Document ID: SEC-2016-2169-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ BX, Inc.
Posted Date: 2016-12-09T05:00Z

[Federal Register Volume 81, Number 237 (Friday, December 9, 2016)]
[Notices]
[Pages 89167-89171]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-29463]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79465; File No. SR-BX-2016-063]

Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing 
of Proposed Rule Change To Amend the PRISM Price Improvement Auction in 
BX Chapter VI, Section 9 and To Make Pilot Program Permanent

December 5, 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 21, 2016, NASDAQ BX, Inc. (``BX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I, II, and III, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend BX rules at Chapter VI, Section 9, 
concerning a price-improvement mechanism known as ``PRISM.'' Parts of 
PRISM are currently operating on a pilot basis (``Pilot''), which was 
approved by the Commission in 2015,\3\ and which is set to expire on 
January 18, 2017.\4\ In this proposal, the Exchange proposes to make 
the Pilot permanent, and also proposes to change the requirements for 
providing price improvement for PRISM Orders of less than 50 option 
contracts.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Release No. 76301 (October 29, 
2015), 80 FR 68347 (November 4, 2015) (SR-BX-2015-032) (``PRISM 
Approval Order'').
    \4\ See Securities Exchange Act Release No. 78249 (July 7, 
2016), 81 FR 45334 (July 13, 2016) (SR-BX-2016-038).
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqbx.cchwallstreet.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

[[Page 89168]]

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
    The purpose of this proposed rule change is to make permanent 
certain pilots within Chapter VI, Section 9, entitled ``Price 
Improvement Auction (``PRISM''). In addition, BX proposes to modify the 
requirements for PRISM auctions involving less than 50 contracts where 
the National Best Bid and Offer (``NBBO'') is only $0.01 wide.
Background
    The Exchange adopted PRISM in November 2015 as a price-improvement 
mechanism on the Exchange.\5\ This mechanism permits a Participant (an 
``Initiating Participant'') to electronically submit for execution an 
order it represents as agent on behalf of a Public Customer,\6\ 
Professional customer, broker dealer, or any other entity (``PRISM 
Order'') against principal interest or against any other order it 
represents as agent (an ``Initiating Order''), provided it submits the 
PRISM Order for electronic execution into the PRISM Auction 
(``Auction'') pursuant to the Chapter VI, Section 9.\7\ All options 
traded on the Exchange are eligible for PRISM.
---------------------------------------------------------------------------

    \5\ See PRISM Approval Order, supra note 3.
    \6\ A Public Customer order does not include a Professional 
order, and therefore a Professional would not be entitled to Public 
Customer priority as described herein. A Public Customer means a 
person that is not a broker or dealer in securities. See BX Options 
Rules at Chapter I, Section 1(a)(50). A Public Customer order does 
not include a Professional order for purposes of BX Rule at Chapter 
VI, Section 10(1)(C)(1)(a), which governs allocation priority. A 
``Professional'' means any person or entity that (i) is not a broker 
or dealer in securities, and (ii) places more than 390 orders in 
listed options per day on average during a calendar month for its 
own beneficial account(s). A Participant or a Public Customer may, 
without limitation, be a Professional. All Professional orders shall 
be appropriately marked by Participants. See BX Rules at Chapter I, 
Section 1(a)(49).
    \7\ BX will only conduct an auction for Simple Orders.
---------------------------------------------------------------------------

Pilot Program
    Three components of PRISM were approved by the Commission on a 
pilot basis: (1) The early conclusion of the PRISM Auction; \8\ (2) the 
provision that an unrelated market or marketable limit order (against 
the BX BBO) on the opposite side of the market from the PRISM Order 
received during the Auction will not cause the Auction to end early and 
will execute against interest outside of the Auction; \9\ and (3) no 
minimum size requirement of orders. The provisions were approved for a 
pilot period that currently expires on January 18, 2017 
(``Pilot'').\10\ The Exchange now seeks to have the Pilot approved on a 
permanent basis. In addition, the Exchange proposes to modify the scope 
of PRISM so that PRISM Orders for less than 50 option contracts will be 
required to receive price improvement of at least one minimum price 
improvement increment over the NBBO if the NBBO is only $0.01 wide. For 
orders of 50 contracts or more, or if the difference in the NBBO is 
greater than $0.01, the requirements for price improvement remain the 
same.
---------------------------------------------------------------------------

