 
derivative relationship to one another, represent different classes 
of shares of the same issuer, or involve the securities of 
participants in mergers or with intentions to merge that have been 
announced or since cancelled; and (6) the transaction is fully 
hedged (without regard to any prior existing position) as a result 
of the other components of the contingent trade.
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    Pilot Securities in Test Group Three will be subject to the same 
quoting and trading requirements as Test Group Two, along with the 
applicable quoting and trading exceptions. In addition, Pilot 
Securities in Test Group Three will be subject to a trade-at 
prohibition. The purpose of the tradeat prohibition is to assess and 
gather data with respect to the impact of market-wide restrictions on 
price-matching activity by market participants that are not quoting 
aggressively or otherwise offering liquidity in Pilot Securities at 
competitive prices. Toward that end, the trade-at prohibition of the 
Plan, operating in conjunction with applicable exceptions, generally 
will condition the ability of a trading center to execute at a 
protected quotation on that trading center's contemporaneous display of 
liquidity, either via a processor \19\ or an SRO quotation feed,\20\ at 
that, or a superior, price level, thereby discouraging passive price-
matching and incentivizing aggressive quoting. Under the trade-at 
prohibition, the Plan will (1) prevent a trading center that was not 
quoting from price-matching protected quotations and (2) permit a 
trading center that was quoting at a protected quotation to execute 
orders at that level, but only up to the amount of its displayed size.
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    \19\ Processor is defined in the Plan as the single plan 
processor responsible for the consolidation of information for an 
NMS stock pursuant to Rule 603(b) of Regulation NMS under the 
Exchange Act.
    \20\ SRO quotation feed is defined in the Plan as any market 
data feed disseminated by a self-regulatory organization.
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    The Commission's Tick Size Pilot Plan Order stated that the trade-
at prohibition ``is intended to prevent price matching by a trading 
center not displaying the NBBO.'' \21\ Accordingly, the Plan seeks to 
protect displayed liquidity and to prevent passive-price matching. 
Based on their experience observing price competition on the market 
centers that they regulate and marketwide, the Participants believe 
that the most appropriate and workable reference point for formulating 
a restriction on price-matching is the standard of a ``protected 
quotation'' rather than ``the NBBO.'' The ``protected quotation'' 
standard would appear to have the following policy, structural, and 
operational advantages.
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    \21\ See Tick Size Pilot Plan Order at 36845.
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    First, the ``protected quotation'' standard would give broader 
protection to aggressively displayed quotes, in that the ``NBBO'' is 
limited to the single best order in the market, while the ``protected 
quotation'' standard encompasses the aggregate of the most aggressively 
priced displayed liquidity on all trading centers.\22\ Additionally, 
the Participants believe that not only should the best protected 
quotations be protected, but also that all protected quotations should 
be protected, as such protected quotations could likewise be the basis 
for passive price-matching.
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    \22\ See 17 CFR. Sec.  242.600(b)(42). When two or more market 
centers transmit to the plan processor identical bids or offers for 
an NMS security, the best bid or best offer is determined by ranking 
the identical bids or offers by size and then time. As a result, 
while two market centers may display identical prices, only one 
market center will display the national best bid or national best 
offer.
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    Second, the only other difference between the NBBO and the best 
protected quotations is that the NBBO would include manual quotations. 
The Commission has previously recognized that manual quotations are not 
within the scope of liquidity that should be protected for Rule 611 of 
Regulation NMS (``Rule 611'') (i.e., trade-through) purposes. Based on 
their experience implementing Rule 611 and other provisions related to 
intermarket display and price priority, the Participants believe that 
the scope of the trade-at prohibition in the Plan should be 
appropriately aligned with that of Regulation NMS.
    Third, Participants believe that the trend, in terms of the design 
and development of systems that perform matching and routing functions, 
is to reference ``protected quotations'' rather than ``the NBBO'' and 
that the approach of the Plan would therefore provide a more workable 
approach for the assessment contemplated by the Plan. Most market 
centers today track the market center's view of protected quotations in 
its automated execution systems in order to comply with Rule 611. 
Changing such view for trade-at purposes to the market center's view of 
the NBBO or to the NBBO as displayed by the processor would incur 
additional development time, operational complexity and risk, and 
potentially create unintended conflicts between the logic designed to 
comply with Rule 611 and trade-at compliance logic.
    Fourth, from a textual and implementation perspective, the 
Participants believe that achieving as great a degree of definitional 
simplicity

[[Page 66426]]

is imperative. Specifically, the Participants believe that the 
reference to ``the NBBO,'' with continued qualifications excluding 
manual quotations, would produce an approach that is unnecessarily more 
complex than grounding the trade-at prohibition in the more workable 
``protected quotation'' standard.
    In any event, the Plan, as demonstrated below, will prevent those 
trading centers not displaying at the best protected quotations from 
passively price matching those competitive quotations. If a trading 
center is not displayed at a best protected quotation, the trading 
center will not be able to execute any orders at that price level 
without first executing against that displayed liquidity. Accordingly, 
the Participants believe that the approach of the Plan is well-grounded 
in the discretion of Rule 611 and directly aligned with both the 
language and logic of the Commission's Tick Size Pilot Plan Order.
    In accordance with the above reasoning, the Plan provides that 
Participants will adopt rules prohibiting trading centers operated by 
Participants and members of Participants from executing a sell order 
for a Pilot Security at the price of a protected bid or from executing 
a buy order for a Pilot Security at the price of a protected offer 
unless such execution falls within an exception set forth below.
    Trading centers will be permitted to execute an order for a Pilot 
Security at a price equal to a protected bid or protected offer under 
the following circumstances:
    (1) The order is executed by a trading center that is displaying a 
quotation, via either a processor or an SRO quotation feed,\23\ at a 
price equal to the traded-at protected quotation but only up to the 
trading center's full displayed size. Where the quotation is displayed 
through a national securities exchange, the execution at the size of 
the order must occur against the displayed size on that national 
securities exchange. Where the quotation is displayed through the 
Alternative Display Facility or another facility approved by the 
Commission that does not provide execution functionality, the execution 
at the size of the order must occur against the displayed size in 
accordance with the rules of the Alternative Display Facility or such 
approved facility;
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    \23\ The Participants believe that a trading center displaying a 
quotation either via a processor, as a protected quotation, or via 
an SRO quotation feed, as a quotation below the trading center's 
top-of-book, should be able to avail themselves of this exception. 
As detailed in Example 3 below, a trading center would be able to 
trade at the price of a protected quotation against its depth-of-
book displayed quotations in order to promote the display of 
protected quotations at a more aggressively-priced quotation.
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    (2) The order is of Block Size; \24\
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    \24\ Block Size is defined in the Plan as having the same 
meaning as that provided in Rule 600(b)(9) of Regulation NMS under 
the Exchange Act.
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    (3) The order is a Retail Investor Order executed with at least 
$0.005 price improvement;
    (4) The order is executed when the trading center displaying the 
protected quotation that was traded at was experiencing a failure, 
material delay, or malfunction of its systems or equipment;
    (5) The order is executed as part of a transaction that was not a 
``regular way'' contract; \25\
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    \25\ For purposes of the trade-at prohibition, ``regular way'' 
contract has the same meaning as the term is used in Rule 611(b). In 
the Regulation NMS Adopting Release, the Commission stated that 
``regular way'' refers to ``bids, offers, and transactions that 
embody the standard terms and conditions of a market.'' See 
Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 
37496, 37537 n. 326 (June 29, 2005).
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    (6) The order is executed as part of a single-priced opening, 
reopening, or closing transaction by the trading center;
    (7) The order is executed when a protected bid was priced higher 
than a protected offer in the Pilot Security;
    (8) The order is identified as an Intermarket Sweep Order;
    (9) The order is executed by a trading center that simultaneously 
routed Trade-at Intermarket Sweep Orders (``Trade-at ISOs'') \26\ to 
execute against the full displayed size of any protected quotation in 
the Pilot Security that was traded at;
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    \26\ A Trade-at ISO is defined in the Plan as a limit order for 
a Pilot Security that meets the following requirements: (1) When 
routed to a trading center, the limit order is identified as an 
Intermarket Sweep Order; and (2) Simultaneously with the routing of 
the limit order identified as an Intermarket Sweep Order, one or 
more additional limit orders, as necessary, are routed to execute 
against the full displayed size of any protected bid, in the case of 
a limit order to sell, or the full displayed size of any protected 
offer, in the case of a limit order to buy, for the Pilot Security 
with a price that is equal to the limit price of the limit order 
identified as an Intermarket Sweep Order. These additional routed 
orders also must be marked as Intermarket Sweep Orders. The Tick 
Size Pilot Plan Order provides for an ISO exception to the trade-at 
prohibition that, as described above, involves routing ISOs to 
execute against the full displayed size of protected quotations. See 
Tick Size Pilot Plan Order, 79 FR at 36846. From the perspective of 
the sending market, and as described in the Tick Size Pilot Plan 
Order, this usage of an ISO differs from the definition of ISO in 
Rule 600(b)(30) of Regulation NMS in that the ISOs, for purposes of 
the trade-at prohibition, need to be routed to execute against 
protected quotations with a price that is equal to the limit price 
of the order routed to a protected quotation. See id. at n. 65. For 
purposes of the trade-through prohibition in Rule 611 of Regulation 
NMS, Rule 600(b)(30) provides that ISOs need to be routed to execute 
against those protected quotations with a price that is superior to 
the limit price of the order routed to a protected quotation. To 
account for the differences in ISO usage, the Participants have 
defined ISOs routed to take advantage of the exception to the trade-
at prohibition as Trade-at ISOs. From the perspective of the 
receiving market, the receipt of an ISO routed to comply with the 
exception to the trade-at prohibition is no different from the 
receipt of an ISO routed to comply with the exception to the trade-
through prohibition; in both cases, the ISO designation permits the 
receiving market to execute the ISO at its limit price without 
regard to prices on away markets.
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    (10) The order is executed as part of a Negotiated Trade;
    (11) The order is executed when the trading center displaying the 
protected quotation that was traded at had displayed, within one second 
prior to execution of the transaction that constituted the trade-at, a 
best bid or best offer, as applicable, for the Pilot Security with a 
price that was inferior to the price of the trade-at transaction;
    (12) The order is executed by a trading center which, at the time 
of order receipt, the trading center had guaranteed an execution at no 
worse than a specified price (a ``stopped order''), where: a. The 
stopped order was for the account of a customer; b. The customer agreed 
to the specified price on an order-by-order basis; and c. The price of 
the trade-at transaction was, for a stopped buy order, equal to the 
national best bid in the Pilot Security at the time of execution or, 
for a stopped sell order, equal to the national best offer in the Pilot 
Security at the time of execution; or
    (13) The order is for a fractional share of a Pilot Security, 
provided that such fractional share order was not the result of 
breaking an order for one or more whole shares of a Pilot Security into 
orders for fractional shares or was not otherwise effected to evade the 
requirements of the trade-at prohibition or any other provisions of the 
Plan.\27\
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    \27\ A trading center complying with one of these exceptions 
under the trade-at prohibition must still ensure that any execution 
complies with Rule 611.
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    The first exception to the trade-at prohibition is designed to 
address the intended scope of the trade-at prohibition, as discussed 
above and illustrated in the examples below. The Participants believe 
that a trading center displaying, either via a processor or an SRO 
quotation feed, at a protected quotation should only be able to execute 
against the full displayed size at that price, and should not be able 
to trade any hidden size at that price without complying with one of 
the exceptions detailed above. Without such a limitation, trading 
centers and market participants may not be incentivized to display 
quotations for a significant number of shares of Pilot Securities,

