Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Footnote 4 of the Exchange's Fee Schedule Regarding Retail Orders, 39420-39424 [2013-15661]

Download as PDF 39420 Federal Register / Vol. 78, No. 126 / Monday, July 1, 2013 / Notices The Proposed Rule Change is not designed to address any competitive issue in the U.S. or European securities markets or have any impact on competition in those markets; rather, it will combine the U.S. equities businesses of NYSE Euronext with the commodities and futures businesses of ICE. The ownership of U.S. securities exchanges will not become more concentrated as a result of the Proposed Rule Change because ICE currently owns no U.S. securities exchange. With respect to operations outside the United States, ICE has informed NYSE Euronext that it expects the derivatives business of LAM will be gradually transitioned to ICE Futures Europe, as discussed above, but such transition is subject to regulatory approval in the United Kingdom. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received from Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. 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 up to 90 days (i) as the Commission may designate 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 the proposed rule change, or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. BILLING CODE 8011–01–P 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: mstockstill on DSK4VPTVN1PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File No. SR–NYSE–2013–42 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, 21:38 Jun 28, 2013 Jkt 229001 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.63 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–15630 Filed 6–28–13; 8:45 am] IV. Solicitation of Comments VerDate Mar<15>2010 Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File No. SR–NYSE–2013–42. 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 Web site (http://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 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 No. SR–NYSE– 2013–42 and should be submitted on or before July 22, 2013. [Release No. 34–69852; File No. SR–EDGX– 2013–20] Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Footnote 4 of the Exchange’s Fee Schedule Regarding Retail Orders Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the CFR 200.30–3(a)(12). Frm 00170 The Exchange proposes to amend Footnote 4 of the Exchange’s fee schedule regarding Retail Orders. All of the changes described herein are applicable to EDGX Members. The text of the proposed rule change is available on the Exchange’s Internet 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 self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of 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 the Statutory Basis for, the Proposed Rule Change In SR–EDGX–2012–47,3 the Exchange introduced new flags ZA (Retail Order, adds liquidity) and ZR (Retail Order, removes liquidity) and appended to each flag Footnote 4 to the Exchange’s fee schedule. Footnote 4 defined a ‘‘Retail Order,’’ provided an attestation requirement for Members 4 to comply with when sending Retail Orders to the Exchange, and allowed Members to designate orders as Retail Orders on an order-by-order basis. In SR–EDGX– 1 15 June 25, 2013. PO 00000 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change 1. Purpose SECURITIES AND EXCHANGE COMMISSION 63 17 ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on June 13, 2013, EDGX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGX’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. Fmt 4703 Sfmt 4703 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 68310 (November 28, 2012), 77 FR 71860 (December 4, 2012) (SR–EDGX–2012–47). 4 As defined in Exchange Rule 1.5(n). 2 17 E:\FR\FM\01JYN1.SGM 01JYN1 Federal Register / Vol. 78, No. 126 / Monday, July 1, 2013 / Notices 2012–48,5 the Exchange subsequently expanded Members’ ability to send the Exchange Retail Orders by designating certain of their FIX ports at the Exchange as ‘‘Retail Order Ports.’’ The attestation requirement, as described in SR–EDGX–2012–47,6 continues to apply to all Members who submit Retail Orders, whether on an order-by-order basis or via Retail Order Ports. In SR– EDGX–2013–13, the Exchange added riskless principal orders to the types of orders that may qualify as Retail Orders.7 mstockstill on DSK4VPTVN1PROD with NOTICES Proposed Amendment to Retail Attestation In SR–EDGX–2012–47,8 the Exchange stated requirements for Members that represent Retail Orders from another broker-dealer customer. The requirements state that ‘‘[t]he Member’s supervisory procedures must be reasonably designed to assure that the orders it receives from such broker dealer customer that it designates as Retail Orders meet the definition of a Retail Order. The Member must (i) obtain an annual written representation, in a form acceptable to the Exchange, from each broker-dealer customer that sends it orders to be designated as Retail Orders that entry of such orders as Retail Orders will be in compliance with the requirements specified by the Exchange, and (ii) monitor whether its broker-dealer customer’s Retail Order flow continues to meet the applicable requirements.’’ 9 The Exchange proposes to codify in Footnote 4 of its fee schedule similar language, but delete the requirement that the form be acceptable to the 5 See Securities Exchange Act Release No. 68554 (December 31, 2012), 78 FR 966 (January 7, 2013) (SR–EDGX–2012–48). 6 See Securities Exchange Act Release No. 68310 (November 28, 2012), 77 FR 71860 (December 4, 2012) (SR–EDGX–2012–47). 7 See Securities Exchange Act Release No. 69378 (April 15, 2013), 77 FR 23617 (April 19, 2013) (SR– EDGX–2013–13). Footnote 4 on the Exchange’s fee schedule currently defines a Retail Order as: ‘‘(i) an agency order or riskless principal order that meets the criteria of FINRA Rule 5320.03 that originates from a natural person; (ii) is submitted to EDGX by a Member, provided that no change is made to the terms of the order; and (iii) the order does not originate from a trading algorithm or any other computerized methodology.’’ See EDGX Fee Schedule, http://www.directedge.com/Membership/ FeeSchedule/EDGXFeeSchedule.aspx. 8 See Securities Exchange Act Release No. 68310 (November 28, 2012), 77 FR 71860 (December 4, 2012) (SR–EDGX–2012–47). 