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6 June 2012 SEC Plan To End Extraordinary Market Volatility
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[Federal Register Volume 77, Number 109 (Wednesday, June 6, 2012)]
[Notices]
[Pages 33498-33522]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-13653]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67091; File No. 4-631]
Joint Industry Plans; Order Approving, on a Pilot Basis, the
National Market System Plan To Address Extraordinary Market Volatility
by BATS Exchange, Inc., BATS Y-Exchange, Inc., Chicago Board Options
Exchange, Incorporated, Chicago Stock Exchange, Inc., EDGA Exchange,
Inc., EDGX Exchange, Inc., Financial Industry Regulatory Authority,
Inc., NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, The Nasdaq Stock Market
LLC, National Stock Exchange, Inc., New York Stock Exchange LLC, NYSE
MKT LLC, and NYSE Arca, Inc.
May 31, 2012.
I. Introduction
On April 5, 2011, NYSE Euronext, on behalf of New York Stock
Exchange LLC (``NYSE''), NYSE Amex LLC (``NYSE Amex''),\1\ and NYSE
Arca, Inc. (``NYSE Arca''), and the following parties to the proposed
National Market System Plan: BATS Exchange, Inc., BATS Y-Exchange,
Inc., Chicago Board Options Exchange, Incorporated (``CBOE''), Chicago
Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc.,
Financial Industry Regulatory Authority, Inc., NASDAQ OMX BX, Inc.,
NASDAQ OMX PHLX LLC, the
[[Page 33499]]
Nasdaq Stock Market LLC, and National Stock Exchange, Inc.
(collectively with NYSE, NYSE MKT, and NYSE Arca, the
``Participants''), filed with the Securities and Exchange Commission
(the ``Commission'') pursuant to Section 11A of the Securities Exchange
Act of 1934 (``Act''),\2\ and Rule 608 thereunder,\3\ a proposed Plan
to Address Extraordinary Market Volatility (as amended, the
``Plan'').\4\ A copy of the Plan is attached as Exhibit A hereto. The
Participants requested that the Commission approve the Plan as a one-
year pilot.\5\ The Plan was published for comment in the Federal
Register on June 1, 2011.\6\ The Commission received eighteen comment
letters in response to the proposal.\7\ On September 27, 2011, the
Commission extended the deadline for Commission action on the Plan and
designated November 28, 2011 as the new date by which the Commission
would be required to take action.\8\ The Commission found that such
extension was appropriate in order to provide sufficient time to
consider and take action on the Plan, in light of, among other things,
the comments received on the proposal.\9\ On November 2, 2011, the
Participants to the Plan, other than CBOE, responded to the comment
letters and proposed changes to the Plan that were subsequently
reflected in an amendment.\10\ On November 18, 2011, the Participants
consented to the Commission's request that the deadline for Commission
action on the Plan be extended an additional three months, to February
29, 2012.\11\ On February 27, 2012, the Participants consented to the
Commission's request that the deadline for Commission action on the
Plan be extended an additional three months, to May 31, 2012.\12\ On
May 24, 2012, the Participants submitted an amendment that proposed
several changes to the Plan.\13\ This order approves the Plan, as
amended, on a one-year pilot basis.
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\1\ On May 14, 2012, NYSE Amex filed a proposed rule change on
an immediately effective basis to change its name to NYSE MKT LLC
(``NYSE MKT''). See Securities Exchange Act Release No. 67037 (May
21, 2012) (SR-NYSEAmex-2012-32).
\2\ 15 U.S.C. 78k-1.
\3\ 17 CFR 242.608.
\4\ See Letter from Janet M. McGinness, Senior Vice President,
Legal and Corporate Secretary, NYSE Euronext, to Elizabeth M.
Murphy, Secretary, Commission, dated April 5, 2011 (``Transmittal
Letter'').
\5\ Id. at 1.
\6\ See Securities Exchange Act Release No. 64547 (May 25,
2011), 76 FR 31647 (``Notice'').
\7\ See Letter from Steve Wunsch, Wunsch Auction Associates,
LLC, to Elizabeth M. Murphy, Secretary, Commission, dated June 2,
2011 (``Wunsch Letter''); Letter from Peter J. Driscoll, Investment
Professional, Chicago, IL, to Elizabeth M. Murphy, Secretary,
Commission, dated June 17, 2011 (``Driscoll Letter''); Letter from
Stuart J. Kaswell, Executive Vice President & Managing Director,
General Counsel, Managed Funds Association (``MFA''), to Elizabeth
M. Murphy, Secretary, Commission, dated June 21, 2011 (``MFA
Letter''); Letter from George U. Sauter, Managing Director and Chief
Investment Officer, The Vanguard Group, Inc. (``Vanguard''), to
Elizabeth M. Murphy, Secretary, Commission, dated June 22, 2011
(``Vanguard Letter''); Letter from Karrie McMillan, General Counsel,
Investment Company Institute (``ICI''), to Elizabeth M. Murphy,
Secretary, Commission, dated June 22, 2011 (``ICI Letter''); Letter
from Manisha Kimmel, Executive Director, Financial Information Forum
(``FIF''), to Elizabeth M. Murphy, Secretary, Commission, dated June
22, 2011 (``FIF Letter''); Letter from Craig S. Donohue, Chief
Executive Officer, CME Group Inc., to Elizabeth M. Murphy,
Secretary, Commission, dated June 22, 2011 (``CME Letter''); Letter
from Joseph N. Cangemi, Chairman, and Jim Toes, President and Chief
Executive Officer, Security Traders Association, to Elizabeth M.
Murphy, Secretary, Commission, dated June 22, 2011 (``STA Letter'');
Letter from Leonard J. Amoruso, General Counsel, Knight Capital
Group, Inc. (``Knight''), to Elizabeth M. Murphy, Secretary,
Commission, dated June 22, 2011 (``Knight Letter); Letter from Ann
L. Vlcek, Managing Director and Associate General Counsel,
Securities Industry and Financial Markets Association (``SIFMA''),
to Elizabeth M. Murphy, Secretary, Commission, dated June 22, 2011
(``SIFMA Letter''); Letter from Jamie Selway, Managing Director, and
Patrick Chi, Chief Compliance Officer, ITG Inc., to Elizabeth M.
Murphy, Secretary, Commission, dated June 23, 2011 (``ITG Letter'');
Letter from Jose Marques, Managing Director and Global Head of
Electronic Equity Trading, Deutsche Bank Securities Inc. (``Deutsche
Bank''), to Elizabeth M. Murphy, Secretary, Commission, dated June
23, 2011 (``Deutsche Bank Letter''); Letter from Kimberly Unger,
Esq., Executive Director, The Security Traders Association of New
York, Inc., to Elizabeth M. Murphy, Secretary, Commission, dated
June 23, 2011 (``STANY Letter''); Letter from James J. Angel, Ph.D.,
CFA, Associate Professor of Finance, Georgetown University,
McDonough School of Business, to Commission, dated June 24, 2011
(``Angel Letter''); Letter from John A. McCarthy, General Counsel,
GETCO, to Elizabeth M. Murphy, Secretary, Commission, dated June 24,
2011 (``GETCO Letter''); Letter from Andrew C. Small, Executive
Director and General Counsel, Scottrade, Inc., to Elizabeth M.
Murphy, Secretary, Commission, dated July 5, 2011 (``Scottrade
Letter''); Letter from Peter Skopp, President, Molinete Trading
Inc., to Elizabeth M. Murphy, Secretary, Commission, dated July 19,
2011 (``Molinete Letter''); and Letter from Sal Arnuk, Joe Saluzzi,
and Paul Zajac, Themis Trading, LLC, to Elizabeth M. Murphy,
Secretary, Commission (``Themis Letter''). Copies of all comments
received on the proposed Plan are available on the Commission's Web
site, located at http://www.sec.gov/comments/4-631/4-631.shtml.
Comments are also 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. ET.
\8\ See Securities Exchange Act Release No. 65410 (September 27,
2011), 76 FR 61121 (Oct. 3, 2011).
\9\ Id.
\10\ See Letter from Janet M. McGinness, Senior Vice President,
Legal and Corporate Secretary, NYSE Euronext, to Elizabeth M.
Murphy, Secretary, Commission, dated November 2, 2011 (``Response
Letter'').
\11\ See Letter from Janet M. McGinness, Senior Vice President
and Corporate Secretary, NYSE Euronext, to Elizabeth M. Murphy,
Secretary, Commission, dated November 18, 2011.
\12\ See Letter from Janet M. McGinness, Senior Vice President
and Corporate Secretary, NYSE Euronext, to Elizabeth M. Murphy,
Secretary, Commission, dated February 27, 2012.
\13\ See Letter from Janet M. McGinness, Senior Vice President,
Legal and Corporate Secretary, NYSE Euronext, to Elizabeth M.
Murphy, Secretary, Commission, dated May 24, 2012 (``Amendment'').
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II. Background
On May 6, 2010, the U.S. equity markets experienced a severe
disruption.\14\ Among other things, the prices of a large number of
individual securities suddenly declined by significant amounts in a
very short time period, before suddenly reversing to prices consistent
with their pre-decline levels. This severe price volatility led to a
large number of trades being executed at temporarily depressed prices,
including many that were more than 60% away from pre-decline prices and
were broken by the exchanges and FINRA. The Commission was concerned
that events such as those that occurred on May 6 could seriously
undermine the integrity of the U.S. securities markets. Accordingly,
Commission staff has worked with the exchanges and FINRA since that
time to identify and assess the causes and contributing factors of the
May 6 market disruption \15\ and to fashion policy responses that will
help prevent a recurrence.
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\14\ The events of May 6 are described more fully in a joint
report by the staffs of the Commodity Futures Trading Commission
(``CFTC'') and the Commission. See Report of the Staffs of the CFTC
and SEC to the Joint Advisory Committee on Emerging Regulatory
Issues, ``Findings Regarding the Market Events of May 6, 2010,''
dated September 30, 2010, available at
http://www.sec.gov/news/studies/2010/marketevents-report.pdf.
\15\ Id.
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One such response to the events of May 6, 2010, was the development
of the single-stock circuit breaker pilot program, which was
implemented through a series of rule filings by the Exchanges and
FINRA. This pilot was introduced in three stages, beginning in June
2010. In the first stage, the Commission approved, on an accelerated
basis, proposed rule changes by the Exchanges and FINRA to pause
trading during periods of extraordinary market volatility in stocks
included in Standard & Poor's 500 index.\16\ In the second stage, the
Commission approved the Exchanges' and FINRA's proposals to add
securities included in the Russell 1000 index, as well as specified
exchange traded products (``ETPs''), to the pilot.\17\ In the third
stage, the
[[Page 33500]]
Commission approved the Exchanges' and FINRA's proposals to add all
remaining NMS stocks, as defined in Rule 600(b)(47) of Regulation NMS
under the Act (``NMS Stocks'') \18\ to the pilot.\19\ The Exchanges and
FINRA each subsequently filed, on an immediately effective basis,
proposals to exempt all rights and warrants from the pilot.\20\ The
single-stock circuit breaker pilot is currently set to expire on July
31, 2012.\21\
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\16\ See Securities Exchange Act Release Nos. 62252 (June 10,
2010), 75 FR 34186 (June 16, 2010) (File Nos. SR-BATS-2010-014; SR-
EDGA-2010-01; SR-EDGX-2010-01; SR-BX-2010-037; SR-ISE-2010-48; SR-
NYSE-2010-39; SR-NYSEAmex-2010-46; SR-NYSEArca-2010-41; SR-NASDAQ-
2010-061; SR-CHX-2010-10; SR-NSX-2010-05; and SR-CBOE-2010-047);
62251 (June 10, 2010), 75 FR 34183 (June 16, 2010) (SR-FINRA-2010-
025).
\17\ See Securities Exchange Act Release Nos. 62884 (September
10, 2010), 75 FR 56618 (September 16, 2010) (File Nos. SR-BATS-2010-
018; SR-BX-2010-044; SR-CBOE-2010-065; SR-CHX-2010-14; SR-EDGA-2010-
05; SR-EDGX-2010-05; SR-ISE-2010-66; SR-NASDAQ-2010-079; SR-NYSE-
2010-49; SR-NYSEAmex-2010-63; SR-NYSEArca-2010-61; and SR-NSX-2010-
08); and Securities Exchange Act Release No. 62883 (September 10,
2010), 75 FR 56608 (September 16, 2010) (SR-FINRA-2010-033).
\18\ 17 CFR 242.600(b)(47).
\19\ See Securities Exchange Act Release No. 64735 (June 23,
2011), 76 FR 38243 (June 29, 2011) (File Nos. SR-BATS-2011-016; SR-
BYX-2011-011; SR-BX-2011-025; SR-CBOE-2011-049; SR-CHX-2011-09; SR-
EDGA-2011-15; SR-EDGX-2011-14; SR-FINRA-2011-023; SR-ISE-2011-028;
SR-NASDAQ-2011-067; SR-NYSE-2011-21; SR-NYSEAmex-2011-32; SR-
NYSEArca-2011-26; SR-NSX-2011-06; SR-Phlx-2011-64).
\20\ See, e.g., Securities Exchange Act Release No. 65810
(November 23, 2011) 76 FR 74080 (November 30, 2011) (SR-NYSE-2011-
57).
\21\ See, e.g., Securities Exchange Act Release No. 66134
(January 11, 2012), 77 FR 2592 (January 18, 2012) (SR-NYSE-2011-68).
In addition to the trading pause pilot for individual
securities, the Commission and the SROs also implemented other
regulatory responses to the events of May 6, 2010. For example, the
Commission approved proposed rule changes that set forth clearer
standards and reduced the discretion of self-regulatory
organizations with respect to breaking erroneous trades. See e.g.,
Securities Exchange Act Release No. 62886 (September 10, 2010), 75
FR 56613 (September 16, 2010). Further, the Commission approved
proposed rule changes that enhanced the minimum quoting standards
for equity market makers to require that they post continuous two-
sided quotations within a designated percentage of the inside market
to eliminate market maker ``stub quotes'' that are so far away from
the prevailing market that they are clearly not intended to be
executed. See Securities Exchange Act Release No. 63255 (November 5,
2010), 75 FR 69484 (November 12, 2010).
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The Plan is intended to replace the single-stock circuit breaker
pilot that is currently in place.
III. Description of the Proposal
The Participants filed the Plan to create a market-wide limit up-
limit down mechanism that is intended to address extraordinary market
volatility in NMS Stocks.\22\ The Plan sets forth procedures that
provide for market-wide limit up-limit down requirements that would be
designed to prevent trades in individual NMS Stocks from occurring
outside of the specified price bands.\23\ These limit up-limit down
requirements would be coupled with trading pauses, as defined in
Section I(X) of the Plan, to accommodate more fundamental price moves
(as opposed to erroneous trades or momentary gaps in liquidity).
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\22\ See Section I(H) of the Plan.
\23\ As set forth in Section V of the Plan, the price bands
would consist of a Lower Price Band and an Upper Price Band for each
NMS Stock. The price bands would be based on a Reference Price that
equals the arithmetic mean price of Eligible Reported Transactions
for the NMS stock over the immediately preceding five-minute period.
As defined in the proposed Plan, Eligible Reported Transactions
would have the meaning prescribed by the Operating Committee for the
proposed Plan, and generally mean transactions that are eligible to
update the sale price of an NMS Stock.
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As set forth in Section V of the Plan, the price bands would
consist of a Lower Price Band and an Upper Price Band for each NMS
Stock.\24\ The price bands would be calculated by the Securities
Information Processors (``SIPs'' or ``Processors'') responsible for
consolidation of information for an NMS Stock pursuant to Rule 603(b)
of Regulation NMS under the Act.\25\ Those price bands would be based
on a Reference Price \26\ for each NMS Stock that equals the arithmetic
mean price of Eligible Reported Transactions for the NMS Stock over the
immediately preceding five-minute period. The price bands for an NMS
Stock would be calculated by applying the Percentage Parameter for such
NMS Stock to the Reference Price, with the Lower Price Band being a
Percentage Parameter \27\ below the Reference Price, and the Upper
Price Band being a Percentage Parameter above the Reference Price.
Between 9:30 a.m. and 9:45 a.m. ET and 3:35 p.m. and 4:00 p.m. ET, the
price bands would be calculated by applying double the Percentage
Parameters.
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\24\ Capitalized terms used herein but not otherwise defined
shall have the meaning ascribed to such terms in the Plan.
\25\ 17 CFR 242.603(b). The Plan refers to this entity as the
Processor.
\26\ See Section I(T) of the Plan.
\27\ As initially proposed by the Participants, the Percentage
Parameters for Tier 1 NMS Stocks (i.e., stocks in the S&P 500 Index
or Russell 1000 Index and certain ETPs) with a Reference Price of
$1.00 or more would be five percent and less than $1.00 would be the
lesser of (a) $0.15 or (b) 75 percent. The Percentage Parameters for
Tier 2 NMS Stocks (i.e., all NMS Stocks other than those in Tier 1)
with a Reference Price of $1.00 or more would be 10 percent and less
than $1.00 would be the lesser of (a) $0.15 or (b) 75 percent. The
Percentage Parameters for a Tier 2 NMS Stock that is a leveraged ETP
would be the applicable Percentage Parameter set forth above
multiplied by the leverage ratio of such product. On May 24, 2012,
the Participants amended the Plan to create a 20% price band for
Tier 1 and Tier 2 stocks with a Reference Price of $0.75 or more and
up to and including $3.00. The Percentage Parameter for stocks with
a Reference Price below $0.75 would be the lesser of (a) $0.15 or
(b) 75 percent.
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The Processors would also calculate a Pro-Forma Reference Price for
each NMS Stock on a continuous basis during Regular Trading Hours. If a
Pro-Forma Reference Price did not move by one percent or more from the
Reference Price in effect, no new price bands would be disseminated,
and the current Reference Price would remain the effective Reference
Price. If the Pro-Forma Reference Price moved by one percent or more
from the Reference Price in effect, the Pro-Forma Reference Price would
become the Reference Price, and the Processors would disseminate new
price bands based on the new Reference Price. Each new Reference Price
would remain in effect for at least 30 seconds.
When one side of the market for an individual security is outside
the applicable price band, the Processors would be required to
disseminate such National Best Bid \28\ or National Best Offer \29\
with an appropriate flag identifying it as non-executable. When the
other side of the market reaches the applicable price band, the market
for an individual security would enter a Limit State,\30\ and the
Processors would be required to disseminate such National Best Offer or
National Best Bid with an appropriate flag identifying it as a Limit
State Quotation.\31\ All trading would immediately enter a Limit State
if the National Best Offer equals the Lower Limit Band and does not
cross the National Best Bid, or the National Best Bid equals the Upper
Limit Band and does not cross the National Best Offer. Trading for an
NMS Stock 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 market did not exit a Limit State within 15
seconds, then the Primary Listing Exchange would declare a five-minute
trading pause, which would be applicable to all markets trading the
security.
