Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order Approving a Proposed Rule Change With Respect to the Authority of the Exchange or NASDAQ Execution Services To Cancel Orders When a Technical or Systems Issue Occurs and To Describe the Operation of an Error Account, 39552-39554 [2012-16219]

Download as PDF 39552 Federal Register / Vol. 77, No. 128 / Tuesday, July 3, 2012 / Notices A proposed rule change filed under Rule 19b–4(f)(6)9 normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii),10 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 the proposal may become operative immediately upon filing to eliminate confusion on the part of potential customers regarding the availability of the Correlix RaceTeam offering. The Exchange represents that there are no customers currently using Correlix’s RaceTeam latency measurement service. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest.11 Therefore, the Commision designates the proposed rule change to be operative upon filing with the Commission. 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: srobinson on DSK4SPTVN1PROD with 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–NASDAQ–2012–074 on the subject line. 100 F Street NE., Washington, DC 20549–1090. SECURITIES AND EXCHANGE COMMISSION All submissions should refer to File Number SR–NASDAQ–2012–074. 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 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such 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– NASDAQ–2012–074, and should be submitted on or before July 24, 2012. [Release No. 34–67280; File No. SR–BX– 2012–034] For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–16223 Filed 7–2–12; 8:45 am] BILLING CODE 8011–01–P 10 17 16:27 Jul 02, 2012 Jkt 226001 PO 00000 I. Introduction On May 11, 2012, NASDAQ OMX BX, Inc. (‘‘Exchange’’ or ‘‘BX’’) 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 BX Equity Rule 4758 by adding a new paragraph (d) that addresses the authority of BX or NASDAQ Execution Services (‘‘NES’’) to cancel orders when a technical or systems issue occurs and to describe the operation of an error account for NES. The proposed rule change was published for comment in the Federal Register on May 23, 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 NES, a broker-dealer that is a facility and an affiliate of BX, provides outbound routing services from BX to other market centers pursuant to BX rules.4 In its proposal, BX states that a technical or systems issue may occur at BX, NES, or a routing destination that causes BX or NES to cancel orders, if BX or NES determines that such action is necessary to maintain a fair and orderly market.5 BX also states that a technical U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Securities Exchange Act Release No. 67014 (May 17, 2012), 77 FR 30576 (May 23, 2012) (SR–BX– 2012–034) (‘‘Notice’’). 4 See Notice, 77 FR at 30576, n.3 and accompanying text, and text accompanying n.4. See also BX Equity Rule 4758. BX also has authority to receive equities orders routed inbound to BX by NES from The NASDAQ Stock Market and, on a pilot basis, from the NASDAQ OMX PSX of NASDAQ OMX PHLX. See Notice, 77 FR at 30576, n.4. See also Securities Exchange Act Release Nos. 64090 (March 17, 2011), 76 FR 16462 (March 23, 2011) (SR–BX–2011–007); 65514 (October 7, 2011), 76 FR 63969 (October 14, 2011) (SR–BX–2011–066). 5 See Notice, 77 FR at 30576. For examples of some of the circumstances in which BX or NES may decide to cancel orders, see Notice, 77 FR at 30576– 77. 2 17 9 17 VerDate Mar<15>2010 June 27, 2012. 1 15 Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, CFR 240.19b–4(f)(6). CFR 240.19b–4(f)(6)(iii). 11 For purposes only of waiving the operative delay for this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order Approving a Proposed Rule Change With Respect to the Authority of the Exchange or NASDAQ Execution Services To Cancel Orders When a Technical or Systems Issue Occurs and To Describe the Operation of an Error Account 12 17 CFR 200.30–3(a)(12). Frm 00090 Fmt 4703 Sfmt 4703 E:\FR\FM\03JYN1.SGM 03JYN1 Federal Register / Vol. 77, No. 128 / Tuesday, July 3, 2012 / Notices srobinson on DSK4SPTVN1PROD with NOTICES or systems issue that occurs at BX, NES, a routing destination, or a non-affiliate third-party Routing Broker 6 may result in NES acquiring an error