Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend EDGX Rules 3.2, 13.3, and Adopt Rule 12.14, Front Running of Block Transactions To Conform With the Rules of Other Self-Regulatory Organizations, 62855-62858 [2013-24635]
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Federal Register / Vol. 78, No. 204 / Tuesday, October 22, 2013 / Notices
competition because the proposed rate
would apply uniformly to all Members.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
unsolicited written comments from
Members or other interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 9 and Rule 19b–4(f)(2) 10
thereunder. At any time within 60 days
of the filing of such 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:
sroberts on DSK5SPTVN1PROD with FRONT MATTER
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
EDGA–2013–30 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–EDGA–2013–30. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–EDGA–
2013–30 and should be submitted on or
before November 12, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–24554 Filed 10–21–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70626; File No. SR–EDGX–
2013–36]
Self-Regulatory Organizations; EDGX
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend EDGX Rules
3.2, 13.3, and Adopt Rule 12.14, Front
Running of Block Transactions To
Conform With the Rules of Other SelfRegulatory Organizations
October 8, 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
September 26, 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
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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 proposes to: (i) Amend
Rule 3.22, Proxy Voting; (ii) amend Rule
13.3, Forwarding of Issuer Materials;
and (iii) adopt new Rule 12.14, Front
Running of Block Transactions, to
conform with the rules of the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) for purposes of an agreement
between the Exchange and FINRA
pursuant to Rule 17d-2 under the Act.3
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
Pursuant to Rule 17d–2 under the
Act,4 the Exchange and FINRA entered
into an agreement to allocate regulatory
responsibility for common rules (the
‘‘17d–2 Agreement’’). The 17d–2
Agreement covers common members of
the Exchange and FINRA and allocates
to FINRA regulatory responsibility, with
respect to common members, for the
following: (i) examination of common
members of the Exchange and FINRA
for compliance with federal securities
laws, rules and regulations and rules of
the Exchange that the Exchange has
certified as identical or substantially
similar to FINRA rules; (ii) investigation
of common members of EDGX and
FINRA for violations of federal
securities laws, rules or regulations, or
Exchange rules that the Exchange has
11 17
9 15
U.S.C. 78s(b)(3)(A).
10 17 CFR 240.19b–4(f)(2).
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3 17
4 17
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CFR 240.17d–2.
CFR 240.17d–2.
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certified as identical or substantially
identical to a FINRA rule; and (iii)
enforcement of compliance by common
members with the federal securities
laws, rules and regulations, and the
rules of the Exchange that the Exchange
has certified as identical or substantially
similar to FINRA rules.5
The 17d–2 Agreement included a
certification by the Exchange that states
that the requirements contained in
certain Exchange rules are identical to,
or substantially similar to, certain
FINRA rules that have been identified as
comparable. To conform with
comparable FINRA rules for purposes of
the 17d–2 Agreement, the Exchange
proposes to: (i) Amend Rule 3.22, Proxy
Voting; (ii) amend Rule 13.3,
Forwarding of Issuer Materials; and (iii)
adopt new Rule 12.14, Front Running of
Block Transactions.
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Rule 3.22, Proxy Voting and Rule 13.3,
Forwarding of Issuer Materials
The Exchange proposes to amend
Rules 3.22 and 13.3 concerning proxy
voting and forwarding of proxy
materials to align these rules with
FINRA Rule 2251.6 Section 957 of the
Dodd-Frank Act amended Section 6(b)
of the Act 7 to require the rules of each
national securities exchange prohibit
any member organization that is not the
beneficial owner of a security registered
under Section 12 of the Act 8 from
granting a proxy to vote the security in
connection with certain stockholder
votes, unless the beneficial owner of the
security has instructed the member
organization to vote the proxy in
accordance with the voting instructions
of the beneficial owner. The stockholder
votes covered by Section 957 include
any vote with respect to: (i) The election
of a member of the board of directors of
an issuer (other than an uncontested
election of a director of an investment
company registered under the
Investment Company Act); (ii) executive
compensation; or (iii) any other
significant matter, as determined by the
Commission, by rule. The Exchange
carries out the requirements of Section
957 of the Dodd-Frank Act under
5 See Securities and Exchange Release No. 61698
(March 12, 2010), 75 FR 13151 (March 18, 2010)
(approving File No. 10–196).