[[Page 66427]]

thus circumventing the purposes of the trade-at prohibition. Therefore, 
to incentivize the public display of liquidity, only those orders-and 
those portions of such orders that are fully displayed, either via a 
processor or an SRO quotation feed, on a trading center will be 
executable against a contra-side order at the price of a protected 
quotation before requiring a trading center to comply with another 
exception to the trade-at prohibition.
    The Tick Size Pilot Order included the third and fourth exceptions 
to the trade-at prohibition.\28\ The Participants, however, determined 
not to include in the Plan the significant price improvement exception 
set out in the Tick Size Pilot Plan Order. Because of the applicable 
trading and quoting increments, an execution of an order at a price 
superior to a protected quotation will necessarily result in 
significant price improvement. Therefore, the Participants believe the 
significant price improvement exception is superfluous.
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    \28\ See Tick Size Pilot Plan Order at 36845-46, n. 63, 64.
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    The fifth through thirteenth exceptions apply the trade-through 
exceptions found in Rule 611(b) to the trade-at prohibition. The 
Participants believe that the rationales underlying the trade-through 
exceptions apply to the trade-at prohibition as well. Consistent with 
this belief, the Participants have included the trade-through 
exceptions as exceptions to the trade-at prohibition, subject to a few 
minor changes to account for the difference between the trade-at 
prohibition and the trade-through prohibition.
    Finally, the fourteenth exception implements an exception for 
fractional shares, but only with respect to situations where the 
fractional shares were not the result of breaking an order for one or 
more whole shares into orders for fractional shares. Due to the 
difficulties of routing fractional shares to comply with the trade-at 
prohibition, and because the execution of fractional shares will 
represent a negligible portion of overall trading, the Participants 
believe that fractional share orders should be excepted from the trade-
at prohibition.
    To illustrate the operation of the trade-at prohibition, the 
Participants have included the following examples:
Example 1
    The NBBO for Pilot Security ABC is $20.00 x $20.10. Trading Center 
1 is displaying a 100-share protected bid at $20.00. Trading Center 2 
is displaying a 100-share protected bid at $19.95. There are no other 
protected bids. Trading Center 3 is not displaying any shares in Pilot 
Security ABC but has 100 shares hidden at $20.00 and has 100 shares 
hidden at $19.95. Trading Center 3 receives an incoming order to sell 
for 400 shares. To execute the 100 shares hidden at $20.00, Trading 
Center 3 must respect the protected bid on Trading Center 1 at $20.00. 
Trading Center 3 must route a Trade-at Intermarket Sweep Order to 
Trading Center 1 to execute against the full displayed size of the 
protected bid, at which point Trading Center 3 is permitted to execute 
against the 100 shares hidden at $20.00. To execute the 100 shares 
hidden at $19.95, Trading Center 3 must respect the protected bid on 
Trading Center 2 at $19.95. Trading Center 3 must route a Trade-at 
Intermarket Sweep Order to Trading Center 2 to execute against the full 
displayed size of the protected bid, at which point Trading Center 3 is 
permitted to execute against the 100 shares hidden at $19.95.
Example 2
    The NBBO for Pilot Security ABC is $20.00 x $20.10. Trading Center 
1 is displaying a 100-share protected bid at $20.00. Trading Center 2 
is displaying a 100-share protected bid at $20.00. Trading Center 2 
also has 300 shares hidden at $20.00 and has 300 shares hidden at 
$19.95. Trading Center 3 is displaying a 100-share protected bid at 
$19.95. There are no other protected bids. Trading Center 2 receives an 
incoming order to sell for 900 shares. Trading Center 2 may execute 100 
shares against its full displayed size at the protected bid at $20.00. 
To execute the 300 shares hidden at $20.00, Trading Center 2 must 
respect the protected bid on Trading Center 1 at $20.00. Trading Center 
2 must route a Trade-at Intermarket Sweep Order to Trading Center 1 to 
execute against the full displayed size of Trading Center 1's protected 
bid, at which point Trading Center 2 is permitted to execute against 
the 300 shares hidden at $20.00. To execute the 300 shares hidden at 
$19.95, Trading Center 2 must respect the protected bid on Trading 
Center 3 at $19.95. Trading Center 2 must route a Trade-at Intermarket 
Sweep Order to Trading Center 3 to execute against the full displayed 
size of Trading Center 3's protected bid, at which point Trading Center 
2 is permitted to execute against the 300 shares hidden at $19.95.
Example 3
    The NBBO for Pilot Security ABC is $20.00 x $20.10. Trading Center 
1 is displaying a 100-share protected bid at $20.00. Trading Center 1 
is also displaying 300 shares at $19.90 on an SRO quotation feed. 
Trading Center 2 is displaying a 100-share protected bid at $19.95. 
Trading Center 2 is also displaying 200 shares on an SRO quotation feed 
at $19.90 and has 200 shares hidden at $19.90. Trading Center 3 is 
displaying a 100-share protected bid at $19.90. There are no other 
protected bids. Trading Center 2 receives an incoming order to sell for 
700 shares. To execute against its protected bid at $19.95, Trading 
Center 2 must comply with the trade-through restrictions in Rule 611 
and route an intermarket sweep order to Trading Center 1 to execute 
against the full displayed size of Trading Center 1's protected bid at 
$20.00. Trading Center 2 is then permitted to execute against its 100-
share protected bid at $19.95. Trading Center 2 may then execute 200 
shares against its full displayed size at the price of Trading Center 
3's protected bid. To execute the 200 shares hidden at $19.90, Trading 
Center 2 must respect the protected bid on Trading Center 3 at $19.90. 
Trading Center 2 must route a Trade-at Intermarket Sweep Order to 
Trading Center 3 to execute against the full displayed size of Trading 
Center 3's protected bid, at which point Trading Center 2 is permitted 
to execute against the 200 shares hidden at $19.90. Trading Center 2 
does not have to respect Trading Center 1's displayed size at $19.90 
for trade-at purposes because it is not a protected quotation.
Collection of Pilot Data
    Throughout the Pilot Period, the Participants will collect the data 
described in Appendix B to the Plan with respect to Pilot Securities. 
Such data will include:
    (1) Daily market quality statistics of orders by security, order 
type, original order size (as observed by the trading center), hidden 
status (as applicable), and coverage under Rule 605 of Regulation NMS;
    (2) Specified data regarding market orders and marketable limit 
orders;
    (3) Daily number of registered Market Makers; \29\ and
---------------------------------------------------------------------------

    \29\ Market Maker is defined in the Plan as a dealer registered 
with any self-regulatory organization, in accordance with the rules 
thereof, as (i) a market maker or (ii) a liquidity provider with an 
obligation to maintain continuous, two-sided trading interest.
---------------------------------------------------------------------------

    (4) Daily Market Maker participation statistics.
    Each Participant that is the Designated Examining Authority of a 
member of a Participant operating a trading center will require such 
member to collect and provide to the Designated Examining Authority the 
data described in subparagraphs (1) and (2) above,

[[Page 66428]]

subject to the terms and conditions in Appendix B to the Plan. The 
Participants and each member of a Participant operating a trading 
center will also be required to collect such data for dates starting 
six months prior to the Pilot Period through six months after the end 
of the Pilot Period.
    The data will be made publicly available for free on a 
disaggregated basis by trading center on the Web sites of the 
Participants and the Designated Examining Authorities and will be 
reported by the Participants and the Designated Examining Authorities 
to the Commission on a monthly basis. The data will be provided on a 
disaggregated basis by trading center. The data made publicly available 
will not identify the trading center that generated the data.
    Participants will also require each Market Maker to provide to its 
Designated Examining Authority the data described in Appendix C to the 
Plan with respect to Pilot Securities, specifically data related to 
daily Market Maker trading profits. The Designated Examining Authority 
will aggregate such data, report it to the Commission, and make it 
publicly available for free on its Web site on a monthly basis. Such 
data will also be provided for dates starting six months prior to the 
Pilot Period through six months after the end of the Pilot Period. The 
Designated Examining Authority will develop policies and procedures 
reasonably designed to ensure the confidentiality of the non-aggregated 
data it receives from Market Makers. The data made publicly available 
will not identify the Market Makers that generated the data.
    Each Participant will make available to the other Participants a 
list of members designated as Market Makers on that Participant's 
trading center. Because the data requested will be gathered by a 
Participant whether or not the member is registered as a Market Maker 
with that Participant's trading center, each Participant will need the 
list to determine those members about whom the Participant needs to 
report data.
Assessment of Pilot Data
    Within six months after the end of the Pilot Period, the 
Participants will provide to the Commission and make publicly available 
a joint assessment of the impact of the Pilot. Such assessment will 
include:
    (1) An assessment of the statistical and economic impact of an 
increase in the quoting increment on market quality;
    (2) An assessment of the statistical and economic impact of an 
increase in the quoting increment on the number of Market Makers;
    (3) An assessment of the statistical and economic impact of an 
increase in the quoting increment on Market Maker participation;
    (4) An assessment of the statistical and economic impact of an 
increase in the quoting increment on market transparency;
    (5) An evaluation whether any market capitalization, daily trading 
volume, or other thresholds can differentiate the results of the above 
assessments across stocks (e.g., does the quoting increment impact 
differently those stocks with daily trading volume below a certain 
threshold);
    (6) An assessment of the statistical and economic impact of the 
above assessments for the incremental impact of a trading increment and 
for the joint effect of an increase in a quoting increment with the 
addition of a trading increment;
    (7) An assessment of the statistical and economic impact of the 
above assessments for the incremental impact of a trade-at prohibition 
and for the joint effect of an increase in a quoting increment with the 
addition of a trading increment and a trade-at prohibition; and
    (8) An assessment of any other economic issues that the 
Participants believe the Commission should consider in any rulemaking 
that may follow the Pilot.
    Further, Participants may individually submit to the Commission and 
make publicly available additional supplemental assessments of the 
impact of the Tick Size Pilot Program.
    The Tick Size Pilot Plan Order originally called for the 
Participants to assess the effect of the quoting and trading increment 
requirements on Market Maker profitability.\30\ The Exchanges believe 
that Market Makers will be in a better position than the Participants 
to analyze the effects of the Tick Size Pilot Program on Market Maker 
profitability. Therefore, the Participants have removed this assessment 
from the Tick Size Pilot Plan.
---------------------------------------------------------------------------

    \30\ See Tick Size Pilot Plan Order at 36846.
---------------------------------------------------------------------------

B. Governing or Constituent Documents

    Not applicable.

C. Implementation of Plan

    The initial date of the Tick Size Pilot Program will be no sooner 
than 180 calendar days following the publication of the Commission's 
Approval Order of the Plan in the Federal Register.
Development and Implementation Phases
    The Plan will be implemented as a one-year pilot program.

D. Analysis of Impact on Competition

    The proposed Plan does not impose any burden on competition that is 
not necessary or appropriate in furtherance of the purposes of the 
Exchange Act. The Participants do not believe that the proposed Plan 
introduces terms that are unreasonably discriminatory for the purposes 
of Section 11A(c)(1)(D) of the Exchange Act.

E. Written Understanding or Agreements Relating to Interpretation of, 
or Participation in, Plan

    The Participants have no written understandings or agreements 
relating to the interpretation of the Plan. Section II(C) of the Plan 
sets forth how any entity registered as a national securities exchange 
or national securities association may become a Participant.

F. Approval of Amendment of the Plan

    Not applicable.

G. Terms and Conditions of Access

    Section II(C) of the Plan provides that any entity registered as a 
national securities exchange or national securities association under 
the Exchange Act may become a Participant by: (1) Executing a copy of 
the Plan, as then in effect; (2) providing each then-current 
Participant with a copy of such executed Plan; and (3) effecting an 
amendment to the Plan as specified in Section III(B) of the Plan.

H. Method of Determination and Imposition, and Amount of, Fees and 
Charges

    Not applicable.