position that it must resolve.7 New paragraph (d) to BX Equity Rule 4758 provides BX or NES with general authority to cancel orders to maintain fair and orderly markets when a technical or systems issue occurs at BX, NES, or a routing destination. It also provides authority for NES to maintain an error account for the purpose of addressing, and sets forth the procedures for resolving, error positions. Specifically, paragraph (d)(1) of BX Equity Rule 4758 authorizes BX or NES to cancel orders as either deems necessary to maintain fair and orderly markets if a technical or systems issue occurs at BX, NES, or a routing destination. BX or NES will be required to provide notice of the cancellation to all affected members as soon as practicable.8 Paragraph (d)(2) of BX Equity Rule 4758 will allow NES to maintain an error account for the purpose of addressing error positions that result from a technical or systems issue at BX, NES, a routing destination, or a nonaffiliate third-party Routing Broker. For purposes of BX Equity Rule 4758(d), an error position will not include any position that results from an order submitted by a member to the Exchange that is executed on the Exchange and automatically processed for clearance and settlement on a locked-in basis.9 NES will not be permitted to (i) accept any positions in its error account from a member’s account or (ii) permit any member to transfer any positions from the member’s account to NES’s error account.10 In other words, NES may not accept from a member positions that are delivered to the member through the clearance and settlement process, even if those positions may have been related to a technical or systems issue at BX, NES, a routing destination, or a non6 BX states that, from time to time, it also uses non-affiliate third-party broker-dealers to provide outbound routing services. In its proposal, the Exchange refers to these broker-dealers as ‘‘third party Routing Brokers.’’ See Notice, 77 FR at 30576, n.3. 7 See Notice, 77 FR at 30577. Specifically, BX Equity Rule 4758(d)(2) defines ‘‘error positions’’ as ‘‘positions that result from a technical or systems issue at Nasdaq Execution Services, the Exchange, a routing destination, or a non-affiliate third-party Routing Broker that affects one or more orders.’’ For examples of some of the circumstances that may lead to error positions, see Notice, 77 FR at 30577. 8 See BX Equity Rule 4758(d)(1). 9 See BX Equity Rule 4758(d)(2)(A). 10 See BX Equity Rule 4758(d)(2)(B). VerDate Mar<15>2010 16:27 Jul 02, 2012 Jkt 226001 affiliate third-party Routing Broker.11 If a member receives locked-in positions in connection with a technical or systems issue and experiences a loss in unwinding those positions, that member may seek to rely on BX Equity Rule 4626, which provides members with the ability to file claims against BX ‘‘for losses directly resulting from the [NASDAQ OMX BX Equities Market] Systems’ actual failure to correctly process an order, Quote/Order, message, or other data, provided the NASDAQ OMX BX Equities Market has acknowledged receipt of the order, Quote/Order, message, or data.’’ 12 If, however, a technical or systems issue results in BX not having valid clearing instructions for a member to a trade, NES may assume that member’s side of the trade so that the trade can be automatically processed for clearance and settlement on a locked-in basis.13 Paragraph (d)(3) of BX Equity Rule 4758 permits BX or NES, in connection with a particular technical or systems issue, to either (i) assign all resulting error positions to members or (ii) have all resulting error positions liquidated. Any determination to assign or liquidate error positions, as well as any resulting assignments, will be made in a nondiscriminatory fashion.14 BX and NES will be required to assign all error positions resulting from a particular technical or systems issue to the members affected by that technical or systems issue if BX or NES: (i) Determines that it has accurate and sufficient information (including valid clearing information) to assign the positions to all of the members affected by that technical or systems issue; (ii) Determines that it has sufficient time pursuant to normal clearance and settlement deadlines to evaluate the information necessary to assign the 11 See Notice, 77 FR at 30578, n.11. This provision would not apply if NES