Financial Industry Regulatory Authority

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Financial Industry Regulatory Authority

Marcia E. Asquith

Executive Vice President,

Board and External Relations

Direct:

Fax:

(202) 728-8831

(202) 728-8300

February 1, 2018

Robert W. Errett

Deputy Secretary

U.S. Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549-1090

Re:

Exemptive Application Pursuant to Rule 608 of Regulation NMS NMS Plan to Implement a Tick Size Pilot Program

Dear Mr. Errett:

Pursuant to Rule 608(e) of Regulation NMS under the Securities Exchange Act

of 1934 ("Exchange Act"), Financial Industry Regulatory Authority, Inc. ("FINRA"),

on behalf of itself and Bats BZX Exchange, Inc., Bats BYX Exchange, Inc., Bats

EDGA Exchange, Inc., Bats EDGX Exchange, Inc., Chicago Stock Exchange, Inc.,

Investors Exchange LLC, NASDAQ BX, Inc., NASDAQ PHLX LLC, The Nasdaq

Stock Market LLC, NYSE National, Inc., New York Stock Exchange LLC, NYSE

American LLC, and NYSE Arca, Inc. (collectively, "Participants"), requests that the

Securities and Exchange Commission ("Commission" or "SEC") grant an exemption

from the requirement that the Participants provide the Commission and make publicly

available a joint assessment of the impact of the National Market System Plan to

Implement a Tick Size Pilot Program ("Plan" or "Pilot") 1 no later than eighteen

months after the start of the Pilot Period to provide the Participants an additional three

months until July 3, 2018, as discussed below.2

See Securities Exchange Act Release No. 74892 (May 6, 2015), 80 FR 27513

(May 13, 2015) ("Approval Order").

Capitalized terms used herein, but not otherwise defined, shall have the

meanings ascribed to them in the Plan.

Investor protection. Market integrity.

1735 K Street, NW

Washington, DC

20006-1506

t 202 728 8000

www.finra.org

Robert Errett

February 1, 2018

Page 2 of 6

Background

On August 25, 2014, the Participants filed the Plan3 with the Commission,

pursuant to Section I IA of the Act4 and Rule 608 of Regulation NMS thereunder. 5

The Participants filed the Plan to comply with an order issued by the Commission on

June 24, 2014. 6 The Plan was published for comment in the Federal Register on

November 7, 2014, and approved by the Commission, as modified, on May 6, 2015. 7

The Commission approved the Pilot on a two-year basis, with implementation to begin

no later than May 6, 2016. 8 On November 6, 2015, the SEC provided an exemption to

the Participants from implementing the Pilot until October 3, 2016. 9

The Plan is designed to allow the Commission, market participants, and the

public to study and assess the impact of increment conventions on the liquidity and

trading of the common stock of small-capitalization companies. Each Participant is

required to comply, and to enforce compliance by its member organizations, as

applicable, with the provisions of the Plan, including the Plan's data collection and

publication requirements. Among other things, the Plan provides for the collection of

specified data, the transmission of data to the SEC, and the publication of data on

Participant websites. 10 The Plan generally requires a Trading Center or a Market

Maker to collect and transmit certain data to its DEA, and requires DEAs to transmit

this data to the Commission. Participants that operate a Trading Center are required

under the Plan to collect certain data, which is then transmitted to the Commission.

Section VII of the Plan requires that specified information collected pursuant to

Appendices B and C to the Plan be made publicly available by each Participant on its

respective website for free. 11

See Letter from Brendon J. Weiss, Vice President, Intercontinental Exchange,

Inc., to Secretary, Commission, dated August 25, 2014.

15 U.S.C. 78k-l.

17 CFR 242.608.

See Securities Exchange Act Release No. 72460 (June 24, 2014), 79 FR 36840

(June 30, 2014).

See Approval Order.

Id.

See Securities Exchange Act Release No. 76382 (November 6, 2015), 80 FR

70284 (November 13, 2015).

See Section VII of the Plan. See also Appendices B and C to the Plan.

See Section VIl(A) of the Plan.

Robert Errett

February 1, 2018

Page 3 of 6

The Plan also requires that the Participants provide to the Commission and

make publicly available a joint assessment of the impact of the Pilot ("Assessment"). 12

The Assessment must be conducted using data generated during the first twelve

months of the Pilot Period, or a subset of which that represents the impact of the Pilot.

The Plan requires that the Participants submit and make the Assessment publicly

available no later than eighteen months after the start of the Pilot Period. The Pilot

began on October 3, 2016; therefore, the Assessment is due by April 3, 2018. The

Participants are seeking exemptive relief to extend the Assessment due date for three

months, until July 3, 2018.

