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Notice

Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend Rules 1.5(s), 11.1(a)(1), 11.6 and 11.8

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Start Preamble September 3, 2015.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),[1] and Rule 19b-4 thereunder,[2] notice is hereby given that on September 3, 2015, EDGX Exchange, Inc. (the “Exchange” or “EDGX”) filed with the Securities and Exchange Commission (“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.

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

The Exchange filed a proposal to amend the definition of Pre-Opening Session under Rule 1.5(s) to state that the Pre-Opening Session will start at 7:00 a.m. rather than 8:00 a.m. Eastern Time and Rule 11.1(a)(1) to account for Start Printed Page 54618the Pre-Opening Session starting at 7:00 a.m. Eastern Time. The Exchange also proposes to amend: (i) Rule 11.6 to adopt a new defined term, Effective Start Time, which would be an order instruction enabling Members [3] [sic] indicate a time upon which their order may become eligible for execution; (ii) and Rule 11.8 to identify which order types an Effective Start Time may be utilized with.

The text of the proposed rule change is available at the Exchange's Web site at www.batstrading.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 parts of such statements.

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

1. Purpose

The Exchange proposes to amend the definition of Pre-Opening Session under Rule 1.5(s) to state that the Pre-Opening Session will start at 7:00 a.m. rather than 8:00 a.m. Eastern Time and Rule 11.1(a)(1) to account for the Pre-Opening Session starting at 7:00 a.m. Eastern Time. The Exchange also proposes to amend: (i) Rule 11.6 to adopt a new defined term, Effective Start Time, which would be an order instruction enabling Members indicate a time upon which their order may become eligible for execution; (ii) and Rule 11.8 to identify which order types an Effective Start Time may be utilized with.

Pre-Opening Session 7:00 a.m. Start

The Exchange trading day is currently divided into three sessions: (i) The Pre-Opening Session which starts at 8:00 a.m. and ends at 9:30 a.m. Eastern Time; (ii) the Regular Session which runs from the completion of the Opening Process or Continent Open as defined in Rule 11.7 and 4:00 p.m. Eastern Time; and (iii) the Post-Closing Session which starts at 4:00 p.m. and ends at 8:00 p.m. Eastern Time. The Exchange proposes to amend the definition of “Pre-Opening Session” under Rule 1.5(s) to state that the Pre-Opening Session will start at 7:00 a.m. rather than 8:00 a.m. Eastern Time.[4]

The Exchange also proposes to amend Rule 11.1(a)(1) to account for the Pre-Opening Session starting at 7:00 a.m. Eastern Time. Rule 11.1(a)(1) states that all orders are eligible for execution during the Regular Session.[5] Other than the proposal to change the start of the Pre-Opening Session from 8:00 a.m. to 7:00 a.m. Eastern Time discussed above, the Exchange does not propose to amend the substance or operation of Rule 11.1(a)(1).

As amended, orders entered between 6:00 a.m. and 7:00 a.m. Eastern Time, rather than 6:00 a.m. and 8:00 a.m. Eastern Time, would not eligible for execution until the start of the Pre-Opening Session or Regular Trading Hours,[6] depending on the Time-in-Force (“TIF”) [7] selected by the User.[8] Rule 11.1(a)(1) will also be amended to state that the Exchange will not accept the following orders prior to 7:00 a.m. Eastern Time, rather than 8:00 a.m.: Orders with a Post Only [9] instruction, Intermarket Sweep Orders (“ISOs”),[10] Market Orders [11] with a TIF instruction other than Regular Hours Only,[12] orders with a Minimum Execution Quantity [13] instruction that also include a TIF instruction of Regular Hours Only, and all orders with a TIF instruction of Immediate-or-Cancel (“IOC”) [14] or Fill-or-Kill (“FOK”).[15] At the commencement of the Pre-Opening Session, orders entered between 6:00 a.m. and 7:00 a.m. Eastern Time, rather than 6:00 a.m. and 8:00 a.m. Eastern Time, will be handled in time sequence, beginning with the order with the oldest time stamp, and will be placed on the EDGX Book,[16] routed, cancelled, or executed in accordance with the terms of the order.