incurred a short position to settle a member’s purchase, as the member would not have had a position in its account as a result of the purchase at the time of NES’s action. Similarly, if a systems issue occurs that causes one member to receive an execution for which there is not an available counterparty, action by NES would be required for the positions to settle into that member’s account. See id. If error positions result in connection with BX’s use of a third-party Routing Broker for outbound routing and those positions are delivered to NES through the clearance and settlement process, NES would be permitted to resolve those positions. If, however, such positions were not delivered to NES through the clearance and settlement process, then the third-party Routing Broker would resolve the error positions itself, and NES would not be permitted to accept the positions. See Notice, 77 FR at 30576, n.3. 12 See Notice, 77 FR at 30578, n.11. 13 See BX Equity Rule 4758(d)(2)(C). 14 See BX Equity Rule 4758(d)(3). PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 39553 positions to all of the members affected by that technical or systems issue; and (iii) Has not determined to cancel all orders affected by that technical or systems issue in accordance with BX Equity Rule 4758(d)(1).15 If BX or NES is unable to assign all error positions resulting from a particular technical or systems issue to all of the affected members, or if BX or NES determines to cancel all orders affected by the technical or systems issue, then NES will be required to liquidate the error positions as soon as practicable.16 NES 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.17 Further, NES will be required to establish and enforce 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 BX and NES, on the other, associated with the liquidation of the error positions.18 Finally, paragraph (d)(4) of BX Equity Rule 4758 requires BX and NES to make and keep records to document all determinations to treat positions as error positions; all determinations to assign error positions to members or to liquidate error positions; and the liquidation of error positions through the third-party broker-dealer. 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 19 and the rules and regulations thereunder applicable to a national securities exchange.20 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,21 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 trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing 15 See BX Equity Rule 4758(d)(3)(A)(i)–(iii). BX Equity Rule 4758(d)(3)(B). 17 See BX Equity Rule 4758(d)(3)(B)(i). 18 See BX Equity Rule 4758(d)(3)(B)(ii). 19 15 U.S.C. 78f(b). 20 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). 21 15 U.S.C. 78f(b)(5). 16 See E:\FR\FM\03JYN1.SGM 03JYN1 39554 Federal Register / Vol. 77, No. 128 / Tuesday, July 3, 2012 / Notices 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 22 in that it seeks to assure economically efficient execution of securities transactions. The Commission recognizes that technical or systems issues may occur, and believes that BX Equity Rule 4758, in allowing BX or NES to cancel orders affected by technical or systems issues, should provide a reasonably efficient means for BX to handle such orders, and appears reasonably designed to permit BX to maintain fair and orderly markets.23 The Commission also believes that allowing the Exchange to resolve error positions through the use of an error account maintained by NES 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,24 and that BX or NES, in connection with a particular technical or systems issue, will be required to either (i) assign all resulting error positions to members or (ii) have all resulting error positions liquidated.25 Also, BX or NES will assign error positions that result from a particular technical or systems issue to members only if all such error positions can be assigned to all of the members affected by that technical or systems issue.26 If BX or NES cannot assign all error positions to all members, NES will liquidate all of those error positions.27 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 22 15 U.S.C. 78k–1(a)(1)(C). Commission notes that BX states that the proposed amendments to BX Equity Rule 4758 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 30579. The Commission also notes that BX states that a decision to cancel orders due to a technical or systems issue is not equivalent to the Exchange declaring self-help against a routing destination pursuant to Rule 611 of Regulation NMS. See 17 CFR 242.611(b). See also Notice, 77 FR at 30577– 78, n.10. 