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\28\ 17 CFR 242.600(b)(42). See also Section I(G) of the Plan.
\29\ Id.
\30\ A stock enters the Limit State if the National Best Offer
equals the Lower Price Band and does not cross the National Best
Bid, or the National Best Bid equals the Upper Price Band and does
not cross the National Best Offer. See Section VI(A) of the Plan.
\31\ See Section I(D) of the Plan.
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These limit up-limit down requirements would be coupled with
trading pauses \32\ to accommodate more fundamental price moves (as
opposed to erroneous trades or momentary gaps in liquidity). As set
forth in more detail in
[[Page 33501]]
the Plan, all trading centers \33\ in NMS Stocks, including both those
operated by Participants and those operated by members of Participants,
would be required to establish, maintain, and enforce written policies
and procedures that are reasonably designed to comply with the limit
up-limit down and trading pause requirements specified in the Plan.
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\32\ The primary listing market would declare a trading pause in
an NMS Stock; upon notification by the primary listing market, the
Processor would disseminate this information to the public. No
trades in that NMS Stock could occur during the trading pause, but
all bids and offers may be displayed. See Section VII(A) of the
Plan.
\33\ As defined in Section I(W) of the Plan, a trading center
shall have the meaning provided in Rule 600(b)(78) of Regulation NMS
under the Act.
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Under the Plan, all trading centers would be required to establish,
maintain, and enforce written policies and procedures reasonably
designed to prevent the display of offers below the Lower Price Band
and bids above the Upper Price Band for an NMS Stock. The Processors
would disseminate an offer below the Lower Price Band or bid above the
Upper Price Band that nevertheless inadvertently may be submitted
despite such reasonable policies and procedures, but with an
appropriate flag identifying it as non-executable; such bid or offer
would not be included in National Best Bid or National Best Offer
calculations. In addition, all trading centers would be required to
develop, maintain, and enforce policies and procedures reasonably
designed to prevent trades at prices outside the price bands, with the
exception of single-priced opening, reopening, and closing transactions
on the Primary Listing Exchange.
As proposed, the Plan would be implemented as a one-year pilot
program in two Phases. Phase I of the Plan would be implemented
immediately following the initial date of Plan operations; Phase II of
the Plan would commence six months after the initial date of the Plan
or such earlier date as may be announced by the Processors with at
least 30 days' notice. Phase I of the Plan would apply only to Tier 1
NMS Stocks, as defined in Appendix A of the Plan. During Phase I of the
Plan, the first Price Bands would be calculated and disseminated 15
minutes after the start of Regular Trading Hours, no Price Bands would
be calculated and disseminated less than 30 minutes before the end of
Regular Trading Hours, and trading would not enter a Limit State less
than 25 minutes before the end of Regular Trading Hours. In Phase II,
the Plan would fully apply to all NMS Stocks beginning at 9:30 a.m. and
ending at 4:00 p.m. each trading day.
As stated by the Participants in the Plan, the limit up-limit down
mechanism is intended to reduce the negative impacts of sudden,
unanticipated price movements in NMS Stocks,\34\ thereby protecting
investors and promoting a fair and orderly market.\35\ In particular,
the Plan is designed to address the type of sudden price movements that
the market experienced on the afternoon of May 6, 2010.\36\
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\34\ 17 CFR 242.600(b)(47).
\35\ See Transmittal Letter, supra note 4.
\36\ The limit up-limit down mechanism set forth in the proposed
Plan would replace the existing single-stock circuit breaker pilot.
See e.g., Securities Exchange Act Release Nos. 62251 (June 10,
2010), 75 FR 34183 (June 16, 2010) (SR-FINRA-2010-025); 62883
(September 10, 2010), 75 FR 56608 (September 16, 2010) (SR-FINRA-
2010-033).
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IV. Comment Letters and Response Letter
The Commission received 18 comment letters on the proposed
Plan.\37\ Many commenters generally supported the Plan,\38\ while
others indicated that they did not oppose the Plan and its intended
goals, but raised concerns regarding specific details on the terms of
the Plan.\39\ A few commenters opposed \40\ the Plan and suggested
different alternatives to achieve the intended goal of the Plan. The
Participants responded to the comments regarding the proposal.\41\
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\37\ See supra note 7.
\38\ See MFA Letter at 1; Vanguard Letter at 1; ICI Letter at 1;
STA Letter at 1; Knight Letter at 1; SIFMA Letter at 1; ITG Letter
at 1; Deutsche Bank Letter at 1; STANY Letter at 1; GETCO Letter at
1.
\39\ See Driscoll Letter at 1; FIF Letter at 1; Angel Letter at
1 (stating that the proposed Plan is an improvement over the current
single stock circuit breaker pilot); Scottrade Letter at 1 and 5
(supporting the goals of the proposed Plan, but stating that it
believes that more work needs to be done before it can support the
proposed Plan); Themis Letter at 1 (commending the efforts of the
proposed Plan); Molinete Letter at 1.
\40\ See Wunsch Letter at 1; CME Group Letter at 1-2 (supporting
the proposed Plan's fundamental goal of promoting fair and orderly
markets and mitigating the negative impacts of sudden and
extraordinary price movements in NMS stocks, but stating that the
proposed Plan sets forth an overly complicated and insufficiently
coordinated structure that, in a macro-liquidity event, will have
the unintended consequence of undermining rather than promoting
liquidity).
\41\ See Response Letter, supra note 10.
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A. Reference Price Calculation
As proposed in the Plan, the Processors would be responsible for
calculating and disseminating the applicable Price Bands as provided
for in Section V of the Plan. The Processors for each NMS stock would
calculate and disseminate to the public a Lower Price Band and an Upper
Price Band during regular trading hours, as defined in Section I(R) of
the Plan, for such NMS Stock. The Price Bands would be based on a
Reference Price for each NMS Stock that equals the arithmetic mean
price of Eligible Reported Transactions \42\ for the NMS stock over the
immediately preceding five-minute period (except for periods following
openings and reopenings).\43\ The Price Bands for an NMS Stock would be
calculated by applying the Percentage Parameter \44\ for such NMS Stock
to the Reference Price, with the lower Price Band being a Percentage
Parameter below the Reference Price, and the upper Price Band being a
Percentage Parameter above the Reference Price. Some commenters
expressed concern about the complexity involved in calculating the
Reference Price.\45\
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\42\ As defined in the proposed Plan, Eligible Reported
Transactions shall have the meaning prescribed by the Operating
Committee for the proposed Plan, and generally mean transactions
that are eligible to update the sale price of an NMS Stock.
\43\ See infra, Section III.G. for a discussion on the
application of the Price Bands at the open and close of the trading
day.
\44\ As defined in Section (I)(M) of the proposed Plan, the
``Percentage Parameter'' means the percentages for each tier of NMS
Stocks set forth in Appendix A of the Plan. As such, the Percentage
Parameters for Tier 1 NMS Stocks with a Reference Price of $1.00 or
more would be 5%, and the Percentage Parameters for Tier 2 NMS
Stocks with a Reference Price of $1.00 or more would be 10%. For
Tier 1 and Tier 2 NMS Stocks with a Reference Price less than $0.75,
the Percentage Parameters would be the lesser of $0.15 or 75%. The
Percentage Parameters for a Tier 2 NMS Stock that is a leveraged
exchange-traded product would be the applicable Percentage Parameter
multiplied by the leverage ratio of such product.
\45\ See Angel Letter at 4; GETCO Letter at 3-4; MFA Letter at
5; Molinete Letter at 1-2 (stating that it is not clear whether the
trades used to calculate the Reference Price are weighted by volume,
or if this is a strict average of the trade prices reported); Themis
Letter at 1. See also SIFMA Letter at 8 (noting that if the market
price for an NMS Stock moves by less than one percent, the Price
Bands will not change and, as a result, the limit up and limit down
prices will be closer to four percent than five percent over the
prevailing market price because a new Reference Price will only be
disseminated if there is a change of one percent or more in the Pro-
Forma Reference Price over the then prevailing Reference Price).
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Commenters suggested alternative ways to calculate the Reference
Price. In its letter, one commenter suggested simplifying the Reference
Price calculation by ``calculating a new Reference Price on regular 30
second intervals, regardless of whether it has changed by 1%'' and
noted that ``[t]his simplification also obviates the definition of a
Pro-Forma Reference Price.''\46\ That commenter also recommended
calculating the Reference Prints with a volume weighted average price
rather than an arithmetic average price, which would remove the
possibility of market participants splitting orders in different ways
to affect the calculation of the Reference Price.\47\ Another commenter
stated that
[[Page 33502]]
the Participants should consider using the opening price of a stock as
the Reference Price because it would be much simpler than the
calculation that the Participants proposed.\48\ Another commenter
stated that the Participants should consider using the prior day's
closing price as a static Reference Price, rather than constantly
updating the Reference Price throughout the trading day, noting that
this would be similar to how the futures markets calculate their limit
up-limit down Price Bands.\49\
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\46\ See MFA Letter at 5.
\47\ Id.
\48\ See Angel Letter 4.
\49\ See GETCO Letter at 3-4. See also SIFMA Letter at 9
(requesting that the Participants clarify how Price Bands will apply
to stocks with prices that cross the one dollar threshold during
intra-day trading); Molinete Letter at 3-4 (stating its belief that
changes in Price Band calculations throughout the trading day can
create problems).
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Commenters also stated that certain types of trades should be
exempted from the Plan and thus the calculation of the Reference Price.
Three commenters noted that certain Regulation NMS-exempt trades should
be exempt from the Plan because they are unrelated to the last sale of
a stock.\50\ More specifically, one commenter stated that ``trading
centers should be permitted to execute orders internally at prices
outside of the specified Price Bands if the executions comply [with
certain Regulation NMS exemptions].'' \51\ That commenter noted that
most Regulation NMS exemptions ``have corresponding sale conditions
that identify those trades as being not eligible for last sale.'' \52\
Another commenter stated that certain block facilitation trades should
be exempted from the Plan.\53\ That commenter argued that block
facilitation trades tend to stabilize the market because a block
positioner is committing capital to absorb a large trading interest
that would otherwise impact the market for the underlying stock of the
block order.\54\ Finally, two commenters suggested that trades that are
executed outside of the current Price Bands be exempt from Reference
Price calculations.\55\
---------------------------------------------------------------------------
\50\ See e.g., FIF Letter at 1-2; Deutsche Bank Letter at 3;
SIFMA Letter at 2-4.
\51\ See FIF Letter at 1-2 (listing the exemptions found in Rule
611(a)--non-convertible preferred securities; Rule 611(b)(2)--not
regular way; Rule 611(b)(7)--benchmark derivatively priced; Rule
611(b)(9)--stopped stock; Rule 611(d)--qualified contingent trades;
Rule 611(d)--error correction; Rule 611(d)--print protection).
\52\ Id.
\53\ See Deutsche Bank Letter at 3 (stating that ``it is
critical for a block facilitator to execute outside a band when the
market is moving rapidly or it will lose the ability to trade
effectively for its client.'') See also FIF Letter at 2 (requesting
an impact analysis on the printing of block transactions accompanied
by a Regulation NMS sweep as well as block transactions printed
without ISO modifiers in adherence with Regulation NMS FAQ 3.23).
\54\ Id.
\55\ See MFA Letter at 6 (recommend that the Plan include a more
explicit definition for which prints are included in calculating a
Reference Price); STANY Letter at 2 (noting that clearly erroneous
transactions may still occur, and thus suggesting that trades that
are executed outside the then existing price bands not be included
in the calculation of the Reference Price).
---------------------------------------------------------------------------
The Participants noted that alternatives were considered when the
Plan was being drafted, but the Participants determined that something
more dynamic would be preferable, and that the five percent level is
more therefore appropriate, particularly for highly liquid stocks.\56\
Moreover, the Participants stated that the proposed one percent
requirement would help to reduce quote traffic but still provide for
appropriate adjustments of Reference Prices in a rapidly moving
market.\57\ The Participants also stated that using the arithmetic
average would reduce the impact of any erroneous trades that may be
included in the calculation of the Reference Price.\58\
---------------------------------------------------------------------------
\56\ See Response Letter at 4.
\57\ The Participants are not proposing to amend the Plan with
respect to the calculation of the Reference Price. However, in an
effort to keep a rapidly-moving market aware of the current price
bands, the Processor would republish the existing price bands every
15 seconds. See Response Letter at 5.
\58\ Id.
---------------------------------------------------------------------------
As discussed in greater detail below, the Participants recently
amended the Plan to clarify that the Reference Price used in
determining which Percentage Parameter is applicable during the trading
day would be based on the closing price of the subject security on the
Primary Listing Exchange on the previous trading day or, if no closing
price exists, the last sale on the Primary Listing Exchange reported by
the Processors. The Participants also amended the Plan to permit
certain transactions to execute outside of the price bands.
Specifically, the Participants proposed that transactions that are
exempt under Rule 611 of Regulation NMS,\59\ and which do not update
the last sale price (except if solely because the transaction was
reported late), should be allowed to execute outside of the price
bands.\60\ As part of the amendment, the Participants also proposed to
exclude rights and warrants from the Plan, consistent with the current
single-stock circuit breaker pilot.\61\
---------------------------------------------------------------------------
\59\ 17 CFR 242.611.
\60\ See Amendment, supra note 13.
\61\ Id.
---------------------------------------------------------------------------
B. Display of Offers Below the Lower Price Band and Bids Above the
Upper Price Band
As proposed in the Plan, offers below the Lower Price Band and bids
above the Upper Price Band would not be displayed on the consolidated
tape. One commenter disagreed with this aspect of the Plan and stated
that all quotes should be displayed, but marked as non-executable if
outside the Price Bands.\62\ That commenter stated that preventing the
display of quotes outside the Price Bands could lead to unusual side
effects and that a broker-dealer entering an order on behalf of a
customer should have the option of re-pricing or posting the order in
accordance with the customer's wishes, rather than a market center re-
pricing non-executable orders to a Price Band.\63\ Another commenter
stated that displaying certain non-accessible quotes that are the
result ``of an altered price discovery process will have greater
negative implications for investor confidence'' because the only trades
than can be executed during a Limit State ``do not represent the true
equilibrium of supply and demand.'' \64\
---------------------------------------------------------------------------
\62\ See MFA Letter at 2-3.
\63\ See id.
\64\ See Driscoll Letter at 3.
---------------------------------------------------------------------------
The Participants noted that under the Plan, all trading centers
would be required to establish, maintain, and enforce written policies
and procedures reasonably designed to prevent the display of offers
below the Lower Price Band and bids above the Upper Price Band for an
NMS Stock.\65\ When one side of the market for an individual security
is outside the applicable Price Band, the Processors would be required
to disseminate such National Best Bid or National Best Offer with an
appropriate flag identifying it as non-executable. When the other side
of the market reaches the applicable Price Band, the market for an
individual security would enter a Limit State, and the Processor would
be required to disseminate such National Best Offer or National Best
Bid with an appropriate flag identifying it as a Limit State Quotation.
The Participants stated that after considering whether more quotes
should be displayed as unexecutable, they determined that any potential
benefits arising from such practice would be outweighed by the risk of
investor confusion. As a result, the Participants did not believe that
the Plan should be amended to permit all quotes outside the Price Bands
to be displayed. The Participants stated that they would continue to
review this issue and could
[[Page 33503]]
revisit it after gaining experience during the pilot.\66\
---------------------------------------------------------------------------
\65\ See Response Letter at 4.
\66\ Id.
---------------------------------------------------------------------------
C. Criteria for Entering the Limit State
As set forth in Section VI of the Plan, when one side of the market
for an individual security is outside the applicable Price Band (i.e.,
when the National Best Bid \67\ is below the Lower Limit Band or the
National Best Offer \68\ is above the Upper Limit Band for an NMS
Stock), the Processors would be required to disseminate such National
Best Bid or National Best Offer with an appropriate flag identifying it
as non-executable. When the other side of the market reaches the
applicable Price Band (i.e., when the National Best Offer is equal to
the Lower Limit Band or the National Best Bid is equal to the Upper
Limit Band for an NMS Stock), the market for an individual security
would enter a Limit State,\69\ and the Processors would be required to
disseminate such National Best Offer or National Best Bid with an
appropriate flag identifying it as a Limit State Quotation.\70\
---------------------------------------------------------------------------
\67\ 17 CFR 242.600(b)(42). See also Section I(G) of the Plan.
\68\ Id.
\69\ As set forth in Section VI(B) of the Plan, when trading for
an NMS Stock enters a Limit State, the Processor shall cease
calculating and disseminating updated Reference Prices and Price
Bands for the NMS Stock until either trading exits the Limit State
or trading resumes with an opening or re-opening as provided in
Section V of the proposed Plan.
\70\ See Section I(D) of the Plan.
---------------------------------------------------------------------------
Commenters expressed concern that requiring the National Best Bid
or Offer (``NBBO'') to be equal to, but not necessarily cross the
applicable Price Band in order to enter a Limit State could create some
unusual market discrepancies.\71\ One commenter stated that ``it does
not make sense for a Limit State to be triggered if the national best
bid or offer equals a price band, but not if the national best bid or
offer has crossed a price band [because the] same rationale for
entering a Limit State exists in either case.'' \72\ Instead, the
commenters suggested that if either the best bid or offer is outside
the Price Band, the market should enter the Limit State.
---------------------------------------------------------------------------
\71\ See MFA Letter at 6 (stating that ``buyers may not submit
orders if the Upper Price Band is sufficiently far away from the
market'' and recommending that ``if either the best bid or ask is
outside the Price Band, the market enters a Limit State and has 5
seconds to readjust before a Trading Halt''); Deutsche Bank Letter
at 4.
\72\ See Deutsche Bank Letter at 4 (emphasis in original).
---------------------------------------------------------------------------
One commenter expressed concern about a scenario where a stock is
effectively not trading, but still has not entered a Limit State--for
example, where the National Best Bid is below the Lower Price Band, and
is thus non-executable, while the National Best Offer remains within
the price bands. Since, in this example, the offer has not hit the
Lower Price Band, the Limit State has not yet been triggered; however,
the market for that stock is essentially one-sided, as the bid cannot
be executed against. Since the Limit State has not yet been triggered,
the concern is that the market could remain in this condition for an
indefinite period of time.\73\
---------------------------------------------------------------------------
\73\ See Molinete Letter at 2-3 (discussing a situation where
the market may not enter a Limit State due to a market order against
an illiquid book that would execute against a quote that is outside
the applicable price bands).
---------------------------------------------------------------------------
In the situation where a stock is effectively not trading, i.e.,
because the National Best Bid is below the Lower Price Band, but the
National Best Offer is still within the price bands and thus the Limit
State would not be triggered, the Participants responded that the
National Best Offer would generally follow the National Best Bid
downwards, and sellers would be willing to offer the stock at the Lower
Price Band, triggering the Limit State.\74\ The Participants also
responded that, alternatively, the reference price may be recalculated
due to transactions occurring in the previous five minutes. This could
adjust the price bands downwards, potentially bringing the National
Best Bid within the price bands, at which time it may be executed
against.\75\ The Participants represented that they would monitor these
situations during the pilot and consider modifications to the Plan
structure if needed.\76\
---------------------------------------------------------------------------
\74\ See Response Letter at 5.