Operations. From the Members' operational perspective, the Exchange's goal is to permit trading for those that choose to trade, without imposing burdens on those that do not. Thus, for example, the Exchange will not require any Member to participate in the extended session, including not requiring registered market makers to make two-sided markets between 7:00 a.m. and 8:00 a.m. The Exchange will minimize Members' preparation efforts to the greatest extent possible by allowing Members to trade beginning at 7:00 a.m. with the same equipment, connectivity, order types, and data feeds they currently use from 8:00 a.m. onwards.

Opening Process. The Exchange will offer no opening process at 7:00 a.m., just as it offers no opening process at 8:00 a.m. today. Instead, at 7:00 a.m., the System will “wake up” by loading in price/time priority all open trading interest entered after 6:00 a.m. Also at 7:00 a.m., the Exchange will open the execution system and accept new eligible orders, just as it currently does at 8:00 a.m. Members will be permitted to enter orders beginning at 6:00 a.m. Market Makers will be permitted but not required to open their quotes beginning at 7:00 a.m. in the same manner they open their quotes today beginning at 8:00 a.m.

Order Types. Every order type that is currently available beginning at 8:00 a.m. will be available beginning at 7:00 a.m. All other order types, and all order type behaviors, will otherwise remain unchanged. The Exchange will not extend the expiration times of any orders. For example, an order that is currently available from 8:00 a.m. to Start Printed Page 546194:00 p.m. will be modified to be available from 7:00 a.m. to 4:00 p.m. An order that is available from 8:00 a.m. to 9:30 a.m. will be modified to be available from 7:00 a.m. to 9:30 a.m.

Routing Services. The Exchange will route orders to away markets between 7:00 a.m. and 8:00 a.m., just as it does today between 8:00 a.m. and 9:30 a.m. All routing strategies set forth in Exchange Rule 11.11 will remain otherwise unchanged, performing the same instructions they perform between 7:00 a.m. and 8:00 a.m. today.

Order Processing. Order processing will operate beginning at 7:00 a.m. just as it does today beginning at 8:00 a.m. There will be no changes to the ranking, display, and execution algorithms processes or rules.

Data Feeds. The Exchange will report the best bid and offer on the Exchange to the appropriate network processor, as it currently does beginning 8:00 a.m. The Exchange's proprietary data feeds will be disseminated beginning at 7:00 a.m. using the same formats and delivery mechanisms with which the Exchange currently disseminates them beginning at 8:00 a.m.

Trade Reporting. Trades executed between 7:00 a.m. and 8:00 a.m. will be reported to the appropriate network processor with the “.T” modifier, just as they are reported today between at 8:00 a.m. and 9:30 a.m.

Fees. The Exchange is not changing any fees in connection with this proposal.

Market Surveillance. The Exchange's commitment to high quality regulation at all times will extend to 7:00 a.m. The Exchange will offer all surveillance coverage currently performed by the Exchange's surveillance systems, which will launch by the time trading starts at 7:00 a.m.

Clearly Erroneous Trade Processing. The Exchange will process trade breaks beginning at 7:00 a.m. pursuant to Exchange Rule 11.13 just as it does today beginning at 8:00 a.m.

Non-Substantive Changes. The Exchange also proposes two non-substantive amendments to Rule 11.1(a)(1). First, the Exchange proposes to capitalize the term “Time-in-Force” in the Rule's third sentence. Second, the Exchange proposes to delete the word “orders” from after Eastern Time in the Rule's fifth sentence. Neither of these changes amend the meaning of Rule 11.1(a)(1).

Effective Start Time

The Exchange propose to amend Rule 11.6 to adopt a new defined term, Effective Start Time, under which Members may indicate a time upon which their order may become eligible for execution and Rule 11.8 to identify which order types an Effective Start Time may be utilized with.

