Self-Regulatory Organizations; EDGA Exchange, Inc.; Order Approving a Proposed Rule Change Relating to the EDGA Exchange, Inc.'s Routing Broker Dealer, as Described in EDGA Rule 2.12(b), 40253-40255 [2013-15915]
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Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Notices
consisting of five members is
sufficiently large to effectively perform
the NYSE Regulation Board’s oversight
responsibilities.8 In addition, with a
Board size of five directors, the
Exchange stated that it believes that
retaining the requirement that at least
two directors must be ‘‘fair
representation candidates’’ is now
unwarranted, because such directors
would constitute 40% of the Board
rather than 20% as was the case when
the number of directors was fixed at ten
members.9
The Exchange represented that the
DCRC of NYSE Regulation is aware of
and is in agreement with the proposed
plan of implementation. The Exchange
also represented that there is otherwise
no change to the fair representation
candidate selection and petition
process.10
The Exchange stated that it believes
that the elimination of the two-director
minimum requirement for fair
representation candidates is consistent
with the governance structures of other
national securities exchanges that have
been approved by the Commission.11
The Exchange pointed out that similar
changes were approved subsequently to
the Commission’s approval of a
structure for the board of NYSE
Alternext US LLC (now NYSE MKT
LLC), an affiliate of the Exchange, that
included a requirement that at least
20% of that exchange’s board constitute
fair representation directors, but
without the requirement that there be no
less than two such directors.12 The
Exchange also noted that, more recently,
the Commission approved a similar
change when it considered a proposal to
revise the Operating Agreement and
Bylaws of the Exchange’s wholly owned
subsidiary, NYSE Market, Inc.13
8 See
Notice, 78 FR at 30379.
id.
10 See Notice, 78 FR at 30379 n.7.
11 See Notice, 78 FR at 30379. The Exchange
noted that, for example, Article III, Section 5(e) of
the By-Laws of the of the NASDAQ Stock Market
LLC (‘‘NASDAQ’’) requires that the Regulatory
Oversight Committee of the NASDAQ Board of
Directors (‘‘NASDAQ ROC’’), which has an
oversight role comparable to that of the NYSE
Regulation Board, must consist of three members,
each of whom must be a ‘‘Public Director’’ (i.e., ‘‘a
Director who has no material business relationship
with a broker or dealer, [NASDAQ] or its affiliates,
or FINRA’’) and an ‘‘independent director’’ as
defined by NASDAQ Marketplace Rule 4200. The
Exchange also noted that there is no requirement
that the NASDAQ ROC have any members who
would be the equivalent of a fair representation
candidate on the NYSE Regulation Board.
12 See Securities Exchange Act Release No. 58673
(September 29, 2008), 73 FR 57707, 57711–12
(October 3, 2008) (SR–Amex–2008–62).
13 Securities Exchange Act Release No. 59683
(April 1, 2009), 74 FR 15799 (April 7, 2009 (SR–
NYSE–2009–12).
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9 See
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III. Discussion and Commission
Findings
The Commission finds that the
proposed rule change is consistent with
the Act and the rules and regulations
thereunder applicable to a national
securities exchange.14 In particular, the
Commission finds that the proposal is
consistent with the requirements of
Section 6(b)(3) of the Act, which
provides that the rules of an exchange
must assure a fair representation of its
members in the selection of its directors
and administration of its affairs and
provide that one or more directors shall
be representative of issuers and
investors and not be associated with a
member of the exchange, broker, or
dealer.15
The fair representation requirement in
Section 6(b)(3) of the Act is intended to
give members a voice in the selection of
the exchange’s directors and the
administration of its affairs. Moreover,
the Section 6(b)(3) requirement helps to
ensure that members are protected from
unfair, unfettered actions by an
exchange and that, in general, an
exchange is administered in a way that
is equitable to all those who trade on its
market or through its facilities. The
Commission notes that the requirement
that at least 20% of the directors on the
NYSE Regulation Board be fair
representation candidates is designed to
ensure the fair representation of NYSE
members on its Board. The Commission
notes that, while the proposal
eliminates the requirement regarding a
specific minimum number of fair
representation candidates on the Board,
it does not alter the minimum 20%
requirement for fair representation
candidates or the process by which
members can directly petition and vote
for representatives on the NYSE
Regulation Board. Moreover, the
Commission notes that the proposal
adds to the NYSE Regulation Bylaws a
provision that whenever 20% of the
Board would not result in a whole
number, such number would in all cases
be rounded up to the nearest whole
number, thus ensuring that the fair
representation candidates never
constitute less than 20% of the Board.
