Self-Regulatory Organizations; EDGA Exchange, Inc.; Order Approving a Proposed Rule Change Relating to Amendments to Rule 2.11 That Establish the Authority To Cancel Orders and Describe the Operation of an Error Account, 30562-30564 [2012-12443]
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Federal Register / Vol. 77, No. 100 / Wednesday, May 23, 2012 / Notices
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–BX–2012–035 on the
subject line.
Paper Comments
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• 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–BX–2012–035. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (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
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–BX–
2012–035 and should be submitted on
or before June 13, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–12444 Filed 5–22–12; 8:45 am]
BILLING CODE 8011–01–P
9 17
CFR 200.30–3(a)(12).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67013; File No. SR–OCC–
2012–04]
Self-Regulatory Organizations; The
Options Clearing Corporation; Order
Approving Proposed Rule Change
Relating to Stock Loan Buy-In and SellOut Rules
May 17, 2012.
I. Introduction
On March 22, 2012, The Options
Clearing Corporation (‘‘OCC’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change SR–OCC–2012–04
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder.2
The proposed rule change was
published for comment in the Federal
Register on April 6, 2012.3 The
Commission received no comment
letters regarding the proposal. For the
reasons discussed below, the
Commission is granting approval of the
proposed rule change.
II. Description
As detailed in the Commission’s
notice, the proposed rule change would
make three procedural changes to
certain OCC rules relating to the Market
Loan Program 4 and the Stock Loan/
Hedge Program.5 The changes include:
(i) Amending the buy-in and sell-out
processes under the Market Loan
Program, (ii) amending the rules
governing the Stock Loan/Hedge
Program to add a sell-out process, and
(iii) amending OCC’s rules governing
the Stock Loan/Hedge Program to add a
cash settlement process.
III. Discussion
Section 19(b)(2)(B) of the Act directs
the Commission to approve a proposed
rule change of a self-regulatory
organization if it finds that such
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Securities Exchange Act Release No. 34–66715
(April 2, 2012), 77 FR 20861 (April 6, 2012).
4 The Market Loan Program, governed by Article
XXIA of OCC’s By-Laws and Chapter XXIIA of
OCC’s Rules, provides a framework that
accommodates securities lending transactions
executed through electronic trading systems (‘‘Loan
Markets’’).
5 The Stock Loan/Hedge Program, governed by
Article XXI of OCC’s By-Laws and Chapter XXII of
OCC’s Rules, allows approved clearing members to
register their privately negotiated securities lending
transactions with OCC.
2 17
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applicable to such organization.6
Section 17A(b)(3)(F) of the Act requires
that the rules of a clearing agency,
among other things, be designed to
remove impediments to and perfect the
mechanism of a national system for the
clearance and settlement of securities
transactions.7
The Commission finds that the
proposed rule change as described is
consistent with OCC’s obligation under
Section 17A(b)(3)(F) of the Act’s
requirement that the rules of OCC be
designed to remove impediments and
perfect the mechanism of a national
system for the clearance and settlement
of securities transactions.
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposal is
consistent with the requirements of the
Act and in particular with the
requirements of Section 17A of the Act
and the rules and regulations
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) 8 of the Act, that the
proposed rule change (File No. SR–
OCC–2012–04) be, and hereby is,
approved.9
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–12445 Filed 5–22–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67011; File No. SR–EDGA–
2012–09]
Self-Regulatory Organizations; EDGA
Exchange, Inc.; Order Approving a
Proposed Rule Change Relating to
Amendments to Rule 2.11 That
Establish the Authority To Cancel
Orders and Describe the Operation of
an Error Account
May 17, 2012.
I. Introduction
On March 22, 2012, EDGA Exchange,
Inc. (‘‘Exchange’’ or ‘‘EDGA’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
6 15
U.S.C. 78s(b)(2)(B).
U.S.C. 78q–1(b)(3)(F).
8 15 U.S.C. 78s(b)(2).
9 In approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition and capital formation. 15
U.S.C. 78c(f).
10 17 CFR 200.30–3(a)(12).
