Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change, as Modified by Amendment No. 1, To Amend Rule 4618, 70858-70860 [2012-28680]

Download as PDF 70858 Federal Register / Vol. 77, No. 228 / Tuesday, November 27, 2012 / Notices is December 2, 2012. The Commission is extending this 45-day time period. The Commission finds that it is appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change, the comments received, and any response to the comments submitted by the Exchange. The proposed rule change would, among other things, amend NASDAQ Rule 4751(f)(4) to create a new INAV Pegged Order type for U.S. Component Stock ETFs. Accordingly, the Commission, pursuant to Section 19(b)(2) of the Act,6 designates January 16, 2012, as the date by which the Commission should either approve or disapprove or institute proceedings to determine whether to disapprove the proposed rule change (File Number SR–NASDAQ–2012–117). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–28758 Filed 11–26–12; 8:45 am] SECURITIES AND EXCHANGE COMMISSION [Release No. 34–68268; File No. SR–BX– 2012–072] Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change, as Modified by Amendment No. 1, To Amend Rule 4618 November 20, 2012. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on November 15, 2012, NASDAQ OMX BX, Inc. (‘‘BX’’ or the ‘‘Exchange’’) 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 BX. On November 15, 2012, BX filed Amendment No. 1 to the proposed rule change.3 BX filed the proposal pursuant to Section 19(b)(3)(A) 4 and Rule 19b– U.S.C. 78s(b)(2). CFR 200.30–3(a)(57). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 In Amendment No. 1, BX deleted ‘‘October __, 2012’’ and inserted ‘‘November 1, 2012’’ on page 9 of 18 of the original filing, concerning when BX provided the Commission with written notice of the proposed rule change. 4 15 U.S.C. 78s(b)(3)(A). wreier-aviles on DSK5TPTVN1PROD with 7 17 VerDate Mar<15>2010 15:05 Nov 26, 2012 Jkt 229001 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change BX is filing this proposed rule change to amend Rule 4618. The text of the proposed rule change is below. Proposed new language is italicized; proposed deletions are in brackets. 4618. Clearance and Settlement (a) All transactions through the facilities of the NASDAQ OMX BX Equities Market shall be cleared and settled through a registered clearing agency using a continuous net settlement system. This requirement may be satisfied by direct participation, use of direct clearing services, [or] by entry into a correspondent clearing arrangement with another member that clears trades through such a[n]clearing agency[.], or by use of the services of CDS Clearing and Depository Services, Inc. in its capacity as a member of such a clearing agency. (b) No change. BILLING CODE 8011–01–P 6 15 4(f)(6) 5 thereunder so that the proposal was effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 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 Exchange 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 BX proposes to modify Rule 4618 to clarify that the use of a long-standing arrangement between National Securities Clearing Corporation (‘‘NSCC’’) and CDS Clearing and Depository Services, Inc. (‘‘CDS’’) 6 for clearing transactions in U.S. securities provides an acceptable method for clearing transactions executed on BX. Among other things, CDS operates Canada’s national clearance and settlement operations for cash equities 5 17 CFR 240.19b–4(f)(6). was formerly known as The Canadian Depository for Securities Limited. 6 CDS PO 00000 Frm 00122 Fmt 4703 Sfmt 4703 trading, performing a role analogous to NSCC in the U.S. CDS is regulated by the Ontario and Quebec securities commissions and the Bank of Canada, with working and reporting relationships with the Canadian Securities Administrators (CSA), other Canadian provincial securities commissions, and the Canadian Office of the Superintendent of Financial Institutions. CDS is also a full service member of NSCC and a participant in the Depository Trust Company (‘‘DTC’’). Currently, a Canadian broker-dealer seeking to buy or sell U.S. securities may do so through a U.S. registered broker-dealer with which it establishes a relationship for that purpose. In such a relationship, the U.S. broker-dealer manages the clearance and settlement of the resulting trades, either through direct membership at NSCC or indirectly through a clearing broker with which it has established a relationship. Under the proposed change, a Canadian broker-dealer that is a member of CDS may make use of CDS, and its direct membership in NSCC, to clear and settle the resulting trades. Specifically, the clearing report for the trade will ‘‘lock in’’ CDS, with reference to the CDS membership of the Canadian broker-dealer, as a party to the trade.7 NSCC then looks to CDS for satisfaction of clearance and settlement obligations of the Canadian broker-dealer. NSCC requires CDS to commit collateral to the NSCC clearing fund like any other NSCC member, the amount of which is based on a risk-based margining methodology. In a similar manner, CDS requires its participants to commit collateral to CDS. The sole risk incurred by BX and then by NSCC in the arrangement is the highly remote risk that CDS itself might default on its obligations to clear and settle on behalf of the Canadian broker-dealer. This risk is conceptually indistinguishable from the risk of a clearing broker default; moreover, because the value of Canadian trades cleared through the mechanism is likely to be small in comparison to the values cleared through many large U.S. clearing brokers, the magnitude of this