24 See BX Equity Rule 4758(d)(2). 25 See BX Equity Rule 4758(d)(3). 26 See BX Equity Rule 4758(d)(3)(A). 27 See BX Equity Rule 4758(d)(3)(B). srobinson on DSK4SPTVN1PROD with NOTICES 23 The VerDate Mar<15>2010 16:27 Jul 02, 2012 Jkt 226001 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.28 The Commission is also concerned about the potential for misuse of confidential and proprietary information. The Commission believes that the requirement that NES provide complete time and price discretion for the liquidation of error positions to a third-party broker-dealer, including that NES not attempt to exercise any influence or control over the timing or methods of such trading, combined with the requirement that BX establish and enforce policies and procedures that are reasonably designed to restrict the flow of confidential and proprietary information to the third-party brokerdealer liquidating such positions, should help mitigate the Commission’s concerns. In particular, the Commission believes that these requirements should help assure that none of BX, NES, 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 BX and NES would be required to make and keep records to document all determinations to treat positions as error positions; all determinations to assign error positions to members or liquidate error positions; and the liquidation of error positions through the third-party broker-dealer.29 Finally, the Commission notes that the proposed procedures for canceling orders and the handling of error positions are consistent with procedures the Commission has approved for other exchanges.30 IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,31 that the proposed rule change (SR–BX–2012– 034) be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.32 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–16219 Filed 7–2–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–67277; File No. SR– NYSEArca–2012–39] Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Change Relating to Listing and Trading the Global Alpha & Beta ETF Pursuant to NYSE Arca Equities Rule 8.600 June 27, 2012. I. Introduction On April 30, 2012, NYSE Arca, Inc. (‘‘Exchange’’ or ‘‘NYSE Arca’’) 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 list and trade shares (‘‘Shares’’) of the Global Alpha & Beta ETF (‘‘Fund’’) under NYSE Arca Equities Rule 8.600. The proposed rule change was published for comment in the Federal Register on May 17, 2012.3 The Commission received no comments on the proposal. This order grants approval of the proposed rule change. II. Description of the Proposed Rule Change The Exchange proposes to list and trade the Shares of the Fund pursuant to NYSE Arca Equities Rule 8.600, which governs the listing and trading of Managed Fund Shares on the Exchange. The Shares will be offered by AdvisorShares Trust (‘‘Trust’’), a statutory trust organized under the laws of the State of Delaware and registered with the Commission as an open-end management investment company.4 The 32 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 66973 (May 11, 2012), 77 FR 29429 (‘‘Notice’’). 4 The Trust is registered under the Investment Company Act of 1940 (‘‘1940 Act’’). On January 30, 2012, the Trust filed with the Commission Form N– 1A under the Securities Act of 1933 and under the 1940 Act relating to the Fund (File Nos. 333– 157876 and 811–22110) (‘‘Registration Statement’’). In addition, the Exchange notes that the Commission has issued an order granting certain exemptive relief to the Trust under the 1940 Act. 1 15 28 See, e.g., Securities Exchange Act Release No. 65455 (September 30, 2011), 76 FR 62119 (October 6, 2011) (SR–NYSEArca–2011–61) at 62120, n.16 and accompanying text. 29 See BX Equity Rule 4758(d)(4). 30 See, e.g., Securities Exchange Act Release Nos. 66963 (May 10, 2012), 77 FR 28919 (May 16, 2012) (SR–NYSEArca–2012–22); 67010 (May 17, 2012), 77 FR 30564 (May 23, 2012) (SR–EDGX–2012–08); and 67011 (May 17, 2012), 77 FR 30562 (May 23, 2012) (SR–EDGA–2012–09). 31 15 U.S.C. 78s(b)(2). PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 E:\FR\FM\03JYN1.SGM 03JYN1

