Re: Plan to Implement a Tick Size Pilot Program (the "Plan")

Brendan J. Weiss
Vice President
Intercontinental Exchange
INYSE
IIIIII
Intercontinental Exchange
1 NYSE
NYSE
801 Pennsylvania Avenue, NW
Washington,
DC 20004
202-661-8979
August 25, 2014
VIA EMAIL AND FEDEX
Secretary
U.S. Securities and Exchange Commission

100 F Street, N.E.

Washington,
DC 20549-1 090

Re: Plan to Implement a Tick Size Pilot Program (the "Plan")
Dear Secretary:
NYSE Group, Inc., on
behalf ofNew York Stock Exchange LLC, NYSE MKT LLC, NYSE
Area, Inc., BATS Exchange, Inc., BATS Y-Exchange, Inc., Chicago Stock Exchange, Inc.,
EDGA Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory Authority, Inc.,
NASDAQ
OMX BX, Inc., NASDAQ OMX PHLX LLC, and The Nasdaq Stock Market LLC
(collectively, the "Participants"), respectfully files the Plan with the Securities and Exchange
Commission (the "Commission") for approval pursuant to Rule 608 ofRegulation NMS ("Rule
608") under the Securities Exchange Act
of 1934 ("Exchange Act").
1
Requirements Pursuant to Rule 608(a)
A. Statement ofPurpose
The Participants are filing the proposed Plan in order to implement a pilot program for a one­
year pilot period ("Pilot Period") that, among other things, would widen the quoting and trading
increments for certain small capitalization stocks ("Tick Size Pilot Program"). The purpose
of
the Plan, and the Tick Size Pilot Program it contains, is to assist the Commission, market
participants, and the public in studying and assessing the impact
ofincrement conventions on the
liquidity and trading
of stocks of small capitalization companies. The Plan sets forth proposed
procedures for selecting a representative group
of stocks ofsmall capitalization companies
("Pilot Securities") and subjecting groups
ofthose Pilot Securities ("Test Groups") to various
requirements with regards to quoting and trading increments.
1
The Plan is filed pursuant to the Commission Order directing the Participants to submit a Tick
Size Pilot Plan. See Securities Exchange Act Release No. 72460 (June 24, 2014), 79 FR 36840
(June 30, 2014) ("Tick Size Pilot Plan Order").

Securities and Exchange Commission
August 25, 2014
Page 2
of16
As set forth in more detail in the Plan, Participants will be required to adopt rules to ensure that
Pilot Securities in the Test Groups are quoted and traded in permitted increments?
Selection ofPilot Securities for Inclusion in the Tick Size Pilot Program
Pilot Securities will consist
of those NMS common stocks
3
that satisfy the following criteria:
(1) 	A market capitalization
of$5 billion or less on the last day of the Measurement
Period,
4
where market capitalization is  calculated by multiplying the total number
of shares outstanding on such day by the Closing Price
5
of the security on such
day;
(2) 	A Closing Price
of at least $2.00 on the last day ofthe Measurement Period;
(3) 	A Closing Price on every trading day during the Measurement Period that is  not
less than $1.50;
(4) 	A Consolidated Average Daily Volume ("CADY") during the Measurement
Period
ofone million shares or less, where the CADY is  calculated by adding the
single-counted share volume
of all reported transactions in the NMS common
stock during the Measurement Period and dividing by the total number
of U.S.
trading days during the Measurement Period; and
(5) 	A Measurement Period Volume-Weighted Average Price ("Measurement Period
VWAP") of at least $2.00, where the Measurement Period VWAP is determined
by calculating the VWAP ofthe NMS common stock for each U.S. trading day
during the Measurement Period, summing the daily VW AP across the
Measurement Period, and dividing
by the total number of U.S. trading days
during the Measurement Period.
6
The Participants believe that the above criteria will result in the selection of those stocks that are

most likely to benefit from a larger tick size because such stocks will tend to have higher average

2
Participants operating trading centers will be required, pursuant to the Plan, to ensure that Pilot

Securities in the Test Groups are quoted and traded in permitted increments. As applicable,

members
ofParticipants will be required, pursuant to rules ofself-regulatory organizations, to

ensure that Pilot Securities in the Test Groups are quoted and traded in permitted increments.

3
NMS common stock is defined in the Plan as NMS stock that is common stock of an operating

company.

4
Measurement Period is defined in the Plan as the U.S. trading days during the three-calendar­

month period ending at least 30 days prior to the effective date
ofthe Pilot Period.

5
Closing Price is defined in the Plan as the closing auction price on the primary listing exchange,

or
ifnot available, then the last regular-way trade reported by the processor prior to 4:00p.m.

ET.

6
For purposes ofthe CADY and Measurement Period VWAP calculations, U.S. trading days

during the Measurement Period with early closes will be excluded.

Securities and Exchange Commission
August 25, 2014

effective spreads. Additionally, the criteria should help to ensure that those stocks most likely to
fall below $1.00 during the Pilot Period are not included in the Tick Size Pilot Program.
7
The Participants have decided not to include any NMS common stock that has its initial public
offering within six months
ofthe start ofthe Pilot Period. Such stocks will not have the full set
of data required to be collected under the Plan for the six-month period before the start ofthe
Tick Size Pilot Program. The Participants believe that the value of subjecting such stocks to the
quoting and trading requirements
ofthe Plan is diminished because market participants will not
be able to analyze the effects
ofthe quoting and trading requirements against a sufficient
baseline.
Once the complete list
of Pilot Securities is determined, the Participants will  select, by means of
a stratified random sampling process, the Pilot Securities to be placed into the three Test Groups.
Those Pilot Securities not placed into the three Test Groups will constitute the Control Group.
To effect the stratified random sampling, the Pilot Securities will be categorized based on price,
market capitalization, and trading volume, and each
ofthose three categories will be further
subdivided into low, medium, or high subcategories.
8
As a result, the Pilot Securities will be
grouped into a total
of27 categories.
The Tick Size Pilot Plan Order called for the selection of Pilot Securities by means of a stratified
random sampling process with the Pilot Securities categorized based on only price and market
capitalization.
9
The Plan also requires categorization by trading volume. The Participants
believe that the addition ofthe trading volume category will create more detailed groups of Pilot
Securities that will, in tum, lead to a diverse set
of stocks selected for inclusion into each Test
Group. The Participants believe that the more detailed groups will aid in the assessment process
described below
by permitting the Commission, market participants, and the public to review the
effects
ofthe quoting and trading increment requirements on stocks with a variety of
characteristics.
A random sample of Pilot Securities from each of the 27 categories will be placed into the three
Test Groups in a number proportional to the category's size relative to the population
of Pilot
Securities. So, for example, ifthe category consisting ofhigh priced, high market capitalization,
and medium trading volume Pilot Securities contained 5%
ofthe Pilot Securities, that category
would make up 5%
of each Test Group. Further, a primary listing market's stocks will be
selected from each category and included in the three Test Groups in the same proportion as that
primary listing market's stocks comprise each category
ofPilot Securities.
7
While the criteria are designed to avoid selecting an NMS common stock likely to fall below
$1.00, a Pilot Security that falls below $1.00 during the Pilot Period will remain in the Tick Size
Pilot Program.
8
Low, medium, and high subcategories will be established by dividing the categories into three
farts, each containing a third
ofthe population.
See Tick Size Pilot Plan Order at 36844.

Securities and Exchange Commission
August 25, 2014

Each Test Group will consist of 400 Pilot Securities and the Control Group will consist ofthe
remaining Pilot Securities. The Participants believe that including 400 Pilot Securities in each
Test Group will allow each Test Group to be statistically large enough to generate data to
reliably test for the effects
of a larger tick size. Additionally, if any Pilot Securities need to be
removed from the data analysis due to unforeseen events, the Participants believe that including
400 Pilot Securities in each Test Group will ensure that the data on the remaining Pilot Securities
will
be sufficient to complete the required assessments.
Each primary listing exchange will make publicly available for free on its website a list
ofthose
Pilot Securities listed
on that exchange and included in the Control Group and each Test Group.
The list will be adjusted for ticker symbol changes and relevant corporate actions and will
contain the data specified in Appendix A to the Plan.
Control and Test Groups' Increment Conventions and Trade-at Restrictions
During the Pilot Period, the Control Group and Test Groups will be subjected to quoting and
trading increment requirements designed to allow the Commission, market participants, and the
public to assess the effect
ofpricing increment decimalization on small capitalization companies.
Pilot Securities in the Control Group may be quoted and traded at any price increment that is
currently permitted.
10
Maintaining the Control Group with the current quoting and trading
increments will provide a baseline to analyze the economic effects
ofthe wider quoting and
trading increments required
by the Test Groups.
Pilot Securities in Test Group One will be quoted in $0.05 minimum increments but may
continue to trade at any price increment that is  currently permitted. Participants will adopt rules
prohibiting Participants
or any member ofa Participant from displaying, ranking, or accepting
from any person any displayable and non-displayable bids or offers, orders, or indications
of
interest in any Pilot Security in Test Group One in price increments other than $0.05. However,
orders priced to execute at the midpoint and orders entered into a Participant-operated retail
liquidity program
may be ranked and accepted in increments ofless than $0.05.
Pilot Securities in Test Group Two will be subject
to the same quoting requirements as Test
Group One, along with the applicable quoting exceptions. In addition, Pilot Securities in Test
Group Two may only be traded in $0.05 minimum increments. Participants will adopt rules
prohibiting trading centers
11
operated by Participants and members ofParticipants from
executing orders in any Pilot Security in Test Group Two in price increments other than $0.05.
10
Consistent with Rule 612(b) of Regulation NMS, bids or offers, orders, or indications of
interest priced less than $1.00 per share for Pilot Securities in the Control Group may be
displayed, ranked, or accepted in $0.0001 increments.
11
Trading center is defined in the Plan as having the same meaning as that provided in Rule
600(b )(78)
of Regulation NMS under the Exchange Act.