I. Method and Frequency of Processor Evaluation

    Not applicable

J. Dispute Resolution

    The Plan does not include specific provisions regarding resolution 
of disputes between or among Participants. Section III(C) of the Plan 
provides for each Participant to designate an individual to represent 
the Participant as a member of an Operating Committee. No later than 
the initial date of the Plan, the Operating Committee shall designate 
one member of the Operating Committee to act as the Chair of the 
Operating Committee. The Operating Committee shall monitor the 
procedures established pursuant to the Plan and advise the Participants 
with respect to any deficiencies, problems, or

[[Page 66429]]

recommendations as the Operating Committee may deem appropriate. Any 
recommendation for an amendment to the Plan from the Operating 
Committee that receives an affirmative vote of at least two-thirds of 
the Participants, but is less than unanimous, shall be submitted to the 
Commission as a request for an amendment to the Plan initiated by the 
Commission under Rule 608.
* * * * *
    This marks the end of the Statement of Purpose as prepared and 
submitted by the Participants.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed 
Plan, which includes the proposed Tick Size Pilot Program, is 
consistent with the Act. In the Order, the Commission stated its belief 
that it was in the public interest for the Participants to develop and 
file a plan for a proposed tick size pilot, and noted that once filed, 
such plan would be published for public comment.
    In the Order, however, the Commission also pointed out that support 
for a tick size pilot was not universal, with concerns being raised in 
particular about the potential costs to investors of wider minimum tick 
sizes.\31\ In addition, a recent Commission staff paper suggests that 
there appears to be considerable variability among small capitalization 
stocks in their trading characteristics, liquidity, and spreads, with 
some stocks more closely resembling the trading of large capitalization 
stocks.\32\ Accordingly, the Commission generally requests comment on 
whether there are other market structure initiatives that the 
Commission should consider to address concerns about the market 
structure for small capitalization stocks in addition to, or instead 
of, the proposed Tick Size Pilot Program.
---------------------------------------------------------------------------

    \31\ See Order at 36843.
    \32\ See SEC Staff Paper, A characterization of market quality 
for small capitalization US equities, Charles Collver (September 
2014), available at http://www.sec.gov/marketstructure/research/small_cap_liquidity.pdf. Moreover, recent data seems to indicate 
that initial public offerings have rebounded since the financial 
crisis. See, e.g., The Epic Year in Initial Public Offerings, 
available at http://blogs.wsj.com/moneybeat/2014/09/25/the-epic-year-in-initial-public-offerings/ (visited on Sepetember 29, 2014) 
(showing that 2014 is on pace for the second biggest year for U.S. 
listed IPOs by amount since 1995) and Renaissance Capital IPO 
Center, available at http://www.renaissancecapital.com/ipohome/press/mediaroom.aspx?market=us (visited on September 29, 2014) 
(showing that, for initial public offerings of greater than $50 
million market cap, a 41% increase in issuances, 59% increase in 
filing activity, and 122% increase in proceeds raised, as compared 
to similar time period in 2013).
---------------------------------------------------------------------------

    The Order contained certain terms and conditions for a tick size 
pilot that the Commission preliminarily believed would produce data 
that would allow the Commission and others to conduct studies on the 
effect of increased tick size on liquidity, execution quality for 
investors, volatility, market maker profitability, competition, 
transparency and institutional ownership. The Commission broadly 
requests comment on whether the proposed Tick Size Pilot Program filed 
by the Participants will generate measurable data to allow the 
Commission and others to conduct such studies.
    The Commission notes that the Participants have proposed additional 
details for the Tick Size Pilot Program that were not specified in the 
Commission's Order. In addition, the Participants have proposed to 
modify some of the terms and conditions set forth in the Order. The 
Commission discusses these additions and modifications in more detail 
below, but also broadly requests comment on them.\33\
---------------------------------------------------------------------------

    \33\ The Commission notes that the Participants described their 
additions and modifications and rationale in their Transmittal 
Letter, which is set forth above in Section III.
---------------------------------------------------------------------------

A. General Questions

    The Commission stated in the Order that it preliminarily believed 
that it should assess, through a short-term pilot program, whether 
wider minimum tick sizes for small capitalization stocks would enhance 
market quality to the benefit of market participants, issuers, and U.S. 
investors. The Commission requests comment on whether the proposed Tick 
Size Pilot Program would facilitate such an assessment and requests 
comment on the specific questions set forth below.
    <bullet> How well does the structure of the proposed Tick Size 
Pilot Program, generally, facilitate analysis of the tradeoffs 
associated with increasing the quote increment for certain small 
capitalization securities? How could the proposed Pilot structure 
change to better facilitate such analysis? Please provide any other 
comments on the structure and selection process of the proposed Pilot.
    <bullet> Does the structure of the proposed Pilot allow for a 
robust analysis of alternative quote increments in securities, 
including the determination of thresholds that distinguish stocks that 
should have different quote increments? How could the structure change 
to better facilitate such analysis?
    <bullet> What are the anticipated costs for implementing and 
operating the proposed Pilot? Are any components of the Pilot structure 
particularly costly? If so, please describe which market participants 
could be impacted.
    <bullet> Could investors of the small capitalization securities 
included in the Pilot be harmed by the widening of quoting and trading 
increments?
    <bullet> Is the proposed one-year Pilot Period period too long or 
too short? Should the Pilot Period be different? Is it appropriate that 
the proposed Pilot is structured to end before completion of the 
assessments by the Participants?
    <bullet> What is the risk of unintended consequences from the 
Pilot? What might they be? Are these issues that could be tested during 
the Pilot, or do they raise more fundamental questions about the 
advisability of the Pilot? Will the Pilot lead to changes in trading 
behavior by market makers or other market participants?
    <bullet> As noted above, the Commission preliminarily believes the 
Pilot would produce data that would allow the Commission and others to 
conduct studies on the effect of increased tick size on liquidity, 
execution quality for investors, volatility, market maker 
profitability, competition, transparency and institutional ownership. 
Should the Pilot be designed to produce data to allow the Commission 
and others to conduct studies in other areas? If so, how should the 
proposed Pilot be changed to accommodate these other studies?

B. Proposed Selection Process for Pilot Securities

    <bullet> In the Order, the Commission set forth the criteria that 
it preliminarily believed would identify securities that should be 
included in a proposed Pilot. Are these criteria appropriate and 
sufficient for selecting securities to be included in the Pilot? The 
Commission requests comment on whether small capitalization securities 
would benefit from the proposed Tick Size Pilot Program and if so, what 
types of small capitalization securities would benefit most. Should the 
proposed Tick Size Pilot Program assess different or additional 
criteria for identifying Pilot Securities? For example, should the 
market capitalization be higher or lower than $5 billion? Should the 
CADV be more or less than one million shares? Should securities other 
than stocks of operating companies be included in the Plan, such as 
exchange-traded products?
    <bullet> The Participants have proposed to exclude securities that 
have recently completed an initial public offering

[[Page 66430]]

from the proposed Pilot. Should these securities be included?
    <bullet> Should the proposed Pilot exclude any other small 
capitalization securities? For example, should small capitalization 
securities that are cross-listed in another jurisdiction be excluded 
from the Pilot?
    <bullet> Should companies whose securities are included in the 
Pilot be allowed to opt-out of participating in the Pilot? If so, how 
should such an opt-out work and what impact would it have on the 
ability of the Commission and others to analyze the Pilot?
    <bullet> As noted above, the proposed Tick Size Pilot Program 
contains different terms and conditions than specified in the Order. In 
particular, the Participants proposed to evaluate potential Pilot 
Securities over a Measurement Period.\34\ Is this period sufficient to 
evaluate and identify potential Pilot Securities?
---------------------------------------------------------------------------

    \34\ See supra note 8.
---------------------------------------------------------------------------

    <bullet> With regard to the selection of Pilot Securities, the 
Participants have proposed to consider two additional elements related 
to the price of potential Pilot Securities. First, the Participants 
proposed that the Closing Price on every trading day during the 
Measurement Period not be less than $1.50. In addition, Participants 
proposed that the Measurement Period VWAP be at least $2.00. Are these 
additional criteria useful? Are there other criteria related to the 
price of potential Pilot Securities that should be considered?

C. Proposed Control and Test Groups

    <bullet> The Order specified that there should be three test 
groups. Would the three proposed test groups provide sufficient 
information to allow for analysis of quote increments in certain small 
capitalization stocks? Would different test groups with different 
criteria better facilitate such an analysis?
    <bullet> Participants have proposed to include 400 securities per 
Test Group. The Commission preliminarily believed that 300 securities 
per Test Group was sufficiently large number to generate statistically 
reliable data, yet a number small enough to minimize potential 
disruption to the market. The Commission requests comment on whether 
the proposed inclusion of 400 securities per Test Group satisfies these 
goals. If not, what test group size should be required?
    <bullet> Specifically, please describe whether the size of the 
three test groups is large enough to draw reliable conclusions from 
statistical tests of the tradeoffs associated with increasing the quote 
increment for certain small securities, including tests that attempt to 
identify approximate thresholds for changes in the quote increment. Is 
the control group size large enough to draw reliable conclusions? If 
not, what size should be required?
    <bullet> How likely is it that the process for selection will 
result in three representative test groups that can be compared to each 
other and the Control Group or matched stocks from the Control Group? 
How important is it that the three Test Groups be representative and be 
suitable for comparison with each other and the Control Group? Is the 
selection plan for the categories with fewer than 10 securities 
reasonable for allocating potential Pilot Securities among the Test 
Groups? If not, please specify a more appropriate selection plan and 
explain how it improves on the Plan.
    <bullet> With regard to assigning potential Pilot Securities to 
each Test Group and the Control Group, Participants have proposed to 
consider the trading volume of a security, in addition to price and 
market capitalization as specified in the Order. Is this additional 
criterion reasonable? Are there other criteria that would be useful? 
Would these additional criteria help to achieve representative samples 
of Pilot Securities in the Test Groups?
    <bullet> The Commission designated $0.05 as the increment to be 
tested in the proposed Pilot. Is the $0.05 increment appropriately wide 
enough to encourage trading and liquidity in small capitalization 
securities? Should the increment be another amount? If so, please 
specify that increment and explain why it is preferable.
i. Test Group One
    <bullet> In the Order, the Commission stated that quoting of 
securities in Test Group One should be in $0.05 increments but that 
trading would continue to occur at any price that is permitted today. 
The Participants proposed to include two quoting exceptions for orders 
priced to execute at the midpoint and orders entered into a 
Participant-operated retail liquidity program. Do you agree with these 
proposed exceptions? Why or why not?
ii. Test Group Two
    <bullet> The Order stated that quoting and trading should be in 
$0.05 increments in Test Group Two with three exceptions: (1) Trading 
could occur at the midpoint between the NBBO; (2) retail investor 
orders could be provided price improvement that is at least $0.005 
better than the NBBO; and (3) certain negotiated trades such as VWAP, 
TWAP, and qualified contingent trades, could continue at any increment 
permitted today. In the Order, the Commission noted that it 
preliminarily believed that Test Group Two should be established to 
examine the potential impact on displayed liquidity in conjunction with 
Test Group One. The Commission requests comment on whether the 
structure of Test Group Two supports this goal. Is Test Group Two 
necessary for the proposed Pilot?
    <bullet> The Commission noted that it preliminarily believed that 
these three exceptions should be allowed so as not to prohibit certain 
categories of trades that are broadly beneficial to market participants 
today. The Commission requests comment on whether these exceptions are 
necessary. Should there be other exceptions? If so, please describe 
those exceptions and explain why they are advisable.
    <bullet> The Participants proposed additional exceptions and terms 
for Test Group Two. First, the Participants proposed to clarify that 
the $0.05 trading increment would apply to brokered cross trades. Is 
this clarification necessary? Second, the Participants proposed that 
midpoint trades could occur between the best protected bid and best 
protected offer, in addition to the NBBO as the Commission Order 
specified. Should these additional midpoint trades be excepted from the 
trading increment requirement? Third, the Participants proposed that 
the price improvement for retail investor orders be calculated against 
the best protected bid or the best protected offer, rather than the 
NBBO as the Commission Order specified. Finally, the Participants 
proposed that qualified contingent trades would not include block size 
criteria, as specified in the Commission Order. Do you agree with the 
additional exceptions and terms proposed by the Participants? Why or 
why not?
iii. Test Group Three
    The Order stated that the quoting and trading increments (and the 
exceptions thereto) in Test Group Three would be the same as Test Group 
Two, but Test Group Three would include a trade-at requirement. In the 
Order, the Commission generally described a trade-at requirement as one 
that is intended to prevent price matching by a trading center not 
displaying the NBBO.
    The Commission further stated that under a trade-at requirement, a 
trading center that was not displaying the NBBO at the time it received 
an incoming marketable order could either: (1) Execute the order with 
significant price improvement ($0.05 or the

[[Page 66431]]

midpoint between the NBBO);\35\ (2) execute the order at the NBBO if 
the size of the incoming marketable order is of block size; or (3) 
route intermarket sweep orders to execute against the full displayed 
size of the protected quotations at the NBBO and then execute the 
balance of the order at the NBBO price.
---------------------------------------------------------------------------