9 The Exchange notes that it has amended its attestation form for Members designating Retail Orders to add this requirement. The Exchange also notes that the Exchange’s regulatory service provider, on behalf of the Exchange, will review Members’ compliance with the attestation requirement through an exam based review of a Member’s internal controls. VerDate Mar<15>2010 21:38 Jun 28, 2013 Jkt 229001 Exchange. With the deletion of this requirement, the proposed language to be added to Footnote 4 of the Exchange’s fee schedule still requires Members to obtain an annual written representation if they represent Retail Orders from another broker-dealer customer and Footnote 4 provides criteria that all Members who submit Retail Orders must satisfy.10 In addition, Members must ensure that their brokerdealer customers comply with the requirements in Footnote 4 of the Exchange’s fee schedule so that Members themselves can comply with their supervisory procedure requirement, as outlined in Footnote 4 of the Exchange’s fee schedule. The Exchange does not believe it needs to prescribe the exact form to be used between its Members and their broker/ dealer customers as it wishes to provide Members additional flexibility to structure their written supervisory procedures in a way that is appropriate, taking into consideration Members’ varying business models. To ensure the continued integrity of the retail order flow submitted to the Exchange, the Financial Industry Regulatory Authority (‘‘FINRA’’), on behalf of the Exchange pursuant to Exchange Rule 13.7, examines Members’ supervisory procedures to determine whether such procedures adequately comply with the Exchange’s retail order designation requirements. If FINRA was to determine that a Member’s supervisory procedures were inadequate, such Member would be subject to the disciplinary procedures of the Exchange.11 Furthermore, the Exchange bears ultimate responsibility for FINRA’s actions as FINRA acts as an agent of the Exchange in its role as regulatory service provider. Therefore, the Exchange believes it is not necessary to dictate the form of the required annual written representation so long as it sufficiently ensures the integrity of the retail order flow sent to the Exchange. The Exchange notes that the above language regarding Members’ requirements with respect to Retail Orders sent to them from another broker-dealer was previously filed with the Commission, albeit containing the requirement that the form be acceptable 10 The Exchange notes that currently Members must submit a signed written attestation, in a form prescribed by the Exchange, that they have implemented policies and procedures that are reasonably designed to ensure that every order designated by the Member as a ‘‘Retail Order’’ complies with the definition of a Retail Order, as provided in Footnote 4 on the Exchange’s fee schedule. 11 As described in Chapter VIII of the Exchange’s Rules. PO 00000 Frm 00171 Fmt 4703 Sfmt 4703 39421 to the Exchange.12 The present filing is merely codifying such language in the Exchange’s fee schedule, with the exception of the requirement that the form be acceptable to the Exchange. In addition, the Exchange notes that other market centers have codified or are in the process of codifying similar language.13 Proposed Amendment to Definition of Retail Order In addition, Footnote 4 to the Exchange’s fee schedule currently states that ‘‘Members must submit a signed written attestation, in a form prescribed by the Exchange, that they have implemented policies and procedures that are reasonably designed to ensure that every order designated by the Member as a ‘Retail Order’ complies with the [Retail Order] requirements.’’ 14 The Exchange believes that the categorical nature of the current attestation language is preventing certain Members with retail customers from utilizing Retail Orders. In particular, the Exchange understands that some Members wishing to utilize Retail Orders represent both ‘‘Retail Orders’’, as defined in Footnote 4 to the Exchange’s fee schedule, as well as other agency flow that may not meet the strict definition of a ‘‘Retail Order.’’ The Exchange further understands that limitations in order management systems and routing networks used by such Members may make it infeasible for them to isolate 100% of their Retail Orders from other agency, non-Retail Order flow that they would otherwise send to the Exchange as Retail Orders. Unable to make the categorical attestation required by the current language in Footnote 4 to the Exchange’s fee schedule, some Members have chosen not to utilize Retail Orders, notwithstanding that substantially all order flow from such Members would qualify as Retail Orders. This limitation has the effect of preventing such 12 See Securities Exchange Act Release No. 68310 (November 28, 2012), 77 FR 71860 (December 4, 2012) (SR–EDGX–2012–47). 13 The Exchange notes that its proposed language differs from that used by other exchanges in that the Exchange proposes to delete the requirement that the annual written representation submitted by a broker-dealer customer to a Member be in a form acceptable to the Exchange. See, e.g., NYSE Rule 107C(b)(6); BATS BYX Rule 11.24(b)(6); and NASDAQ Rule 4780(b)(6). The Exchange notes that NYSE Arca, Inc. (‘‘NYSE Arca’’) currently has substantially similar language in their Retail Order Tier Form to that used by BATS and NYSE in their rulebooks. NYSE Arca, NYSE Arca Membership Forms, http://usequities.nyx.com/sites/ usequities.nyx.com/files/ arca_retail_order_tier_form_nov_2012.pdf. 14 See EDGX, EDGX Fee Schedule, http:// www.directedge.com/Membership/FeeSchedule/ EDGXFeeSchedule.aspx. E:\FR\FM\01JYN1.SGM 01JYN1 39422 Federal Register / Vol. 78, No. 126 / Monday, July 1, 2013 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES Members’ retail customers from benefiting from the rebate offered to Retail Orders through Flags ZA ($0.0032 per share rebate) and the ability to qualify for a Retail Order Tier of $0.0034 per share, provided certain conditions are met.15 Accordingly, in order to accommodate these system limitations and expand the access of Retail Orders to more Members, the Exchange is proposing a de minimis relaxation of the attestation requirement in Footnote 4 of its fee schedule. Therefore, as proposed, Members would be permitted to send de minimis quantities of agency orders to the Exchange as Retail Orders that cannot be explicitly attested to under the existing attestation requirement. Therefore, the Exchange proposes to amend Footnote 4 to provide that a Member may attest that ‘‘substantially all’’ of the orders it designates as Retail Orders qualify as Retail Orders, replacing the requirement that the Member must attest that ‘‘every order’’ qualifies as a Retail Order. The Exchange proposes to amend Footnote 4 to its fee schedule to state that ‘‘Members must submit a signed written attestation, in a form prescribed by the Exchange, that they have implemented policies and procedures that are reasonably designed to ensure that substantially all orders designated by the Member as a ‘Retail Order’ comply with the above requirements.’’ (emphasis added). The Exchange will issue a Regulatory Notice to make clear that the ‘‘substantially all’’ language is meant to permit the presence of only isolated and de minimus quantities of agency orders that do not qualify as Retail Orders that cannot be segregated from Retail Orders due to systems limitations. In this regard, a Member would need to retain, in its books and records, adequate substantiation that substantially all orders sent to the Exchange as Retail Orders met the strict definition and that those orders not meeting the strict definition are agency orders that cannot be segregated from Retail Orders due to system limitations, and are de minimis in terms of the overall number of Retail Orders sent to the Exchange.16 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,17 in general, and furthers the objectives of Section 6(b)(5) of the Act,18 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to remove impediments to and perfect the mechanism of a free and open market and a national market system. The Exchange believes that the proposed rule change promotes just and equitable principles of trade and removes impediments to and perfects the mechanism of a free and open market and a national market system because it would communicate to market participants that significant safeguards are in place to protect the integrity of the retail order flow and codify that it is the Member’s duty to ensure