Document ID: SEC-2016-2245-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ PHLX LLC
Posted Date: 2016-12-20T05:00Z

[Federal Register Volume 81, Number 244 (Tuesday, December 20, 2016)]
[Notices]
[Pages 92916-92919]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30551]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79545; File No. SR-Phlx-2016-118]

Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Rule 3317 
(Compliance With Regulation NMS Plan To Implement a Tick Size Pilot)

December 14, 2016.
    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 November 30, 2016, NASDAQ PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I and II below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Phlx Rule 3317 to modify the Web 
site data publication requirements relating to the Regulation NMS Plan 
to Implement a Tick Size Pilot Program (``Plan'') and to clarify a 
provision related to the reporting of certain Market Maker 
profitability data. Phlx also proposes to amend Rule 3317(b)(5) to 
clarify the timing and format of publication of data related to Market 
Maker registration.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqphlx.cchwallstreet.com/ com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On August 25, 2014, Phlx and several other self-regulatory 
organizations (the ``Participants'') filed with the Commission, 
pursuant to Section 11A of the Act \3\ and Rule 608 of Regulation NMS 
thereunder,\4\ the Plan to Implement a Tick Size Pilot Program.\5\ The 
Participants filed the Plan to comply with an order issued by the 
Commission on June 24, 2014.\6\ The Plan was published for comment in 
the Federal Register on November 7, 2014, and approved by the 
Commission, as modified, on May 6, 2015.\7\ The Commission approved the 
Pilot on a two-year basis, with implementation to begin no later than 
May 6, 2016.\8\ On November 6, 2015, the SEC exempted the Participants 
from implementing the Pilot until October 3, 2016.\9\ Under the revised 
Pilot implementation date, the Pre-Pilot data collection period 
commenced on April 4, 2016. On September 13, 2016, the SEC exempted the 
Participants from the requirement to fully implement the Pilot on 
October 3, 2016, to permit the Participants to implement the pilot on a 
phased-in basis, as described in the Participants' exemptive 
request.\10\
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    \3\ 15 U.S.C. 78k-1.
    \4\ 17 CFR 242.608.
    \5\ See Letter from Brendon J. Weiss, Vice President, 
Intercontinental Exchange, Inc., to Secretary, Commission, dated 
August 25, 2014.
    \6\ See Securities Exchange Act Release No 72460 (June 24, 
2014), 79 FR 36840 (June 30, 2014).
    \7\ See Securities Exchange Act Release No. 74892 (May 6, 2015), 
80 FR 27513 (May 13, 2015) (``Approval Order'').
    \8\ See Approval Order at 27533 and 27545.
    \9\ See Securities Exchange Act Release No. 76382 (November 6, 
2015), 80 FR 70284 (November 13, 2015).
    \10\ See Letter from David S. Shillman, Associate Director, 
Division of Trading and Markets, Commission, to Eric Swanson, EVP, 
General Counsel and Secretary, Bats Global Markets, Inc., dated 
September 13, 2016; see also Letter from Eric Swanson, EVP, General 
Counsel and Secretary, Bats Global Markets, Inc., to Brent J. 
Fields, Secretary, Commission, dated September 9, 2016.

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[[Page 92917]]

