Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend EDGX Rules 11.5, 11.9, and 11.15 To Make Certain Changes Consistent With the Upcoming Implementation of Amendments to Regulation SHO, 12173-12176 [2011-4905]
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Federal Register / Vol. 76, No. 43 / Friday, March 4, 2011 / Notices
2. Statutory Basis
NASDAQ believes that the proposed
rule change is consistent with Section
6(b)(4) of the Act 12 in that it provides
for the equitable allocation of reasonable
dues, fees and other charges among
members and issuers and other persons
using any facility or system which
NASDAQ operates or controls, and it
does not unfairly discriminate between
customers, issuers, brokers or dealers.
The proposed clarifying language does
not change the application and
assessment of the Sales Fee under the
rule, but rather provides greater detail
on the transactions that trigger the fee
and the process by which the fee is
collected. NASDAQ applies Rule 7002
uniformly to all members’ sell orders
entered into NASDAQ’s transaction
execution systems resulting in covered
sales.
NASDAQ also believes the proposed
rule change is consistent with the
provisions of Section 6 of the Act,13 in
general and with Section 6(b)(5) of the
Act,14 in particular, which requires that
the rules of an exchange be designed to
prevent fraudulent and manipulative
acts and practices, promote just and
equitable principles of trade, foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in securities, remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, protect
investors and the public interest.
NASDAQ believes that the proposed
rule change is consistent with these
requirements because the proposed
amended rule text provides members
with more detail regarding the
circumstances under which NASDAQ
assesses a Sales Fee, and the process by
which the fee is collected. As such, the
proposed changes will help avoid
member confusion and foster better
understanding of the application of the
rule. Accordingly, NASDAQ believes
the proposed rule change will promote
just and equitable principles of trade,
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and
protect investors and the public interest.
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
NASDAQ does not believe that the
proposed rule change will result in any
burden on competition that is not
U.S.C. 78f(b)(4).
U.S.C. 78f.
14 15 U.S.C. 78f(b)(5).
necessary or appropriate in furtherance
of the purposes of the Act, as amended.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change establishes or changes a due, fee
or other charge applicable only to a
member, it has become effective
pursuant to Section 19(b)(3)(A) of the
Act 15 and Rule 19b–4(f)(2)
thereunder.16
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as amended, is consistent with
the Act. Comments may be submitted by
any of the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2011–027 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2011–027. This
file number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
12 15
VerDate Mar<15>2010
19:16 Mar 03, 2011
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of such filing
also will be available for inspection and
copying at the principal offices of
NASDAQ. All comments received will
be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NASDAQ–2011–027, and should be
submitted on or before March 25, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–4901 Filed 3–3–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63989; File No. SR–EDGX–
2011–04]
Self-Regulatory Organizations; EDGX
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend EDGX Rules
11.5, 11.9, and 11.15 To Make Certain
Changes Consistent With the
Upcoming Implementation of
Amendments to Regulation SHO
February 28, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b-4 thereunder,2
notice is hereby given that on February
25, 2011 the EDGX Exchange, Inc. (the
‘‘Exchange’’ or the ‘‘EDGX’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which items have
17 17
13 15
15 15
U.S.C. 78s(b)(3)(A).
16 17 CFR 240.19b–4(f)(2).
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12173
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 76, No. 43 / Friday, March 4, 2011 / Notices
been substantially prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
EDGX Rules 11.5, 11.9, and 11.15 to
make certain changes consistent with
the upcoming implementation of
amendments to Regulation SHO.3 The
text of the proposed rule change is
attached as Exhibit 5 and is available on
the Exchange’s Web site at https://
www.directedge.com, at the Exchange’s
principal office, and at the Public
Reference Room of the Commission.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
self-regulatory organization has
prepared summaries, set forth in
Sections A, B and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On February 26, 2010, the
Commission adopted amendments to
Regulation SHO under the Act in the
form of Rule 201,4 pursuant to which,
among other things, short sale orders in
covered securities 5 generally cannot be
3 17
CFR 242.200(g); 17 CFR 242.201.
Securities Exchange Act Release No. 61595
(February 26, 2010), 75 FR 11232 (March 10, 2010).
In connection with the adoption of Rule 201, Rule
200(g) of Regulation SHO was also amended to
include a ‘‘short exempt’’ marking requirement. The
amendments to Rule 201 and Rule 200(g) have a
compliance date of February 28, 2011. See
Securities Exchange Act Release No. 63247
(November 4, 2010), 75 FR 68702 (November 9,
2010). See also Division of Trading & Markets:
Responses to Frequently Asked Questions
Concerning Rule 201 of Regulation SHO.
