Document ID: SEC-2015-0164-0001
Agency: sec
Document Type: Notice
Title: Joint Industry Plans: BATS Exchange, Inc., BATS Y-Exchange, Inc., et al.
Posted Date: 2015-01-27T05:00Z

[Federal Register Volume 80, Number 17 (Tuesday, January 27, 2015)]
[Notices]
[Pages 4321-4324]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-01384]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74110; File No. 4-631]

Joint Industry Plan; Notice of Filing of the Eighth Amendment to 
the National Market System Plan To Address Extraordinary Market 
Volatility by BATS Exchange, Inc., BATS Y-Exchange, Inc., Chicago Board 
Options 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, National Stock Exchange, Inc., New York Stock Exchange LLC, NYSE 
MKT LLC, and NYSE Arca, Inc.

January 21, 2015.

I. Introduction

    On December 24, 2014, Financial Industry Regulatory Authority, Inc. 
(``FINRA''), on behalf of the following parties to the National Market 
System Plan: BATS Exchange, Inc., BATS Y-Exchange, Inc., Chicago Board 
Options Exchange, Incorporated, Chicago Stock Exchange, Inc., EDGA 
Exchange, Inc., EDGX Exchange, Inc., NASDAQ OMX BX, Inc., NASDAQ OMX 
PHLX LLC, the Nasdaq Stock Market LLC, and National Stock Exchange, 
Inc., New York Stock Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc. 
(collectively with FINRA, the ``Participants''), filed with the 
Securities and Exchange Commission (``Commission'') pursuant to Section 
11A of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 608 
thereunder,\2\ a proposal to amend the Plan to Address Extraordinary 
Market Volatility (``Plan'').\3\ The proposal represents the eighth 
amendment to the Plan (``Eighth Amendment''), and reflects changes 
unanimously approved by the Participants. The Eighth Amendment to the 
Plan proposes to: (i) Establish a requirement for the Participants to 
submit a supplemental joint assessment to the Commission by May 29, 
2015; and (ii) extend the end date of the pilot period of the Plan from 
February 20, 2015 to October 23, 2015. A copy of the Plan, as proposed 
to be amended is attached as Exhibit A hereto. The Commission is 
publishing this notice to solicit comments from interested

[[Page 4322]]

persons on the Eighth Amendment to the Plan.\4\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78k-1.
    \2\ 17 CFR 242.608.
    \3\ See Letter from Christopher B. Stone, Vice President, FINRA, 
to Brent Fields, Secretary, Commission, dated December 24, 2014 
(``Transmittal Letter'').
    \4\ ``Any two or more self-regulatory organizations, acting 
jointly, . . . may propose an amendment to an effective national 
market system plan [] by submitting the text of the plan or 
amendment to the Secretary of the Commission, together with a 
statement of the purpose of such plan or amendment . . .'' 17 CFR 
242.608(a)(1) The Commission is required to publish notice of the 
filing of any proposed amendment to any effective national market 
system plan, together with the terms of substance of the filing or a 
description of the subjects and issues involved, and shall provide 
interested persons an opportunity to submit written comments. See 17 
CFR 242.608(b)(1). No amendment to a national market system plan 
shall become effective unless approved by the Commission or 
otherwise permitted in accordance with Rule 608(b)(3). See id.
---------------------------------------------------------------------------

II. Description of the Proposal

A. Purpose of the Plan

    The Participants filed the Plan in order to create a market-wide 
limit up-limit down mechanism that is intended to address extraordinary 
market volatility in ``NMS Stocks,'' as defined in Rule 600(b)(47) of 
Regulation NMS under the Act.\5\ The Plan sets forth procedures that 
provide for market-wide limit up-limit down requirements that are 
designed to prevent trades in individual NMS Stocks from occurring 
outside of the specified price bands.\6\ These limit up-limit down 
requirements are coupled with Trading Pauses, as defined in Section 
I(Y) of the Plan, to accommodate more fundamental price moves (as 
opposed to erroneous trades or momentary gaps in liquidity).
---------------------------------------------------------------------------

    \5\ 17 CFR 242.600(b)(47). See also Section I(H) of the Plan.
    \6\ See Section V of the Plan.
---------------------------------------------------------------------------