Agencies

[Federal Register Volume 77, Number 128 (Tuesday, July 3, 2012)]
[Notices]
[Pages 39552-39554]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-16219]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67280; File No. SR-BX-2012-034]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order 
Approving a Proposed Rule Change With Respect to the Authority of the 
Exchange or NASDAQ Execution Services To Cancel Orders When a Technical 
or Systems Issue Occurs and To Describe the Operation of an Error 
Account

June 27, 2012.

I. Introduction

    On May 11, 2012, NASDAQ OMX BX, Inc. (``Exchange'' or ``BX'') 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 BX 
Equity Rule 4758 by adding a new paragraph (d) that addresses the 
authority of BX or NASDAQ Execution Services (``NES'') to cancel orders 
when a technical or systems issue occurs and to describe the operation 
of an error account for NES. The proposed rule change was published for 
comment in the Federal Register on May 23, 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. 67014 (May 17, 2012), 77 
FR 30576 (May 23, 2012) (SR-BX-2012-034) (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposal

    NES, a broker-dealer that is a facility and an affiliate of BX, 
provides outbound routing services from BX to other market centers 
pursuant to BX rules.\4\ In its proposal, BX states that a technical or 
systems issue may occur at BX, NES, or a routing destination that 
causes BX or NES to cancel orders, if BX or NES determines that such 
action is necessary to maintain a fair and orderly market.\5\ BX also 
states that a technical

[[Page 39553]]

or systems issue that occurs at BX, NES, a routing destination, or a 
non-affiliate third-party Routing Broker \6\ may result in NES 
acquiring an error position that it must resolve.\7\
---------------------------------------------------------------------------

    \4\ See Notice, 77 FR at 30576, n.3 and accompanying text, and 
text accompanying n.4. See also BX Equity Rule 4758.
    BX also has authority to receive equities orders routed inbound 
to BX by NES from The NASDAQ Stock Market and, on a pilot basis, 
from the NASDAQ OMX PSX of NASDAQ OMX PHLX. See Notice, 77 FR at 
30576, n.4. See also Securities Exchange Act Release Nos. 64090 
(March 17, 2011), 76 FR 16462 (March 23, 2011) (SR-BX-2011-007); 
65514 (October 7, 2011), 76 FR 63969 (October 14, 2011) (SR-BX-2011-
066).
    \5\ See Notice, 77 FR at 30576. For examples of some of the 
circumstances in which BX or NES may decide to cancel orders, see 
Notice, 77 FR at 30576-77.
    \6\ BX states that, from time to time, it also uses non-
affiliate third-party broker-dealers to provide outbound routing 
services. In its proposal, the Exchange refers to these broker-
dealers as ``third party Routing Brokers.'' See Notice, 77 FR at 
30576, n.3.
    \7\ See Notice, 77 FR at 30577. Specifically, BX Equity Rule 
4758(d)(2) defines ``error positions'' as ``positions that result 
from a technical or systems issue at Nasdaq Execution Services, the 
Exchange, a routing destination, or a non-affiliate third-party 
Routing Broker that affects one or more orders.''
    For examples of some of the circumstances that may lead to error 
positions, see Notice, 77 FR at 30577.
---------------------------------------------------------------------------

    New paragraph (d) to BX Equity Rule 4758 provides BX or NES with 
general authority to cancel orders to maintain fair and orderly markets 
when a technical or systems issue occurs at BX, NES, or a routing 
destination. It also provides authority for NES to maintain an error 
account for the purpose of addressing, and sets forth the procedures 
for resolving, error positions. Specifically, paragraph (d)(1) of BX 
Equity Rule 4758 authorizes BX or NES to cancel orders as either deems 
necessary to maintain fair and orderly markets if a technical or 
systems issue occurs at BX, NES, or a routing destination. BX or NES 
will be required to provide notice of the cancellation to all affected 
members as soon as practicable.\8\
---------------------------------------------------------------------------

    \8\ See BX Equity Rule 4758(d)(1).
---------------------------------------------------------------------------

    Paragraph (d)(2) of BX Equity Rule 4758 will allow NES to maintain 
an error account for the purpose of addressing error positions that 
result from a technical or systems issue at BX, NES, a routing 
destination, or a non-affiliate third-party Routing Broker.
    For purposes of BX Equity Rule 4758(d), an error position will not 
include any position that results from an order submitted by a member 
to the Exchange that is executed on the Exchange and automatically 
processed for clearance and settlement on a locked-in basis.\9\ NES 
will not be permitted to (i) accept any positions in its error account 
from a member's account or (ii) permit any member to transfer any 
positions from the member's account to NES's error account.\10\ In 
other words, NES may not accept from a member positions that are 
delivered to the member through the clearance and settlement process, 
even if those positions may have been related to a technical or systems 
issue at BX, NES, a routing destination, or a non-affiliate third-party 
Routing Broker.\11\ If a member receives locked-in positions in 
connection with a technical or systems issue and experiences a loss in 
unwinding those positions, that member may seek to rely on BX Equity 
Rule 4626, which provides members with the ability to file claims 
against BX ``for losses directly resulting from the [NASDAQ OMX BX 
Equities Market] Systems' actual failure to correctly process an order, 
Quote/Order, message, or other data, provided the NASDAQ OMX BX 
Equities Market has acknowledged receipt of the order, Quote/Order, 
message, or data.'' \12\ If, however, a technical or systems issue 
results in BX not having valid clearing instructions for a member to a 
trade, NES may assume that member's side of the trade so that the trade 
can be automatically processed for clearance and settlement on a 
locked-in basis.\13\
---------------------------------------------------------------------------