5 Rule 201(a)(1) defines the term ‘‘covered
security’’ to mean any ‘‘NMS stock’’ as defined
under Rule 600(b)(47) of Regulation NMS. Rule
600(b)(47) of Regulation NMS defines an ‘‘NMS
stock’’ as ‘‘any NMS security other than an option.’’
Rule 600(b)(46) of Regulation NMS defines an
‘‘NMS security’’ as ‘‘any security or class of
securities for which transaction reports are
collected, processed, and made available pursuant
to an effective transaction reporting plan, or an
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executed or displayed by a trading
center 6 such as EDGX at a price that is
at or below the current national best bid
(‘‘NBB’’) 7 when a short sale circuit
breaker is in effect for the covered
security (the ‘‘short sale price test
restriction’’).8 In anticipation of the
upcoming February 28, 2011
compliance date for Rule 201, the
Exchange is proposing to amend certain
EDGX rules to describe the manner in
which the System 9 will handle short
sell orders when a short sale price test
restriction is triggered under Rule 201 of
Regulation SHO. These changes include
establishing a definition for ‘‘short sale
price sliding,’’ which is a new form of
price sliding 10 the Exchange proposes
to offer when the amendments to
Regulation SHO become operative,
modifying certain EDGX rules regarding
order execution and routing when a
short sale price test restriction is in
effect, and modifying EDGX rules
related to order marking requirements.
The Exchange proposes to offer a new
form of price sliding, short sale price
sliding, which will be defined in EDGX
Rule 11.5(c)(4). As a default, the
Exchange will subject a User’s 11 EDGX
Only Orders to the short sale price
sliding in proposed Rule 11.5(c)(4)(B)
unless they affirmatively choose to optout of the process. As proposed, when
a User opts out of the short sale price
sliding process, any short sale order that
could not be executed or displayed due
effective national market system plan for reporting
transactions in listed options.’’ 17 CFR
242.201(a)(1); 17 CFR 242.600(b)(46); and 17 CFR
242.600(b)(47).
6 Rule 201(a)(9) states that the term ‘‘trading
center’’ shall have the same meaning as in Rule
600(b)(78) of Regulation NMS. Rule 600(b)(78)
defines a ‘‘trading center’’ as ‘‘a national securities
exchange or national securities association that
operates an SRO trading facility, an alternative
trading system, an exchange market maker, an OTC
market maker, or any other broker or dealer that
executes orders internally by trading as principal or
crossing orders as agent.’’ 17 CFR 242.600(b)(78).
7 Rules 201(a)(4) defines the term ‘‘national best
bid’’ to have the same meaning as in Rule 600(b)(42)
of Regulation NMS. 17 CFR 242.600(b)(42).
8 17 CFR 242.201(b)(1). See also Division of
Trading & Markets: Responses to Frequently Asked
Questions Concerning Rule 201 of Regulation SHO,
Q&A Nos. 2.1 and 2.2 (concerning the duration of
a short sale price test restriction).
9 The ‘‘System’’ is defined in EDGX Rule 1.5(aa)
as ‘‘the electronic communications and trading
facility designated by the Board through which
securities orders of Users are consolidated for
ranking, execution and, when applicable, routing
away.’’
10 The Exchange currently offers a process called
‘‘displayed price sliding process,’’ as defined in
current EDGX Rule 11.5(c)(4), which re-prices and/
or displays orders at permissible prices when such
orders would lock or cross Protected Quotations in
a manner inconsistent with Rule 610(d) of
Regulation NMS.
11 A ‘‘User’’ is defined in EDGX Rule 1.5(cc) as any
member or sponsored participant of the Exchange
who is authorized to obtain access to the System.
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Frm 00162
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to a short sale price test restriction
would be rejected or cancelled by the
Exchange upon entry or while resting on
the order book, respectively. When a
User’s EDGX Only Order is subject to
the short sale price sliding process, as
proposed in Rule 11.5(c)(4)(B), if it
cannot be executed or displayed at the
time of entry due to a short sale price
test restriction, it will be re-priced by
the System to prevent execution or
display at or below the current NBB to
comply with Rule 201(b)(1)(i).12 Any
EDGX Only Order subject to such repricing by the System will be re-priced
to display at one minimum price
variation (‘‘MPV’’) above the current
NBB (‘‘Permitted Price’’). The order will
receive a new timestamp when it is repriced. Following the initial adjustment
provided for in proposed Rule
11.5(c)(4)(B), the EDGX Only Order will,
to reflect declines in the NBB, continue
to be re-priced at the lowest Permitted
Price down to the order’s original limit
price, or if a market order, until the
order is filled. The order will receive a
new timestamp each time it is re-priced.