\75\ Id.
\76\ Id.
---------------------------------------------------------------------------
As discussed below, in response to commenters' concerns, the
Participants recently amended the Plan to create a manual override
function where the National Best Bid (Offer) for a security is below
(above) the Lower (Upper) Price Band, and the security has not entered
the Limit State. With this provision, the Primary Listing Exchange has
the ability to initiate a trading pause for a stock in this
situation.\77\
---------------------------------------------------------------------------
\77\ See Amendment, supra note 13.
---------------------------------------------------------------------------
D. Order Handling During the Limit State
As set forth in the Plan, all trading centers \78\ in NMS Stocks,
including both those operated by Participants and those operated by
members of Participants, would be required to establish, maintain, and
enforce written policies and procedures that are reasonably designed to
comply with the limit up-limit down and trading pause requirements
specified in the Plan. Some commenters stated that clarifications are
necessary regarding the Commission's Order Handling Rules so that they
could be applied uniformly across all market centers once the Plan is
in effect.\79\ One commenter noted that market centers would benefit
from guidance on best industry standards for handling customer orders
during the periods of time when securities are in a Limit State, as
well as periods when trading in a security restarts after a trading
pause.\80\
---------------------------------------------------------------------------
\78\ As defined in Section I(W) of the Plan, a trading center
shall have the meaning provided in Rule 600(b)(78) of Regulation NMS
under the Exchange Act.
\79\ See STA Letter at 3; SIFMA Letter at 6 (stating that the
proposal contemplates that broker-dealers may delay, reprice or
reject ``held'' orders, thus implicating the limit order display
rule as well as best execution requirements); Angel Letter at 4
(requesting the clarification of best execution requirements during
the Limit State).
\80\ See STA Letter at 3.
---------------------------------------------------------------------------
E. Duration of the Limit State
By the terms of the Plan, trading for an NMS Stock would exit a
Limit State if, within 15 seconds of entering the Limit State, the
entire size of all Limit State Quotations is executed or cancelled. If
the market does not exit a Limit State within 15 seconds, then the
Primary Listing Exchange would declare a five-minute trading pause
pursuant to Section VII of the Plan.
Two commenters suggested that the Plan should contemplate a longer
Limit State than 15 seconds, such as 30 seconds, because a shorter time
period would trigger too many trading pauses.\81\ One commenter
advocated for a longer Limit State ``[b]ecause the price bands should
eliminate significant erroneous trades, and trading halts interfere
with the natural interaction of orders and the price discovery
process.'' \82\ That commenter stated that halts should thus ``be
limited to extraordinary circumstances.'' \83\ Another commenter noted
that ``15 seconds is not a sufficient amount of time for most investors
to digest information about a limit state condition and to react to the
information.'' \84\ These commenters believe that a 30 second Limit
State would provide a more sufficient opportunity for market
participants to provide liquidity to the market of an NMS Stock. These
[[Page 33504]]
commenters stated that, at a minimum, the timeframe should not be
shortened from the proposed 15 seconds.
---------------------------------------------------------------------------
\81\ See Vanguard Letter at 2; ICI Letter at 2. One commenter
stated it would serve the public to understand why 15 seconds was
chosen for the Limit State condition, as opposed to 30 seconds, or
perhaps 60 seconds. See Themis Letter at 1.
\82\ See Vanguard Letter at 2.
\83\ Id.
\84\ See ICI Letter at 2.
---------------------------------------------------------------------------
Other commenters proposed shortening the length of the Limit State
to 5 seconds, suggesting that this would be ample time for the market
to replenish the necessary liquidity given the technological advances
in modern trading.\85\ One commenter stated that a shorter Limit State
is preferable because a longer Limit State could lead to wider spreads
and uncertainty in the options markets.\86\ Another commenter stated
that retail investors may wonder why their orders had not been
executed.\87\
---------------------------------------------------------------------------
\85\ See SIFMA Letter at 5-6; MFA Letter at 6; and Scottrade
Letter at 2.
\86\ See SIFMA Letter at 5.
\87\ See Scottrade Letter at 2 (stating its confidence that
stocks that enter the Limit State Quotation erroneously will be
addressed within a 5 second threshold, allowing the security to
continue trading).
---------------------------------------------------------------------------
In response, the Participants stated that the 15-second Limit State
should be long enough to reasonably attract additional available
liquidity without recourse to a trading pause, while short enough to
reasonably limit any market uncertainty that might accompany a Limit
State.\88\ The Participants represented that, during the pilot period,
they will continue to review the length of the Limit State and consider
whether, based on that experience, it should be lengthened or
shortened.\89\
---------------------------------------------------------------------------
\88\ See Response Letter at 6.
\89\ Id.
---------------------------------------------------------------------------
F. Criteria for Exiting a Limit State
Under the Plan, trading for an NMS Stock would exit a Limit State
if within 15 seconds of entering the Limit State, the entire size of
all Limit State Quotations is executed or cancelled. Some commenters
proposed alternative criteria for exiting a Limit State. One commenter
expressed concern ``that the exit from a Limit State is arbitrary and
may be easily manipulated * * * [because] it's not clear to market
participants from moment to moment whether a trading pause will be
declared or whether the Price Bands will suddenly be adjusted. Exiting
a Limit State would depend upon the timing of an order that could clear
out the Limit State quotation and when a new limit order arrives at the
Limit State quotation.'' \90\ Another commenter suggested that in order
to reestablish an orderly market, that the Plan should require a new
bid and a new offer that are executable before the expiration of a
Limit State period.\91\ Another commenter stated that the conditions
for exiting a Limit State are not clearly defined in the Plan and
further clarifications are necessary.\92\
---------------------------------------------------------------------------
\90\ See MFA Letter at 5.
\91\ See SIFMA Letter at 6.
\92\ See Molinete Letter at 3.
---------------------------------------------------------------------------
The Participants declined to amend the Plan to address these
concerns, noting in the Response Letter that adding a requirement that
a new executable bid or offer be entered before exiting a Limit State
raises the question of who would be obligated to enter such a bid or
offer.\93\ Moreover, the Participants stated that depending on the
price movements during the five minutes prior to entering the Limit
State, the Reference Price may have moved, thus moving the Price
Bands.\94\ The Participants noted that in such a case, executable bids
and offers may become available simply by virtue of the recalculated
Price Bands.
---------------------------------------------------------------------------
\93\ Id.
\94\ Id.
---------------------------------------------------------------------------
G. Application of the Price Bands at the Open and Close
During Phase I of the Plan's implementation time period, the terms
of the Plan would apply only to Tier 1 NMS Stocks, as defined in
Appendix A of the Plan, and the first Price Bands would be calculated
and disseminated 15 minutes after the start of Regular Trading Hours,
as specified in Section V(A) of the Plan, and no Price Bands would be
calculated and disseminated less than 30 minutes before the end of
Regular Trading Hours. In Phase II, the Plan would fully apply to all
NMS Stocks beginning at 9:30 a.m. ET and ending at 4:00 p.m. ET of each
trading day.
Some commenters expressed concerns about the application of the
Price Bands at the opening of the trading day. One commenter stated
that the approach proposed in Phase I--the first Price Bands would be
calculated and disseminated 15 minutes after the start of Regular
Trading Hours, and no Price Bands would be calculated and disseminated
less than 30 minutes before the end of Regular Trading Hours--should
apply to both phases of the Plan.\95\ Another commenter agreed that the
Plan should not be in effect during the first five minutes of the
trading day because price information is critical at that time.\96\
That commenter also stated that any regulatory gap during this time
period could be filled by the clearly erroneous trade rules, which it
proposed should only be in effect during the first five (and last five)
minutes of the trading day.\97\ Rather than placing a specific time
limit on the opening, another commenter asserted that it would benefit
the market if Price Bands were not established until a single opening
price occurs at the Primary Listing Exchange.\98\ However, one
commenter stated that the Price Bands should be in effect for the
entire trading day because long-term investors may appreciate this
simplicity.\99\
---------------------------------------------------------------------------
\95\ See SIFMA Letter at 8. The commenter also requested
clarification on whether it is true that there may be no Price Bands
in effect for an NMS Stock during the first five minutes if the
Opening Price for the stock does not occur on the Primary Market
within that period because there will be no Reference Price under
such circumstance. See id.
\96\ See Knight Letter at 3.
\97\ Id.
\98\ See Scottrade Letter at 2.
\99\ See Themis Letter at 1.
---------------------------------------------------------------------------
Commenters also expressed concerns about the application of the
Price Bands at the close of the trading day. Six commenters opposed
applying the Price Bands at the close of the trading day.\100\ These
commenters described the close of the trading day as a critical part of
the trading day \101\ and argued that under the terms of the Plan,
exchanges could have inconsistent closing times as a result of a
trading pause.\102\ According to these commenters, keeping track of
various closing times could have serious negative effects for market
participants attempting to close positions or hedge by the end of the
day.\103\ Alternatively, one commenter suggested that if there is a
disruptive event immediately prior to the close, regular-way trading
and the closing auction should be extended to make sure the closing
price is accurate.\104\
---------------------------------------------------------------------------
\100\ Six commenters generally advocated for the Plan not being
in effect during the final 10 minutes of the trading day, i.e., 3:50
p.m. to 4:00 p.m. ET. See FIF Letter at 5; Deutsche Bank Letter at 2
and 4; Knight Letter at 3; SIFMA Letter at 2; ITG Letter at 2;
Scottrade Letter at 2-3. Two of these commenters suggested that it
would be ideal to suspend the operation of the Plan from 3:35 p.m.
to 4:00 p.m. ET. See ITG Letter at 2; Scottrade Letter at 2-3.
\101\ See e.g., Knight Letter at 3.
\102\ See e.g., FIF Letter at 5 (stating that exchanges could
have different closing times as a result of trading pauses);
Deutsche Bank Letter at 2 (advocating for consistent closing times
across all of the exchanges).
\103\ See Deutsche Bank Letter at 2.
\104\ See Angel Letter at 5.
---------------------------------------------------------------------------
The Participants stated in the Response Letter that they believe
that the proposed doubling of the Percentage Parameters around the
opening and closing periods is appropriate in light of the increased
volatility at those times, and that no adjustment to the timing or
levels of the Price Bands should be made to the Plan until experience
is gained from both Phases I and II.\105\
---------------------------------------------------------------------------
\105\ See Response Letter at 4.
---------------------------------------------------------------------------
[[Page 33505]]
H. Reopenings on the Primary Listing Exchange
Under the terms of the Plan, following a trading pause in an NMS
Stock, and if the Primary Listing Exchange has not declared a
Regulatory Halt, the next Reference Price would be the Reopening Price
on the Primary Listing Exchange if such Reopening Price occurs within
ten minutes after the beginning of the trading pause, and subsequent
Reference Prices shall be determined in the manner prescribed for
normal openings, as specified in Section V(B)(1) of the Plan.
One commenter stated, instead of this provision, exchanges could
compete for the five to ten minute exclusive window to reopen an
issue.\106\ The commenter suggested reviewing trading volumes and
awarding the reopening rights to the venue with the most average daily
volume over the review period.\107\
---------------------------------------------------------------------------
\106\ See Driscoll Letter at 2-3.
\107\ Id. at 4.
---------------------------------------------------------------------------
I. Classification and Treatment of Tier 2 Stocks
Pursuant to the Plan, Tier 1 NMS Stocks would include all NMS
Stocks included in the S&P 500 Index, the Russell 1000 Index, and the
exchange-traded products listed on Schedule 1 to the Plan's Appendix.
Tier 2 NMS Stocks would include all NMS Stocks other than those in Tier
1. The Percentage Parameters for Tier 2 NMS Stocks with a Reference
Price of $1.00 or more would be 10% and the Percentage Parameters for
Tier 2 NMS Stocks with a Reference Price less than $1.00 would be the
lesser of (a) $0.15 or (b) 75%.
One commenter stated that a 10% price band may be too restrictive
for some Tier 2 stocks and suggested that the Participants reduce the
number of Tier 2 stocks to a test group.\108\ That commenter also
stated that a 10% price band may be too restrictive for thinly traded
stocks.\109\ Another commenter proposed the creation of a Tier 3 for
stocks with a sufficiently low average daily volume (``ADV'') and wide
bid-offer spreads.\110\ That commenter stated that the originally
proposed limit up-limit down parameters may be unsuitable for these
types of low-liquidity stocks and that they may require a higher
percentage parameter.\111\
---------------------------------------------------------------------------
\108\ See MFA Letter at 4.
\109\ Id. (for example, the commenter suggested that reopening
rights be awarded to the trading venue with the most average daily
volume over the review period).
\110\ See Knight Letter at 3.
\111\ Id.
---------------------------------------------------------------------------
As discussed below, the Participants recently amended the Plan to
create a 20% price band for Tier 1 and Tier 2 stocks with a Reference
Price equal to $0.75 and up to and including $3.00. The Participants
also proposed a conforming amendment for Tier 1 and Tier 2 stocks with
a Reference Price less than $0.75. The Percentage Parameters for these
stocks shall be the lesser of (a) $0.15 or (b) 75%.\112\ As initially
proposed, those Percentage Parameters would have applied to Tier 1 and
Tier 2 stocks with a Reference Price less than $1.00.
---------------------------------------------------------------------------
\112\ See Amendment, supra note 13.
---------------------------------------------------------------------------
J. Treatment and Impact of the Plan on Exchange Traded Products (ETPs)
The Commission also received comments on the scope of the Plan as
it applies to ETPs. ICI stated that all ETFs should be included in the
pilot on an expedited basis.\113\ Vanguard seconded this idea and noted
that the original list of ETPs was created when the Commission, FINRA,
and the exchanges had to act quickly following the market events of May
6, 2010.\114\
---------------------------------------------------------------------------
\113\ See ICI Letter at 2-3.
\114\ See Vanguard Letter at 2.
---------------------------------------------------------------------------
MFA suggested that there could be unintended consequences of the
Plan on ETFs (or derivatives) because the spreads in such products
could increase due to uncertainty in the underlying security, i.e., if
the components of an ETF are subject to Limit States or trading pauses,
quotes in the ETF would widen accordingly, potentially causing the ETF
itself to enter a Limit State.\115\ According to MFA, index arbitragers
may decline to trade because of uncertainty if they do not have a way
to hedge risk.\116\
---------------------------------------------------------------------------
\115\ See MFA Letter at 6.
\116\ Id.
---------------------------------------------------------------------------
In response, the Participants noted that the proposed phases of the
Plan appropriately focus on trading characteristics and volatility
rather than instrument type, and that including only certain ETPs in
Tier 1 was consistent with scope of the current single-stock circuit
breaker pilot.\117\
---------------------------------------------------------------------------
\117\ See Response Letter at 9.
---------------------------------------------------------------------------
As discussed below, the Participants recently amended the Plan to
require a review and update, on a semi-annual basis, of the list of
ETPs included in Tier I of the Plan, and re-stated the criteria by
which ETPs would be selected for inclusion in Tier I.
K. Coordination of the Plan With Other Volatility Moderating Mechanisms
Five commenters noted that the Plan implicates other volatility
moderating mechanisms that currently exist \118\ and requested that the
interaction of the Plan with these existing mechanisms be
clarified.\119\ The commenters stated that the Plan could interact with
the single-stock circuit breaker pilot,\120\ the Regulation SHO circuit
breaker,\121\ and the exchange-specific volatility guards.\122\ One
commenter stated that ``simultaneous triggering of two or more of these
speed bumps during times of heightened market volatility could cause
confusion and uncertainty unless there is a scheme in place for handing
multiple triggers.'' \123\ One commenter advocated that as the
Participants implement the Plan, the Commission phase out: (1) The NYSE
LRPs; (2) the Nasdaq Volatility Guard; (3) the Regulation SHO
alternative uptick rule; and (4) the single-stock circuit
breakers.\124\ Two commenters also requested that the Commission amend
clearly erroneous rules so the presumption is that trades executed
within the Price Band are not subject to being broken.\125\
---------------------------------------------------------------------------
\118\ See Scottrade Letter at 3; STANY Letter at 4; Knight
Letter at 2-3; SIFMA Letter at 6-7; CME Letter at 1 and 3 (noting
that the proposed Plan would replace the existing single-stock
circuit breaker pilot program currently in effect); FIF Letter at 5
(noting that under the single-stock circuit breaker pilot, exchanges
deal with held orders differently).
\119\ See e.g., Scottrade Letter at 3.
\120\ See e.g., Scottrade Letter at 3; STANY Letter at 4; FIF
Letter at 5.
\121\ See e.g., STANY Letter at 4;
\122\ See e.g., STANY Letter at 4; Knight Letter at 2-3.
\123\ See STANY Letter at 4.
\124\ See Knight Letter at 1.
\125\ See SIFMA Letter at 6-7; STANY Letter at 4. See also
Knight Letter at 3 (Knight stated that clearly erroneous rules
should only operate during the first and last five minutes of the
trading day and that there is also a utility in extending the
clearly erroneous rules to after-hours trading).
---------------------------------------------------------------------------
Another commenter stated that the Plan does not consider how it
would interact with the market-wide circuit breakers being evaluated by
the Commission and the U.S. Commodity Futures Trading Commission.\126\
This commenter stated that single-stock circuit breaker halts may
affect products across markets, and may undermine rather than promote
liquidity during market disruptions.\127\ Moreover, according to this
commenter, halting individual securities without a market-wide halt
would, in the case of an index, impair the calculation of that index,
which would have cross-market effects. This commenter concluded that
market-wide circuit breakers, coupled with automated volatility and
risk management functionality, i.e., price bands, protection points,
order quantity
[[Page 33506]]
protections, and stop logic functionality, would be the better
alternative.\128\
---------------------------------------------------------------------------
\126\ See CME Letter at 2-3.
\127\ Id. at 3.
\128\ Id.
---------------------------------------------------------------------------
The Participants noted that some commenters requested that the
Participants amend their rules to provide that an execution within a
Price Band could not be deemed a clearly erroneous execution. The
Participants responded that, while it may be useful to do so and that a
key benefit of the limit up-limit down mechanism should be the
prevention of clearly erroneous executions, the clearly erroneous trade
rules are separate from the Plan and as such the Participants would
consider such a change on a separate track.\129\
---------------------------------------------------------------------------
\129\ See Response Letter at 7.