7 15
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Federal Register / Vol. 77, No. 100 / Wednesday, May 23, 2012 / Notices
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to amend EDGA Rule 2.11 to
(1) add a new subparagraph (a)(6) that
addresses the authority of EDGA and its
routing broker-dealer, Direct Edge ECN
LLC d/b/a DE Route (‘‘DE Route’’) to
cancel orders if and when a systems,
technical, or operational issue occurs,
and (2) amend subparagraph (a)(4) and
add new subparagraph (a)(7) to describe
the operation of an error account for DE
Route. The proposed rule change was
published for comment in the Federal
Register on April 6, 2012.3 The
Commission received no comment
letters regarding the proposed rule
change. This order approves the
proposed rule change.
II. Description of the Proposal
DE Route, a broker-dealer that is a
facility and an affiliate of the Exchange,
provides outbound routing services
from the Exchange to other market
centers pursuant to Exchange rules.4 In
its proposal, the Exchange states that a
systems, technical, or operational issue
may occur at EDGA, DE Route, or a
Trading Center 5 that causes EDGA or
DE Route to cancel orders, if the
Exchange or DE Route determines that
such action is necessary to maintain a
fair and orderly market.6 The Exchange
also states that systems, technical, or
operational issues that occur at EDGA,
DE Route, or a Trading Center may
result in DE Route acquiring an error
position that it must resolve.7
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Securities Exchange Act Release No. 66714
(April 2, 2012), 77 FR 20863 (April 6, 2012) (SR–
EDGA–2012–09) (‘‘Notice’’).
4 See Notice, 77 FR at 20864, n.3 and
accompanying text, and text accompanying n.4. See
also EDGA Rule 2.11; and Securities Exchange Act
Release No. 61698 (March 12, 2010) 75 FR 13151
(March 18, 2010) at 13165.
The Exchange also receives equities orders routed
inbound to the Exchange by DE Route from EDGX
Exchange, Inc. under a pilot period ending on June
30, 2013. See Notice, 77 FR at 20864. See also
Securities Exchange Act Release No. 64362 (April
28, 2011), 76 FR 25386 (May 4, 2011) (SR–EDGA–
2011–13); and Securities Exchange Act Release No.
66643 (March 22, 2012), 77 FR 18876 (March 28,
2012) (SR–EDGA–2012–10) (filing to extend the
pilot period through June 30, 2013).
5 EDGA Rule 2.11(a) defines ‘‘Trading Center’’ as
‘‘other securities exchanges, facilities of securities
exchanges, automated trading systems, electronic
communications networks or other brokers or
dealers.’’ See also Notice, 77 FR at 20864, n.5
(stating that ‘‘Trading Centers’’ is as defined in
EDGA Rule 2.11(a) and Rule 600(b)(78) of
Regulation NMS under the Act, 17 CFR
242.600(b)(78)).
6 See Notice, 77 FR at 20864. For examples of
some of the circumstances in which EDGA or DE
Route may decide to cancel orders, see id.
7 See id. For examples of some of the
circumstances that may lead to error positions, see
id.
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New subparagraph (a)(6) to EDGA
Rule 2.11 provides EDGA or DE Route
with general authority to cancel orders
to maintain fair and orderly markets
when a systems, technical, or
operational issue occurs at EDGA, DE
Route, or a Trading Center. EDGA or DE
Route will be required to provide notice
of the cancellation of orders to
Members 8 as soon as practicable.9
New subparagraphs (a)(4) and (a)(7)
provide authority for DE Route to
maintain an error account for the
purpose of addressing, and sets forth the
procedures for resolving, error
positions. Specifically, DE Route will
maintain an error account for the
purpose of liquidating an error position
acquired in connection with its role as
an Outbound Router 10 when such
position, in the judgment of DE Route
subject to the factors described in EDGA
Rule 2.11(a)(7) (and as set forth below),
cannot be fairly and practicably
assigned to one or more Members in its
entirety.11
In determining whether an entire
error position can be fairly and
practicably assigned to one or more
Members, DE Route will consider
(i) whether DE Route has accurate and
sufficient information to assign the
entire amount of an error position to all
affected Members; and (ii) whether DE
Route is able to evaluate available
information in order to assign the entire
amount of an error position to all
affected Members by the first business
day following the trade date on which
the error position was established.12 If
DE Route determines that an error
position can be assigned to one or more
Members by the first business day
following the trade date on which the
error position was incurred, DE Route
will (i) assign the entire amount of the
error position to all affected Members,
and (ii) make and keep records to
document the rationale for the
assignment to those Members.13 All
8 EDGA Rule 1.5(n) defines ‘‘Member’’ to mean
‘‘any registered broker or dealer, or any person
associated with a registered broker or dealer, that
has been admitted to membership in the Exchange’’
and states that ‘‘[a] Member will have the status of
a ‘member’ of the Exchange as that term is defined
in Section 3(a)(3) of the [Exchange] Act.’’