Furthermore, as the Exchange noted, the
proposed change to the NYSE
Regulation Bylaws is consistent with
previous proposals approved by the
Commission.16 The Commission
14 In approving this proposed rule change, the
Commission notes that it has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
15 15 U.S.C. 78f(b)(3).
16 See supra notes 12 and 13 and accompanying
text.
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40253
therefore finds that the Exchange’s
proposal is consistent with Section
6(b)(3) of the Act.17
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,18 that the
proposed rule change (SR–NYSE–2013–
32) is approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–15916 Filed 7–2–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69871; File No. SR–EDGA–
2013–13]
Self-Regulatory Organizations; EDGA
Exchange, Inc.; Order Approving a
Proposed Rule Change Relating to the
EDGA Exchange, Inc.’s Routing Broker
Dealer, as Described in EDGA Rule
2.12(b)
June 27, 2013.
I. Introduction
On May 16, 2013, EDGA Exchange,
Inc. (‘‘EDGA’’ 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 EDGX Exchange, Inc.
(‘‘EDGX’’) . 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
EDGX optional routing services to other
17 15
U.S.C. 78f(b)(3).
U.S.C. 78s(b)(2).
19 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 69613
(May 21, 2013), 78 FR 31996 (‘‘Notice’’).
18 15
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Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Notices
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 EDGX.5 Thus, DE Route
is an affiliate of the Exchange and
EDGX.6
On May 12, 2010, the Commission
approved the Exchange’s application for
registration as a national securities
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
EDGX 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
4 DE operates as a facility of EDGX that provides
outbound routing from EDGX 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.
7 See Exchange Registration Approval Order, 75
FR 13151.
8 See id.
9 See Securities Exchange Act Release Nos. 64362
(April 28, 2011), 76 FR 25386 (May 4, 2011) (SR–
EDGA–2011–13); and 66643 (March 22, 2012), 77
FR 18876 (March 28, 2012) (SR–EDGA–2012–10).
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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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
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
EDGX, 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.
14 See Exchange Registration Approval Order, 75
FR at 13165–13166.
15 See Notice, 78 FR at 31996–31997.
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Fmt 4703
Sfmt 4703
• 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
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
16 The Commission notes that this condition is set
forth in EDGA Rule 2.12(a)(3).
17 See Notice, 78 FR at 31997.
18 See id.
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.).
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Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Notices
Route, in its capacity as a facility of
EDGX, 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
as a facility of EDGX, 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–EDGA–2013–
13) 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. 2013–15915 Filed 7–2–13; 8:45 am]
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BILLING CODE 8011–01–P
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).
21 This oversight will be accomplished through a
17d–2 Agreement. See Approval Order, 75 FR at
13165; and Notice, 78 FR at 31996.
22 15 U.S.C. 78s(b)(2).
23 17 CFR 200.30–3(a)(12).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69884; File No. SR–BYX–
2013–013]
Self-Regulatory Organizations; BATS
Y-Exchange, Inc.; Order Granting
Approval to Proposed Rule Change
Amending and Restating the Amended
and Restated By-Laws of BATS YExchange, Inc.
June 27, 2013.
I. Introduction
On April 29, 2013, BATS Y-Exchange,
Inc. (the ‘‘Exchange’’ or ‘‘BYX’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to amend and restate the
Amended and Restated By-Laws of
BATS Y-Exchange. The proposed rule
change was published for comment in
the Federal Register on May 15, 2013.3
The Commission received no comments
on the proposal. This order approves the
proposed rule change.
II. Description of the Proposal
The Exchange has proposed to amend
and restate its Amended and Restated
By-Laws (the ‘‘Current By-Laws’’) and
adopt these changes as its Second
Amended and Restated By-Laws (the
‘‘New By-Laws’’). The Exchange’s
proposed amendments to the Current
By-Laws include: (i) Providing that the
Board of Directors will consist of four
(4) or more directors, with the board
fixing the actual number of directors
from time to time by resolution of the
Board of Directors rather than fixing the
number of directors in the by-laws; (ii)
clarifying that the existing procedures
for filling vacancies on the Board of
Directors apply only for non-Member
Director Representative Director
positions; (iii) clarifying separate
procedures for filling vacancies on the
Board of Directors for Member
Representative Director positions; and
(iv) adding a new requirement that the
processes for filling any director
vacancies apply to vacancies created as
a result of an increase in the size of the
board.