risk is correspondingly smaller. The relationship between NSCC and CDS was established more than two decades ago, and various aspects of the 7 As an NSCC member, CDS is responsible for the settling and clearing of its participants’ trades conducted with U.S. broker-dealers. For purposes of ‘‘locking-in’’ parties, certain CDS participants have discrete NSCC participant codes that identify the Canadian broker-dealer and its participation in the NSCC/CDS clearing arrangement. On midnight of T+1, NSCC takes on the buyer’s credit risk and the seller’s delivery risk. E:\FR\FM\27NON1.SGM 27NON1 Federal Register / Vol. 77, No. 228 / Tuesday, November 27, 2012 / Notices wreier-aviles on DSK5TPTVN1PROD with relationship have been recognized through several prior filings 8 and noaction letters,9 as well as a recent similar filing by The NASDAQ Stock Market LLC.10 A recent description of the parameters of the relationship may be found in NSCC’s Assessment of Compliance with the CPSS/IOSCO Recommendations for Central Counterparties.11 The most prominent use of the relationship arises under FINRA Rule 7220A, which allows overthe-counter trades executed on behalf of CDS members to be reported through the FINRA/NASDAQ Trade Reporting Facility and cleared through the CDS/ NSCC relationship. In order to clearly establish that use of the CDS/NSCC relationship is a permissible method of clearing transactions executed on BX, BX is proposing to amend Rule 4618. Currently, the rule provides that trades must be cleared through a registered clearing agency using a continuous net settlement (‘‘CNS’’) system, and that this requirement may be satisfied by direct participation, use of direct clearing services, or by entry into a correspondent clearing arrangement with another member that clears trades through such an agency. NSCC is currently the only registered clearing agency using a CNS system for trades executed on BX. While it is possible that the term ‘‘direct clearing services’’ could be construed to cover CDS’s participation in NSCC on behalf of its members—because CDS is a direct member of NSCC for the purpose of providing clearing services to its members—the term has not previously been construed by BX in that manner. Accordingly, BX believes that the clarity 8 See Securities Exchange Act Release No. 36918 (March 4, 1996), 61 FR 9739 (March 11, 1996) (SR– NASD–95–49) (approving access to Automated Confirmation Transaction Service for CDS members); Securities Exchange Act Release No. 40523 (October 6, 1998), 63 FR 54739 (October 13, 1998) (approving establishment of a CDS omnibus account at DTC to facilitate cross-border clearing). 9 See Letter from Dan W. Schneider, Deputy Associate Director, Commission, to Karen L. Saperstein, Assistant General Counsel, NSCC (November 26, 1984) (available at 1984 WL 47355) (taking no-action position with respect to use of CDS and NSCC with respect to clearing of trades executed on behalf of Canadian broker-dealers on the Boston Stock Exchange); Letter from Dan W. Schneider, Deputy Associate Director, Commission, to Karen L. Saperstein, Assistant General Counsel, NSCC (October 24, 1984) (available at 1984 WL 47356) (taking no-action position with respect to CDS becoming a member of NSCC). 10 Securities Exchange Act Release No. 66310 (February 2, 2012), 77 FR 6610 (February 8, 2012) (SR–NASDAQ–2012–015). 11 ‘‘Assessment of Compliance with the CPSS/ IOSCO Recommendations for Central Counterparties,’’ NSCC (November 14, 2011) (available at https://www.dtcc.com/legal/ compliance/NSCC_Self_Assessment.pdf). VerDate Mar<15>2010 15:05 Nov 26, 2012 Jkt 229001 of the rule would be enhanced by directly recognizing the CDS/NSCC relationship in the rule text. BX proposes amending the rule to provide that the rule may be satisfied through ‘‘use of the services of CDS Clearing and Depository Services, Inc. in its capacity as a member of such a clearing agency.’’ Whenever a clearing arrangement making use of CDS’s membership in NSCC is established, NSCC will require the BX member, the Canadian broker on whose behalf it is acting, CDS, and BX to sign a short agreement, to be addressed to NSCC, in which the parties acknowledge their use of the CDS/NSCC arrangement. 2. Statutory Basis BX believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,12 in general, and with Section 6(b)(5) of the Act,13 in particular, in that the proposal 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 regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. Specifically, by allowing Canadian broker-dealers whose trades are executed on BX to make use of the long-standing arrangement between NSCC and CDS for clearing transactions, BX believes that the proposed rule change will directly foster cooperation and coordination with the two primary North American cash equities clearinghouses and their respective members, thereby promoting a free and open market. Because the arrangement between NSCC and CDS—which has been in place, in varying forms, for over two decades—includes mechanisms to provide for the collateralization of the obligations arising thereunder, BX believes that the proposed change is fully consistent with the protection of investors and the public interest. (B) Self-Regulatory Organization’s Statement on Burden on Competition BX does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. The proposed change will ensure that Canadian broker-dealers whose trades 12 15 13 15 PO 00000 U.S.C. 78f. U.S.C. 78f(b)(5). Frm 00123 Fmt 4703 are executed on BX are able to make use of an additional available option for clearing such transactions, thereby promoting competition with respect to the availability of clearing services. (C) Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective upon filing pursuant to Section 19(b)(3)(A) of the Act 14 and Rule 19b– 4(f)(6) thereunder 15 because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate. 