6 Similarly, on September 30, 2011, BATS YExchange, Inc. (‘‘BYX’’) amended their Rule 13.3 to
align it with FINRA Rule 2251. See Securities
Exchange Act Release No. 65448 (September 30,
2011), 76 FR 62103 (October 6, 2011) (Notice of
Filing and Order Granting Accelerated Approval of
Proposed Rule Change to Amend BYX Rule 13.3 to
Prohibit Members from Voting Uninstructed Shares
on Certain Matters and to Align BYX Rule 13.3,
Concerning the Forwarding of Proxy and Other
Material and Proxy Voting, with FINRA Rule 2251).
7 15 U.S.C. 78f(b).
8 15 U.S.C. 78l.
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paragraph (a) to Exchange Rule 3.22
which prohibits a Member from giving
a proxy to vote stock that is registered
in its name, unless: (i) Such Member is
the beneficial owner of such stock; (ii)
such proxy is given pursuant to the
written instructions of the beneficial
owner; or (iii) such proxy is given
pursuant to the rules of any national
securities exchange or association of
which it is a member provided that the
records of the Member clearly indicate
the procedure it is following.
Similarly, the Exchange proposes to
add new paragraph (c) to Rule 3.22,
based entirely on FINRA Rule 2251(d),
to explicitly state that a Member may
give a proxy to vote any stock registered
in its name if such Member holds such
stock as executor, administrator,
guardian, trustee, or in a similar
representative or fiduciary capacity with
authority to vote. Proposed paragraph
(c) would also state that a Member that
has in its possession or within its
control stock registered in the name of
another Member and that desires to
transmit signed proxies pursuant to the
provisions of Rule 13.3, shall obtain the
requisite number of signed proxies from
such holder of record. Lastly, proposed
paragraph (c) would also state that,
notwithstanding the foregoing: (1) any
Member designated by a named
Employee Retirement Income Security
Act of 1974 (as amended) (‘‘ERISA’’)
Plan fiduciary as the investment
manager of stock held as assets of the
ERISA Plan may vote the proxies in
accordance with the ERISA Plan
fiduciary responsibilities if the ERISA
Plan expressly grants discretion to the
investment manager to manage, acquire,
or dispose of any plan asset and has not
expressly reserved the proxy voting
right for the named ERISA Plan
fiduciary; and (2) any designated
investment adviser may vote such
proxies.
To promote consistency with FINRA
Rule 2251, the Exchange proposes to
add language to the existing text of Rule
13.3 to state that for beneficial owners,
the proxy materials or other materials to
be forwarded on behalf of an issuer can
be sent to the beneficial owner’s
designated investment adviser, if
applicable. In conjunction with this
change, the Exchange proposes to adopt
the definition of ‘‘designated investment
adviser’’ set forth in FINRA Rule 2251(f)
as Interpretation and Policy .01 to Rule
3.22.
The Exchange also proposes
modifying the text of Rule 13.3, which
currently would require forwarding of
proxy material but which does not
explicitly reference such material, to
add such an explicit reference. The
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Exchange further proposes to modify the
text of Rule 13.3 to reference ‘‘security
holders,’’ rather than stockholders, in
the initial sentence, to ensure that the
coverage of the rule applies to all
securities, including debt securities to
the extent applicable, and not just
equity securities. The Exchange also
proposes to incorporate certain language
from FINRA Rule 2251 that provides
additional detail regarding the material
that must be provided to beneficial
owners in the event of a proxy
solicitation. Specifically, Rule 13.3 as
amended would state that in the event
of a proxy solicitation, materials
provided pursuant to the Rule shall
include a signed proxy indicating the
number of shares held for such
beneficial owner and bearing a symbol
identifying the proxy with proxy
records maintained by the Member, and
a letter informing the beneficial owner
(or the beneficial owner’s designated
investment adviser) of the time limit
and necessity for completing the proxy
form and forwarding it to the person
soliciting proxies prior to the expiration
of the time limit in order for the shares
to be represented at the meeting. The
Rule would also require a Member to
furnish a copy of the symbols to the
person soliciting the proxies and shall
also retain a copy thereof pursuant to
the provisions of Exchange Act Rule
17a–4. Finally, the Exchange proposes
to modify the title of Rule 13.3 to
include a reference to proxy voting.