9 See EDGA Rule 2.11(a)(6).
10 EDGA Rule 2.11(a) defines DE Route, in its
function providing outbound routing of orders from
the Exchange to other Trading Centers as the
‘‘Outbound Router.’’
11 See EDGA Rule 2.11(a)(7). An error position
can be acquired as a result of a systems, technical,
or operational issue experienced by EDGA, DE
Route, or a Trading Center to which DE Route
directed an outbound order. See id.
12 See id.
13 See id.
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30563
determinations and assignments will be
made in a non-discriminatory manner.14
If, however, DE Route reasonably
concludes, due to the number of
erroneous executions or the number of
members potentially impacted, that it
would not be able to trace each
erroneous execution comprising an error
position back to the affected Members in
a timely manner, then DE Route will
assume the entire amount of the error
position into the error account.15 DE
Route will make and keep records of the
factors considered in determining
whether to acquire an error position into
the error account.16
If DE Route determines to acquire an
error position into the error account, DE
Route will liquidate the error position as
soon as practicable.17 DE Route will be
required to provide complete time and
price discretion for the trading to
liquidate the error positions to a thirdparty broker-dealer, and would be
prohibited from attempting to exercise
any influence or control over the timing
or methods of such trading.18 Further,
DE Route will be required to establish
and implement written policies and
procedures that are reasonably designed
to restrict the flow of confidential and
proprietary information between the
third-party broker-dealer, on one hand,
and the Exchange and DE Route, on the
other, associated with the liquidation of
the error positions.19 DE Route will
make and keep records associated with
the liquidation of the error position
through a third-party broker-dealer.20
III. Discussion and Commission’s
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of
Section 6(b) of the Act 21 and the rules
and regulations thereunder applicable to
a national securities exchange.22 In
particular, the Commission finds that
the proposed rule change is consistent
with Section 6(b)(5) of the Act,23 which
requires, among other things, that the
rules of a national securities exchange
be designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
14 See
id.
Notice, 77 FR at 20865.
16 See EDGA Rule 2.11(a)(7).
17 See id.
18 See id.
19 See id.
20 See id.
21 15 U.S.C. 78f(b).
22 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
23 15 U.S.C. 78f(b)(5).
15 See
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Federal Register / Vol. 77, No. 100 / Wednesday, May 23, 2012 / Notices
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest; and are not designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
In addition, the Commission believes
the proposed rule change is consistent
with Section 11A(a)(1)(C) of the Act 24
in that it seeks to assure economically
efficient execution of securities
transactions.
The Commission recognizes that a
systems, technical, or operational issue
may occur, and believes that EDGA Rule
2.11, in allowing EDGA or DE Route to
cancel orders affected by a systems,
technical, or operational issue, should
provide a reasonably efficient means for
the Exchange to handle such orders, and
appears reasonably designed to permit
EDGA to maintain fair and orderly
markets.25
The Commission also believes that
allowing DE Route to maintain an error
account to resolve error positions
acquired in connection with its role as
an Outbound Router pursuant to the
procedures set forth in the rule, and as
described above, is consistent with the
Act. The Commission notes that the rule
establishes criteria for determining
which positions are error positions that
may be acquired into the error account,
and which will be assigned to
Members.26 DE Route, in connection
with a particular systems, technical, or
operational issue, will be required to
either (i) assign the entire amount of a
resulting error position to Members or
(ii) liquidate such position.27 Also, DE
Route will assign an error position that
results from a particular systems,
technical, or operational issue to
Members only if the entire amount of
such error position can be assigned to
24 15
U.S.C. 78k–1(a)(1)(C).