    \35\ The Commission noted that it preliminarily believed that 
$0.005 would be the required minimum price improvement for retail 
investor orders.
---------------------------------------------------------------------------

    The Commission notes that, in the context of the Pilot, an 
important purpose of a trade-at requirement would be to test whether, 
in a wider tick size environment, the ability of market participants to 
match displayed prices, without quoting, would disproportionately 
affect market makers' quoting practices. If quoting practices are 
affected negatively, then it could undermine one of the central 
purposes of the Pilot, namely to determine whether wider tick sizes 
positively affect market maker participation and pre-trade 
transparency.
    <bullet> The Commission generally requests comment on the 
advisability of testing a trade-at requirement as part of the Pilot. Is 
a trade-at requirement necessary to effectively analyze the impact of 
widened ticks on the trading and liquidity of small capitalization 
securities? If a trade-at requirement is advisable, has the Commission 
appropriately described such a requirement in the Order? Are exceptions 
to the trade-at requirement set forth in the Order appropriate?
    <bullet> The Commission noted that a trade-at requirement could 
stem the possible migration of trading volume away from ``lit'' venues 
to ``dark'' venues. Is a trade-at requirement an appropriate regulatory 
tool for the proposed Pilot to address this potential concern? Are 
there other tools that could achieve the same goals? Would a trade-at 
requirement improve trading and liquidity of small capitalization 
securities and benefit investors? How difficult and costly would it be 
to implement the trade-at restriction?
    <bullet> The Participants have proposed several deviations from, or 
additions to, the trade-at component of Test Group Three that differ 
from or go beyond those specified in the Commission Order.\36\ First, 
the Participants proposed that the trade-at requirement apply to any 
protected bid or protected offer, rather than just the NBBO.\37\ Should 
the trade-at requirement apply to all protected quotes?
---------------------------------------------------------------------------

    \36\ See Section III supra for the rationale provided by the 
Participants for this proposal.
    \37\ Rule 600(b)(42) of Regulation NMS defines ``National best 
bid and national best offer'' as ``with respect to quotations for an 
NMS security, the best bid and best offer for such security that are 
calculated and disseminated on a current and continuing basis by a 
plan processor pursuant to an effective national market system plan; 
provided, that in the event two or more market centers transmit to 
the plan processor pursuant to such plan identical bids or offers 
for an NMS security, the best bid or best offer (as the case may be) 
shall be determined by ranking all such identical bids or offers (as 
the case may be) first by size (giving the highest ranking to the 
bid or offer associated with the largest size), and then by time 
(giving the highest ranking to the bid or offer received first in 
time)'' (emphasis added).
---------------------------------------------------------------------------

    <bullet> Second, the Participants proposed that a trading center be 
permitted to execute an order at the price of a protected quotation, so 
long as it is displaying a quotation at that price through a processor 
or an SRO quotation feed. Should the display requirement be satisfied 
by displaying only through a proprietary market data feed, and not a 
processor? In other words, should a trade-at requirement permit price 
matching through displayed quotes that are not protected quotes? Why or 
why not?
    <bullet> Third, the Participants proposed that a trading center be 
permitted to execute an order at the price of a protected quotation, if 
it is displaying a quotation at that price, but only up to its 
displayed size. Is this restriction necessary to achieve the purpose of 
the Pilot's trade-at requirement? Why or why not?
    <bullet> Fourth, the Participants proposed to restrict where and 
how a trading center that is displaying a quotation at the price of a 
protected quotation may execute orders at that price. Specifically, 
where a quotation is displayed through a national securities exchange, 
the execution must occur against the displayed size on that exchange; 
where a quotation is displayed on the Alternative Display Facility 
(``ADF'') or other Commission-approved facility, the execution must 
occur in accordance with the rules of the ADF or other such facility. 
Is this restriction necessary to achieve the purpose of the Pilot's 
trade-at requirement? Why or why not?
    <bullet> Fifth, the Participants proposed 13 exceptions to the 
trade-at restrictions, many of which are modeled after the trade-
through exceptions in Rule 611 of Regulation NMS. Does it make sense to 
apply the trade-through exceptions in Rule 611 to a trade-at 
restriction? Why or why not?
    <bullet> Finally, the Participants proposed to except fractional 
shares from the trade-at requirement. Is this proposed exception 
reasonable? Why or why not?

D. Proposed Data

    As noted above, the Commission stated that one of the goals of a 
proposed Pilot would be to generate data on the impact of widened tick 
sizes on the trading and liquidity for certain small capitalization 
stocks. Therefore, in the Order, the Commission set forth details on 
the data that it preliminarily believed to be necessary to support 
analysis. This data is meant to supplement publicly available data such 
as data available on the Commission's market structure Web site \38\ 
and should allow the Commission and others to conduct studies on the 
effect of increased tick size on liquidity, execution quality for 
investors, volatility, market maker profitability, competition, 
transparency and institutional ownership. The Commission requests 
comment on the data to be generated.
---------------------------------------------------------------------------

    \38\ See Market Structure Web site, available at http://www.sec.gov/marketstructure/#.VCMPpyh39UQ.
---------------------------------------------------------------------------

    <bullet> How important is the public release of the data that is 
collected during the Pilot (``pilot data'') to the usefulness of the 
Pilot (i.e., to achieve a reliable analysis of the tradeoffs associated 
with increasing the quote increment in certain small capitalization 
securities)? Are there readily available data that are already public 
and could substitute for the pilot data? If so, what are they and how 
well could they facilitate tests of the tradeoffs associated with 
changing quote increments? What are the most important tradeoffs to 
examine during the Pilot?
    <bullet> Are researchers other than those in the securities 
industry or regulators likely to study the pilot data? Are they likely 
to use the pilot data to study the Pilot? If so, which sets of data are 
likely to be the most useful?
    <bullet> How costly will the Pilot data be to produce and make 
public? Are there any components of the pilot data that are 
particularly costly? If so, which ones? Are there any unintended 
consequences of releasing the pilot data?
    <bullet> The data is to be available starting six months prior to 
the start of the Pilot, and continue until six months after the Pilot 
ends. How valuable is the data availability before and after the 
proposed Pilot, and is six months the appropriate time frame? Please 
explain.
    <bullet> Is the frequency of the Pilot data, and delay in its 
release, appropriate to balance the cost of the data, including the 
potential for unintended consequences, against the value of the data to 
the pilot analysis and the timeliness of Pilot analyses by

[[Page 66432]]

researchers? If not, what would be more appropriate? Please explain.
i. Assessments
    <bullet> How important are the Participant assessments of the 
proposed Pilot to the success of the Pilot? Are the Participants able 
to examine unique data or offer a unique perspective such that certain 
results would only be observed because the Participants assessed the 
Pilot? Should the Participants assess any additional issues beyond 
those specified in the plan? If so, what issues?
    <bullet> The Order stated that the Participants would conduct an 
assessment of market maker profitability. The Participants did not 
propose to study market maker profitability. Should the Participants 
produce an assessment of market maker profitability as contemplated by 
the Order? Why or why not?
ii. Appendix A
    <bullet> Will the data requirements specified in Appendix A allow 
market participants to effectively implement the Pilot? How could the 
data requirements be more useful? Is pipe-delimited ASCII the best 
format of the data for this purpose? If not, what other format would be 
more appropriate and why? Should the data in Appendix A have a common 
naming convention? Why or why not?
    <bullet> Will the pilot data in Appendix A facilitate the analysis 
of the tradeoffs associated with increasing the quote increment for 
certain small capitalization securities? How could this data be more 
useful? Is pipe-delimited ASCII the best format of the data for this 
purpose? If not, what other format would be more appropriate and why?
    <bullet> How costly is the data in Appendix A to produce? Are there 
any unintended consequences of releasing the data in Appendix A? Please 
explain.
iii. Appendices B and C
    <bullet> Will each set of pilot data specified in Appendices B and 
C facilitate analysis of the tradeoffs associated with increasing the 
quote increment for certain small securities, including liquidity, 
execution quality for investors, market maker profitability, 
competition, and transparency? How much does each set of pilot data 
specified in Appendices B and C add to potential analyses of the 
proposed Pilot compared to what can be learned with publicly available 
data? How much does each set of pilot data specified in Appendices B 
and C add to potential analyses of the proposed Pilot compared to what 
can be learned with other pilot data? How could each set of data be 
more useful or how can the combinations of data be more useful? Is 
pipe-delimited ASCII the best format of the data? If not, what other 
format would be more appropriate and why? Should the data in Appendices 
B and C have common naming conventions? Why or why not?
    <bullet> How costly is the data in Appendices B and C to produce? 
Are there any unintended consequences of releasing the data in 
Appendices B and C? Please explain. Are there ways to reduce the cost 
of the data in Appendices B and C without sacrificing its value to the 
Pilot? Please explain.
    <bullet> The data specified in Appendix B.1 provides data similar 
to Rule 605 market quality data, but with a few key differences. For 
example, the Pilot data specified in Appendix B.1 would provide daily 
data whereas Rule 605 provides for monthly disclosure. Further, the 
Pilot data would include more order types and sizes than what Rule 605 
data includes, and provides additional time to execution and order size 
buckets than Rule 605 data. How important are the expansions to the 
Rule 605 data, such as the daily frequency and the inclusion of orders 
that are excluded from Rule 605 statistics? Please explain. On the 
other hand, the pilot data does not include orders that are routed to 
other trading venues and executed in full by those other trading 
venues. Should the Pilot data also include orders that are routed to 
other trading venues and executed in full by those other trading 
venues? Please explain. The data specified in Appendix B.1 includes 
only resting orders. This excludes ``immediate or cancel'' orders. 
Should immediate or cancel orders be included in the data in Appendix 
B.1?
    <bullet> Can the data in Appendix B.1 be built from the same 
infrastructure that currently supports Rule 605 data? Why or why not? 
Would the costs of Appendix B.1 data depend on whether it can be built 
from the same infrastructure as Rule 605 data?
    <bullet> The data specified in Appendix B.2 provides information on 
market and marketable limit orders. The data includes statistics for 
only the non-resting portion of the Marketable Limit Orders. Is this 
appropriate in light of potential Pilot analysis and data that are 
currently available? If not, why not? Should this data contain 
additional order information? If so, what other order information 
should be included? Please also specify which data items, if any, are 
less valuable or potentially problematic.
    <bullet> The data specified in Appendix B.3 provides the number of 
registered market makers. Should this data also include a separate 
count of the number of unregistered market makers that provide 
liquidity in the Pilot Securities? Please explain.
    <bullet> The data specified in Appendix B.4 provides aggregate 
participation statistics for registered market makers. Should this data 
also include separate participation statistics for unregistered market 
makers that provide liquidity in the Pilot Securities? Please explain.
    <bullet> Should the data in Appendix B exclude orders entered or 
executed while a trading halt is in effect? Please explain.
    <bullet> The Participants have proposed that each market maker 
shall provide to its Designated Examining Authority the market maker 
profitability data set forth in Appendix C of the Plan. The Designated 
Examining Authority will then aggregate the data, report it to the 
Commission, and make it publicly available on the Designated Examining 
Authority's Web site. This aspect differs from the Order, which 
required the Participants to collect such data, make it public, and 
conduct an assessment. Is market maker profitability data necessary to 
analyze the effect of the Tick Size Pilot Program and to reach a 
conclusion about the tradeoffs associated with increasing the quote 
increment in certain small capitalization securities? Are there better 
ways to collect such Pilot data?
    <bullet> The data specified in Appendix C provides aggregate market 
maker profitability statistics. Should this data also include separate 
profitability statistics for unregistered market makers that provide 
liquidity in the Pilot Securities? Please explain.
    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#5c2e293039713f3331313932282f1c2f393f723b332a"><span class="__cf_email__" data-cfemail="f381869f96de909c9e9e969d8780b3809690dd949c85">[email protected]</span></a>. Please include 
File Number 4-657 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 4-657. 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/

[[Page 66433]]

sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the Plan that are filed with the 
Commission, and all written communications relating to Plan 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 10:00 a.m. and 3:00 p.m. Copies of the filing 
will also be available for inspection and copying at the Participants' 
principal offices. 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 4-657 
and should be submitted on or before December 22, 2014.

    By the Commission.
Kevin M. O'Neill,
Deputy Secretary.