    The Plan is designed to 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 stock of small-
capitalization companies. Each Participant is required to comply, and 
to enforce compliance by its member organizations, as applicable, with 
the provisions of the Plan.
    Phlx adopted rule amendments to implement the requirements of the 
Plan, including relating to the Plan's data collection requirements and 
requirements relating to Web site data publication.\11\ Specifically, 
with respect to the Web site data publication requirements pursuant to 
Section VII and Appendices B and C to the Plan, Phlx Rule 3317(b)(2)(B) 
provides, among other things, that Phlx shall make the data required by 
Items I and II of Appendix B to the Plan, and collected pursuant to 
paragraph (b)(2) of Rule 3317, publicly available on the Exchange Web 
site on a monthly basis at no charge and shall not identify the Trading 
Center that generated the data. Rule 3317(b)(3)(C), provides, among 
other things, that Phlx shall make the data required by Item IV of 
Appendix B to the Plan, and collected pursuant to paragraph (b)(3) of 
Rule 3317, publicly available on the Exchange Web site on a monthly 
basis at no charge and shall not identify the Trading Center that 
generated the data. Commentary .08 to Rule 3317 provides, among other 
things, that the requirement that Phlx make certain data publicly 
available on the Exchange Web site pursuant to Appendix B and C to the 
Plan shall commence at the beginning of the Pilot Period.
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    \11\ See, e.g., Securities Exchange Act Release No. 77458 (March 
28, 2016), 81 FR 18919 (April 1, 2016) (SR-Phlx-2016-39); see also 
Letter from David S. Shillman, Associate Director, Division of 
Trading and Markets, Commission, to Marcia E. Asquith, Senior Vice 
President and Corporate Secretary, FINRA, dated February 17, 2016.
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    Phlx is proposing amendments to Rule 3317(b)(2)(B) (regarding 
Appendix B.I and B.II data) and Rule 3317(b)(3)(C) (regarding Appendix 
B.IV data) to provide that data required to be made available on Phlx's 
Web site be published within 120 calendar days following month end. In 
addition, the proposed amendments to Commentary .08 to Rule 3317 would 
provide that, notwithstanding the provisions of paragraphs (b)(2)(B), 
(b)(3)(C), and (b)(5), Phlx shall make data for the Pre-Pilot period 
publicly available on the Phlx Web site pursuant to Appendix B and C to 
the Plan by February 28, 2017.\12\
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    \12\ With respect to data for the Pilot Period, the requirement 
that Phlx make data publicly available on the Phlx Web site pursuant 
to Appendix B and C to the Plan shall continue to commence at the 
beginning of the Pilot Period. Thus, the first Web site publication 
date for Pilot Period data (covering October 2016) would be 
published on the Phlx Web site by February 28, 2017, which is 120 
days following the end of October 2016.
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    The purpose of delaying the publication of the Web site data is to 
address confidentiality concerns by providing for the passage of 
additional time between the market information reflected in the data 
and the public availability of such information.
    Phlx also proposes to amend Rule 3317(b)(4), which relates to the 
reporting of Market Maker profitability data for members for the 
Exchange is the Designated Examining Authority (``DEA''). Currently, 
Rule 3317(b)(4)(A) states that a Member that is a Market Maker shall 
collect and transmit to their DEA the data described in Item I of 
Appendix C of the Plan with respect to executions on any Trading Center 
that have settled or reached settlement date. Information related to 
Market Maker profitability will be collected by FINRA and transmitted 
to the SEC and, on an aggregate basis, also be made publicly 
available.\13\
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    \13\ See FINRA Rule 6191(b)(4)(B).
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    The Financial Industry Regulatory Authority, Inc. (``FINRA'') 
recently submitted a proposed rule change amending FINRA Rule 6191(b), 
which sets forth FINRA's obligations with respect to data collection 
and reporting under the Plan. With this rule change, FINRA proposes to 
publish (1) Market Maker profitability statistics for Market Makers for 
which FINRA is the DEA; (2) Market Maker profitability statistics 
collected from other Participants that are DEAs, and (iii) Market Maker 
profitability statistics for Market Makers whose DEA is not a 
Participant.\14\ As part of its rule change, FINRA also stated that it 
would make this data publicly available on the FINRA Web site within 
120 calendar days following month end at no charge. In its proposal, 
FINRA noted that the publication by FINRA of Market Maker profitability 
data on the FINRA Web site, including Market Makers for which FINRA is 
not the DEA, is intended to address confidentiality concerns with 
respect to the Appendix C data required to be made publicly available 
by the Participants. Although the Participants that are DEAs also would 
not have identified the Market Makers when publishing required Appendix 
C data, FINRA noted that some of the Participants are DEAs for a very 
small number of Market Makers, and the published data from these DEAs 
raised concerns regarding the potential for identifying the Market 
Makers that correspond to those statistics.\15\
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    \14\ See SR-FINRA-2016-042.
    \15\ Id.
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    Although the Exchange is currently a DEA for certain member firms, 
Rule 3317 does not currently require Phlx as DEA to report the 
information collected pursuant to paragraph (b)(4) to FINRA for 
publication. Given FINRA's recent proposed rule change, the Exchange is 
therefore proposing to adopt Rule 3317(b)(4)(C) to address the 
reporting of Market Maker profitability data for members for which Phlx 
is the DEA. Rule 3317(b)(4)(C) states that the Exchange, as DEA, shall 
collect the data required by Item I of Appendix C to the Plan and 
paragraph (b)(4)(A) for those Members that are Market Makers for which 
the Exchange is DEA, and on a monthly basis transmit such data, 
categorized by the Control Group and each Test Group, to the SEC in a 
pipe delimited format. Rule 3317(b)(4)(C) also provides that the 
Exchange, as DEA, shall make the data collected pursuant to 
subparagraph (4) of Rule 3317(b) available to FINRA for aggregation and 
publication, categorized by the Control Group and each Test Group, on 
the FINRA Web site pursuant to FINRA Rules. Rule 3317(b)(4)(C) does not 
alter the information required to be submitted to the SEC.
    Finally, Phlx proposes to amend Rule 3317(b)(5), which relates to 
the collection and transmission of Market Maker registration 
statistics. Currently, Rule 3317(b)(5) provides that the Exchange shall 
collect and transmit to the SEC the data described in Item III of 
Appendix B of the Plan relating to daily Market Maker registration 
statistics in a pipe delimited format within 30 calendar days following 
month end for (1) transactions in each Pre-Pilot Data Collection 
Security for the period beginning six months prior to the Pilot Period 
through the trading day immediately preceding the Pilot Period; and (2) 
transactions in each Pilot Security for the period beginning on the 
first day of the Pilot Period through six months after the end of the 
Pilot Period. Although the Plan requires that such data be made 
publicly available,\16\ Rule 3317(b)(5) does not currently include a 
provision requiring the Exchange to publish such data to its Web site. 
The Exchange therefore proposes to amend Rule 3317(b)(5) to provide 
that the Exchange shall make Market Maker

