Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of Filing of Proposed Rule Changes To Amend EDGA Rules Regarding Market Access, 40396-40398 [2012-16624]

Download as PDF 40396 Federal Register / Vol. 77, No. 131 / Monday, July 9, 2012 / Notices 17A of the Act 9 and the rules and regulations thereunder applicable to OCC. In particular, the Commission believes that the proposed change provides for more efficient procedures that further the purposes of the Act by facilitating the prompt and accurate clearance and settlement of securities transactions for which OCC is responsible. 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 10 and the rules and regulations thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,11 that the proposed rule change (File No. SR– OCC–2012–07) be, and hereby is, approved.12 For the Commission by the Division of Trading and Markets, pursuant to delegated authority.13 Kevin O’Neill, Deputy Secretary. [FR Doc. 2012–16625 Filed 7–6–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–67332; File No. SR–EDGA– 2012–27] Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of Filing of Proposed Rule Changes To Amend EDGA Rules Regarding Market Access July 2, 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 22, 2012, the EDGA Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGA’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule changes as described in Items I and II below, which items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule changes from interested persons. sroberts on DSK5SPTVN1PROD with NOTICES 9 15 U.S.C. 78q–1. U.S.C. 78q–1. 11 15 U.S.C. 78s(b)(2). 12 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). 13 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 10 15 VerDate Mar<15>2010 16:20 Jul 06, 2012 Jkt 226001 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 11.3 to (1) delete those provisions that the Exchange believes have been rendered superfluous and unnecessary in light of the adoption by the Commission of Rule 15c3–5 under the Act; and (2) add a requirement for Sponsoring Members 3 to maintain a list of Sponsored Participants 4 which the Sponsoring Member has authorized to obtain access to the Exchange’s System,5 and to provide the list of Sponsored Participants to the Exchange upon request. The Exchange is also proposing amendments to Rule 11.3(b)(1) and Rule 1.5(z) to align the definition of Sponsored Participant with the terminology used in Rule 15c3–5 to describe such arrangements. The text of the proposed rule changes is attached as Exhibit 5 and is available on the Exchange’s Web site at www.directedge.com, at the Exchange’s principal office and at the Public Reference Room of the Commission. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule changes and discussed any comments it received on the proposed rule changes. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in Sections A, B and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Background on Market Access Rule On November 3, 2010, the Commission adopted Rule 15c3–5 (the ‘‘Market Access Rule’’). 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, 2011.6 defined in EDGA Rule 1.5(aa). defined in EDGA Rule 1.5(z). 5 As defined in EDGA Rule 1.5(cc). 6 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 PO 00000 3 As 4 As Frm 00077 Fmt 4703 Sfmt 4703 Among other things, the Market Access Rule requires that any brokerdealer with market access,7 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. 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-parties are under such broker-dealer’s direct and exclusive control. Rule 11.3(b): Sponsored Participants Rule 11.3(b) sets forth the requirements for Sponsored Participants to obtain authorized access to the Exchange Act Release No. 64798 [sic] (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). 7 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. E:\FR\FM\09JYN1.SGM 09JYN1 sroberts on DSK5SPTVN1PROD with NOTICES Federal Register / Vol. 77, No. 131 / Monday, July 9, 2012 / Notices System through one or more Sponsoring Members by entering into and maintaining customer agreements with one or more Sponsoring Members through which the Sponsored Participant may trade on the System. Such agreements must incorporate the provisions set forth in Rule 11.3(b)(2). These contractual provisions include, inter alia, that: (1) Sponsored Participants must enter into and maintain an agreement with the Exchange; (2) Sponsoring Members must acknowledge and agree that all orders entered by their Sponsored Participants are binding in all respects on the Sponsoring Member; (3) Sponsoring Members must acknowledge responsibility for any and all actions taken by their Sponsored Participants; (4) Sponsored Participants of Sponsoring Members must take reasonable security precautions to prevent unauthorized use or access to the System, including unauthorized entry of information into the System, or the information and data made available therein; and (5) Sponsored Participants of Sponsoring Members