Federal Register / Vol. 79, No. 216 / Friday, November 7, 2014 / Notices 66423 

1 15 U.S.C. 78k–1. 

2 17 CFR 242.608. 

3 15 U.S.C. 78k–1(a)(3)(B). 

4See Securities Exchange Act Release No. 72460, 

79 FR 36840 (June 30, 2014). 

5See Letter from Brendon J. Weiss, Vice 

President, Intercontinental Exchange, Inc., to 

Secretary, Commission, dated August 25, 2014 

(‘‘Transmittal Letter’’). 

6Participants 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. 

7NMS common stock is defined in the Plan as 

NMS stock that is common stock of an operating 

company. 

incurred in connection with the 

reorganization were paid by Fiduciary 

Management, Inc., investment adviser to 

both applicant and the acquiring fund. 

Filing Date: The application was filed 

on September 30, 2014. 

Applicant’s Address: 100 East 

Wisconsin Ave., Suite 2200, Milwaukee, 

WS 53202. 

Inflation-Linked Securities Portfolio 

[File No. 811–22385] 

Summary: Applicant seeks an order 

declaring that it has ceased to be an 

investment company. On July 7, 2013, 

applicant made a liquidating 

distribution to its shareholders, based 

on net asset value. Applicant incurred 

no expenses in connection with the 

liquidation. 

Filing Date: The application was filed 

on September 26, 2014. 

Applicant’s Address: Two 

International Place, Boston, MA 02110. 

DGHM Investment Trust [File No. 811– 

21958] 

Summary: Applicant seeks an order 

declaring that it has ceased to be an 

investment company. Applicant 

transferred its assets to corresponding 

series of World Funds Trust, and on 

October 23, 2013, made distributions to 

its shareholders based on net asset 

value. Expenses of $43,000 incurred in 

connection with the reorganization were 

paid by applicant and Commonwealth 

Shareholder Services, Inc., the 

administrator to both applicant and the 

acquiring fund. 

Filing Date: The application was filed 

on September 30, 2014. 

Applicant’s Address: 565 Fifth Ave., 

Suite 2101, New York, NY 10017. 

Franklin Tax Exempt Money Market 

Fund [File No. 811–3193] 

Summary: Applicant seeks an order 

declaring that it has ceased to be an 

investment company. On July 2, 2013, 

applicant made a liquidating 

distribution to its shareholders, based 

on net asset value. Thereafter, applicant 

transferred approximately $540,110 to 

Franklin Templeton Investors Services, 

LLC, its transfer agent, to be held for 

shareholders not yet located. If the 

transfer agent is unable to locate the 

shareholders, the funds will escheat to 

the state. Expenses of approximately 

$7,078 that were incurred in connection 

with the liquidation were paid by 

applicant. 

Filing Dates: The application was 

filed on July 29, 2014, and amended on 

October 3, 2014. 

Applicant’s Address: One Franklin 

Parkway, San Mateo, CA 94403–1906. 

For the Commission, by the Division 

of Investment Management, pursuant to 

delegated authority. 

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–26462 Filed 11–6–14; 8:45 am] 

BILLING CODE 8011–01–P 

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. 

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. 

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

* * * * * 

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

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 

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66424 Federal Register / Vol. 79, No. 216 / Friday, November 7, 2014 / Notices 

8Measurement Period is defined in the Plan as 

the U.S. trading days during the three-calendarmonth period ending at least 30 days prior to the 

effective date of the Pilot Period. 

9Closing Price is defined in the Plan as the 

closing auction price on the primary listing 

exchange, or if not available, then the last regularway trade reported by the processor prior to 4:00 

p.m. ET. 

10For purposes of the CADV and Measurement 

Period VWAP calculations, U.S. trading days during 

the Measurement Period with early closes will be 

excluded. 

11While 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. 

12Low, medium, and high subcategories will be 

established by dividing the categories into three 

parts, each containing a third of the population. 

13See Tick Size Pilot Plan Order at 36844. 

14Consistent 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. 

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

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

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. 

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. 

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. 

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 

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Federal Register / Vol. 79, No. 216 / Friday, November 7, 2014 / Notices 66425 

15Trading 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. 

16A 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. 

17A 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. 

18A 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. 

19Processor 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. 

20SRO quotation feed is defined in the Plan as 

any market data feed disseminated by a selfregulatory organization. 

21See Tick Size Pilot Plan Order at 36845. 

22See 17 CFR. § 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. 

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. 

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: 

(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 

(3) Negotiated Trades 18 may trade in 

increments less than $0.05. 

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. 

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. 

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. 

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 

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66426 Federal Register / Vol. 79, No. 216 / Friday, November 7, 2014 / Notices 

23The 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-ofbook, 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. 

24Block 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. 

25For 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). 

26A 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. 

27A trading center complying with one of these 

exceptions under the trade-at prohibition must still 

ensure that any execution complies with Rule 611. 

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; 

(2) The order is of Block Size; 24

(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

(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; 

(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

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, 

mstockstill on DSK4VPTVN1PROD with NOTICES

Federal Register / Vol. 79, No. 216 / Friday, November 7, 2014 / Notices 66427 

28See Tick Size Pilot Plan Order at 36845–46, n. 

63, 64. 

29Market 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. 

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. 