Effective Start Time would be defined under new paragraph (t) to Rule 11.6 as an instruction a User may attach to an order to buy or sell which indicates the time upon which the order is to become eligible for execution. Like orders placed on the EDGX Book at the start of the Pre-Opening Session under Rule 11.1(a)(1), at the Effective Start Time, the order will be placed on the EDGX Book, routed, cancelled, or executed in accordance with the terms of the order. Once received, orders with an Effective Start Time are placed in a suspended state and not placed on the EDGX Book until the Effective Start Time selected by the User. Orders with an Effective Start Time are treated like all other orders once placed on the EDGX Book and will receive a time stamp at the time the order becomes eligible for execution. Pursuant to Rule 11.9, orders entered with identical Effective Start Times will retain their priority as compared to each other based upon the time such orders were initially received by the System.

The Exchange also proposes to amend Rule 11.8 to identify which order types an Effective Start Time may be utilized with. In general, a User may specify a time between 7:00 a.m. and 8:00 p.m. Eastern Time as the order's Effective Start Time, subject to the trading sessions that the particular order type is eligible for execution. The Effective Start Time instruction will not be available for ISOs, Market Orders, or orders with a TIF of IOC or FOK as the Exchange believes the instruction is not consistent with the purposes of these order types and order type instructions. This is also consistent with current Rule 11.1(a)(1), under which the Exchange does not accept the following orders prior to the start of the Pre-Opening Session: Orders with a Post Only instruction, ISOs, Market Orders with a TIF instruction other than Regular Hours Only, orders with a Minimum Execution Quantity instruction that also include a TIF instruction of Regular Hours Only, and all orders with a TIF instruction of IOC or FOK.

Effective Start Time will be available for the following order types:

  • Limit Orders. Under Rule 11.8(b)(6), Effective Start Time would be available for Limit Orders with a TIF instruction other than IOC or FOK. Effective Start Time would not be available for orders with a Post Only instruction or Minimum Execution Quantity. This is consistent with current Rule 11.1(a)(1), under which the Exchange does not accept the following orders with a Post Only instruction or Minimum Execution Quantity.
  • MidPoint Peg Orders. Under Rule 11.8(d)(4) and like Limit Orders described above, Effective Start Time would be available for MidPoint Peg Orders with a TIF instruction other than IOC or FOK. Effective Start Time would not be available for orders with a Post Only instruction or Minimum Execution Quantity.
  • Market Maker Peg Orders. Under Rule 11.8(e)(7), all Market Maker Peg Orders may include an Effective Start Time. The Exchange notes that Market Maker Peg Orders are not permitted to include a TIF instruction of IOC or FOK. They may only include a TIF instruction of Day, RHO or GTD. Market Maker Peg Orders are designed to assist Market Makers [17] in complying with their market making quoting obligations under Exchange Rule 11.20. While Market Makers may select an Effective Start Time after their quoting obligations begin, the Exchange understands that Market Makers may utilizes other order types, such as Limit Orders, to satisfy their quoting obligations prior to the Effective Start Time. The Exchange will surveil for the use of an Effective Start Time by Market Makers to ensure they continue to meet their quoting obligations under the Exchange Rule 11.20.

Supplemental Peg Orders. Under Rule 11.8(f)(4), all Supplemental Peg Orders may include an Effective Start Time. The Exchange notes that Supplemental Peg Orders are not permitted to include a TIF instruction of IOC or FOK. They may only include a TIF instruction of Day, RHO, GTD or GTX. A Supplemental Peg Order with a Minimum Execution Quantity may not also contain an Effective Start Time.

2. Statutory Basis

The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,[18] in general, and furthers the objectives of Section 6(b)(5) of the Act,[19] in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to remove impediments to and perfect the mechanism of a free and open market and a national market system.