must maintain, keep current and provide to the Sponsoring Member and to the Exchange, upon request, a list of Authorized Traders (‘‘ATs’’) 8 who may obtain access to the System on behalf of such Sponsored Participant. In addition, the Sponsoring Member must provide the Exchange with a written statement in form and substance acceptable to the Exchange, identifying each Sponsored Participant by name and acknowledging its responsibility for the orders, executions and actions of such Sponsored Participants. The Exchange believes that, as a result of the controls established under the Market Access Rule, which apply directly to Sponsoring Members, the contractual provisions contained in Rule 11.3(b) have been rendered superfluous and unnecessary. In particular, the Exchange believes that the Market Access Rule’s provisions requiring that Sponsoring Members 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 clearly establish the obligations and responsibilities of Members acting as Sponsoring Members to Sponsored Participants. The contractual provisions required under Rule 11.3(b), therefore, are not only superfluous and unnecessary but might also cause confusion on the part of Sponsoring Members as to the 8 As defined in EDGA Rule 1.5(c). VerDate Mar<15>2010 16:20 Jul 06, 2012 Jkt 226001 obligations that have been squarely imposed upon them by the Market Access Rule. Therefore, the Exchange is proposing to delete the provisions in current Rule 11.3(b)(2)(A)–(I), the second sentence of Rule 11.3(b)(1) and Rule 11.3(b)(3) and replace them with the provisions described below. In addition, the Exchange is making conforming amendments to Rule 11.3(a) to require that only Members, and not Users (which term is defined to include not only Members but their Sponsored Participants), enter into agreements with the Exchange. Additional conforming amendments are being proposed to the definition of Sponsored Participant (Rules 1.5(z) and 11.3(b)(1)) to align such definition with the terminology used in the Market Access Rule. The Exchange is retaining the requirement in Rule 11.4(a) that all Members shall maintain a list of ATs who may obtain access to the System on behalf of the Member or the Member’s Sponsored Participants. Members must continue to provide such list of ATs to the Exchange upon request. This requirement is being retained in order to ensure that Sponsoring Members continue to track whom they grant access to their systems and to enable the Exchange to request such information upon request, if necessary. In addition, in order to maintain transparency into who is accessing the Exchange’s System, the Exchange is also amending Rule 11.3(b)(2) to require Sponsoring Members to maintain a list of Sponsored Participants whom the Sponsoring Member has authorized to obtain access to the System pursuant to Rule 11.3. The amended rule will also provide that the Sponsoring Member shall update the list of Sponsored Participants as necessary, and provide the list to the Exchange upon request. The Exchange also proposes to amend Rule 11.3(b)(3) to require that Sponsoring Members shall comply with all requirements under the Market Access Rule with regard to market access arrangements with Sponsored Participants. 40397 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. The proposed rule changes are consistent with these obligations because they are designed to eliminate superfluous and unnecessary regulatory requirements, and thereby avoid potential confusion. Additionally, the proposed rule changes are designed to make the Exchange’s Rules clearer and more transparent to Members by eliminating provisions that have been rendered superfluous and unnecessary by the Market Access Rule. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule changes 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 changes. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove such proposed rule change, or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to 2. Statutory Basis submit written data, views, and The Exchange believes that the arguments concerning the foregoing, proposed rule changes are consistent including whether the proposed rule with Section 6(b) of the Act 9 and further change is consistent with the Act. the objectives of Section 6(b)(5) of the Comments may be submitted by any of Act,10 in that they are designed to the following methods: prevent fraudulent and manipulative Electronic Comments acts and practices, to promote just and • Use the Commission’s Internet equitable principles of trade, to foster comment form (https://www.sec.gov/ cooperation and coordination with rules/sro.shtml); or persons engaged in facilitating • Send an email to ruletransactions in securities, and to remove comments@sec.gov. Please include File 9 15 U.S.C. 78f(b). Number SR–EDGA–2012–27 on the 10 15 U.S.C. 78f(b)(5). subject line. PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 E:\FR\FM\09JYN1.SGM 09JYN1 40398 Federal Register / Vol. 77, No. 131 / Monday, July 9, 2012 / Notices 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–2012–27. 