Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to New Market Access Risk Management Service, EdgeRisk ControlsSM, 39302-39305 [2012-16135]

Download as PDF 39302 Federal Register / Vol. 77, No. 127 / Monday, July 2, 2012 / Notices B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will 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 neither solicited nor received written comments on the proposed rule change. 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 after the date of the filing, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 18 and Rule 19b– 4(f)(6) 19 thereunder. The Exchange has asked the Commission to accelerate the 30-day operative delay.20 The Commission finds that accelerating the 30-day operative delay is consistent with the protection of investors and the public interest because it will allow the Exchange to begin offering the Service immediately to its Members. The Commission notes that other exchanges currently provide services similar to the Service proposed by EDGX.21 Accordingly, the Commission designates the proposal operative upon filing.22 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 18 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file 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. 20 17 CFR 240.19b–4(f)(6)(iii). 21 See supra note 17 and accompanying text. 22 For purposes only of accelerating the 30-day operative delay, the Commission has considered the proposed rule change’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). mstockstill on DSK4VPTVN1PROD with NOTICES 19 17 VerDate Mar<15>2010 17:22 Jun 29, 2012 Jkt 226001 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 is consistent with the Act. Comments may be submitted by any of the following methods: For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.23 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–16136 Filed 6–29–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Electronic Comments [Release No. 34–67265; File No. SR–EDGA– 2012–23] • 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–EDGX–2012–21 on the subject line. Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to New Market Access Risk Management Service, EdgeRisk ControlsSM June 26, 2012. 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–2012–21. 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 a.m. and 3 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–EDGX– 2012–21 and should be submitted on or before July 23, 2012. PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 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 June 19, 2012, EDGA Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGA’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which items have been prepared by the Exchange. 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 EDGA Exchange, Inc. (‘‘EDGA’’ or the ‘‘Exchange’’) is filing with the Securities and Exchange Commission (the ‘‘Commission’’) a proposed rule change to establish a new market access risk management service, called EdgeRisk ControlsSM (the ‘‘Service’’). 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. 23 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\02JYN1.SGM 02JYN1 Federal Register / Vol. 77, No. 127 / Monday, July 2, 2012 / Notices A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Background on Market Access Rule mstockstill on DSK4VPTVN1PROD with NOTICES On November 3, 2010, the Commission adopted Rule 15c3–5 under the Act. Rule 15c3–5, known as the ‘‘Market Access Rule’’, governs risk management controls by broker-dealers with market access. The Market Access Rule had an effective date of January 14, 2011, with phased-in compliance dates of July 14, 2011, and November 30, 2011.3 Among other things, the Market Access Rule requires that any brokerdealer with market access,4 or that provides a customer or any other person with market access, must establish, document and maintain a system of risk management controls and supervisory procedures that are reasonably designed to manage the financial, regulatory and other risks of this business activity. These controls include financial risk management controls reasonably designed to prevent the entry of orders that exceed appropriate pre-set credit or capital thresholds in the aggregate for each customer and the broker-dealer itself, and to prevent the entry of erroneous orders. In addition, the Market Access Rule requires certain regulatory risk management controls that, among other things, prevent the entry of orders unless compliance with applicable regulatory requirements has been satisfied on a pre-order entry basis, and restrict access to trading systems and technology that provide market access to persons and accounts that have been pre-approved and authorized by the broker-dealer. These regulatory risk management controls also include measures designed to prevent the entry of orders for a broker-dealer, customer or other person if such person is restricted from trading those securities, and to assure that appropriate surveillance personnel receive 3 See Securities Exchange Act Release No. 63241 (November 3, 2010), 75 FR 69792 (November 15, 2011) [sic] (File No. S7–03–10); See also Securities Exchange Act Release No. 64748 (June 27, 2011), 76 FR 38293 (June 30, 2011) (File No. S7–03–10) (providing limited extension of compliance date for certain requirements); Securities Exchange Act Release No. 65132 (August 15, 2011), 76 FR 51457 (August 18, 2011) (exempting floor broker operations of certain broker-dealers with market access from automated controls requirement of Rule 15c3–5). 