Document ID: SEC-2016-0578-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT, LLC
Posted Date: 2016-04-05T04:00Z

[Federal Register Volume 81, Number 65 (Tuesday, April 5, 2016)]
[Notices]
[Pages 19665-19671]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-07685]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77478; File No. SR-NYSEMKT-2016-40]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Adopting Requirements 
for the Collection and Transmission of Data Pursuant to Appendices B 
and C of the Regulation NMS Plan To Implement a Tick Size Pilot Program

March 30, 2016.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on March 29, 2016, NYSE MKT LLC (the ``Exchange'' or ``NYSE 
MKT'') filed with the Securities and Exchange Commission (the 
``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\ 15 U.S.C. 78a.
    \3\ 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 adopt requirements for the collection and 
transmission of data pursuant to Appendices B and C of the Regulation 
NMS Plan to Implement a Tick Size Pilot Program (``Plan''). The 
proposed rule change is available on the Exchange's Web site at 
www.nyse.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 self-regulatory organization 
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 those 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 parts of such statements.

[[Page 19666]]

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

1. Purpose
    On August 25, 2014, NYSE Group, Inc., on behalf of the Exchange, 
New York Stock Exchange LLC, NYSE Arca, Inc., the Bats BZX Exchange, 
Inc. f/k/a BATS Exchange, Inc. (``BZX''), BATS BYX Exchange, Inc. f/k/a 
BATS Y-Exchange, Inc. (``BYX''), Bats EDGA Exchange, Inc., Bats EDGX 
Exchange, Inc., Chicago Stock Exchange, Inc., Financial Industry 
Regulatory Authority, Inc. (``FINRA''), NASDAQ OMX BX, Inc., NASDAQ OMX 
PHLX LLC, and the Nasdaq Stock Market LLC (collectively 
``Participants''), filed with the Commission, pursuant to Section 11A 
of the Act \4\ and Rule 608 of Regulation NMS thereunder,\5\ the Plan 
to Implement a Tick Size Pilot Program (``Pilot'').\6\ The Participants 
filed the Plan to comply with an order issued by the Securities and 
Exchange Commission (``Commission'') on June 24, 2014.\7\ The Plan \8\ 
was published for comment in the Federal Register on November 7, 2014, 
and approved by the Commission, as modified, on May 6, 2015.\9\
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    \4\ 15 U.S.C. 78k-1.
    \5\ 17 CFR 242.608.
    \6\ See Letter from Brendon J. Weiss, Vice President, 
Intercontinental Exchange, Inc., to Secretary, Commission, dated 
August 25, 2014.
    \7\ See Securities Exchange Act Release No. 72460 (June 24, 
2014), 79 FR 36840 (June 30, 2014).
    \8\ Unless otherwise specified, capitalized terms used in this 
rule filing are based on the defined terms of the Plan.
    \9\ See Securities Exchange Act Release No. 74892 (May 6, 2015), 
80 FR 27513 (May 13, 2015) (``Approval Order'').
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    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 stocks 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. As is described more fully below, the 
proposed rules would require member organizations to comply with the 
applicable data collection requirements of the Plan.\10\
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    \10\ The Exchange proposes to provide in the introduction 
paragraph to Rule 67--Equities that the Rule shall be in effect 
during a pilot period to coincide with the pilot period for the Plan 
(including any extensions to the pilot period for the Plan).
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    The Pilot will include stocks of companies with $3 billion or less 
in market capitalization, an average daily trading volume of one 
million shares or less, and a volume weighted average price of at least 
$2.00 for every trading day. The Pilot will consist of a control group 
of approximately 1400 Pilot Securities and three test groups with 400 
Pilot Securities in each (selected by a stratified random sampling 
process).\11\ During the pilot, Pilot Securities in the control group 
will be quoted at the current tick size increment of $0.01 per share 
and will trade at the currently permitted increments. Pilot Securities 
in the first test group (``Test Group One'') will be quoted in $0.05 
minimum increments but will continue to trade at any price increment 
that is currently permitted.\12\ Pilot Securities in the second test 
group (``Test Group Two'') will be quoted in $0.05 minimum increments 
and will trade at $0.05 minimum increments subject to a midpoint 
exception, a retail investor order exception, and a negotiated trade 
exception.\13\ Pilot Securities in the third test group (``Test Group 
Three'') will be subject to the same quoting and trading increments as 
Test Group Two and also will be subject to the ``Trade-at'' requirement 
to prevent price matching by a market participant that is not 
displaying at a Trading Center's ``Best Protected Bid'' or ``Best 
Protected Offer,'' unless an enumerated exception applies.\14\ In 
addition to the exceptions provided under Test Group Two, an exception 
for Block Size orders and exceptions that mirror those under Rule 611 
of Regulation NMS \15\ will apply to the Trade-at requirement.