Alternatively, following the initial
adjustment provided for in Rule
11.5(c)(4)(B), the EDGX Only Order
may, in accordance with the User’s
instructions, provided that in all cases
the display of such lower prices does
not violate Rule 201 of Regulation SHO:
(i) Be re-priced one additional time to a
price that is above the current NBB but
equal to the NBB at the time the EDGX
Only Order was received and receive a
new timestamp; or (ii) not be adjusted
further. In the event the NBB changes
such that the price of a Non-Displayed
Order, as defined in EDGX Rule
11.5(c)(8), subject to short sale price
sliding would lock or cross the NBB, the
Non-Displayed Order will receive a new
timestamp, and will be re-priced by the
System to a Permitted Price, again in
compliance with Rule 201(b)(1)(i).13
As proposed, EDGX Only Orders
marked ‘‘short exempt’’ will not be
subject to short sale price sliding.
Certain displayed short sale orders will
not be re-priced by the System after
entry because under Rule
201(b)(1)(iii)(A) a trading center’s
policies and procedures must be
reasonably designed to permit the
execution of short sale orders of covered
securities that were displayed at a price
above the current NBB at the time of
initial display. ‘‘Short exempt’’ orders
12 Any execution or display will also need to be
in compliance with applicable rules regarding
minimum pricing increments. 17 CFR 242.612.
13 See Division of Trading & Markets: Responses
to Frequently Asked Questions Concerning Rule
201 of Regulation SHO, Q&A No. 4.1 (concerning
un-displayed orders).
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Federal Register / Vol. 76, No. 43 / Friday, March 4, 2011 / Notices
also will not be re-priced by the System,
but instead, the Exchange will execute,
display and/or route such orders
without regard to whether the order is
at a price less than or equal to the NBB
or any short sale price test restriction in
effect under Regulation SHO, as
described below.
The Exchange also proposes to amend
its Rule 11.9 to make clear that it will
execute, display and route an order
consistent with Rule 201 of Regulation
SHO, and that if it cannot do so, orders
will be cancelled back to the applicable
User. In addition, the Exchange
proposes to make clear that it will not
route orders away from the Exchange
that are marked ‘‘short’’ if a short sale
price test restriction is in effect for the
covered security. Instead, such orders, if
immediate-or-cancel (‘‘IOC’’) will be
cancelled, and all other orders will be
posted to the EDGX Book,14 treated as
if they are EDGX Only Orders, as
defined in Rule 11.5(c)(4), and subjected
to the short sale price sliding process.15
Finally, current Rule 11.15 requires
Users to identify short sale orders as
‘‘short’’ when entered into the System.
The Exchange proposes to add the term
‘‘short exempt’’ to Rule 11.15 because
pursuant to amended Rule 200(g) of
Regulation SHO, a broker-dealer can
mark a short sale order as either ‘‘short’’
or ‘‘short exempt.’’ 16 The Exchange also
proposes to make clear in Rule 11.15
that if an order it received is marked
‘‘short exempt,’’ the Exchange will
execute, display and/or route the order
without regard to whether the order is
at a price less than or equal to the NBB
or any short sale price test restriction in
effect under Regulation SHO.17 The
Exchange also proposes to make clear,
as it does in Rule 11.5(d)(1) with respect
to intermarket sweep orders, that it
relies on a Member’s 18 marking of an
order, in this case the ‘‘short exempt’’
marking, when handling such order.
Accordingly, proposed Rule 11.15 states
that it is the entering Member’s
responsibility, not the Exchange’s
14 As
defined in EDGX Rule 1.5(d).
with an EDGX Only Order, a User can
affirmatively choose to opt-out of the short sale
price sliding process.
16 17 CFR 242.200(g)(2). Under Rule 200(g)(2), an
order may be marked ‘‘short exempt’’ if the brokerdealer had a reasonable basis for believing that the
order meets one of the exceptions specified in Rule
201(d) of Regulation SHO or if it is entered during
a Short Sale Period and meets the conditions
specified in Rule 201(c) of Regulation SHO. See 17
CFR 242.201(d); 17 CFR 242.201(c); See Division of
Trading & Markets: Responses to Frequently Asked
Questions Nos. 4.2, 5.4 and 5.5.
17 17 CFR 242.201(b)(1)(iii)(B).