Rule 608 and the Proposed Exemption

Rule 608(c) of Regulation NMS provides that "[eJach self-regulatory

organization shall comply with the terms of any effective national market system plan

of which it is a sponsor or a participant. Each self-regulatory organization also shall,

absent reasonable justification or excuse, enforce compliance with any such plan by its

members and persons associated with its members." 13 Rule 608(e) allows the

Commission to "exempt from the provisions of this section, either unconditionally or

on specified terms and conditions, any self-regulatory organization, member thereof,

or specified security, if the Commission determines that such exemption is consistent

with the public interest, the protection of investors, the maintenance of fair and orderly

markets and the removal of impediments to, and perfection of the mechanisms of, a

national market system." 14 The Participants are seeking exemptive relief from Section

VIII of the Plan, as set forth below.

Section VIII of the Plan generally provides that, by April 3, 2018, the

Participants must submit to the Commission and make publicly available a joint

assessment of the impact of the Pilot. The Plan requires that the Assessment include:

•

An assessment of the statistical and economic impact of an increase in the

quoting increment on market quality;

•

An assessment of the statistical and economic impact of an increase in the

quoting increment on the number of Market Makers;

The Plan provides that Participants may individually submit to the SEC and

make publicly available additional supplemental assessments of the impact of

the Pilot.

17 CFR 242.608(c).

17 CFR 242.608(e).

Robert Errett

February 1, 2018

Page 4 of 6

•

An assessment of the statistical and economic impact of an increase in the

quoting increment on Market Maker participation;

•

An assessment of the statistical and economic impact of an increase in the

quoting increment on Market Maker profits;

•

An assessment of the statistical and economic impact of an increase in the

quoting increment on market transparency;

•

An evaluation whether any market capitalization, daily trading volume, or

other thresholds can differentiate the results of the above assessments

across stocks (e.g., does the quoting increment impact differently those

stocks with daily trading volume below a certain threshold);

•

An assessment of the statistical and economic impact of the above

assessments for the incremental impact of a trading increment and for the

joint effect of an increase in a quoting increment with the addition of a

trading increment;

•

An assessment of the statistical and economic impact of the above

assessments for the incremental impact of a trade-at prohibition and for the

joint effect of an increase in a quoting increment with the addition of a

trading increment and a trade-at prohibition; and

•

An assessment of any other economic issues that the Participants believe

the SEC should consider in any rulemaking that may follow the Pilot.

The above assessments and evaluation must be performed using the Tick Size

data generated during the Pilot Period, which the Participants have been collecting,

submitting to the SEC, and making publicly available since February 28, 2017 (in the

case of Appendix C data) and August 31, 2017 (in the case of Appendix B data). 15

Several Participants have identified errors in the Tick Size data files on which

the Assessment's analyses and conclusions would be based. 16 The identified errors,

some of which the Participants deem to be material, are in the process of being

See, e.g., Securities Exchange Act Release No. 80179 (March 8, 2017), 82 FR

13698 (March 14, 2017) (Notice of Filing and Immediate Effectiveness of File

No. SR-FINRA-2017-005); Securities Exchange Act Release No. 80646 (May

10, 2017), 82 FR 22589 (May 16, 2017) (Notice of Filing and Immediate

Effectiveness of File No. SR-FINRA-2017-010).

For information on the scope of the identified errors, see participant websites.

See. e.g., announcements on http://www.finra.org/industry/tick-size-pilot

program.

Robert Errett

February 1, 2018

Page 5 of 6

corrected by the Participants. 17 The Participants believe that the Assessment deadline

should be extended so that corrected data can be used for the analyses. For example,

calculation errors relating to the number of shares of orders executed with price

improvement 18 may negatively affect the Assessment because researchers may draw

an incorrect statistical inference or misinterpret the economic meaning of an increase

in the quoting increment on market quality. In addition, calculation errors relating to

quoted size at the national best bid and national best offer 19 may negatively affect the

Assessment because researchers may draw an incorrect statistical inference or

misinterpret the economic meaning of an increase in the quoting increment on market

quality and market transparency. As a result, the Participants have concluded that it is

not feasible to perform the Assessment until complete and accurate Tick Size data on

which to base the analyses becomes available, which should occur on February 28,

2018. 20

The Participants do not believe that the approximately one month between the

availability of complete and accurate Tick Size data (at the end of February 2018) and

the current Assessment due date of April 3, 2018, will provide sufficient time to

perform the analyses required by Section VIII of the Plan. The Participants believe

that, once complete and accurate data is available, a minimum of four months will be

needed to take all steps necessary to complete the Assessment, including aggregating

the corrected data from all Participants, performing the required analyses, validating

analyses, and drafting and finalizing the Assessment report.

In light of this, the Participants believe that extending the period by which the

Participants must submit and make publicly available the Assessment would result in

drawing more accurate conclusions regarding the impact of the Tick Size Pilot, and in

the overall quality of the Assessment that can be produced. Thus, the Participants

believe that the requested exemption to permit the Participants to submit the

Assessment to the Commission and make it publicly available by July 3, 2018, is

appropriate.

*****

For the reasons set forth above, the Participants respectfully request that,

pursuant to Rule 608(e), the Commission grant exemptive relief to the provision in the

Plan as set forth above. The Participants therefore believe that this exemption is

consistent with the public interest, the protection of investors, the maintenance of fair

Id.