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    \11\ See Section V of the Plan for identification of Pilot 
Securities, including criteria for selection and grouping.
    \12\ See Section VI(B) of the Plan.
    \13\ See Section VI(C) of the Plan.
    \14\ See Section VI(D) of the Plan.
    \15\ 17 CFR 242.611.
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    In approving the Plan, the Commission noted that the Trading Center 
data reporting requirements would facilitate an analysis of the effects 
of the Pilot on liquidity (e.g., transaction costs by order size), 
execution quality (e.g., speed of order executions), market maker 
activity, competition between trading venues (e.g., routing frequency 
of market orders), transparency (e.g., choice between displayed and 
hidden orders), and market dynamics (e.g., rates and speed of order 
cancellations).\16\ The Commission noted that Market Maker 
profitability data would assist the Commission in evaluating the 
effect, if any, of a widened tick increment on market marker profits 
and any corresponding changes in the liquidity of small-capitalization 
securities.\17\
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    \16\ See Approval Order, 80 FR at 27543.
    \17\ Id.
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Compliance With the Data Collection Requirements of the Plan
    The Plan contains requirements for collecting and transmitting data 
to the Commission and to the public.\18\ Specifically, Appendix B.I of 
the Plan (Market Quality Statistics) requires Trading Centers \19\ to 
submit variety of market quality statistics, including information 
about an order's original size, whether the order was displayable or 
not, the cumulative number of orders, the cumulative number of shares 
of orders, and the cumulative number of shares executed within specific 
time increments, e.g., from 30 seconds to less than 60 seconds after 
the time of order receipt. This information shall be categorized by 
security, order type, original order size, hidden status, and coverage 
under Rule 605.\20\ Appendix B.I of the Plan also contains additional 
requirements for market orders and marketable limit orders, including 
the share-weighted average effective spread for executions of orders; 
the cumulative number of shares of orders executed with price 
improvement; and, for shares executed with price improvement, the 
share-weighted average amount per share that prices were improved.
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    \18\ The Exchange is also required by the Plan to establish, 
maintain, and enforce written policies and procedures that are 
reasonably designed to comply with applicable quoting and trading 
requirements specified in the Plan. The Exchange plans to separately 
propose Rules 67(a)--Equities and 67(c)-(e)--Equities that would 
require compliance by its member organizations with the applicable 
quoting and trading requirements specified in the Plan and has 
reserved Rules 67(a)--Equities and (c)-(e)--Equities for this 
purpose. See, e.g., Securities Exchange Act Release No. 76229 
(October 22, 2015), 80 FR 66065 (October 28, 2015) (SR-NYSE-2015-46) 
(``Quoting & Trading Rules Proposal''), as amended by Partial 
Amendment No. 1 to the Quoting & Trading Rules Proposal.
    \19\ The Plan incorporates the definition of a ``Trading 
Center'' from Rule 600(b)(78) of Regulation NMS. Regulation NMS 
defines a ``Trading Center'' as ``a national securities exchange or 
national securities association that operates an SRO trading 
facility, an alternative trading system, an exchange market maker, 
an OTC market maker, or any other broker or dealer that executes 
orders internally by trading as principal or crossing orders as 
agent.'' See 17 CFR 242.600(b).
    \20\ 17 CFR 242.605.
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    Appendix B.II of the Plan (Market and Marketable Limit Order Data) 
requires Trading Centers to submit information relating to market 
orders and marketable limit orders, including the time of order 
receipt, order type, the order size, the National Best Bid and National 
Best Offer (``NBBO'') quoted price, the NBBO quoted depth, the average 
execution price-share-weighted average, and the average execution time-
share-weighted average.
    The Plan requires Appendix B.I and B.II data to be submitted by 
Participants

[[Page 19667]]

that operate a Trading Center, and by members of the Participants that 
operate Trading Centers. The Plan provides that each Participant that 
is the Designated Examining Authority (``DEA'') for a member of the 
Participant that operates a Trading Center shall collect such data in a 
pipe delimited format, beginning six months prior to the Pilot Period 
and ending six months after the end of the Pilot Period. The Plan also 
requires the Participant, operating as DEA, to transmit this 
information to the SEC within 30 calendar days following month end.
