Self-Regulatory Organizations; EDGX Exchange, Inc.; Order Approving a Proposed Rule Change Relating to the EDGX Exchange, Inc.'s Routing Broker Dealer, as Described in EDGX Rule 2.12(b), 40225-40227 [2013-15914]
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Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Notices
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 9 and
subparagraph (f)(6) of Rule 19b–4
thereunder.10
A proposed rule change filed under
Rule 19b–4(f)(6) normally does not
become operative for 30 days after the
date of filing.11 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.12 The
Exchange has requested that the
Commission waive the 30-day operative
delay so that the Exchange can establish
this process prior to the Russell
Reconstitution on June 28, 2013 and
notes that there is significant benefit to
investors from providing certainty prior
to that date. The Commission believes
that the waiver of the 30-day operative
delay is consistent with the protection
of investors and the public interest
because the proposed rule will provide
certainty regarding the contingency
procedures to market participants prior
to the date of the Russell Reconstitution.
Therefore, the Commission designates
the proposal operative upon filing.13
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: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) 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
9 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
11 17 CFR 240.19b–4(f)(6)(iii).
12 Id.
13 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
emcdonald on DSK67QTVN1PROD with NOTICES
10 17
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• Send an email to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2013–090 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–NASDAQ–2013–090. This
file number should be included on the
subject line if email is used.
To help the Commission process and
review your comments more efficiently,
please use only one method. The
Commission will post all comments on
the Commission’s Internet Web site
(https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
offices of NASDAQ. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NASDAQ–2013–090, and should be
submitted on or before July 24, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–15931 Filed 7–2–13; 8:45 am]
BILLING CODE 8011–01–P
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CFR 200.30–3(a)(12).
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40225
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69870; File No. SR–EDGX–
2013–17]
Self-Regulatory Organizations; EDGX
Exchange, Inc.; Order Approving a
Proposed Rule Change Relating to the
EDGX Exchange, Inc.’s Routing Broker
Dealer, as Described in EDGX Rule
2.12(b)
June 27, 2013.
I. Introduction
On May 16, 2013, EDGX Exchange,
Inc. (‘‘EDGX’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to make permanent the existing
pilot program that permits the
Exchange’s inbound router, as described
in Rule 2.12(b), to receive inbound
routes of equities orders through Direct
Edge ECN LLC d/b/a DE Route (‘‘DE
Route’’), the Exchange’s routing broker
dealer, from EDGA Exchange, Inc.
(‘‘EDGA’’). The proposed rule change
was published for comment in the
Federal Register on May 28, 2013.3 The
Commission received no comment
letters regarding the proposed rule
change. This order approves the
proposed rule change.
II. Background
DE Route is a registered broker-dealer
that is a member of the Exchange and
is permitted to provide members of
EDGA optional routing services to other
trading centers.4 DE Route is owned by
Direct Edge Holdings LLC (‘‘DE
Holdings’’). DE Holdings also owns two
registered securities exchanges—the
Exchange and EDGA.5 Thus, DE Route
is an affiliate of the Exchange and
EDGA.6
On May 12, 2010, the Commission
approved the Exchange’s application for
registration as a national securities
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 69614
(May 21, 2013), 78 FR 31994 (‘‘Notice’’).
4 DE operates as a facility of EDGA that provides
outbound routing from EDGA to other trading
centers, subject to certain conditions. See Securities
Exchange Act Release No. 61698 (March 12, 2010),
75 FR 13151 (March 18, 2010) (File No. 10–194 and
10–196) (order granting the exchange registration of
EDGA and EDGX.) (‘‘Exchange Registration
Approval Order’’).
5 See id.
6 See Exchange Registration Approval Order, 75
FR at 13165 n.219 and accompanying text.