4 The term ‘‘market access’’ is defined in Rule 15c3–5(a)(1) to include, inter alia, access to trading in securities on an exchange or alternative trading system (‘‘ATS’’) as a result of being a member or subscriber of the exchange or ATS, respectively. VerDate Mar<15>2010 17:22 Jun 29, 2012 Jkt 226001 immediate, post-trade execution reports that result from market access. These risk management controls and associated supervisory procedures must be under the direct and exclusive control of the broker-dealer that is subject to the Market Access Rule. While a broker-dealer can use thirdparty providers to satisfy some or all of these requirements, the broker-dealer is nonetheless required to ensure that whatever technology or other services are provided by such third-party are under their direct and exclusive control. Thus, the broker-dealer must retain the ability to make adjustments to and monitor the operation of the controls. Description of EdgeRisk ControlsSM To assist Members 5 in satisfying their compliance obligations under the Market Access Rule, the Exchange is proposing to offer the Service.6 This optional Service would act as a risk filter by causing the orders of Members, and/or their Sponsored Participants 7 if applicable, to be evaluated by the Service against an array of manageable threshold limits pre-selected and controlled by the Member prior to entering the Exchange’s System.8 Based on parameters provided to the Service by the Member, the order would be immediately passed on to the matching engine or rejected back to the Member (and its Sponsored Participant, if applicable). The Service is designed so that Members would have the ability to select from a menu of financial and regulatory controls, as well as supervisory and monitoring tools, and to manage the parameter settings of those features in real time.9 To that end, the Service would enable Members to receive FIX Drop Order Copy 10 sessions, which include complete 5 As defined in EDGA Rule 1.5(n). Exchange is not proposing to charge a fee for the Service at this time, although it is possible that the Exchange might submit a fee filing in respect of the Service at some later point in time. The Service would be made available to Members upon request. 7 A ‘‘Sponsored Participant’’ is a person who has entered into a sponsorship arrangement with a Sponsoring Member. EDGA Rule 1.5(z). A ‘‘Sponsoring Member’’, in turn, is a Member that is a registered broker-dealer and that has been designated by a Sponsored Participant to execute, clear and settle transactions executed on or through the Exchange. EDGA Rule 1.5(aa). 8 As defined in EDGA Rule 1.5(cc). 9 These features are dynamic are likely to evolve over time. 10 The Financial Information eXchange (‘‘FIX’’) Protocol is a series of messaging specifications for the electronic communication of trade-related messages. A Drop Copy is a trade execution report or message that is sent back to a trading participant’s system using the FIX protocol. 6 The PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 39303 XPRS 11/FIX conversations, as well as web-based management services to configure certain controls. The Exchange does not guarantee that the Service offers or will offer tools sufficiently comprehensive to be the exclusive means by which Members could satisfy their compliance obligations under the Market Access Rule. The Exchange would not require Members to use the Service, nor would use of the Service by a member automatically constitute compliance with the Market Access Rule. The Service is but one option that Members may elect to use in the efficient risk management of the Members’ and/or Sponsored Participants’ access to the Exchange. Members are free to use any appropriate risk management tool or service, or combination thereof, which could but is not required to include the Service. Ultimately, it is the Member’s responsibility, and not the Exchange’s, to demonstrate its compliance with the Market Access Rule and the Exchange’s Rule 11.3.12 The Exchange will not provide preferential treatment to Members electing to use the Service, nor will the Exchange discriminate against Members who choose not to utilize the Service. Finally, the Service does not supersede other controls that the Exchange and its affiliated routing broker dealer (‘‘DE Route’’) have established to manage the potential financial, regulatory and other risks associated with providing Members access to the Exchange and to external market centers, respectively.13 Thus, even if an order were to satisfy the risk controls established by a Member via the Service, it is still possible that the Exchange’s own risk controls could either reject the order from entry to the Exchange or cancel the order back to the Member and/or Sponsored Participant if the order could not be routed as a result of the separate risk controls that DE Route has established to satisfy its own compliance obligations under the Market Access Rule. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act 14 and furthers the objectives of Section 6(b)(5) of the 11 Edge XPRS is a high-performance order entry protocol. 12 EDGA Rule 11.3 addresses access by Members and Sponsored Participants to the facilities of the Exchange. 13 See Direct Edge Regulatory Notice 11–01 (November 30, 2011). 