Commission notes that EDGA states that
the proposed amendments to EDGA Rule 2.11 are
designed to maintain fair and orderly markets,
ensure full trade certainty for market participants,
and avoid disrupting the clearance and settlement
process. See Notice, 77 FR at 20866. The
Commission also notes that EDGA states that a
decision to cancel orders due to a systems,
technical, or operational issue may not cause the
Exchange to declare self-help against a Trading
Center pursuant to Rule 611 of Regulation NMS, in
which case the Exchange would continue to be
subject to the order protection requirements of Rule
611 with respect to that Trading Center. See 17 CFR
242.611(b). See also Notice, 77 FR at 20865, n.12.
26 See EDGA Rule 2.11(a)(7).
27 See id.
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all of the affected Members.28 If DE
Route cannot fairly and practically
assign the entire amount of an error
position to all affected Members, DE
Route will liquidate such error
position.29 In this regard, the
Commission believes that the new rule
appears reasonably designed to further
just and equitable principles of trade
and the protection of investors and the
public interest, and to help prevent
unfair discrimination, in that it should
help assure the handling of error
positions will be based on clear and
objective criteria, and that the resolution
of those positions will occur promptly
through a transparent process.
Additionally, the Commission notes
that it has previously expressed concern
about the potential for unfair
competition and conflicts of interest
between an exchange’s self-regulatory
obligations and its commercial interest
when the exchange is affiliated with one
of its members.30 The Commission is
also concerned about the potential for
misuse of confidential and proprietary
information. The Commission believes
that the requirement that DE Route
provide complete time and price
discretion for the liquidation of an error
position to a third-party broker-dealer,
including that DE Route not attempt to
exercise any influence or control over
the timing or methods of such trading,
combined with the requirement that DE
Route establish and implement policies
and procedures that are reasonably
designed to restrict the flow of
confidential and proprietary
information to the third-party routing
broker liquidating such positions,
should help mitigate the Commission’s
concerns. In particular, the Commission
believes that these requirements should
help assure that none of EDGA, DE
Route, or the third-party broker-dealer is
able to misuse confidential or
proprietary information obtained in
connection with the liquidation of error
positions for its own benefit. The
Commission also notes that DE Route
would be required to make and keep
records documenting the rationale for
assignment of error positions to
Members, documenting the factors
considered in determining to acquire
error positions into the error account,
and associated with the liquidation of
error positions through the third-party
broker-dealer.31
28 See
id.
id.
30 See, e.g., Securities Exchange Act Release No.
65455 (September 30, 2011), 76 FR 62119 (October
6, 2011) at 62120, n.16 and accompanying text.
31 See EDGA Rule 2.11(a)(7).
29 See
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Frm 00068
Fmt 4703
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Finally, the Commission notes that
the proposed procedures for canceling
orders and handling of error positions
are consistent with procedures the
Commission has approved for another
exchange.32
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,33 that the
proposed rule change (SR–EDGA–2012–
09) be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–12443 Filed 5–22–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67010; File No. SR–EDGX–
2012–08]
Self-Regulatory Organizations; EDGX
Exchange, Inc.; Order Approving a
Proposed Rule Change Relating to
Amendments to Rule 2.11 That
Establish the Authority To Cancel
Orders and Describe the Operation of
an Error Account
May 17, 2012.
I. Introduction
On March 22, 2012, EDGX Exchange,
Inc. (‘‘Exchange’’ or ‘‘EDGX’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to amend EDGX Rule 2.11 to (1)
add a new subparagraph (a)(6) that
addresses the authority of EDGX and its
routing broker-dealer, Direct Edge ECN
LLC d/b/a DE Route (‘‘DE Route’’) to
cancel orders if and when a systems,
technical, or operational issue occurs,
and (2) amend subparagraph (a)(4) and
add new subparagraph (a)(7) to describe
the operation of an error account for DE
Route. The proposed rule change was
published for comment in the Federal
Register on April 6, 2012.3 The
Commission received no comment
letters regarding the proposed rule
32 See Securities Exchange Act Release No. 66963
(May 10, 2012), 77 FR 28919 (May 16, 2012) (SR–
NYSEArca–2012–22).