2 17
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Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Notices
exchange.7 As part of the approval, the
Exchange was approved to receive
inbound routes of orders that DE Route
routes in its capacity as a facility of
EDGA on a pilot basis for 12 months.8
The pilot was originally set to expire on
July 1, 2011, but was subsequently
extended and is currently set to expire
on June 30, 2013.9 The Exchange now
seeks permanent approval of this
inbound routing pilot.10
emcdonald on DSK67QTVN1PROD with NOTICES
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange.11 Specifically, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(1) of the Act,12 which requires,
among other things, that a national
securities exchange be so organized and
have the capacity to carry out the
purposes of the Act, and to comply and
enforce compliance by its members and
persons associated with its members,
with the provisions of the Act, the rules
and regulation thereunder, and the rules
of the Exchange. Further, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,13 which requires,
among other things, that the rules of a
national securities exchange be
designed to prevent fraudulent and
manipulative acts and practices; to
promote just and equitable principles of
trade; to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, and
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.
Section 6(b)(5) also requires that the
rules of an exchange not be designed to
permit unfair discrimination among
customers, issuers, brokers, or dealers.
Recognizing that the Commission has
previously expressed concern regarding
7 See Exchange Registration Approval Order, 75
FR 13151.
8 See id.
9 See Securities Exchange Act Release Nos. 64361
(April 28, 2011), 76 FR 25388 (May 4, 2011) (SR–
EDGX–2011–12); and 66644 (March 22, 2012), 77
FR 18877 (March 28, 2012) (SR–EDGX–2012–09).
10 See Notice, 78 FR 31996.
11 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition and capital
formation. 15 U.S.C. 78c(f).
12 15 U.S.C. 78f(b)(1).
13 15 U.S.C. 78f(b)(5).
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the potential for conflicts of interest in
instances where a member firm is
affiliated with an exchange to which it
is routing orders, the Exchange
previously implemented limitations and
conditions to DE Route’s affiliation with
the Exchange to permit the Exchange to
accept inbound orders that DE Route
routes in its capacity as a facility of
EDGA, on a pilot basis.14 The Exchange
now seeks to make this pilot permanent,
subject to the same limitation and
conditions. Specifically, the Exchange
committed to the following limitations
and conditions: 15
• The Exchange shall enter into a
plan pursuant to Rule 17d–2 under the
Exchange Act with a non-affiliated selfregulatory organization (‘‘SRO’’) to
relieve the Exchange of regulatory
responsibilities for DE Route with
respect to rules that are common rules
between the Exchange and the nonaffiliated SRO, and enter into a
regulatory contract (‘‘Regulatory
Contract’’) with a non-affiliated SRO to
perform regulatory responsibilities for
DE Route for unique Exchange rules.
• The Regulatory Contract shall
require the Exchange to provide the
non-affiliated SRO with information, in
an easily accessible manner, regarding
all exception reports, alerts, complaints,
trading errors, cancellations,
investigations, and enforcement matters
(collectively ‘‘Exceptions’’) in which DE
Route is identified as a participant that
has potentially violated Exchange or
Commission Rules, and shall require
that the non-affiliated SRO provide a
report, at least quarterly, to the
Exchange quantifying all Exceptions in
which DE Route is identified as a
participant that has potentially violated
Exchange or Commission Rules.
• The Exchange, on behalf of DE
Holdings, shall establish and maintain
procedures and internal controls
reasonably designed to ensure that DE
Route does not develop or implement
changes to its system on the basis of
non-public information regarding
planned changes to Exchange systems,
obtained as a result of its affiliation with
the Exchange, until such information is
available generally to similarly situated
members of the Exchange in connection
with the provision of inbound order
routing to the Exchange.16
The Exchange states that is has
complied with the above-listed
conditions during the pilot.17 The
Exchange believes that by meeting such
14 See Exchange Registration Approval Order, 75
FR at 13165–13166.
15 See Notice, 78 FR at 31995.
16 The Commission notes that this condition is set
forth in EDGX Rule 2.12(a)(3).