Exhibit A

PLAN TO IMPLEMENT A TICK SIZE PILOT PROGRAM SUBMITTED TO THE SECURITIES 
AND EXCHANGE COMMISSION PURSUANT TO RULE 608 OF REGULATION NMS UNDER 
THE SECURITIES EXCHANGE ACT OF 1934

Table of Contents

 
                           Section
 
Preamble....................................................           1
I. Definitions..............................................           2
II. Parties.................................................           7
III. Amendments To Plan.....................................           9
IV. Policies and Procedures.................................          10
V. Identification of Pilot Securities.......................          12
VI. Pilot Test Groups.......................................          14
VII. Collection of Pilot Data...............................          20
VIII. Assessment of Pilot...................................          22
IX. Implementation..........................................          23
X. Withdrawal From Plan.....................................          23
XI. Counterparts and Signatures.............................          23
Appendix A--Publication of Pilot Securities.................          25
Appendix B--Data Collected by Participants and Trading                27
 Centers....................................................
Appendix C--Data Collected by Market Makers.................          36
 

Preamble

    Pursuant to Section 11A(a)(3)(B) of the Exchange Act, which 
authorizes the SEC to require by order self-regulatory organizations to 
act jointly with respect to matters as to which they share authority in 
planning, developing, operating, or regulating a national market 
system, the SEC issued an order directing the Participants to submit a 
Tick Size Pilot Plan as a national market system plan pursuant to Rule 
608(a)(3) of Regulation NMS under the Exchange Act. In response, the 
Participants submit this Plan to implement a Tick Size Pilot Program 
that will allow the Commission, market participants, and the public to 
study and assess the impact of increment conventions on the liquidity 
and trading of the common stocks of small capitalization companies. To 
do so, the Plan provides for the widening of quoting and trading 
increments for a group of Pilot Securities. As detailed herein, the 
Pilot Securities will be subdivided into three Test Groups and a 
Control Group, each with its own requirements and exceptions relating 
to quoting and trading increments to facilitate the referenced 
analysis.

I. Definitions

    (A) ``Average effective spread'' has the meaning provided in Rule 
600(b)(5) of Regulation NMS under the Exchange Act.
    (B) ``Average realized spread'' has the meaning provided in Rule 
600(b)(6) of Regulation NMS under the Exchange Act.
    (C) ``Benchmark trade'' means the execution of an order at a price 
that was not based, directly or indirectly, on the quoted price of a 
Pilot Security at the time of execution and for which the material 
terms were not reasonably determinable at the time the commitment to 
execute the order was made.
    (D) ``Best protected bid'' means the highest priced protected bid. 
(E) ``Best protected offer'' means the lowest priced protected offer.
    (F) ``Block Size'' has the meaning provided in Rule 600(b)(9) of 
Regulation NMS under the Exchange Act.
    (G) ``Brokered cross trade'' means a trade that a broker-dealer 
that is a member of a Participant executes directly by matching 
simultaneous buy and sell orders for a Pilot Security.
    (H) ``Closing Price'' means the closing auction price on the 
primary listing exchange, or if not available, then the last regular-
way trade reported by the processor prior to 4:00 p.m. ET.
    (I) ``Designated Examining Authority'' means, with respect to a 
member of two or more self-regulatory organizations, the self-
regulatory organization responsible for (i) examining such member for 
compliance with the financial responsibility requirements imposed by 
the Exchange Act, or by Commission or self-regulatory organization 
rules, (ii) receiving regulatory reports from such member, (iii) 
examining such member for compliance with, and enforcing compliance 
with, specified provisions of the Exchange Act, the rules and 
regulations thereunder, and self-regulatory organization rules, and 
(iv) carrying out any other specified regulatory functions with respect 
to such member.
    (J) ``Exchange Act'' means the Securities Exchange Act of 1934, as 
amended.
    (K) ``Inside-the-quote limit order,'' ``at-the-quote limit order,'' 
and ``near-the-quote limit order'' mean non-marketable buy orders that 
are ranked at a price, respectively, higher than, equal to, and lower 
by $0.10 or less than the National Best Bid at the time of order 
receipt, and non-marketable sell orders that are ranked at a price, 
respectively, lower than, equal to, and higher by $0.10 or less than 
the National Best Offer at the time of order receipt.
    (L) ``Market Maker'' means a dealer registered with any self-
regulatory organization, in accordance with the rules thereof, as (i) a 
market maker or (ii) a liquidity provider with an obligation to 
maintain continuous, two-sided trading interest.

[[Page 66434]]

    (M) ``Marketable limit order'' means any buy order with a limit 
price equal to or greater than the National Best Offer at the time of 
order receipt, or any sell order with a limit price equal to or less 
than the National Best Bid at the time of order receipt. For price 
sliding, pegged, discretionary, or similar order types where the ranked 
price is different from the limit price, the ranked price will 
determine marketability.
    (N) ``Measurement Period'' means the U.S. trading days during the 
three-calendar-month period ending at least 30 days prior to the 
effective date of the Pilot Period.
    (O) ``National Best Bid'' and ``National Best Offer'' have the 
meanings provided in Rule 600(b)(42) of Regulation NMS under the 
Exchange Act.
    (P) ``Negotiated Trade'' means (i) a Benchmark trade, including, 
but not limited to, a Volume-Weighted Average Price trade or a Time-
Weighted Average Price trade, provided that, if such a trade is 
composed of two or more component trades, each component trade complies 
with the quoting and trading increment requirements of the Plan, or 
with an exception to such requirements, or (ii) a Pilot Qualified 
Contingent Trade.
    (Q) ``NMS common stock'' means an NMS stock that is common stock of 
an operating company.
    (R) ``NMS stock'' has the meaning provided in Rule 600(b)(47) of 
Regulation NMS under the Exchange Act.
    (S) ``Operating Committee'' has the meaning provided in Section 
III(C) of the Plan.
    (T) ``Participant'' means a party to the Plan.
    (U) ``Pilot Period'' means the operative period of the Tick Size 
Pilot Program, lasting one year from the date of implementation.
    (V) ``Pilot Qualified Contingent Trade'' means a transaction 
consisting of two or more component orders, executed as agent or 
principal, where: (1) At least one component order is in an NMS common 
stock; (2) all components are effected with a product or price 
contingency that either has been agreed to by the respective 
counterparties or arranged for by a broker-dealer as principal or 
agent; (3) the execution of one component is contingent upon the 
execution of all other components at or near the same time; (4) the 
specific relationship between the component orders (e.g., the spread 
between the prices of the component orders) is determined at the time 
the contingent order is placed; (5) the component orders bear a 
derivative relationship to one another, represent different classes of 
shares of the same issuer, or involve the securities of participants in 
mergers or with intentions to merge that have been announced or since 
canceled; and (6) the transaction is fully hedged (without regard to 
any prior existing position) as a result of the other components of the 
contingent trade.
    (W) ``Pilot Securities'' means those securities that satisfy the 
criteria established in Section V.
    (X) ``Plan'' means the plan set forth in this instrument, as 
amended from time to time in accordance with its provisions.
    (Y) ``Processor'' means the single plan processor responsible for 
the consolidation of information for an NMS stock pursuant to Rule 
603(b) of Regulation NMS under the Exchange Act.
    (Z) ``Protected bid'' and ``protected offer'' have the meanings 
provided in Rule 600(b)(57) of Regulation NMS under the Exchange Act.
    (AA) ``Protected quotation'' has the meaning provided in Rule 
600(b)(58) of Regulation NMS under the Exchange Act.
    (BB) ``Quotation'' has the meaning provided in Rule 600(b)(62) of 
Regulation NMS under the Exchange Act.
    (CC) ``Regular Trading Hours'' has the meaning provided in Rule 
600(b)(64) of Regulation NMS under the Exchange Act. For purposes of 
the Plan, Regular Trading Hours can end earlier than 4:00 p.m. ET in 
the case of an early scheduled close.
    (DD) ``Retail Investor Order'' means an agency order or a riskless 
principal order originating from a natural person, provided that, prior 
to submission, no change is made to the terms of the order with respect 
to price or side of market and the order does not originate from a 
trading algorithm or any other computerized methodology. The 
Participant that is the Designated Examining Authority of a member of a 
Participant operating a trading center executing a Retail Investor 
Order will require such trading center to sign an attestation that 
substantially all orders to be executed as Retail Investor Orders will 
qualify as such under the Plan.
    (EE) ``Retail liquidity providing order'' means an order entered 
into a Participant-operated retail liquidity program to execute against 
Retail Investor Orders.
    (FF) ``SEC'' means the United States Securities and Exchange 
Commission.
    (GG) ``SRO quotation feed'' means any market data feed disseminated 
by a self-regulatory organization.
    (HH) ``Tick Size Pilot Program'' means the program established by 
this Plan and by the corresponding rules of the Participants.
    (II) ``Time of order execution'' means the time (to the second, or 
to such smaller increments as are available) that an order was executed 
at any venue.
    (JJ) ``Time of order receipt'' means the time (to the second, or to 
such smaller increments as are available) that an order was received by 
a trading center for execution.
    (KK) ``Time-Weighted Average Price'' means the price calculated as 
the average price of a security over a specified period of time.
    (LL) ``Trade-at'' means the execution by a trading center of a sell 
order for a Pilot Security at the price of a protected bid or the 
execution of a buy order for a Pilot Security at the price of a 
protected offer.
    (MM) ``Trade-at Intermarket Sweep Order'' means a limit order for a 
Pilot Security that meets the following requirements:
    (1) When routed to a trading center, the limit order is identified 
as an Intermarket Sweep Order; and
    (2) Simultaneously with the routing of the limit order identified 
as an Intermarket Sweep Order, one or more additional limit orders, as 
necessary, are routed to execute against the full displayed size of any 
protected bid, in the case of a limit order to sell, or the full 
displayed size of any protected offer, in the case of a limit order to 
buy, for the Pilot Security with a price that is equal to the limit 
price of the limit order identified as an Intermarket Sweep Order. 
These additional routed orders also must be marked as Intermarket Sweep 
Orders.
    (NN) ``Trading center'' has the meaning provided in Rule 600(b)(78) 
of Regulation NMS under the Exchange Act.
    (OO) ``Volume-Weighted Average Price'' means the price calculated 
by summing up the products of the number of single-counted shares 
traded and the respective share price, and dividing by the total number 
of single-counted shares traded.

II. Parties

(A) List of Parties

    The parties to the Plan are as follows:

(1) BATS Exchange, Inc., 8050 Marshall Drive, Lenexa, Kansas 66214
(2) BATS Y-Exchange, Inc., 8050 Marshall Drive, Lenexa, Kansas 66214
(3) Chicago Stock Exchange, Inc., 440 South LaSalle Street, Chicago, 
Illinois 60605

[[Page 66435]]

(4) EDGA Exchange, Inc., 545 Washington Boulevard, Sixth Floor, Jersey 
City, NJ 07310
(5) EDGX Exchange, Inc., 545 Washington Boulevard, Sixth Floor, Jersey 
City, NJ 07310
(6) Financial Industry Regulatory Authority, Inc., 1735 K Street NW., 
Washington, DC 20006
(7) NASDAQ OMX BX, Inc., One Liberty Plaza, New York, NY 10006
(8) NASDAQ OMX PHLX LLC, 1900 Market Street, Philadelphia, PA 19103
(9) The Nasdaq Stock Market LLC, 1 Liberty Plaza, 165 Broadway, New 
York, NY 10006
(10) New York Stock Exchange LLC, 11 Wall Street, New York, NY 10005
(11) NYSE MKT LLC, 11 Wall Street, New York, NY 10005
(12) NYSE Area, Inc., 11 Wall Street, New York, NY 10005

(B) Compliance Undertaking

    By subscribing to and submitting the Plan for approval by the SEC, 
each Participant agrees to comply with, and to enforce compliance by 
its members, as applicable, with the provisions of the Plan as required 
by Rule 608(c) of Regulation NMS under the Exchange Act. To this end, 
each Participant will adopt rules requiring compliance by its members 
with the provisions of the Plan, as applicable, and adopt such other 
rules as are needed for such compliance.

(C) New Participants

    The Participants agree that any entity registered as a national 
securities exchange or national securities association under the 
Exchange Act may become a Participant by: (1) Executing a copy of the 
Plan, as then in effect; (2) providing each then-current Participant 
with a copy of such executed Plan; and (3) effecting an amendment to 
the Plan as specified in Section III(B) of the Plan.