    The Exchange is proposing new Rule 67(b)--Equities to set forth the 
requirements for the collection and transmission of data pursuant to 
Appendices B and C of the Plan. Proposed Rule 67(b)--Equities is 
substantially similar to the proposed rule changes by BZX that were 
recently approved by the Commission to adopt BZX Rule 11.27(b) which 
also sets forth requirements for the collection and transmission of 
data pursuant to Appendices B and C of the Plan.\21\
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    \21\ See Securities Exchange Act Release Nos. 77105 (February 
10, 2016), 81 FR 8112 (February 17, 2016) (order approving SR-BATS-
2015-102); and 77310 (March 7, 2016) (notice for comment and 
immediate effectiveness of SR-BATS-2016-27). The Exchange proposes a 
non-substantive difference to use the term ``member organization'' 
instead of ``member'' in proposed Rule 67.
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    Proposed Rule 67(b)(1)--Equities requires that a member 
organization that operates a Trading Center shall establish, maintain 
and enforce written policies and procedures that are reasonably 
designed to comply with the data collection and transmission 
requirements of Items I and II to Appendix B of the Plan, and a member 
organization that is a Market Maker shall establish, maintain and 
enforce written policies and procedures that are reasonably designed to 
comply with the data collection and transmission requirements of Item 
IV of Appendix B of the Plan and Item I of Appendix C of the Plan.
    Proposed Rule 67(b)(2)--Equities provides that the Exchange shall 
collect and transmit to the SEC the data described in Items I and II of 
Appendix B of the Plan relating to trading activity in Pre-Pilot Data 
Collection Securities \22\ and Pilot Securities on a Trading Center 
operated by the Exchange. The Exchange shall transmit such data to the 
SEC in a pipe delimited format, on a disaggregated basis by Trading 
Center, within 30 calendar days following month end for: (i) 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 (ii) 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. The Exchange also shall make such data publicly 
available on the Exchange Web site on a monthly basis at no charge and 
will not identify the member organization that generated the data.
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    \22\ The Exchange is proposing Supplementary Material .90 to 
proposed Rule 67(b)--Equities to define ``Pre-Pilot Data Collection 
Securities'' as the securities designated by the Participants for 
purposes of the data collection requirements described in Items I, 
II and IV of Appendix B and Item I of Appendix C of the Plan for the 
period beginning six months prior to the Pilot Period and ending on 
the trading day immediately preceding the Pilot Period. The 
Participants shall compile the list of Pre-Pilot Data Collection 
Securities by selecting all NMS stocks with a market capitalization 
of $5 billion or less, a Consolidated Average Daily Volume (CADV) of 
2 million shares or less and a closing price of $1 per share or 
more. The market capitalization and the closing price thresholds 
shall be applied to the last day of the pre-pilot measurement 
period, and the CADV threshold shall be applied to the duration of 
the pre-pilot measurement period. The pre-pilot measurement period 
shall be the three calendar months ending on the day when the Pre-
Pilot Data Collection Securities are selected. The Pre-Pilot Data 
Collection Securities shall be selected thirty days prior to the 
commencement of the six-month pre-pilot period. On the trading day 
that is the first trading day of the Pilot Period through six months 
after the end of the Pilot Period, the data collection requirements 
will become applicable to the Pilot Securities only.
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    Appendix B.IV (Daily Market Maker Participation Statistics) 
requires a Participant to collect data related to Market Maker 
participation from each Market Maker \23\ engaging in trading activity 
on a Trading Center operated by the Participant. The Exchange is 
therefore proposing Rule 67(b)(3)--Equities to gather data about a 
Market Maker's participation in Pilot Securities and Pre-Pilot Data 
Collection Securities. Proposed Rule 67(b)(3)(A)--Equities provides 
that a member organization that is a Market Maker shall collect and 
transmit to their DEA data relating to Item IV of Appendix B of the 
Plan with respect to activity conducted on any Trading Center in Pilot 
Securities and Pre-Pilot Data Collection Securities in furtherance of 
its status as a registered Market Maker, including a Trading Center 
that executes trades otherwise than on a national securities exchange, 
for transactions that have settled or reached settlement date. The 
proposed rule requires Market Makers to transmit such data in a format 
required by their DEA, by 12:00 p.m. EST on T+4 for: (i) 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 (ii) for 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.
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    \23\ The Plan defines a Market Maker 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.''