17 See Notice, 78 FR at 31995.
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conditions it has set up mechanisms
that protect the independence of the
Exchange’s regulatory responsibility
with respect to DE Route, and has
demonstrated that DE Route cannot use
any information that it may have
because of its affiliation with the
Exchange to its advantage.18
In the past, the Commission has
expressed concern that the affiliation of
an exchange with one of its members
raises potential conflicts of interest, and
the potential for unfair competitive
advantage.19 Although the Commission
continues to be concerned about
potential unfair competition and
conflicts of interest between an
exchange’s self-regulatory obligations
and its commercial interest when the
exchange is affiliated with one of its
members, for the reasons discussed
below, the Commission believes that it
is consistent with the Act to permit DE
Route, in its capacity as a facility of
EDGA, to provide inbound routing to
the Exchange on a permanent basis
instead of a pilot basis, subject to the
other conditions described above.20
The Exchange has proposed ongoing
conditions applicable to DE Route’s
inbound routing activities in its capacity
18 See
id.
e.g., Securities Exchange Act Release Nos.
54170 (July 18, 2006), 71 FR 42149 (July 25, 2006)
(SR–NASDAQ–2006–006) (order approving
Nasdaq’s proposal to adopt Nasdaq Rule 2140,
restricting affiliations between Nasdaq and its
members); 53382 (February 27, 2006), 71 FR 11251
(March 6, 2006) (SR–NYSE–2005–77) (order
approving the combination of the New York Stock
Exchange, Inc. and Archipelago Holdings, Inc.);
58673 (September 29, 2008), 73 FR 57707 (October
8, 2008) (SR–Amex–2008–62) (order approving the
combination of NYSE Euronext and the American
Stock Exchange LLC); 59135 (December 22, 2008),
73 FR 79954 (December 30, 2008) (SR–ISE–2009–
85) (order approving the purchase by ISE Holdings
of an ownership interest in DirectEdge Holdings
LLC); and 59281 (January 22, 2009), 74 FR 5014
(January 28, 2009) (SR–NYSE–2008–120) (order
approving a joint venture between NYSE and BIDS
Holdings L.P.); 58375 (August 18, 2008), 73 FR
49498 (August 21, 2008) (File No. 10–182) (order
granting the exchange registration of BATS
Exchange, Inc.); 61698 (March 12, 2010), 75 FR
13151 (March 18, 2010) (File Nos. 10–194 and 10–
196) (order granting the exchange registration of
EDGX Exchange, Inc. and EDGA Exchange, Inc.);
and 62716 (August 13, 2010), 75 FR 51295 (August
19, 2010) (File No. 10–198) (order granting the
exchange registration of BATS–Y Exchange, Inc.).
20 The Commission notes that these limitations
and conditions are consistent with those previously
approved by the Commission for other exchanges.
See, e.g., Securities Exchange Act Release Nos.
64090 (March 17, 2011), 76 FR 16462 (March 23,
2011) (SR–BX–2011–007); 66808 (April 13, 2012),
77 FR 23294 (April 18, 2012) (SR–BATS–2012–
013); 66807 (April 13, 2012), 77 FR 23300 (April 18,
2012) (SR–BYX–2012–006); 67256 (June 26, 2012)
77 FR 39277 (July 2, 2012) (SR–BX–2012–030);
69233 (March 25, 2013), 78 FR 19352 (March 29,
2013) (SR–NASDAQ–2013–028); 69232 (March 25,
2013), 78 FR 19342 (March 29, 2013) (SR–BX–
2013–013); and 69229 (March 25, 2013), 78 FR
19337 (March 29, 2013) (SR–Phlx–2013–15).
19 See,
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Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Notices
as a facility of EDGA, which are
enumerated above. The Commission
believes that these conditions mitigate
its concerns about potential conflicts of
interest and unfair competitive
advantage. In particular, the
Commission believes that a nonaffiliated SRO’s oversight of DE Route,21
combined with a non-affiliated SRO’s
monitoring of DE Route’s compliance
with the Exchange’s rules and quarterly
reporting to the Exchange, will help to
protect the independence of the
Exchange’s regulatory responsibilities
with respect to DE Route. The
Commission also believes that the
Exchange’s Rule 2.12(a)(3) is designed
to ensure that DE Route cannot use any
information advantage it may have
because of its affiliation with the
Exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,22 that the
proposed rule change (SR–EDGX–2013–
17) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–15914 Filed 7–2–13; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–69875; File No. SR–EDGX–
2013–23]
Self-Regulatory Organizations; EDGX
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend EDGX Rule
11.5(c), NBBO Offset Peg Order
emcdonald on DSK67QTVN1PROD with NOTICES
June 27, 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 24,
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
oversight will be accomplished through a
17d–2 Agreement. See Approval Order, 75 FR at
13165; and Notice, 78 FR at 31995.