18 A Member is defined in EDGX Rule 1.5(l) as
any registered broker or dealer, or any person
associated with a registered broker or dealer, that
has been admitted to membership in the Exchange.
jlentini on DSKJ8SOYB1PROD with NOTICES
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19:16 Mar 03, 2011
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responsibility, to comply with the
requirements of Regulation SHO relating
to marking of orders as ‘‘short
exempt.’’ 19
2. Statutory Basis
The Exchange believes that its
proposal is consistent with the
requirements of the Act and the rules
and regulations thereunder that are
applicable to a national securities
exchange, and, in particular, with the
requirements of Section 6(b) of the
Act.20 In particular, the proposed
change is consistent with Section 6(b)(5)
of the Act,21 because it would promote
just and equitable principles of trade,
and, in general, protect investors and
the public interest. The Exchange
believes that the proposed changes will
provide clarity on the short sale order
handling procedures employed by the
Exchange and certain obligations of
Members when sending short sale
orders to the Exchange consistent with
Regulation SHO, as amended. The
Exchange also believes that the
proposed short sale price sliding
functionality will assist Users in
executing or displaying their orders
consistent with Regulation SHO,
especially under fast moving conditions
where the national best bid/offer is
quickly updating. In addition, as is
currently the case, the short sale price
sliding process is optional to Users.
Specifically, Users can choose to opt-out
of the short sale price sliding process,
and if they choose to do so, the
Exchange will cancel back their orders
when such orders contradict the
provisions of Regulation SHO.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The proposed rule change does not
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
unsolicited written comments from
members or other interested parties.
19 17 CFR 242.200(g)(2). See also 17 CFR
242.201(c); 17 CFR 242.201(d). See also Division of
Trading and Markets: Responses to Frequently
Asked Questions Concerning Rule 201 of
Regulation SHO, Q&A Nos. 4.2, 5.4, and 5.5.
20 15 U.S.C. 78f(b).
21 15 U.S.C. 78f(b)(5).
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12175
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate if
consistent with the protection of
investors and the public interest, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 22 and Rule 19b–
4(f)(6)(iii) thereunder.23
A proposed rule change filed under
Rule 19b–4(f)(6) 24 normally does not
become operative prior to 30 days after
the date of the filing.25 However,
pursuant to Rule 19b–4(f)(6)(iii),26 the
Commission may designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
Commission to waive the 30-day
operative delay so that it may
implement the change no later than
February 28, 2011 to coincide with the
compliance date for the amendments to
Rules 200(g) and 201 of Regulation
SHO. The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of the
investors and the public interest
because such waiver would ensure
compliance with the Commission’s
amendments to Rules 200(g) and 201 of
Regulation SHO. For this reason, the
Commission designates the proposed
rule change to be operative upon filing
with the Commission.27
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
22 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6)(iii).
24 17 CFR 240.19b–4(f)(6).
25 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule
19b–4(f)(6)(iii) requires that a self regulatory
organization submit to the Commission written
notice of its intent to file the proposed rule change,
along with a brief description and text of the
proposed rule change, at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
26 17 CFR 240.19b–4(f)(6)(iii).
27 For the purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
23 17
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Federal Register / Vol. 76, No. 43 / Friday, March 4, 2011 / Notices
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
[FR Doc. 2011–4905 Filed 3–3–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
No. SR–EDGX–2011–04 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
jlentini on DSKJ8SOYB1PROD with NOTICES
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Cathy H. Ahn,
Deputy Secretary.
[Release No. 34–63988; File No. SR–EDGA–
2011–05]
Self-Regulatory Organizations; EDGA
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend EDGA Rules
11.5, 11.9, and 11.15 to Make Certain
Changes Consistent With the
Upcoming Implementation of
Amendments to Regulation SHO
February 28, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
All submissions should refer to File
notice is hereby given that on February
25, 2011 the EDGA Exchange, Inc. (the
Number SR–EDGX–2011–04. This file
‘‘Exchange’’ or the ‘‘EDGA’’) filed with
number should be included on the
subject line if e-mail is used. To help the the Securities and Exchange
Commission (‘‘Commission’’) the
Commission process and review your
proposed rule change as described in
comments more efficiently, please use
only one method. The Commission will Items I and II below, which items have
post all comments on the Commission’s been substantially prepared by the selfregulatory organization. The
Internet Web site (https://www.sec.gov/
Commission is publishing this notice to
rules/sro.shtml). Copies of the
solicit comments on the proposed rule
submission, all subsequent
change from interested persons.