    \9\ See BX Equity Rule 4758(d)(2)(A).
    \10\ See BX Equity Rule 4758(d)(2)(B).
    \11\ See Notice, 77 FR at 30578, n.11. This provision would not 
apply if NES incurred a short position to settle a member's 
purchase, as the member would not have had a position in its account 
as a result of the purchase at the time of NES's action. Similarly, 
if a systems issue occurs that causes one member to receive an 
execution for which there is not an available counterparty, action 
by NES would be required for the positions to settle into that 
member's account. See id.
    If error positions result in connection with BX's use of a 
third-party Routing Broker for outbound routing and those positions 
are delivered to NES through the clearance and settlement process, 
NES would be permitted to resolve those positions. If, however, such 
positions were not delivered to NES through the clearance and 
settlement process, then the third-party Routing Broker would 
resolve the error positions itself, and NES would not be permitted 
to accept the positions. See Notice, 77 FR at 30576, n.3.
    \12\ See Notice, 77 FR at 30578, n.11.
    \13\ See BX Equity Rule 4758(d)(2)(C).
---------------------------------------------------------------------------

    Paragraph (d)(3) of BX Equity Rule 4758 permits BX or NES, in 
connection with a particular technical or systems issue, to either (i) 
assign all resulting error positions to members or (ii) have all 
resulting error positions liquidated. Any determination to assign or 
liquidate error positions, as well as any resulting assignments, will 
be made in a nondiscriminatory fashion.\14\
---------------------------------------------------------------------------

    \14\ See BX Equity Rule 4758(d)(3).
---------------------------------------------------------------------------

    BX and NES will be required to assign all error positions resulting 
from a particular technical or systems issue to the members affected by 
that technical or systems issue if BX or NES:
    (i) Determines that it has accurate and sufficient information 
(including valid clearing information) to assign the positions to all 
of the members affected by that technical or systems issue;
    (ii) Determines that it has sufficient time pursuant to normal 
clearance and settlement deadlines to evaluate the information 
necessary to assign the positions to all of the members affected by 
that technical or systems issue; and
    (iii) Has not determined to cancel all orders affected by that 
technical or systems issue in accordance with BX Equity Rule 
4758(d)(1).\15\
---------------------------------------------------------------------------

    \15\ See BX Equity Rule 4758(d)(3)(A)(i)-(iii).
---------------------------------------------------------------------------

    If BX or NES is unable to assign all error positions resulting from 
a particular technical or systems issue to all of the affected members, 
or if BX or NES determines to cancel all orders affected by the 
technical or systems issue, then NES will be required to liquidate the 
error positions as soon as practicable.\16\ NES 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.\17\ Further, NES will be 
required to establish and enforce 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 BX and NES, on the other, associated with the liquidation of 
the error positions.\18\
---------------------------------------------------------------------------

    \16\ See BX Equity Rule 4758(d)(3)(B).
    \17\ See BX Equity Rule 4758(d)(3)(B)(i).
    \18\ See BX Equity Rule 4758(d)(3)(B)(ii).
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    Finally, paragraph (d)(4) of BX Equity Rule 4758 requires BX and 
NES to make and keep records to document all determinations to treat 
positions as error positions; all determinations to assign error 
positions to members or to liquidate error positions; and the 
liquidation of error positions through the third-party broker-dealer.