its supervisory procedures are reasonably designed to assure designated Retail Orders it receives from a broker-dealer customer meet the definition of a Retail Order. As part of this duty, a Member must (i) obtain an annual written representation from each broker-dealer customer that sends it orders to be designated as Retail Orders that entry of such orders as Retail Orders will be in compliance with the requirements specified by the Exchange, and (ii) monitor whether its brokerdealer customer’s Retail Order flow continues to meet the applicable requirements. The Exchange notes that this duty was communicated in a previous filing submitted to the Commission by the Exchange, and that the purpose of this filing is to increase transparency by codifying such duty in the Exchange’s fee schedule, with the exception of the requirement that the form be acceptable to the Exchange.19 The Exchange’s elimination of the requirement that the form be acceptable to the Exchange provides Members additional flexibility to structure their written supervisory procedures in a way that best suits each individual Member.20 The proposed language to be added to Footnote 4 of the Exchange’s fee schedule defines the criteria for Members to meet to comply with the ‘‘Retail Order’’ definition if they represent Retail Orders from another broker-dealer customer. In addition, Footnote 4 provides criteria for all Members to meet to satisfy the ‘‘Retail 18 15 15 Members will be provided a rebate of $0.0034 per share if they add an average daily volume of Retail Orders (Flag ZA) that is 0.10% or more of the TCV on a daily basis, measured monthly. 16 FINRA, on behalf of the Exchange, will review a Member’s compliance with these requirements. 17 15 U.S.C. 78f. VerDate Mar<15>2010 21:38 Jun 28, 2013 Jkt 229001 U.S.C. 78f(b)(5). Securities Exchange Act Release No. 68310 (November 28, 2012), 77 FR 71860 (December 4, 2012) (SR–EDGX–2012–47). 20 The Exchange notes that Members will continue to be required to submit to the Exchange an attestation in a form acceptable to the Exchange regarding their own retail order flow. 19 See PO 00000 Frm 00172 Fmt 4703 Sfmt 4703 Order’’ definition.21 Subsequent to the proposed rule change, the Exchange notes that the text of Footnote 4 regarding the attestation requirement would read as follows: If the Member represents Retail Orders from another broker-dealer customer, the Member’s supervisory procedures must be reasonably designed to assure that the orders it receives from such broker dealer customer that it designates as Retail Orders meet the definition of a Retail Order. The Member must (i) obtain an annual written representation from each broker-dealer customer that sends it orders to be designated as Retail Orders that entry of such orders as Retail Orders will be in compliance with the requirements specified by the Exchange, and (ii) monitor whether its broker-dealer customer’s Retail Order flow continues to meet the applicable requirements. Members must ensure that their broker-dealer customers comply with the requirements in Footnote 4 of the Exchange’s fee schedule so that Members themselves can comply with the supervisory procedure requirement also in Footnote 4 of the Exchange’s fee schedule. The Exchange does not believe it needs to prescribe the exact form to be used between its Members and their broker/dealer customers as it wishes to provide Members additional flexibility to structure their written supervisory procedures in a way that is appropriate, taking into consideration Members’ varying business models. To ensure the continued integrity of the retail order flow submitted to the Exchange, FINRA, on behalf of the Exchange pursuant to Exchange Rule 13.7, examines Members’ supervisory procedures to determine whether such procedures adequately comply with the Exchange’s retail order designation requirements. If FINRA were to determine that a Member’s supervisory procedures were inadequate, such Member would be subject to the disciplinary procedures of the Exchange.22 The Exchange bears ultimate responsibility for FINRA’s actions as FINRA acts as an agent of the Exchange in its role as regulatory service provider. Therefore, the Exchange believes it is not necessary to dictate the form of the required annual written representation so long as it 21 The Exchange notes that Members must continue to submit a signed written attestation, in a form prescribed by the Exchange, that they have implemented policies and procedures that are reasonably designed to ensure that every order[sic] designated by the Member as a ‘‘Retail Order’’ complies with the definition of a Retail Order, as provided in Footnote 4 on the Exchange’s fee schedule. 22 As described in Chapter VIII of the Exchange’s Rules. E:\FR\FM\01JYN1.SGM 01JYN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 78, No. 126 / Monday, July 1, 2013 / Notices sufficiently ensures the integrity of the retail order flow sent to the Exchange. Such procedures are designed to promote just and equitable principles of trade and removes impediments to and perfect the mechanism of a free and open market and a national market system because they provide a backstop that would ensure the integrity of the retail order flow sent to the Exchange. The Exchange believes that the proposed change would protect investors and the public interest by making more transparent the requirements for Members surrounding broker-dealer customers of Members that plan to utilize Retail Orders and codify the supervisory duty of the Member to ensure such customers abide by the requirements of Retail Orders, thus promoting the integrity of the retail order flow sent to the Exchange and acting as a deterrent to prevent potential abuse of the Retail Order designation. Accordingly, the proposed amendment to the requirements for Retail Orders would contribute to investors’ confidence in the fairness of their transactions, prompting investors to send more retail order flow to the Exchange, which would subsequently benefit all investors by deepening the Exchange’s liquidity pool, supporting the quality of price discovery and promoting market transparency. The Exchange believes that its proposal to amend Footnote 4 of its fee schedule to provide that a Member may attest that ‘‘substantially all’’ of the orders it submits to the Exchange qualify as Retail Orders is designed to prevent fraudulent and manipulative acts and practices because, while the proposed rule change represents a relaxation of the attestation requirements, the change is a de minimis relaxation that still requires the Member to attest that ‘‘substantially all’’ of its orders will qualify as Retail Orders. This de minimis relaxation will allow enough flexibility to accommodate system limitations while still ensuring that only a fractional amount of orders submitted as Retail Orders would not qualify as Retail Orders. The Exchange believes that the proposed rule change promotes just and equitable principles of trade because it will ensure that similarly situated Members who have only slight differences in the capability of their systems will be able to equally benefit from Retail Orders. The Exchange believes that the proposed rule change will remove impediments to and perfect the mechanism of a free and open market and a national market system because it VerDate Mar<15>2010 21:38 Jun 28, 2013 Jkt 229001 will allow Members, who are concerned about its system limitations not allowing 100% certification