The Exchange believes that these
changes will help to avoid confusion
among Members of the Exchange that
are also members of FINRA by further
aligning the Exchange’s rules with
FINRA Rule 2251. The proposed
changes to Rules 3.22 and 13.3 are
designed to enable the Exchange to
incorporate Rules 3.22 and 13.3 into the
17d–2 Agreement, further reducing
duplicative regulation of Members that
are also members of FINRA.
Rule 12.14, Front Running of Block
Transactions
The Exchange proposes to adopt new
Rule 12.14, Front Running of Block
Transactions, which would require that
Members and persons associated with a
Member shall comply with FINRA Rule
5270 as if such Rule were part of the
Exchange’s Rules. The proposed rule
text is substantially the same as IM–
2110–3 of the Nasdaq Stock Market LLC
(‘‘Nasdaq’’), which has been approved
by the Commission.9 FINRA Rule 5270
9 See Securities Exchange Act Release No. 53128
(January 13, 2006), 71 FR 3550 (January 23, 2006)
(order approving Nasdaq’s application for
registration as a national securities exchange). See
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sroberts on DSK5SPTVN1PROD with FRONT MATTER
states that no FINRA member or person
associated with a member shall cause to
be executed an order to buy or sell a
security or a related financial
instrument 10 when such member or
person associated with a member has
material, non-public market information
concerning an imminent block
transaction 11 in that security, a related
financial instrument or a security
underlying the related financial
instrument.
FINRA Rule 5270 includes exceptions
to the general prohibitions of the rule
where a member can demonstrate that a
transaction is unrelated to the material,
non-public market information received
in connection with the customer order.
The Supplementary Material to FINRA
Rule 5270 includes an illustrative list of
potentially permitted transactions as
examples of transactions that,
depending upon the circumstances, may
be unrelated to the customer block
order. These types of transactions may
include: where the member has
information barriers established to
prevent internal disclosure of such
information; actions in the same
security related to a prior customer
order in that security; transactions to
correct bona fide errors; or transactions
to offset odd-lot orders.
In addition, Rule 5270 does not
preclude transactions undertaken for the
purpose of fulfilling, or facilitating the
execution of, the customer block order.
However, when engaging in trading
activity that could affect the market for
the security that is the subject of the
customer block order, the member must
minimize any potential disadvantage or
harm in the execution of the customer’s
order, must not place the member’s
financial interests ahead of those of its
customer, and must obtain the
also Securities Exchange Act Release No. 58069
(June 30, 2008), 73 FR 39360 (July 9, 2008) (SR–
Nasdaq–2008–054) (Notice of Filing and Immediate
Effectiveness). Securities Exchange Act Release No.
34–67774 (September 4, 2012), 77 FR 55519
(September 12, 2012) (Approval Order).
10 FINRA Rule 5270 defines the term ‘‘related
financial instrument’’ as ‘‘any option, derivative,
security-based swap, or other financial instrument
overlying a security, the value of which is
materially related to, or otherwise acts as a
substitute for, such security, as well as any contract
that is the functional economic equivalent of a
position in such security.’’
11 Under FINRA Rule 5270, a transaction
involving 10,000 shares or more of a security, an
underlying security, or a related financial
instrument overlying such number of shares, is
generally deemed to be a block transaction,
although a transaction of fewer than 10,000 shares
could be considered a block transaction. A block
transaction that has been agreed upon does not lose
its identity as such by arranging for partial
executions of the full transaction in portions which
themselves are not of block size if the execution of
the full transaction may have a material impact on
the market.
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21:08 Oct 21, 2013
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customer’s consent to such trading
activity. A member may obtain its
customers’ consent through affirmative
written consent or through the use of a
negative consent letter. The negative
consent letter must clearly disclose to
the customer the terms and conditions
for handling the customer’s orders; if
the customer does not object, then the
member may reasonably conclude that
the customer has consented and the
member may rely on such letter for all
or a portion of the customer’s orders. In
addition, a member may provide clear
and comprehensive oral disclosure to
and obtain consent from the customer
on an order-by-order basis, provided
that the member documents who
provided such consent and such
consent evidences the customer’s
understanding of the terms and
conditions for handling the customer’s
order.