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    The Exchange understands that some member organizations may utilize 
a DEA that is not a Participant to the Plan and that their DEA would 
not be subject to the Plan's data collection requirements. In such 
case, a DEA that is not a Participant of the Plan would not be required 
to collect the required data and may not establish procedures for which 
member organizations it acts a DEA for to report the data required 
under subparagraphs (b)(3)(A) of Rule 67--Equities and in accordance 
with Item IV of Appendix B of the Plan. Therefore, the Exchange 
proposes to adopt subparagraph (b)(3)(B) to Rule 67--Equities to 
require a member organization that is a Market Maker whose DEA is not a 
Participant to the Plan to transmit the data collected pursuant to 
paragraph (3)(A) of Rule 67(b)--Equities to FINRA, which is a 
Participant to the Plan and is to collect data relating to Item IV of 
Appendix B of the Plan on behalf of the Participants. For Market Makers 
for which it is the DEA, FINRA issued a Market Maker Transaction Data 
Technical Specification to collect data on Pre-Pilot Data Collection 
Securities and Pilot Securities from Trading Centers to comply with the 
Plan's data collection requirements.\24\
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    \24\ FINRA members for which FINRA is their DEA should refer to 
the Market Maker Transaction Data Technical Specification on the 
FINRA Web site at http://www.finra.org/sites/default/files/market-maker-transaction-data-tech-specs.pdf.
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    Proposed Rule 67(b)(3)(C)--Equities provides that the Exchange 
shall transmit the data collected by the DEA or FINRA pursuant to Rule 
67(b)(3)(A)--Equities and Rule 67(b)(3)(B)--Equities above relating to 
Market Maker activity on a Trading Center operated by the Exchange to 
the SEC in a pipe delimited format within 30 calendar days following 
month end. The Exchange shall also make such data 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.
    Appendix C.I (Market Maker Profitability) requires a Participant to 
collect data related to Market Maker profitability from each Market 
Maker for which it is the DEA. Specifically, the Participant is 
required to collect the total number of shares of orders executed by 
the Market Maker; the raw

[[Page 19668]]

Market Maker realized trading profits, and the raw Market Maker 
unrealized trading profits. Data shall be collected for dates starting 
six months prior to the Pilot Period through six months after the end 
of the Pilot Period. This data shall be collected on a monthly basis, 
to be provided in a pipe delimited format to the Participant, as DEA, 
within 30 calendar days following month end. Appendix C.II (Aggregated 
Market Maker Profitability) requires the Participant, as DEA, to 
aggregate the Appendix C.I data, and to categorize this data by 
security as well as by the control group and each Test Group. That 
aggregated data shall contain information relating to total raw Market 
Maker realized trading profits, volume-weighted average of raw Market 
Maker realized trading profits, the total raw Market Maker unrealized 
trading profits, and the volume-weighted average of Market Maker 
unrealized trading profits.
    The Exchange is therefore proposing Rule 67(b)(4)--Equities to set 
forth the requirements for the collection and transmission of data 
pursuant to Appendix C.I of the Plan. Proposed Rule 67(b)(4)(A)--
Equities requires that a member organization 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 in Pilot Securities 
that have settled or reached settlement date that were executed on any 
Trading Center. The proposed rule also requires member organizations to 
provide such data in a format required by their DEA by 12 p.m. EST on 
T+4 for executions during and outside of Regular Trading Hours in each: 
(i) 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 (ii) Pilot Security for the period 
beginning on the first day of the Pilot Period through six months after 
the end of the Pilot Period.
    For the same reasons set forth above for subparagraph (b)(3)(B) to 
Rule 67--Equities, the Exchange proposes to adopt subparagraph 
(b)(4)(B) to Rule 67--Equities to require a member organization that is 
a Market Maker whose DEA is not a Participant to the Plan to transmit 
the data collected pursuant to paragraph (4)(A) of Rule 67(b)--Equities 
to FINRA. As stated above, FINRA is a Participant to the Plan and is to 
collect data relating to Item I of Appendix C of the Plan on behalf of 
the Participants. For Market Makers for which it is the DEA, FINRA 
issued a Market Maker Transaction Data Technical Specification to 
collect data on Pre-Pilot Data Collection Securities and Pilot 
Securities from Trading Centers to comply with the Plan's data 
collection requirements.\25\
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    \25\ Id.
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    The Exchange is also adopting a rule setting forth the manner in 
which Market Maker participation will be calculated. Item III of 
Appendix B of the Plan requires each Participant that is a national 
securities exchange to collect daily Market Maker registration 
statistics categorized by security, including the following 
information: (i) Ticker symbol; (ii) the Participant exchange; (iii) 
number of registered market makers; and (iv) the number of other 
registered liquidity providers. Therefore, the Exchange proposes to 
adopt Rule 67(b)(5)--Equities providing 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: 
(i) 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 (ii) 
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.