---------------------------------------------------------------------------
L. Coordination and Impact on Other Markets
Commenters also expressed opinions regarding the impact of the Plan
on other markets, e.g., options,\130\ futures,\131\ and foreign
markets.\132\ One commenter suggested that in the options markets, the
proposed Limit State for an NMS Stock could create uncertainty and
result in wider spreads on the related option.\133\ In its letter, that
commenter stated that option traders hedge option transactions with the
underlying security, so that a Limit State could impact hedging
activity as well. This commenter suggested that options market-makers
may be unwilling to be subject to normal market-making requirements and
minimum quoting widths when the underlying security is in a Limit
State. Moreover, options markets do not have uniform clearly erroneous
standards. Accordingly, when the underlying security is in a Limit
State, some options exchanges may reject all options market orders,
while other exchanges may reject only orders on the same side of the
market that caused the Limit State.\134\
---------------------------------------------------------------------------
\130\ See SIFMA Letter at 7; STANY Letter at 3-4.
\131\ See e.g., CME Group Letter, supra note 38.
\132\ See Angel Letter at 5 (stating that policy makers should
consider how foreign markets address issues of extraordinary market
volatility).
\133\ See STANY Letter at 3-4.
\134\ Id.
---------------------------------------------------------------------------
The Participants responded that the Plan will generally benefit the
market for NMS Stocks and protect investors and should not be delayed
while further consideration is given to coordination with options and
futures markets.\135\ The Participants also stated their belief that
the Plan strikes appropriate balance in the areas noted. Because the
Plan would be adopted as a pilot, the Participants represented that
they would have an opportunity to further consider the commenters'
suggestions above after gaining experience with the Plan.
---------------------------------------------------------------------------
\135\ See Response Letter at 7.
---------------------------------------------------------------------------
M. Role of the Processors
The Processors are fundamental to the operation of the Plan. In
short, the single plan processor responsible for consolidation of
information for an NMS Stock would be responsible for calculating and
disseminating the applicable Price Bands as well as marking certain
quotations as non-executable.
One commenter stated that the SIPs should run test data to prove
that they are up to the tasks required by them under the terms of the
Plan.\136\ Another commenter questioned the ability of the SIPs to
perform the tasks because under the Plan, SIPs would be producing data
rather than merely passing through data to the markets for the first
time.\137\ Another commenter stated that the SIPs should have
mechanisms to determine when they have invalid or delayed market data
and thus the ability to halt the dissemination of the Price Bands
accordingly.\138\ Finally, because SIP data is slower than data
disseminated directly by an exchange, one commenter questioned whether
participants co-located to an exchange could calculate Price Band
information faster than the rest of the market and use this information
to their advantage.\139\
---------------------------------------------------------------------------
\136\ See STA Letter at 4.
\137\ See STANY Letter at 5. See also FIF Letter at 5 (noting
that it is possible that a trade will be executed at a price within
the Price Bands, but will be reported to the SIP after the Price
Band has moved and potentially should be studied.)
\138\ See SIFMA Letter at 9.
\139\ See Themis Letter at 1-2.
---------------------------------------------------------------------------
The Participants responded that the Processor is well-suited to
carrying out its responsibilities under the Plan and the Participants
will monitor the Processor's performance during the pilot.\140\
---------------------------------------------------------------------------
\140\ See Response Letter at 8.
---------------------------------------------------------------------------
N. Operating Committee Composition
Section III(C) of the Plan provides for each Participant to
designate an individual to represent the Participant as a member of an
Operating Committee.\141\ No later than the initial date of the Plan,
the Operating Committee would be required to designate one member of
the Operating Committee to act as the Chair of the Operating Committee.
The Operating Committee would monitor the procedures established
pursuant to the Plan and advise the Participants with respect to any
deficiencies, problems, or recommendations as the Operating Committee
may deem appropriate. While the Plan generally provides that amendments
to the Plan shall be unanimous, any recommendation for an amendment to
the Plan from the Operating Committee that receives an affirmative vote
of at least two-thirds of the Participants, but is less than unanimous,
would be submitted to the Commission as a request for an amendment to
the Plan initiated by the Commission under Rule 608 of Regulation NMS
under the Act.\142\
---------------------------------------------------------------------------
\141\ See Section I(J) of the proposed Plan.
\142\ 17 CFR 242.608.
---------------------------------------------------------------------------
Two commenters suggested that the Operating Committee be
supplemented by an advisory committee, made up of a cross-section of
users, investors, and agents in the marketplace, that would report to
the Operating Committee.\143\ One of these commenters stated that this
would achieve due process for the both review and recommendations of
altering the Plan.\144\ In the spirit of transparency, the other
commenter recommended that the minutes of the Plan committee meetings
be made available to interested parties.\145\ Two additional commenters
recommended that industry representatives who are not parties to the
Plan be added to the Operating Committee of the Plan.\146\
---------------------------------------------------------------------------
\143\ See STA Letter at 4-5; SIFMA Letter at 7.
\144\ See STA Letter at 5.
\145\ See SIFMA Letter at 7.
\146\ See STANY Letter at 5-6; Driscoll Letter at 4
(recommending diverse representation of all key trading groups,
retail order execution representation, institutional buy-side
representation, representatives of various trading venues and
representation of those who focus on small capitalization
securities).
---------------------------------------------------------------------------
The Participants initially responded that a non-voting advisory
committee is unnecessary.\147\ Except with respect to the addition of
new Participants to the Plan, the Participants stated that any proposed
change in, addition to, or deletion from the Plan would have to be
effected by means of a written amendment to the Plan that (1) sets
forth the change, addition, or deletion; (2) is executed on behalf of
each Participant; and (3) is approved by the SEC pursuant to, or
otherwise becomes effective under, Rule 608 of Regulation NMS under the
Exchange Act. Thus, any person affected by changes to the Plan would
have notice and an opportunity to comment as part of the SEC approval
process in accordance with Rule 608.\148\
---------------------------------------------------------------------------
\147\ See Response Letter at 7.
\148\ Id.
---------------------------------------------------------------------------
As discussed below, however, the Participants recently proposed an
amendment to the Plan to create an Advisory Committee to the Operating
Committee. Members of the Advisory Committee would have the right to
submit their view on Plan matters to the
[[Page 33507]]
Operating Committee prior to a decision by the Operating Committee on
such matters. Such matters may include, but would not be limited to,
proposed material amendments to the Plan. The Operating Committee would
be required to select at least one representative from each of the
following categories to be members of the Advisory Committee: (i) A
broker-dealer with a substantial retail investor customer base, (ii) a
broker-dealer with a substantial institutional investor customer base,
(iii) an alternative trading system, and (iv) an investor.\149\
---------------------------------------------------------------------------
\149\ See Amendment, supra note 13.
---------------------------------------------------------------------------
O. Withdrawal of Participants From the Plan
Section IX of the Plan provides that a Participant may withdraw
from the Plan upon obtaining approval from the Commission and upon
providing not less than 30 days written notice to the other
participants. Four commenters expressed concern about the withdrawal
provision and suggested that Commission require FINRA and all trading
centers to participate in the Plan because withdrawal could create
problems if only some market centers are part of the Plan.\150\
---------------------------------------------------------------------------
\150\ See FIF Letter at 5; SIFMA Letter at 7; STANY Letter at 5;
Molinete Letter at 3.
---------------------------------------------------------------------------
P. Implementation Time-Period
The Participants proposed that the initial date of the Plan
operations be 120 calendar days following the publication of the
Commission's order approving the Plan in the Federal Register. The
Participants would implement that Plan as a one-year pilot program in
two Phases, consistent with Section VIII of the Plan. Phase I of Plan
implementation would apply immediately following the initial date of
Plan operations; Phase II of the Plan would commence six months after
the initial date of the Plan or such earlier date as may be announced
by the Processor with at least 30 days notice. As discussed below, the
Participants recently proposed an amendment to the Plan that included a
new implementation date of February 4, 2013.
One commenter stated that the Plan should be implemented as quickly
as possible.\151\ Another commenter recommended an implementation date
of 12 months instead of 120 days,\152\ while another commenter stated
that the Plan should be implemented no earlier than the second quarter
of 2012.\153\
---------------------------------------------------------------------------
\151\ See Vanguard Letter at 2. See also ICI Letter at 3
(recommending that ETPs be included in the pilot on an expedited
basis).
\152\ See FIF Letter at 5-6.
\153\ See SIFMA Letter at 9. See also Molinete Letter at 5
(stating that the 120-day implementation time period is too
ambitious).
---------------------------------------------------------------------------
Prior to the implementation of Phase II of the Plan, one commenter
recommended that the Participants analyze empirical evidence derived
from Phase I.\154\ Another commenter recommended that the Participants
seek comment before implementing the Plan on a permanent basis.\155\
Yet another commenter stated that the Commission should have to approve
Phase II of the Plan prior to its implementation.\156\
---------------------------------------------------------------------------
\154\ See Deutsche Bank Letter at 4.
\155\ See SIFMA Letter at 9.
\156\ See STANY Letter at 7.
---------------------------------------------------------------------------
Q. Comments on Rule-Making Process of the Plan
The Participants filed the Plan with the Commission pursuant to
Section 11A of the Act \157\ and Rule 608 thereunder.\158\ The
Commission solicited comments on the Plan from interested persons. One
commenter stated that the process for the creation of a new NMS plan
circumvented the formal notice and comment process provided for in The
Administrative Procedure Act.\159\ The commenter stated that the
existence of confidentiality agreements among the Participants in
developing the proposal has negative implications for transparency in
the rulemaking process.\160\
---------------------------------------------------------------------------
\157\ 15 U.S.C. 78k-1.
\158\ 17 CFR 242.608.
\159\ Pub. Law 79-404, 5 U.S.C. 500 et seq. See Driscoll Letter
at 1.
\160\ Id (stating that the narrow focus of the group that
developed the regulation may have also allowed some opportunities to
increase competition between exchanges to have been overlooked).
---------------------------------------------------------------------------
Another commenter questioned whether there is a need for a
Commission rule instead of an NMS plan and stated that ongoing and
direct involvement of the Commission will be important to efficient and
effective resolution of interpretive questions relating to the Plan and
the reasonable policies and procedures.\161\ The same commenter also
stated that self-regulatory organizations will need to adopt rules
specifying how they plan to handle orders that have been routed to them
when such orders present display or execution issues under the
Plan.\162\
---------------------------------------------------------------------------
\161\ See SIFMA Letter at 7.
\162\ Id. at 9.
---------------------------------------------------------------------------
Finally, one commenter stated that a cost-benefit analysis of the
Plan should be conducted to address the anticipated costs of
implementing the Plan, the parties that would pay for new systems,
whether processors would be allowed to charge more than their costs for
the new data components of the consolidated feeds, and the incremental
benefits that would be incurred over the existing trading pause rules
if the Plan were approved.\163\
---------------------------------------------------------------------------
\163\ See Scottrade Letter at 4.
---------------------------------------------------------------------------
V. Amendment to the Plan
On May 24, 2012, in response to the comments received on the
proposed Plan, the Participants submitted an amendment that proposed
several changes to the Plan.\164\ First, the participants proposed to
amend the Plan to allow transactions that are exempt under Rule 611 of
Regulation NMS \165\, and which do not update the last sale price
(except if solely because the transaction was reported late), to
execute outside of the price bands.\166\
---------------------------------------------------------------------------
\164\ See Amendment, supra note 13.
\165\ 17 CFR 242.611.
\166\ See Amendment, supra note 13.
---------------------------------------------------------------------------
Second, the Participants proposed to amend the Plan to provide for
a 20% price band for Tier 1 and Tier 2 stocks with a Reference Price
equal to $0.75 and up to and including $3.00. The Participants also
proposed a conforming amendment for Tier 1 and Tier 2 stocks with a
Reference Price less than $0.75. The Percentage Parameters for these
stocks would be the lesser of (a) $0.15 or (b) 75%.\167\ As initially
proposed, those Percentage Parameters would apply to Tier 1 and Tier 2
stocks with a Reference Price less than $1.00.
---------------------------------------------------------------------------
\167\ Id.
---------------------------------------------------------------------------
Third, the Participants proposed to amend the Plan to exclude
rights and warrants from the Plan, consistent with the current single-
stock circuit breaker pilot.\168\
---------------------------------------------------------------------------
\168\ Id.
---------------------------------------------------------------------------
Fourth, the Participants proposed to amend the Plan to provide for
the creation of an Advisory Committee to the Operating Committee. As
set forth in greater detail in the amendment, the Operating Committee
would be required to select at least one representative from each of
the following categories to be members of the Advisory Committee: (i) A
broker-dealer with a substantial retail investor customer base, (ii) a
broker-dealer with a substantial institutional investor customer base,
(iii) an alternative trading system, and (iv) an investor.\169\ Members
of the Advisory Committee would have the right to submit their view on
Plan matters to the Operating Committee prior to a decision by the
Operating Committee on such matters. Such matters could include, but
would not be limited to, proposed material amendments to the Plan.
---------------------------------------------------------------------------
\169\ Id.
---------------------------------------------------------------------------
Fifth, the Participants proposed to amend the Plan to provide for a
manual
[[Page 33508]]
override functionality when, for example, the National Best Bid for an
NMS Stock is below the Lower Price Band, the NMS Stock has not entered
the Limit State, and the Primary Listing Exchange has determined that
trading in that stock has sufficiently deviated from its normal trading
characteristics such that a trading pause would promote the Plan's core
purpose of addressing extraordinary market volatility. Upon making this
determination, the Primary Listing Exchange would have the ability to
declare a trading pause in that stock.\170\
---------------------------------------------------------------------------
\170\ Id.
---------------------------------------------------------------------------
Sixth, the Participants proposed a new implementation date of
February 4, 2013. The Participants stated that this date would provide
appropriate time to develop and test the technology necessary to
implement the Plan, including market-wide testing.
Finally, the Participants proposed to amend the Plan to require the
Participants to review and update, on a semi-annual basis, the list of
ETPs included in Tier I of the Plan, and re-stated the criteria by
which ETPs would selected for inclusion in Tier I.\171\
---------------------------------------------------------------------------
\171\ For example, ETPs, including inverse ETPs, that trade over
$2,000,000 consolidated average daily volume would be included in
Tier I, as would ETPs that do not meet this volume criterion, but
track similar benchmarks.
---------------------------------------------------------------------------
The Participants also proposed technical changes to the Plan. For
example, the Participants clarified that Regular Trading Hours could
end earlier than 4:00 p.m. ET in the case of an early scheduled close.
The Participants also provided that Participants may re-transmit the
price bands calculated and disseminated by the Processor. Finally, the
Participants clarified that the Reference Price used in determining
which Percentage Parameter is applicable during the trading day would
be based on the closing price of the subject security on the Primary
Listing Exchange on the previous trading day or, if no closing price
exists, the last sale on the Primary Listing Exchange reported by the
Processor.
The Participants also proposed to amend the Plan in order to
collect and provide to the Commission various data and analysis
throughout the duration of the pilot period. Specifically, the
Participants will provide summary statistics to the Commission,
including data covering how often stocks enter the Limit State, and how
often stocks enter a trading pause as a result of the limit up-limit
down mechanism. The Participants will also examine certain parameters
of the limit up-limit down mechanism, including the appropriateness of
the proposed price bands, and the appropriateness of the duration of
the Limit State. Finally, the Participants will provide raw data to the
Commission, including the record of every limit price, the record of
every Limit State, and the record of every trading pause.
VI. Discussion and Commission Findings
A. Section 11A of the Act
In 1975, Congress directed the Commission, through the enactment of
Section 11A of the Act,\172\ to facilitate the establishment of a
national market system to link together the individual markets that
trade securities. Congress found the development of a national market
system to be in the public interest and appropriate for the protection
of investors and the maintenance of fair and orderly markets to assure
fair competition among the exchange markets.\173\ Section 11A(a)(3)(B)
of the Act directs the Commission, ``by rule or order, to authorize or
require self-regulatory organizations to act jointly with respect to
matters as to which they share authority under this title in planning,
developing, operating, or regulating a national market system (or a
subsystem thereof) or one or more facilities.'' \174\ The Commission's
approval of a national market system plan is required to be conditioned
upon a finding that the plan is ``necessary or appropriate in the
public interest, for the protection of investors and the maintenance of
fair and orderly markets, to remove impediments to, and perfect the
mechanism of, a national market system, or otherwise in furtherance of
the purposes of the Act.'' \175\
---------------------------------------------------------------------------
\172\ 15 U.S.C. 78k-1.
\173\ 15 U.S.C. 78k-1(a)(1)(C).
\174\ 15 U.S.C. 78k-1(a)(3)(B).
\175\ 17 CFR 242.608(b)(2). See also 15 U.S.C. 78k-1(a).
---------------------------------------------------------------------------
After carefully considering the proposed Plan and the issues raised
by the comment letters, the Commission has determined to approve the
Plan, as amended by the Participants, pursuant to Section 11A(a)(3)(B)
of the Act \176\ and Rule 608.\177\ The Commission believes that the
Plan is reasonably designed to prevent potentially harmful price
volatility, including severe volatility of the kind that occurred on
May 6, 2010.\178\ The Plan should thereby help promote the goals of
investor protection and fair and orderly markets. The Commission also
believes that the Plan is a prudent replacement of the single-stock
circuit breaker that is currently in effect, and that it is
appropriately being introduced on a pilot basis. The pilot period will
allow the public, the Participants, and the Commission to assess the
operation of the Plan and whether the Plan should be modified prior to
approval on a permanent basis.
---------------------------------------------------------------------------
\176\ 15 U.S.C. 78k-1(a)(3)(B).
\177\ 17 CFR 242.608. In approving this Plan, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\178\ The Commission and the Participants have conducted
simulations on historical data to examine how a limit up-limit down
mechanism might work. The simulations generally support the
structure of the proposal. In particular, the proposal would reduce,
but not eliminate, extreme short-term price changes, and would not
result in an excessive number of trading pauses.
Commission staff, for example, conducted a simulation that
suggested that the percentage limits should be larger at the open
and close and that the percentage limits should be larger for lower
priced stocks. In addition, the simulation suggested that most
trades occurring outside of the bands are reversed quickly,
providing support for the notion that a limit state may help avoid
unnecessary trading pauses. The simulation also showed that an
average of slightly more than one large index stock would have a
trading pause every four days, based on the structure of the
simulation, which was not the same as the proposed structure. A
follow-up analysis using the proposed structure showed that only one
large index stock would have a trading pause in the three months
analyzed.
The NYSE staff also simulated the proposed limit up-limit down
mechanism to examine how the mechanism would have worked on May 6th,
2010. Given time constraints, the simulation was limited to the
price band aspect of the proposal and did not consider the limit
state or trading pause provisions of the proposal. This simulation
suggested that the price bands alone would have reduced the size of
the flash crash significantly, but stocks would still have
experienced large five-minute declines. For example, on May 6th,
Accenture experienced a five-minute decline of 99.98%. The
simulation suggests that if there had been price bands in place on
May 6th, the most extreme five-minute decline in Accenture might
have been 6.43%. While the Commission recognizes that this is still
a significant decline, it would have much less than the actual
decline.