III. Amendments To Plan

(A) General Amendments

    Except with respect to the addition of new Participants to the 
Plan, any proposed change in, addition to, or deletion from the Plan 
will be effected by means of a written amendment to the Plan that: (1) 
Sets forth the change, addition, or deletion; (2) is executed on behalf 
of each Participant; and (3) is approved by the SEC pursuant to Rule 
608 of Regulation NMS under the Exchange Act, or otherwise becomes 
effective under Rule 608 of Regulation NMS under the Exchange Act.

(B) New Participants

    With respect to new Participants, an amendment to the Plan may be 
effected by the new national securities exchange or national securities 
association executing a copy of the Plan, as then in effect (with the 
only changes being the addition of the new Participant's name in 
Section II(A) of the Plan) and submitting such executed Plan to the SEC 
for approval. The amendment will be effective when it is approved by 
the SEC in accordance with Rule 608 of Regulation NMS under the 
Exchange Act, or otherwise becomes effective pursuant to Rule 608 of 
Regulation NMS under the Exchange Act.

(C) Operating Committee

    (1) Each Participant will select from its staff one individual to 
represent the Participant as a member of an Operating Committee, 
together with a substitute for such individual. The substitute may 
participate in deliberations of the Operating Committee and will be 
considered a voting member thereof only in the absence of the primary 
representative. Each Participant will have one vote on all matters 
considered by the Operating Committee. No later than the initial date 
of Plan operations, the Operating Committee will designate one member 
of the Operating Committee to act as the Chair of the Operating 
Committee.
    (2) The Operating Committee will monitor the procedures established 
pursuant to this Plan and advise the Participants with respect to any 
deficiencies, problems, or recommendations as the Operating Committee 
may deem appropriate. The Operating Committee will establish 
specifications and procedures for the implementation and operation of 
the Plan that are consistent with the provisions of this Plan. With 
respect to matters in this paragraph, Operating Committee decisions 
must be approved by a simple majority vote.
    (3) Any recommendation for an amendment to the Plan from the 
Operating Committee that receives an affirmative vote of at least two-
thirds of the Participants, but is less than unanimous, will be 
submitted to the SEC as a request for an amendment to the Plan 
initiated by the Commission under Rule 608 of Regulation NMS.

IV. Policies and Procedures

    Consistent with the compliance undertakings set out in Section 
II(B), all Participants and members of Participants will be required to 
establish, maintain, and enforce written policies and procedures that 
are reasonably designed to comply with applicable quoting and trading 
requirements specified in Section VI for the Pilot Securities.
    Each Participant, as applicable, will develop appropriate policies 
and procedures that provide for collecting and reporting to the SEC the 
data described in Appendix B. In addition, each Participant that is the 
Designated Examining Authority of a member of a Participant operating a 
trading center will require such member to develop appropriate policies 
and procedures for collecting and reporting the data described in Items 
I and II of Appendix B, as applicable, to the Designated Examining 
Authority. Each Participant that is the Designated Examining Authority 
of a member of a Participant operating a trading center will develop 
appropriate policies and procedures, as applicable, that provide for 
collecting and reporting such data to the SEC. The data collection and 
reporting obligations are described below in Section VII.
    Each Participant that is the Designated Examining Authority of a 
Market Maker will require such Market Maker to develop policies and 
procedures for collecting the data set out in Appendix C and reporting 
it to the Designated Examining Authority. Each Participant that is the 
Designated Examining Authority of a Market Maker will develop 
appropriate policies and procedures that provide for collecting and 
reporting such data to the SEC on an aggregated basis. The Designated 
Examining Authority will also develop policies and procedures 
reasonably designed to ensure the confidentiality of the non-aggregated 
data it receives from Market Makers. The data collection and reporting 
obligations are described below in Section VII.

V. Identification of Pilot Securities

(A) Criteria for Selection of Pilot Securities

    Pilot Securities will consist of those NMS common stocks that 
satisfy the following criteria:
    (1) A market capitalization of $5 billion or less on the last day 
of the Measurement Period, where market capitalization is calculated by 
multiplying the total number of shares outstanding on such day by the 
Closing Price of the security on such day;
    (2) A Closing Price of at least $2.00 on the last day of the 
Measurement Period;
    (3) A Closing Price on every U.S. trading day during the 
Measurement Period that is not less than $1.50;
    (4) A Consolidated Average Daily Volume (``CADY'') during the 
Measurement Period of one million shares or less, where the CADY is 
calculated by adding the single-counted share volume of all reported 
transactions in the Pilot Security during

[[Page 66436]]

the Measurement Period and dividing by the total number of U.S. trading 
days during the Measurement Period; and
    (5) A Measurement Period Volume-Weighted Average Price 
(``Measurement Period VWAP'') of at least $2.00, where the Measurement 
Period VWAP is determined by calculating the VWAP for each U.S. trading 
day during the Measurement Period, summing the daily VWAP across the 
Measurement Period, and dividing by the total number of U.S. trading 
days during the Measurement Period.
    For purposes of the CADY and Measurement Period VWAP calculations 
described in Sections V(A)(4) and V(A)(5), U.S. trading days during the 
Measurement Period with early closes will be excluded. An NMS common 
stock that had its initial public offering within six months of the 
start of the Pilot Period will not be eligible to be a Pilot Security.

(B) Grouping of Pilot Securities

    The Operating Committee will oversee the Pilot Security grouping 
process in accordance with the methodology and criteria set out in this 
subsection. Once the population of Pilot Securities has been determined 
based on the criteria in Section V(A), the Operating Committee will 
select the Pilot Securities to be placed into three Test Groups by 
means of a stratified random sampling process. To effect this sampling, 
each of the Pilot Securities will be categorized as having (1) a low, 
medium, or high share price based on the Measurement Period VWAP, (2) 
low, medium, or high market capitalization based on the last day of the 
Measurement Period, and (3) low, medium, or high trading volume based 
on the CADY during the Measurement Period, yielding 27 possible 
categories. Low, medium, and high subcategories will be established by 
dividing the categories into three parts, each containing a third of 
the population.
    Pilot Securities will be randomly selected from each of the 27 
categories for inclusion into the Test Groups. If, however, a single 
category of Pilot Securities contains fewer than 10 securities, it will 
be combined with another of the 27 categories that contains at least 10 
securities. If two or more categories of Pilot Securities contain fewer 
than 10 securities, those categories will be combined, provided the 
combined category contains at least 10 securities. If the combined 
category contains fewer than 10 securities, then the category will be 
combined with another of the 27 categories that contains at least 10 
securities.
    Pilot Securities will be randomly selected from each category for 
inclusion in the three Test Groups based on the percentage of Pilot 
Securities comprised of that category. As a result, each category will 
be represented in the three Test Groups based on its relative 
proportion to the population of Pilot Securities. Further, a primary 
listing market's securities will be selected from each category and 
included in the three Test Groups in the same proportion as that 
primary listing market's securities comprise each category of Pilot 
Securities. Each Test Group will consist of 400 Pilot Securities. Those 
Pilot Securities not placed into the three Test Groups will constitute 
the Control Group.

(C) Publication of Pilot Securities and Groups

    Each primary listing exchange will make publicly available for free 
on its Web site a list of those Pilot Securities listed on that 
exchange and included in the Control Group and each Test Group, 
adjusting for ticker symbol changes and relevant corporate actions. The 
list of Pilot Securities will contain the data specified in Appendix A.

VI. Pilot Test Groups

    As described in Section V(B), the Pilot Securities will be divided 
into four groups: A Control Group and three Test Groups. Each Test 
Group will consist of 400 Pilot Securities. The Control Group will 
consist of the Pilot Securities not placed into a Test Group.

(A) Control Group

    Pilot Securities in the Control Group may be quoted and traded at 
any price increment that is currently permitted.

(B) Test Group One

    Pilot Securities in Test Group One will be quoted in $0.05 minimum 
increments, but may continue to trade at any price increment that is 
currently permitted. Participants will adopt rules prohibiting 
Participants or any member of a Participant from displaying, ranking, 
or accepting from any person any displayable or non-displayable bids or 
offers, orders, or indications of interest in any Pilot Security in 
Test Group One in price increments other than $0.05. However, orders 
priced to execute at the midpoint and orders entered in a Participant-
operated retail liquidity program may be ranked and accepted in 
increments of less than $0.05.

(C) Test Group Two

    Pilot Securities in Test Group Two will be subject to the same 
quoting requirements as Test Group One, along with the applicable 
quoting exceptions. In addition, Pilot Securities in Test Group Two may 
only be traded in $0.05 minimum increments. Participants will adopt 
rules prohibiting trading centers operated by Participants and members 
of Participants from executing orders in any Pilot Security in Test 
Group Two in price increments other than $0.05. The $0.05 minimum 
trading increment applies to brokered cross trades. Pilot Securities in 
Test Group Two may trade in increments less than $0.05, however, under 
the following circumstances:
    (1) Trading may occur at the midpoint between the National Best Bid 
and the National Best Offer or the midpoint between the best protected 
bid and the best protected offer;
    (2) Retail Investor Orders may be provided with price improvement 
that is at least $0.005 better than the best protected bid or the best 
protected offer; and
    (3) Negotiated Trades may trade in increments less than $0.05.

(D) Test Group Three

    Pilot Securities in Test Group Three will be subject to the same 
quoting and trading requirements as Test Group Two, along with the 
applicable quoting and trading exceptions. In addition, Pilot 
Securities in Test Group Three will be subject to a trade-at 
prohibition.
    Trade-at Prohibition. Under the trade-at prohibition, the Plan will 
(1) prevent a trading center that was not quoting from price-matching 
protected quotations and (2) permit a trading center that was quoting 
at a protected quotation to execute orders at that level, but only up 
to the amount of its displayed size.
    In accordance with the trade-at prohibition, Participants will 
adopt rules prohibiting trading centers operated by Participants and 
members of Participants from executing a sell order for a Pilot 
Security at the price of a protected bid or from executing a buy order 
for a Pilot Security at the price of a protected offer unless such 
executions fall within an exception set forth below.
    Trade-at Prohibition Exceptions. Trading centers will be permitted 
to execute an order for a Pilot Security at a price equal to a 
protected bid or protected offer under the following circumstances:
    (1) The order is executed by a trading center that is displaying a 
quotation, via either a processor or an SRO quotation feed, at a price 
equal to the traded-at protected quotation but only up to the trading 
center's full displayed size. Where the quotation is displayed through 
a national securities exchange,