    \8\ See Chapter VI, Section 9(ii)(B)(4).
    \9\ See Chapter VI, Section 9(ii)(D).
    \10\ See PRISM Approval Order, supra note 3.
---------------------------------------------------------------------------

    During the pilot period the Exchange has been required to submit, 
and has been submitting, certain data periodically as required by the 
Commission, to provide supporting evidence that, among other things, 
there is meaningful competition for all size orders, there is 
significant price improvement available through PRISM, and that there 
is an active and liquid market functioning on the Exchange outside of 
the Auction mechanism. Specifically, the Exchange has submitted the 
following data as specified in its approval order: \11\
---------------------------------------------------------------------------

    \11\ Id.
---------------------------------------------------------------------------

    (1) The number of contracts (of orders of 50 contracts or greater) 
entered into the PRISM;
    (2) The number of contracts (of orders of fewer than 50 contracts) 
entered into the PRISM;
    (3) The number of orders of 50 contracts or greater entered into 
the PRISM; and
    (4) The number of orders of fewer than 50 contracts entered into 
the PRISM.
Price Improvement for Orders Under 50 Contracts
    Currently, a PRISM Auction may be initiated if one of the following 
conditions are met. If the PRISM Order is for the account of a Public 
Customer, the Initiating Participant must stop the entire PRISM Order 
at a price that is equal to or better than the National Best Bid/Offer 
(``NBBO'') on the opposite side of the market from the PRISM Order, 
provided that such price must be at least one minimum trading increment 
specified in Chapter VI, Section 5 better than any limit order on the 
limit order book on the same side of the market as the PRISM Order.\12\ 
If the PRISM Order is for the account of a broker dealer or any other 
person or entity that is not a Public Customer, the Initiating 
Participant must stop the entire PRISM Order at a price that is the 
better of: (i) the BX BBO price improved by at least the Minimum 
Increment on the same side of the market as the PRISM Order, or (ii) 
the PRISM Order's limit price (if the order is a limit order), provided 
in either case that such price is at or better than the NBBO.\13\
---------------------------------------------------------------------------

    \12\ See Chapter VI, Section 9(i)(A).
    \13\ See Chapter VI, Section 9(i)(B).
---------------------------------------------------------------------------

    BX proposes to amend the PRISM auction to require at least $0.01 
price improvement for a PRISM Order if that order is for less than 50 
contracts and if the difference between the NBBO is $0.01. Accordingly, 
BX is proposing to amend the Auction Eligibility Requirements to 
require that, if the PRISM Order is for less than 50 option contracts, 
and if the difference between the NBBO is $0.01, the Initiating 
Participant must stop the entire PRISM Order at one minimum price 
improvement increment better than the NBBO on the opposite side of the 
market from the PRISM Order, and better than any limit order on the 
limit order book on the same side of the market as the PRISM Order. 
This requirement will apply regardless of whether the PRISM Order is 
for the account of a Public Customer, or where the PRISM Order is for 
the account of a broker dealer or any other person or entity that is 
not a Public Customer.
    The Exchange will retain the current requirements for auction 
eligibility where the PRISM Order is for the account of a Public 
Customer and such order is for 50 option contracts or more, or if the 
difference between the NBBO is greater than $0.01. The Exchange will 
also retain the current requirements for auction eligibility where the 
PRISM Order is for the account of a broker dealer or any other person 
or entity that is not a Public Customer and such order is for 50 option 
contracts or more, or if the difference between the NBBO is greater 
than $0.01. Accordingly, the Exchange is amending the Auction 
Eligibility Requirements to state that, if the PRISM Order is for the 
account of a Public Customer and such order is for 50 option contracts 
or more or if the difference between the NBBO is greater than $0.01, 
the Initiating Participant must stop the entire PRISM Order at a price 
that is equal to or better than the National Best Bid/Offer (``NBBO'') 
on the opposite side of the market from the PRISM Order, provided that 
such price