The NYSE simulation also examined the ability of the limit up-
limit down price bands to reduce extreme positive and negative
returns. In the Tier 1 stocks priced more than $1.00, the price
bands would eliminate five-minute returns more extreme than 10% and
-10%. The price bands would reduce but not eliminate these extreme
five-minute returns in other stocks. A sensitivity analysis
comparing the proposed price limit percentages to alternative ones
suggested that the proposed bands behave at least as well as the
alternatives examined.
---------------------------------------------------------------------------
As discussed above, commenters raised a variety of thoughtful
concerns about the proposal and recommended certain changes. Some of
the recommended changes were incorporated in the Amendment. As
discussed further below, other comments raised important issues that
are difficult to evaluate fully in the absence of practical experience
with the Plan. These issues will warrant close consideration during the
pilot period.
The Commission believes that it is consistent with the Act to
approve the
[[Page 33509]]
Plan on a pilot basis at this time because the Plan reflects the
considered judgments of the Participants on operational issues and
clearly represents a significant step forward that builds upon the
experience with the current single-stock circuit breaker. The limit up-
limit down mechanism set forth in the Plan approved today and the
single-stock circuit breaker are broadly similar in some respects. For
example, both mechanisms calculate a reference price that is based on a
rolling five-minute price band, and both mechanisms incorporate a five-
minute trading pause, followed by a reopening auction on the Primary
Listing Exchange.
The Plan, however, provides a more finely calibrated mechanism than
that of the current single-stock circuit breaker. For example, the
single-stock circuit breaker is triggered by trades that occur at or
outside of the price band, and erroneous trades have triggered trading
halts throughout the current pilot. In contrast, under the Plan, all
trading centers in NMS stocks, including both those operated by
Participants and those operated by members of Participants, are
required to establish policies and procedures that are reasonably
designed to prevent trades at prices outside of the price bands. In
addition, quotes outside of the price bands will be marked as non-
executable. Given that trades should not occur outside of the price
bands, the Commission believes that the Plan is reasonably designed to
reduce the number of erroneous trades in comparison to the current
single-stock circuit breaker.
Moreover, Limit States under the Plan (and, ultimately, trading
pauses) will be triggered by movements in the National Best Bid or the
National Best Offer, rather than single trades. These quoting-based
triggers are designed to be more stable and reliable indicators of a
significant market event than the single trades that currently can
trigger a single stock circuit breaker. The result of this change
should be to reduce the frequency of Limit States (and, ultimately,
trading pauses) to those circumstances that truly warrant a check on
continuous trading.
In contrast to the current single-stock circuit breaker, the Plan
also features a fifteen-second Limit State that precedes a trading
pause. In those instances where the movement of, for example, the
National Best Bid below the Lower Price Band is due to a momentary gap
in liquidity, rather than a fundamental price move, the Limit State is
reasonably designed to allow the market to quickly correct and resume
normal trading, without resorting to a trading pause. Because a Limit
State, rather than a trading pause, may be sufficient to resolve some
of these scenarios, the corresponding price bands can be narrower than
in the single-stock circuit breaker. As such, the Commission believes
that the Plan is reasonably designed to be a more finely calibrated
mechanism than the current single-stock circuit breaker in guarding
against market volatility.\179\
---------------------------------------------------------------------------
\179\ The Commission also finds that the Plan is consistent with
the requirements of Rule 602 under Regulation NMS. Under that rule,
bids and offers must be firm, i.e., brokers and dealers are
obligated to execute any order to buy or sell a subject security
presented to it by another broker or dealer at a price at least as
favorable to such buyer or seller as that broker or dealer's
published bid or published offer in any amount up to its published
quotation size. Similarly, the best bids and offers collected by
national securities exchanges must also be firm. See 17 CFR 242.602.
However, Rule 602(a)(3)(i) relieves exchanges of their obligation to
collect and make available bids and offers (which are firm) if the
existence of ``unusual market conditions'' makes those bids and
offers no longer accurately reflective of the current state of the
market. This provision also relieves brokers and dealers of their
corresponding obligation to submit firm quotes. The Commission
believes that, when the National Best Bid (Offer) crosses the Lower
(Upper) Price Band, and such quote becomes non-executable, an
unusual market condition exists for purposes of Rule 602. To the
extent that this scenario constitutes an unusual market condition,
the broker or dealer could submit a quote that is outside of the
applicable price band, and is thus not firm (as it is non-
executable), and the exchange could collect and display such quote,
without violating Rule 602. The Commission notes, however, that the
firmness requirement continues to apply to quotes at or within the
price bands that are submitted by brokers or dealers and collected
by exchanges, as such quotes are executable.
---------------------------------------------------------------------------
While the price bands in the Plan are reasonably designed to be
more finely calibrated than the current single-stock circuit breaker,
the Commission notes that the Plan is also designed to accommodate more
fundamental price moves, albeit in a manner that lessens the velocity
of such moves. In this regard, the Commission notes that the Plan
provides that the price bands shall not apply to single-priced re-
openings, which allows for the stock to enter a trading pause and
reopen at a price that is potentially significantly above or below its
previous price. The Commission finds that this mechanism is reasonably
designed to allow for more fundamental price moves to occur. To the
extent that a reopening only may occur following a five-minute trading
pause, however, the Plan is still reasonably designed to reduce the
velocity of more significant price moves.
The Amendment improves the initial proposal by addressing a number
of concerns raised by commenters. Specifically, it excludes
transactions that are exempt under Rule 611 of Regulation NMS and do
not update the last sale price (except if solely because the
transaction was reported late), from the requirement that such
transactions occur within the price bands. This exclusion addresses
commenters' concerns that such transactions often are executed at
prices unrelated to the current market and do not have the capacity to
initiate or exacerbate volatility.
In response to the concerns of commenters about the potential for
bids or offers in an NMS stock to become unexecutable without
triggering a Limit State, the Amendment authorizes the Primary Listing
Exchange manually to declare a trading pause in these circumstances.
This mechanism should help ensure that the market for a stock does not
remain impaired for an indefinite period of time, while providing the
Primary Listing Exchange with the discretion to determine whether such
impairment is inconsistent with the stock's normal trading
characteristics.
The Amendment assigns wider price bands for Tier 1 and Tier 2
securities that are priced between $0.75 and $3.00 that are reasonably
designed to reflect more appropriately the characteristics of stocks
that trade in that price range. Similarly, the Amendment excludes all
rights and warrants from the Plan, which reflects the trading
characteristics of such securities and is consistent with the scope of
the current single-stock circuit breaker pilot. The Amendment's
provision for evaluating, on a semi-annual basis, the ETPs that are
included in Tier I helps assure that ETPs meeting the criteria for
inclusion are appropriately included in Tier I, and vice versa.
The Amendment also extends the implementation date to February 4,
2013. This extension of time should provide appropriate time to develop
and test the technology necessary to implement the Plan, including
market-wide testing.
Finally, in response to concerns expressed by commenters, the
Amendment establishes an Advisory Committee to the Operating Committee
composed of a broad cross-section of market participants. The Advisory
Committee members will have the right to submit their views on Plan
matters to the Operating Committee and thereby engage in the ongoing
assessment of Plan operations and formulation of future proposed
amendments to the Plan.
One serious concern raised by comments was the interaction between
the limit up-limit down mechanism and the market-wide circuit breakers
that apply across all securities and securities-related products,
particularly
[[Page 33510]]
during a ``macro market event'' that affects a large number of
securities and securities-related products. The Commission is approving
separately today on a pilot basis SRO proposals to revise these market-
wide circuit breakers and make them more meaningful in today's high-
speed electronic markets.\180\ These SRO rules include both tighter
parameters and shorter halt periods. The Commission recognizes the
potential for limit up-limit down trading halts in many securities to
affect both the calculation of broader indexes and the trading in
products related to such indexes. Nevertheless, it believes that the
need for protection against extraordinary volatility in individual
equities is essential for both investors in such listed equities and
for their listed companies. Accordingly, it is approving the Plan on a
pilot basis, but welcomes comments during the pilot period on ways that
the Plan could be improved to address potential problems in its
interaction with market-wide circuit breakers. The Commission also is
accepting comment during the pilot period for the market-wide circuit
breakers on ways to improve them to address this question on their
interaction with the Plan.
---------------------------------------------------------------------------
\180\ See Securities Exchange Act Release No. 67090 (May 31,
2012) (File Nos. SR-BATS-2011-038; SR-BYX-2011-025; SR-BX-2011-068;
SR-CBOE-2011-087; SR-C2-2011-024; SR-CHX-2011-30; SR-EDGA-2011-31;
SR-EDGX-2011-30; SR-FINRA-2011-054; SR-ISE-2011-61; SR-NASDAQ-2011-
131; SR-NSX-2011-11; SR-NYSE-2011-48; SR-NYSEAmex-2011-73; SR-
NYSEArca-2011-68; SR-Phlx-2011-129).
---------------------------------------------------------------------------
The Commission notes that the Participants did not amend the Plan
to incorporate some of the recommendations to modify the operational
details of the Plan, including the duration of the Limit State, the
calculation of the Reference Price, the application of the price bands
at the open and the close, the criteria required to enter and exit the
Limit State, and the display of quotes outside of the price bands. The
Commission recognizes the thoughtfulness of the comments that put
forward such recommendations, and indeed believes they raise valid
concerns that warrant close scrutiny during the pilot period. At this
time, however, the Commission believes that it is consistent with the
Act to accept the considered collective judgment of the Participants on
these complex issues, particularly given their expertise and
responsibility for operating markets on a daily basis.\181\
---------------------------------------------------------------------------
\181\ The Commission notes that one of the concerns of requiring
the National Best Offer (Bid) to trigger the Limit Down (Up) may be
partially alleviated by one of the amendments to the Plan.
Specifically, if the National Best Bid is outside of the lower price
band and is thus non-executable, while the offer remains within the
price bands, the stated concern is that the market for that stock is
impaired, perhaps for an indefinite period of time, while the stock
has not entered the Limit State. The Commission believes that the
addition of a manual override, as proposed by the Participants in
the amendment to the Plan, may, at least partially, alleviate this
concern.
---------------------------------------------------------------------------
Approving the Plan on a pilot basis will allow the Participants and
the public to gain valuable practical experience with Plan operations
during the pilot period. This experience should prove invaluable in
assessing whether further modifications of the Plan are necessary or
appropriate prior to final approval. The Participants also have agreed
to provide the Commission with a significant amount of data bearing on
operational questions that should assist the Commission in its
evaluation of Plan operations. Finally, the Commission welcomes
additional comments, and empirical evidence, on the Plan during the
pilot period to further assist it in its evaluation of the Plan. Of
course, any final approval of the Plan would require a proposed
amendment of the Plan, and such amendment will provide an opportunity
for public comment prior to further Commission action.
To the extent that the Participants did not amend the Plan to
reflect other operational or procedural concerns, the Commission
believes that those suggestions and concerns were generally considered
by the Participants in developing a uniform proposal that would not be
excessively complicated and yet could still provide important benefits
to the markets. For example, one commenter noted that allowing the
primary listing market to control the re-opening process in the first
five minutes following a trading pause may confer a competitive
advantage upon that market. The Commission notes that this aspect of
the Plan is consistent with the current procedure for re-opening the
market following a trading pause that has been triggered under the
single-stock circuit breaker pilot.
Another commenter suggested that a market-wide limit up-limit down
mechanism was more appropriately developed through Commission
rulemaking than through an NMS plan. While a Commission rulemaking may
be an appropriate means for developing such a mechanism, the Commission
believes that an NMS plan, which was the means selected by the
Participants here, is equally appropriate, particularly given the
Participants' expertise in the trading characteristics in individual
securities and the operation of market systems.
Some commenters expressed concern over the provision in the Plan
governing withdrawal of Participants from the Plan. The Commission
notes that withdrawing from the Plan would require an amendment to the
Plan, and Commission approval of that amendment. Given the importance
of applying a limit up-limit down mechanism uniformly throughout the
market, the Commission would anticipate approving such withdrawal from
the Plan only if the Participant seeking to withdraw from the Plan
ceased to trade NMS securities.
One commenter suggested that a cost-benefit analysis of the Plan
should be conducted. The Commission notes that market participants are
welcome to submit additional comments and empirical evidence during the
pilot period with respect to, among other things, the operation of the
limit up-limit down mechanism, its effectiveness in achieving its
intended goals, and the costs associated therewith. The Commission will
take such comments into account in considering whether to approve any
amendment, in accordance with Rule 608 of Regulation NMS, that proposes
to make the Plan permanent.
As such, the Commission believes that the Plan is consistent with
the Act, notwithstanding such comments, and that it is reasonably
designed to achieve its objective of reducing extraordinary market
volatility.
Given that the Plan is being approved on a pilot basis, the
Commission expects that the Participants will monitor the scope and
operation of the Plan and study the data produced during that time with
respect to such issues, and will propose any modifications to the Plan
that may be necessary or appropriate. Similarly, the Commission expects
that the Participants will propose any modifications to the Plan that
may be necessary or appropriate in response to the data being gathered
by the Participants during the pilot.\182\
---------------------------------------------------------------------------
\182\ The Commission notes that some of the comments focused on
the relation between the Plan, and other, exchange-specific
volatility mechanisms, including the NYSE Liquidity Replenishment
Points, and the Nasdaq Volatility Guard. While a stated purpose of
the Plan is to replace the current single-stock circuit breaker, the
Commission is also aware of the potential for unnecessary complexity
that could result if the Plan were adopted, and exchange-specific
volatility mechanisms were retained. To this end, the Commission
expects that, upon implementation of the Plan, such exchange-
specific volatility mechanisms would be discontinued by the
respective exchanges. In that regard, the Commission notes that one
such mechanism, the Nasdaq Volatility Guard, is currently set to
expire on the earlier of July 31, 2012, or the date on which the
Plan is approved by the Commission. See Securities Exchange Act
Release No. 66275 (January 30, 2012), 77 FR 5606 (February 3, 2012)
(SR-Nasdaq-2012-019).
---------------------------------------------------------------------------
[[Page 33511]]
VII. Conclusion
It is therefore ordered, pursuant to Sections 11A of the Act,\183\
and the rules thereunder, that the Plan (File No. 4-631), as amended,
is approved on a one-year pilot basis and declared effective, and the
Participants are authorized to act jointly to implement the Plan as a
means of facilitating a national market system.
---------------------------------------------------------------------------
\183\ 15 U.S.C. 78k-1.
By the Commission.
Elizabeth M. Murphy,
Secretary.
Exhibit A
Plan To Address Extraordinary Market Volatility Submitted to the
Securities and Exchange Commission Pursuant to Rule 608 of Regulation
NMS Under the Securities Exchange Act of 1934
Table of Contents
Section Page
Preamble....................................................... 1
I. Definitions................................................. 2
II. Parties.................................................... 4
III. Amendments to Plan........................................ 7
IV. Trading Center Policies and Procedures..................... 8
V. Price Bands................................................. 9
VI. Limit Up-Limit Down Requirements........................... 12
VII. Trading Pauses............................................ 14
VIII. Implementation........................................... 15
IX. Withdrawal from Plan....................................... 16
X. Counterparts and Signatures................................. 16
Appendix A--Percentage Parameters.............................. 18
Appendix A--Schedule 1......................................... 21
Appendix B--Data............................................... 33
Preamble
The Participants submit to the SEC this Plan establishing
procedures to address extraordinary volatility in NMS Stocks. The
procedures provide for market-wide limit up-limit down requirements
that prevent trades in individual NMS Stocks from occurring outside of
the specified Price Bands. These limit up-limit down requirements are
coupled with Trading Pauses to accommodate more fundamental price
moves. The Plan procedures are designed, among other things, to protect
investors and promote fair and orderly markets. The Participants
developed this Plan pursuant to Rule 608(a)(3) of Regulation NMS under
the Exchange Act, which authorizes the Participants to act jointly in
preparing, filing, and implementing national market system plans.
I. Definitions
(A) ``Eligible Reported Transactions'' shall have the meaning
prescribed by the Operating Committee and shall generally mean
transactions that are eligible to update the last sale price of an NMS
Stock.
(B) ``Exchange Act'' means the Securities Exchange Act of 1934, as
amended.
(C) ``Limit State'' shall have the meaning provided in Section VI
of the Plan.
(D) ``Limit State Quotation'' shall have the meaning provided in
Section VI of the Plan.
(E) ``Lower Price Band'' shall have the meaning provided in Section
V of the Plan.
(F) ``Market Data Plans'' shall mean the effective national market
system plans through which the Participants act jointly to disseminate
consolidated information in compliance with Rule 603(b) of Regulation
NMS under the Exchange Act.
(G) ``National Best Bid'' and ``National Best Offer'' shall have
the meaning provided in Rule 600(b)(42) of Regulation NMS under the
Exchange Act.
(H) ``NMS Stock'' shall have the meaning provided in Rule
600(b)(47) of Regulation NMS under the Exchange Act.
(I) ``Opening Price'' shall mean the price of a transaction that
opens trading on the Primary Listing Exchange, or, if the Primary
Listing Exchange opens with quotations, the midpoint of those
quotations.
(J) ``Operating Committee'' shall have the meaning provided in
Section III(C) of the Plan.
(K) ``Participant'' means a party to the Plan.
(L) ``Plan'' means the plan set forth in this instrument, as
amended from time to time in accordance with its provisions.
(M) ``Percentage Parameter'' shall mean the percentages for each
tier of NMS Stocks set forth in Appendix A of the Plan.
(N) ``Price Bands'' shall have the meaning provided in Section V of
the Plan.
(O) ``Primary Listing Exchange'' shall mean the Participant on
which an NMS Stock is listed. If an NMS Stock is listed on more than
one Participant, the Participant on which the NMS Stock has been listed
the longest shall be the Primary Listing Exchange.
(P) ``Processor'' shall mean the single plan processor responsible
for the consolidation of information for an NMS Stock pursuant to Rule
603(b) of Regulation NMS under the Exchange Act.
(Q) ``Pro-Forma Reference Price'' shall have the meaning provided
in Section V(A)(2) of the Plan.
(R) ``Regular Trading Hours'' shall have the meaning provided in
Rule 600(b)(64) of Regulation NMS under the Exchange Act. For purposes
of the Plan, Regular Trading Hours can end earlier than 4:00 p.m. ET in
the case of an early scheduled close.
(S) ``Regulatory Halt'' shall have the meaning specified in the
Market Data Plans.
(T) ``Reference Price'' shall have the meaning provided in Section
V of the Plan.
(U) ``Reopening Price'' shall mean the price of a transaction that
reopens
[[Page 33512]]
trading on the Primary Listing Exchange following a Trading Pause or a
Regulatory Halt, or, if the Primary Listing Exchange reopens with
quotations, the midpoint of those quotations.
(V) ``SEC'' shall mean the United States Securities and Exchange
Commission.
(W) ``Straddle State'' shall have the meaning provided in Section
VII(A)(2) of the Plan.
(X) ``Trading center'' shall have the meaning provided in Rule
600(b)(78) of Regulation NMS under the Exchange Act.
(Y) ``Trading Pause'' shall have the meaning provided in Section
VII of the Plan.