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Pre-Opening Session 7:00 a.m. Start

The Exchange believes its proposal to amend Rule 1.5(s) to state that the Pre-Opening Session will start at 7:00 a.m. rather than 8:00 a.m. Eastern Time and Rule 11.1(a)(1) to account for the Pre-Opening Session starting at 7:00 a.m. Eastern Time promote just and equitable principles of trade, and to remove impediments to and perfect the mechanism of a free and open market and a national market system. The Exchange believes that opening its system at 7:00 a.m. will benefit investors, the national market system, Members and the Exchange market. Opening at 7:00 a.m. will benefit investors and the national market system by increasing competition for order flow and executions, and thereby spurring product enhancements and lowering prices. Opening at 7:00 a.m. will benefit Members and the Exchange market by increasing trading opportunities between 7:00 a.m. and 8:00 a.m. without increasing ancillary trading costs (telecommunications, data, connectivity, etc.) and, thereby, decreasing average trading costs per share. Opening the Exchange at 7:00 a.m. will also benefit Members that choose not to participate in the early hours but nonetheless gain the opportunity to interact with liquidity entered by other members during the early session.

The proposed rule change promotes just and equitable principles of trade by offering additional trading opportunities to Members that desire them, without imposing burdens on Members that do not. The proposal will facilitate a well-regulated, orderly, and efficient market during a period of time that is currently underserved. The Exchange notes that the proposed trading period has been available on NYSE Arca and Nasdaq.[20] The Exchange believes that the availability of trading between 7:00 a.m. and 8:00 a.m. has been beneficial to market participants including investors and issuers on other markets. The Exchange believes that offering a competing trading session will further benefit investors by promoting competition and order interaction, while imposing no added costs on investors or other market participants that choose not avail themselves of these benefits.

Effective Start Time

The Exchange believes its proposed Effective Start Time instruction also promotes just and equitable principles of trade, and removes impediments to and perfects the mechanism of a free and open market and a national market system. The Exchange believes that the proposed Effective Start Time instruction will provide Users with greater control over their orders by electing a specific time upon which their order may become eligible for execution. The concept of selecting conditions during which an order it [sic] to be eligible for execution is not novel. The operation of the Effective Start Time instruction is similar to functionality available on the Exchange and elsewhere that permits members to elect when their orders are to become eligible for executions. Specifically, on the Exchange, a User may elect a Stop Price or Stop Limit Price on a buy (sell) Market Order or Limit Order indicating that the order become eligible for execution when the consolidated last sale (purchase) in a security occurs at or above (below) a specified Stop Price.[21] In addition, a User may elect the trading session(s) during which their order would be eligible for execution. In such case, the User may enter an order during the Pre-Opening Session and select that such order not be eligible for execution until 9:30 a.m., the start of Regular Trading Hours. Conversely, Members also maintain the ability to elect when their order should expire or be cancelled. For example, a User may elect a TIF instruction of Day, GTD, or GTX, all which state that the order cancelled if not executed by a certain time.[22] Lastly, similar functionality is currently available on NYSE Arca.[23]

The Exchange believes it has appropriately limited the availability of the Effective Start Time instruction to exclude its use with order types and order instructions that it may be deemed inconsistent with. Specifically, the Effective Time instruction is not available for ISOs and the use of such an instruction may be considered inconsistent with a Member's responsibility to comply with the requirements of Regulation NMS relating to ISOs. In addition, the Effective Start Time instruction is not available for Market Orders or orders with a TIF instruction of IOC or FOK as well as orders with Post Only instruction or Minimum Execution Quantity. Market Orders and orders with a TIF instruction of IOC and FOK are immediately executable once placed on the EDGX Book. Permitting the use of an Effective Start time with such orders appears inconsistent as a User will not know at the time of order entry what the market for such a security would be at the selected Effective Start Time.