33 15 U.S.C. 78s(b)(2).
34 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 66713
(April 2, 2012), 77 FR 20854 (April 6, 2012) (SR–
EDGX–2012–08) (‘‘Notice’’).
E:\FR\FM\23MYN1.SGM
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]]>Agencies
[Federal Register Volume 77, Number 100 (Wednesday, May 23, 2012)]
[Notices]
[Pages 30562-30564]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-12443]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67011; File No. SR-EDGA-2012-09]
Self-Regulatory Organizations; EDGA Exchange, Inc.; Order
Approving a Proposed Rule Change Relating to Amendments to Rule 2.11
That Establish the Authority To Cancel Orders and Describe the
Operation of an Error Account
May 17, 2012.
I. Introduction
On March 22, 2012, EDGA Exchange, Inc. (``Exchange'' or ``EDGA'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities
[[Page 30563]]
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend EDGA Rule 2.11 to (1) add a new
subparagraph (a)(6) that addresses the authority of EDGA and its
routing broker-dealer, Direct Edge ECN LLC d/b/a DE Route (``DE
Route'') to cancel orders if and when a systems, technical, or
operational issue occurs, and (2) amend subparagraph (a)(4) and add new
subparagraph (a)(7) to describe the operation of an error account for
DE Route. The proposed rule change was published for comment in the
Federal Register on April 6, 2012.\3\ The Commission received no
comment letters regarding the proposed rule change. This order approves
the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 66714 (April 2, 2012),
77 FR 20863 (April 6, 2012) (SR-EDGA-2012-09) (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposal
DE Route, a broker-dealer that is a facility and an affiliate of
the Exchange, provides outbound routing services from the Exchange to
other market centers pursuant to Exchange rules.\4\ In its proposal,
the Exchange states that a systems, technical, or operational issue may
occur at EDGA, DE Route, or a Trading Center \5\ that causes EDGA or DE
Route to cancel orders, if the Exchange or DE Route determines that
such action is necessary to maintain a fair and orderly market.\6\ The
Exchange also states that systems, technical, or operational issues
that occur at EDGA, DE Route, or a Trading Center may result in DE
Route acquiring an error position that it must resolve.\7\
---------------------------------------------------------------------------
\4\ See Notice, 77 FR at 20864, n.3 and accompanying text, and
text accompanying n.4. See also EDGA Rule 2.11; and Securities
Exchange Act Release No. 61698 (March 12, 2010) 75 FR 13151 (March
18, 2010) at 13165.
The Exchange also receives equities orders routed inbound to the
Exchange by DE Route from EDGX Exchange, Inc. under a pilot period
ending on June 30, 2013. See Notice, 77 FR at 20864. See also
Securities Exchange Act Release No. 64362 (April 28, 2011), 76 FR
25386 (May 4, 2011) (SR-EDGA-2011-13); and Securities Exchange Act
Release No. 66643 (March 22, 2012), 77 FR 18876 (March 28, 2012)
(SR-EDGA-2012-10) (filing to extend the pilot period through June
30, 2013).
\5\ EDGA Rule 2.11(a) defines ``Trading Center'' as ``other
securities exchanges, facilities of securities exchanges, automated
trading systems, electronic communications networks or other brokers
or dealers.'' See also Notice, 77 FR at 20864, n.5 (stating that
``Trading Centers'' is as defined in EDGA Rule 2.11(a) and Rule
600(b)(78) of Regulation NMS under the Act, 17 CFR 242.600(b)(78)).
\6\ See Notice, 77 FR at 20864. For examples of some of the
circumstances in which EDGA or DE Route may decide to cancel orders,
see id.
\7\ See id. For examples of some of the circumstances that may
lead to error positions, see id.
---------------------------------------------------------------------------
New subparagraph (a)(6) to EDGA Rule 2.11 provides EDGA or DE Route
with general authority to cancel orders to maintain fair and orderly
markets when a systems, technical, or operational issue occurs at EDGA,
DE Route, or a Trading Center. EDGA or DE Route will be required to
provide notice of the cancellation of orders to Members \8\ as soon as
practicable.\9\
---------------------------------------------------------------------------
\8\ EDGA Rule 1.5(n) defines ``Member'' to mean ``any registered
broker or dealer, or any person associated with a registered broker
or dealer, that has been admitted to membership in the Exchange''
and states that ``[a] Member will have the status of a `member' of
the Exchange as that term is defined in Section 3(a)(3) of the
[Exchange] Act.''