(Z) ``Upper Price Band'' shall have the meaning provided in Section
V of the Plan.
II. Parties
(A) List of Parties
The parties to the Plan are as follows:
(1) BATS Exchange, Inc., 8050 Marshall Drive, Lenexa, Kansas 66214.
(2) BATS Y-Exchange, Inc., 8050 Marshall Drive, Lenexa, Kansas 66214.
(3) Chicago Board Options Exchange, Incorporated, 400 South LaSalle
Street, Chicago, Illinois 60605.
(4) Chicago Stock Exchange, Inc., 440 South LaSalle Street, Chicago,
Illinois 60605.
(5) EDGA Exchange, Inc., 545 Washington Boulevard, Sixth Floor, Jersey
City, NJ 07310.
(6) EDGX Exchange, Inc., 545 Washington Boulevard, Sixth Floor, Jersey
City, NJ 07310.
(7) Financial Industry Regulatory Authority, Inc., 1735 K Street, NW.,
Washington, DC 20006.
(8) NASDAQ OMX BX, Inc., One Liberty Plaza, New York, New York 10006.
(9) NASDAQ OMX PHLX LLC, 1900 Market Street, Philadelphia, Pennsylvania
19103.
(10) The Nasdaq Stock Market LLC, 1 Liberty Plaza, 165 Broadway, New
York, NY 10006.
(11) National Stock Exchange, Inc., 101 Hudson, Suite 1200, Jersey
City, NJ 07302.
(12) New York Stock Exchange LLC, 11 Wall Street, New York, New York
10005.
(13) NYSE MKT LLC, 20 Broad Street, New York, New York 10005.
(14) NYSE Arca, Inc., 100 South Wacker Drive, Suite 1800, Chicago, IL
60606.
(B) Compliance Undertaking
By subscribing to and submitting the Plan for approval by the SEC,
each Participant agrees to comply with and to enforce compliance, as
required by Rule 608(c) of Regulation NMS under the Exchange Act, by
its members with the provisions of the Plan. To this end, each
Participant shall adopt a rule requiring compliance by its members with
the provisions of the Plan, and each Participant shall take such
actions as are necessary and appropriate as a participant of the Market
Data Plans to cause and enable the Processor for each NMS Stock to
fulfill the functions set forth in this Plan.
(C) New Participants
The Participants agree that any entity registered as a national
securities exchange or national securities association under the
Exchange Act may become a Participant by: (1) becoming a participant in
the applicable Market Data Plans; (2) executing a copy of the Plan, as
then in effect; (3) providing each then-current Participant with a copy
of such executed Plan; and (4) effecting an amendment to the Plan as
specified in Section III(B) of the Plan.
(D) Advisory Committee
(1) Formation. Notwithstanding other provisions of this Plan, an
Advisory Committee to the Plan shall be formed and shall function in
accordance with the provisions set forth in this section.
(2) Composition. Members of the Advisory Committee shall be
selected for two-year terms as follows:
(A) Advisory Committee Selections. By affirmative vote of a
majority of the Participants, the Participants shall select at least
one representatives from each of the following categories to be members
of the Advisory Committee: (1) A broker-dealer with a substantial
retail investor customer base; (2) a broker-dealer with a substantial
institutional investor customer base; (3) an alternative trading
system; and (4) an investor.
(3) Function. Members of the Advisory Committee shall have the
right to submit their views to the Operating Committee on Plan matters,
prior to a decision by the Operating Committee on such matters. Such
matters shall include, but not be limited to, proposed material
amendments to the Plan.
(4) Meetings and Information. Members of the Advisory Committee
shall have the right to attend meetings of the Operating Committee and
to receive any information concerning Plan matters; provided, however,
that the Operating Committee may meet in executive session if, by
affirmative vote of a majority of the Participants, the Operating
Committee determines that an item of Plan business requires
confidential treatment.
III. Amendments to Plan
(A) General Amendments
Except with respect to the addition of new Participants to the
Plan, any proposed change in, addition to, or deletion from the Plan
shall be effected by means of a written amendment to the Plan that: (1)
Sets forth the change, addition, or deletion; (2) is executed on behalf
of each Participant; and, (3) is approved by the SEC pursuant to Rule
608 of Regulation NMS under the Exchange Act, or otherwise becomes
effective under Rule 608 of Regulation NMS under the Exchange Act.
(B) New Participants
With respect to new Participants, an amendment to the Plan may be
effected by the new national securities exchange or national securities
association executing a copy of the Plan, as then in effect (with the
only changes being the addition of the new Participant's name in
Section II(A) of the Plan) and submitting such executed Plan to the SEC
for approval. The amendment shall be effective when it is approved by
the SEC in accordance with Rule 608 of Regulation NMS under the
Exchange Act or otherwise becomes effective pursuant to Rule 608 of
Regulation NMS under the Exchange Act.
(C) Operating Committee
(1) Each Participant shall select from its staff one individual to
represent the Participant as a member of an Operating Committee,
together with a substitute for such individual. The substitute may
participate in deliberations of the Operating Committee and shall be
considered a voting member thereof only in the absence of the primary
representative. Each Participant shall have one vote on all matters
considered by the Operating Committee. No later than the initial date
of Plan operations, the Operating Committee shall designate one member
of the Operating Committee to act as the Chair of the Operating
Committee.
(2) The Operating Committee shall monitor the procedures
established pursuant to this Plan and advise the Participants with
respect to any deficiencies, problems, or recommendations as the
Operating Committee may deem appropriate. The Operating Committee shall
establish specifications and procedures for the implementation and
operation of the Plan that are consistent with the provisions of this
Plan and the Appendixes thereto. With respect to
[[Page 33513]]
matters in this paragraph, Operating Committee decisions shall be
approved by a simple majority vote.
(3) Any recommendation for an amendment to the Plan from the
Operating Committee that receives an affirmative vote of at least two-
thirds of the Participants, but is less than unanimous, shall be
submitted to the SEC as a request for an amendment to the Plan
initiated by the Commission under Rule 608 of Regulation NMS.
IV. Trading Center Policies and Procedures
All trading centers in NMS Stocks, including both those operated by
Participants and those operated by members of Participants, shall
establish, maintain, and enforce written policies and procedures that
are reasonably designed to comply with the limit up-limit down
requirements specified in Sections VI of the Plan, and to comply with
the Trading Pauses specified in Section VII of the Plan.
V. Price Bands
(A) Calculation and Dissemination of Price Bands
(1) The Processor for each NMS stock shall calculate and
disseminate to the public a Lower Price Band and an Upper Price Band
during Regular Trading Hours for such NMS Stock. The Price Bands shall
be based on a Reference Price for each NMS Stock that equals the
arithmetic mean price of Eligible Reported Transactions for the NMS
stock over the immediately preceding five-minute period (except for
periods following openings and reopenings, which are addressed below).
If no Eligible Reported Transactions for the NMS Stock have occurred
over the immediately preceding five-minute period, the previous
Reference Price shall remain in effect. The Price Bands for an NMS
Stock shall be calculated by applying the Percentage Parameter for such
NMS Stock to the Reference Price, with the Lower Price Band being a
Percentage Parameter below the Reference Price, and the Upper Price
Band being a Percentage Parameter above the Reference Price. The Price
Bands shall be calculated during Regular Trading Hours. Between 9:30
a.m. and 9:45 a.m. ET, and 3:35 p.m. and 4:00 p.m. ET, or in the case
of an early scheduled close, during the last 25 minutes of trading
before the early scheduled close, the Price Bands shall be calculated
by applying double the Percentage Parameters set forth in Appendix A.
If a Reopening Price does not occur within ten minutes after the
beginning of a Trading Pause, the Price Band, for the first 30 seconds
following the reopening after that Trading Pause, shall be calculated
by applying triple the Percentage Parameters set forth in Appendix A.
(2) The Processor shall calculate a Pro-Forma Reference Price on a
continuous basis during Regular Trading Hours, as specified in Section
V(A)(1) of the Plan. If a Pro-Forma Reference Price has not moved by 1%
or more from the Reference Price currently in effect, no new Price
Bands shall be disseminated, and the current Reference Price shall
remain the effective Reference Price. When the Pro-Forma Reference
Price has moved by 1% or more from the Reference Price currently in
effect, the Pro-Forma Reference Price shall become the Reference Price,
and the Processor shall disseminate new Price Bands based on the new
Reference Price; provided, however, that each new Reference Price shall
remain in effect for at least 30 seconds.
(B) Openings
(1) Except when a Regulatory Halt is in effect at the start of
Regular Trading Hours, the first Reference Price for a trading day
shall be the Opening Price on the Primary Listing Exchange in an NMS
Stock if such Opening Price occurs less than five minutes after the
start of Regular Trading Hours. During the period less than five
minutes after the Opening Price, a Pro-Forma Reference Price shall be
updated on a continuous basis to be the arithmetic mean price of
Eligible Reported Transactions for the NMS Stock during the period
following the Opening Price (including the Opening Price), and if it
differs from the current Reference Price by 1% or more shall become the
new Reference Price, except that a new Reference Price shall remain in
effect for at least 30 seconds. Subsequent Reference Prices shall be
calculated as specified in Section V(A) of the Plan.
(2) If the Opening Price on the Primary Listing Exchange in an NMS
Stock does not occur within five minutes after the start of Regular
Trading Hours, the first Reference Price for a trading day shall be the
arithmetic mean price of Eligible Reported Transactions for the NMS
Stock over the preceding five minute time period, and subsequent
Reference Prices shall be calculated as specified in Section V(A) of
the Plan.
(C) Reopenings
(1) Following a Trading Pause in an NMS Stock, and if the Primary
Listing Exchange has not declared a Regulatory Halt, the next Reference
Price shall be the Reopening Price on the Primary Listing Exchange if
such Reopening Price occurs within ten minutes after the beginning of
the Trading Pause, and subsequent Reference Prices shall be determined
in the manner prescribed for normal openings, as specified in Section
V(B)(1) of the Plan. If such Reopening Price does not occur within ten
minutes after the beginning of the Trading Pause, the first Reference
Price following the Trading Pause shall be equal to the last effective
Reference Price before the Trading Pause. Subsequent Reference Prices
shall be calculated as specified in Section V(A) of the Plan.
(2) Following a Regulatory Halt, the next Reference Price shall be
the Opening or Reopening Price on the Primary Listing Exchange if such
Opening or Reopening Price occurs within five minutes after the end of
the Regulatory Halt, and subsequent Reference Prices shall be
determined in the manner prescribed for normal openings, as specified
in Section V(B)(1) of the Plan. If such Opening or Reopening Price has
not occurred within five minutes after the end of the Regulatory Halt,
the Reference Price shall be equal to the arithmetic mean price of
Eligible Reported Transactions for the NMS Stock over the preceding
five minute time period, and subsequent Reference Prices shall be
calculated as specified in Section V(A) of the Plan.
VI. Limit Up-Limit Down Requirements
(A) Limitations on Trades and Quotations Outside of Price Bands
(1) All trading centers in NMS Stocks, including both those
operated by Participants and those operated by members of Participants,
shall establish, maintain, and enforce written policies and procedures
that are reasonably designed to prevent trades at prices that are below
the Lower Price Band or above the Upper Price Band for an NMS Stock.
Single-priced opening, reopening, and closing transactions on the
Primary Listing Exchange, however, shall be excluded from this
limitation. In addition, any transaction that both does not update the
last sale price (except if solely because the transaction was reported
late) and is excepted or exempt from Rule 611 under Regulation NMS
shall be excluded from this limitation.
(2) When a National Best Bid is below the Lower Price Band or a
National Best Offer is above the Upper Price Band for an NMS Stock, the
Processor shall disseminate such National Best Bid or National Best
Offer with an appropriate flag identifying it as non-executable. When a
National Best Offer is equal to
[[Page 33514]]
the Lower Price Band or a National Best Bid is equal to the Upper Price
Band for an NMS Stock, the Processor shall distribute such National
Best Bid or National Best Offer with an appropriate flag identifying it
as a ``Limit State Quotation''.
(3) All trading centers in NMS Stocks, including both those
operated by Participants and those operated by members of Participants,
shall establish, maintain, and enforce written policies and procedures
that are reasonably designed to prevent the display of offers below the
Lower Price Band and bids above the Upper Price Band for an NMS Stock.
The Processor shall disseminate an offer below the Lower Price Band or
bid above the Upper Price Band that may be submitted despite such
reasonable policies and procedures, but with an appropriate flag
identifying it as non-executable; provided, however, that any such bid
or offer shall not be included in National Best Bid or National Best
Offer calculations.
(B) Entering and Exiting a Limit State
(1) All trading for an NMS Stock shall immediately enter a Limit
State if the National Best Offer equals the Lower Price Band and does
not cross the National Best Bid, or the National Best Bid equals the
Upper Price Band and does not cross the National Best Offer.
(2) When trading for an NMS Stock enters a Limit State, the
Processor shall disseminate this information by identifying the
relevant quotation (i.e., a National Best Offer that equals the Lower
Price Band or a National Best Bid that equals the Upper Price Band) as
a Limit State Quotation. At this point, the Processor shall cease
calculating and disseminating updated Reference Prices and Price Bands
for the NMS Stock until either trading exits the Limit State or trading
resumes with an opening or re-opening as provided in Section V.
(3) Trading for an NMS Stock shall exit a Limit State if, within 15
seconds of entering the Limit State, the entire size of all Limit State
Quotations are executed or cancelled.
(4) If trading for an NMS Stock exits a Limit State within 15
seconds of entry, the Processor shall immediately calculate and
disseminate updated Price Bands based on a Reference Price that equals
the arithmetic mean price of Eligible Reported Transactions for the NMS
Stock over the immediately preceding five-minute period (including the
period of the Limit State).
(5) If trading for an NMS Stock does not exit a Limit State within
15 seconds of entry, the Limit State will terminate when the Primary
Listing Exchange declares a Trading Pause pursuant to Section VII of
the Plan. If trading for an NMS Stock is in a Limit State at the end of
Regular Trading Hours, the Limit State will terminate when the Primary
Listing Exchange executes a closing transaction in the NMS Stock or
five minutes after the end of Regular Trading Hours, whichever is
earlier.
VII. Trading Pauses
(A) Declaration of Trading Pauses
(1) If trading for an NMS Stock does not exit a Limit State within
15 seconds of entry during Regular Trading Hours, then the Primary
Listing Exchange shall declare a Trading Pause for such NMS Stock and
shall notify the Processor.
(2) The Primary Listing Exchange may also declare a Trading Pause
for an NMS Stock when an NMS Stock is in a Straddle State, which is
when National Best Bid (Offer) is below (above) the Lower (Upper) Price
Band and the NMS Stock is not in a Limit State, and trading in that NMS
Stock deviates from normal trading characteristics such that declaring
a Trading Pause would support the Plan's goal to address extraordinary
market volatility. The Primary Listing Exchange shall develop policies
and procedures for determining when it would declare a Trading Pause in
such circumstances. If a Trading Pause is declared for an NMS Stock
under this provision, the Primary Listing Exchange shall notify the
Processor.
(3) The Processor shall disseminate Trading Pause information to
the public. No trades in an NMS Stock shall occur during a Trading
Pause, but all bids and offers may be displayed.
(B) Reopening of Trading During Regular Trading Hours
(1) Five minutes after declaring a Trading Pause for an NMS Stock,
and if the Primary Listing Exchange has not declared a Regulatory Halt,
the Primary Listing Exchange shall attempt to reopen trading using its
established reopening procedures. The Trading Pause shall end when the
Primary Listing Exchange reports a Reopening Price.
(2) The Primary Listing Exchange shall notify the Processor if it
is unable to reopen trading in an NMS Stock for any reason other than a
significant order imbalance and if it has not declared a Regulatory
Halt. The Processor shall disseminate this information to the public,
and all trading centers may begin trading the NMS Stock at this time.
(3) If the Primary Listing Exchange does not report a Reopening
Price within ten minutes after the declaration of a Trading Pause in an
NMS Stock, and has not declared a Regulatory Halt, all trading centers
may begin trading the NMS Stock.
(4) When trading begins after a Trading Pause, the Processor shall
update the Price Bands as set forth in Section V(C)(1) of the Plan.
(C) Trading Pauses Within Five Minutes of the End of Regular Trading
Hours
(1) If a Trading Pause for an NMS Stock is declared less than five
minutes before the end of Regular Trading Hours, the Primary Listing
Exchange shall attempt to execute a closing transaction using its
established closing procedures. All trading centers may begin trading
the NMS Stock when the Primary Listing Exchange executes a closing
transaction.
(2) If the Primary Listing Exchange does not execute a closing
transaction within five minutes after the end of Regular Trading Hours,
all trading centers may begin trading the NMS Stock.
VIII. Implementation
(A) Phase I
(1) Phase I of Plan implementation shall apply immediately
following the initial date of Plan operations.
(2) During Phase I, the Plan shall apply only to the Tier 1 NMS
Stocks identified in Appendix A of the Plan.
(3) During Phase I, the first Price Bands for a trading day shall
be calculated and disseminated 15 minutes after the start of Regular
Trading Hours as specified in Section (V)(A) of the Plan. No Price
Bands shall be calculated and disseminated less than 30 minutes before
the end of Regular Trading Hours, and trading shall not enter a Limit
State less than 25 minutes before the end of Regular Trading Hours.
(B) Phase II--Full Implementation
Six months after the initial date of Plan operations, or such
earlier date as may be announced by the Processor with at least 30 days
notice, the Plan shall fully apply (i) to all NMS Stocks; and (ii)
beginning at 9:30 a.m. ET, and ending at 4:00 p.m. ET each trading day,
or earlier in the case of an early scheduled close or if the Processor
disseminates a closing trade for the Primary Listing Exchange.
(C) Pilot
The Plan shall be implemented on a one-year pilot basis.
IX. Withdrawal from Plan
If a Participant obtains SEC approval to withdraw from the Plan,
such Participant may withdraw from the Plan
[[Page 33515]]
at any time on not less than 30 days' prior written notice to each of
the other Participants. At such time, the withdrawing Participant shall
have no further rights or obligations under the Plan.
X. Counterparts and Signatures
The Plan may be executed in any number of counterparts, no one of
which need contain all signatures of all Participants, and as many of
such counterparts as shall together contain all such signatures shall
constitute one and the same instrument.
IN WITNESS THEREOF, this Plan has been executed as of the--day of--
------2012 by each of the parties hereto.
BATS EXCHANGE, INC.
BY:--------------------------------------------------------------------
BATS Y-EXCHANGE, INC.
BY:--------------------------------------------------------------------
CHICAGO BOARD OPTIONS EXCHANGE, INCORPORATED
BY:--------------------------------------------------------------------
CHICAGO STOCK EXCHANGE, INC.
BY:--------------------------------------------------------------------
EDGA EXCHANGE, INC.
BY:--------------------------------------------------------------------
EDGX EXCHANGE, INC.