The Exchange also proposes to state
in new Rule 12.14 that although the
prohibitions in Rule 5270 are limited to
imminent block transactions, the front
running of other types of orders that
place the financial interests of the
Member or persons associated with a
Member ahead of those of its customer
or the misuse of knowledge of an
imminent customer order may violate
other Exchange rules, including Rule 3.1
and Rule 12.6, or provisions of the
federal securities laws.
2. Statutory Basis
The Exchange believes that proposed
rule change is consistent with Section
6(b)(5) of the Act,12 which requires,
among other things, that the Exchange’s
rules 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
facilitating transactions in securities,
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 will further these
requirements by eliminating duplicative
and unnecessary rules and advancing
the development of a more efficient and
effective Exchange Rulebook. The
proposed rule change would provide
greater harmonization between
Exchange and FINRA rules of similar
purpose, resulting in greater uniformity
and less burdensome and more efficient
regulatory compliance. As such, the
proposed rule change would foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities and would
12 15
PO 00000
U.S.C. 78f(b)(5).
Frm 00275
Fmt 4703
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62857
remove impediments to and perfect the
mechanism of a free and open market
and a national market system.
Rule 3.22, Proxy Voting and Rule 13.3,
Forwarding of Issuer Materials
The Exchange believes that proposed
amendments to Rules 3.22 and 13.3 are
consistent with Section 6(b)(5) of the
Act,13 because they remove
impediments to, and perfect the
mechanism of, a free and open market
and a national market system by
providing for consistent regulation for
Members of the Exchange that are
members of other SROs with analogous
rules.14 The proposed changes to Rules
3.22 and 13.3 and proposed
Interpretation and Policy .01 are
consistent with FINRA Rule 2251.
Accordingly, the Exchange believes that
the proposal fosters cooperation
because, to the extent the Exchange is
able to incorporate Rule 13.3 into the
17d-2 Agreement as a rule in common
between the Exchange and FINRA, then
FINRA will conduct a review for
compliance with the common rule to
the extent a Member of the Exchange is
also a member of FINRA, and the
Exchange will not conduct a duplicative
review of the same activity by that
Member. Finally, the Exchange believes
that the proposal will contribute to
investor protection by defining
important requirements to which
Members must abide with respect to
proxy solicitation, proxy voting and
delivery of proxy materials.
Rule 12.14, Front Running of Block
Transactions
The Exchange believes that new Rule
12.14 is consistent with Section 6(b)(5)
of the Act 15 which requires, among
other things, that the Exchange rules be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, and, in general, to protect
investors and the public interest. By
incorporating FINRA Rule 5270, new
Rule 12.14 prohibits front running
trading activity that the Exchange
believes is inconsistent with just and
equitable principles of trade while also
ensuring that Members may continue to
engage in transactions that do not
present the risk of abusive trading
practices that the rule is intended to
prevent. The Exchange believes that
Rule 12.14 would enhance the
protection of customer orders by
addressing various types of abusive
13 Id.
14 See, e.g., FINRA Rule 2251, BYX Rule 13.3, ISE
Rule 421, NYSE Arca Rule 9.4, and Nasdaq Rule
2251.
15 15 U.S.C. 78f(b)(5).
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trading that may be intended to take
advantage of customer orders. As
previously noted, the proposed rule text
is substantially similar to Nasdaq’s IM–
2110–3, which has been approved by
the Commission.16 By adopting Rule
12.14, the Exchange believes that
imminent customer block orders would
be better protected and that the
proposed rule change will prevent
fraudulent and manipulative acts and
practices, promote just and equitable
principles of trade, and better protect
investors and the public interest.
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
proposed rule change is not designed to
address any competitive issues but
rather is designed to provide greater
harmonization among Exchange and
FINRA rules of similar purpose,
resulting in less burdensome and more
efficient regulatory compliance for
common members and facilitating
FINRA’s performance of its regulatory
functions under the 17d-2 Agreement.
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
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Because the foregoing proposed rule
change does not: (1) Significantly affect
the protection of investors or the public
interest; (2) 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
16 See Securities Exchange Act Release No. 53128
(January 13, 2006), 71 FR 3550 (January 23, 2006)
(order approving Nasdaq’s application for
registration as a national securities exchange). See
also Securities Exchange Act Release No. 58069
(June 30, 2008), 73 FR 39360 (July 9, 2008) (SRNasdaq-2008–054) (Notice of Filing and Immediate
Effectiveness). Securities Exchange Act Release No.