22 15 U.S.C. 78s(b)(2).
23 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 11.5(c), which describes the
manner in which the NBBO Offset Peg
Order operates. 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
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
21 This
solicit comments on the proposed rule
change from interested persons.
1. Purpose
The Exchange proposes to amend
Rule 11.5(c)(15), the NBBO Offset Peg
Order, to state that the order type will:
(1) Only be eligible for execution once
the Market Maker quoting obligations
under Rule 11.21(d) are triggered; (2)
not be repriced when it would establish
the National Best Bid or Offer
(‘‘NBBO’’); and (3) delay the
implementation date of the order type
[sic] from April 15, 2013 to no later than
October 31, 2013.
On September 25, 2012, the Exchange
filed for immediate effectiveness a
proposed rule change to adopt the
NBBO Offset Peg Order.3 The NBBO
Offset Peg Order will enable Users 4 to
submit buy and sell orders to the
Exchange that are pegged to a
designated percentage away from the
3 See Securities Exchange Act Release No. 67959
(October 2, 2012), 77 FR 61449 (October 9, 2012)
(SR–EDGX–2012–44) (notice of filing and
immediate effectiveness of the proposal to adopt the
NBBO Offset Peg Order) (‘‘EDGX Adopting
Release’’).
4 ‘‘User’’ is defined as ‘‘any Member or Sponsored
Participant who is authorized to obtain access to the
System pursuant to Rule 11.3.’’ EDGX Rule 1.5(ee).
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Frm 00139
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40227
NBB and NBO, respectively, while
providing them full control over order
origination and order marking.5 This
retention of control, in turn, is designed
to allow Market Makers 6 to comply
independently with the requirements of
Regulation SHO 7 under the Act and
Rule 15c3–5 8 under the Act (the
‘‘Market Access Rule’’). The Exchange
subsequently amended the text of Rule
11.5(c)(15) to remove the ability of Users
to cancel or reject NBBO Offset Peg
Orders under certain circumstances.9
When is a NBBO offset peg order
eligible for execution?
First, the Exchange proposes that the
NBBO Offset Peg Order will only be
eligible for execution once the Market
Maker quoting obligations under Rule
11.21(d) are triggered. Currently, Rule
11.5(c)(15) allows Users to submit
NBBO Offset Peg Orders at the
beginning of the Pre-Opening Session,10
but states that the order is not
executable or automatically priced until
the beginning of Regular Trading
Hours.11 However, a Market Maker’s
quoting obligations under Rule 11.21(d)
do not commence during any trading
day until after the first regular way
transaction on the primary listing
market in the security as reported by the
responsible single plan processor.12
Such a transaction may not occur until
after the start of Regular Trading Hours.
Therefore, the Exchange proposes to
amend the text of Rule 11.5(c)(15) to
state that an NBBO Offset Peg Order is
not executable until after the first
regular way transaction on the primary
listing market in the security, as
reported by the responsible single plan
5 See
EDGX Rule 11.5(c)(15).
Maker’’ is defined as ‘‘a Member that
acts as a Market Maker pursuant to Chapter XI.’’
EDGX Rule 1.5(l).
7 17 CFR 242.200 through 242.204.
8 17 CFR 242.15c3–5.
9 See Securities Exchange Act Release No. 68596
(January 7, 2013), 78 FR 2477 (January 11, 2013)
(SR–EDGX–2012–49) (notice of filing and
immediate effectiveness).