A. Number of Directors
Article III, Section 2(a) of the
Exchange’s Current By-Laws fixes the
number of directors of the Exchange at
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 69541
(May 8, 2013), 78 FR 28695 (May 15, 2013)
(‘‘Notice’’).
PO 00000
1 15
2 17
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Fmt 4703
Sfmt 4703
40255
ten (10) directors. Article III, Section
2(a) of the New By-Laws would amend
Article III, Section 2(a) to state that the
Board of Directors of the Exchange shall
consist of four (4) or more members, the
number thereof to be determined from
time to time by resolution of the Board
of Directors, subject to the
compositional requirements of the board
set forth in Article III, Section 2(b).
The Current By-Laws and the New
By-Laws require that the Board of
Directors consist of the following: (i)
one (1) director who is the Chief
Executive Officer of the Company; (ii)
representation by Member
Representative Directors of at least
twenty percent (20%) of the board; 4 and
(iii) representation by Non-Industry
Directors (including at least one (1)
Independent Director) that equals or
exceeds the sum of the number of
Industry Directors and Member
Representative Directors.5 Under the
Current By-Laws and the New By-Laws,
the Chief Executive Officer is
considered to be an Industry Director.6
Additionally, under the Current ByLaws and New By-Laws, the Member
Representative Director requirement of
twenty percent (20%) would require the
board to include at least one (1) Member
Representative Director.7 Thus, under
the proposal, the minimum requisite
sum of the number of Industry Directors
and Member Representative Directors
would equal two (2) directors. As such,
under the composition requirements,
the board would also have to include at
least two (2) Non-Industry Directors,
bringing the total minimum size of the
board to four (4) directors.
B. Member Representative Director
Vacancies
A Member Representative Director is
defined in relevant part in Article I of
the Current By-Laws as a Director
‘‘elected by the stockholders after
having been nominated by the Member
Nominating Committee 8 or by an
Exchange Member pursuant to these ByLaws.’’ Article III, Section 4 of the
Current By-Laws in turn specifies the
precise process the Member Nominating
4 The Exchange noted that because the number of
Member Representative Directors must be at least
twenty percent (20%) of the board, it is required
under the Current By-Laws and the New By-Laws
that if twenty percent (20%) of the directors then
serving on the board is not a whole number, such
number of Member Representative Directors must
be rounded up to the next whole number.
5 See Article III, Section 2(b) of the Current ByLaws.
6 See id.
7 See id.
8 See Article VI, Section 3 of the Current By-Laws
for a detailed description of the Member
Nominating Committee and its responsibilities.
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]]>Agencies
[Federal Register Volume 78, Number 128 (Wednesday, July 3, 2013)]
[Notices]
[Pages 40253-40255]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15915]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69871; File No. SR-EDGA-2013-13]
Self-Regulatory Organizations; EDGA Exchange, Inc.; Order
Approving a Proposed Rule Change Relating to the EDGA Exchange, Inc.'s
Routing Broker Dealer, as Described in EDGA Rule 2.12(b)
June 27, 2013.
I. Introduction
On May 16, 2013, EDGA Exchange, Inc. (``EDGA'' 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 EDGX Exchange,
Inc. (``EDGX'') . 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. 69613 (May 21,
2013), 78 FR 31996 (``Notice'').
---------------------------------------------------------------------------
II. Background
DE Route is a registered broker-dealer that is a member of the
Exchange and is permitted to provide members of EDGX optional routing
services to other
[[Page 40254]]
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 EDGX.\5\ Thus, DE Route is an affiliate of
the Exchange and EDGX.\6\
---------------------------------------------------------------------------
\4\ DE operates as a facility of EDGX that provides outbound
routing from EDGX 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 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 EDGX 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. 64362 (April 28,
2011), 76 FR 25386 (May 4, 2011) (SR-EDGA-2011-13); and 66643 (March
22, 2012), 77 FR 18876 (March 28, 2012) (SR-EDGA-2012-10).
\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 EDGX, 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 31996-31997.
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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
EDGA 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 31997.
\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
[[Page 40255]]
Route, in its capacity as a facility of EDGX, 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 as a facility of
EDGX, 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
31996.
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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-EDGA-2013-13) 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. 2013-15915 Filed 7-2-13; 8:45 am]
BILLING CODE 8011-01-P