Securities and Exchange Commission
August 25, 2014

The $0.05 minimum trading increment will apply to brokered cross trades.
12
Pilot Securities in
Test Group Two may trade in increments less than $0.05 under the following circumstances:
(1) 	Trading may occur at the midpoint between the National Best Bid and the
National Best Offer ("NBBO") or the midpoint between the best protected bid and
the best protected offer;
(2) 	Retail Investor Orders
13
may be provided with price improvement that is  at least
$0.005 better than the best protected bid or the best protected offer; and
(3) 	Negotiated Trades
14
may trade in increments less than $0.05.
Pilot Securities in Test Group Three will be subject to the same quoting and trading requirements
as Test Group Two, along with the applicable quoting and trading exceptions. In addition, Pilot
12
A brokered cross trade is defined in the Plan as a trade that a broker-dealer that is a member of
a Participant executes directly by matching simultaneous buy and sell orders for a Pilot Security.
13
A Retail Investor Order is defined in the Plan as an agency order or a riskless principal order
originating from a natural person, provided that, prior to submission, no change is made to the
terms
ofthe order with respect to price or side ofmarket and the order does not originate from a
trading algorithm or any other computerized methodology. Such orders include those retail
orders entered into Participant-operated retail liquidity programs. The Participant that is the
Designated Examining Authority
of a member of a Participant operating a trading center
executing a Retail Investor Order will require such trading center to sign an attestation that
substantially all orders to
be executed as Retail Investor Orders will qualify as such under the
Plan.
14
A Negotiated Trade is defined in the Plan as: (i) a Benchmark trade, including, but not limited
to, a Volume-Weighted Average Price trade or a Time-Weighted Average Price trade, provided
that,
if such a trade is comprised oftwo or more component trades, each component trade
complies with the quoting and trading increment requirements
ofthe Plan, or with an exception
to such requirements, or (ii) a Pilot Qualified Contingent Trade. A Benchmark Trade is defined
in the Plan as the execution of an order at a price that was not based, directly or indirectly, on the
quoted price
of a Pilot Security at the time of execution and for which the material terms were
not reasonably determinable at the time the commitment to execute the order was made. A Pilot
Qualified Contingent Trade is defined in the Plan as a transaction consisting of two or more
component orders, executed as agent or principal, where: (1) at least one component order is in
an NMS common stock; (2) all components are effected with a product or price contingency that
either has been agreed to by the respective counterparties or arranged for by a broker-dealer as
principal or agent; (3) the execution
ofone component is contingent upon the execution of all
other components at or near the same time; (4) the specific relationship between the component
orders
(e.g., the spread between the prices ofthe component orders) is determined at the time the
contingent order is placed; (5) the component orders bear a derivative relationship to one
another, represent different classes
ofshares ofthe same issuer, or involve the securities of
participants in mergers or with intentions to merge that have been announced or since cancelled;
and (6) the transaction is  fully hedged (without regard to any prior existing position) as a result
ofthe other components ofthe contingent trade.

Securities and Exchange Commission
August 25, 2014

Securities
in Test Group Three will be subject to a trade-at prohibition. The purpose ofthe trade­
at prohibition is to assess and gather data with respect to the impact
ofmarket-wide restrictions
on price-matching activity
by market participants that are not quoting aggressively or otherwise
offering liquidity in Pilot Securities at competitive prices. Toward that end, the trade-at
prohibition
ofthe Plan, operating in conjunction with applicable exceptions, generally will
condition the ability
of a trading center to execute at a protected quotation on that trading
center's contemporaneous display
of liquidity, either via a processor
15
or an SRO quotation
feed,
16
at that, or a superior, price level, thereby discouraging passive price-matching and
incentivizing aggressive quoting. Under the trade-at prohibition, the Plan will (1) prevent a
trading center that was not quoting from price-matching protected quotations and (2) permit a
trading center that was quoting at a protected quotation to execute orders at that level, but only
up to the amount
of its displayed size.
The Commission's Tick Size Pilot Plan Order stated that the trade-at prohibition "is intended to
prevent price matching
by a trading center not displaying the NBB0."
17
Accordingly, the Plan
seeks to protect displayed liquidity and to prevent passive-price matching. Based on their
experience observing price competition on the market centers that they regulate and market­
wide, the Participants believe that the most appropriate and workable reference point for
formulating a restriction on price-matching is the standard
of a "protected quotation" rather than
"the NBBO." The "protected quotation" standard would appear to have the following policy,
structural, and operational advantages.
First, the "protected quotation" standard would give broader protection to aggressively displayed
quotes, in that the "NBBO" is limited to the single best order
in the market, while the "protected
quotation" standard encompasses the aggregate
ofthe most aggressively priced displayed
liquidity on all trading centers.
18
Additionally, the Participants believe that not only should the
best protected quotations be protected, but also that all protected quotations should be protected,
as such protected quotations could likewise be the basis for passive price-matching.
Second, the only other difference between the NBBO and the best protected quotations is that the
NBBO would include manual quotations. The Commission has previously recognized that
manual quotations are not within the scope
of liquidity that should be protected for Rule 611 of
15
Processor is defined in the Plan as 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.
16
SRO quotation feed is defined in the Plan as any market data feed disseminated by a self­
regulatory organization.
17
See Tick Size Pilot Plan Order at 36845.
18
See 17 C.F .R. § 242.600(b )( 42). When two or more market centers transmit to the plan
processor identical bids or offers for an NMS security, the best bid or best offer is determined
by
ranking the identical bids or offers by size and then time. As a result, while two market centers
may display identical prices, only one market center will display the national best bid or national
best offer.

Securities and Exchange Commission
August 25, 2014

Regulation NMS ("Rule 611 ")(i.e., trade-through) purposes. Based on their experience
implementing Rule
611 and other provisions related to intermarket display and price priority, the
Participants believe that the scope
ofthe trade-at prohibition in the Plan should be appropriately
aligned with that
ofRegulation NMS.
Third, Participants believe that the trend, in terms
ofthe design and development ofsystems that
perform matching and routing functions, is to reference "protected quotations" rather than "the
NBBO" and that the approach
of the Plan would therefore provide a more workable approach for
the assessment contemplated
by the Plan. Most market centers today track the market center's
view
ofprotected quotations in its automated execution systems in order to comply with Rule
611. Changing such view for trade-at purposes to the market center's view
of the NBBO or to
the NBBO as displayed
by the processor would incur additional development time, operational
complexity and risk, and potentially create unintended conflicts between the logic designed to
comply with Rule
611 and trade-at compliance logic.
Fourth, from a textual and implementation perspective, the Participants believe that achieving as
great a degree
ofdefinitional simplicity is imperative. Specifically, the Participants believe that
the reference to "the NBBO," with continued qualifications excluding manual quotations, would
produce an approach that is unnecessarily more complex than grounding the trade-at prohibition
in the more workable "protected quotation" standard.
In any event, the Plan, as demonstrated below, will prevent those trading centers not displaying
at the best protected quotations from passively price matching those competitive quotations.
If a
trading center is not displayed at a best protected quotation, the trading center will not be able to
execute any orders at that price level without first executing against that displayed liquidity.
Accordingly, the Participants believe that the approach
ofthe Plan is well-grounded in the
discretion
ofRule 611 and directly aligned with both the language and logic of the
Commission's Tick Size Pilot Plan Order.
In accordance with the above reasoning, the Plan provides that Participants will adopt rules
prohibiting trading centers operated
by Participants and members ofParticipants from executing
a sell order for a Pilot Security at the price
of a protected bid or from executing a buy order for a
Pilot Security at the price of a protected offer unless such execution falls within an exception set
forth below.
Trading centers will be permitted to execute an order for a Pilot Security at a price equal to a
protected bid or protected offer under the following circumstances:
(1) 	The order is  executed
by a trading center that is displaying a quotation, via either
a processor or an SRO quotation feed,
19
at a price equal to the traded-at protected
19
The Participants believe that a trading center displaying a quotation either via a processor, as a
protected quotation, or via an SRO quotation feed, as a quotation below the trading center's top­
of-book, should be able to avail themselves
ofthis exception. As detailed in Example 3 below, a