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–EDGA– 2012–27, and should be submitted on or before July 30, 2012. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–16624 Filed 7–6–12; 8:45 am] sroberts on DSK5SPTVN1PROD with NOTICES BILLING CODE 8011–01–P 11 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 16:20 Jul 06, 2012 Jkt 226001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–67336; File No. SR–FICC– 2012–04] Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving Proposed Rule Change To Clarify the Ability of the Government Securities Division To Use Implied Volatility Indicators as Part of the Volatility Model in Its Clearing Fund Formula July 2, 2012. I. Introduction On May 15, 2012, the Fixed Income Clearing Corporation (‘‘FICC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) proposed rule change SR–FICC–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 May 31, 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 This proposed rule change relates to the use of implied volatility indicators in the clearing fund formula of FICC’s Government Securities Division (‘‘GSD’’). As discussed in FICC’s filing with the Commission, a primary objective of GSD’s clearing fund (‘‘Clearing Fund’’) 4 is to have on deposit from each applicable Member 5 assets sufficient to satisfy losses that may otherwise be incurred by GSD as the result of the default of the Member and the resultant close out of that Member’s unsettled positions under GSD’s trade guaranty. The required Clearing Fund deposit of each Member U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Securities Exchange Act Release No. 34–67059 (May 24, 2012), 77 FR 32153 (May 31, 2012). In its filing with the Commission, FICC included a detailed statement regarding the purposes of and basis for the proposed rule change. See id. 4 FICC GSD Rule 1—Definitions provides that ‘‘[t]he term ‘Clearing Fund’ means the Clearing Fund established by the Corporation pursuant to these Rules, which shall be comprised of the aggregate of all Required Fund Deposits and all other deposits, including Cross-Guaranty Repayment Deposits, to the Clearing Fund.’’ 5 FICC GSD Rule 1—Definitions provides that ‘‘[t]he term ‘Member’ means a Comparison-Only Member or a Netting Member. The term ‘Member’ shall include a Sponsoring Member in its capacity as a Sponsoring Member and a Sponsored Member, each to the extent specific in Rule 3A.’’ PO 00000 1 15 2 17 Frm 00079 Fmt 4703 Sfmt 4703 is calculated twice daily 6 pursuant to a formula set forth in Section 1b of GSD Rule 4 designed to provide sufficient funds to cover this risk of loss. The Clearing Fund formula accounts for a variety of risk factors through the application of a number of components, each described in Section 1b of GSD Rule 4. The volatility component of the Clearing Fund formula is designed to calculate the amount of money that may be lost on a portfolio over a given period of time assumed necessary to liquidate the portfolio within a given level of confidence. Pursuant to Section 1b of Rule 4, GSD may calculate the volatility component on a value at risk charge (‘‘VaR Charge’’) ‘‘utilizing such assumptions (including confidence levels) and based on such historical data as [GSD] deems reasonable, and shall cover such range of historical volatility as [GSD] from time to time deems appropriate.’’ 7 FICC believes that Section 1b of Rule 4 therefore provides GSD with the flexibility to adjust the calculation of the volatility component of its Clearing Fund formula as needed to react to changes in market conditions, including through the use of such assumptions and data as it deems appropriate within its VaR Charge. The historical simulation model currently used to calculate the VaR Charge in GSD’s Clearing Fund formula is driven by historical data observed in the fixed-income market. While the model weighs the data it uses in favor of more recent observations, it is still limited in its ability to quickly reflect sudden changes in market volatility, which may lead to the collection of insufficient margin during periods of sudden market volatility. GSD’s Clearing Fund formula, in particular the VaR Charge, provides GSD with the discretion to adjust the model assumptions and data as necessary to react to these market conditions. To enhance the model’s performance, additional information and other observable market data, including data derived from financial products with future maturity dates, thus may be incorporated into or utilized by the volatility model, including data observed in implied volatility indicators that are derived from historical prices of financial products that have maturity dates in the future (such as the 1-year option on the 10-year swap rate). For the avoidance of doubt, this proposed rule change 6 A Member’s Clearing Fund deposit may also be recalculated on an intraday basis as needed. 7 FICC GSD Rule 1—Definitions defining the term VaR Charge in relevant part. E:\FR\FM\09JYN1.SGM 09JYN1