    The Exchange is also proposing, through Supplementary Material to 
proposed Rule 67(b)--Equities, to clarify other aspects of the data 
collection requirements. Supplementary Material .10 to proposed Rule 
67(b)--Equities relates to the use of the retail investor order flag 
for purposes of Appendix B.II(n) reporting. The Plan currently states 
that market and marketable limit orders shall include a ``yes/no'' 
field relating to the Retail Investor Order flag. The Exchange is 
proposing Supplementary Material .10 to proposed Rule 67(b)--Equities 
to clarify that, for purposes of the reporting requirement in Appendix 
B.II(n), a Trading Center shall report ``y'' to their DEA where it is 
relying upon the Retail Investor Order exception to Test Groups Two and 
Three, and ``n'' for all other instances.\26\ The Exchange believes 
that requiring the identification of a Retail Investor Orders only 
where the exception may apply (i.e., Pilot Securities in Test Groups 
Two and Three) is consistent with Appendix B.II(n).
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    \26\ FINRA, on behalf of the Plan Participants submitted a 
letter to Commission requesting exemption from certain provisions of 
the Plan related to data collection. See letter from Marcia E. 
Asquith, Senior Vice President and Corporate Secretary, FINRA dated 
December 9, 2015 to Robert W. Errett, Deputy Secretary, Commission 
(``Exemption Request''). The Commission, pursuant to its authority 
under Rule 608(e) of Regulation NMS, granted BZX a limited exemption 
from the requirement to comply with certain provisions of the Plan 
as specified in the letter and noted herein. See letter from David 
Shillman, Associate Director, Division of Trading and Markets, 
Commission to Eric Swanson, General Counsel, BZX, dated February 10, 
2016 (``Exemption Letter'').
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    Supplementary Material .20 to proposed Rule 67(b)--Equities 
requires that member organizations populate a field to identify to 
their DEA whether an order is affected by the bands in place pursuant 
to the National Market System Plan to Address Extraordinary Market 
Volatility.\27\ Pursuant to the Limit-Up Limit-Down Plan, between 9:30 
a.m. and 4:00 p.m., the Securities Information Processor (``SIP'') 
calculates a lower price band and an upper price band for each NMS 
stock. These price bands represent a specified percentage above or 
below the stock's reference price, which generally is calculated based 
on reported transactions in that stock over the preceding five minutes. 
When one side of the market for an individual security is outside the 
applicable price band, the SIP identifies that quotation as non-
executable. When the other side of the market reaches the applicable 
price band (e.g., the offer reaches the lower price band), the security 
enters a Limit State. The stock would exit a Limit State if, within 15 
seconds of entering the Limit State, all Limit State Quotations were 
executed or canceled in their entirety. If the security does not exit a 
Limit State within 15 seconds, then the primary listing exchange 
declares a five-minute trading pause, which would be applicable to all 
markets trading the security.
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    \27\ See National Market System Plan to Address Extraordinary 
Market Volatility, Securities Exchange Act Release No. 67091 (May 
31, 2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (``Limit-Up 
Limit-Down Plan'').
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    The Exchange and the other Participants have determined that it is 
appropriate to create a new flag for reporting orders that are affected 
by the Limit-Up Limit-Down bands. Accordingly, a Trading Center shall 
report a value of ``Y'' to their DEA when the ability of an order to 
execute has been affected by the Limit-Up Limit-Down bands in effect at 
the time of order receipt. A Trading Center shall report a value of 
``N'' to their DEA when the ability of an order to execute has not been 
affected by the Limit-Up Limit-Down bands in effect at the time of 
order receipt.
    Supplementary Material .20 to proposed Rule 67(b)--Equities also 
requires, for securities that may trade in a foreign market, that the 
Participant indicate whether the order was handled domestically, or 
routed to a foreign venue. Accordingly, the Participant will

[[Page 19669]]

indicate, for purposes of Appendix B.I, whether the order was: (1) 
Fully executed domestically, or (2) fully or partially executed on a 
foreign market. For purposes of Appendix B.II, the Participant will 
classify all orders in securities that may trade in a foreign market 
Pilot and Pre-Pilot Securities as: (1) Directed to a domestic venue for 
execution; (2) may only be directed to a foreign venue for execution; 
or (3) was fully or partially directed to a foreign venue at the 
discretion of the member. The Exchange believes that this proposed flag 
will better identify orders in securities that may trade in a foreign 
market, as such orders that were routed to foreign venues would not be 
subject to the Plan's quoting and trading requirements, and could 
otherwise compromise the integrity of the data.