14 15 U.S.C. 78f(b). E:\FR\FM\02JYN1.SGM 02JYN1 mstockstill on DSK4VPTVN1PROD with NOTICES 39304 Federal Register / Vol. 77, No. 127 / Monday, July 2, 2012 / Notices Act,15 in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments to and perfect the mechanisms of a free and open market and a national market system, and, in general, to protect investors and the public interest. Moreover, the proposed rule change is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. In its release adopting the Market Access Rule, the Commission stated that the rule ‘‘is designed to ensure that broker-dealers appropriately control the risks associated with market access, so as not to jeopardize their own financial condition, that of other market participants, the integrity of trading on the securities markets, and the stability of the financial system.’’ 16 As noted above, the obligation to comply with the Market Access Rule falls squarely on broker-dealers that have and provide market access. The Service is designed to provide certain functionality to assist broker-dealers that are Members of the Exchange to satisfy their compliance obligations under the Market Access Rule (although not necessarily to the exclusion of other appropriate tools and services that are also available to Members). In this regard, the Exchange believes that the Service is consistent with the objectives in the Act of protecting investors and the public interest, promoting just and equitable principles of trade, and preventing fraudulent and manipulative acts and practices, as it would contribute to helping Members further the objectives of the Market Access Rule. The proposed rule change is also consistent with the Exchange’s responsibilities under the Act as a selfregulatory organization, as the Exchange is not purporting to offer a tool that would necessarily be the exclusive means by which Members could satisfy their obligations under the Market Access Rule, nor is the Exchange requiring its Members to use the Service. Indeed, the Exchange represents that it will not discriminate against any Member that elects not to use the Service. In that regard, the Service is not designed to permit unfair discrimination between Members. Finally, the Exchange believes that the proposed rule change would foster competition by providing another 15 15 U.S.C. 78f(b)(5). 16 See Securities Exchange Act Release No. 69792 [sic] at 69792. VerDate Mar<15>2010 17:22 Jun 29, 2012 Jkt 226001 option in the efficient risk management of trading on the Exchange, in a manner similar to those which are currently being provided by competitors of the Exchange.17 B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will 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 neither solicited nor received written comments on the proposed rule change. 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 after the date of the filing, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 18 and Rule 19b– 4(f)(6) 19 thereunder. The Exchange has asked the Commission to accelerate the 30-day operative delay.20 The Commission finds that accelerating the 30-day operative delay is consistent with the protection of investors and the public interest because it will allow the Exchange to begin offering the Service immediately to its Members. The Commission notes that other exchanges currently provide services similar to the Service proposed by EDGA.21 Accordingly, the Commission 17 See Securities Exchange Act Release No. 60236 (July 2, 2009), 74 FR 34068 (July 14, 2009) (SR– BATS–2009–19) (Notice of Filing and Immediate Effectiveness of BATS Exchange, Inc.’s Sponsored Access Risk Management Tool). See also Securities Exchange Act Release No. 59354 (February 3, 2009), 74 FR 6683 (February 10, 2009) (SR–NYSE–2008– 101) (Approval of New York Stock Exchange LLC’s Risk Management Gateway). 18 15 U.S.C. 78s(b)(3)(A). 19 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file 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. 20 17 CFR 240.19b–4(f)(6)(iii). 21 See supra note 17 and accompanying text. PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 designates the proposal operative upon filing.22 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 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 email to rulecomments@sec.gov. Please include File Number SR–EDGA–2012–23 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–EDGA–2012–23. 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., 22 For purposes only of accelerating the 30-day operative delay, the Commission has considered the proposed rule change’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). E:\FR\FM\02JYN1.SGM 02JYN1 39305 Federal Register / Vol. 77, No. 127 / Monday, July 2, 2012 / Notices Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 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–EDGA– 2012–23 and should be submitted on or before July 23, 2012. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.23 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–16135 Filed 6–29–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–67263; File No. SR– NYSEArca–2012–62] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Amending the NYSE Arca Equities Schedule of Fees and Charges for Exchange Services To Provide for Additional Co-location Services and Establish Related fees June 26, 2012. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on June 13, 2012, NYSE Arca, Inc. (the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the self-regulatory 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 the NYSE Arca Equities Schedule of Fees and Charges for Exchange Services (‘‘Fee Schedule’’) to provide for additional co-location services and establish related fees. The text of the proposed rule change is available on the Exchange’s Web site at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. 