10 ‘‘Pre-Opening Session’’ is defined as ‘‘the time
between 8:00 a.m. and 9:30 a.m. Eastern Time.’’
EDGX Rule 1.5(s).
11 ‘‘Regular Trading Hours’’ is defined as ‘‘the
time between 9:30 a.m. and 4:00 p.m. Eastern
Time.’’ EDGX Rule 1.5(y).
12 Under Exchange Rule 11.21(d)(2), the pricing
obligations for Market Makers ‘‘(i) shall not
commence during any trading day until after the
first regular way transaction on the primary listing
market in the security, as reported by the
responsible single plan processor, and (ii) shall be
suspended during a trading halt, suspension, or
pause, and shall not re-commence until after the
first regular way transaction on the primary listing
market in the security following such halt,
suspension, or pause, as reported by the responsible
single plan processor.’’ Securities Exchange Act
Release No. 65964 (December 15, 2011), 76 FR
79254 (December 21, 2011) (order approving SR–
EDGX–2011–28).
6 ‘‘Market
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]]>Agencies
[Federal Register Volume 78, Number 128 (Wednesday, July 3, 2013)]
[Notices]
[Pages 40225-40227]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15914]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69870; File No. SR-EDGX-2013-17]
Self-Regulatory Organizations; EDGX Exchange, Inc.; Order
Approving a Proposed Rule Change Relating to the EDGX Exchange, Inc.'s
Routing Broker Dealer, as Described in EDGX Rule 2.12(b)
June 27, 2013.
I. Introduction
On May 16, 2013, EDGX Exchange, Inc. (``EDGX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
make permanent the existing pilot program that permits the Exchange's
inbound router, as described in Rule 2.12(b), to receive inbound routes
of equities orders through Direct Edge ECN LLC d/b/a DE Route (``DE
Route''), the Exchange's routing broker dealer, from EDGA Exchange,
Inc. (``EDGA''). The proposed rule change was published for comment in
the Federal Register on May 28, 2013.\3\ The Commission received no
comment letters regarding the proposed rule change. This order approves
the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 69614 (May 21,
2013), 78 FR 31994 (``Notice'').
---------------------------------------------------------------------------
II. Background
DE Route is a registered broker-dealer that is a member of the
Exchange and is permitted to provide members of EDGA optional routing
services to other trading centers.\4\ DE Route is owned by Direct Edge
Holdings LLC (``DE Holdings''). DE Holdings also owns two registered
securities exchanges--the Exchange and EDGA.\5\ Thus, DE Route is an
affiliate of the Exchange and EDGA.\6\
---------------------------------------------------------------------------
\4\ DE operates as a facility of EDGA that provides outbound
routing from EDGA to other trading centers, subject to certain
conditions. See Securities Exchange Act Release No. 61698 (March 12,
2010), 75 FR 13151 (March 18, 2010) (File No. 10-194 and 10-196)
(order granting the exchange registration of EDGA and EDGX.)
(``Exchange Registration Approval Order'').
\5\ See id.
\6\ See Exchange Registration Approval Order, 75 FR at 13165
n.219 and accompanying text.
---------------------------------------------------------------------------
On May 12, 2010, the Commission approved the Exchange's application
for registration as a national securities
[[Page 40226]]
exchange.\7\ As part of the approval, the Exchange was approved to
receive inbound routes of orders that DE Route routes in its capacity
as a facility of EDGA on a pilot basis for 12 months.\8\ The pilot was
originally set to expire on July 1, 2011, but was subsequently extended
and is currently set to expire on June 30, 2013.\9\ The Exchange now
seeks permanent approval of this inbound routing pilot.\10\
---------------------------------------------------------------------------
\7\ See Exchange Registration Approval Order, 75 FR 13151.
\8\ See id.
\9\ See Securities Exchange Act Release Nos. 64361 (April 28,
2011), 76 FR 25388 (May 4, 2011) (SR-EDGX-2011-12); and 66644 (March
22, 2012), 77 FR 18877 (March 28, 2012) (SR-EDGX-2012-09).