\9\ See EDGA Rule 2.11(a)(6).
---------------------------------------------------------------------------
New subparagraphs (a)(4) and (a)(7) provide authority for DE Route
to maintain an error account for the purpose of addressing, and sets
forth the procedures for resolving, error positions. Specifically, DE
Route will maintain an error account for the purpose of liquidating an
error position acquired in connection with its role as an Outbound
Router \10\ when such position, in the judgment of DE Route subject to
the factors described in EDGA Rule 2.11(a)(7) (and as set forth below),
cannot be fairly and practicably assigned to one or more Members in its
entirety.\11\
---------------------------------------------------------------------------
\10\ EDGA Rule 2.11(a) defines DE Route, in its function
providing outbound routing of orders from the Exchange to other
Trading Centers as the ``Outbound Router.''
\11\ See EDGA Rule 2.11(a)(7). An error position can be acquired
as a result of a systems, technical, or operational issue
experienced by EDGA, DE Route, or a Trading Center to which DE Route
directed an outbound order. See id.
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In determining whether an entire error position can be fairly and
practicably assigned to one or more Members, DE Route will consider (i)
whether DE Route has accurate and sufficient information to assign the
entire amount of an error position to all affected Members; and (ii)
whether DE Route is able to evaluate available information in order to
assign the entire amount of an error position to all affected Members
by the first business day following the trade date on which the error
position was established.\12\ If DE Route determines that an error
position can be assigned to one or more Members by the first business
day following the trade date on which the error position was incurred,
DE Route will (i) assign the entire amount of the error position to all
affected Members, and (ii) make and keep records to document the
rationale for the assignment to those Members.\13\ All determinations
and assignments will be made in a non-discriminatory manner.\14\
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\12\ See id.
\13\ See id.
\14\ See id.
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If, however, DE Route reasonably concludes, due to the number of
erroneous executions or the number of members potentially impacted,
that it would not be able to trace each erroneous execution comprising
an error position back to the affected Members in a timely manner, then
DE Route will assume the entire amount of the error position into the
error account.\15\ DE Route will make and keep records of the factors
considered in determining whether to acquire an error position into the
error account.\16\
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\15\ See Notice, 77 FR at 20865.
\16\ See EDGA Rule 2.11(a)(7).
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If DE Route determines to acquire an error position into the error
account, DE Route will liquidate the error position as soon as
practicable.\17\ DE Route will be required to provide complete time and
price discretion for the trading to liquidate the error positions to a
third-party broker-dealer, and would be prohibited from attempting to
exercise any influence or control over the timing or methods of such
trading.\18\ Further, DE Route will be required to establish and
implement written policies and procedures that are reasonably designed
to restrict the flow of confidential and proprietary information
between the third-party broker-dealer, on one hand, and the Exchange
and DE Route, on the other, associated with the liquidation of the
error positions.\19\ DE Route will make and keep records associated
with the liquidation of the error position through a third-party
broker-dealer.\20\
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\17\ See id.
\18\ See id.
\19\ See id.
\20\ See id.
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III. Discussion and Commission's Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of Section 6(b) of the Act
\21\ and the rules and regulations thereunder applicable to a national
securities exchange.\22\ In particular, the Commission finds that the
proposed rule change is consistent with Section 6(b)(5) of the Act,\23\
which requires, among other things, that the rules of a national
securities exchange be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of
[[Page 30564]]
trade, to foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities, to remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest; and are not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers. In addition, the Commission
believes the proposed rule change is consistent with Section
11A(a)(1)(C) of the Act \24\ in that it seeks to assure economically
efficient execution of securities transactions.
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\21\ 15 U.S.C. 78f(b).
\22\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\23\ 15 U.S.C. 78f(b)(5).
\24\ 15 U.S.C. 78k-1(a)(1)(C).