Securities and Exchange Commission
August 25, 2014

quotation but only up to the trading center's full displayed size. Where the
quotation is displayed through a national securities exchange, the execution at the
size
ofthe order must occur against the displayed size on that national securities
exchange. Where the quotation is  displayed through the Alternative Display
Facility or another facility approved
by the Commission that does not provide
execution functionality, the execution at the size
ofthe order must occur against
the displayed size in accordance with the rules
ofthe Alternative Display Facility
or such approved facility;
(2) 	The order is
of Block Size;
20
(3) 	The order is  a Retail Investor Order executed with at least $0.005 price
improvement;
(4) 	The order is  executed when the trading center displaying the protected quotation
that was traded at was experiencing a failure, material delay, or malfunction
ofits
systems or equipment;
(5) 	The order is executed as part
of a transaction that was not a "regular way"
contract;
21
(6) 	The order is executed as part of a single-priced opening, reopening, or closing
transaction
by the trading center;
(7) 	The order is  executed when a protected bid was priced higher than a protected
offer in the Pilot Security;
(8) 	The order is identified as an Intermarket Sweep
Order;
(9) 	The order is  executed
by a trading center that simultaneously routed Trade-at
Intermarket Sweep Orders ("Trade-at ISOs")
22
to execute against the full
displayed size
ofany protected quotation in the Pilot Security that was traded at;
trading center would be able to trade at the price
of a protected quotation against its depth-of­
book displayed quotations in order to promote the display
ofprotected quotations at a more
aggressively-priced quotation.
20
Block Size is defined in the Plan as having the same meaning as that provided in Rule
600(b )(9)
ofRegulation NMS under the Exchange Act.
21
For purposes of the trade-at prohibition, "regular way" contract has the same meaning as the
term is used in Rule
611 (b). In the Regulation NMS Adopting Release, the Commission stated
that "regular way" refers to "bids, offers, and transactions that embody the standard terms and
conditions
of a market." See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR
37496, 37537
n. 326 (June 29, 2005).
22
A Trade-at ISO is defined in the Plan as a limit order for a Pilot Security that meets the
following requirements:
(1) 	When routed to a trading center, the limit order is identified as an Intermarket
Sweep Order; and
(2) 	Simultaneously with the routing
ofthe limit order identified as an Intermarket
Sweep Order, one or more additional limit orders,
as necessary, are routed to
execute against the full displayed size
of any protected bid, in the case of a limit
order to sell, or the full displayed size
of any protected offer, in the case of a limit
order to buy, for the Pilot Security with a price that is equal to the limit price
of

Securities and Exchange Commission
August 25, 2014
Page 9
of16
(1 0) 	The order is  executed as part of a Negotiated Trade;
(11) 	The order is  executed when the trading center displaying the protected quotation
that was traded at had displayed, within one second prior to execution
of the
transaction that constituted the trade-at, a best bid or best offer,
as applicable, for
the Pilot Security with a price that was inferior to the price
ofthe trade-at
transaction;
(12) 	The order is  executed
by a trading center which, at the time oforder receipt, the
trading center had guaranteed an execution at  no worse than a specified price (a
"stopped order"), where:
a. 	The stopped order was for the account of a customer;
b. 	The customer agreed to the specified price on an order-by-order basis; and
c. 	The price of the trade-at transaction was, for a stopped buy order, equal to the
national best bid in the Pilot Security at the time
of execution or, for a stopped sell
order, equal to the national best offer in the Pilot Security at the time
of execution;
or
(13) 	The order is  for a fractional share
of a Pilot Security, provided that such fractional
share order was not the result
ofbreaking an order for one or more whole shares
of a Pilot Security into orders for fractional shares or was not otherwise effected
to evade the requirements
of the trade-at prohibition or any other provisions of the
Plan.
23
The first exception to the trade-at prohibition is  designed to address the intended scope ofthe
trade-at prohibition,
as discussed above and illustrated in the examples below. The Participants
the limit order identified as an Intermarket Sweep Order. These additional routed
orders also must be marked
as Intermarket Sweep Orders.
The Tick Size Pilot Plan Order provides for an ISO exception to the trade-at prohibition that, as
described above, involves routing ISOs to execute against the full displayed size
ofprotected
quotations.
See Tick Size Pilot Plan Order, 79 FRat 36846. From the perspective of the sending
market, and
as described in the Tick Size Pilot Plan Order, this usage ofan ISO differs from the
definition
ofiSO in Rule 600(b)(30) of Regulation NMS in that the ISOs, for purposes ofthe
trade-at prohibition, need to be routed to execute against protected quotations with a price that is
equal to the limit price ofthe order routed to a protected quotation. See id. at n. 65. For
purposes
ofthe trade-through prohibition in Rule 611 ofRegulation NMS, Rule 600(b)(30)
provides that ISOs need to
be routed to execute against those protected quotations with a price
that is
superior to the limit price ofthe order routed to a protected quotation. To account for the
differences in ISO usage, the Participants have defined ISOs routed to take advantage
ofthe
exception to the trade-at prohibition as Trade-at ISOs. From the perspective
of the receiving
market, the receipt
of an ISO routed to comply with the exception to the trade-at prohibition is no
different from the receipt
of an ISO routed to comply with the exception to the trade-through
prohibition; in both cases, the ISO designation permits the receiving market
to execute the ISO at
its limit price without regard to prices on away markets.
23
A trading center complying with one of these exceptions under the trade-at prohibition must
still ensure that any execution complies with Rule 611.

Securities and Exchange Commission
August
25,2014

believe that a trading center displaying, either via a processor or an SRO quotation feed, at  a
protected quotation should only be able to execute against the full displayed size at that price,
and should not be able to trade any hidden size at that price without complying with one
ofthe
exceptions detailed above. Without such a limitation, trading centers and market participants
may not be incentivized to display quotations for a significant number of shares of Pilot
Securities, thus circumventing the purposes
ofthe trade-at prohibition. Therefore, to incentivize
the public display
ofliquidity, only those orders-and those portions of such orders-that are
fully displayed, either via a processor or an SRO quotation feed, on a trading center will be
executable against a contra-side order at the price
ofa protected quotation before requiring a
trading center to comply with another exception to the trade-at prohibition.
The Tick Size Pilot Plan Order included the third and fourth exceptions to the trade-at
prohibition.
24
The Participants, however, determined not to include in the Plan the significant
price improvement exception set out in the Tick Size Pilot Plan Order. Because
of the applicable
trading and quoting increments, an execution
ofan order at a price superior to a protected
quotation will necessarily result in significant price improvement. Therefore, the Participants
believe the significant price improvement exception is  superfluous.
The fifth through thirteenth exceptions apply the trade-through exceptions found in Rule 611(b)
to the trade-at prohibition. The Participants believe that the rationales underlying the trade­
through exceptions apply to the trade-at prohibition as well. Consistent with this belief, the
Participants have included the trade-through exceptions as exceptions to the trade-at prohibition,
subject to a few minor changes to account for the difference between the trade-at prohibition and
the trade-through prohibition.
Finally, the fourteenth exception implements an exception for fractional shares, but only with
respect to situations where the fractional shares were not the result
ofbreaking an order for one
or more whole shares into orders for fractional shares. Due to the difficulties of routing
fractional shares to comply with the trade-at prohibition, and because the execution
offractional
shares will represent a negligible portion
ofoverall trading, the Participants believe that
fractional share orders should be excepted from the trade-at prohibition.
To illustrate the operation
ofthe trade-at prohibition, the Participants have included the
following examples:
Example 1
The NBBO for Pilot Security ABC is $20.00 x $20.10. Trading Center 1 is displaying a 100­
share protected bid at $20.00. Trading Center 2 is displaying a 1 00-share protected bid at
$19.95. There are no other protected bids. Trading Center 3 is not displaying any shares in Pilot
Security ABC but has 100 shares hidden at $20.00 and has 100 shares hidden at $19.95. Trading
Center 3 receives an incoming order to sell for 400 shares. To execute the 100 shares hidden at
24
See Tick Size Pilot Plan Order at 36845-46, n. 63, 64.