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 tradethrough 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 × $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 × $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 × $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 

(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, 

mstockstill on DSK4VPTVN1PROD with NOTICES

66428 Federal Register / Vol. 79, No. 216 / Friday, November 7, 2014 / Notices 

30See Tick Size Pilot Plan Order at 36846. 

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. 

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 thencurrent 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 

mstockstill on DSK4VPTVN1PROD with NOTICES

Federal Register / Vol. 79, No. 216 / Friday, November 7, 2014 / Notices 66429 

31See Order at 36843. 

32See 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/theepic-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). 

33The Commission notes that the Participants 

described their additions and modifications and 

rationale in their Transmittal Letter, which is set 

forth above in Section III. 

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. 

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

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. 

• 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. 

• 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? 

• 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. 

• Could investors of the small 

capitalization securities included in the 

Pilot be harmed by the widening of 

quoting and trading increments? 

• 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? 

• 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? 

• 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 

• 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? 

• The Participants have proposed to 

exclude securities that have recently 

completed an initial public offering 

mstockstill on DSK4VPTVN1PROD with NOTICES

66430 Federal Register / Vol. 79, No. 216 / Friday, November 7, 2014 / Notices 

34See supra note 8. 

from the proposed Pilot. Should these 

securities be included? 

• Should the proposed Pilot exclude 

any other small capitalization 

securities? For example, should small 

capitalization securities that are crosslisted in another jurisdiction be 

excluded from the Pilot? 

• 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? 

• 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? 

• 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 

• 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? 

• 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? 

• 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? 

• 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. 

• 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? 

• 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 

• 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 

• 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? 

• 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. 

• 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 tradeat 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 

mstockstill on DSK4VPTVN1PROD with NOTICES

Federal Register / Vol. 79, No. 216 / Friday, November 7, 2014 / Notices 66431 

35The Commission noted that it preliminarily 

believed that $0.005 would be the required 

minimum price improvement for retail investor 

orders. 

36See Section III supra for the rationale provided 

by the Participants for this proposal. 

37Rule 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). 

38See Market Structure Web site, available at 

http://www.sec.gov/marketstructure/#.VCMP

pyh39UQ. 

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. 

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. 

• 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? 

• The Commission noted that a tradeat 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? 

• 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? 

• 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? 

• 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? 

• 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 Commissionapproved 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? 

• 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? 

• 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. 

• 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? 

• 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? 

• 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? 

• 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. 

• 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 

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researchers? If not, what would be more 

appropriate? Please explain. 

i. Assessments 

• 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? 

• 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 

• 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 pipedelimited 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? 

• 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 pipedelimited ASCII the best format of the 

data for this purpose? If not, what other 

format would be more appropriate and 

why? 

• 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 

• 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? 

• 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. 

• 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? 

• 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? 

• The data specified in Appendix B.2 

provides information on market and 

marketable limit orders. The data 

includes statistics for only the nonresting 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. 

• 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. 

• 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. 

• Should the data in Appendix B 

exclude orders entered or executed 

while a trading halt is in effect? Please 

explain. 

• 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? 

• 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 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number 4– 

657 on the subject line. 

Paper Comments 

• 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/

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Federal Register / Vol. 79, No. 216 / Friday, November 7, 2014 / Notices 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 Centers ...................................................................................................... 27 

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 selfregulatory 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 ‘‘nearthe-quote limit order’’ mean nonmarketable 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, twosided trading interest. 

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(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 threecalendar-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 selfregulatory 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 

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(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 

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the Measurement Period and dividing 

by the total number of U.S. trading days 

during the Measurement Period; and 

(5) A Measurement Period VolumeWeighted 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 tradeat 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, 

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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 × $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 × $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 × $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 

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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 l day of lllll 

2014 by each of the parties hereto. 

BATS EXCHANGE, INC. 

BY: llllllllllllllll

CHICAGO STOCK EXCHANGE, INC. 

BY: llllllllllllllll

EDGX EXCHANGE, INC. 

BY: llllllllllllllll

NASDAQ OMX BX, INC. 

BY: llllllllllllllll

THE NASDAQ STOCK MARKET LLC 

BY: llllllllllllllll

NYSE MKT LLC 

BY: llllllllllllllll

BATS Y-EXCHANGE, INC. 

BY: llllllllllllllll

EDGA EXCHANGE, INC. 

BY: llllllllllllllll

FINANCIAL INDUSTRY REGULATORY 

AUTHORITY, INC. 

BY: llllllllllllllll

NASDAQ OMX PHLX LLC 

BY: llllllllllllllll

NEW YORK STOCK EXCHANGE LLC 

BY: llllllllllllllll

NYSE ARCA, INC. 

BY: llllllllllllllll

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 

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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 nonbooked 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); 

mstockstill on DSK4VPTVN1PROD with NOTICES

66440 Federal Register / Vol. 79, No. 216 / Friday, November 7, 2014 / Notices 

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

2 17 CFR 240.19b–4. 

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 tradeweighted 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 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73497; File No. SR–OCC– 

2014–18] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of Proposed Rule Change to 

Provide That the Options Clearing 

Corporation’s President Will Be Its 

Chief Operating Officer, and That the 

President Will Not Be a Management 

Director 

November 3, 2014. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on October 

31, 2014, The Options Clearing 

Corporation, (‘‘OCC’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II and III 

below, which Items have been prepared 

by OCC. The Commission is publishing 

mstockstill on DSK4VPTVN1PROD with NOTICES