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 self-regulatory organization 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 those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. 6 Cross Connects ................................................................................................................... 12 Cross Connects ................................................................................................................. 18 Cross Connects ................................................................................................................. 24 Cross Connects ................................................................................................................. 23 17 CFR 200.30–3(a)(12). U.S.C.78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 4 See Securities Exchange Act Release No. 63275 (November 8, 2010), 75 FR 70048 (November 16, 2010) (SR–NYSEArca–2010–100) (the ‘‘Original Colocation Notice’’). See also Securities Exchange Act Release No. 65970 (December 15, 2011), 76 FR 79242 (December 21, 2011) (SR–NYSEArca–2011– 74). The Exchange operates a data center in Mahwah, New Jersey (‘‘data center’’) from which it provides co-location services to Users. The Exchange’s co-location services allow Users to rent space in the data center in order that they may locate their electronic servers in close physical proximity to the Exchange’s trading and execution system. See Original Co-location Notice at 70049. For purposes of its co-location services, the term ‘‘User’’ includes (i) ETP Holders and Sponsored Participants who are authorized to obtain access to the NYSE Arca Marketplace pursuant to Rule 7.29 (see Rule 1.1(yy)); and (ii) non-ETP Holder broker- mstockstill on DSK4VPTVN1PROD with NOTICES 1 15 VerDate Mar<15>2010 17:22 Jun 29, 2012 Jkt 226001 $500 $500 $500 $500 dealers and vendors that request to receive colocation services directly from the Exchange. 5 The Exchange notes that fees for a cross connect would be the same, regardless of whether the cross connect is between the cabinets of a single User or between the cabinets of separate Users within the data center. The Exchange further notes that only the User requesting the cross connect would be charged the related initial and monthly fees; the other User would simply be required to give permission for the cross connection. This proposed change would require that the existing cross connect fee in the Fee Schedule be amended to reflect that it is no longer applicable only to cross connects between a single User’s cabinets. 6 All multiple cross connects within the bundle would be installed at once and only in multiples of six, regardless of the number of cross connects the User utilizes. This proposed change would require that the existing cross connect fee in the Fee Schedule be amended to reflect that it is applicable only for a single cross connect (i.e., not for bundled cross connects). A User could still elect to purchase individual cross connects, but once the User PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend its Fee Schedule to provide for additional co-location services and establish related fees.4 Cabinet Cross Connects A User that has more than one cabinet within the data center is currently able to purchase one or more fiber cross connects between its cabinets. Currently, a $500 initial fee and a $500 monthly fee are charged per cross connect. The Exchange proposes that each User be permitted to purchase cross connects between its own cabinets, as is currently permitted, as well as between its cabinet(s) and the cabinets of separate Users within the data center.5 A cross connect would be used to connect cabinets of separate Users when, for example, a User receives technical support, order routing and/or market data delivery services from another User in the data center. Cross connects may be bundled (i.e., multiple cross connects within a single sheath) such that a single sheath can hold either one cross connect or several cross connects in multiples of six (e.g., six or 12 cross connects). The Exchange is proposing fees for bundled cross connects 6 that correspond to the number of cross connects in the bundle, as follows: 7 initial initial initial initial charge charge charge charge plus plus plus plus $1,500 $2,500 $3,200 $3,900 monthly monthly monthly monthly charge. charge. charge. charge. anticipates utilizing four cross connects, it would be more economical to purchase a bundle of six (with two unused) for a $500 initial charge plus a $1,500 monthly charge, which would be less than the $500 initial charge and $2,000 monthly charge for purchasing four cross connects individually. The additional unused cross connects in the bundle would not result in any additional internal costs or Exchange fees for the User. 7 The Exchange has made bundled cross connects available for a User to connect its cabinets within the data center beginning with the availability of colocation services in the data center in September 2010. In certain circumstances, the Exchange charged certain Users that purchased bundled cross connects a monthly per cross connect fee that was equal to the monthly fees proposed herein and therefore less than the $500 fee per cross connect that is currently reflected within the Fee Schedule. The Exchange has granted credits to the other Users that purchased bundled cross connects such that all Users have been charged the monthly fees proposed herein. E:\FR\FM\02JYN1.SGM 02JYN1