[[Page 66437]]

the execution at the size of the order must occur against the displayed 
size on that national securities exchange. Where the quotation is 
displayed through the Alternative Display Facility or another facility 
approved by the Commission that does not provide execution 
functionality, the execution at the size of the order must occur 
against the displayed size in accordance with the rules of the 
Alternative Display Facility or such approved facility;
    (2) The order is of Block Size;
    (3) The order is a Retail Investor Order executed with at least 
$0.005 price improvement;
    (4) The order is executed when the trading center displaying the 
protected quotation that was traded at was experiencing a failure, 
material delay, or malfunction of its systems or equipment;
    (5) The order is executed as part of a transaction that was not a 
``regular way'' contract;
    (6) The order is executed as part of a single-priced opening, 
reopening, or closing transaction by the trading center;
    (7) The order is executed when a protected bid was priced higher 
than a protected offer in the Pilot Security;
    (8) The order is identified as an Intermarket Sweep Order;
    (9) The order is executed by a trading center that simultaneously 
routed Trade-at Intermarket Sweep Orders to execute against the full 
displayed size of the protected quotation that was traded at;
    (10) The order is executed as part of a Negotiated Trade;
    (11) The order is executed when the trading center displaying the 
protected quotation that was traded at had displayed, within one second 
prior to execution of the transaction that constituted the trade-at, a 
best bid or best offer, as applicable, for the Pilot Security with a 
price that was inferior to the price of the trade-at transaction.
    (12) The order is executed by a trading center which, at the time 
of order receipt, the trading center had guaranteed an execution at no 
worse than a specified price (a ``stopped order''), where:
    a. The stopped order was for the account of a customer;
    b. The customer agreed to the specified price on an order-by-order 
basis; and
    c. The price of the trade-at transaction was, for a stopped buy 
order, equal to the national best bid in the Pilot Security at the time 
of execution or, for a stopped sell order, equal to the national best 
offer in the Pilot Security at the time of execution; or
    (13) The order is for a fractional share of a Pilot Security, 
provided that such fractional share order was not the result of 
breaking an order for one or more whole shares of a Pilot Security into 
orders for fractional shares or was not otherwise effected to evade the 
requirements of the trade-at prohibition or any other provisions of the 
Plan.
    The following examples illustrate the basic operation of the trade-
at prohibition:
Example 1
    The NBBO for Pilot Security ABC is $20.00 x $20.10. Trading Center 
1 is displaying a 100-share protected bid at $20.00. Trading Center 2 
is displaying a 100-share protected bid at $19.95. There are no other 
protected bids. Trading Center 3 is not displaying any shares in Pilot 
Security ABC but has 100 shares hidden at $20.00 and has 100 shares 
hidden at $19.95. Trading Center 3 receives an incoming order to sell 
for 400 shares. To execute the 100 shares hidden at $20.00, Trading 
Center 3 must respect the protected bid on Trading Center 1 at $20.00. 
Trading Center 3 must route a Trade-at Intermarket Sweep Order to 
Trading Center 1 to execute against the full displayed size of the 
protected bid, at which point Trading Center 3 is permitted to execute 
against the 100 shares hidden at $20.00. To execute the 100 shares 
hidden at $19.95, Trading Center 3 must respect the protected bid on 
Trading Center 2 at $19.95. Trading Center 3 must route a Trade-at 
Intermarket Sweep Order to Trading Center 2 to execute against the full 
displayed size of the protected bid, at which point Trading Center 3 is 
permitted to execute against the 100 shares hidden at $19.95.
Example 2
    The NBBO for Pilot Security ABC is $20.00 x $20.10. Trading Center 
1 is displaying a 100-share protected bid at $20.00. Trading Center 2 
is displaying a 100-share protected bid at $20.00. Trading Center 2 
also has 300 shares hidden at $20.00 and has 300 shares hidden at 
$19.95. Trading Center 3 is displaying a 100-share protected bid at 
$19.95. There are no other protected bids. Trading Center 2 receives an 
incoming order to sell for 900 shares. Trading Center 2 may execute 100 
shares against its full displayed size at the protected bid at $20.00. 
To execute the 300 shares hidden at $20.00, Trading Center 2 must 
respect the protected bid on Trading Center 1 at $20.00. Trading Center 
2 must route a Trade-at Intermarket Sweep Order to Trading Center 1 to 
execute against the full displayed size of Trading Center 1's protected 
bid, at which point Trading Center 2 is permitted to execute against 
the 300 shares hidden at $20.00. To execute the 300 shares hidden at 
$19.95, Trading Center 2 must respect the protected bid on Trading 
Center 3 at $19.95. Trading Center 2 must route a Trade-at Intermarket 
Sweep Order to Trading Center 3 to execute against the full displayed 
size of Trading Center 3's protected bid, at which point Trading Center 
2 is permitted to execute against the 300 shares hidden at $19.95.
Example 3
    The NBBO for Pilot Security ABC is $20.00 x $20.10. Trading Center 
1 is displaying a 100-share protected bid at $20.00. Trading Center 1 
is also displaying 300 shares at $19.90 on an SRO quotation feed. 
Trading Center 2 is displaying a 100-share protected bid at $19.95. 
Trading Center 2 is also displaying 200 shares at $19.90 on an SRO 
quotation feed and has 200 shares hidden at $19.90. Trading Center 3 is 
displaying a 100-share protected bid at $19.90. There are no other 
protected bids. Trading Center 2 receives an incoming order to sell for 
700 shares. To execute against its protected bid at $19.95, Trading 
Center 2 must comply with the trade-through restrictions in Rule 611 of 
Regulation NMS and route an intermarket sweep order to Trading Center 1 
to execute against the full displayed size of Trading Center 1's 
protected bid at $20.00. Trading Center 2 is then permitted to execute 
against its 100-share protected bid at $19.95. Trading Center 2 may 
then execute 200 shares against its full displayed size at the price of 
Trading Center 3's protected bid. To execute the 200 shares hidden at 
$19.90, Trading Center 2 must respect the protected bid on Trading 
Center 3 at $19.90. Trading Center 2 must route a Trade-at Intermarket 
Sweep Order to Trading Center 3 to execute against the full displayed 
size of Trading Center 3's protected bid, at which point Trading Center 
2 is permitted to execute against the 200 shares hidden at $19.90. 
Trading Center 2 does not have to respect Trading Center 1's displayed 
size at $19.90 for trade-at purposes because it is not a protected 
quotation.

VII. Collection of Pilot Data

(A) Collection of Trading Center Pilot Data

    Throughout the Pilot Period, the Participants will collect the 
following data with respect to Pilot Securities (as set forth in 
Appendix B):
    (1) Daily market quality statistics of orders by security, order 
type, original order size (as observed by the trading

[[Page 66438]]

center), hidden status (as applicable), and coverage under Rule 605 of 
Regulation NMS;
    (2) Specified data regarding market orders and marketable limit 
orders;
    (3) Daily number of registered Market Makers; and
    (4) Daily Market Maker participation statistics.
    Each Participant that is the Designated Examining Authority of a 
member of a Participant operating a trading center will require such 
member to collect and provide to the Designated Examining Authority the 
data described in subparagraphs (1) and (2) above, as applicable, 
subject to the terms and conditions in Appendix B. The Participants and 
each member of a Participant operating a trading center will also be 
required to collect such data for dates starting six months prior to 
the Pilot Period through six months after the end of the Pilot Period. 
Each Participant will make available to other Participants a list of 
members designated as Market Makers on that Participant's trading 
center.
    On a monthly basis, the Participants and the Designated Examining 
Authority for each member of a Participant operating a trading center 
will make the data in the applicable subparagraphs specified above 
publicly available on their Web sites for free and will report such 
data to the SEC on a disaggregated basis by trading center. The data 
made publicly available will not identify the trading center that 
generated the data.

(B) Collection of Market Maker Profitability Data

    Each Participant that is the Designated Examining Authority of a 
Market Maker will require such Market Maker to provide to the 
Designated Examining Authority the data specified in Appendix C 
regarding daily Market Maker trading profits with respect to Pilot 
Securities on a monthly basis. Each Market Maker will also be required 
to provide to its Designated Examining Authority such daily data for 
dates starting six months prior to the Pilot Period through six months 
after the end of the Pilot Period. On a monthly basis, the Designated 
Examining Authority will aggregate such data related to Market Makers 
and make the aggregated data publicly available on its Web site for 
free and will report such data to the SEC. The data made publicly 
available will not identify the Market Makers that generated the data.

VIII. Assessment of Pilot

    No later than six months after the end of the Pilot Period, the 
Participants will provide to the Commission and make publicly available 
a joint assessment of the impact of the Pilot. The assessment will 
include:
    (1) An assessment of the statistical and economic impact of an 
increase in the quoting increment on market quality;
    (2) An assessment of the statistical and economic impact of an 
increase in the quoting increment on the number of Market Makers;
    (3) An assessment of the statistical and economic impact of an 
increase in the quoting increment on Market Maker participation;
    (4) An assessment of the statistical and economic impact of an 
increase in the quoting increment on market transparency;
    (5) An evaluation whether any market capitalization, daily trading 
volume, or other thresholds can differentiate the results of the above 
assessments across stocks (e.g., does the quoting increment impact 
differently those stocks with daily trading volume below a certain 
threshold);
    (6) An assessment of the statistical and economic impact of the 
above assessments for the incremental impact of a trading increment and 
for the joint effect of an increase in a quoting increment with the 
addition of a trading increment;
    (7) An assessment of the statistical and economic impact of the 
above assessments for the incremental impact of a trade-at prohibition 
and for the joint effect of an increase in a quoting increment with the 
addition of a trading increment and a trade-at prohibition; and
    (8) An assessment of any other economic issues that the 
Participants believe the SEC should consider in any rulemaking that may 
follow the Pilot.

Participants may individually submit to the SEC and make publicly 
available additional supplemental assessments of the impact of the 
Pilot.

IX. Implementation

    The Tick Size Pilot Program will be implemented on a one-year pilot 
basis. The Tick Size Pilot Program will be applicable during and 
outside of Regular Trading Hours.

X. Withdrawal From Plan

    If a Participant obtains SEC approval to withdraw from the Plan, 
such Participant may withdraw from the Plan at any time on not less 
than 30 days' prior written notice to each of the other Participants. 
At such time, the withdrawing Participant will have no further rights 
or obligations under the Plan.

XL Counterparts and Signatures

    The Plan may be executed in any number of counterparts, no one of 
which need contain all signatures of all Participants, and as many of 
such counterparts as will together contain all such signatures will 
constitute one and the same instrument.
    In witness thereof, this Plan has been executed as of the _ day of 
____-- 2014 by each of the parties hereto.

BATS EXCHANGE, INC.
BY:--------------------------------------------------------------------

CHICAGO STOCK EXCHANGE, INC.
BY:--------------------------------------------------------------------

EDGX EXCHANGE, INC.
BY:--------------------------------------------------------------------

NASDAQ OMX BX, INC.
BY:--------------------------------------------------------------------

THE NASDAQ STOCK MARKET LLC
BY:--------------------------------------------------------------------

NYSE MKT LLC
BY:--------------------------------------------------------------------

BATS Y-EXCHANGE, INC.
BY:--------------------------------------------------------------------

EDGA EXCHANGE, INC.
BY:--------------------------------------------------------------------

FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC.
BY:--------------------------------------------------------------------

NASDAQ OMX PHLX LLC
BY:--------------------------------------------------------------------

NEW YORK STOCK EXCHANGE LLC
BY:--------------------------------------------------------------------

NYSE ARCA, INC.
BY:--------------------------------------------------------------------

Appendix A--Publication of Pilot Securities

    The following data will be made publicly available in a pipe 
delimited format regarding the list of Pilot Securities included in 
the Control Group and each Test Group. Each primary listing exchange 
will be responsible for making publicly available for free on its 
Web site the following data with respect to the Pilot Securities 
listed on that exchange and included in the Control Group and each 
Test Group.

I. Identification of Pilot Securities

    a. Ticker Symbol
    b. Security Name
    c. Listing Exchange
    d. Date
    e. Tick Size Pilot Program Group--character value of
    i. ``C'' for Pilot Securities in the Control Group
    ii. ``G1'' for Pilot Securities in Test Group One
    iii. ``G2'' for Pilot Securities in Test Group Two
    iv. ``G3'' for Pilot Securities in Test Group Three

II. Change in Pilot Securities' Ticker Symbols

    a. Ticker Symbol

[[Page 66439]]

    b. Security Name
    c. Listing Exchange
    d. Effective Date
    e. Deleted Date
    f. Tick Size Pilot Program Group--character value of
    i. ``C'' for Pilot Securities in the Control Group
    ii. ``G1'' for Pilot Securities in Test Group One
    iii. ``G2'' for Pilot Securities in Test Group Two
    iv. ``G3'' for Pilot Securities in Test Group Three
    g. Old Ticker Symbol(s)
    h. Reason for the change