amendments, all written statements
with respect to the proposed rule
I. Self-Regulatory Organization’s
change that are filed with the
Statement of the Terms of Substance of
Commission, and all written
the Proposed Rule Change
communications relating to the
The Exchange proposes to amend
proposed rule change between the
EDGA Rules 11.5, 11.9, and 11.15 to
Commission and any person, other than make certain changes consistent with
those that may be withheld from the
the upcoming implementation of
public in accordance with the
amendments to Regulation SHO.3 The
provisions of 5 U.S.C. 552, will be
text of the proposed rule change is
available for Web site viewing and
attached as Exhibit 5 and is available on
printing in the Commission’s Public
the Exchange’s Web site at https://
Reference Room, 100 F Street, NE.,
www.directedge.com, at the Exchange’s
Washington, DC 20549–1090, on official principal office, and at the Public
business days between the hours of 10
Reference Room of the Commission.
a.m. and 3 p.m. Copies of such filing
II. Self-Regulatory Organization’s
also will be available for inspection and
Statement of the Purpose of, and
copying at the principal office of the
Statutory Basis for, the Proposed Rule
Exchange and on its Internet Web site at
Change
https://www.directedge.com. All
In its filing with the Commission, the
comments received will be posted
Exchange included statements
without change; the Commission does
concerning the purpose of, and basis for,
not edit personal identifying
the proposed rule change and discussed
information from submissions. You
any comments it received on the
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–EDGX–2011–04 and should
be submitted by March 25, 2011.
VerDate Mar<15>2010
19:16 Mar 03, 2011
Jkt 223001
28 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 17 CFR 242.200(g); 17 CFR 242.201.
1 15
PO 00000
Frm 00164
Fmt 4703
Sfmt 4703
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
self-regulatory organization has
prepared summaries, set forth in
Sections A, B and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On February 26, 2010, the
Commission adopted amendments to
Regulation SHO under the Act in the
form of Rule 201,4 pursuant to which,
among other things, short sale orders in
covered securities 5 generally cannot be
executed or displayed by a trading
center 6 such as EDGA at a price that is
at or below the current national best bid
(‘‘NBB’’) 7 when a short sale circuit
breaker is in effect for the covered
security (the ‘‘short sale price test
restriction’’).8 In anticipation of the
upcoming February 28, 2011
compliance date for Rule 201, the
Exchange is proposing to amend certain
EDGA rules to describe the manner in
4 See Securities Exchange Act Release No. 61595
(February 26, 2010), 75 FR 11232 (March 10, 2010).
In connection with the adoption of Rule 201, Rule
200(g) of Regulation SHO was also amended to
include a ‘‘short exempt’’ marking requirement. The
amendments to Rule 201 and Rule 200(g) have a
compliance date of February 28, 2011. See
Securities Exchange Act Release No. 63247
(November 4, 2010), 75 FR 68702 (November 9,
2010). See also Division of Trading & Markets:
Responses to Frequently Asked Questions
Concerning Rule 201 of Regulation SHO.
5 Rule 201(a)(1) defines the term ‘‘covered
security’’ to mean any ‘‘NMS stock’’ as defined
under Rule 600(b)(47) of Regulation NMS. Rule
600(b)(47) of Regulation NMS defines an ‘‘NMS
stock’’ as ‘‘any NMS security other than an option.’’
Rule 600(b)(46) of Regulation NMS defines an
‘‘NMS security’’ as ‘‘any security or class of
securities for which transaction reports are
collected, processed, and made available pursuant
to an effective transaction reporting plan, or an
effective national market system plan for reporting
transactions in listed options.’’ 17 CFR
242.201(a)(1); 17 CFR 242.600(b)(46); and 17 CFR
242.600(b)(47).
6 Rule 201(a)(9) states that the term ‘‘trading
center’’ shall have the same meaning as in Rule
600(b)(78) of Regulation NMS. Rule 600(b)(78)
defines a ‘‘trading center’’ as ‘‘a national securities
exchange or national securities association that
operates an SRO trading facility, an alternative
trading system, an exchange market maker, an OTC
market maker, or any other broker or dealer that
executes orders internally by trading as principal or
crossing orders as agent.’’ 17 CFR 242.600(b)(78).
7 Rules 201(a)(4) defines the term ‘‘national best
bid’’ to have the same meaning as in Rule 600(b)(42)
of Regulation NMS. 17 CFR 242.600(b)(42).
8 17 CFR 242.201(b)(1). See also Division of
Trading & Markets: Responses to Frequently Asked
Questions Concerning Rule 201 of Regulation SHO,
Q&A Nos. 2.1 and 2.2 (concerning the duration of
a short sale price test restriction).