[[Page 92918]]

registration data publicly available on the Exchange Web site within 
120 calendar days following month end at no charge.
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    \16\ See Section VII.A. 4 of the Plan.
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    Phlx has filed the proposed rule change for immediate effectiveness 
and has requested that the Commission waive the 30-day operative delay. 
If the Commission waives the 30-day operative delay, the operative date 
of the proposed rule change will be the date of filing.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\17\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\18\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest, because it is designed to assist the Participants in meeting 
their regulatory obligations pursuant to the Plan and is in furtherance 
of the objectives of the Plan, as identified by the SEC.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
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    In approving the Plan, the Commission recognized that requiring the 
publication of Market Maker data may raise confidentiality concerns, 
especially for Pilot Securities that may have a relatively small number 
of designated Market Makers.\19\ For this reason, the Commission 
modified the Plan so that the data that would be made publicly 
available would not contain profitability measures for each security, 
but would be aggregated by the Control Group and each Test Group. Phlx 
believes that this proposal is consistent with the Act in that it is 
designed to address confidentiality concerns by permitting Phlx to 
delay Web site publication to provide for passage of additional time 
between the market information reflected in the data and the public 
availability of such information. With respect to the change to Rule 
3317(b)(5), the Exchange believes this change will clarify the timing 
and format of publication of data related to Market Maker registration.
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    \19\ See Approval Order at 27543--27544.
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    Phlx believes that the addition of Rule 3317(b)(4)(C) relating to 
the reporting of Market Maker profitability data to FINRA is consistent 
with the Act because it effectuates FINRA's recent proposal, which 
itself is designed to further address confidentiality concerns by 
permitting FINRA to aggregate and publish Market Maker profitability 
data for all Participant DEAs, including Market Makers for which FINRA 
is not the DEA.\20\ Phlx notes that this proposal also does not alter 
the information required to be submitted to the SEC.
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    \20\ See SR-FINRA-2016-042.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Phlx notes that the proposed 
rule change implements the provisions of the Plan, and is designed to 
assist the Participants in meeting their regulatory obligations 
pursuant to the Plan.
    The proposal is intended to address confidentiality concerns that 
may adversely impact competition, especially for Pilot Securities that 
may have a relatively small number of designated Market Makers, by (1) 
permitting Phlx to delay Web site publication to provide for passage of 
additional time between the market information reflected in the data 
and the public availability of such information; and (2) making Market 
Maker profitability statistics that Phlx has gathered as DEA available 
to FINRA for aggregation and publication. The proposal also does not 
alter the information required to be submitted to the SEC.

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

    No written comments were either solicited or received.\21\
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    \21\ Phlx notes that Financial Information Forum (FIF) submitted 
a letter to the staff of the Commission raising concerns regarding 
the publication of certain Appendix B statistics on a disaggregated 
basis using a unique masked market participant identifier. See 
Letter from Mary Lou Von Kaenel, Managing Director, FIF, to David S. 
Shillman, Associate Director, Division of Trading and Markets, 
Commission, dated August 16, 2016, available at https://www.fif.com/comment-letters.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \22\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\23\
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    \22\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \23\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii), the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has filed 
the proposed rule change for immediate effectiveness and has requested 
that the Commission waive the requirement that the proposed rule change 
not become operative for 30 days after the date of the filing so that 
it may become operative immediately.
    The Exchange notes that the proposed rule change implements the 
provisions of the Plan, and is designed to assist the Participants in 
meeting their regulatory obligations pursuant to the Plan. The proposal 
is intended to address confidentiality concerns by permitting the 
Exchange to (i) Delay Web site publication to provide for passage of 
additional time between the market information reflected in the data 
and the public availability of such information; and (ii) allow for 
FINRA to aggregate and publish Market Maker profitability data for all 
Participant DEAs. The Exchange notes that the proposed change will not 
affect the data reporting requirements for members for which PHLX is 
the DEA. The proposal also does not alter the information required to 
be submitted to the Commission.
    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because it will allow the Exchange to implement these proposed changes 
that are intended to address confidentiality concerns. The Commission 
notes that some Pilot data was scheduled to be published on November 
30, 2016. Therefore, the Commission hereby waives the 30-day operative 
delay and designates the proposed rule change to be operative on 
November 30, 2016.\24\
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    \24\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings

[[Page 92919]]

to determine whether the proposed rule should be approved or 
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2016-118 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Phlx-2016-118. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml).
    Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for Web site viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE., Washington, 
DC 20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-Phlx-2016-118 and should be 
submitted on or before January 10, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-30551 Filed 12-19-16; 8:45 am]
 BILLING CODE 8011-01-P