Agencies

[Federal Register Volume 77, Number 127 (Monday, July 2, 2012)]
[Notices]
[Pages 39302-39305]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-16135]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67265; File No. SR-EDGA-2012-23]


Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
New Market Access Risk Management Service, EdgeRisk 
ControlsSM

June 26, 2012.
    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 June 19, 2012, EDGA Exchange, Inc. (the ``Exchange'' or 
``EDGA'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which items have been prepared by the Exchange. 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

    EDGA Exchange, Inc. (``EDGA'' or the ``Exchange'') is filing with 
the Securities and Exchange Commission (the ``Commission'') a proposed 
rule change to establish a new market access risk management service, 
called EdgeRisk Controls\SM\ (the ``Service'').

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.

[[Page 39303]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
Background on Market Access Rule
    On November 3, 2010, the Commission adopted Rule 15c3-5 under the 
Act. Rule 15c3-5, known as the ``Market Access Rule'', governs risk 
management controls by broker-dealers with market access. The Market 
Access Rule had an effective date of January 14, 2011, with phased-in 
compliance dates of July 14, 2011, and November 30, 2011.\3\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 63241 (November 3, 
2010), 75 FR 69792 (November 15, 2011) [sic] (File No. S7-03-10); 
See also Securities Exchange Act Release No. 64748 (June 27, 2011), 
76 FR 38293 (June 30, 2011) (File No. S7-03-10) (providing limited 
extension of compliance date for certain requirements); Securities 
Exchange Act Release No. 65132 (August 15, 2011), 76 FR 51457 
(August 18, 2011) (exempting floor broker operations of certain 
broker-dealers with market access from automated controls 
requirement of Rule 15c3-5).
---------------------------------------------------------------------------

    Among other things, the Market Access Rule requires that any 
broker-dealer with market access,\4\ or that provides a customer or any 
other person with market access, must establish, document and maintain 
a system of risk management controls and supervisory procedures that 
are reasonably designed to manage the financial, regulatory and other 
risks of this business activity. These controls include financial risk 
management controls reasonably designed to prevent the entry of orders 
that exceed appropriate pre-set credit or capital thresholds in the 
aggregate for each customer and the broker-dealer itself, and to 
prevent the entry of erroneous orders. In addition, the Market Access 
Rule requires certain regulatory risk management controls that, among 
other things, prevent the entry of orders unless compliance with 
applicable regulatory requirements has been satisfied on a pre-order 
entry basis, and restrict access to trading systems and technology that 
provide market access to persons and accounts that have been pre-
approved and authorized by the broker-dealer. These regulatory risk 
management controls also include measures designed to prevent the entry 
of orders for a broker-dealer, customer or other person if such person 
is restricted from trading those securities, and to assure that 
appropriate surveillance personnel receive immediate, post-trade 
execution reports that result from market access.
---------------------------------------------------------------------------

    \4\ The term ``market access'' is defined in Rule 15c3-5(a)(1) 
to include, inter alia, access to trading in securities on an 
exchange or alternative trading system (``ATS'') as a result of 
being a member or subscriber of the exchange or ATS, respectively.
---------------------------------------------------------------------------