[[Page 89169]]

must be at least one minimum trading increment specified in Chapter VI, 
Section 5 (``Minimum Increment'') better than any limit order on the 
limit order book on the same side of the market as the PRISM Order.
    Similarly, the Exchange is amending the Auction Eligibility 
Requirements to state that, if the PRISM Order is for the account of a 
broker dealer or any other person or entity that is not a Public 
Customer and such order is for 50 option contracts or more, or if the 
difference between the NBBO is greater than $0.01, the Initiating 
Participant must stop the entire PRISM Order at a price that is the 
better of: (i) The BX BBO price improved by at least the Minimum 
Increment on the same side of the market as the PRISM Order, or (ii) 
the PRISM Order's limit price (if the order is a limit order), provided 
in either case that such price is at or better than the NBBO.\14\
---------------------------------------------------------------------------

    \14\ In implementing this change, the system will reject a 
simple PRISM Order to buy if the NBBO is only $0.01 wide and the 
Agency order is stopped on the offer provided the order is not 
customer to customer. The system will reject a simple PRISM Order to 
sell if the NBBO is only $0.01 wide and the Agency order is stopped 
on the bid provided the order is not customer to customer. The 
system will still allow a customer to customer PRISM Order to trade 
on either the bid or offer, if the NBBO is $0.01 wide, provided (1) 
the execution price is equal to or within the NBBO; (2) there is no 
resting customer at the execution price, and (3) $0.01 is the 
Minimum Price Variation (MPV) of the option. The system will 
continue to reject a simple PRISM Order to buy if the NBBO is only 
$0.01 wide and the Agency order is stopped on the bid if there is a 
resting order on the bid. The system will continue to reject a 
simple PRISM Order to sell if the NBBO is only $0.01 wide and the 
Agency order is stopped on the offer if there is a resting order on 
the offer. The system will provide an explicit reject reason if the 
system rejects a PRISM Order because the NBBO is only $0.01 wide and 
the PRISM order did not improve the contra side NBBO.
---------------------------------------------------------------------------

    The Exchange also proposes to add language to Chapter VI, Section 
9(i) to clarify that, if any of the auction eligibility criteria are 
not met, the PRISM Order will be rejected. The Exchange will also add 
language to Chapter VI, Section 9(i) to clarify the treatment of paired 
Public Customer-to-Public Customer orders pursuant to subparagraph (vi) 
as a result of these proposed changes. Specifically, Exchange will 
allow a PRISM Order to trade on either the bid or offer, pursuant to 
subparagraph (vi), if the NBBO is $0.01 wide, provided (1) the 
execution price is equal to or within the NBBO, (2) there is no resting 
customer at the execution price, and (3) $0.01 is the Minimum Price 
Variation (MPV) of the option. The Exchange also proposes to add 
language that it will continue to reject a PRISM Order to buy (sell) if 
the NBBO is only $0.01 wide and the Agency order is stopped on the bid 
(offer) if there is a resting order on the bid (offer). These 
requirements are unchanged from the Exchange's current handling 
practices of paired Public Customer-to-Public Customer PRISM Orders per 
subparagraph (vi), and the Exchange's current practice of rejecting 
PRISM Orders to buy (sell) if the NBBO is only $0.01 wide and the 
Agency order is stopped on the bid (offer) if there is a resting order 
on the bid (offer).
    The Exchange believes that these changes to PRISM may provide 
additional opportunities for PRISM Orders of under 50 option contracts 
to receive price improvement over the NBBO where the difference in the 
NBBO is $0.01 and therefore encourage the increased submission of 
orders of under 50 option contracts. The Exchange notes that the 
statistics for the current pilot, which include, among other things, 
price improvement for orders of less than 50 option contracts under the 
current auction eligibility requirements, show relatively small amounts 
of price improvement for such orders. BX believes that the proposed 
requirements will therefore increase the price improvement that orders 
of under 50 option contracts may receive in PRISM. The Exchange also 
notes that NASDAQ PHLX LLC operates a similar price improvement 
mechanism, Price Improvement XL, also known as PIXL, which has been 
operating for a longer period of time and has therefore generated more 
pilot data.\15\ Given the similarly between the two mechanisms, the 
Exchange expects that PRISM, if operated on a pilot basis over a longer 
period of time, would generate data that is comparable to PIXL.
---------------------------------------------------------------------------