    As set forth in Section V of the Plan, the price bands consist of a 
Lower Price Band and an Upper Price Band for each NMS Stock.\7\ The 
price bands are calculated by the Securities Information Processors 
(``SIPs'' or ``Processors'') responsible for consolidation of 
information for an NMS Stock pursuant to Rule 603(b) of Regulation NMS 
under the Act.\8\ Those price bands are based on a Reference Price \9\ 
for each NMS Stock that equals the arithmetic mean price of Eligible 
Reported Transactions for the NMS Stock over the immediately preceding 
five-minute period. The price bands for an NMS Stock are calculated by 
applying the Percentage Parameter for such NMS Stock to the Reference 
Price, with the Lower Price Band being a Percentage Parameter \10\ 
below the Reference Price, and the Upper Price Band being a Percentage 
Parameter above the Reference Price. Between 9:30 a.m. and 9:45 a.m. ET 
and 3:35 p.m. and 4:00 p.m. ET, the price bands are calculated by 
applying double the Percentage Parameters as set forth in Appendix A of 
the Plan.
---------------------------------------------------------------------------

    \7\ Capitalized terms used herein but not otherwise defined 
shall have the meaning ascribed to such terms in the Plan. See 
Exhibit A, infra.
    \8\ 17 CFR 242.603(b). The Plan refers to this entity as the 
Processor.
    \9\ See Section I(T) of the Plan.
    \10\ As initially proposed by the Participants, the Percentage 
Parameters for Tier 1 NMS Stocks (i.e., stocks in the S&P 500 Index 
or Russell 1000 Index and certain ETPs) with a Reference Price of 
$1.00 or more would be five percent and less than $1.00 would be the 
lesser of (a) $0.15 or (b) 75 percent. The Percentage Parameters for 
Tier 2 NMS Stocks (i.e., all NMS Stocks other than those in Tier 1) 
with a Reference Price of $1.00 or more would be 10 percent and less 
than $1.00 would be the lesser of (a) $0.15 or (b) 75 percent. The 
Percentage Parameters for a Tier 2 NMS Stock that is a leveraged ETP 
would be the applicable Percentage Parameter set forth above 
multiplied by the leverage ratio of such product. On May 24, 2012, 
the Participants amended the Plan to create a 20% price band for 
Tier 1 and Tier 2 stocks with a Reference Price of $0.75 or more and 
up to and including $3.00. The Percentage Parameter for stocks with 
a Reference Price below $0.75 would be the lesser of (a) $0.15 or 
(b) 75 percent. See Letter from Janet M. McGinness, Senior Vice 
President, Legal and Corporate Secretary, NYSE Euronext, to 
Elizabeth M. Murphy, Secretary, Commission, dated May 24, 2012.
---------------------------------------------------------------------------

    The Processors also calculate a Pro-Forma Reference Price for each 
NMS Stock on a continuous basis during Regular Trading Hours. If a Pro-
Forma Reference Price does not move by one percent or more from the 
Reference Price in effect, no new price bands are disseminated, and the 
current Reference Price remains the effective Reference Price. If the 
Pro-Forma Reference Price moves by one percent or more from the 
Reference Price in effect, the Pro-Forma Reference Price becomes the 
Reference Price, and the Processors disseminate new price bands based 
on the new Reference Price. Each new Reference Price remains in effect 
for at least 30 seconds.
    When one side of the market for an individual security is outside 
the applicable price band, the Processors are required to disseminate 
such National Best Bid \11\ or National Best Offer \12\ with an 
appropriate flag identifying it as non-executable. When the other side 
of the market reaches the applicable price band, the market for an 
individual security enters a Limit State,\13\ and the Processors are 
required to disseminate such National Best Offer or National Best Bid 
with an appropriate flag identifying it as a Limit State Quotation.\14\ 
All trading immediately enters a Limit State if the National Best Offer 
equals the Lower Limit Band and does not cross the National Best Bid, 
or the National Best Bid equals the Upper Limit Band and does not cross 
the National Best Offer. Trading for an NMS Stock exits a Limit State 
if, within 15 seconds of entering the Limit State, all Limit State 
Quotations are executed or canceled in their entirety. If the market 
does not exit a Limit State within 15 seconds, then the Primary Listing 
Exchange declares a five-minute Trading Pause, which is applicable to 
all markets trading the security.
---------------------------------------------------------------------------

    \11\ 17 CFR 242.600(b)(42). See also Section I(G) of the Plan.
    \12\ Id.
    \13\ A stock enters the Limit State if the National Best Offer 
equals the Lower Price Band and does not cross the National Best 
Bid, or the National Best Bid equals the Upper Price Band and does 
not cross the National Best Offer. See Section VI(B) of the Plan.
    \14\ See Section I(D) of the Plan.
---------------------------------------------------------------------------