Appendix B--Data Collected by Participants and Trading Centers

    Each Participant, as applicable, will collect and transmit the 
data described in Items I-IV with respect to Pilot Securities to the 
SEC in a pipe delimited format on a monthly basis. In addition, each 
Participant that is the Designated Examining Authority of a member 
of a Participant operating a trading center will require such 
member, as applicable, to collect and transmit the data described in 
Items I and II with respect to Pilot Securities to the Designated 
Examining Authority in a pipe delimited format on a monthly basis. 
Each Designated Examining Authority will transmit the data on a 
disaggregated basis to the SEC, i.e., by trading center. The data 
will be provided to the SEC within 30 calendar days following month 
end. All trading centers, including Participants, will report the 
data described in Items I.a(28) and I.b with respect to only those 
orders executed, in whole or part, on that trading center. All 
trading centers will report the remaining data described in Item La 
with respect to any order received by that trading center. The data 
described in Item I will only be collected for orders received 
during Regular Trading Hours. All trading centers, including 
Participants, will report the data described in Item II with respect 
to any market or marketable limit orders received by that trading 
center. The data described in Item II will be collected for orders 
received during and outside of Regular Trading Hours. Orders entered 
while a trading halt is in effect will be excluded from the data. 
The data will be provided for dates starting six months prior to the 
Pilot Period through six months after the end of the Pilot Period.
    I. Market Quality Statistics--Daily market quality statistics 
categorized by security, order type, original order size, hidden 
status, and coverage under Rule 605, including the following columns 
of information:
    a. For regular hours orders which are market orders (10), 
marketable limit orders (11), inside-the-quote resting limit orders 
(12), at-the-quote resting limit orders (13), near-the-quote resting 
limit orders (within .10 from the NBBO) (14), resting intermarket 
sweep orders (15), retail liquidity providing orders (16), and 
midpoint passive liquidity orders (17) executed on the trading 
center:
    (1) Exchange code or trading center identifier;
    (2) Ticker Symbol;
    (3) Order Type, as defined in the Plan or in I.a of this 
Appendix;
    (4) Original Order size with the following modified categories 
from Rule 605 reports:
    a. Less than 100 shares;
    b. 100 to 499 shares;
    c. 500 to 1999 shares;
    d. 2000 to 4999 shares;
    e. 5000 to 9999 shares; and
    f. 10000 or more shares;
    (5) Hidden Status Category--indicates whether the orders fall 
into the following categories:
    a. Entirely Displayable;
    b. Partially Displayable; and
    c. Not Displayable;
    (6) Rule 605 Coverage--indicates whether the orders are covered 
in Rule 605 (YIN);
    (7) The cumulative number of orders;
    (8) The cumulative number of shares of orders;
    (9) The cumulative number of shares of orders canceled;
    (10) The cumulative number of shares of orders executed on the 
receiving trading center;
    (11) The cumulative number of orders with special handling 
instructions (for example, slide, discretion, eligible counterparty, 
minimum quantity) excluded from price improvement and effective 
spread statistics;
    (12) The cumulative number of shares of orders with special 
handling instructions (for example slide, discretion, eligible 
counterparty, minimum quantity) excluded from price improvement and 
effective spread statistics;
    (13) The cumulative number of shares of orders executed at any 
other trading center;
    (14) The cumulative number of shares of orders executed from 0 
to less than 100 microseconds after the time of order receipt;
    (15) The cumulative number of shares of orders executed from 100 
microseconds to less than 100 milliseconds after the time of order 
receipt;
    (16) The cumulative number of shares of orders executed from 100 
milliseconds to less than 1 second after the time of order receipt;
    (17) The cumulative number of shares of orders executed from 1 
second to less than 30 seconds after the time of order receipt;
    (18) The cumulative number of shares of orders executed from 30 
seconds to less than 60 seconds after the time of order receipt;
    (19) The cumulative number of shares of orders executed from 60 
seconds to less than 5 minutes after the time of order receipt;
    (20) The cumulative number of shares of orders executed from 5 
minutes to 30 minutes after the time of order receipt;
    (21) The cumulative number of shares of orders canceled from 0 
to less than 100 microseconds after the time of order receipt;
    (22) The cumulative number of shares of orders canceled from 100 
microseconds to less than 100 milliseconds after the time of order 
receipt;
    (23) The cumulative number of shares of orders canceled from 100 
milliseconds to less than 1 second after the time of order receipt;
    (24) The cumulative number of shares of orders canceled from 1 
second to less than 30 seconds after the time of order receipt;
    (25) The cumulative number of shares of orders canceled from 30 
seconds to less than 60 seconds after the time of order receipt;
    (26) The cumulative number of shares of orders canceled from 60 
seconds to less than 5 minutes after the time of order receipt;
    (27) The cumulative number of shares of orders canceled from 5 
minutes to 30 minutes;
    (28) The share-weighted average realized spread for executions 
of orders;
    (29) Original Percentage Hidden--the received share-weighted 
average percentage of shares not displayable as of order receipt;
    (30) Final Percentage Hidden--the received share-weighted 
average percentage of shares not displayed prior to final order 
execution or cancellation;
    (31) Quoted Size at the National Best Bid and National Best 
Offer--the share-weighted average of the consolidated quoted size at 
the inside price at the time of order execution;
    (32) Share-weighted average NBBO Spread at the time of order 
execution; and
    (33) Share-weighted average BBO Spread of reporting exchange at 
the time of order execution.
    b. For market orders and marketable limit orders, except those 
noted as excluded: (1) The share-weighted average effective spread 
for executions of orders;
    (2) The cumulative number of shares of orders executed with 
price improvement; (3) For shares executed with price improvement, 
the share-weighted average amount per share that prices were 
improved;
    (4) For shares executed with price improvement, the share-
weighted average period from the time of order receipt to the time 
of order execution;
    (5) The cumulative number of shares of orders executed at the 
quote;
    (6) For shares executed at the quote, the share-weighted average 
period from the time of order receipt to the time of order 
execution;
    (7) The cumulative number of shares of orders executed outside 
the quote;
    (8) For shares executed outside the quote, the share-weighted 
average amount per share that prices were outside the quote; and
    (9) For shares executed outside the quote, the share-weighted 
average period from the time of order receipt to the time of order 
execution.
    II. Market and Marketable Limit Order Data--The following 
columns of information with respect to Market Orders and non-booked 
portions of Marketable Limit Orders:
    a. Exchange code or trading center identifier;
    b. Ticker Symbol;
    c. Date;
    d. Time of order receipt;
    e. Order Type;
    f. Order Size in Shares;
    g. Order side--``B'', ``S'' (including sell short exempt), 
``SS'';
    h. Order price (if marketable limit);
    i. NBBO quoted price;
    j. NBBO quoted depth in lots;
    k. Receiving market offer for buy or bid for sell (as 
applicable);
    l. Receiving market depth (offer for buy and bid for sell) (as 
applicable);
    m. ISO flag (YIN);
    n. Retail Investor Order flag (YIN);
    o. Routable flag (YIN);
    p. IOC (YIN);

[[Page 66440]]

    q. Indicator for quote leader--``1'' if the receiving market is 
the first market to post the NBB for a sell or NBO for a buy (as 
applicable);
    r. Average execution price-share-weighted average that includes 
only executions on the receiving market;
    s. Average execution time-share-weighted average period that 
includes only executions on the receiving market;
    t. Executed shares--the number of shares in the order that are 
executed;
    u. Canceled shares--the number of shares in the order that are 
canceled;
    v. Routed shares--the number of shares in the order that are 
routed to another exchange or market;
    w. Routed average execution price-share--weighted average that 
includes only shares routed away from the receiving market;
    x. Average routed execution time-share--weighted average period 
that includes only executions on the routed markets; and
    y. Indicator for special handling instructions (for example, 
slide, discretion, eligible counterparty, minimum quantity)--
identifies orders that contain instructions that could result in 
delayed execution or an execution price other than the quote.
    III. Daily Market Maker Registration Statistics--Each 
Participant that is a National Securities Exchange will collect 
daily Market Maker registration statistics categorized by security, 
including the following columns of information:
    a. Ticker Symbol;
    b. SRO;
    c. Number of registered market makers; and
    d. Number of other registered liquidity suppliers.
    IV. Daily Market Maker Participation Statistics--Each 
Participant will collect daily Market Maker participation statistics 
with respect to each Market Maker engaging in trading activity on 
the trading center operated by the Participant. With respect to each 
Market Maker, the Participant will collect such statistics 
irrespective of whether the Market Maker is registered with the 
Participant. The participation statistics will be categorized by 
security, including the columns of information listed below, except 
that a Participant that is a national securities association will 
not be required to collect such statistics unless a Market Maker 
registers with its Alternative Display Facility prior to or during 
the Pilot Period:
    a. Ticker Symbol;
    b. Share participation--the number of shares purchased or sold 
by Market Makers in a principal trade, not including riskless 
principal. When aggregating across Market Makers, share 
participation will be an executed share-weighted average per Market 
Maker;
    c. Trade participation--the number of purchases and sales by 
Market Makers in a principal trade, not including riskless 
principal. When aggregating across Market Makers, trade 
participation will be a trade-weighted average per Market Maker;
    d. Cross-quote share (trade) participation--the number of shares 
purchased (the number of purchases) at or above the NBO and the 
number of shares sold (the number of sales) at or below the NBB at 
the time of the trade;
    e. Inside-the-quote share (trade) participation--the number of 
shares purchased (the number of purchases) and the number of shares 
sold (the number of sales) between the NBBO at the time of the 
trade;
    f. At-the-quote share (trade) participation--the number of 
shares purchased (the number of purchases) that are equal to the 
National Best Bid price and the number of shares sold (the number of 
sales) that are equal to the National Best Offer price at the time 
of or immediately before the trade. In the case of a downward moving 
National Best Bid or Offer, the National Best Bid or National Best 
Offer price immediately before the trade will be used; and
    g. Outside-the-quote share (trade) participation--the number of 
shares purchased (the number of purchases) that are less than the 
National Best Bid price and the number of shares sold (the number of 
sales) that are greater than the National Best Offer price at the 
time of or immediately before the trade. In the case of a downward 
moving National Best Bid or Offer, the National Best Bid or National 
Best Offer price immediately before the trade will be used.

Appendix C--Data Collected by Market Makers

    Each Participant that is the Designated Examining Authority of a 
Market Maker will require such Market Maker to collect the data 
described in Item I with respect to orders and executions in Pilot 
Securities on any trading center and to transmit such data in a pipe 
delimited format to the Designated Examining Authority on a monthly 
basis, to be provided within 30 calendar days following month end. 
Data will only be collected with respect to those orders and 
executions occurring during Regular Trading Hours. The data will be 
provided for dates starting six months prior to the Pilot Period 
through six months after the end of the Pilot Period. Each 
Designated Examining Authority will be responsible for aggregating 
the data provided by the Market Makers under Item I and providing 
the data described in Item II in a pipe delimited format to the SEC.
    I. Market Maker Profitability--Daily Market Maker profitability 
statistics categorized by security, including the following columns 
of information:
    a. Total number of shares of orders executed by the Market 
Maker;
    b. Raw Market Maker realized trading profits--the difference 
between the market value of Market Maker sales (shares sold x price) 
and the market value of Market Maker purchases (shares purchased x 
price). A LIFO-like method will be used for determining which share 
prices to use in the calculation;
    c. Market Maker realized trading profits net of fees and 
rebates--realized trading profits plus rebates the Market Maker 
collects from trading on that day minus access fees the Market Maker 
pays for trading on that day (if estimated before allocation of 
rebates and fees, use expected rebates and fees); and
    d. Raw Market Maker unrealized trading profits--the difference 
between the purchase or sale price of the end-of-day inventory 
position of the Market Maker and the Closing Price. In case of a 
short position, the Closing Price from the sale will be subtracted. 
In the case of a long position, the purchase price will be 
subtracted from the Closing Price.
    II. Aggregated Market Maker Profitability--Total Daily Market 
Maker profitability statistics categorized by security, including 
the following columns of information:
    a. Total Raw Market Maker realized trading profits--the 
difference between the market value of Market Maker sales (shares 
sold x price) and the market value of Market Maker purchases (shares 
purchased x price). A LIFO-like method will be used for determining 
which share prices to use in the calculation;
    b. Volume-weighted average of Raw Market Maker realized trading 
profits;
    c. Total Market Maker realized trading profits net of fees and 
rebates--realized trading profits plus rebates the Market Maker 
collects from trading on that day minus access fees the Market Maker 
pays for trading on that day (if estimated before allocation of 
rebates and fees, use expected rebates and fees);
    d. Volume-weighted average of Market Maker realized trading 
profits net of fees and rebates;
    e. Total Raw Market Maker unrealized trading profits--the 
difference between the purchase or sale price of the end-of-day 
inventory position of the Market Maker and the Closing Price. In 
case of a short position, the Closing Price from the sale will be 
subtracted. In the case of a long position, the purchase price will 
be subtracted from the Closing Price; and
    f. Volume-weighted average of Market Maker unrealized trading 
profits.

[FR Doc. 2014-26463 Filed 11-6-14; 8:45 am]
BILLING CODE 8011-01-P


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