Securities and Exchange Commission
August 25, 2014

$20.00, Trading Center 3 must respect the protected bid on Trading Center 1 at $20.00. Trading
Center 3 must route a Trade-at Intermarket Sweep Order to Trading Center 1 to execute against
the full displayed size
ofthe protected bid, at which point Trading Center 3 is permitted to
execute against the 100 shares hidden at $20.00. To execute the 100 shares hidden at $19.95,
Trading Center 3 must respect the protected bid on Trading Center 2 at $19.95. Trading Center 3
must route a Trade-at Intermarket Sweep Order to Trading Center 2 to execute against the full
displayed size
ofthe protected bid, at which point Trading Center 3 is permitted to execute
against the 100 shares hidden at $19.95.
Example 2
The NBBO for Pilot Security ABC is $20.00 x $20.10. Trading Center 1 is displaying a 100­
share protected bid at $20.00. Trading Center 2 is displaying a  1 00-share protected bid at
$20.00. Trading Center 2 also has 300 shares hidden at $20.00 and has 300 shares hidden at
$19.95. Trading Center 3 is displaying a  100-share protected bid at $19.95. There are no other
protected bids. Trading Center 2 receives an incoming order to sell for 900 shares. Trading
Center 2
may execute 100 shares against its full displayed size at the protected bid at  $20.00. To
execute the 300 shares hidden at $20.00, Trading Center 2 must respect the protected bid on
Trading Center 1 at $20.00. Trading Center 2 must route a Trade-at Intermarket Sweep Order to
Trading Center 1 to execute against the full displayed size
ofTrading Center 1 's protected bid, at
which point Trading Center 2 is permitted to execute against the 300 shares hidden at $20.00.
To execute the 300 shares hidden at $19.95, Trading Center 2 must respect the protected bid on
Trading Center 3 at $19.95. Trading Center 2 must route a Trade-at Intermarket Sweep Order to
Trading Center 3 to execute against the full displayed size
ofTrading Center 3's protected bid, at
which point Trading Center 2 is permitted to execute against the 300 shares hidden at $19.95.
Example 3
The NBBO for Pilot Security ABC is $20.00 x $20.10. Trading Center 1 is displaying a 100­
share protected bid at $20.00. Trading Center 1 is also displaying 300 shares at $19.90 on an
SRO quotation feed. Trading Center 2 is  displaying a 100-share protected bid at $19.95.
Trading Center 2 is  also displaying 200 shares on an SRO quotation feed at $19.90 and has 200
shares hidden at $19.90. Trading Center 3 is displaying a  100-share protected bid at $19.90.
There are no other protected bids. Trading Center 2 receives an incoming order to sell for 700
shares. To execute against its protected bid at $19.95, Trading Center 2 must comply with the
trade-through restrictions in Rule
611 and route an intermarket sweep order to Trading Center 1
to execute against the full displayed size of Trading Center 1 's protected bid at  $20.00. Trading
Center 2 is then permitted to execute against its 100-share protected bid at $19.95. Trading
Center 2
may then execute 200 shares against its full displayed size at the price ofTrading
Center
3's protected bid. To execute the 200 shares hidden at $19.90, Trading Center 2 must
respect the protected bid on Trading Center 3 at $19.90. Trading Center 2 must route a Trade-at
Intermarket Sweep Order to Trading Center 3 to execute against the full displayed size
of
Trading Center 3's protected bid, at which point Trading Center 2 is permitted to execute against

Securities and Exchange Commission
August 25, 2014

the 200 shares hidden at $19.90. Trading Center 2 does not have to respect Trading Center 1 's
displayed size at $19.90 for trade-at purposes because it is not a protected quotation.
Collection
ofPilot Data
Throughout the Pilot Period, the Participants will collect the data described in Appendix B to the
Plan with respect to Pilot Securities. Such data will include:
(1) 	Daily market quality statistics
of orders by security, order type, original order size
(as observed
by the trading center), hidden status (as applicable), and coverage
under Rule 605
ofRegulation NMS;
(2) 	Specified data regarding market orders and marketable limit orders;
(3) 	Daily number ofregistered Market Makers;
25
and
(4) 	Daily Market Maker participation statistics.
Each Participant that is the Designated Examining Authority
of a member ofa Participant
operating a trading center will require such member to collect and provide to the Designated
Examining Authority the data described in subparagraphs (1) and (2) above, subject to the terms
and conditions in Appendix B to the Plan. The Participants and each member
of a Participant
operating a trading center will also be required to collect such data for dates starting six months
prior to the Pilot Period through six months after the end
ofthe Pilot Period.
The data will
be made publicly available for free on a disaggregated basis by trading center on
the websites
ofthe Participants and the Designated Examining Authorities and will be reported
by the Participants and the Designated Examining Authorities to the Commission on a monthly
basis. The data will be provided on a disaggregated basis by trading center. The data made
publicly available will not identify the trading center that generated the data.
Participants will also require each Market Maker to provide to its Designated Examining
Authority the data described in Appendix C to the
Plan with respect to Pilot Securities,
specifically data related to daily Market Maker trading profits. The Designated Examining
Authority will aggregate such data, report it to the Commission, and make it publicly available
for free on its website on a monthly basis. Such data will also be provided for dates starting six
months prior to the Pilot Period through six months after the end
ofthe Pilot Period. The
Designated Examining Authority will develop policies and procedures reasonably designed to
ensure the confidentiality
ofthe non-aggregated data it receives from Market Makers. The data
made publicly available will not identify the Market Makers that generated the data.
Each Participant will make available to the other Participants a list
ofmembers designated as
Market Makers on that Participant's trading center. Because the data requested will be gathered
25
Market Maker is  defined in the Plan as a dealer registered with any self-regulatory
organization, in accordance with the rules thereof, as (i) a market maker or (ii) a liquidity
provider with an obligation to maintain continuous, two-sided trading interest.

Securities and Exchange Commission
August 25, 2014

by a Participant whether or not the member is registered as a Market Maker with that
Participant's trading center, each Participant will need the list to determine those members about
whom the Participant needs to report data.
Assessment
ofPilot Data
Within six months after the end
ofthe Pilot Period, the Participants will provide to the
Commission and make publicly available a joint assessment
ofthe impact ofthe Pilot. Such
assessment will include:
(1) 	An assessment ofthe statistical and economic impact of an increase in the quoting
increment on market quality;
(2) 	An assessment
ofthe statistical and economic impact ofan increase in the quoting
increment on the number
ofMarket Makers;
(3) 	An assessment ofthe statistical and economic impact of an increase in the quoting
increment on Market Maker participation;
(4) 	An assessment ofthe statistical and economic impact of an increase in the quoting
increment on market transparency;
(5) 	An evaluation whether any market capitalization, daily trading volume, or other
thresholds can differentiate the results
ofthe above assessments across stocks
(e.g., does the quoting increment impact differently those stocks with daily
trading volume below a certain threshold);
(6) 	An assessment
ofthe statistical and economic impact ofthe 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;
(7)
An assessment ofthe statistical and economic impact ofthe above assessments for
the incremental impact
ofa 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
(8) 	An assessment
of any other economic issues that the Participants believe the
Commission should consider in any rulemaking that may follow the Pilot.
Further, Participants may individually submit to the Commission and make publicly available
additional supplemental assessments
ofthe impact ofthe Tick Size Pilot Program.
The Tick Size Pilot Plan Order originally called for the Participants to assess the effect
ofthe
quoting and trading increment requirements on Market Maker profitability.
26
The Exchanges
believe that Market Makers will be in a better position than the Participants to analyze the effects
ofthe Tick Size Pilot Program on Market Maker profitability. Therefore, the Participants have
removed this assessment from the Tick Size Pilot Plan.
26
See Tick Size Pilot Plan Order at 36846.

Securities and Exchange Commission
August 25, 2014

B. 	Governing or Constituent Documents
Not applicable.
C. 	Implementation ofPlan
The initial date
ofthe Tick Size Pilot Program will be no sooner than 180 calendar days
following the publication
ofthe Commission's Approval Order ofthe Plan in the Federal
Register.
D. 	Development and Implementation Phases
The Plan will be implemented as a one-year pilot program.
E. 	Analysis of Impact on Competition
The proposed Plan does not impose any burden on competition that is not necessary or
appropriate in furtherance
ofthe purposes ofthe Exchange Act. The Participants do not believe
that the proposed Plan introduces terms that are unreasonably discriminatory for the purposes
of
Section 11A(c)(1)(D) ofthe Exchange Act.
F. 	Written Understanding
or Agreements relating to Interpretation of. or
Participation in, Plan
The Participants have no written understandings or agreements relating to the interpretation
of
the Plan. Section II(C) ofthe Plan sets forth how any entity registered as a national securities
exchange
or national securities association may become a Participant.
G. 	Approval ofAmendment ofthe Plan
Not applicable.
H. 	Terms and Conditions ofAccess
Section II(C) ofthe Plan provides that any entity registered as a national securities exchange or
national securities association under the Exchange Act may become a Participant by: (1)
executing a copy
ofthe Plan, as then in effect; (2) providing each then-current Participant with a
copy
of such executed Plan; and (3) effecting an amendment to the Plan as specified in Section
III(B)
ofthe Plan.
I. Method ofDetermination and Imposition, and Amount of Fees and Charges
Not applicable.

Securities and Exchange Commission
August 25, 2014

J. Method and Frequency ofProcessor Evaluation
Not applicable
K. Dispute Resolution
The Plan does not include specific provisions regarding resolution
ofdisputes between or among
Participants. Section III( C)
ofthe Plan provides for each Participant to designate an individual to
represent the Participant as a member
of an Operating Committee. No later than the initial date
ofthe Plan, the Operating Committee shall designate one member ofthe Operating Committee to
act as the Chair
ofthe Operating Committee. The Operating Committee shall 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.
Any recommendation for an amendment to the Plan from the Operating Committee that receives
an affirmative vote
of at least two-thirds ofthe Participants, but is less than unanimous, shall be
submitted to the Commission as a request for an amendment to the Plan initiated by the
Commission under Rule 608.
*****

Securities and Exchange Commission
August 25, 2014

Respe tfully submitted,
6?#~
Enclosure
cc: 	The Hon. Mary Jo White, Chair
The Hon. Luis A. Aguilar, Commissioner
The Hon. Daniel M. Gallagher, Commissioner
The Hon. Kara M. Stein, Commissioner
The Hon.
MichaelS. Piwowar, Commissioner
Mr. Stephen Luparello, Director
of Trading and Markets
Mr. James Bums, Deputy Director of Trading and Markets
Mr.
DavidS. Shillman, Associate Director of Trading and Markets
Mr. Joseph C. Lombard, Murphy & McGonigle, P.C.