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. 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–BX–2012–072 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–BX–2012–072. This file number should be included on the subject line if email is used. To help the 14 15 15 17 Sfmt 4703 70859 E:\FR\FM\27NON1.SGM U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 27NON1 70860 Federal Register / Vol. 77, No. 228 / Tuesday, November 27, 2012 / Notices 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 such filings will also be available for inspection and copying at the principal office of BX and on BX’s Web site: https://nasdaqomxbx.cchwallstreet.com/ NASDAQOMXBX/pdf/bx-filings/2012/ SR-BX-2012-072.pdf. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–BX–2012–072 and should be submitted on or before December 18, 2012. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–28680 Filed 11–26–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION wreier-aviles on DSK5TPTVN1PROD with [Release No. 34–68270; File No. SR–FINRA– 2012–050] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt a Supplementary Schedule for Derivatives and Other Off-Balance Sheet Items Pursuant to FINRA Rule 4524 (Supplemental FOCUS Information) November 20, 2012. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on November 15, 2012, the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been substantially prepared by FINRA. 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 FINRA is proposing to adopt a supplementary schedule for derivatives and other off-balance sheet items pursuant to FINRA Rule 4524 (Supplemental FOCUS Information). The text of the proposed rule change is available on FINRA’s Web site at https://www.finra.org, at the principal office of FINRA 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, FINRA 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. FINRA 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 FINRA Rule 4524 requires each firm, as FINRA shall designate, to file such additional financial or operational schedules or reports as FINRA may deem necessary or appropriate for the protection of investors or in the public interest as a supplement to the FOCUS reports. Pursuant to FINRA Rule 4524, FINRA is proposing the adoption of a supplemental schedule to the FOCUS reports to capture important information that is not otherwise reported on certain firms’ balance sheets. To that end, the proposal would require all carrying or clearing firms to file with FINRA the Derivatives and Other Off-Balance Sheet Items Schedule (‘‘OBS’’) within 22 1 15 16 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 15:05 Nov 26, 2012 2 17 Jkt 229001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00124 Fmt 4703 Sfmt 4703 business days of the end of each calendar quarter. The proposed OBS is necessary for FINRA to more effectively examine for compliance with, and enforce, its rules on capital adequacy. The proposed OBS enables FINRA to examine on an ongoing basis the potential impact off-balance sheet activities may have on carrying and clearing firms’ net capital, leverage and liquidity, and ability to fulfill their customer protection obligations. In the aftermath of the financial crisis, FINRA began to closely monitor firms’ levels of leverage and available liquidity to meet their funding needs and began to collect certain additional information from certain carrying and clearing firms with regard to their proprietary positions, financing transactions and certain off-balance sheet transactions. FINRA believes the proposed OBS will allow FINRA to obtain more comprehensive and consistent information regarding carrying and clearing firms’ off balance sheet assets, liabilities and other commitments. The proposed OBS would require firms to report their gross exposures in financing transactions (e.g., reverse repos, repos and other transactions that are otherwise netted under generally accepted accounting principles, reverse repos and repos to maturity and collateral swap transactions), interests in and exposure to variable interest entities, non-regular way settlement transactions (including to be announced or TBA securities and delayed delivery/ settlement transactions), underwriting and other financing commitments, and gross notional amounts in centrally cleared and non-centrally cleared derivative contracts involving equities, commodities, interest rates, foreign exchange derivatives and credit default swaps. However, the proposed OBS contains a de minimis off-balance sheet activity exception for each reporting period. If the total of all off-balance sheet items is less than 10% of the firm’s excess net capital on the last day of the reporting period, the firm will not be required to file the proposed OBS for the reporting period.3 The proposed rule change will be effective upon Commission approval. FINRA will announce the first quarterly reporting period (i.e., the implementation date for purposes of the proposed off-balance sheet schedule) in a regulatory notice to be published no later than 60 days following 3 For purposes of the proposed OBS, the term ‘‘excess net capital’’ means net capital reduced by the greater of the minimum dollar net capital requirement or two percent of combined aggregate debit items as shown in the Formula for Reserve Requirements pursuant to 17 CFR 240.15c3–3. E:\FR\FM\27NON1.SGM 27NON1