    Supplementary Material .30 to proposed Rule 67(b)--Equities relates 
to the time ranges specified in Appendix B.I.a(14), B.I.a(15), 
B.I.a(21) and B.I.a(22).\28\ The Exchange and the other Participants 
have determined that it is appropriate to change the reporting times in 
these provisions to require more granular reporting for these 
categories. Accordingly, the Exchange proposes to add Appendix 
B.I.a(14A), which will require Trading Centers to report the cumulative 
number of shares of orders executed from 100 microseconds to less than 
1 millisecond after the time of order receipt. Appendix B.I.a(15) will 
be changed to require the cumulative number of shares of orders 
executed from 1 millisecond to less than 100 milliseconds after the 
time of order receipt. The Exchange also proposes to add Appendix 
B.I.a(21A), which will require Trading Centers to report the cumulative 
number of shares of orders canceled from 100 microseconds to less than 
1 millisecond after the time of order receipt. Appendix B.I.a(22) will 
be changed to require the cumulative number of shares of orders 
canceled from 1 millisecond to less than 100 milliseconds after the 
time of order receipt. The Exchange believes that these new reporting 
requirements will contribute to a meaningful analysis of the Pilot by 
producing more granular data on these points.\29\
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    \28\ Specifically, Appendix B.I.a(14) requires reporting of the 
cumulative number of shares of orders executed from 0 to less than 
100 microseconds after the time of order receipt; Appendix B.I.a(15) 
requires reporting of the cumulative number of shares of orders 
executed from 100 microseconds to less than 100 milliseconds after 
the time of order receipt; Appendix B.I.a(21) requires reporting of 
the cumulative number of shares of orders cancelled from 0 to less 
than 100 microseconds after the time of order receipt; and Appendix 
B.I.a(22) requires reporting of the cumulative number of shares of 
orders cancelled from 100 microseconds to less than 100 milliseconds 
after the time of order receipt.
    \29\ The Commission granted BZX an exemption from Rule 608(c) 
related to this provision. See Exemption Letter, supra note 26.
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    Supplementary Material .40 to proposed Rule 67(b)--Equities relates 
to the relevant measurement for purposes of Appendix B.I.a(31)-(33) 
reporting. Currently, the Plan states that this data shall be reported 
as of the time of order execution. The Exchange and the other 
Participants believe that this information should more properly be 
captured at the time of order receipt as evaluating share-weighted 
average prices at the time of order receipt is more consistent with the 
goal of observing the effect of the Pilot on the liquidity of Pilot 
Securities. The Exchange is therefore proposing to make this change 
through Supplementary Material .40 to proposed Rule 67(b)--
Equities.\30\ This change will make these provisions consistent with 
the remainder of the statistics in Appendix B.I.a, which are all based 
on order receipt.
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    \30\ The Commission granted BZX an exemption from Rule 608(c) 
related to this provision. See Exemption Letter, supra note 26.
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    Supplementary Material .50 to proposed Rule 67(b)--Equities 
addresses the status of not-held and auction orders for purposes of 
Appendix B.I reporting. Currently, Appendix B.I sets forth eight 
categories of orders, including market orders, marketable limit orders, 
and inside-the-quote resting limit orders, for which daily market 
quality statistics must be reported. Currently, Appendix B.I does not 
provide a category for not held orders, clean cross orders, auction 
orders, or orders received when the NBBO is crossed. The Exchange and 
the other Participants have determined that it is appropriate to 
include separate categories for these orders types for purposes of 
Appendix B reporting. The Exchange is therefore proposing Supplementary 
Material .50 to proposed Rule 67(b)--Equities to provide that not held 
orders shall be included as an order type for purposes of Appendix B 
reporting, and shall be assigned the number (18). Clean cross orders 
shall be included as an order type for purposes of Appendix B 
reporting, and shall be assigned the number (19); auction orders shall 
be included an as order type for purposes of Appendix B reporting, and 
shall be assigned the number (20); and orders that cannot otherwise be 
classified, including, for example, orders received when the NBBO is 
crossed shall be included as an order type for purposes of Appendix B 
reporting, and shall be assigned the number (21). All of these orders 
already are included in the scope of Appendix B; however, without this 
proposed change, these order types would be categorized with other 
orders, such as regular held orders, that should be able to be fully 
executed upon receipt, which would compromise the value of this data.