Agencies

[Federal Register Volume 77, Number 131 (Monday, July 9, 2012)]
[Notices]
[Pages 40396-40398]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-16624]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67332; File No. SR-EDGA-2012-27]


Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of 
Filing of Proposed Rule Changes To Amend EDGA Rules Regarding Market 
Access

July 2, 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 22, 2012, the EDGA Exchange, Inc. (the ``Exchange'' or 
``EDGA'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule changes as described in Items I and 
II below, which items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule changes from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 11.3 to (1) delete those 
provisions that the Exchange believes have been rendered superfluous 
and unnecessary in light of the adoption by the Commission of Rule 
15c3-5 under the Act; and (2) add a requirement for Sponsoring Members 
\3\ to maintain a list of Sponsored Participants \4\ which the 
Sponsoring Member has authorized to obtain access to the Exchange's 
System,\5\ and to provide the list of Sponsored Participants to the 
Exchange upon request. The Exchange is also proposing amendments to 
Rule 11.3(b)(1) and Rule 1.5(z) to align the definition of Sponsored 
Participant with the terminology used in Rule 15c3-5 to describe such 
arrangements.
---------------------------------------------------------------------------

    \3\ As defined in EDGA Rule 1.5(aa).
    \4\ As defined in EDGA Rule 1.5(z).
    \5\ As defined in EDGA Rule 1.5(cc).
---------------------------------------------------------------------------

    The text of the proposed rule changes is attached as Exhibit 5 and 
is available on the Exchange's Web site at www.directedge.com, at the 
Exchange's principal office and at the Public Reference Room of the 
Commission.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule changes and 
discussed any comments it received on the proposed rule changes. The 
text of these statements may be examined at the places specified in 
Item IV below. The self-regulatory organization has prepared summaries, 
set forth in Sections A, B and C below, of the most significant aspects 
of such statements.

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

1. Purpose
Background on Market Access Rule
    On November 3, 2010, the Commission adopted Rule 15c3-5 (the 
``Market Access Rule''). 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.\6\
---------------------------------------------------------------------------

    \6\ 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. 64798 [sic] (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,\7\ 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.
---------------------------------------------------------------------------

    \7\ 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-
parties are under such broker-dealer's direct and exclusive control.
Rule 11.3(b): Sponsored Participants
    Rule 11.3(b) sets forth the requirements for Sponsored Participants 
to obtain authorized access to the

[[Page 40397]]

System through one or more Sponsoring Members by entering into and 
maintaining customer agreements with one or more Sponsoring Members 
through which the Sponsored Participant may trade on the System. Such 
agreements must incorporate the provisions set forth in Rule 
11.3(b)(2). These contractual provisions include, inter alia, that: (1) 
Sponsored Participants must enter into and maintain an agreement with 
the Exchange; (2) Sponsoring Members must acknowledge and agree that 
all orders entered by their Sponsored Participants are binding in all 
respects on the Sponsoring Member; (3) Sponsoring Members must 
acknowledge responsibility for any and all actions taken by their 
Sponsored Participants; (4) Sponsored Participants of Sponsoring 
Members must take reasonable security precautions to prevent 
unauthorized use or access to the System, including unauthorized entry 
of information into the System, or the information and data made 
available therein; and (5) Sponsored Participants of Sponsoring Members 
must maintain, keep current and provide to the Sponsoring Member and to 
the Exchange, upon request, a list of Authorized Traders (``ATs'') \8\ 
who may obtain access to the System on behalf of such Sponsored 
Participant. In addition, the Sponsoring Member must provide the 
Exchange with a written statement in form and substance acceptable to 
the Exchange, identifying each Sponsored Participant by name and 
acknowledging its responsibility for the orders, executions and actions 
of such Sponsored Participants.
---------------------------------------------------------------------------