E:\FR\FM\04MRN1.SGM
04MRN1
]]>Agencies
[Federal Register Volume 76, Number 43 (Friday, March 4, 2011)]
[Notices]
[Pages 12173-12176]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-4905]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63989; File No. SR-EDGX-2011-04]
Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
EDGX Rules 11.5, 11.9, and 11.15 To Make Certain Changes Consistent
With the Upcoming Implementation of Amendments to Regulation SHO
February 28, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on February 25, 2011 the EDGX Exchange, Inc. (the ``Exchange'' or
the ``EDGX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which items have
[[Page 12174]]
been substantially prepared by the self-regulatory organization. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend EDGX Rules 11.5, 11.9, and 11.15 to
make certain changes consistent with the upcoming implementation of
amendments to Regulation SHO.\3\ The text of the proposed rule change
is attached as Exhibit 5 and is available on the Exchange's Web site at
https://www.directedge.com, at the Exchange's principal office, and at
the Public Reference Room of the Commission.
---------------------------------------------------------------------------
\3\ 17 CFR 242.200(g); 17 CFR 242.201.
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The self-regulatory organization has prepared summaries,
set forth in Sections A, B and C below, of the most significant aspects
of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On February 26, 2010, the Commission adopted amendments to
Regulation SHO under the Act in the form of Rule 201,\4\ pursuant to
which, among other things, short sale orders in covered securities \5\
generally cannot be executed or displayed by a trading center \6\ such
as EDGX at a price that is at or below the current national best bid
(``NBB'') \7\ when a short sale circuit breaker is in effect for the
covered security (the ``short sale price test restriction'').\8\ In
anticipation of the upcoming February 28, 2011 compliance date for Rule
201, the Exchange is proposing to amend certain EDGX rules to describe
the manner in which the System \9\ will handle short sell orders when a
short sale price test restriction is triggered under Rule 201 of
Regulation SHO. These changes include establishing a definition for
``short sale price sliding,'' which is a new form of price sliding \10\
the Exchange proposes to offer when the amendments to Regulation SHO
become operative, modifying certain EDGX rules regarding order
execution and routing when a short sale price test restriction is in
effect, and modifying EDGX rules related to order marking requirements.
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 61595 (February 26,
2010), 75 FR 11232 (March 10, 2010). In connection with the adoption
of Rule 201, Rule 200(g) of Regulation SHO was also amended to
include a ``short exempt'' marking requirement. The amendments to
Rule 201 and Rule 200(g) have a compliance date of February 28,
2011. See Securities Exchange Act Release No. 63247 (November 4,
2010), 75 FR 68702 (November 9, 2010). See also Division of Trading
& Markets: Responses to Frequently Asked Questions Concerning Rule
201 of Regulation SHO.
\5\ Rule 201(a)(1) defines the term ``covered security'' to mean
any ``NMS stock'' as defined under Rule 600(b)(47) of Regulation
NMS. Rule 600(b)(47) of Regulation NMS defines an ``NMS stock'' as
``any NMS security other than an option.'' Rule 600(b)(46) of
Regulation NMS defines an ``NMS security'' as ``any security or
class of securities for which transaction reports are collected,
processed, and made available pursuant to an effective transaction
reporting plan, or an effective national market system plan for
reporting transactions in listed options.'' 17 CFR 242.201(a)(1); 17
CFR 242.600(b)(46); and 17 CFR 242.600(b)(47).
\6\ Rule 201(a)(9) states that the term ``trading center'' shall
have the same meaning as in Rule 600(b)(78) of Regulation NMS. Rule
600(b)(78) defines a ``trading center'' as ``a national securities
exchange or national securities association that operates an SRO
trading facility, an alternative trading system, an exchange market
maker, an OTC market maker, or any other broker or dealer that
executes orders internally by trading as principal or crossing
orders as agent.'' 17 CFR 242.600(b)(78).
\7\ Rules 201(a)(4) defines the term ``national best bid'' to
have the same meaning as in Rule 600(b)(42) of Regulation NMS. 17
CFR 242.600(b)(42).
\8\ 17 CFR 242.201(b)(1). See also Division of Trading &
Markets: Responses to Frequently Asked Questions Concerning Rule 201
of Regulation SHO, Q&A Nos. 2.1 and 2.2 (concerning the duration of
a short sale price test restriction).
\9\ The ``System'' is defined in EDGX Rule 1.5(aa) as ``the
electronic communications and trading facility designated by the
Board through which securities orders of Users are consolidated for
ranking, execution and, when applicable, routing away.''
\10\ The Exchange currently offers a process called ``displayed
price sliding process,'' as defined in current EDGX Rule 11.5(c)(4),
which re-prices and/or displays orders at permissible prices when
such orders would lock or cross Protected Quotations in a manner
inconsistent with Rule 610(d) of Regulation NMS.