    The Exchange is proposing Supplementary Material .60 to proposed 
Rule 67(b)--Equities to clarify the scope of the Plan as it relates to 
member organizations that only execute orders limited purposes. 
Specifically, The Exchange and the other Participants believe that a 
member organization that only executes orders otherwise than on a 
national securities exchange for the purpose of: (1) Correcting a bona 
fide error related to the execution of a customer order; (2) purchasing 
a security from a customer at a nominal price solely for purposes of 
liquidating the customer's position; or (3) completing the fractional 
share portion of an order \31\ shall not be deemed a Trading Center for 
purposes of Appendix B to the Plan. The Exchange is therefore proposing 
Supplementary Material .60 to proposed Rule 67(b)--Equities to make 
this clarification.
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    \31\ The Exchange notes that where a member organization 
purchases a fractional share from a customer, the Trading Center 
that executes the remaining whole shares of that customer order 
would subject to subject to Appendix B of the Plan.
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    The Exchange is proposing Supplementary Material .70 to proposed 
Rule 67(b)--Equities to clarify that, for purposes of the Plan, Trading 
Centers must begin the data collection required pursuant to Appendix 
B.I.a(1) through B.II.(y) of the Plan and Item I of Appendix C of the 
Plan on April 4, 2016. While the Exchange or the member organization's 
DEA will provide the information required by Appendix B and C of the 
Plan during the Pilot Period, the requirement thats [sic] the Exchange 
or their DEA provide information to the SEC within 30 days following 
month end and make such data publicly available on its Web site 
pursuant to Appendix B and C shall commence six months prior to the 
beginning of the Pilot Period.\32\
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    \32\ In its order approving the Plan, the SEC noted that the 
Pilot shall be implemented within one year of the date of 
publication of its order, e.g., by May 6, 2016. See Approval Order, 
80 FR at 27545. However, on November 6, 2015, the SEC extended the 
implementation date approximately five months to October 3, 2016. 
See Securities Exchange Act Release No. 76382 (November 6, 2015), 80 
FR 70284 (File No. 4-657) (Order Granting Exemption From Compliance 
With the National Market System Plan To Implement a Tick Size Pilot 
Program). See also Letter from Brendon J. Weiss, Co-Head, Government 
Affairs, Intercontinental Exchange/NYSE, to Brent J. Fields, 
Secretary, Commission, dated November 4, 2015 (requesting the data 
collection period be extended until six months after the requisite 
SRO rules are approved, and the implementation data of the Tick Size 
Pilot until six months thereafter).

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[[Page 19670]]

    The Exchange is proposing Supplementary Material .80 to proposed 
Rule 67(b)--Equities to address the requirement in Appendix C.I(b) of 
the Plan that the calculation of raw Market Maker realized trading 
profits utilize a last in, first out (``LIFO'')-like method to 
determine which share prices shall be used in that calculation. The 
Exchange and the other Participants believe that it is more appropriate 
to utilize a methodology that yields LIFO-like results, rather than 
utilizing a LIFO-like method, and the Exchange is therefore proposing 
Supplementary Material .80 to proposed Rule 67(b)--Equities to make 
this change.\33\ The Exchange is proposing that, for purposes of Item I 
of Appendix C, the Participants shall calculate daily Market Maker 
realized profitability statistics for each trading day on a daily LIFO 
basis using reported trade price and shall include only trades executed 
on the subject trading day. The daily LIFO calculation shall not 
include any positions carried over from previous trading days. For 
purposes of Item I.c of Appendix C, the Participants shall calculate 
daily Market Maker unrealized profitability statistics for each trading 
day on an average price basis. Specifically, the Participants must 
calculate the volume weighted average price of the excess (deficit) of 
buy volume over sell volume for the current trading day using reported 
trade price. The gain (loss) of the excess (deficit) of buy volume over 
sell volume shall be determined by using the volume weighted average 
price compared to the closing price of the security as reported by the 
primary listing exchange. In reporting unrealized trading profits, the 
Participant shall also report the number of excess (deficit) shares 
held by the Market Maker, the volume weighted average price of that 
excess (deficit) and the closing price of the security as reported by 
the primary listing exchange used in reporting unrealized profit.\34\
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    \33\ Appendix C.I currently requires Market Maker profitability 
statistics to include (1) the total number of shares of orders 
executed by the Market Maker; (2) raw Market Maker realized trading 
profits, which is the difference between the market value of Market 
Maker shares and the market value of Market Maker purchases, using a 
LIFO-like method; and (3) raw Market Maker unrealized trading 
profits, which is the difference between the purchase or sale price 
of the end-of-day inventory position of the Market Maker and the 
Closing Price. In the 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.