Brendan J. Weiss 
Vice President 
Intercontinental Exchange INYSEIIIIII 
Intercontinental Exchange 1 NYSENYSE 801 Pennsylvania Avenue, NW 
Washington, DC 20004 
202-661-8979 

August 25, 2014 

VIA EMAIL AND FEDEX 

Secretary 
U.S. Securities and Exchange Commission 

100 F Street, N.E. 

Washington, DC 20549-1 090 


Re: Plan to Implement a Tick Size Pilot Program (the "Plan") 

Dear Secretary: 

NYSE Group, Inc., on behalf of New York Stock Exchange LLC, NYSE MKT LLC, NYSE 
Area, Inc., BATS Exchange, Inc., BATS Y-Exchange, Inc., Chicago Stock Exchange, Inc., 
EDGA Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory Authority, Inc., 
NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, and The Nasdaq Stock Market LLC 
(collectively, the "Participants"), respectfully files the Plan with the Securities and Exchange 
Commission (the "Commission") for approval pursuant to Rule 608 ofRegulation NMS ("Rule 
608") under the Securities Exchange Act of 1934 ("Exchange Act"). 1 

Requirements Pursuant to Rule 608(a) 

A. Statement of Purpose 

The Participants are filing the proposed Plan in order to implement a pilot program for a one­
year pilot period ("Pilot Period") that, among other things, would widen the quoting and trading 
increments for certain small capitalization stocks ("Tick Size Pilot Program"). The purpose of 
the Plan, and the Tick Size Pilot Program it contains, is to assist the Commission, market 
participants, and the public in studying and assessing the impact of increment conventions on the 
liquidity and trading of stocks of small capitalization companies. The Plan sets forth proposed 
procedures for selecting a representative group of stocks of small capitalization companies 
("Pilot Securities") and subjecting groups of those Pilot Securities ("Test Groups") to various 
requirements with regards to quoting and trading increments. 

1 The Plan is filed pursuant to the Commission Order directing the Participants to submit a Tick 
Size Pilot Plan. See Securities Exchange Act Release No. 72460 (June 24, 2014), 79 FR 36840 
(June 30, 2014) ("Tick Size Pilot Plan Order"). 



Securities and Exchange Commission 
August 25, 2014 
Page 2 of16 

As set forth in more detail in the Plan, Participants will be required to adopt rules to ensure that 
Pilot Securities in the Test Groups are quoted and traded in permitted increments? 

Selection ofPilot Securities for Inclusion in the Tick Size Pilot Program 

Pilot Securities will consist of those NMS common stocks3 that satisfy the following criteria: 

(1) 	 A market capitalization of$5 billion or less on the last day of the Measurement 
Period,4 where market capitalization is calculated by multiplying the total number 
of shares outstanding on such day by the Closing Price5 of the security on such 
day; 

(2) 	 A Closing Price of at least $2.00 on the last day of the Measurement Period; 
(3) 	 A Closing Price on every trading day during the Measurement Period that is not 

less than $1.50; 
(4) 	 A Consolidated Average Daily Volume ("CADY") during the Measurement 

Period of one million shares or less, where the CADY is calculated by adding the 
single-counted share volume of all reported transactions in the NMS common 
stock during the Measurement Period and dividing by the total number of U.S. 
trading days during the Measurement Period; and 

(5) 	 A Measurement Period Volume-Weighted Average Price ("Measurement Period 
VWAP") of at least $2.00, where the Measurement Period VWAP is determined 
by calculating the VWAP of the NMS common stock for each U.S. trading day 
during the Measurement Period, summing the daily VW AP across the 
Measurement Period, and dividing by the total number of U.S. trading days 
during the Measurement Period. 6 

The Participants believe that the above criteria will result in the selection of those stocks that are 

most likely to benefit from a larger tick size because such stocks will tend to have higher average 


2 Participants operating trading centers will be required, pursuant to the Plan, to ensure that Pilot 

Securities in the Test Groups are quoted and traded in permitted increments. As applicable, 

members ofParticipants will be required, pursuant to rules of self-regulatory organizations, to 

ensure that Pilot Securities in the Test Groups are quoted and traded in permitted increments. 

3 NMS common stock is defined in the Plan as NMS stock that is common stock of an operating 

company. 

4 Measurement Period is defined in the Plan as the U.S. trading days during the three-calendar­

month period ending at least 30 days prior to the effective date of the Pilot Period. 

5 Closing Price is defined in the Plan as the closing auction price on the primary listing exchange, 

or if not available, then the last regular-way trade reported by the processor prior to 4:00p.m. 

ET. 

6 For purposes of the CADY and Measurement Period VWAP calculations, U.S. trading days 

during the Measurement Period with early closes will be excluded. 




Securities and Exchange Commission 
August 25, 2014 
Page 3 of 16 

effective spreads. Additionally, the criteria should help to ensure that those stocks most likely to 
fall below $1.00 during the Pilot Period are not included in the Tick Size Pilot Program. 7 

The Participants have decided not to include any NMS common stock that has its initial public 
offering within six months of the start of the Pilot Period. Such stocks will not have the full set 
of data required to be collected under the Plan for the six-month period before the start ofthe 
Tick Size Pilot Program. The Participants believe that the value of subjecting such stocks to the 
quoting and trading requirements of the Plan is diminished because market participants will not 
be able to analyze the effects of the quoting and trading requirements against a sufficient 
baseline. 

Once the complete list of Pilot Securities is determined, the Participants will select, by means of 
a stratified random sampling process, the Pilot Securities to be placed into the three Test Groups. 
Those Pilot Securities not placed into the three Test Groups will constitute the Control Group. 
To effect the stratified random sampling, the Pilot Securities will be categorized based on price, 
market capitalization, and trading volume, and each of those three categories will be further 
subdivided into low, medium, or high subcategories. 8 As a result, the Pilot Securities will be 
grouped into a total of 27 categories. 

The Tick Size Pilot Plan Order called for the selection of Pilot Securities by means of a stratified 
random sampling process with the Pilot Securities categorized based on only price and market 
capitalization.9 The Plan also requires categorization by trading volume. The Participants 
believe that the addition of the trading volume category will create more detailed groups of Pilot 
Securities that will, in tum, lead to a diverse set of stocks selected for inclusion into each Test 
Group. The Participants believe that the more detailed groups will aid in the assessment process 
described below by permitting the Commission, market participants, and the public to review the 
effects of the quoting and trading increment requirements on stocks with a variety of 
characteristics. 

A random sample of Pilot Securities from each of the 27 categories will be placed into the three 
Test Groups in a number proportional to the category's size relative to the population of Pilot 
Securities. So, for example, if the category consisting ofhigh priced, high market capitalization, 
and medium trading volume Pilot Securities contained 5% of the Pilot Securities, that category 
would make up 5% of each Test Group. Further, a primary listing market's stocks will be 
selected from each category and included in the three Test Groups in the same proportion as that 
primary listing market's stocks comprise each category ofPilot Securities. 

7 While the criteria are designed to avoid selecting an NMS common stock likely to fall below 
$1.00, a Pilot Security that falls below $1.00 during the Pilot Period will remain in the Tick Size 
Pilot Program. 
8 Low, medium, and high subcategories will be established by dividing the categories into three 
farts, each containing a third of the population. 

See Tick Size Pilot Plan Order at 36844. 



Securities and Exchange Commission 
August 25, 2014 
Page 4 of 16 

Each Test Group will consist of 400 Pilot Securities and the Control Group will consist ofthe 
remaining Pilot Securities. The Participants believe that including 400 Pilot Securities in each 
Test Group will allow each Test Group to be statistically large enough to generate data to 
reliably test for the effects of a larger tick size. Additionally, if any Pilot Securities need to be 
removed from the data analysis due to unforeseen events, the Participants believe that including 
400 Pilot Securities in each Test Group will ensure that the data on the remaining Pilot Securities 
will be sufficient to complete the required assessments. 

Each primary listing exchange will make publicly available for free on its website a list of those 
Pilot Securities listed on that exchange and included in the Control Group and each Test Group. 
The list will be adjusted for ticker symbol changes and relevant corporate actions and will 
contain the data specified in Appendix A to the Plan. 

Control and Test Groups' Increment Conventions and Trade-at Restrictions 

During the Pilot Period, the Control Group and Test Groups will be subjected to quoting and 
trading increment requirements designed to allow the Commission, market participants, and the 
public to assess the effect ofpricing increment decimalization on small capitalization companies. 

Pilot Securities in the Control Group may be quoted and traded at any price increment that is 
currently permitted. 10 Maintaining the Control Group with the current quoting and trading 
increments will provide a baseline to analyze the economic effects of the wider quoting and 
trading increments required by the Test Groups. 

Pilot Securities in Test Group One will be quoted in $0.05 minimum increments but may 
continue to trade at any price increment that is currently permitted. Participants will adopt rules 
prohibiting Participants or any member of a Participant from displaying, ranking, or accepting 
from any person any displayable and non-displayable bids or offers, orders, or indications of 
interest in any Pilot Security in Test Group One in price increments other than $0.05. However, 
orders priced to execute at the midpoint and orders entered into a Participant-operated retail 
liquidity program may be ranked and accepted in increments ofless than $0.05. 