    \15\ See Securities Exchange Act Release No. 63027 (October 1, 
2010), 75 FR 62160 (October 7, 2010) (SR-Phlx-2010-108).
---------------------------------------------------------------------------

No Minimum Size Requirement
    Chapter VI, Section 9(vii) provides that, as part of the current 
Pilot, there will be no minimum size requirement for orders to be 
eligible for the Auction.\16\ The Exchange proposed the no-minimum size 
requirement for PRISM auctions because it believed that there is 
meaningful competition in PRISM auctions for all size orders, there are 
opportunities for significant price improvement for orders executed 
through PRISM, and that there is an active and liquid market 
functioning on the Exchange outside of PRISM. The Exchange proposed to 
gather data over the course of the Pilot to support this position. 
Specifically, the Exchange proposed to gather data relating to (1) the 
number of contracts (of orders of 50 contracts or greater) entered into 
the PRISM; (2) the number of contracts (of orders of fewer than 50 
contracts) entered into the PRISM; (3) the number of orders of 50 
contracts or greater entered into the PRISM; and (4) the number of 
orders of fewer than 50 contracts entered into the PRISM.\17\
---------------------------------------------------------------------------

    \16\ The Rule also requires the Exchange to submit certain data, 
periodically as required by the Commission, to provide supporting 
evidence that, among other things, there is meaningful competition 
for all size orders and that there is an active and liquid market 
functioning on the Exchange outside of the Auction mechanism. Any 
raw data which is submitted to the Commission will be provided on a 
confidential basis.
    \17\ See Securities Exchange Act Release No. 75827 (September 3, 
2015), 80 FR 54607 (September 10, 2015) (SR-BX-2015-032).
---------------------------------------------------------------------------

    The Exchange believes that the data gathered since the approval of 
the Pilot establishes that there is liquidity and competition both 
within PRISM and outside of PRISM, and that there are opportunities for 
significant price improvement within PRISM. In the period between 
January and June 2016, PRISM auctions executed 1.39 million contracts, 
which represents 8.3% of total BX contract volume. The average daily 
number of contracts traded on PRISM increased from 9,045 contracts per 
day in January 2016 to 9,070 contracts per day in June 2016. The 
percent of BX volume traded in PRISM auctions increased from 6.4% in 
January 2016 to 7.2% in June 2016. The percent of consolidated volume 
traded in PRISM remained approximately 10 basis points. The mean number 
of unique participants in PRISM auctions was 4.8 and median was 4.0. 
The distribution of auctions and contracts traded by number of unique 
participants were similar, with a single participant in about 19% of 
auctions and 26% of volume.
    The Exchange has also gathered information about activity in orders 
for less than 50 and 50 contracts or greater for PRISM auctions between 
January and June 2016. For auctions occurring during that period, 87.8% 
of auctions were for orders for less than 50 contracts, a percentage 
that remained stable over that time period. Auctions for orders of less 
than 50 contracts accounted for 30.0% of the contract volume traded in 
PRISM. Auctions of 50 contracts or more made up 12.2% of all PRISM 
auctions and accounted for 70.0% of contracts traded in PRISM.
    With respect to price improvement, 60.5% of PRISM auctions between 
January and June 2016 executed at a price that was better than the NBBO 
at the time the auction began.\18\ The equal-

[[Page 89170]]

weighted average amount of price improvement per contract for PRISM 
auctions was 3.5%, with the monthly average amount of price improvement 
ranging from 1.9% and 5.2% between January and June 2016. For auctions 
of less than 50 contracts, 64.7% received price improvement, while 
30.5% of auctions for 50 contracts or more received price 
improvement.\19\ The equal-weighted average price improvement was 3.7% 
for auctions of less than 50 contracts and 1.9% for auctions of 50 
contracts or more. Average price improvement was 4.4% when BX BBO was 
at the NBBO and 3.1% when BX BBO was not at the NBBO.
---------------------------------------------------------------------------