34–67774 (September 4, 2012), 77 FR 55519
(September 12, 2012) (Approval Order).
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19(b)(3)(A) of the Act 17 and Rule 19b–
4(f)(6) thereunder.18
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
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 it will help
foster consistency between the
rulebooks of the self-regulatory
organizations.19 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.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number
SR–EDGX–2013–36 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
17 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.
19 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).
18 17
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100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–EDGX–2013–36. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–EDGX–
2013–36 and should be submitted on or
before November 12, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–24635 Filed 10–21–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of a
Proposed Rule Change and
Amendment No. 1 Thereto Relating to
the Short Term Option Series Program
[Release No. 34–70685; File No. SR–CBOE–
2013–096]
October 15, 2013. Pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
20 17
1 15
E:\FR\FM\22OCN1.SGM
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
22OCN1
]]>Agencies
[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62855-62858]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24635]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70626; File No. SR-EDGX-2013-36]
Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
EDGX Rules 3.2, 13.3, and Adopt Rule 12.14, Front Running of Block
Transactions To Conform With the Rules of Other Self-Regulatory
Organizations
October 8, 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 September 26, 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.
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\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: (i) Amend Rule 3.22, Proxy Voting; (ii)
amend Rule 13.3, Forwarding of Issuer Materials; and (iii) adopt new
Rule 12.14, Front Running of Block Transactions, to conform with the
rules of the Financial Industry Regulatory Authority, Inc. (``FINRA'')
for purposes of an agreement between the Exchange and FINRA pursuant to
Rule 17d-2 under the Act.\3\ 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.
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\3\ 17 CFR 240.17d-2.
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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
Pursuant to Rule 17d-2 under the Act,\4\ the Exchange and FINRA
entered into an agreement to allocate regulatory responsibility for
common rules (the ``17d-2 Agreement''). The 17d-2 Agreement covers
common members of the Exchange and FINRA and allocates to FINRA
regulatory responsibility, with respect to common members, for the
following: (i) examination of common members of the Exchange and FINRA
for compliance with federal securities laws, rules and regulations and
rules of the Exchange that the Exchange has certified as identical or
substantially similar to FINRA rules; (ii) investigation of common
members of EDGX and FINRA for violations of federal securities laws,
rules or regulations, or Exchange rules that the Exchange has
[[Page 62856]]
certified as identical or substantially identical to a FINRA rule; and
(iii) enforcement of compliance by common members with the federal
securities laws, rules and regulations, and the rules of the Exchange
that the Exchange has certified as identical or substantially similar
to FINRA rules.\5\
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\4\ 17 CFR 240.17d-2.
\5\ See Securities and Exchange Release No. 61698 (March 12,
2010), 75 FR 13151 (March 18, 2010) (approving File No. 10-196).
---------------------------------------------------------------------------
The 17d-2 Agreement included a certification by the Exchange that
states that the requirements contained in certain Exchange rules are
identical to, or substantially similar to, certain FINRA rules that
have been identified as comparable. To conform with comparable FINRA
rules for purposes of the 17d-2 Agreement, the Exchange proposes to:
(i) Amend Rule 3.22, Proxy Voting; (ii) amend Rule 13.3, Forwarding of
Issuer Materials; and (iii) adopt new Rule 12.14, Front Running of
Block Transactions.
Rule 3.22, Proxy Voting and Rule 13.3, Forwarding of Issuer Materials
The Exchange proposes to amend Rules 3.22 and 13.3 concerning proxy
voting and forwarding of proxy materials to align these rules with
FINRA Rule 2251.\6\ Section 957 of the Dodd-Frank Act amended Section
6(b) of the Act \7\ to require the rules of each national securities
exchange prohibit any member organization that is not the beneficial
owner of a security registered under Section 12 of the Act \8\ from
granting a proxy to vote the security in connection with certain
stockholder votes, unless the beneficial owner of the security has
instructed the member organization to vote the proxy in accordance with
the voting instructions of the beneficial owner. The stockholder votes
covered by Section 957 include any vote with respect to: (i) The
election of a member of the board of directors of an issuer (other than
an uncontested election of a director of an investment company
registered under the Investment Company Act); (ii) executive
compensation; or (iii) any other significant matter, as determined by
the Commission, by rule. The Exchange carries out the requirements of
Section 957 of the Dodd-Frank Act under paragraph (a) to Exchange Rule
3.22 which prohibits a Member from giving a proxy to vote stock that is
registered in its name, unless: (i) Such Member is the beneficial owner
of such stock; (ii) such proxy is given pursuant to the written
instructions of the beneficial owner; or (iii) such proxy is given
pursuant to the rules of any national securities exchange or
association of which it is a member provided that the records of the
Member clearly indicate the procedure it is following.