    \34\ The Commission granted BZX an exemption from Rule 608(c) 
related to this provision. See Exemption Letter, supra note 26.
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    Finally, the Exchange is proposing Supplementary Material .90 to 
proposed Rule 67(b)--Equities to address the securities that will be 
used for data collection purposes prior to the commencement of the 
Pilot Period. The Exchange and the other Participants have determined 
that it is appropriate to collect data for a group of securities that 
is larger, and using different quantitative thresholds, than the group 
of securities that will be Pilot Securities. The Exchange is therefore 
proposing Supplementary Material .90 to proposed Rule 67(b)--Equities 
to define ``Pre-Pilot Data Collection Securities'' as the securities 
designated by the Participants for purposes of the data collection 
requirements described in Items I, II and IV of Appendix B and Item I 
of Appendix C of the Plan for the period beginning six months prior to 
the Pilot Period and ending on the trading day immediately preceding 
the Pilot Period. The Participants shall compile the list of Pre-Pilot 
Data Collection Securities by selecting all NMS stocks with a market 
capitalization of $5 billion or less, a Consolidated Average Daily 
Volume (CADV) of 2 million shares or less and a closing price of $1 per 
share or more. The market capitalization and the closing price 
thresholds shall be applied to the last day of the pre-pilot 
measurement period, and the CADV threshold shall be applied to the 
duration of the pre-pilot measurement period. The pre-pilot measurement 
period shall be the three calendar months ending on the day when the 
Pre-Pilot Data Collection Securities are selected. The Pre-Pilot Data 
Collection Securities shall be selected thirty days prior to the 
commencement of the six-month pre-pilot period. On the trading day that 
is the first trading day of the Pilot Period through six months after 
the end of the Pilot Period, the data collection requirements will 
become applicable to the Pilot Securities only. A Pilot Security will 
only be eligible to be included in a Test Group if it was a Pre-Pilot 
Data Collection Security.
Implementation Date
    The proposed rule change will be effective on April 4, 2016.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \35\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \36\ in particular, in that it is designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest.
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    \35\ 15 U.S.C. 78f(b).
    \36\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that this proposal is consistent with the Act 
because it implements and clarifies the provisions of the Plan, and is 
designed to assist the Exchange in meeting its regulatory obligations 
pursuant of the Plan. In approving the Plan, the SEC noted that the 
Pilot was an appropriate, data-driven test that was designed to 
evaluate the impact of a wider tick size on trading, liquidity, and the 
market quality of securities of smaller capitalization companies, and 
was therefore in furtherance of the purposes of the Act. The Exchange 
believes that this proposal is in furtherance of the objectives of the 
Plan, as identified by the SEC, and is therefore consistent with the 
Act because the proposal implements and clarifies the requirements of 
the Plan and applies specific obligations to member organizations in 
furtherance of compliance with the Plan.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
notes that the proposed rule change implements the provisions of the 
Plan, and is designed to assist the Exchange in meeting its regulatory 
obligations pursuant of the Plan. The Exchange also notes that the data 
collection requirements for member organizations that operate Trading 
Centers will apply equally to all such member organizations, as will 
the data collection requirements for Market Makers.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

[[Page 19671]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the 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) of the Act \37\ and Rule 19b-4(f)(6) thereunder.\38\
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    \37\ 15 U.S.C. 78s(b)(3)(A).
    \38\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \39\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \40\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay. The 
Commission believes that waiver of the operative delay is consistent 
with the protection of investors and the public interest because it 
would allow the Exchange to implement the proposed amendments on April 
4, 2016, the date upon which the data collection requirements of the 
Plan become effective.\41\ Therefore, the Commission hereby waives the 
operative delay and designates the proposal operative on April 4, 
2016.\42\
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    \39\ 17 CFR 240.19b-4(f)(6).
    \40\ 17 CFR 240.19b-4(f)(6)(iii).
    \41\ See Securities Exchange Act Release No. 76382 (November 6, 
2015), 80 FR 70284 (File No. 4-657) (Order Granting Exemption From 
Compliance With the National Market System Plan To Implement a Tick 
Size Pilot Program).
    \42\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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 necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change 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-NYSEMKT-2016-40 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 SR-NYSEMKT-2016-40. 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-NYSEMKT-2016-40, and should 
be submitted on or before April 26, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\43\
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    \43\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-07685 Filed 4-4-16; 8:45 am]
 BILLING CODE 8011-01-P