Agencies

[Federal Register Volume 77, Number 228 (Tuesday, November 27, 2012)]
[Notices]
[Pages 70858-70860]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-28680]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68268; File No. SR-BX-2012-072]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change, as Modified 
by Amendment No. 1, To Amend Rule 4618

November 20, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 15, 2012, NASDAQ OMX BX, Inc. (``BX'' or the ``Exchange'') 
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 BX. On November 15, 2012, BX filed Amendment No. 
1 to the proposed rule change.\3\ BX filed the proposal pursuant to 
Section 19(b)(3)(A) \4\ and Rule 19b-4(f)(6) \5\ thereunder so that the 
proposal was effective upon filing with the Commission. 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.
    \3\ In Amendment No. 1, BX deleted ``October ----, 2012'' and 
inserted ``November 1, 2012'' on page 9 of 18 of the original 
filing, concerning when BX provided the Commission with written 
notice of the proposed rule change.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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

    BX is filing this proposed rule change to amend Rule 4618. The text 
of the proposed rule change is below. Proposed new language is 
italicized; proposed deletions are in brackets.

4618. Clearance and Settlement

    (a) All transactions through the facilities of the NASDAQ OMX BX 
Equities Market shall be cleared and settled through a registered 
clearing agency using a continuous net settlement system. This 
requirement may be satisfied by direct participation, use of direct 
clearing services, [or] by entry into a correspondent clearing 
arrangement with another member that clears trades through such 
a[n]clearing agency[.], or by use of the services of CDS Clearing 
and Depository Services, Inc. in its capacity as a member of such a 
clearing agency.

    (b) No change.