\10\ See Notice, 78 FR 31996.
---------------------------------------------------------------------------
III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\11\ Specifically, the Commission finds that the proposed rule
change is consistent with Section 6(b)(1) of the Act,\12\ which
requires, among other things, that a national securities exchange be so
organized and have the capacity to carry out the purposes of the Act,
and to comply and enforce compliance by its members and persons
associated with its members, with the provisions of the Act, the rules
and regulation thereunder, and the rules of the Exchange. Further, the
Commission finds that the proposed rule change is consistent with
Section 6(b)(5) of the Act,\13\ which requires, among other things,
that the rules of a national securities exchange be designed to prevent
fraudulent and manipulative acts and practices; to promote just and
equitable principles of trade; to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, and 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. Section 6(b)(5) also
requires that the rules of an exchange not be designed to permit unfair
discrimination among customers, issuers, brokers, or dealers.
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\11\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition and
capital formation. 15 U.S.C. 78c(f).
\12\ 15 U.S.C. 78f(b)(1).
\13\ 15 U.S.C. 78f(b)(5).
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Recognizing that the Commission has previously expressed concern
regarding the potential for conflicts of interest in instances where a
member firm is affiliated with an exchange to which it is routing
orders, the Exchange previously implemented limitations and conditions
to DE Route's affiliation with the Exchange to permit the Exchange to
accept inbound orders that DE Route routes in its capacity as a
facility of EDGA, on a pilot basis.\14\ The Exchange now seeks to make
this pilot permanent, subject to the same limitation and conditions.
Specifically, the Exchange committed to the following limitations and
conditions: \15\
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\14\ See Exchange Registration Approval Order, 75 FR at 13165-
13166.
\15\ See Notice, 78 FR at 31995.
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The Exchange shall enter into a plan pursuant to Rule 17d-
2 under the Exchange Act with a non-affiliated self-regulatory
organization (``SRO'') to relieve the Exchange of regulatory
responsibilities for DE Route with respect to rules that are common
rules between the Exchange and the non-affiliated SRO, and enter into a
regulatory contract (``Regulatory Contract'') with a non-affiliated SRO
to perform regulatory responsibilities for DE Route for unique Exchange
rules.
The Regulatory Contract shall require the Exchange to
provide the non-affiliated SRO with information, in an easily
accessible manner, regarding all exception reports, alerts, complaints,
trading errors, cancellations, investigations, and enforcement matters
(collectively ``Exceptions'') in which DE Route is identified as a
participant that has potentially violated Exchange or Commission Rules,
and shall require that the non-affiliated SRO provide a report, at
least quarterly, to the Exchange quantifying all Exceptions in which DE
Route is identified as a participant that has potentially violated
Exchange or Commission Rules.
The Exchange, on behalf of DE Holdings, shall establish
and maintain procedures and internal controls reasonably designed to
ensure that DE Route does not develop or implement changes to its
system on the basis of non-public information regarding planned changes
to Exchange systems, obtained as a result of its affiliation with the
Exchange, until such information is available generally to similarly
situated members of the Exchange in connection with the provision of
inbound order routing to the Exchange.\16\
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\16\ The Commission notes that this condition is set forth in
EDGX Rule 2.12(a)(3).
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The Exchange states that is has complied with the above-listed
conditions during the pilot.\17\ The Exchange believes that by meeting
such conditions it has set up mechanisms that protect the independence
of the Exchange's regulatory responsibility with respect to DE Route,
and has demonstrated that DE Route cannot use any information that it
may have because of its affiliation with the Exchange to its
advantage.\18\
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\17\ See Notice, 78 FR at 31995.
\18\ See id.