that submitted orders are Retail Orders, to still utilize Retail Orders. By removing impediments to the characterizing of orders as Retail Orders, the proposed change would permit expanded access of Members and their retail customers to the potential rebate and tiered pricing offered to Retail Orders (Flag ZA and the Retail Tier in Footnote 4 of the Exchange’s fee schedule). In addition, the Exchange notes that the proposed amendment will render the Exchange’s definition closer to the definitions utilized by the Exchange’s competitors.23 B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that the proposed amendment to Footnote 4 of the Exchange’s fee schedule would not burden intramarket competition because the ability to submit Retail Orders would continue to be open to all Members that wish to send Retail Orders to the Exchange, including those that represent Retail Orders from another broker-dealer customer, requiring an attestation, as described above. The Exchange believes that the proposed amendment would not burden intermarket competition because the proposed amendment is similar to that utilized by other market centers.24 This amendment would increase transparency and promote the integrity of the retail order flow sent to the Exchange, which would stimulate Members to send more retail order flow to the Exchange and thereby allow more 23 See Securities Exchange Act Release No. 69513 (May 3, 2013), 78 FR 27261 (May 9, 2013) (SR– NYSE–2013–08) (SR–NYSEMKT–2013–07); Securities Exchange Act Release No. 69719 (June 7, 2013), 78 FR 35656 (June 13, 2013) (SR–NASDAQ– 2013–031); Securities Exchange Act Release No. 69643 (May 28, 2013), 78 FR 33136 (June 3, 2013) (SR–BYX–2013–008). 24 The Exchange notes that its proposed language differs from that used by other exchanges in that the Exchange proposes to delete the requirement that the annual written representation submitted by a broker-dealer customer to a Member be in a form acceptable to the Exchange. See, e.g., NYSE Rule 107C(b)(6); BATS BYX Rule 11.24(b)(6); and NASDAQ Rule 4780(b)(6). The Exchange notes that NYSE Arca currently has substantially similar language in their Retail Order Tier Form to that used by BATS and NYSE in their rulebooks. NYSE Arca, NYSE Arca Membership Forms, http:// usequities.nyx.com/sites/usequities.nyx.com/files/ arca_retail_order_tier_form_nov_2012.pdf. PO 00000 Frm 00173 Fmt 4703 Sfmt 4703 39423 Members to achieve an enhanced rebate for such flow. The Exchange does not believe that the proposed amendment to the definition of Retail Order will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that the proposed amendment, by increasing the level of participation of Retail Orders, would increase the level of competition around retail executions such that retail investors would receive better prices than they currently do on the Exchange and potentially through bilateral internalization arrangements. The Exchange believes that the transparency and competitiveness of allowing Retail Orders on an exchange market would result in better prices for retail investors, and benefits retail investors by expanding the capabilities of exchanges to encompass practices currently allowed on non-exchange venues. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change: (1) Does not significantly affect the protection of investors or the public interest; (2) does not impose any significant burden on competition; and (3) by its terms does not become operative for 30 days after the date of this filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 25 and Rule 19b–4(f)(6) thereunder.26 A proposed rule change filed under Rule 19b–4(f)(6) normally does not become operative for 30 days after the date of filing. However, Rule 19b– 4(f)(6)(iii) permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The 25 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires a self-regulatory organization to provide the Commission with written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has met this requirement. 26 17 E:\FR\FM\01JYN1.SGM 01JYN1 39424 Federal Register / Vol. 78, No. 126 / Monday, July 1, 2013 / Notices 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–EDGX– 2013–20 and should be submitted on or before July 22, 2013. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.28 Kevin M. O’Neill, Deputy Secretary. Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–EDGX–2013–20 on the subject line. mstockstill on DSK4VPTVN1PROD with NOTICES Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest because the proposed rule change is a limited and sufficiently defined modification to the current attestation requirement or provides additional transparency to the Exchange’s Members regarding the usage of Retail Orders on the Exchange.27 Accordingly, the Commission hereby grants the Exchange’s request and designates the proposal operative upon filing. 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. SECURITIES AND EXCHANGE COMMISSION Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–EDGX–2013–20. 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 (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements 27 For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). VerDate Mar<15>2010 21:38 Jun 28, 2013 Jkt 229001 [FR Doc. 2013–15661 Filed 6–28–13; 8:45 am] BILLING CODE 8011–01–P [Release No. 34–69854; File No. SR–CBOE– 2013–063] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Trades for Less Than $1 June 25, 2013. 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 18, 2013, the Chicago Board Options Exchange, Incorporated (‘‘Exchange’’ or ‘‘CBOE’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Exchange has designated the proposal as a ‘‘noncontroversial’’ proposed rule change pursuant to Section 19(b)(3)(A) of the CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. Act 3 and Rule 19b–4(f)(6) thereunder.4 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is proposing to extend its program that allows transactions to take place at a price that is below $1 per option contract through January 5, 2014. The text of the proposed rule change is available on the Exchange’s Web site (www.cboe.org/Legal), at the Exchange’s Office of the Secretary and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the 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 those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose An ‘‘accommodation’’ or ‘‘cabinet’’ trade refers to trades in listed options on the Exchange that are worthless or not actively traded. Cabinet trading is generally conducted in accordance with the Exchange Rules, except as provided in Exchange Rule 6.54, Accommodation Liquidations (Cabinet Trades), which sets forth specific procedures for engaging in cabinet trades. Rule 6.54 currently provides for cabinet transactions to occur via open outcry at a cabinet price of $1 per option contract in any options series open for trading in the Exchange, except that the Rule is not applicable to trading in option classes participating in the Penny Pilot Program. Under the procedures, bids and offers (whether opening or closing a position) at a price of $1 per option contract may be represented in the trading crowd by a Floor Broker or by a Market-Maker or provided in response to a request by a PAR Official/OBO, a Floor Broker or a Market-Maker, but 28 17 1 15 PO 00000 Frm 00174 Fmt 4703 Sfmt 4703 3 15 4 17 E:\FR\FM\01JYN1.SGM U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 01JYN1