BY:--------------------------------------------------------------------
FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC.
BY:--------------------------------------------------------------------
NASDAQ OMX BX, INC.
BY:--------------------------------------------------------------------
NASDAQ OMX PHLX LLC
BY:--------------------------------------------------------------------
THE NASDAQ STOCK MARKET LLC
BY:--------------------------------------------------------------------
NATIONAL STOCK EXCHANGE, INC.
BY:--------------------------------------------------------------------
NEW YORK STOCK EXCHANGE LLC
BY:--------------------------------------------------------------------
NYSE MKT LLC
BY:--------------------------------------------------------------------
NYSE ARCA, INC.
BY:--------------------------------------------------------------------
Appendix A--Percentage Parameters
I. Tier 1 NMS Stocks
(1) Tier 1 NMS Stocks shall include all NMS Stocks included in
the S&P 500 Index, the Russell 1000 Index, and the exchange-traded
products (``ETP'') listed on Schedule 1 to this Appendix. Schedule 1
to the Appendix will be reviewed and updated semi-annually based on
the fiscal year by the Primary Listing Exchange to add ETPs that
meet the criteria, or delete ETPs that are no longer eligible. To
determine eligibility for an ETP to be included as a Tier 1 NMS
Stock, all ETPs across multiple asset classes and issuers, including
domestic equity, international equity, fixed income, currency, and
commodities and futures will be identified. Leveraged ETPs will be
excluded and the list will be sorted by notional consolidated
average daily volume (``CADV''). The period used to measure CADV
will be from the first day of the previous fiscal half year up until
one week before the beginning of the next fiscal half year. Daily
volumes will be multiplied by closing prices and then averaged over
the period. ETPs, including inverse ETPs, that trade over $2,000,000
CADV will be eligible to be included as a Tier 1 NMS Stock. To
ensure that ETPs that track similar benchmarks but that do not meet
this volume criterion do not become subject to pricing volatility
when a component security is the subject of a trading pause, non-
leveraged ETPs that have traded below this volume criterion, but
that track the same benchmark as an ETP that does meet the volume
criterion, will be deemed eligible to be included as a Tier 1 NMS
Stock. The semi-annual updates to Schedule 1 do not require an
amendment to the Plan. The Primary Listing Exchanges will maintain
the updated Schedule 1 on their respective Web sites.
(2) The Percentage Parameters for Tier 1 NMS Stocks with a
Reference Price more than $3.00 shall be 5%.
(3) The Percentage Parameters for Tier 1 NMS Stocks with a
Reference Price equal to $0.75 and up to and including $3.00 shall
be 20%.
(4) The Percentage Parameters for Tier 1 NMS Stocks with a
Reference Price less than $0.75 shall be the lesser of (a) $0.15 or
(b) 75%.
(5) The Reference Price used for determining which Percentage
Parameter shall be applicable during a trading day shall be based on
the closing price of the NMS Stock on the Primary Listing Exchange
on the previous trading day, or if no closing price exists, the last
sale on the Primary Listing Exchange reported by the Processor.
II. Tier 2 NMS Stocks
(1) Tier 2 NMS Stocks shall include all NMS Stocks other than
those in Tier 1, provided, however, that all rights and warrants are
excluded from the Plan.
(2) The Percentage Parameters for Tier 2 NMS Stocks with a
Reference Price more than $3.00 shall be 10%.
(3) The Percentage Parameters for Tier 2 NMS Stocks with a
Reference Price equal to $0.75 and up to and including $3.00 shall
be 20%.
(4) The Percentage Parameters for Tier 2 NMS Stocks with a
Reference Price less than $0.75 shall be the lesser of (a) $0.15 or
(b) 75%.
(5) Notwithstanding the foregoing, the Percentage Parameters for
a Tier 2 NMS Stock that is a leveraged ETP shall be the applicable
Percentage Parameter set forth in clauses (2), (3), or (4) above,
multiplied by the leverage ratio of such product.
(6) The Reference Price used for determining which Percentage
Parameter shall be applicable during a trading day shall be based on
the closing price of the NMS Stock on the Primary Listing Exchange
on the previous trading day, or if no closing price exists, the last
sale on the Primary Listing Exchange reported by the Processor.
Appendix A--Schedule 1
------------------------------------------------------------------------
Symbol Name
------------------------------------------------------------------------
AAVX......................... ETRACS Daily Short 1-Month S&P 500 VIX
Futures ETN
AAXJ......................... iShares MSCI All Country Asia ex Japan
Index Fund
ACWI......................... iShares MSCI ACWI Index Fund
ACWX......................... iShares MSCI ACWI ex US Index Fund
AGG.......................... iShares Barclays Aggregate Bond Fund
AGZ.......................... iShares Barclays Agency Bond Fund
ALD.......................... WisdomTree Asia Local Debt Fund
AMJ.......................... JPMorgan Alerian MLP Index ETN
AMLP......................... Alerian MLP ETF
BAB.......................... PowerShares Build America Bond Portfolio
BDG.......................... PowerShares DB Base Metals Long ETN
BIK.......................... SPDR S&P BRIC 40 ETF
BIL.......................... SPDR Barclays Capital 1-3 Month T-Bill
ETF
BIV.......................... Vanguard Intermediate-Term Bond ETF
BKF.......................... iShares MSCI BRIC Index Fund
BKLN......................... PowerShares Senior Loan Portfolio
BLV.......................... Vanguard Long-Term Bond ETF
BND.......................... Vanguard Total Bond Market ETF
BNO.......................... United States Brent Oil Fund LP
BOND......................... Pimco Total Return ETF
BOS.......................... PowerShares DB Base Metals Short ETN
[[Page 33516]]
BRF.......................... Market Vectors Brazil Small-Cap ETF
BSV.......................... Vanguard Short-Term Bond ETF
BWX.......................... SPDR Barclays Capital International
Treasury Bond ETF
BXDB......................... Barclays ETN+short B Leveraged ETN Linked
to S&P 500
CEW.......................... WisdomTree Dreyfus Emerging Currency Fund
CFT.......................... iShares Barclays Credit Bond Fund
CIU.......................... iShares Barclays Intermediate Credit Bond
Fund
CLY.......................... iShares 10+ Year Credit Bond Fund
CORN......................... Teucrium Corn Fund
CSJ.......................... iShares Barclays 1-3 Year Credit Bond
Fund
CVY.......................... Guggenheim Multi-Asset Income ETF
CWB.......................... SPDR Barclays Capital Convertible
Securities ETF
CWI.......................... SPDR MSCI ACWI ex-US ETF
CYB.......................... WisdomTree Dreyfus Chinese Yuan Fund
DBA.......................... PowerShares DB Agriculture Fund
DBB.......................... PowerShares DB Base Metals Fund
DBC.......................... PowerShares DB Commodity Index Tracking
Fund
DBE.......................... PowerShares DB Energy Fund
DBO.......................... PowerShares DB Oil Fund
DBP.......................... PowerShares DB Precious Metals Fund
DBV.......................... PowerShares DB G10 Currency Harvest Fund
DEM.......................... WisdomTree Emerging Markets Equity Income
Fund
DGL.......................... PowerShares DB Gold Fund
DGS.......................... WisdomTree Emerging Markets SmallCap
Dividend Fund
DGZ.......................... PowerShares DB Gold Short ETN
DHS.......................... WisdomTree Equity Income Fund
DIA.......................... SPDR Dow Jones Industrial Average ETF
Trust
DJCI......................... E-TRACS UBS AG Dow Jones-UBS Commodity
Index Total Return ETN
DJP.......................... iPath Dow Jones-UBS Commodity Index Total
Return ETN
DLN.......................... WisdomTree LargeCap Dividend Fund
DOG.......................... ProShares Short Dow30
DON.......................... WisdomTree MidCap Dividend Fund
DOO.......................... WisdomTree International Dividend Ex-
Financials Fund
DTN.......................... WisdomTree Dividend Ex-Financials Fund
DVY.......................... iShares Dow Jones Select Dividend Index
Fund
DWM.......................... WisdomTree DEFA Fund
DWX.......................... SPDR S&P International Dividend ETF
DXJ.......................... WisdomTree Japan Hedged Equity Fund
ECH.......................... iShares MSCI Chile Investable Market
Index Fund
ECON......................... EGShares Emerging Markets Consumer ETF
EDIV......................... SPDR S&P Emerging Markets Dividend ETF
EDV.......................... Vanguard Extended Duration Treasury ETF
EEB.......................... Guggenheim BRIC ETF
EEM.......................... iShares MSCI Emerging Markets Index Fund
EFA.......................... iShares MSCI EAFE Index Fund
EFG.......................... iShares MSCI EAFE Growth Index
EFV.......................... iShares MSCI EAFE Value Index
EFZ.......................... ProShares Short MSCI EAFE
EIDO......................... iSHARES MSCI Indonesia Investable Market
Index Fund
ELD.......................... WisdomTree Emerging Markets Local Debt
Fund
ELR.......................... SPDR Dow Jones Large Cap ETF
EMB.......................... iShares JPMorgan USD Emerging Markets
Bond Fund
EMLC......................... Market Vectors Emerging Markets Local
Currency Bond ETF
EMM.......................... SPDR Dow Jones Mid Cap ETF
EPHE......................... iShares MSCI Philippines Investable
Market Index Fund
EPI.......................... WisdomTree India Earnings Fund
EPP.......................... iShares MSCI Pacific ex-Japan Index Fund
EPU.......................... iShares MSCI All Peru Capped Index Fund
ERUS......................... iShares MSCI Russia Capped Index Fund
EUM.......................... ProShares Short MSCI Emerging Markets
EWA.......................... iShares MSCI Australia Index Fund
EWC.......................... iShares MSCI Canada Index Fund
EWD.......................... iShares MSCI Sweden Index Fund
EWG.......................... iShares MSCI Germany Index Fund
EWH.......................... iShares MSCI Hong Kong Index Fund
EWI.......................... iShares MSCI Italy Index Fund
EWJ.......................... iShares MSCI Japan Index Fund
EWL.......................... iShares MSCI Switzerland Index Fund
EWM.......................... iShares MSCI Malaysia Index Fund
EWP.......................... iShares MSCI Spain Index Fund
EWQ.......................... iShares MSCI France Index Fund
EWS.......................... iShares MSCI Singapore Index Fund
[[Page 33517]]
EWT.......................... iShares MSCI Taiwan Index Fund
EWU.......................... iShares MSCI United Kingdom Index Fund
EWW.......................... iShares MSCI Mexico Investable Market
Index Fund
EWX.......................... SPDR S&P Emerging Markets SmallCap ETF
EWY.......................... iShares MSCI South Korea Index Fund
EWZ.......................... iShares MSCI Brazil Index Fund
EZA.......................... iShares MSCI South Africa Index Fund
EZU.......................... iShares MSCI EMU Index Fund
FBT.......................... First Trust NYSE Arca Biotechnology Index
Fund
FCG.......................... First Trust ISE-Revere Natural Gas Index
Fund
FDL.......................... First Trust Morningstar Dividend Leaders
Index
FDN.......................... First Trust Dow Jones Internet Index Fund
FEX.......................... First Trust Large Cap Core AlphaDEX Fund
FEZ.......................... SPDR EURO STOXX 50 ETF
FGD.......................... First Trust DJ Global Select Dividend
Index Fund
FLAT......................... iPath US Treasury Flattener ETN
FNX.......................... First Trust Mid Cap Core AlphaDEX Fund
FRI.......................... First Trust S&P REIT Index Fund
FVD.......................... First Trust Value Line Dividend Index
Fund
FXA.......................... CurrencyShares Australian Dollar Trust
FXB.......................... CurrencyShares British Pound Sterling
Trust
FXC.......................... CurrencyShares Canadian Dollar Trust
FXD.......................... First Trust Consumer Discretionary
AlphaDEX Fund
FXE.......................... CurrencyShares Euro Trust
FXF.......................... CurrencyShares Swiss Franc Trust
FXG.......................... First Trust Consumer Staples AlphaDEX
Fund
FXH.......................... First Trust Health Care AlphaDEX Fund
FXI.......................... iShares FTSE China 25 Index Fund
FXL.......................... First Trust Technology AlphaDEX Fund
FXU.......................... First Trust Utilities AlphaDEX Fund
FXY.......................... CurrencyShares Japanese Yen Trust
FXZ.......................... First Trust Materials AlphaDEX Fund
GAZ.......................... iPath Dow Jones-UBS Natural Gas Subindex
Total Return ETN
GCC.......................... GreenHaven Continuous Commodity Index
Fund
GDX.......................... Market Vectors Gold Miners ETF
GDXJ......................... Market Vectors Junior Gold Miners ETF
GIY.......................... Guggenheim Enhanced Core Bond ETF
GLD.......................... SPDR Gold Shares
GMF.......................... SPDR S&P Emerging Asia Pacific ETF
GNR.......................... SPDR S&P Global Natural Resources ETF
GOVT......................... iShares Barclays U.S. Treasury Bond Fund
GSG.......................... iShares S&P GSCI Commodity Indexed Trust
GSP.......................... iPath GSCI Total Return Index ETN
GSY.......................... Guggenheim Enhanced Short Duration Bond
ETF
GVI.......................... iShares Barclays Intermediate Government/
Credit Bond Fund
GWX.......................... SPDR S&P International Small Cap ETF
GXC.......................... SPDR S&P China ETF
GXG.......................... Global X FTSE Colombia 20 ETF
HAO.......................... Guggenheim China Small Cap ETF
HDGE......................... Active Bear ETF/The
HDV.......................... iShares High Dividend Equity Fund
HYD.......................... Market Vectors High Yield Municipal Index
ETF
HYG.......................... iShares iBoxx $ High Yield Corporate Bond
Fund
HYS.......................... PIMCO 0-5 Year High Yield Corporate Bond
Index Fund
IAU.......................... iShares Gold Trust
IBB.......................... iShares Nasdaq Biotechnology Index Fund
ICF.......................... iShares Cohen & Steers Realty Majors
Index Fund
ICI.......................... iPath Optimized Currency Carry ETN
IDU.......................... iShares Dow Jones US Utilities Sector
Index Fund
IDV.......................... iShares Dow Jones International Select
Dividend Index Fund
IDX.......................... Market Vectors Indonesia Index ETF
IEF.......................... iShares Barclays 7-10 Year Treasury Bond
Fund
IEI.......................... iShares Barclays 3-7 Year Treasury Bond
Fund
IEO.......................... iShares Dow Jones US Oil & Gas
Exploration & Production Index Fund
IEV.......................... iShares S&P Europe 350 Index Fund
IEZ.......................... iShares Dow Jones US Oil Equipment &
Services Index Fund
IGE.......................... iShares S&P North American Natural
Resources Sector Index Fund
IGF.......................... iShares S&P Global Infrastructure Index
Fund
IGOV......................... iShares S&P/Citigroup International
Treasury Bond Fund
IGS.......................... ProShares Short Investment Grade
Corporate
IGV.......................... iShares S&P North American Technology-
Software Index Fund
IHE.......................... iShares Dow Jones US Pharmaceuticals
Index Fund
[[Page 33518]]
IHF.......................... iShares Dow Jones US Healthcare Providers
Index Fund
IHI.......................... iShares Dow Jones US Medical Devices
Index Fund
IJH.......................... iShares S&P MidCap 400 Index Fund
IJJ.......................... iShares S&P MidCap 400/BARRA Value Index
Fund
IJK.......................... iShares S&P MidCap 400 Growth Index Fund
IJR.......................... iShares S&P SmallCap 600 Index Fund
IJS.......................... iShares S&P SmallCap 600 Value Index Fund
IJT.......................... iShares S&P SmallCap 600/BARRA Growth
Index Fund
ILF.......................... iShares S&P Latin America 40 Index Fund
INDA......................... iShares MSCI India Index Fund
INDY......................... iShares S&P India Nifty 50 Index Fund
INP.......................... iPath MSCI India Index ETN
IOO.......................... iShares S&P Global 100 Index Fund
IPE.......................... SPDR Barclays Capital TIPS ETF
ITB.......................... iShares Dow Jones US Home Construction
Index Fund
ITM.......................... Market Vectors Intermediate Municipal ETF
IVE.......................... iShares S&P 500 Value Index Fund
IVOO......................... Vanguard S&P Mid-Cap 400 ETF
IVOP......................... iPath Inverse S&P 500 VIX Short-Term
FuturesTM ETN II
IVV.......................... iShares S&P 500 Index Fund/US
IVW.......................... iShares S&P 500 Growth Index Fund
IWB.......................... iShares Russell 1000 Index Fund
IWC.......................... iShares Russell Microcap Index Fund
IWD.......................... iShares Russell 1000 Value Index Fund
IWF.......................... iShares Russell 1000 Growth Index Fund
IWM.......................... iShares Russell 2000 Index Fund
IWN.......................... iShares Russell 2000 Value Index Fund
IWO.......................... iShares Russell 2000 Growth Index Fund
IWP.......................... iShares Russell Midcap Growth Index Fund
IWR.......................... iShares Russell Midcap Index Fund
IWS.......................... iShares Russell Midcap Value Index Fund
IWV.......................... iShares Russell 3000 Index Fund
IWW.......................... iShares Russell 3000 Value Index Fund
IWY.......................... iShares Russell Top 200 Growth Index Fund
IWZ.......................... iShares Russell 3000 Growth Index Fund
IXC.......................... iShares S&P Global Energy Sector Index
Fund
IXG.......................... iShares S&P Global Financials Sector
Index Fund
IXJ.......................... iShares S&P Global Healthcare Sector
Index Fund
IXN.......................... iShares S&P Global Technology Sector
Index Fund
IXP.......................... iShares S&P Global Telecommunications
Sector Index Fund
IYC.......................... iShares Dow Jones US Consumer Services
Sector Index Fund
IYE.......................... iShares Dow Jones US Energy Sector Index
Fund
IYF.......................... iShares Dow Jones US Financial Sector
Index Fund
IYG.......................... iShares Dow Jones US Financial Services
Index Fund
IYH.......................... iShares Dow Jones US Healthcare Sector
Index Fund
IYJ.......................... iShares Dow Jones US Industrial Sector
Index Fund
IYK.......................... iShares Dow Jones US Consumer Goods
Sector Index Fund
IYM.......................... iShares Dow Jones US Basic Materials
Sector Index Fund
IYR.......................... iShares Dow Jones US Real Estate Index
Fund
IYT.......................... iShares Dow Jones Transportation Average
Index Fund
IYW.......................... iShares Dow Jones US Technology Sector
Index Fund
IYY.......................... iShares Dow Jones US Index Fund
IYZ.......................... iShares Dow Jones US Telecommunications
Sector Index Fund
JJC.......................... iPath Dow Jones-UBS Copper Subindex Total
Return ETN
JJG.......................... iPath Dow Jones-UBS Grains Subindex Total