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\6\ Similarly, on September 30, 2011, BATS Y-Exchange, Inc.
(``BYX'') amended their Rule 13.3 to align it with FINRA Rule 2251.
See Securities Exchange Act Release No. 65448 (September 30, 2011),
76 FR 62103 (October 6, 2011) (Notice of Filing and Order Granting
Accelerated Approval of Proposed Rule Change to Amend BYX Rule 13.3
to Prohibit Members from Voting Uninstructed Shares on Certain
Matters and to Align BYX Rule 13.3, Concerning the Forwarding of
Proxy and Other Material and Proxy Voting, with FINRA Rule 2251).
\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78l.
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Similarly, the Exchange proposes to add new paragraph (c) to Rule
3.22, based entirely on FINRA Rule 2251(d), to explicitly state that a
Member may give a proxy to vote any stock registered in its name if
such Member holds such stock as executor, administrator, guardian,
trustee, or in a similar representative or fiduciary capacity with
authority to vote. Proposed paragraph (c) would also state that a
Member that has in its possession or within its control stock
registered in the name of another Member and that desires to transmit
signed proxies pursuant to the provisions of Rule 13.3, shall obtain
the requisite number of signed proxies from such holder of record.
Lastly, proposed paragraph (c) would also state that, notwithstanding
the foregoing: (1) any Member designated by a named Employee Retirement
Income Security Act of 1974 (as amended) (``ERISA'') Plan fiduciary as
the investment manager of stock held as assets of the ERISA Plan may
vote the proxies in accordance with the ERISA Plan fiduciary
responsibilities if the ERISA Plan expressly grants discretion to the
investment manager to manage, acquire, or dispose of any plan asset and
has not expressly reserved the proxy voting right for the named ERISA
Plan fiduciary; and (2) any designated investment adviser may vote such
proxies.
To promote consistency with FINRA Rule 2251, the Exchange proposes
to add language to the existing text of Rule 13.3 to state that for
beneficial owners, the proxy materials or other materials to be
forwarded on behalf of an issuer can be sent to the beneficial owner's
designated investment adviser, if applicable. In conjunction with this
change, the Exchange proposes to adopt the definition of ``designated
investment adviser'' set forth in FINRA Rule 2251(f) as Interpretation
and Policy .01 to Rule 3.22.
The Exchange also proposes modifying the text of Rule 13.3, which
currently would require forwarding of proxy material but which does not
explicitly reference such material, to add such an explicit reference.
The Exchange further proposes to modify the text of Rule 13.3 to
reference ``security holders,'' rather than stockholders, in the
initial sentence, to ensure that the coverage of the rule applies to
all securities, including debt securities to the extent applicable, and
not just equity securities. The Exchange also proposes to incorporate
certain language from FINRA Rule 2251 that provides additional detail
regarding the material that must be provided to beneficial owners in
the event of a proxy solicitation. Specifically, Rule 13.3 as amended
would state that in the event of a proxy solicitation, materials
provided pursuant to the Rule shall include a signed proxy indicating
the number of shares held for such beneficial owner and bearing a
symbol identifying the proxy with proxy records maintained by the
Member, and a letter informing the beneficial owner (or the beneficial
owner's designated investment adviser) of the time limit and necessity
for completing the proxy form and forwarding it to the person
soliciting proxies prior to the expiration of the time limit in order
for the shares to be represented at the meeting. The Rule would also
require a Member to furnish a copy of the symbols to the person
soliciting the proxies and shall also retain a copy thereof pursuant to
the provisions of Exchange Act Rule 17a-4. Finally, the Exchange
proposes to modify the title of Rule 13.3 to include a reference to
proxy voting.