Agencies

[Federal Register Volume 78, Number 126 (Monday, July 1, 2013)]
[Notices]
[Pages 39420-39424]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15661]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69852; File No. SR-EDGX-2013-20]


Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Footnote 4 of the Exchange's Fee Schedule Regarding Retail Orders

June 25, 2013.
    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 13, 2013, EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

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

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

    The Exchange proposes to amend Footnote 4 of the Exchange's fee 
schedule regarding Retail Orders. All of the changes described herein 
are applicable to EDGX Members. The text of the proposed rule change is 
available on the Exchange's Internet 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 self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    In SR-EDGX-2012-47,\3\ the Exchange introduced new flags ZA (Retail 
Order, adds liquidity) and ZR (Retail Order, removes liquidity) and 
appended to each flag Footnote 4 to the Exchange's fee schedule. 
Footnote 4 defined a ``Retail Order,'' provided an attestation 
requirement for Members \4\ to comply with when sending Retail Orders 
to the Exchange, and allowed Members to designate orders as Retail 
Orders on an order-by-order basis. In SR-EDGX-

[[Page 39421]]

2012-48,\5\ the Exchange subsequently expanded Members' ability to send 
the Exchange Retail Orders by designating certain of their FIX ports at 
the Exchange as ``Retail Order Ports.'' The attestation requirement, as 
described in SR-EDGX-2012-47,\6\ continues to apply to all Members who 
submit Retail Orders, whether on an order-by-order basis or via Retail 
Order Ports. In SR-EDGX-2013-13, the Exchange added riskless principal 
orders to the types of orders that may qualify as Retail Orders.\7\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 68310 (November 28, 
2012), 77 FR 71860 (December 4, 2012) (SR-EDGX-2012-47).
    \4\ As defined in Exchange Rule 1.5(n).
    \5\ See Securities Exchange Act Release No. 68554 (December 31, 
2012), 78 FR 966 (January 7, 2013) (SR-EDGX-2012-48).
    \6\ See Securities Exchange Act Release No. 68310 (November 28, 
2012), 77 FR 71860 (December 4, 2012) (SR-EDGX-2012-47).
    \7\ See Securities Exchange Act Release No. 69378 (April 15, 
2013), 77 FR 23617 (April 19, 2013) (SR-EDGX-2013-13). Footnote 4 on 
the Exchange's fee schedule currently defines a Retail Order as: 
``(i) an agency order or riskless principal order that meets the 
criteria of FINRA Rule 5320.03 that originates from a natural 
person; (ii) is submitted to EDGX by a Member, provided that no 
change is made to the terms of the order; and (iii) the order does 
not originate from a trading algorithm or any other computerized 
methodology.'' See EDGX Fee Schedule, http://www.directedge.com/Membership/FeeSchedule/EDGXFeeSchedule.aspx.
---------------------------------------------------------------------------

Proposed Amendment to Retail Attestation
    In SR-EDGX-2012-47,\8\ the Exchange stated requirements for Members 
that represent Retail Orders from another broker-dealer customer. The 
requirements state that ``[t]he Member's supervisory procedures must be 
reasonably designed to assure that the orders it receives from such 
broker dealer customer that it designates as Retail Orders meet the 
definition of a Retail Order. The Member must (i) obtain an annual 
written representation, in a form acceptable to the Exchange, from each 
broker-dealer customer that sends it orders to be designated as Retail 
Orders that entry of such orders as Retail Orders will be in compliance 
with the requirements specified by the Exchange, and (ii) monitor 
whether its broker-dealer customer's Retail Order flow continues to 
meet the applicable requirements.'' \9\
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 68310 (November 28, 
2012), 77 FR 71860 (December 4, 2012) (SR-EDGX-2012-47).
    \9\ The Exchange notes that it has amended its attestation form 
for Members designating Retail Orders to add this requirement. The 
Exchange also notes that the Exchange's regulatory service provider, 
on behalf of the Exchange, will review Members' compliance with the 
attestation requirement through an exam based review of a Member's 
internal controls.
---------------------------------------------------------------------------