---------------------------------------------------------------------------
The Exchange proposes to offer a new form of price sliding, short
sale price sliding, which will be defined in EDGX Rule 11.5(c)(4). As a
default, the Exchange will subject a User's \11\ EDGX Only Orders to
the short sale price sliding in proposed Rule 11.5(c)(4)(B) unless they
affirmatively choose to opt-out of the process. As proposed, when a
User opts out of the short sale price sliding process, any short sale
order that could not be executed or displayed due to a short sale price
test restriction would be rejected or cancelled by the Exchange upon
entry or while resting on the order book, respectively. When a User's
EDGX Only Order is subject to the short sale price sliding process, as
proposed in Rule 11.5(c)(4)(B), if it cannot be executed or displayed
at the time of entry due to a short sale price test restriction, it
will be re-priced by the System to prevent execution or display at or
below the current NBB to comply with Rule 201(b)(1)(i).\12\ Any EDGX
Only Order subject to such re-pricing by the System will be re-priced
to display at one minimum price variation (``MPV'') above the current
NBB (``Permitted Price''). The order will receive a new timestamp when
it is re-priced. Following the initial adjustment provided for in
proposed Rule 11.5(c)(4)(B), the EDGX Only Order will, to reflect
declines in the NBB, continue to be re-priced at the lowest Permitted
Price down to the order's original limit price, or if a market order,
until the order is filled. The order will receive a new timestamp each
time it is re-priced. Alternatively, following the initial adjustment
provided for in Rule 11.5(c)(4)(B), the EDGX Only Order may, in
accordance with the User's instructions, provided that in all cases the
display of such lower prices does not violate Rule 201 of Regulation
SHO: (i) Be re-priced one additional time to a price that is above the
current NBB but equal to the NBB at the time the EDGX Only Order was
received and receive a new timestamp; or (ii) not be adjusted further.
In the event the NBB changes such that the price of a Non-Displayed
Order, as defined in EDGX Rule 11.5(c)(8), subject to short sale price
sliding would lock or cross the NBB, the Non-Displayed Order will
receive a new timestamp, and will be re-priced by the System to a
Permitted Price, again in compliance with Rule 201(b)(1)(i).\13\
---------------------------------------------------------------------------
\11\ A ``User'' is defined in EDGX Rule 1.5(cc) as any member or
sponsored participant of the Exchange who is authorized to obtain
access to the System.
\12\ Any execution or display will also need to be in compliance
with applicable rules regarding minimum pricing increments. 17 CFR
242.612.
\13\ See Division of Trading & Markets: Responses to Frequently
Asked Questions Concerning Rule 201 of Regulation SHO, Q&A No. 4.1
(concerning un-displayed orders).
---------------------------------------------------------------------------
As proposed, EDGX Only Orders marked ``short exempt'' will not be
subject to short sale price sliding. Certain displayed short sale
orders will not be re-priced by the System after entry because under
Rule 201(b)(1)(iii)(A) a trading center's policies and procedures must
be reasonably designed to permit the execution of short sale orders of
covered securities that were displayed at a price above the current NBB
at the time of initial display. ``Short exempt'' orders
[[Page 12175]]
also will not be re-priced by the System, but instead, the Exchange
will execute, display and/or route such orders without regard to
whether the order is at a price less than or equal to the NBB or any
short sale price test restriction in effect under Regulation SHO, as
described below.
The Exchange also proposes to amend its Rule 11.9 to make clear
that it will execute, display and route an order consistent with Rule
201 of Regulation SHO, and that if it cannot do so, orders will be
cancelled back to the applicable User. In addition, the Exchange
proposes to make clear that it will not route orders away from the
Exchange that are marked ``short'' if a short sale price test
restriction is in effect for the covered security. Instead, such
orders, if immediate-or-cancel (``IOC'') will be cancelled, and all
other orders will be posted to the EDGX Book,\14\ treated as if they
are EDGX Only Orders, as defined in Rule 11.5(c)(4), and subjected to
the short sale price sliding process.\15\
---------------------------------------------------------------------------
\14\ As defined in EDGX Rule 1.5(d).
\15\ Like with an EDGX Only Order, a User can affirmatively
choose to opt-out of the short sale price sliding process.