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

The Exchange believes its proposed rule change would not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes the proposal to start the Pre-Opening Session at 7:00 a.m. Eastern Time would enhance competition by enabling the Exchange to directly compete with NYSE Arca and Nasdaq for order flow and executions starting at 7:00 a.m., rather than 8:00 a.m. In addition, the proposed Effective Start Time instruction will enable the Exchange to provide similar functionality as NYSE Arca. The fact that the extending the Pre-Opening Session and Effective Start Time are themselves a response to the competition provided by other markets is evidence of its pro-competitive nature.

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

The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from Members or other interested parties.

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 will: (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 proposal is consistent with the Act. Comments may Start Printed Page 54621be submitted by any of the following methods:

Electronic Comments

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 No. SR-EDGX-2015-41. 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 such filing will also 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 No. SR-EDGX-2015-41 and should be submitted on or before October 1, 2015.

Start Signature

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.[24]

Robert W. Errett,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  The term “Member” is defined as “any registered broker or dealer that has been admitted to membership in the Exchange. A Member will have the status of a “member” of the Exchange as that term is defined in Section 3(a)(3) of the Act. Membership may be granted to a sole proprietor, partnership, corporation, limited liability company or other organization which is a registered broker or dealer pursuant to Section 15 of the Act, and which has been approved by the Exchange.” See Exchange Rule 1.5(n).

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4.  The Exchange notes that NYSE Arca, Inc. (“NYSE Arca”) operates an Opening Session that starts at 4:00 a.m. Eastern Time (1:00 a.m. Pacific Time) and ends at 9:30 a.m. Eastern Time (6:30 a.m. Pacific Time). See NYSE Arca Rule 7.34(a)(1). The Nasdaq Stock Market LLC (“Nasdaq”) operates a pre-market session that also opens at 4:00 a.m. and ends at 9:30 a.m. Eastern Time. See Nasdaq Rule 4701(g). See also Securities Exchange Act Release No. 69151 (March 15, 2013), 78 FR 17464 (March 21, 2013) (SR-Nasdaq-2013-033) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Extend the Pre-Market Hours of the Exchange to 4:00 a.m. EST).

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5.  “Regular Session” is defined as “the time between the completion of the Opening Process or Continent Open as defined in Rule 11.7 and 4:00 p.m. Eastern Time.” See Exchange Rule 1.5(hh).

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6.  “Regular Trading Hours” is defined as “the time between 9:30 a.m. and 4:00 p.m. Eastern Time.” See Exchange Rule 1.5(y).

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7.  The Times-In-Force instructions available on the Exchange are set forth under Exchange Rule 11.6(q).

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8.  “User” is defined as “any Member or Sponsored Participant who is authorized to obtain access to the System pursuant to Rule 11.3.” See Exchange Rule 1.5(ee).

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9.  See Exchange Rule 11.6(n)(4).

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10.  See Exchange Rule 11.8(c).

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11.  See Exchange Rule 11.8(a).

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12.  See Exchange Rule 11.6(q)(6).

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13.  See Exchange Rule 11.6(h).

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14.  See Exchange Rule 11.6(q)(1).

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15.  See Exchange Rule 11.6(q)(3).

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16.  See Exchange Rule 1.5(d).

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17.  “Market Maker” is defined as “a Member that acts as a Market Maker pursuant to Chapter XI.” EDGX Rule 1.5(l).

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20.  See supra note 4.

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21.  See Exchange Rules 11.8(a)(1) and (b)(1). See also New York Stock Exchange, Inc. (“NYSE”) Rule 13(e)(7).

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22.  See Exchange Rules 11.6(q)(2), (4), and (5). See also Nasdaq Rule 4703(a), and NYSE Rule 13(b).

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23.  NYSE Arca permits the selection of an Effective Time (Tag 168), like the Exchange proposes herein, and Expire Time (Tag 126). See NYSE Arca FIX Specifications, available at https://www.nyse.com/​publicdocs/​nyse/​markets/​nyse/​FIX_​Specification_​and_​API.pdf (dated June 8, 2015).

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[FR Doc. 2015-22746 Filed 9-9-15; 8:45 am]

BILLING CODE 8011-01-P