    These risk management controls and associated supervisory 
procedures must be under the direct and exclusive control of the 
broker-dealer that is subject to the Market Access Rule. While a 
broker-dealer can use third-party providers to satisfy some or all of 
these requirements, the broker-dealer is nonetheless required to ensure 
that whatever technology or other services are provided by such third-
party are under their direct and exclusive control. Thus, the broker-
dealer must retain the ability to make adjustments to and monitor the 
operation of the controls.
Description of EdgeRisk Controls\SM\
    To assist Members \5\ in satisfying their compliance obligations 
under the Market Access Rule, the Exchange is proposing to offer the 
Service.\6\ This optional Service would act as a risk filter by causing 
the orders of Members, and/or their Sponsored Participants \7\ if 
applicable, to be evaluated by the Service against an array of 
manageable threshold limits pre-selected and controlled by the Member 
prior to entering the Exchange's System.\8\ Based on parameters 
provided to the Service by the Member, the order would be immediately 
passed on to the matching engine or rejected back to the Member (and 
its Sponsored Participant, if applicable). The Service is designed so 
that Members would have the ability to select from a menu of financial 
and regulatory controls, as well as supervisory and monitoring tools, 
and to manage the parameter settings of those features in real time.\9\ 
To that end, the Service would enable Members to receive FIX Drop Order 
Copy \10\ sessions, which include complete XPRS \11\/FIX conversations, 
as well as web-based management services to configure certain controls.
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    \5\ As defined in EDGA Rule 1.5(n).
    \6\ The Exchange is not proposing to charge a fee for the 
Service at this time, although it is possible that the Exchange 
might submit a fee filing in respect of the Service at some later 
point in time. The Service would be made available to Members upon 
request.
    \7\ A ``Sponsored Participant'' is a person who has entered into 
a sponsorship arrangement with a Sponsoring Member. EDGA Rule 
1.5(z). A ``Sponsoring Member'', in turn, is a Member that is a 
registered broker-dealer and that has been designated by a Sponsored 
Participant to execute, clear and settle transactions executed on or 
through the Exchange. EDGA Rule 1.5(aa).
    \8\ As defined in EDGA Rule 1.5(cc).
    \9\ These features are dynamic are likely to evolve over time.
    \10\ The Financial Information eXchange (``FIX'') Protocol is a 
series of messaging specifications for the electronic communication 
of trade-related messages. A Drop Copy is a trade execution report 
or message that is sent back to a trading participant's system using 
the FIX protocol.
    \11\ Edge XPRS is a high-performance order entry protocol.
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    The Exchange does not guarantee that the Service offers or will 
offer tools sufficiently comprehensive to be the exclusive means by 
which Members could satisfy their compliance obligations under the 
Market Access Rule. The Exchange would not require Members to use the 
Service, nor would use of the Service by a member automatically 
constitute compliance with the Market Access Rule. The Service is but 
one option that Members may elect to use in the efficient risk 
management of the Members' and/or Sponsored Participants' access to the 
Exchange. Members are free to use any appropriate risk management tool 
or service, or combination thereof, which could but is not required to 
include the Service. Ultimately, it is the Member's responsibility, and 
not the Exchange's, to demonstrate its compliance with the Market 
Access Rule and the Exchange's Rule 11.3.\12\ The Exchange will not 
provide preferential treatment to Members electing to use the Service, 
nor will the Exchange discriminate against Members who choose not to 
utilize the Service.
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    \12\ EDGA Rule 11.3 addresses access by Members and Sponsored 
Participants to the facilities of the Exchange.
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    Finally, the Service does not supersede other controls that the 
Exchange and its affiliated routing broker dealer (``DE Route'') have 
established to manage the potential financial, regulatory and other 
risks associated with providing Members access to the Exchange and to 
external market centers, respectively.\13\ Thus, even if an order were 
to satisfy the risk controls established by a Member via the Service, 
it is still possible that the Exchange's own risk controls could either 
reject the order from entry to the Exchange or cancel the order back to 
the Member and/or Sponsored Participant if the order could not be 
routed as a result of the separate risk controls that DE Route has 
established to satisfy its own compliance obligations under the Market 
Access Rule.
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    \13\ See Direct Edge Regulatory Notice 11-01 (November 30, 
2011).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \14\ and furthers the objectives of 
Section 6(b)(5) of the