---------------------------------------------------------------------------
Finally, current Rule 11.15 requires Users to identify short sale
orders as ``short'' when entered into the System. The Exchange proposes
to add the term ``short exempt'' to Rule 11.15 because pursuant to
amended Rule 200(g) of Regulation SHO, a broker-dealer can mark a short
sale order as either ``short'' or ``short exempt.'' \16\ The Exchange
also proposes to make clear in Rule 11.15 that if an order it received
is marked ``short exempt,'' the Exchange will execute, display and/or
route the order without regard to whether the order is at a price less
than or equal to the NBB or any short sale price test restriction in
effect under Regulation SHO.\17\ The Exchange also proposes to make
clear, as it does in Rule 11.5(d)(1) with respect to intermarket sweep
orders, that it relies on a Member's \18\ marking of an order, in this
case the ``short exempt'' marking, when handling such order.
Accordingly, proposed Rule 11.15 states that it is the entering
Member's responsibility, not the Exchange's responsibility, to comply
with the requirements of Regulation SHO relating to marking of orders
as ``short exempt.'' \19\
---------------------------------------------------------------------------
\16\ 17 CFR 242.200(g)(2). Under Rule 200(g)(2), an order may be
marked ``short exempt'' if the broker-dealer had a reasonable basis
for believing that the order meets one of the exceptions specified
in Rule 201(d) of Regulation SHO or if it is entered during a Short
Sale Period and meets the conditions specified in Rule 201(c) of
Regulation SHO. See 17 CFR 242.201(d); 17 CFR 242.201(c); See
Division of Trading & Markets: Responses to Frequently Asked
Questions Nos. 4.2, 5.4 and 5.5.
\17\ 17 CFR 242.201(b)(1)(iii)(B).
\18\ A Member is defined in EDGX Rule 1.5(l) as any registered
broker or dealer, or any person associated with a registered broker
or dealer, that has been admitted to membership in the Exchange.
\19\ 17 CFR 242.200(g)(2). See also 17 CFR 242.201(c); 17 CFR
242.201(d). See also Division of Trading and Markets: Responses to
Frequently Asked Questions Concerning Rule 201 of Regulation SHO,
Q&A Nos. 4.2, 5.4, and 5.5.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal is consistent with the
requirements of the Act and the rules and regulations thereunder that
are applicable to a national securities exchange, and, in particular,
with the requirements of Section 6(b) of the Act.\20\ In particular,
the proposed change is consistent with Section 6(b)(5) of the Act,\21\
because it would promote just and equitable principles of trade, and,
in general, protect investors and the public interest. The Exchange
believes that the proposed changes will provide clarity on the short
sale order handling procedures employed by the Exchange and certain
obligations of Members when sending short sale orders to the Exchange
consistent with Regulation SHO, as amended. The Exchange also believes
that the proposed short sale price sliding functionality will assist
Users in executing or displaying their orders consistent with
Regulation SHO, especially under fast moving conditions where the
national best bid/offer is quickly updating. In addition, as is
currently the case, the short sale price sliding process is optional to
Users. Specifically, Users can choose to opt-out of the short sale
price sliding process, and if they choose to do so, the Exchange will
cancel back their orders when such orders contradict the provisions of
Regulation SHO.
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\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate if consistent with
the protection of investors and the public interest, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \22\ and Rule 19b-
4(f)(6)(iii) thereunder.\23\
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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------
A proposed rule change filed under Rule 19b-4(f)(6) \24\ normally
does not become operative prior to 30 days after the date of the
filing.\25\ However, pursuant to Rule 19b-4(f)(6)(iii),\26\ the
Commission may designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay so that it
may implement the change no later than February 28, 2011 to coincide
with the compliance date for the amendments to Rules 200(g) and 201 of
Regulation SHO. The Commission believes that waiving the 30-day
operative delay is consistent with the protection of the investors and
the public interest because such waiver would ensure compliance with
the Commission's amendments to Rules 200(g) and 201 of Regulation SHO.
For this reason, the Commission designates the proposed rule change to
be operative upon filing with the Commission.\27\
---------------------------------------------------------------------------
\24\ 17 CFR 240.19b-4(f)(6).
\25\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self regulatory organization submit to
the Commission written notice of its intent to file the proposed
rule change, along with a brief description and text of the proposed
rule change, at least five business days prior to the date of filing
of the proposed rule change, or such shorter time as designated by
the Commission. The Exchange has satisfied this requirement.
\26\ 17 CFR 240.19b-4(f)(6)(iii).
\27\ For the purposes only of waiving the 30-day operative
delay, the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
[[Page 12176]]
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File No. SR-EDGX-2011-04 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-EDGX-2011-04. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549-1090, on official business days between the hours
of 10 a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of the Exchange and on
its Internet Web site at https://www.directedge.com. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-EDGX-2011-04 and should be
submitted by March 25, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-4905 Filed 3-3-11; 8:45 am]
BILLING CODE 8011-01-P