The Exchange believes that these changes will help to avoid
confusion among Members of the Exchange that are also members of FINRA
by further aligning the Exchange's rules with FINRA Rule 2251. The
proposed changes to Rules 3.22 and 13.3 are designed to enable the
Exchange to incorporate Rules 3.22 and 13.3 into the 17d-2 Agreement,
further reducing duplicative regulation of Members that are also
members of FINRA.
Rule 12.14, Front Running of Block Transactions
The Exchange proposes to adopt new Rule 12.14, Front Running of
Block Transactions, which would require that Members and persons
associated with a Member shall comply with FINRA Rule 5270 as if such
Rule were part of the Exchange's Rules. The proposed rule text is
substantially the same as IM-2110-3 of the Nasdaq Stock Market LLC
(``Nasdaq''), which has been approved by the Commission.\9\ FINRA Rule
5270
[[Page 62857]]
states that no FINRA member or person associated with a member shall
cause to be executed an order to buy or sell a security or a related
financial instrument \10\ when such member or person associated with a
member has material, non-public market information concerning an
imminent block transaction \11\ in that security, a related financial
instrument or a security underlying the related financial instrument.
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\9\ See Securities Exchange Act Release No. 53128 (January 13,
2006), 71 FR 3550 (January 23, 2006) (order approving Nasdaq's
application for registration as a national securities exchange). See
also Securities Exchange Act Release No. 58069 (June 30, 2008), 73
FR 39360 (July 9, 2008) (SR-Nasdaq-2008-054) (Notice of Filing and
Immediate Effectiveness). Securities Exchange Act Release No. 34-
67774 (September 4, 2012), 77 FR 55519 (September 12, 2012)
(Approval Order).
\10\ FINRA Rule 5270 defines the term ``related financial
instrument'' as ``any option, derivative, security-based swap, or
other financial instrument overlying a security, the value of which
is materially related to, or otherwise acts as a substitute for,
such security, as well as any contract that is the functional
economic equivalent of a position in such security.''
\11\ Under FINRA Rule 5270, a transaction involving 10,000
shares or more of a security, an underlying security, or a related
financial instrument overlying such number of shares, is generally
deemed to be a block transaction, although a transaction of fewer
than 10,000 shares could be considered a block transaction. A block
transaction that has been agreed upon does not lose its identity as
such by arranging for partial executions of the full transaction in
portions which themselves are not of block size if the execution of
the full transaction may have a material impact on the market.
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FINRA Rule 5270 includes exceptions to the general prohibitions of
the rule where a member can demonstrate that a transaction is unrelated
to the material, non-public market information received in connection
with the customer order. The Supplementary Material to FINRA Rule 5270
includes an illustrative list of potentially permitted transactions as
examples of transactions that, depending upon the circumstances, may be
unrelated to the customer block order. These types of transactions may
include: where the member has information barriers established to
prevent internal disclosure of such information; actions in the same
security related to a prior customer order in that security;
transactions to correct bona fide errors; or transactions to offset
odd-lot orders.
In addition, Rule 5270 does not preclude transactions undertaken
for the purpose of fulfilling, or facilitating the execution of, the
customer block order. However, when engaging in trading activity that
could affect the market for the security that is the subject of the
customer block order, the member must minimize any potential
disadvantage or harm in the execution of the customer's order, must not
place the member's financial interests ahead of those of its customer,
and must obtain the customer's consent to such trading activity. A
member may obtain its customers' consent through affirmative written
consent or through the use of a negative consent letter. The negative
consent letter must clearly disclose to the customer the terms and
conditions for handling the customer's orders; if the customer does not
object, then the member may reasonably conclude that the customer has
consented and the member may rely on such letter for all or a portion
of the customer's orders. In addition, a member may provide clear and
comprehensive oral disclosure to and obtain consent from the customer
on an order-by-order basis, provided that the member documents who
provided such consent and such consent evidences the customer's
understanding of the terms and conditions for handling the customer's
order.
The Exchange also proposes to state in new Rule 12.14 that although
the prohibitions in Rule 5270 are limited to imminent block
transactions, the front running of other types of orders that place the
financial interests of the Member or persons associated with a Member
ahead of those of its customer or the misuse of knowledge of an
imminent customer order may violate other Exchange rules, including
Rule 3.1 and Rule 12.6, or provisions of the federal securities laws.