    These limit up-limit down requirements are coupled with Trading 
Pauses \15\ to accommodate more fundamental price moves (as opposed to 
erroneous trades or momentary gaps in liquidity). As set forth in more 
detail in the Plan, all trading centers \16\ in NMS Stocks, including 
both those operated by Participants and those operated by members of 
Participants, are required to establish, maintain, and enforce written 
policies and procedures that are reasonably designed to comply with the 
limit up-limit down and Trading Pause requirements specified in the 
Plan.
---------------------------------------------------------------------------

    \15\ The primary listing market declares a Trading Pause in an 
NMS Stock; upon notification by the primary listing market, the 
Processor disseminates this information to the public. No trades in 
that NMS Stock could occur during the Trading Pause, but all bids 
and offers may be displayed. See Section VII(A) of the Plan.
    \16\ As defined in Section I(X) of the Plan, a trading center 
shall have the meaning provided in Rule 600(b)(78) of Regulation NMS 
under the Act.
---------------------------------------------------------------------------

    Under the Plan, all trading centers are required to establish, 
maintain, and enforce written policies and procedures reasonably 
designed to prevent the display of offers below the Lower Price Band 
and bids above the Upper Price Band for an NMS Stock. The Processors 
disseminate an offer below the Lower Price Band or bid above the Upper 
Price Band that nevertheless inadvertently may be submitted despite 
such reasonable policies and procedures, but with an appropriate flag 
identifying it as non-executable; such bid or offer would not be 
included in National Best Bid or National Best Offer calculations. In 
addition, all trading centers are required to develop, maintain, and 
enforce policies and procedures reasonably designed to prevent trades 
at prices outside the price bands, with the exception of single-priced 
opening, reopening, and closing transactions on the Primary Listing 
Exchange.
    As stated by the Participants in the Plan, the limit up-limit down 
mechanism is intended to reduce the negative impacts of sudden, 
unanticipated price movements in NMS

[[Page 4323]]

Stocks,\17\ thereby protecting investors and promoting a fair and 
orderly market.\18\ In particular, the Plan is designed to address the 
type of sudden price movements that the market experienced on the 
afternoon of May 6, 2010.\19\ The initial date of Plan operations was 
April 8, 2013.\20\
---------------------------------------------------------------------------

    \17\ 17 CFR 242.600(b)(47).
    \18\ See Transmittal Letter, supra note 3.
    \19\ The limit up-limit down mechanism set forth in the Plan 
replaces the existing single-stock circuit breaker pilot. See e.g., 
Securities Exchange Act Release Nos. 62251 (June 10, 2010), 75 FR 
34183 (June 16, 2010) (SR-FINRA-2010-025); 62883 (September 10, 
2010), 75 FR 56608 (September 16, 2010) (SR-FINRA-2010-033).
    \20\ See Securities Exchange Act Release No. 68953 (February 20, 
2013), 78 FR 13113 (February 26, 2013).
---------------------------------------------------------------------------

    The following summarizes the Eighth Amendment to the Plan and the 
rationale behind those changes:
Proposed Amendment
    The Eighth Amendment proposes two changes to the Plan. First, the 
Participants propose to amend Appendix B of the Plan to state that, by 
May 29, 2015, the Participants shall provide to the Commission a 
supplemental joint assessment relating to the impact of the Plan. On 
September 29, 2014, the Participants submitted a Participant Impact 
Assessment,\21\ which provided the Commission with the Participants' 
initial observations in each area required to be addressed under 
Appendix B to the Plan. Though the Participants have submitted the 
Participant Impact Assessment, they believe that a supplemental joint 
assessment is appropriate. The supplemental joint assessment would 
evaluate the impact of the Plan using the measures set forth in 
Appendix B, but would be an extensive assessment based upon a data-
driven analysis across trading centers using methodology agreed upon by 
the Participants, which would allow the Participants to make unified 
recommendations, where appropriate, that would be of greater value to 
the Commission and the public than separate submissions. The 
Participants also state that they intend to make the supplemental joint 
assessment publicly available.
---------------------------------------------------------------------------

    \21\ See Letter from Participants to Brent J. Fields, Secretary, 
Commission, dated September 29, 2014 (``Participant Impact 
Assessment'').
---------------------------------------------------------------------------