    The Exchange proposes to codify in Footnote 4 of its fee schedule 
similar language, but delete the requirement that the form be 
acceptable to the Exchange. With the deletion of this requirement, the 
proposed language to be added to Footnote 4 of the Exchange's fee 
schedule still requires Members to obtain an annual written 
representation if they represent Retail Orders from another broker-
dealer customer and Footnote 4 provides criteria that all Members who 
submit Retail Orders must satisfy.\10\ In addition, Members must ensure 
that their broker-dealer customers comply with the requirements in 
Footnote 4 of the Exchange's fee schedule so that Members themselves 
can comply with their supervisory procedure requirement, as outlined in 
Footnote 4 of the Exchange's fee schedule. The Exchange does not 
believe it needs to prescribe the exact form to be used between its 
Members and their broker/dealer customers as it wishes to provide 
Members additional flexibility to structure their written supervisory 
procedures in a way that is appropriate, taking into consideration 
Members' varying business models. To ensure the continued integrity of 
the retail order flow submitted to the Exchange, the Financial Industry 
Regulatory Authority (``FINRA''), on behalf of the Exchange pursuant to 
Exchange Rule 13.7, examines Members' supervisory procedures to 
determine whether such procedures adequately comply with the Exchange's 
retail order designation requirements. If FINRA was to determine that a 
Member's supervisory procedures were inadequate, such Member would be 
subject to the disciplinary procedures of the Exchange.\11\ 
Furthermore, the Exchange bears ultimate responsibility for FINRA's 
actions as FINRA acts as an agent of the Exchange in its role as 
regulatory service provider. Therefore, the Exchange believes it is not 
necessary to dictate the form of the required annual written 
representation so long as it sufficiently ensures the integrity of the 
retail order flow sent to the Exchange.
---------------------------------------------------------------------------

    \10\ The Exchange notes that currently Members must submit a 
signed written attestation, in a form prescribed by the Exchange, 
that they have implemented policies and procedures that are 
reasonably designed to ensure that every order designated by the 
Member as a ``Retail Order'' complies with the definition of a 
Retail Order, as provided in Footnote 4 on the Exchange's fee 
schedule.
    \11\ As described in Chapter VIII of the Exchange's Rules.
---------------------------------------------------------------------------

    The Exchange notes that the above language regarding Members' 
requirements with respect to Retail Orders sent to them from another 
broker-dealer was previously filed with the Commission, albeit 
containing the requirement that the form be acceptable to the 
Exchange.\12\ The present filing is merely codifying such language in 
the Exchange's fee schedule, with the exception of the requirement that 
the form be acceptable to the Exchange. In addition, the Exchange notes 
that other market centers have codified or are in the process of 
codifying similar language.\13\
---------------------------------------------------------------------------

    \12\ See Securities Exchange Act Release No. 68310 (November 28, 
2012), 77 FR 71860 (December 4, 2012) (SR-EDGX-2012-47).
    \13\ The Exchange notes that its proposed language differs from 
that used by other exchanges in that the Exchange proposes to delete 
the requirement that the annual written representation submitted by 
a broker-dealer customer to a Member be in a form acceptable to the 
Exchange. See, e.g., NYSE Rule 107C(b)(6); BATS BYX Rule 
11.24(b)(6); and NASDAQ Rule 4780(b)(6). The Exchange notes that 
NYSE Arca, Inc. (``NYSE Arca'') currently has substantially similar 
language in their Retail Order Tier Form to that used by BATS and 
NYSE in their rulebooks. NYSE Arca, NYSE Arca Membership Forms, 
http://usequities.nyx.com/sites/usequities.nyx.com/files/arca_retail_order_tier_form_nov_2012.pdf.
---------------------------------------------------------------------------

Proposed Amendment to Definition of Retail Order
    In addition, Footnote 4 to the Exchange's fee schedule currently 
states that ``Members must submit a signed written attestation, in a 
form prescribed by the Exchange, that they have implemented policies 
and procedures that are reasonably designed to ensure that every order 
designated by the Member as a `Retail Order' complies with the [Retail 
Order] requirements.'' \14\ The Exchange believes that the categorical 
nature of the current attestation language is preventing certain 
Members with retail customers from utilizing Retail Orders. In 
particular, the Exchange understands that some Members wishing to 
utilize Retail Orders represent both ``Retail Orders'', as defined in 
Footnote 4 to the Exchange's fee schedule, as well as other agency flow 
that may not meet the strict definition of a ``Retail Order.'' The 
Exchange further understands that limitations in order management 
systems and routing networks used by such Members may make it 
infeasible for them to isolate 100% of their Retail Orders from other 
agency, non-Retail Order flow that they would otherwise send to the 
Exchange as Retail Orders. Unable to make the categorical attestation 
required by the current language in Footnote 4 to the Exchange's fee 
schedule, some Members have chosen not to utilize Retail Orders, 
notwithstanding that substantially all order flow from such Members 
would qualify as Retail Orders. This limitation has the effect of 
preventing such

[[Page 39422]]

Members' retail customers from benefiting from the rebate offered to 
Retail Orders through Flags ZA ($0.0032 per share rebate) and the 
ability to qualify for a Retail Order Tier of $0.0034 per share, 
provided certain conditions are met.\15\
---------------------------------------------------------------------------

    \14\ See EDGX, EDGX Fee Schedule, http://www.directedge.com/Membership/FeeSchedule/EDGXFeeSchedule.aspx.
    \15\ Members will be provided a rebate of $0.0034 per share if 
they add an average daily volume of Retail Orders (Flag ZA) that is 
0.10% or more of the TCV on a daily basis, measured monthly.
---------------------------------------------------------------------------