Pilot Securities in Test Group Two will be subject to the same quoting requirements as Test 
Group One, along with the applicable quoting exceptions. In addition, Pilot Securities in Test 
Group Two may only be traded in $0.05 minimum increments. Participants will adopt rules 
prohibiting trading centers 11 operated by Participants and members ofParticipants from 
executing orders in any Pilot Security in Test Group Two in price increments other than $0.05. 

10 Consistent with Rule 612(b) of Regulation NMS, bids or offers, orders, or indications of 
interest priced less than $1.00 per share for Pilot Securities in the Control Group may be 
displayed, ranked, or accepted in $0.0001 increments. 
11 Trading center is defined in the Plan as having the same meaning as that provided in Rule 
600(b )(78) of Regulation NMS under the Exchange Act. 



Securities and Exchange Commission 
August 25, 2014 
Page 5 of 16 

The $0.05 minimum trading increment will apply to brokered cross trades. 12 Pilot Securities in 
Test Group Two may trade in increments less than $0.05 under the following circumstances: 

(1) 	 Trading may occur at the midpoint between the National Best Bid and the 
National Best Offer ("NBBO") or the midpoint between the best protected bid and 
the best protected offer; 

(2) 	 Retail Investor Orders 13 may be provided with price improvement that is at least 
$0.005 better than the best protected bid or the best protected offer; and 

(3) 	 Negotiated Trades 14 may trade in increments less than $0.05. 

Pilot Securities in Test Group Three will be subject to the same quoting and trading requirements 
as Test Group Two, along with the applicable quoting and trading exceptions. In addition, Pilot 

12 A brokered cross trade is defined in the Plan as a trade that a broker-dealer that is a member of 
a Participant executes directly by matching simultaneous buy and sell orders for a Pilot Security. 
13 A Retail Investor Order is defined in the Plan as an agency order or a riskless principal order 
originating from a natural person, provided that, prior to submission, no change is made to the 
terms of the order with respect to price or side of market and the order does not originate from a 
trading algorithm or any other computerized methodology. Such orders include those retail 
orders entered into Participant-operated retail liquidity programs. The Participant that is the 
Designated Examining Authority of a member of a Participant operating a trading center 
executing a Retail Investor Order will require such trading center to sign an attestation that 
substantially all orders to be executed as Retail Investor Orders will qualify as such under the 
Plan. 
14 A Negotiated Trade is defined in the Plan as: (i) a Benchmark trade, including, but not limited 
to, a Volume-Weighted Average Price trade or a Time-Weighted Average Price trade, provided 
that, if such a trade is comprised of two or more component trades, each component trade 
complies with the quoting and trading increment requirements of the Plan, or with an exception 
to such requirements, or (ii) a Pilot Qualified Contingent Trade. A Benchmark Trade is defined 
in the Plan as the execution of an order at a price that was not based, directly or indirectly, on the 
quoted price of a Pilot Security at the time of execution and for which the material terms were 
not reasonably determinable at the time the commitment to execute the order was made. A Pilot 
Qualified Contingent Trade is defined in the Plan as a transaction consisting of two or more 
component orders, executed as agent or principal, where: (1) at least one component order is in 
an NMS common stock; (2) all components are effected with a product or price contingency that 
either has been agreed to by the respective counterparties or arranged for by a broker-dealer as 
principal or agent; (3) the execution of one component is contingent upon the execution of all 
other components at or near the same time; (4) the specific relationship between the component 
orders (e.g., the spread between the prices ofthe component orders) is determined at the time the 
contingent order is placed; (5) the component orders bear a derivative relationship to one 
another, represent different classes of shares of the same issuer, or involve the securities of 
participants in mergers or with intentions to merge that have been announced or since cancelled; 
and (6) the transaction is fully hedged (without regard to any prior existing position) as a result 
of the other components of the contingent trade. 



Securities and Exchange Commission 
August 25, 2014 
Page 6 of 16 

Securities in Test Group Three will be subject to a trade-at prohibition. The purpose ofthe trade­
at prohibition is to assess and gather data with respect to the impact of market-wide restrictions 
on price-matching activity by market participants that are not quoting aggressively or otherwise 
offering liquidity in Pilot Securities at competitive prices. Toward that end, the trade-at 
prohibition ofthe Plan, operating in conjunction with applicable exceptions, generally will 
condition the ability of a trading center to execute at a protected quotation on that trading 
center's contemporaneous display of liquidity, either via a processor15 or an SRO quotation 
feed, 16 at that, or a superior, price level, thereby discouraging passive price-matching and 
incentivizing aggressive quoting. Under the trade-at prohibition, the Plan will (1) prevent a 
trading center that was not quoting from price-matching protected quotations and (2) permit a 
trading center that was quoting at a protected quotation to execute orders at that level, but only 
up to the amount of its displayed size. 

The Commission's Tick Size Pilot Plan Order stated that the trade-at prohibition "is intended to 
prevent price matching by a trading center not displaying the NBB0."17 Accordingly, the Plan 
seeks to protect displayed liquidity and to prevent passive-price matching. Based on their 
experience observing price competition on the market centers that they regulate and market­
wide, the Participants believe that the most appropriate and workable reference point for 
formulating a restriction on price-matching is the standard of a "protected quotation" rather than 
"the NBBO." The "protected quotation" standard would appear to have the following policy, 
structural, and operational advantages. 

First, the "protected quotation" standard would give broader protection to aggressively displayed 
quotes, in that the "NBBO" is limited to the single best order in the market, while the "protected 
quotation" standard encompasses the aggregate of the most aggressively priced displayed 
liquidity on all trading centers. 18 Additionally, the Participants believe that not only should the 
best protected quotations be protected, but also that all protected quotations should be protected, 
as such protected quotations could likewise be the basis for passive price-matching. 

Second, the only other difference between the NBBO and the best protected quotations is that the 
NBBO would include manual quotations. The Commission has previously recognized that 
manual quotations are not within the scope of liquidity that should be protected for Rule 611 of 

15 Processor is defined in the Plan as 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. 
16 SRO quotation feed is defined in the Plan as any market data feed disseminated by a self­
regulatory organization. 
17 See Tick Size Pilot Plan Order at 36845. 
18 See 17 C.F .R. § 242.600(b )( 42). When two or more market centers transmit to the plan 
processor identical bids or offers for an NMS security, the best bid or best offer is determined by 
ranking the identical bids or offers by size and then time. As a result, while two market centers 
may display identical prices, only one market center will display the national best bid or national 
best offer. 



Securities and Exchange Commission 
August 25, 2014 
Page 7 of 16 

Regulation NMS ("Rule 611 ")(i.e., trade-through) purposes. Based on their experience 
implementing Rule 611 and other provisions related to intermarket display and price priority, the 
Participants believe that the scope ofthe trade-at prohibition in the Plan should be appropriately 
aligned with that ofRegulation NMS. 

Third, Participants believe that the trend, in terms of the design and development of systems that 
perform matching and routing functions, is to reference "protected quotations" rather than "the 
NBBO" and that the approach of the Plan would therefore provide a more workable approach for 
the assessment contemplated by the Plan. Most market centers today track the market center's 
view of protected quotations in its automated execution systems in order to comply with Rule 
611. Changing such view for trade-at purposes to the market center's view of the NBBO or to 
the NBBO as displayed by the processor would incur additional development time, operational 
complexity and risk, and potentially create unintended conflicts between the logic designed to 
comply with Rule 611 and trade-at compliance logic. 

Fourth, from a textual and implementation perspective, the Participants believe that achieving as 
great a degree of definitional simplicity is imperative. Specifically, the Participants believe that 
the reference to "the NBBO," with continued qualifications excluding manual quotations, would 
produce an approach that is unnecessarily more complex than grounding the trade-at prohibition 
in the more workable "protected quotation" standard. 

In any event, the Plan, as demonstrated below, will prevent those trading centers not displaying 
at the best protected quotations from passively price matching those competitive quotations. If a 
trading center is not displayed at a best protected quotation, the trading center will not be able to 
execute any orders at that price level without first executing against that displayed liquidity. 
Accordingly, the Participants believe that the approach of the Plan is well-grounded in the 
discretion ofRule 611 and directly aligned with both the language and logic of the 
Commission's Tick Size Pilot Plan Order. 

In accordance with the above reasoning, the Plan provides that Participants will adopt rules 
prohibiting trading centers operated by Participants and members ofParticipants from executing 
a sell order for a Pilot Security at the price of a protected bid or from executing a buy order for a 
Pilot Security at the price of a protected offer unless such execution falls within an exception set 
forth below. 