[[Page 39304]]

Act,\15\ in that it is designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, and to remove impediments to 
and perfect the mechanisms of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest. Moreover, the proposed rule change is not designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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    In its release adopting the Market Access Rule, the Commission 
stated that the rule ``is designed to ensure that broker-dealers 
appropriately control the risks associated with market access, so as 
not to jeopardize their own financial condition, that of other market 
participants, the integrity of trading on the securities markets, and 
the stability of the financial system.'' \16\ As noted above, the 
obligation to comply with the Market Access Rule falls squarely on 
broker-dealers that have and provide market access. The Service is 
designed to provide certain functionality to assist broker-dealers that 
are Members of the Exchange to satisfy their compliance obligations 
under the Market Access Rule (although not necessarily to the exclusion 
of other appropriate tools and services that are also available to 
Members). In this regard, the Exchange believes that the Service is 
consistent with the objectives in the Act of protecting investors and 
the public interest, promoting just and equitable principles of trade, 
and preventing fraudulent and manipulative acts and practices, as it 
would contribute to helping Members further the objectives of the 
Market Access Rule.
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    \16\ See Securities Exchange Act Release No. 69792 [sic] at 
69792.
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    The proposed rule change is also consistent with the Exchange's 
responsibilities under the Act as a self-regulatory organization, as 
the Exchange is not purporting to offer a tool that would necessarily 
be the exclusive means by which Members could satisfy their obligations 
under the Market Access Rule, nor is the Exchange requiring its Members 
to use the Service. Indeed, the Exchange represents that it will not 
discriminate against any Member that elects not to use the Service. In 
that regard, the Service is not designed to permit unfair 
discrimination between Members.
    Finally, the Exchange believes that the proposed rule change would 
foster competition by providing another option in the efficient risk 
management of trading on the Exchange, in a manner similar to those 
which are currently being provided by competitors of the Exchange.\17\
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    \17\ See Securities Exchange Act Release No. 60236 (July 2, 
2009), 74 FR 34068 (July 14, 2009) (SR-BATS-2009-19) (Notice of 
Filing and Immediate Effectiveness of BATS Exchange, Inc.'s 
Sponsored Access Risk Management Tool). See also Securities Exchange 
Act Release No. 59354 (February 3, 2009), 74 FR 6683 (February 10, 
2009) (SR-NYSE-2008-101) (Approval of New York Stock Exchange LLC's 
Risk Management Gateway).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
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 neither solicited nor received written comments on 
the proposed rule change.

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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \18\ and Rule 19b-4(f)(6) 
\19\ thereunder.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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.
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    The Exchange has asked the Commission to accelerate the 30-day 
operative delay.\20\ The Commission finds that accelerating the 30-day 
operative delay is consistent with the protection of investors and the 
public interest because it will allow the Exchange to begin offering 
the Service immediately to its Members. The Commission notes that other 
exchanges currently provide services similar to the Service proposed by 
EDGA.\21\ Accordingly, the Commission designates the proposal operative 
upon filing.\22\
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    \20\ 17 CFR 240.19b-4(f)(6)(iii).
    \21\ See supra note 17 and accompanying text.
    \22\ For purposes only of accelerating the 30-day operative 
delay, the Commission has considered the proposed rule change's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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    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 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 email to rule-comments@sec.gov. Please include 
File Number SR-EDGA-2012-23 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-EDGA-2012-23. 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.,

[[Page 39305]]

Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 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-EDGA-2012-23 and should be 
submitted on or before July 23, 2012.
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    \23\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-16135 Filed 6-29-12; 8:45 am]
BILLING CODE 8011-01-P
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