    \18\ 29.6% of PRISM auction began when BX best bid or offer was 
at the NBBO. 74.5% of auctions that began when the BX BBO was at the 
NBBO received price improvement. 54.6% of auctions that began when 
the BX BBO was not at the NBBO received price improvement.
    \19\ 56.5% of contracts in auctions for less than 50 contracts 
received price improvement, while 25.8% of contracts in auctions of 
for 50 contracts or more received price improvement.
---------------------------------------------------------------------------

    BX believes that the data gathered during the Pilot period 
indicates that there is meaningful competition in PRISM auctions for 
all size orders, there is an active and liquid market functioning on 
the Exchange outside of the auction mechanism, and that there are 
opportunities for price improvement for orders executed through PRISM. 
The Exchange therefore believes that it appropriate to approve the no 
minimum size requirement on a permanent basis.
Early Conclusion of the PRISM Auction
    Chapter VI, Section 9(ii)(B)(4) provides that the PRISM Auction 
shall conclude at the earlier of (1) the end of the Auction period; (2) 
any time the BX BBO crosses the PRISM Order stop price on the same side 
of the market as the PRISM Order; or (3) any time there is a trading 
halt on the Exchange in the affected series.\20\ The latter two 
conditions are operating as part of the current Pilot.
---------------------------------------------------------------------------

    \20\ If the situations described in either of the two latter 
conditions occur, the entire PRISM Order will be executed at: (1) In 
the case of the BX BBO crossing the PRISM Order stop price, the best 
response price(s) or, if the stop price is the best price in the 
Auction, at the stop price, unless the best response price is equal 
to or better than the price of a limit order resting on the Order 
Book on the same side of the market as the PRISM Order, in which 
case the PRISM Order will be executed against that response, but at 
a price that is at least the Minimum Increment better than the price 
of such limit order at the time of the conclusion of the Auction; or 
(2) in the case of a trading halt on the Exchange in the affected 
series, the stop price, in which case the PRISM Order will be 
executed solely against the Initiating Order. Any unexecuted PAN 
responses will be cancelled.
---------------------------------------------------------------------------

    As with the no minimum size requirement, the Exchange has gathered 
data on these latter two conditions. Between January and June 2016, one 
auction terminated early because the BX BBO crossed the PRISM Order 
stop price. No auctions terminated early because of halts. The number 
of auctions that terminated early was less than 1/100th of 1% of all 
PRISM auctions over the period. The auctions that terminated early were 
less than 1/100th of 1% of contracts traded in PRISM auctions.
    The Exchange believes that it is appropriate to terminate an 
auction when either of these conditions occur.\21\ Based on the data 
gathered during the pilot, the Exchange does not anticipate that either 
of these conditions will occur with significant frequency, or will 
otherwise disrupt the functioning of PRISM auctions. The Exchange 
therefore believes it is appropriate to approve this aspect of the 
Pilot on a permanent basis.
---------------------------------------------------------------------------

    \21\ The Exchange notes that trading on the Exchange in any 
option contract will be halted whenever trading in the underlying 
security has been paused or halted by the primary listing market. 
See BX Rules at Chapter V, Section 3.
---------------------------------------------------------------------------

Unrelated Market or Marketable Limit Order
    Chapter VI, Section 9(ii)(D) provides that an unrelated market or 
marketable limit order (against the BX BBO) on the opposite side of the 
market from the PRISM Order received during the Auction will not cause 
the Auction to end early and will execute against interest outside of 
the Auction. If contracts remain from such unrelated order at the time 
the auction ends, they will be considered for participation in the 
order allocation process described elsewhere in the Rule.
    This provision is based on a similar provision in the Price 
Improvement XL (``PIXL'') mechanism on NASDAQ PHLX LLC (``Phlx'').\22\ 
In approving this feature on PIXL, also on a pilot basis, the 
Commission found that ``allowing the PIXL auction to continue for the 
full auction period despite receipt of unrelated orders outside the 
Auction would allow the auction to run its full course and, in so 
doing, will provide a full opportunity for price improvement to the 
PIXL Order. Further, the unrelated order would be available to 
participate in the PIXL order allocation.'' \23\ Given that this 
provision is based on the corresponding PIXL provision, the Exchange 
believes that a similar rationale applies here. The Exchange also does 
not believe that this provision has had a significant impact on either 
the unrelated order or the PRISM auction process. The Exchange 
therefore believes it is appropriate to approve this aspect of the 
Pilot on a permanent basis.
---------------------------------------------------------------------------