Trading centers will be permitted to execute an order for a Pilot Security at a price equal to a 
protected bid or protected offer under the following circumstances: 

(1) 	 The order is executed by a trading center that is displaying a quotation, via either 
a processor or an SRO quotation feed, 19 at a price equal to the traded-at protected 

19 The Participants believe that a trading center displaying a quotation either via a processor, as a 
protected quotation, or via an SRO quotation feed, as a quotation below the trading center's top­
of-book, should be able to avail themselves of this exception. As detailed in Example 3 below, a 



Securities and Exchange Commission 
August 25, 2014 
Page 8 of 16 

quotation but only up to the trading center's full displayed size. Where the 
quotation is displayed through a national securities exchange, the execution at the 
size of the order must occur against the displayed size on that national securities 
exchange. Where the quotation is displayed through the Alternative Display 
Facility or another facility approved by the Commission that does not provide 
execution functionality, the execution at the size of the order must occur against 
the displayed size in accordance with the rules ofthe Alternative Display Facility 
or such approved facility; 

(2) 	 The order is of Block Size;20 

(3) 	 The order is a Retail Investor Order executed with at least $0.005 price 
improvement; 

(4) 	 The order is executed when the trading center displaying the protected quotation 
that was traded at was experiencing a failure, material delay, or malfunction of its 
systems or equipment; 

(5) 	 The order is executed as part of a transaction that was not a "regular way" 
contract;21 

(6) 	 The order is executed as part of a single-priced opening, reopening, or closing 
transaction by the trading center; 

(7) 	 The order is executed when a protected bid was priced higher than a protected 
offer in the Pilot Security; 

(8) 	 The order is identified as an Intermarket Sweep Order; 
(9) 	 The order is executed by a trading center that simultaneously routed Trade-at 

Intermarket Sweep Orders ("Trade-at ISOs")22 to execute against the full 
displayed size of any protected quotation in the Pilot Security that was traded at; 

trading center would be able to trade at the price of a protected quotation against its depth-of­
book displayed quotations in order to promote the display ofprotected quotations at a more 
aggressively-priced quotation. 
20 Block Size is defined in the Plan as having the same meaning as that provided in Rule 
600(b )(9) ofRegulation NMS under the Exchange Act. 
21 For purposes of the trade-at prohibition, "regular way" contract has the same meaning as the 
term is used in Rule 611 (b). In the Regulation NMS Adopting Release, the Commission stated 
that "regular way" refers to "bids, offers, and transactions that embody the standard terms and 
conditions of a market." See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 
37496, 37537 n. 326 (June 29, 2005). 
22 A Trade-at ISO is defined in the Plan as a limit order for a Pilot Security that meets the 
following requirements: 

(1) 	 When routed to a trading center, the limit order is identified as an Intermarket 
Sweep Order; and 

(2) 	 Simultaneously with the routing of the limit order identified as an Intermarket 
Sweep Order, one or more additional limit orders, as necessary, are routed to 
execute against the full displayed size of any protected bid, in the case of a limit 
order to sell, or the full displayed size of any protected offer, in the case of a limit 
order to buy, for the Pilot Security with a price that is equal to the limit price of 



Securities and Exchange Commission 
August 25, 2014 
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(1 0) 	 The order is executed as part of a Negotiated Trade; 
(11) 	 The order is executed when the trading center displaying the protected quotation 

that was traded at had displayed, within one second prior to execution of the 
transaction that constituted the trade-at, a best bid or best offer, as applicable, for 
the Pilot Security with a price that was inferior to the price of the trade-at 
transaction; 

(12) 	 The order is executed by a trading center which, at the time of order receipt, the 
trading center had guaranteed an execution at no worse than a specified price (a 
"stopped order"), where: 

a. 	 The stopped order was for the account of a customer; 
b. 	 The customer agreed to the specified price on an order-by-order basis; and 
c. 	 The price of the trade-at transaction was, for a stopped buy order, equal to the 

national best bid in the Pilot Security at the time of execution or, for a stopped sell 
order, equal to the national best offer in the Pilot Security at the time of execution; 
or 

(13) 	 The order is for a fractional share of a Pilot Security, provided that such fractional 
share order was not the result of breaking an order for one or more whole shares 
of a Pilot Security into orders for fractional shares or was not otherwise effected 
to evade the requirements of the trade-at prohibition or any other provisions of the 
Plan.23 

The first exception to the trade-at prohibition is designed to address the intended scope of the 
trade-at prohibition, as discussed above and illustrated in the examples below. The Participants 

the limit order identified as an Intermarket Sweep Order. These additional routed 
orders also must be marked as Intermarket Sweep Orders. 

The Tick Size Pilot Plan Order provides for an ISO exception to the trade-at prohibition that, as 
described above, involves routing ISOs to execute against the full displayed size ofprotected 
quotations. See Tick Size Pilot Plan Order, 79 FRat 36846. From the perspective of the sending 
market, and as described in the Tick Size Pilot Plan Order, this usage of an ISO differs from the 
definition ofiSO in Rule 600(b)(30) of Regulation NMS in that the ISOs, for purposes of the 
trade-at prohibition, need to be routed to execute against protected quotations with a price that is 
equal to the limit price of the order routed to a protected quotation. See id. at n. 65. For 
purposes of the trade-through prohibition in Rule 611 ofRegulation NMS, Rule 600(b)(30) 
provides that ISOs need to be routed to execute against those protected quotations with a price 
that is superior to the limit price ofthe order routed to a protected quotation. To account for the 
differences in ISO usage, the Participants have defined ISOs routed to take advantage of the 
exception to the trade-at prohibition as Trade-at ISOs. From the perspective of the receiving 
market, the receipt of an ISO routed to comply with the exception to the trade-at prohibition is no 
different from the receipt of an ISO routed to comply with the exception to the trade-through 
prohibition; in both cases, the ISO designation permits the receiving market to execute the ISO at 
its limit price without regard to prices on away markets. 
23 A trading center complying with one of these exceptions under the trade-at prohibition must 
still ensure that any execution complies with Rule 611. 



Securities and Exchange Commission 
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believe that a trading center displaying, either via a processor or an SRO quotation feed, at a 
protected quotation should only be able to execute against the full displayed size at that price, 
and should not be able to trade any hidden size at that price without complying with one ofthe 
exceptions detailed above. Without such a limitation, trading centers and market participants 
may not be incentivized to display quotations for a significant number of shares of Pilot 
Securities, thus circumventing the purposes of the trade-at prohibition. Therefore, to incentivize 
the public display of liquidity, only those orders-and those portions of such orders-that are 
fully displayed, either via a processor or an SRO quotation feed, on a trading center will be 
executable against a contra-side order at the price of a protected quotation before requiring a 
trading center to comply with another exception to the trade-at prohibition. 

The Tick Size Pilot Plan Order included the third and fourth exceptions to the trade-at 
prohibition.24 The Participants, however, determined not to include in the Plan the significant 
price improvement exception set out in the Tick Size Pilot Plan Order. Because of the applicable 
trading and quoting increments, an execution ofan order at a price superior to a protected 
quotation will necessarily result in significant price improvement. Therefore, the Participants 
believe the significant price improvement exception is superfluous. 

The fifth through thirteenth exceptions apply the trade-through exceptions found in Rule 611(b) 
to the trade-at prohibition. The Participants believe that the rationales underlying the trade­
through exceptions apply to the trade-at prohibition as well. Consistent with this belief, the 
Participants have included the trade-through exceptions as exceptions to the trade-at prohibition, 
subject to a few minor changes to account for the difference between the trade-at prohibition and 
the trade-through prohibition. 

Finally, the fourteenth exception implements an exception for fractional shares, but only with 
respect to situations where the fractional shares were not the result of breaking an order for one 
or more whole shares into orders for fractional shares. Due to the difficulties of routing 
fractional shares to comply with the trade-at prohibition, and because the execution of fractional 
shares will represent a negligible portion of overall trading, the Participants believe that 
fractional share orders should be excepted from the trade-at prohibition. 

To illustrate the operation of the trade-at prohibition, the Participants have included the 
following examples: 

Example 1 

The NBBO for Pilot Security ABC is $20.00 x $20.10. Trading Center 1 is displaying a 100­
share protected bid at $20.00. Trading Center 2 is displaying a 1 00-share protected bid at 
$19.95. There are no other protected bids. Trading Center 3 is not displaying any shares in Pilot 
Security ABC but has 100 shares hidden at $20.00 and has 100 shares hidden at $19.95. Trading 
Center 3 receives an incoming order to sell for 400 shares. To execute the 100 shares hidden at 

24 See Tick Size Pilot Plan Order at 36845-46, n. 63, 64. 

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Securities and Exchange Commission 
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$20.00, Trading Center 3 must respect the protected bid on Trading Center 1 at $20.00. Trading 
Center 3 must route a Trade-at Intermarket Sweep Order to Trading Center 1 to execute against 
the full displayed size of the protected bid, at which point Trading Center 3 is permitted to 
execute against the 100 shares hidden at $20.00. To execute the 100 shares hidden at $19.95, 
Trading Center 3 must respect the protected bid on Trading Center 2 at $19.95. Trading Center 3 
must route a Trade-at Intermarket Sweep Order to Trading Center 2 to execute against the full 
displayed size of the protected bid, at which point Trading Center 3 is permitted to execute 
against the 100 shares hidden at $19.95. 