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In the past, the Commission has expressed concern that the
affiliation of an exchange with one of its members raises potential
conflicts of interest, and the potential for unfair competitive
advantage.\19\ Although the Commission continues to be concerned about
potential unfair competition and conflicts of interest between an
exchange's self-regulatory obligations and its commercial interest when
the exchange is affiliated with one of its members, for the reasons
discussed below, the Commission believes that it is consistent with the
Act to permit DE Route, in its capacity as a facility of EDGA, to
provide inbound routing to the Exchange on a permanent basis instead of
a pilot basis, subject to the other conditions described above.\20\
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\19\ See, e.g., Securities Exchange Act Release Nos. 54170 (July
18, 2006), 71 FR 42149 (July 25, 2006) (SR-NASDAQ-2006-006) (order
approving Nasdaq's proposal to adopt Nasdaq Rule 2140, restricting
affiliations between Nasdaq and its members); 53382 (February 27,
2006), 71 FR 11251 (March 6, 2006) (SR-NYSE-2005-77) (order
approving the combination of the New York Stock Exchange, Inc. and
Archipelago Holdings, Inc.); 58673 (September 29, 2008), 73 FR 57707
(October 8, 2008) (SR-Amex-2008-62) (order approving the combination
of NYSE Euronext and the American Stock Exchange LLC); 59135
(December 22, 2008), 73 FR 79954 (December 30, 2008) (SR-ISE-2009-
85) (order approving the purchase by ISE Holdings of an ownership
interest in DirectEdge Holdings LLC); and 59281 (January 22, 2009),
74 FR 5014 (January 28, 2009) (SR-NYSE-2008-120) (order approving a
joint venture between NYSE and BIDS Holdings L.P.); 58375 (August
18, 2008), 73 FR 49498 (August 21, 2008) (File No. 10-182) (order
granting the exchange registration of BATS Exchange, Inc.); 61698
(March 12, 2010), 75 FR 13151 (March 18, 2010) (File Nos. 10-194 and
10-196) (order granting the exchange registration of EDGX Exchange,
Inc. and EDGA Exchange, Inc.); and 62716 (August 13, 2010), 75 FR
51295 (August 19, 2010) (File No. 10-198) (order granting the
exchange registration of BATS-Y Exchange, Inc.).
\20\ The Commission notes that these limitations and conditions
are consistent with those previously approved by the Commission for
other exchanges. See, e.g., Securities Exchange Act Release Nos.
64090 (March 17, 2011), 76 FR 16462 (March 23, 2011) (SR-BX-2011-
007); 66808 (April 13, 2012), 77 FR 23294 (April 18, 2012) (SR-BATS-
2012-013); 66807 (April 13, 2012), 77 FR 23300 (April 18, 2012) (SR-
BYX-2012-006); 67256 (June 26, 2012) 77 FR 39277 (July 2, 2012) (SR-
BX-2012-030); 69233 (March 25, 2013), 78 FR 19352 (March 29, 2013)
(SR-NASDAQ-2013-028); 69232 (March 25, 2013), 78 FR 19342 (March 29,
2013) (SR-BX-2013-013); and 69229 (March 25, 2013), 78 FR 19337
(March 29, 2013) (SR-Phlx-2013-15).
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The Exchange has proposed ongoing conditions applicable to DE
Route's inbound routing activities in its capacity
[[Page 40227]]
as a facility of EDGA, which are enumerated above. The Commission
believes that these conditions mitigate its concerns about potential
conflicts of interest and unfair competitive advantage. In particular,
the Commission believes that a non-affiliated SRO's oversight of DE
Route,\21\ combined with a non-affiliated SRO's monitoring of DE
Route's compliance with the Exchange's rules and quarterly reporting to
the Exchange, will help to protect the independence of the Exchange's
regulatory responsibilities with respect to DE Route. The Commission
also believes that the Exchange's Rule 2.12(a)(3) is designed to ensure
that DE Route cannot use any information advantage it may have because
of its affiliation with the Exchange.
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\21\ This oversight will be accomplished through a 17d-2
Agreement. See Approval Order, 75 FR at 13165; and Notice, 78 FR at
31995.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\22\ that the proposed rule change (SR-EDGX-2013-17) be, and hereby
is, approved.
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\22\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-15914 Filed 7-2-13; 8:45 am]
BILLING CODE 8011-01-P