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The Commission recognizes that a systems, technical, or operational
issue may occur, and believes that EDGA Rule 2.11, in allowing EDGA or
DE Route to cancel orders affected by a systems, technical, or
operational issue, should provide a reasonably efficient means for the
Exchange to handle such orders, and appears reasonably designed to
permit EDGA to maintain fair and orderly markets.\25\
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\25\ The Commission notes that EDGA states that the proposed
amendments to EDGA Rule 2.11 are designed to maintain fair and
orderly markets, ensure full trade certainty for market
participants, and avoid disrupting the clearance and settlement
process. See Notice, 77 FR at 20866. The Commission also notes that
EDGA states that a decision to cancel orders due to a systems,
technical, or operational issue may not cause the Exchange to
declare self-help against a Trading Center pursuant to Rule 611 of
Regulation NMS, in which case the Exchange would continue to be
subject to the order protection requirements of Rule 611 with
respect to that Trading Center. See 17 CFR 242.611(b). See also
Notice, 77 FR at 20865, n.12.
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The Commission also believes that allowing DE Route to maintain an
error account to resolve error positions acquired in connection with
its role as an Outbound Router pursuant to the procedures set forth in
the rule, and as described above, is consistent with the Act. The
Commission notes that the rule establishes criteria for determining
which positions are error positions that may be acquired into the error
account, and which will be assigned to Members.\26\ DE Route, in
connection with a particular systems, technical, or operational issue,
will be required to either (i) assign the entire amount of a resulting
error position to Members or (ii) liquidate such position.\27\ Also, DE
Route will assign an error position that results from a particular
systems, technical, or operational issue to Members only if the entire
amount of such error position can be assigned to all of the affected
Members.\28\ If DE Route cannot fairly and practically assign the
entire amount of an error position to all affected Members, DE Route
will liquidate such error position.\29\ In this regard, the Commission
believes that the new rule appears reasonably designed to further just
and equitable principles of trade and the protection of investors and
the public interest, and to help prevent unfair discrimination, in that
it should help assure the handling of error positions will be based on
clear and objective criteria, and that the resolution of those
positions will occur promptly through a transparent process.
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\26\ See EDGA Rule 2.11(a)(7).
\27\ See id.
\28\ See id.
\29\ See id.
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Additionally, the Commission notes that it has previously expressed
concern about the potential for unfair competition and conflicts of
interest between an exchange's self-regulatory obligations and its
commercial interest when the exchange is affiliated with one of its
members.\30\ The Commission is also concerned about the potential for
misuse of confidential and proprietary information. The Commission
believes that the requirement that DE Route provide complete time and
price discretion for the liquidation of an error position to a third-
party broker-dealer, including that DE Route not attempt to exercise
any influence or control over the timing or methods of such trading,
combined with the requirement that DE Route establish and implement
policies and procedures that are reasonably designed to restrict the
flow of confidential and proprietary information to the third-party
routing broker liquidating such positions, should help mitigate the
Commission's concerns. In particular, the Commission believes that
these requirements should help assure that none of EDGA, DE Route, or
the third-party broker-dealer is able to misuse confidential or
proprietary information obtained in connection with the liquidation of
error positions for its own benefit. The Commission also notes that DE
Route would be required to make and keep records documenting the
rationale for assignment of error positions to Members, documenting the
factors considered in determining to acquire error positions into the
error account, and associated with the liquidation of error positions
through the third-party broker-dealer.\31\
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\30\ See, e.g., Securities Exchange Act Release No. 65455
(September 30, 2011), 76 FR 62119 (October 6, 2011) at 62120, n.16
and accompanying text.
\31\ See EDGA Rule 2.11(a)(7).
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Finally, the Commission notes that the proposed procedures for
canceling orders and handling of error positions are consistent with
procedures the Commission has approved for another exchange.\32\
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\32\ See Securities Exchange Act Release No. 66963 (May 10,
2012), 77 FR 28919 (May 16, 2012) (SR-NYSEArca-2012-22).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\33\ that the proposed rule change (SR-EDGA-2012-09) be, and it
hereby is, approved.
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\33\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-12443 Filed 5-22-12; 8:45 am]
BILLING CODE 8011-01-P