Example 2 

The NBBO for Pilot Security ABC is $20.00 x $20.10. Trading Center 1 is displaying a 100­
share protected bid at $20.00. Trading Center 2 is displaying a 1 00-share protected bid at 
$20.00. Trading Center 2 also has 300 shares hidden at $20.00 and has 300 shares hidden at 
$19.95. Trading Center 3 is displaying a 100-share protected bid at $19.95. There are no other 
protected bids. Trading Center 2 receives an incoming order to sell for 900 shares. Trading 
Center 2 may execute 100 shares against its full displayed size at the protected bid at $20.00. To 
execute the 300 shares hidden at $20.00, Trading Center 2 must respect the protected bid on 
Trading Center 1 at $20.00. Trading Center 2 must route a Trade-at Intermarket Sweep Order to 
Trading Center 1 to execute against the full displayed size of Trading Center 1 's protected bid, at 
which point Trading Center 2 is permitted to execute against the 300 shares hidden at $20.00. 
To execute the 300 shares hidden at $19.95, Trading Center 2 must respect the protected bid on 
Trading Center 3 at $19.95. Trading Center 2 must route a Trade-at Intermarket Sweep Order to 
Trading Center 3 to execute against the full displayed size ofTrading Center 3's protected bid, at 
which point Trading Center 2 is permitted to execute against the 300 shares hidden at $19.95. 

Example 3 

The NBBO for Pilot Security ABC is $20.00 x $20.10. Trading Center 1 is displaying a 100­
share protected bid at $20.00. Trading Center 1 is also displaying 300 shares at $19.90 on an 
SRO quotation feed. Trading Center 2 is displaying a 100-share protected bid at $19.95. 
Trading Center 2 is also displaying 200 shares on an SRO quotation feed at $19.90 and has 200 
shares hidden at $19.90. Trading Center 3 is displaying a 100-share protected bid at $19.90. 
There are no other protected bids. Trading Center 2 receives an incoming order to sell for 700 
shares. To execute against its protected bid at $19.95, Trading Center 2 must comply with the 
trade-through restrictions in Rule 611 and route an intermarket sweep order to Trading Center 1 
to execute against the full displayed size of Trading Center 1 's protected bid at $20.00. Trading 
Center 2 is then permitted to execute against its 100-share protected bid at $19.95. Trading 
Center 2 may then execute 200 shares against its full displayed size at the price of Trading 
Center 3's protected bid. To execute the 200 shares hidden at $19.90, Trading Center 2 must 
respect the protected bid on Trading Center 3 at $19.90. Trading Center 2 must route a Trade-at 
Intermarket Sweep Order to Trading Center 3 to execute against the full displayed size of 
Trading Center 3's protected bid, at which point Trading Center 2 is permitted to execute against 



Securities and Exchange Commission 
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the 200 shares hidden at $19.90. Trading Center 2 does not have to respect Trading Center 1 's 
displayed size at $19.90 for trade-at purposes because it is not a protected quotation. 

Collection ofPilot Data 

Throughout the Pilot Period, the Participants will collect the data described in Appendix B to the 
Plan with respect to Pilot Securities. Such data will include: 

(1) 	 Daily market quality statistics of orders by security, order type, original order size 
(as observed by the trading center), hidden status (as applicable), and coverage 
under Rule 605 ofRegulation NMS; 

(2) 	 Specified data regarding market orders and marketable limit orders; 
(3) 	 Daily number of registered Market Makers;25 and 
(4) 	 Daily Market Maker participation statistics. 

Each Participant that is the Designated Examining Authority of a member of a Participant 
operating a trading center will require such member to collect and provide to the Designated 
Examining Authority the data described in subparagraphs (1) and (2) above, subject to the terms 
and conditions in Appendix B to the Plan. The Participants and each member of a Participant 
operating a trading center will also be required to collect such data for dates starting six months 
prior to the Pilot Period through six months after the end of the Pilot Period. 

The data will be made publicly available for free on a disaggregated basis by trading center on 
the websites of the Participants and the Designated Examining Authorities and will be reported 
by the Participants and the Designated Examining Authorities to the Commission on a monthly 
basis. The data will be provided on a disaggregated basis by trading center. The data made 
publicly available will not identify the trading center that generated the data. 

Participants will also require each Market Maker to provide to its Designated Examining 
Authority the data described in Appendix C to the Plan with respect to Pilot Securities, 
specifically data related to daily Market Maker trading profits. The Designated Examining 
Authority will aggregate such data, report it to the Commission, and make it publicly available 
for free on its website on a monthly basis. Such data will also be provided for dates starting six 
months prior to the Pilot Period through six months after the end of the Pilot Period. The 
Designated Examining Authority will develop policies and procedures reasonably designed to 
ensure the confidentiality of the non-aggregated data it receives from Market Makers. The data 
made publicly available will not identify the Market Makers that generated the data. 

Each Participant will make available to the other Participants a list ofmembers designated as 
Market Makers on that Participant's trading center. Because the data requested will be gathered 

25 Market Maker is defined in the Plan as a dealer registered with any self-regulatory 
organization, in accordance with the rules thereof, as (i) a market maker or (ii) a liquidity 
provider with an obligation to maintain continuous, two-sided trading interest. 



Securities and Exchange Commission 
August 25, 2014 
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by a Participant whether or not the member is registered as a Market Maker with that 
Participant's trading center, each Participant will need the list to determine those members about 
whom the Participant needs to report data. 

Assessment ofPilot Data 

Within six months after the end of the Pilot Period, the Participants will provide to the 
Commission and make publicly available a joint assessment of the impact of the Pilot. Such 
assessment will include: 

(1) 	 An assessment ofthe statistical and economic impact of an increase in the quoting 
increment on market quality; 

(2) 	 An assessment of the statistical and economic impact of an increase in the quoting 
increment on the number ofMarket Makers; 

(3) 	 An assessment of the statistical and economic impact of an increase in the quoting 
increment on Market Maker participation; 

(4) 	 An assessment of the statistical and economic impact of an increase in the quoting 
increment on market transparency; 

(5) 	 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); 

(6) 	 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; 

(7) 	 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 

(8) 	 An assessment of any other economic issues that the Participants believe the 
Commission should consider in any rulemaking that may follow the Pilot. 

Further, Participants may individually submit to the Commission and make publicly available 
additional supplemental assessments of the impact of the Tick Size Pilot Program. 

The Tick Size Pilot Plan Order originally called for the Participants to assess the effect of the 
quoting and trading increment requirements on Market Maker profitability.26 The Exchanges 
believe that Market Makers will be in a better position than the Participants to analyze the effects 
ofthe Tick Size Pilot Program on Market Maker profitability. Therefore, the Participants have 
removed this assessment from the Tick Size Pilot Plan. 

26 See Tick Size Pilot Plan Order at 36846. 

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B. 	 Governing or Constituent Documents 

Not applicable. 

C. 	 Implementation of Plan 

The initial date of the Tick Size Pilot Program will be no sooner than 180 calendar days 
following the publication of the Commission's Approval Order of the Plan in the Federal 
Register. 

D. 	 Development and Implementation Phases 

The Plan will be implemented as a one-year pilot program. 

E. 	 Analysis of Impact on Competition 

The proposed Plan does not impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Exchange Act. The Participants do not believe 
that the proposed Plan introduces terms that are unreasonably discriminatory for the purposes of 
Section 11A(c)(1)(D) of the Exchange Act. 

F. 	 Written Understanding or Agreements relating to Interpretation of. or 
Participation in, Plan 

The Participants have no written understandings or agreements relating to the interpretation of 
the Plan. Section II(C) of the Plan sets forth how any entity registered as a national securities 
exchange or national securities association may become a Participant. 

G. 	 Approval ofAmendment of the Plan 

Not applicable. 

H. 	 Terms and Conditions ofAccess 

Section II(C) of the Plan provides that any entity registered as a national securities exchange or 
national securities association under the Exchange Act may become a Participant by: (1) 
executing a copy of the Plan, as then in effect; (2) providing each then-current Participant with a 
copy of such executed Plan; and (3) effecting an amendment to the Plan as specified in Section 
III(B) of the Plan. 

I. Method ofDetermination and Imposition, and Amount of Fees and Charges 

Not applicable. 



Securities and Exchange Commission 
August 25, 2014 
Page 15 of 16 

J. Method and Frequency of Processor Evaluation 

Not applicable 

K. Dispute Resolution 

The Plan does not include specific provisions regarding resolution of disputes between or among 
Participants. 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. No later than the initial date 
of the Plan, the Operating Committee shall designate one member of the Operating Committee to 
act as the Chair of the Operating Committee. The Operating Committee shall 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. 
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 Commission as a request for an amendment to the Plan initiated by the 
Commission under Rule 608. 

***** 



Securities and Exchange Commission 
August 25, 2014 
Page 16 of 16 

Respe tfully submitted, 

6?#~ 
Enclosure 

cc: 	 The Hon. Mary Jo White, Chair 
The Hon. Luis A. Aguilar, Commissioner 
The Hon. Daniel M. Gallagher, Commissioner 
The Hon. Kara M. Stein, Commissioner 
The Hon. MichaelS. Piwowar, Commissioner 
Mr. Stephen Luparello, Director of Trading and Markets 
Mr. James Bums, Deputy Director of Trading and Markets 
Mr. DavidS. Shillman, Associate Director of Trading and Markets 

Mr. Joseph C. Lombard, Murphy & McGonigle, P.C.