2. Statutory Basis
The Exchange believes that proposed rule change is consistent with
Section 6(b)(5) of the Act,\12\ which requires, among other things,
that the Exchange's rules 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 facilitating transactions in securities, 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 will further these requirements by eliminating
duplicative and unnecessary rules and advancing the development of a
more efficient and effective Exchange Rulebook. The proposed rule
change would provide greater harmonization between Exchange and FINRA
rules of similar purpose, resulting in greater uniformity and less
burdensome and more efficient regulatory compliance. As such, the
proposed rule change would foster cooperation and coordination with
persons engaged in facilitating transactions in securities and would
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
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\12\ 15 U.S.C. 78f(b)(5).
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Rule 3.22, Proxy Voting and Rule 13.3, Forwarding of Issuer Materials
The Exchange believes that proposed amendments to Rules 3.22 and
13.3 are consistent with Section 6(b)(5) of the Act,\13\ because they
remove impediments to, and perfect the mechanism of, a free and open
market and a national market system by providing for consistent
regulation for Members of the Exchange that are members of other SROs
with analogous rules.\14\ The proposed changes to Rules 3.22 and 13.3
and proposed Interpretation and Policy .01 are consistent with FINRA
Rule 2251. Accordingly, the Exchange believes that the proposal fosters
cooperation because, to the extent the Exchange is able to incorporate
Rule 13.3 into the 17d-2 Agreement as a rule in common between the
Exchange and FINRA, then FINRA will conduct a review for compliance
with the common rule to the extent a Member of the Exchange is also a
member of FINRA, and the Exchange will not conduct a duplicative review
of the same activity by that Member. Finally, the Exchange believes
that the proposal will contribute to investor protection by defining
important requirements to which Members must abide with respect to
proxy solicitation, proxy voting and delivery of proxy materials.
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\13\ Id.
\14\ See, e.g., FINRA Rule 2251, BYX Rule 13.3, ISE Rule 421,
NYSE Arca Rule 9.4, and Nasdaq Rule 2251.
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Rule 12.14, Front Running of Block Transactions
The Exchange believes that new Rule 12.14 is consistent with
Section 6(b)(5) of the Act \15\ which requires, among other things,
that the Exchange rules be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. By incorporating FINRA Rule 5270, new Rule 12.14
prohibits front running trading activity that the Exchange believes is
inconsistent with just and equitable principles of trade while also
ensuring that Members may continue to engage in transactions that do
not present the risk of abusive trading practices that the rule is
intended to prevent. The Exchange believes that Rule 12.14 would
enhance the protection of customer orders by addressing various types
of abusive
[[Page 62858]]
trading that may be intended to take advantage of customer orders. As
previously noted, the proposed rule text is substantially similar to
Nasdaq's IM-2110-3, which has been approved by the Commission.\16\ By
adopting Rule 12.14, the Exchange believes that imminent customer block
orders would be better protected and that the proposed rule change will
prevent fraudulent and manipulative acts and practices, promote just
and equitable principles of trade, and better protect investors and the
public interest.
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\15\ 15 U.S.C. 78f(b)(5).
\16\ See Securities Exchange Act Release No. 53128 (January 13,
2006), 71 FR 3550 (January 23, 2006) (order approving Nasdaq's
application for registration as a national securities exchange). See
also Securities Exchange Act Release No. 58069 (June 30, 2008), 73
FR 39360 (July 9, 2008) (SR-Nasdaq-2008-054) (Notice of Filing and
Immediate Effectiveness). Securities Exchange Act Release No. 34-
67774 (September 4, 2012), 77 FR 55519 (September 12, 2012)
(Approval Order).
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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 proposed rule change is
not designed to address any competitive issues but rather is designed
to provide greater harmonization among Exchange and FINRA rules of
similar purpose, resulting in less burdensome and more efficient
regulatory compliance for common members and facilitating FINRA's
performance of its regulatory functions under the 17d-2 Agreement.
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 does not: (1)
Significantly affect the protection of investors or the public
interest; (2) 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 \17\ and Rule 19b-4(f)(6) thereunder.\18\
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 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.
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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 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 it will help foster consistency between the
rulebooks of the self-regulatory organizations.\19\ Accordingly, the
Commission hereby grants the Exchange's request and designates the
proposal operative upon filing.
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\19\ 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-EDGX-2013-36 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-2013-36. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-EDGX-2013-36 and should be
submitted on or before November 12, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24635 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P