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 
\19\ and the rules and regulations thereunder applicable to a national 
securities exchange.\20\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\21\ 
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 trade, 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing

[[Page 39554]]

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 \22\ in that it 
seeks to assure economically efficient execution of securities 
transactions.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 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).
    \21\ 15 U.S.C. 78f(b)(5).
    \22\ 15 U.S.C. 78k-1(a)(1)(C).
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    The Commission recognizes that technical or systems issues may 
occur, and believes that BX Equity Rule 4758, in allowing BX or NES to 
cancel orders affected by technical or systems issues, should provide a 
reasonably efficient means for BX to handle such orders, and appears 
reasonably designed to permit BX to maintain fair and orderly 
markets.\23\
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    \23\ The Commission notes that BX states that the proposed 
amendments to BX Equity Rule 4758 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 30579. The Commission also notes that 
BX states that a decision to cancel orders due to a technical or 
systems issue is not equivalent to the Exchange declaring self-help 
against a routing destination pursuant to Rule 611 of Regulation 
NMS. See 17 CFR 242.611(b). See also Notice, 77 FR at 30577-78, 
n.10.
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    The Commission also believes that allowing the Exchange to resolve 
error positions through the use of an error account maintained by NES 
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,\24\ and that BX or NES, in connection with a particular 
technical or systems issue, will be required to either (i) assign all 
resulting error positions to members or (ii) have all resulting error 
positions liquidated.\25\ Also, BX or NES will assign error positions 
that result from a particular technical or systems issue to members 
only if all such error positions can be assigned to all of the members 
affected by that technical or systems issue.\26\ If BX or NES cannot 
assign all error positions to all members, NES will liquidate all of 
those error positions.\27\ 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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    \24\ See BX Equity Rule 4758(d)(2).
    \25\ See BX Equity Rule 4758(d)(3).
    \26\ See BX Equity Rule 4758(d)(3)(A).
    \27\ See BX Equity Rule 4758(d)(3)(B).
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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.\28\ The Commission is also concerned about the potential for 
misuse of confidential and proprietary information. The Commission 
believes that the requirement that NES provide complete time and price 
discretion for the liquidation of error positions to a third-party 
broker-dealer, including that NES not attempt to exercise any influence 
or control over the timing or methods of such trading, combined with 
the requirement that BX establish and enforce policies and procedures 
that are reasonably designed to restrict the flow of confidential and 
proprietary information to the third-party broker-dealer liquidating 
such positions, should help mitigate the Commission's concerns. In 
particular, the Commission believes that these requirements should help 
assure that none of BX, NES, 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 BX and NES would be required to make and 
keep records to document all determinations to treat positions as error 
positions; all determinations to assign error positions to members or 
liquidate error positions; and the liquidation of error positions 
through the third-party broker-dealer.\29\
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    \28\ See, e.g., Securities Exchange Act Release No. 65455 
(September 30, 2011), 76 FR 62119 (October 6, 2011) (SR-NYSEArca-
2011-61) at 62120, n.16 and accompanying text.
    \29\ See BX Equity Rule 4758(d)(4).
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    Finally, the Commission notes that the proposed procedures for 
canceling orders and the handling of error positions are consistent 
with procedures the Commission has approved for other exchanges.\30\
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    \30\ See, e.g., Securities Exchange Act Release Nos. 66963 (May 
10, 2012), 77 FR 28919 (May 16, 2012) (SR-NYSEArca-2012-22); 67010 
(May 17, 2012), 77 FR 30564 (May 23, 2012) (SR-EDGX-2012-08); and 
67011 (May 17, 2012), 77 FR 30562 (May 23, 2012) (SR-EDGA-2012-09).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\31\ that the proposed rule change (SR-BX-2012-034) be, and it 
hereby is, approved.
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    \31\ 15 U.S.C. 78s(b)(2).
    \32\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-16219 Filed 7-2-12; 8:45 am]
BILLING CODE 8011-01-P
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