    Accordingly, in order to accommodate these system limitations and 
expand the access of Retail Orders to more Members, the Exchange is 
proposing a de minimis relaxation of the attestation requirement in 
Footnote 4 of its fee schedule. Therefore, as proposed, Members would 
be permitted to send de minimis quantities of agency orders to the 
Exchange as Retail Orders that cannot be explicitly attested to under 
the existing attestation requirement. Therefore, the Exchange proposes 
to amend Footnote 4 to provide that a Member may attest that 
``substantially all'' of the orders it designates as Retail Orders 
qualify as Retail Orders, replacing the requirement that the Member 
must attest that ``every order'' qualifies as a Retail Order. The 
Exchange proposes to amend Footnote 4 to its fee schedule to state that 
``Members must submit a signed written attestation, in a form 
prescribed by the Exchange, that they have implemented policies and 
procedures that are reasonably designed to ensure that substantially 
all orders designated by the Member as a `Retail Order' comply with the 
above requirements.'' (emphasis added).
    The Exchange will issue a Regulatory Notice to make clear that the 
``substantially all'' language is meant to permit the presence of only 
isolated and de minimus quantities of agency orders that do not qualify 
as Retail Orders that cannot be segregated from Retail Orders due to 
systems limitations. In this regard, a Member would need to retain, in 
its books and records, adequate substantiation that substantially all 
orders sent to the Exchange as Retail Orders met the strict definition 
and that those orders not meeting the strict definition are agency 
orders that cannot be segregated from Retail Orders due to system 
limitations, and are de minimis in terms of the overall number of 
Retail Orders sent to the Exchange.\16\
---------------------------------------------------------------------------

    \16\ FINRA, on behalf of the Exchange, will review a Member's 
compliance with these requirements.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\17\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\18\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, and to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f.
    \18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change promotes just 
and equitable principles of trade and removes impediments to and 
perfects the mechanism of a free and open market and a national market 
system because it would communicate to market participants that 
significant safeguards are in place to protect the integrity of the 
retail order flow and codify that it is the Member's duty to ensure its 
supervisory procedures are reasonably designed to assure designated 
Retail Orders it receives from a broker-dealer customer meet the 
definition of a Retail Order. As part of this duty, a Member must (i) 
obtain an annual written representation from each broker-dealer 
customer that sends it orders to be designated as Retail Orders that 
entry of such orders as Retail Orders will be in compliance with the 
requirements specified by the Exchange, and (ii) monitor whether its 
broker-dealer customer's Retail Order flow continues to meet the 
applicable requirements. The Exchange notes that this duty was 
communicated in a previous filing submitted to the Commission by the 
Exchange, and that the purpose of this filing is to increase 
transparency by codifying such duty in the Exchange's fee schedule, 
with the exception of the requirement that the form be acceptable to 
the Exchange.\19\ The Exchange's elimination of the requirement that 
the form be acceptable to the Exchange provides Members additional 
flexibility to structure their written supervisory procedures in a way 
that best suits each individual Member.\20\ The proposed language to be 
added to Footnote 4 of the Exchange's fee schedule defines the criteria 
for Members to meet to comply with the ``Retail Order'' definition if 
they represent Retail Orders from another broker-dealer customer. In 
addition, Footnote 4 provides criteria for all Members to meet to 
satisfy the ``Retail Order'' definition.\21\ Subsequent to the proposed 
rule change, the Exchange notes that the text of Footnote 4 regarding 
the attestation requirement would read as follows:
---------------------------------------------------------------------------

    \19\ See Securities Exchange Act Release No. 68310 (November 28, 
2012), 77 FR 71860 (December 4, 2012) (SR-EDGX-2012-47).
    \20\ The Exchange notes that Members will continue to be 
required to submit to the Exchange an attestation in a form 
acceptable to the Exchange regarding their own retail order flow.
    \21\ The Exchange notes that Members must continue to submit a 
signed written attestation, in a form prescribed by the Exchange, 
that they have implemented policies and procedures that are 
reasonably designed to ensure that every order[sic] designated by 
the Member as a ``Retail Order'' complies with the definition of a 
Retail Order, as provided in Footnote 4 on the Exchange's fee 
schedule.

    If the Member represents Retail Orders from another broker-
dealer customer, the Member's supervisory procedures must be 
reasonably designed to assure that the orders it receives from such 
broker dealer customer that it designates as Retail Orders meet the 
definition of a Retail Order. The Member must (i) obtain an annual 
written representation from each broker-dealer customer that sends 
it orders to be designated as Retail Orders that entry of such 
orders as Retail Orders will be in compliance with the requirements 
specified by the Exchange, and (ii) monitor whether its broker-
dealer customer's Retail Order flow continues to meet the applicable 
---------------------------------------------------------------------------
requirements.

    Members must ensure that their broker-dealer customers comply with 
the requirements in Footnote 4 of the Exchange's fee schedule so that 
Members themselves can comply with the supervisory procedure 
requirement also in Footnote 4 of the Exchange's fee schedule. The 
Exchange does not believe it needs to prescribe the exact form to be 
used between its Members and their broker/dealer customers as it wishes 
to provide Members additional flexibility to structure their written 
supervisory procedures in a way that is appropriate, taking into 
consideration Members' varying business models. To ensure the continued 
integrity of the retail order flow submitted to the Exchange, FINRA, on 
behalf of the Exchange pursuant to Exchange Rule 13.7, examines 
Members' supervisory procedures to determine whether such procedures 
adequately comply with the Exchange's retail order designation 
requirements. If FINRA were to determine that a Member's supervisory 
procedures were inadequate, such Member would be subject to the 
disciplinary procedures of the Exchange.\22\ The Exchange bears 
ultimate responsibility for FINRA's actions as FINRA acts as an agent 
of the Exchange in its role as regulatory service provider. Therefore, 
the Exchange believes it is not necessary to dictate the form of the 
required annual written representation so long as it

[[Page 39423]]

sufficiently ensures the integrity of the retail order flow sent to the 
Exchange.
---------------------------------------------------------------------------

    \22\ As described in Chapter VIII of the Exchange's Rules.
---------------------------------------------------------------------------