    The Participants intend to engage a third-party consultant to 
assist in conducting the cross-market analysis and preparing the 
supplemental joint assessment. The Participants believe that the 
process of selecting, engaging, meeting with, and providing required 
data to the ultimate third-party consultant will be time consuming, but 
beneficial in that it would facilitate the development of a joint 
assessment that, unlike individual Participant submissions, would not 
need to be compared and reconciled.
    Second, the Participants propose to amend Section VIII.C the Plan 
to extend the pilot period of the Plan from February 20, 2015 through 
October 23, 2015. The Participants believe that extension of the pilot 
period is necessary and appropriate in the interest of the public, 
including because additional time will: (i) Provide a reasonable period 
of time for the public to comment on the supplemental joint assessment 
and recommendations; (ii) provide Participants time to use the 
information collected during the operation of the Plan to perform 
further analysis and recommend amendments to the Plan; and (iii) allow 
the Commission adequate time to review the supplemental joint 
assessment and recommendations provided by the Participants, and 
determine if any modifications to the Plan are appropriate. The 
Participants also believe that the proposed amendment is consistent 
with the approval order for the Plan, in which the Commission stated 
that having a pilot period would allow ``the public, the Participants, 
and the Commission to assess the operation of the Plan and whether the 
Plan should be modified prior to approval on a permanent basis.'' \22\ 
Finally, the Participants believe that the proposed amendment, which 
provides for additional time to observe the operation of the Pilot, as 
well as to prepare and submit a supplemental joint assessment, will 
facilitate the development of better recommendations and will allow the 
Participants to make unified recommendations, where appropriate, 
regarding the operation of the Plan.
---------------------------------------------------------------------------

    \22\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 at 33508 (June 6, 2012).
---------------------------------------------------------------------------

    The Participants note that the amended version of the Plan also 
includes the revised Appendix A--Schedule 1, which was updated for 
trading beginning July 1, 2014. As set forth in Appendix A--Percentage 
Parameters, the Primary Listing Exchange updates Schedule 1 to Appendix 
A semi-annually based on the fiscal year and such updates do not 
require a Plan amendment.

B. Governing or Constituent Documents

    The governing documents of the Processor, as defined in Section 
I(P) of the Plan, will not be affected by the Plan, but once the Plan 
is implemented, the Processor's obligations will change, as set forth 
in detail in the Plan.

C. Implementation of Plan

    The initial date of the Plan operations was April 8, 2013.

D. Development and Implementation Phases

    The Plan was initially implemented as a one-year pilot program in 
two Phases, consistent with Section VIII of the Plan: Phase I of Plan 
implementation began on April 8, 2013 and was completed on May 3, 2013. 
Implementation of Phase II of the Plan began on August 5, 2013 and was 
completed on February 24, 2014. Pursuant to this proposed amendment, 
the Participants propose to extend the pilot period so that it is set 
to end October 23, 2015.

E. 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.

F. Written Understanding or Agreements relating to Interpretation of, 
or Participation in the Plan

    The Participants have no written understandings or agreements 
relating to 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.

G. Approval of Amendment of the Plan

    Each of the Plan's Participants has executed a written amended 
Plan.

H. 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) Becoming a 
participant in the applicable Market Data Plans, as defined in Section 
I(F) of the Plan; (2) executing a copy of the Plan, as then in effect; 
(3) providing each then-current Participant with a copy of such 
executed Plan; and (4) effecting an amendment to the Plan as specified 
in Section III(B) of the Plan.

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

    Not applicable.

[[Page 4324]]

J. Method and Frequency of Processor Evaluation

    Not applicable.

K. Dispute Resolution

    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. 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.
    On September 18, 2014, the Operating Committee, duly constituted 
and chaired by Mr. Christopher B. Stone of FINRA, met and voted to 
amend the Plan as set forth herein in accordance with Section III(C) of 
the Plan.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed 
Eighth Amendment is consistent with the Act.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number 4-631 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number 4-631. This file number 
should be included on the subject line if email is used. To help the 
Commission process and review your comments more efficiently, please 
use only one method. The Commission will post all comments on the 
Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the Plan that are filed with the Commission, 
and all written communications relating to the 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 the hours of 10:00 a.m. and 3:00 p.m. Copies of 
the filing also will 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 4-631 and should be submitted on or before February 17, 
2015.

    By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2015-01384 Filed 1-26-15; 8:45 am]
BILLING CODE 8011-01-P