    \22\ See Phlx Rule 1080(n)(ii)(D).
    \23\ See Securities Exchange Act Release No. 63027 (October 1, 
2010), 75 FR 62160 (October 7, 2010) (SR-PHLX-2010-108).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\24\ in general and with 
Section 6(b)(5) of the Act,\25\ in that it is designed to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and 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; and is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers, or to regulate by virtue of any authority conferred by the Act 
matters not related to the purposes of the Act or the administration of 
the Exchange.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78f.
    \25\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is also 
consistent with Section 6(b)(8) of the Act \26\ in that it does not 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    Specifically, the Exchange believes that PRISM, including the rules 
to which the Pilot applies, results in increased liquidity available at 
improved prices, with competitive final pricing out of the Initiating 
Participant's complete control. The Exchange believes that PRISM 
promotes and fosters competition and affords the opportunity for price 
improvement to more options contracts. The Exchange believes that the 
changes to the PRISM Auction requiring price improvement of at least 
one minimum price improvement increment over the NBBO for PRISM Orders 
of less than 50 option contracts where the difference in the NBBO is 
$0.01 will provide further price improvement for those PRISM Orders. 
The Exchange notes that statistics for the current pilot, which 
include, among other things, price improvement for orders of less than 
50 option contracts under the current auction eligibility requirements, 
show relatively small amounts of price improvement for such orders. The 
Exchange believes that the proposed requirements will therefore 
increase the price improvement that orders of under

[[Page 89171]]

50 option contracts may receive in PRISM.
    The Exchange believes that approving the Pilot on a permanent basis 
is also consistent with the Act. With respect to the no minimum size 
requirement, the Exchange believes that the data gathered during the 
Pilot period indicates that there is meaningful competition in PRISM 
auctions for all size orders, there is an active and liquid market 
functioning on the Exchange outside of the auction mechanism, and that 
there are opportunities for significant price improvement for orders 
executed through PRISM.
    With respect to the early termination of a PRISM Auction, the 
Exchange believes that it is appropriate to terminate an auction any 
time the BX BBO crosses the PRISM Order stop price on the same side of 
the market as the PRISM Order, or any time there is a trading halt on 
the Exchange in the affected series. Based on the data gathered during 
the pilot, the Exchange does not anticipate that either of these 
conditions will occur with significant frequency, or will otherwise 
disrupt the functioning of PRISM auctions.
    With respect to the requirement that an unrelated market or 
marketable limit order (against the BX BBO) on the opposite side of the 
market from the PRISM Order received during the Auction will not cause 
the Auction to end early and will execute against interest outside of 
the Auction, the Exchange does not believe that this provision has had 
a significant impact on either the unrelated order or the PRISM auction 
process. The Exchange also believes that allowing the PRISM Auction to 
continue in this scenario will allow the auction to run its full course 
and, in so doing, will provide a full opportunity for price improvement 
to the PRISM Order. The Exchange also notes that the unrelated order 
would be available to participate in the PRISM order allocation.

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. The proposal will apply to all 
Exchange members, and participation in the PRISM Auction process is 
completely voluntary. Based on the data collected by the Exchange 
during the Pilot, the Exchange believes that there is meaningful 
competition in PRISM auctions for all size orders, there are 
opportunities for significant price improvement for orders executed 
through PRISM, and that there is an active and liquid market 
functioning on the Exchange outside of PRISM. The Exchange believes 
that requiring increased price improvement for PRISM Orders may 
encourage competition by attracting additional orders to participate in 
PRISM. The Exchange believes that approving the Pilot on a permanent 
basis will not significantly impact competition, as the Exchange is 
proposing no other change to the Pilot beyond implementing it on a 
permanent basis.

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.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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-BX-2016-063 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-BX-2016-063. 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 Numbe SR-BX-2016-063 and should be 
submitted on or before December 30, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
---------------------------------------------------------------------------

    \27\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-29463 Filed 12-8-16; 8:45 am]
 BILLING CODE 8011-01-P