    \8\ As defined in EDGA Rule 1.5(c).
---------------------------------------------------------------------------

    The Exchange believes that, as a result of the controls established 
under the Market Access Rule, which apply directly to Sponsoring 
Members, the contractual provisions contained in Rule 11.3(b) have been 
rendered superfluous and unnecessary. In particular, the Exchange 
believes that the Market Access Rule's provisions requiring that 
Sponsoring Members 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 clearly establish the obligations and 
responsibilities of Members acting as Sponsoring Members to Sponsored 
Participants. The contractual provisions required under Rule 11.3(b), 
therefore, are not only superfluous and unnecessary but might also 
cause confusion on the part of Sponsoring Members as to the obligations 
that have been squarely imposed upon them by the Market Access Rule. 
Therefore, the Exchange is proposing to delete the provisions in 
current Rule 11.3(b)(2)(A)-(I), the second sentence of Rule 11.3(b)(1) 
and Rule 11.3(b)(3) and replace them with the provisions described 
below. In addition, the Exchange is making conforming amendments to 
Rule 11.3(a) to require that only Members, and not Users (which term is 
defined to include not only Members but their Sponsored Participants), 
enter into agreements with the Exchange. Additional conforming 
amendments are being proposed to the definition of Sponsored 
Participant (Rules 1.5(z) and 11.3(b)(1)) to align such definition with 
the terminology used in the Market Access Rule.
    The Exchange is retaining the requirement in Rule 11.4(a) that all 
Members shall maintain a list of ATs who may obtain access to the 
System on behalf of the Member or the Member's Sponsored Participants. 
Members must continue to provide such list of ATs to the Exchange upon 
request. This requirement is being retained in order to ensure that 
Sponsoring Members continue to track whom they grant access to their 
systems and to enable the Exchange to request such information upon 
request, if necessary. In addition, in order to maintain transparency 
into who is accessing the Exchange's System, the Exchange is also 
amending Rule 11.3(b)(2) to require Sponsoring Members to maintain a 
list of Sponsored Participants whom the Sponsoring Member has 
authorized to obtain access to the System pursuant to Rule 11.3. The 
amended rule will also provide that the Sponsoring Member shall update 
the list of Sponsored Participants as necessary, and provide the list 
to the Exchange upon request. The Exchange also proposes to amend Rule 
11.3(b)(3) to require that Sponsoring Members shall comply with all 
requirements under the Market Access Rule with regard to market access 
arrangements with Sponsored Participants.
2. Statutory Basis
    The Exchange believes that the proposed rule changes are consistent 
with Section 6(b) of the Act \9\ and further the objectives of Section 
6(b)(5) of the Act,\10\ in that they are 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.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The proposed rule changes are consistent with these obligations 
because they are designed to eliminate superfluous and unnecessary 
regulatory requirements, and thereby avoid potential confusion. 
Additionally, the proposed rule changes are designed to make the 
Exchange's Rules clearer and more transparent to Members by eliminating 
provisions that have been rendered superfluous and unnecessary by the 
Market Access Rule.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes 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 changes.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be 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-2012-27 on the subject line.

[[Page 40398]]

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-2012-27. 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-EDGA-2012-27, and should be 
submitted on or before July 30, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-16624 Filed 7-6-12; 8:45 am]
BILLING CODE 8011-01-P
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