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 Exchange 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
    BX proposes to modify Rule 4618 to clarify that the use of a long-
standing arrangement between National Securities Clearing Corporation 
(``NSCC'') and CDS Clearing and Depository Services, Inc. (``CDS'') \6\ 
for clearing transactions in U.S. securities provides an acceptable 
method for clearing transactions executed on BX. Among other things, 
CDS operates Canada's national clearance and settlement operations for 
cash equities trading, performing a role analogous to NSCC in the U.S. 
CDS is regulated by the Ontario and Quebec securities commissions and 
the Bank of Canada, with working and reporting relationships with the 
Canadian Securities Administrators (CSA), other Canadian provincial 
securities commissions, and the Canadian Office of the Superintendent 
of Financial Institutions. CDS is also a full service member of NSCC 
and a participant in the Depository Trust Company (``DTC'').
---------------------------------------------------------------------------

    \6\ CDS was formerly known as The Canadian Depository for 
Securities Limited.
---------------------------------------------------------------------------

    Currently, a Canadian broker-dealer seeking to buy or sell U.S. 
securities may do so through a U.S. registered broker-dealer with which 
it establishes a relationship for that purpose. In such a relationship, 
the U.S. broker-dealer manages the clearance and settlement of the 
resulting trades, either through direct membership at NSCC or 
indirectly through a clearing broker with which it has established a 
relationship. Under the proposed change, a Canadian broker-dealer that 
is a member of CDS may make use of CDS, and its direct membership in 
NSCC, to clear and settle the resulting trades. Specifically, the 
clearing report for the trade will ``lock in'' CDS, with reference to 
the CDS membership of the Canadian broker-dealer, as a party to the 
trade.\7\ NSCC then looks to CDS for satisfaction of clearance and 
settlement obligations of the Canadian broker-dealer. NSCC requires CDS 
to commit collateral to the NSCC clearing fund like any other NSCC 
member, the amount of which is based on a risk-based margining 
methodology. In a similar manner, CDS requires its participants to 
commit collateral to CDS. The sole risk incurred by BX and then by NSCC 
in the arrangement is the highly remote risk that CDS itself might 
default on its obligations to clear and settle on behalf of the 
Canadian broker-dealer. This risk is conceptually indistinguishable 
from the risk of a clearing broker default; moreover, because the value 
of Canadian trades cleared through the mechanism is likely to be small 
in comparison to the values cleared through many large U.S. clearing 
brokers, the magnitude of this risk is correspondingly smaller.
---------------------------------------------------------------------------

    \7\ As an NSCC member, CDS is responsible for the settling and 
clearing of its participants' trades conducted with U.S. broker-
dealers. For purposes of ``locking-in'' parties, certain CDS 
participants have discrete NSCC participant codes that identify the 
Canadian broker-dealer and its participation in the NSCC/CDS 
clearing arrangement. On midnight of T+1, NSCC takes on the buyer's 
credit risk and the seller's delivery risk.
---------------------------------------------------------------------------

    The relationship between NSCC and CDS was established more than two 
decades ago, and various aspects of the

[[Page 70859]]

relationship have been recognized through several prior filings \8\ and 
no-action letters,\9\ as well as a recent similar filing by The NASDAQ 
Stock Market LLC.\10\ A recent description of the parameters of the 
relationship may be found in NSCC's Assessment of Compliance with the 
CPSS/IOSCO Recommendations for Central Counterparties.\11\ The most 
prominent use of the relationship arises under FINRA Rule 7220A, which 
allows over-the-counter trades executed on behalf of CDS members to be 
reported through the FINRA/NASDAQ Trade Reporting Facility and cleared 
through the CDS/NSCC relationship.
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 36918 (March 4, 
1996), 61 FR 9739 (March 11, 1996) (SR-NASD-95-49) (approving access 
to Automated Confirmation Transaction Service for CDS members); 
Securities Exchange Act Release No. 40523 (October 6, 1998), 63 FR 
54739 (October 13, 1998) (approving establishment of a CDS omnibus 
account at DTC to facilitate cross-border clearing).
    \9\ See Letter from Dan W. Schneider, Deputy Associate Director, 
Commission, to Karen L. Saperstein, Assistant General Counsel, NSCC 
(November 26, 1984) (available at 1984 WL 47355) (taking no-action 
position with respect to use of CDS and NSCC with respect to 
clearing of trades executed on behalf of Canadian broker-dealers on 
the Boston Stock Exchange); Letter from Dan W. Schneider, Deputy 
Associate Director, Commission, to Karen L. Saperstein, Assistant 
General Counsel, NSCC (October 24, 1984) (available at 1984 WL 
47356) (taking no-action position with respect to CDS becoming a 
member of NSCC).
    \10\ Securities Exchange Act Release No. 66310 (February 2, 
2012), 77 FR 6610 (February 8, 2012) (SR-NASDAQ-2012-015).
    \11\ ``Assessment of Compliance with the CPSS/IOSCO 
Recommendations for Central Counterparties,'' NSCC (November 14, 
2011) (available at https://www.dtcc.com/legal/compliance/NSCC_Self_Assessment.pdf).
---------------------------------------------------------------------------