Return ETN
JNK.......................... SPDR Barclays Capital High Yield Bond ETF
JXI.......................... iShares S&P Global Utilities Sector Index
Fund
JYN.......................... iPath JPY/USD Exchange Rate ETN
KBE.......................... SPDR S&P Bank ETF
KBWB......................... PowerShares KBW Bank Portfolio
KIE.......................... SPDR S&P Insurance ETF
KOL.......................... Market Vectors Coal ETF
KRE.......................... SPDR S&P Regional Banking ETF
KXI.......................... iShares S&P Global Consumer Staples
Sector Index Fund
LAG.......................... SPDR Barclays Capital Aggregate Bond ETF
LQD.......................... iShares iBoxx Investment Grade Corporate
Bond Fund
LTPZ......................... PIMCO 15+ Year US TIPS Index Fund
LWC.......................... SPDR Barclays Capital Long Term Corporate
BondETF
MBB.......................... iShares Barclays MBS Bond Fund
MBG.......................... SPDR Barclays Capital Mortgage Backed
Bond ETF
MCHI......................... iShares MSCI China Index Fund
MDY.......................... SPDR S&P MidCap 400 ETF Trust
[[Page 33519]]
MGC.......................... Vanguard Mega Cap 300 ETF
MGK.......................... Vanguard Mega Cap 300 Growth ETF
MINT......................... PIMCO Enhanced Short Maturity Strategy
Fund
MLPI......................... UBS E-TRACS Alerian MLP Infrastructure
ETN
MLPN......................... Credit Suisse Cushing 30 MLP Index ETN
MOO.......................... Market Vectors Agribusiness ETF
MUB.......................... iShares S&P National Municipal Bond Fund
MXI.......................... iShares S&P Global Materials Sector Index
Fund
MYY.......................... ProShares Short MidCap 400
NKY.......................... MAXIS Nikkei 225 Index Fund ETF
OEF.......................... iShares S&P 100 Index Fund
OIH.......................... Market Vectors Oil Service ETF
OIL.......................... iPath Goldman Sachs Crude Oil Total
Return Index ETN
PALL......................... ETFS Physical Palladium Shares
PBJ.......................... Powershares Dynamic Food & Beverage
Portfolio
PCEF......................... PowerShares CEF Income Composite
Portfolio
PCY.......................... PowerShares Emerging Markets Sovereign
Debt Portfolio
PDP.......................... Powershares DWA Technical Leaders
Portfolio
PEY.......................... PowerShares High Yield Equity Dividend
Achievers Portfolio
PFF.......................... iShares S&P US Preferred Stock Index Fund
PFM.......................... PowerShares Dividend Achievers Portfolio
PGF.......................... PowerShares Financial Preferred Portfolio
PGX.......................... PowerShares Preferred Portfolio
PHB.......................... PowerShares Fundamental High Yield
Corporate Bond Portfolio
PHO.......................... PowerShares Water Resources Portfolio
PHYS......................... Sprott Physical Gold Trust
PID.......................... PowerShares International Dividend
Achievers Portfolio
PIE.......................... PowerShares DWA Emerging Markets
Technical Leaders Portfolio
PIN.......................... PowerShares India Portfolio
PJP.......................... Powershares Dynamic Pharmaceuticals
Portfolio
PLW.......................... PowerShares 1-30 Laddered Treasury
Portfolio
PPH.......................... Market Vectors Pharmaceutical ETF
PPLT......................... ETFS Platinum Trust
PRF.......................... Powershares FTSE RAFI US 1000 Portfolio
PRFZ......................... PowerShares FTSE RAFI US 1500 Small-Mid
Portfolio
PSLV......................... Sprott Physical Silver Trust
PSP.......................... PowerShares Global Listed Private Equity
Portfolio
PSQ.......................... ProShares Short QQQ
PVI.......................... PowerShares VRDO Tax Free Weekly
Portfolio
PXH.......................... PowerShares FTSE RAFI Emerging Markets
Portfolio
PZA.......................... PowerShares Insured National Municipal
Bond Portfolio
QQQ.......................... Powershares QQQ Trust Series 1
REM.......................... iShares FTSE NAREIT Mortgage Plus Capped
Index Fund
REMX......................... Market Vectors Rare Earth/Strategic
Metals ETF
REZ.......................... iShares FTSE NAREIT Residential Plus
Capped Index Fund
RFG.......................... Guggenheim S&P Midcap 400 Pure Growth ETF
RJA.......................... ELEMENTS Linked to the Rogers
International Commodity Index--Agri Tot
Return
RJI.......................... ELEMENTS Linked to the Rogers
International Commodity Index--Total
Return
RJN.......................... ELEMENTS Linked to the Rogers
International Commodity Index--Energy To
Return
RJZ.......................... ELEMENTS Linked to the Rogers
International Commodity Index--Metals
Tot Return
RPG.......................... Guggenheim S&P 500 Pure Growth ETF
RSP.......................... Guggenheim S&P 500 Equal Weight ETF
RSX.......................... Market Vectors Russia ETF
RTH.......................... Market Vectors Retail ETF
RWM.......................... ProShares Short Russell 2000
RWO.......................... SPDR Dow Jones Global Real Estate ETF
RWR.......................... SPDR Dow Jones REIT ETF
RWX.......................... SPDR Dow Jones International Real Estate
ETF
RYH.......................... Guggenheim S&P 500 Equal Weight
Healthcare ETF
SAGG......................... Direxion Daily Total Bond Market Bear 1x
Shares
SCHA......................... Schwab US Small-Cap ETF
SCHB......................... Schwab US Broad Market ETF
SCHD......................... Schwab US Dividend Equity ETF
SCHE......................... Schwab Emerging Markets Equity ETF
SCHF......................... Schwab International Equity ETF
SCHG......................... Schwab U.S. Large-Cap Growth ETF
SCHH......................... Schwab U.S. REIT ETF
SCHM......................... Schwab U.S. Mid-Cap ETF
SCHO......................... Schwab Short-Term U.S. Treasury ETF
SCHP......................... Schwab U.S. TIPs ETF
SCHR......................... Schwab Intermediate-Term U.S. Treasury
ETF
SCHV......................... Schwab U.S. Large-Cap Value ETF
[[Page 33520]]
SCHX......................... Schwab US Large-Cap ETF
SCHZ......................... Schwab U.S. Aggregate Bond ETF
SCPB......................... SPDR Barclays Capital Short Term
Corporate Bond ETF
SCZ.......................... iShares MSCI EAFE Small Cap Index Fund
SDY.......................... SPDR S&P Dividend ETF
SEF.......................... ProShares Short Financials
SGG.......................... iPath Dow Jones-UBS Sugar Subindex Total
Return ETN
SGOL......................... ETFS Gold Trust
SH........................... ProShares Short S&P 500
SHM.......................... SPDR Nuveen Barclays Capital Short Term
Municipal Bond ETF
SHV.......................... iShares Barclays Short Treasury Bond Fund
SHY.......................... iShares Barclays 1-3 Year Treasury Bond
Fund
SIL.......................... Global X Silver Miners ETF
SIVR......................... ETFS Physical Silver Shares
SJB.......................... ProShares Short High Yield
SJNK......................... SPDR Barclays Capital Short Term High
Yield Bond ETF
SLV.......................... iShares Silver Trust
SLX.......................... Market Vectors Steel Index Fund
SMH.......................... Market Vectors Semiconductor ETF
SOXX......................... iShares PHLX SOX Semiconductor Sector
Index Fund
SPLV......................... PowerShares S&P 500 Low Volatility
Portfolio
SPY.......................... SPDR S&P 500 ETF Trust
SPYG......................... SPDR S&P 500 Growth ETF
SPYV......................... SPDR S&P 500 Value ETF
STIP......................... iShares Barclays 0-5 Year TIPS Bond Fund
STPP......................... iPath US Treasury Steepener ETN
STPZ......................... PIMCO 1-5 Year US TIPS Index Fund
SUB.......................... iShares S&P Short Term National AMT-Free
Municipal Bond Fund
SVXY......................... ProShares Short VIX Short-Term Futures
ETF
TAN.......................... Guggenheim Solar ETF
TBF.......................... ProShares Short 20+ Year Treasury
TBX.......................... ProShares Short 7-10 Treasury
TFI.......................... SPDR Nuveen Barclays Capital Municipal
Bond ETF
THD.......................... iShares MSCI Thailand Index Fund
TIP.......................... iShares Barclays TIPS Bond Fund
TLH.......................... iShares Barclays 10-20 Year Treasury Bond
Fund
TLT.......................... iShares Barclays 20+ Year Treasury Bond
Fund
TUR.......................... iShares MSCI Turkey Index Fund
UDN.......................... PowerShares DB US Dollar Index Bearish
Fund
UGA.......................... United States Gasoline Fund LP
UNG.......................... United States Natural Gas Fund LP
URA.......................... Global X Uranium ETF
USCI......................... United States Commodity Index Fund
USL.......................... United States 12 Month Oil Fund LP
USO.......................... United States Oil Fund LP
UUP.......................... PowerShares DB US Dollar Index Bullish
Fund
VAW.......................... Vanguard Materials ETF
VB........................... Vanguard Small-Cap ETF
VBK.......................... Vanguard Small-Cap Growth ETF
VBR.......................... Vanguard Small-Cap Value ETF
VCIT......................... Vanguard Intermediate-Term Corporate Bond
ETF
VCLT......................... Vanguard Long-Term Corporate Bond ETF
VCR.......................... Vanguard Consumer Discretionary ETF
VCSH......................... Vanguard Short-Term Corporate Bond ETF
VDC.......................... Vanguard Consumer Staples ETF
VDE.......................... Vanguard Energy ETF
VEA.......................... Vanguard MSCI EAFE ETF
VEU.......................... Vanguard FTSE All-World ex-US ETF
VFH.......................... Vanguard Financials ETF
VGK.......................... Vanguard MSCI European ETF
VGT.......................... Vanguard Information Technology ETF
VHT.......................... Vanguard Health Care ETF
VIG.......................... Vanguard Dividend Appreciation ETF
VIIX......................... VelocityShares VIX Short Term ETN
VIOO......................... Vanguard S&P Small-Cap 600 ETF
VIS.......................... Vanguard Industrials ETF
VIXM......................... ProShares VIX Mid-Term Futures ETF
VIXY......................... ProShares VIX Short-Term Futures ETF
VMBS......................... Vanguard Mortgage-Backed Securities ETF
VNM.......................... Market Vectors Vietnam ETF
VNQ.......................... Vanguard REIT ETF
VO........................... Vanguard Mid-Cap ETF
[[Page 33521]]
VOE.......................... Vanguard Mid-Cap Value Index Fund/Closed-
end
VONE......................... Vanguard Russell 1000
VONG......................... Vanguard Russell 1000 Growth ETF
VONV......................... Vanguard Russell 1000 Value
VOO.......................... Vanguard S&P 500 ETF
VOOG......................... Vanguard S&P 500 Growth ETF
VOOV......................... Vanguard S&P 500 Value ETF
VOT.......................... Vanguard Mid-Cap Growth Index Fund/Closed-
end
VOX.......................... Vanguard Telecommunication Services ETF
VPL.......................... Vanguard MSCI Pacific ETF
VPU.......................... Vanguard Utilities ETF
VQT.......................... Barclays ETN+ ETNs Linked to the S&P 500
Dynamic VEQTORTM TotaL Return Index
VSS.......................... Vanguard FTSE All World ex-US Small-Cap
ETF
VT........................... Vanguard Total World Stock Index Fund ETF
VTHR......................... Vanguard Russell 3000
VTI.......................... Vanguard Total Stock Market ETF
VTV.......................... Vanguard Value ETF
VTWG......................... Vanguard Russell 2000 Growth
VTWO......................... Vanguard Russell 2000
VTWV......................... Vanguard Russell 2000 Value
VUG.......................... Vanguard Growth ETF
VV........................... Vanguard Large-Cap ETF
VWO.......................... Vanguard MSCI Emerging Markets ETF
VXAA......................... ETRACS 1-Month S&P 500 VIX Futures ETN
VXEE......................... ETRACS 5-Month S&P 500 VIX Futures ETN
VXF.......................... Vanguard Extended Market ETF
VXUS......................... Vanguard Total International Stock ETF
VXX.......................... iPATH S&P 500 VIX Short-Term Futures ETN
VXZ.......................... iPATH S&P 500 VIX Mid-Term Futures ETN
VYM.......................... Vanguard High Dividend Yield ETF
VZZB......................... iPath Long Enhanced S&P 500 VIX Mid-Term
FuturesTM ETN II
WDTI......................... WisdomTree Managed Futures Strategy Fund
WIP.......................... SPDR DB International Government
Inflation-Protected Bond ETF
XBI.......................... SPDR S&P Biotech ETF
XES.......................... SPDR S&P Oil & Gas Equipment & Services
ETF
XHB.......................... SPDR S&P Homebuilders ETF
XIV.......................... VelocityShares Daily Inverse VIX Short
Term ETN
XLB.......................... Materials Select Sector SPDR Fund
XLE.......................... Energy Select Sector SPDR Fund
XLF.......................... Financial Select Sector SPDR Fund
XLG.......................... Guggenheim Russell Top 50 ETF
XLI.......................... Industrial Select Sector SPDR Fund
XLK.......................... Technology Select Sector SPDR Fund
XLP.......................... Consumer Staples Select Sector SPDR Fund
XLU.......................... Utilities Select Sector SPDR Fund
XLV.......................... Health Care Select Sector SPDR Fund
XLY.......................... Consumer Discretionary Select Sector SPDR
Fund
XME.......................... SPDR S&P Metals & Mining ETF
XOP.......................... SPDR S&P Oil & Gas Exploration &
Production ETF
XPH.......................... SPDR S&P Pharmaceuticals ETF
XRT.......................... SPDR S&P Retail ETF
XSD.......................... SPDR S&P Semiconductor ETF
XXV.......................... iPath Inverse S&P 500 VIX Short-Term
Futures ETN
ZROZ......................... PIMCO 25+ Year Zero Coupon US Treasury
Index Fund
------------------------------------------------------------------------
Appendix B--Data
Unless otherwise specified, the following data shall be
collected and transmitted to the SEC in an agreed-upon format on a
monthly basis, to be provided 30 calendar days following month end.
Unless otherwise specified, the Primary Listing Exchanges shall be
responsible for collecting and transmitting the data to the SEC.
Data collected in connection with Sections II(E)-(G) below shall be
transmitted to the SEC with a request for confidential treatment
under the Freedom of Information Act. 5 U.S.C. 552, and the SEC's
rules and regulations thereunder.
I. Summary Statistics
A. Frequency with which NMS Stocks enter a Limit State. Such
summary data shall be broken down as follows:
1. Partition stocks by category
a. Tier 1 non-ETP issues >$3.00
b. Tier 1 non-ETP issues > =$0.75 and =$3.00
c. Tier 1 non-ETP issues <$0.75 d. Tier 1 non-leveraged ETPs in each of above categories e. Tier 1 leveraged ETPs in each of above categories f. Tier 2 non-ETPs in each of above categories g. Tier 2 non-leveraged ETPs in each of above categories h. Tier 2 leveraged ETPs in each of above categories 2. Partition by time of day a. Opening (prior to 9:45 a.m. ET) b. Regular (between 9:45 a.m. ET and 3:35 p.m. ET) c. Closing (after 3:35 p.m. ET) d. Within five minutes of a Trading Pause re-open or IPO open [[Page 33522]] 3. Track reasons for entering a Limit State, such as: a. Liquidity gap -price reverts from a Limit State Quotation and returns to trading within the Price Bands b. Broken trades c. Primary Listing Exchange manually declares a Trading Pause pursuant to Section (VII)(2) of the Plan d. Other B. Determine (1), (2) and (3) for when a Trading Pause has been declared for an NMS Stock pursuant to the Plan. II. Raw Data (all Participants, except A-E, which are for the Primary Listing Exchanges only) A. Record of every Straddle State. 1. Ticker, date, time entered, time exited, flag for ending with Limit State, flag for ending with manual override. 2. Pipe delimited with field names as first record. B. Record of every Price Band 1. Ticker, date, time at beginning of Price Band, Upper Price Band, Lower Price Band 2. Pipe delimited with field names as first record C. Record of every Limit State 1. Ticker, date, time entered, time exited, flag for halt 2. Pipe delimited with field names as first record D. Record of every Trading Pause or halt 1. Ticker, date, time entered, time exited, type of halt (i.e., regulatory halt, non-regulatory halt, Trading Pause pursuant to the Plan, other) 2. Pipe delimited with field names as first record E. Data set or orders entered into reopening auctions during halts or Trading Pauses 1. Arrivals, Changes, Cancels, shares, limit/market, side,
Limit State side
2. Pipe delimited with field name as first record
F. Data set of order events received during Limit States
G. Summary data on order flow of arrivals and cancellations for
each 15-second period for discrete time periods and sample stocks to
be determined by the SEC in subsequent data requests. Must indicate
side(s) of Limit State.
1. Market/marketable sell orders arrivals and executions
a. Count
b. Shares
c. Shares executed
2. Market/marketable buy orders arrivals and executions
a. Count
b. Shares
c. Shares executed
3. Count arriving, volume arriving and shares executing in limit
sell orders above NBBO mid-point
4. Count arriving, volume arriving and shares executing in limit
sell orders=NBBO mid-point (non-marketable)
5. Count arriving, volume arriving and shares executing in limit buy
orders above NBBO mid-point (non-marketable)
6. Count arriving, volume arriving and shares executing in limit buy
orders below NBBO mid-point
7. Count and volume arriving of limit sell orders priced at or above
NBBO+$0.05
8. Count and volume arriving of limit buy orders priced at or below
NBBO-$0.05
9. Count and volume of (iii-viii) for cancels
10. Include: Ticker, date, time at start, time of Limit State, data
item fields, last sale prior to 1-minute period (null if no trades
today), range during 15-second period, last trade during 15-second
period
III. At Least Two Months Prior to the End of the Pilot Period, All
Participants Shall Provide to the SEC Assessments Relating to Impact of
the Plan and Calibration of the Percentage Parameters as Follows:
A. Assess the statistical and economic impact on limit order
book of approaching Price Bands.
B. Assess the statistical and economic impact of the Price Bands
on erroneous trades.
C. Assess the statistical and economic impact of the
appropriateness of the Percentage Parameters used for the Price
Bands.
D. Assess whether the Limit State is the appropriate length to
allow for liquidity replenishment when a Limit State is reached
because of a temporary liquidity gap.
E. Evaluate concerns from the options markets regarding the
statistical and economic impact of Limit States on liquidity and
market quality in the options markets. (Participants that operate
options exchange should also prepare such assessment reports.)
F. Assess whether the process for entering a Limit State should
be adjusted and whether Straddle States are problematic.
G. Assess whether the process for exiting a Limit State should
be adjusted.
H. Assess whether the Trading Pauses are too long or short and
whether the reopening procedures should be adjusted.
[FR Doc. 2012-13653 Filed 6-5-12; 8:45 am]
BILLING CODE 8011-01-P