    Such procedures are designed to promote just and equitable 
principles of trade and removes impediments to and perfect the 
mechanism of a free and open market and a national market system 
because they provide a backstop that would ensure the integrity of the 
retail order flow sent to the Exchange.
    The Exchange believes that the proposed change would protect 
investors and the public interest by making more transparent the 
requirements for Members surrounding broker-dealer customers of Members 
that plan to utilize Retail Orders and codify the supervisory duty of 
the Member to ensure such customers abide by the requirements of Retail 
Orders, thus promoting the integrity of the retail order flow sent to 
the Exchange and acting as a deterrent to prevent potential abuse of 
the Retail Order designation. Accordingly, the proposed amendment to 
the requirements for Retail Orders would contribute to investors' 
confidence in the fairness of their transactions, prompting investors 
to send more retail order flow to the Exchange, which would 
subsequently benefit all investors by deepening the Exchange's 
liquidity pool, supporting the quality of price discovery and promoting 
market transparency.
    The Exchange believes that its proposal to amend Footnote 4 of its 
fee schedule to provide that a Member may attest that ``substantially 
all'' of the orders it submits to the Exchange qualify as Retail Orders 
is designed to prevent fraudulent and manipulative acts and practices 
because, while the proposed rule change represents a relaxation of the 
attestation requirements, the change is a de minimis relaxation that 
still requires the Member to attest that ``substantially all'' of its 
orders will qualify as Retail Orders. This de minimis relaxation will 
allow enough flexibility to accommodate system limitations while still 
ensuring that only a fractional amount of orders submitted as Retail 
Orders would not qualify as Retail Orders.
    The Exchange believes that the proposed rule change promotes just 
and equitable principles of trade because it will ensure that similarly 
situated Members who have only slight differences in the capability of 
their systems will be able to equally benefit from Retail Orders.
    The Exchange believes that the proposed rule change will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it will allow Members, who are 
concerned about its system limitations not allowing 100% certification 
that submitted orders are Retail Orders, to still utilize Retail 
Orders. By removing impediments to the characterizing of orders as 
Retail Orders, the proposed change would permit expanded access of 
Members and their retail customers to the potential rebate and tiered 
pricing offered to Retail Orders (Flag ZA and the Retail Tier in 
Footnote 4 of the Exchange's fee schedule).
    In addition, the Exchange notes that the proposed amendment will 
render the Exchange's definition closer to the definitions utilized by 
the Exchange's competitors.\23\
---------------------------------------------------------------------------

    \23\ See Securities Exchange Act Release No. 69513 (May 3, 
2013), 78 FR 27261 (May 9, 2013) (SR-NYSE-2013-08) (SR-NYSEMKT-2013-
07); Securities Exchange Act Release No. 69719 (June 7, 2013), 78 FR 
35656 (June 13, 2013) (SR-NASDAQ-2013-031); Securities Exchange Act 
Release No. 69643 (May 28, 2013), 78 FR 33136 (June 3, 2013) (SR-
BYX-2013-008).
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    The Exchange believes that the proposed amendment to Footnote 4 of 
the Exchange's fee schedule would not burden intramarket competition 
because the ability to submit Retail Orders would continue to be open 
to all Members that wish to send Retail Orders to the Exchange, 
including those that represent Retail Orders from another broker-dealer 
customer, requiring an attestation, as described above.
    The Exchange believes that the proposed amendment would not burden 
intermarket competition because the proposed amendment is similar to 
that utilized by other market centers.\24\ This amendment would 
increase transparency and promote the integrity of the retail order 
flow sent to the Exchange, which would stimulate Members to send more 
retail order flow to the Exchange and thereby allow more Members to 
achieve an enhanced rebate for such flow.
---------------------------------------------------------------------------

    \24\ The Exchange notes that its proposed language differs from 
that used by other exchanges in that the Exchange proposes to delete 
the requirement that the annual written representation submitted by 
a broker-dealer customer to a Member be in a form acceptable to the 
Exchange. See, e.g., NYSE Rule 107C(b)(6); BATS BYX Rule 
11.24(b)(6); and NASDAQ Rule 4780(b)(6). The Exchange notes that 
NYSE Arca currently has substantially similar language in their 
Retail Order Tier Form to that used by BATS and NYSE in their 
rulebooks. NYSE Arca, NYSE Arca Membership Forms, http://usequities.nyx.com/sites/usequities.nyx.com/files/arca_retail_order_tier_form_nov_2012.pdf.
---------------------------------------------------------------------------

    The Exchange does not believe that the proposed amendment to the 
definition of Retail Order will impose any burden on competition that 
is not necessary or appropriate in furtherance of the purposes of the 
Act. The Exchange believes that the proposed amendment, by increasing 
the level of participation of Retail Orders, would increase the level 
of competition around retail executions such that retail investors 
would receive better prices than they currently do on the Exchange and 
potentially through bilateral internalization arrangements. The 
Exchange believes that the transparency and competitiveness of allowing 
Retail Orders on an exchange market would result in better prices for 
retail investors, and benefits retail investors by expanding the 
capabilities of exchanges to encompass practices currently allowed on 
non-exchange venues.

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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \25\ and Rule 19b-4(f)(6) 
thereunder.\26\
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its intent to file the proposed rule change, 
along with a brief description and text of the proposed rule change, 
at least five business days prior to the date of filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has met this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The

[[Page 39424]]

Exchange has asked the Commission to waive the 30-day operative delay 
so that the proposal may become operative immediately upon filing. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because the proposed rule change is a limited and sufficiently defined 
modification to the current attestation requirement or provides 
additional transparency to the Exchange's Members regarding the usage 
of Retail Orders on the Exchange.\27\ Accordingly, the Commission 
hereby grants the Exchange's request and designates the proposal 
operative upon filing.
---------------------------------------------------------------------------

    \27\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please 
include File Number SR-EDGX-2013-20 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-EDGX-2013-20. 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 (http://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-EDGX-2013-20 and should be 
submitted on or before July 22, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
---------------------------------------------------------------------------

    \28\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-15661 Filed 6-28-13; 8:45 am]
BILLING CODE 8011-01-P