    In order to clearly establish that use of the CDS/NSCC relationship 
is a permissible method of clearing transactions executed on BX, BX is 
proposing to amend Rule 4618. Currently, the rule provides that trades 
must be cleared through a registered clearing agency using a continuous 
net settlement (``CNS'') system, and that this requirement may be 
satisfied by direct participation, use of direct clearing services, or 
by entry into a correspondent clearing arrangement with another member 
that clears trades through such an agency. NSCC is currently the only 
registered clearing agency using a CNS system for trades executed on 
BX. While it is possible that the term ``direct clearing services'' 
could be construed to cover CDS's participation in NSCC on behalf of 
its members--because CDS is a direct member of NSCC for the purpose of 
providing clearing services to its members--the term has not previously 
been construed by BX in that manner. Accordingly, BX believes that the 
clarity of the rule would be enhanced by directly recognizing the CDS/
NSCC relationship in the rule text. BX proposes amending the rule to 
provide that the rule may be satisfied through ``use of the services of 
CDS Clearing and Depository Services, Inc. in its capacity as a member 
of such a clearing agency.'' Whenever a clearing arrangement making use 
of CDS's membership in NSCC is established, NSCC will require the BX 
member, the Canadian broker on whose behalf it is acting, CDS, and BX 
to sign a short agreement, to be addressed to NSCC, in which the 
parties acknowledge their use of the CDS/NSCC arrangement.
2. Statutory Basis
    BX believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\12\ in general, and with Section 
6(b)(5) of the Act,\13\ in particular, in that the proposal 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 regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. Specifically, by allowing 
Canadian broker-dealers whose trades are executed on BX to make use of 
the long-standing arrangement between NSCC and CDS for clearing 
transactions, BX believes that the proposed rule change will directly 
foster cooperation and coordination with the two primary North American 
cash equities clearinghouses and their respective members, thereby 
promoting a free and open market. Because the arrangement between NSCC 
and CDS--which has been in place, in varying forms, for over two 
decades--includes mechanisms to provide for the collateralization of 
the obligations arising thereunder, BX believes that the proposed 
change is fully consistent with the protection of investors and the 
public interest.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

(B) Self-Regulatory Organization's Statement on Burden on Competition

    BX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. The proposed change 
will ensure that Canadian broker-dealers whose trades are executed on 
BX are able to make use of an additional available option for clearing 
such transactions, thereby promoting competition with respect to the 
availability of clearing services.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    Written comments were neither solicited nor received.

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

    The foregoing rule change has become effective upon filing pursuant 
to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) thereunder 
\15\ because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate. 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.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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-BX-2012-072 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-BX-2012-072. This file 
number should be included on the subject line if email is used. To help 
the

[[Page 70860]]

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 such filings will also be available for inspection 
and copying at the principal office of BX and on BX's Web site: https://nasdaqomxbx.cchwallstreet.com/NASDAQOMXBX/pdf/bx-filings/2012/SR-BX-2012-072.pdf.
    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-BX-2012-072 
and should be submitted on or before December 18, 2012.
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-28680 Filed 11-26-12; 8:45 am]
BILLING CODE 8011-01-P
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