Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 12.6 to Conform to FINRA Rule 5320, BATS Rule 12.6 and BATS-Y Rule 12.6 Relating to Trading Ahead of Customer Orders, 18367-18371 [2014-07194]

Download as PDF Federal Register / Vol. 79, No. 62 / Tuesday, April 1, 2014 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES required by New Rule 7.25(c)(5), however. These materials must contain all the required disclosures outlined below, and be in the manner stated in the condition, in addition to any requirements of the Exchange. Issuers or sponsors of products that are not registered under the Investment Company Act of 1940, as amended (‘‘1940 Act’’), may also meet the press release requirements of these enhanced disclosures in a manner compliant with Regulation FD (other than Web site only disclosure).34 We also note that, to the extent that information about participation in the Program is material, disclosure of this kind may already be required by the federal securities laws and rules. Conclusion It is therefore ordered, that issuers or sponsors who pay a CP Program Fee are hereby exempted from Rule 102 of Regulation M solely to permit the payment of the CP Program Fee as set forth in New Rule 7.25 in connection with a security participating in the Program during the pilot, subject to the conditions contained in this order and compliance with the requirements of New Rule 7.25. This exemption is subject to the following conditions: 1. The security participating in the Program is an ETP and the secondary market price for shares of the ETP must not vary substantially from the net asset value of such ETP shares during the duration of the security’s participation in the Program; 2. The issuer of the participating ETP, or sponsor on behalf of the issuer, must provide prompt notice to the public by broadly disseminating a press release prior to entry (or upon re-entry) into the Program. This press release must disclose: a. The payment of a CP Program Fee is intended to generate more quotes and trading than might otherwise exist absent this payment, and that the security leaving the Program may adversely impact a purchaser’s subsequent sale of the security; and b. A hyperlink to the Web page described in condition (5) below; 3. The issuer of the participating ETP, or sponsor on behalf of the issuer, must provide prompt notice to the public by broadly disseminating a press release prior to a security leaving the Program for any reason, including termination of the Program. This press release must disclose: a. The date that the security is leaving the Program and that leaving the 34 See condition (4), infra. VerDate Mar<15>2010 16:02 Mar 31, 2014 Jkt 232001 Program may have a negative impact on the price and liquidity of the security which could adversely impact a purchaser’s subsequent sale of the security; and b. A hyperlink to the Web page described in condition (5) below; 4. In place of the press releases required by conditions (2) and (3) above, an issuer of a participating ETP that is not registered under the 1940 Act, or sponsor on behalf of the issuer, may provide prompt notice to the public through the use of such other written Regulation FD compliant methods (other than Web site disclosure only) that is designed to provide broad public dissemination as provided in 17 CFR 243.101(e), provided, however, that such other methods must contain all the information required to be disclosed by conditions (2) and (3) above; 5. The issuer of the participating ETP, or sponsor on behalf of the issuer, must provide prompt, prominent and continuous disclosure on its Web site in the location generally used to communicate information to investors about a particular security participating in the Program, and for a security that has a separate Web site, the security’s Web site of: a. The security participating in the Program and ticker, date of entry into the Program, and the amount of the CP Program Fee; b. Risk factors investors should consider when making an investment decision, including that participation in the Program may have potential impacts on the price and liquidity of the security; and c. Termination date of the pilot, anticipated date (if any) of the security leaving the Program for any reason, date of actual exit (if applicable), and that the security leaving the Program could adversely impact a purchaser’s subsequent sale of the security; and 6. The Web site disclosure in condition (5) above must be promptly updated if a material change occurs with respect to any information contained in the disclosure. This exemptive relief expires when the pilot terminates, and is subject to modification or revocation at any time the Commission determines that such action is necessary or appropriate in furtherance of the purposes of the Exchange Act. This exemptive relief is limited solely to the payment of the CP Program Fee as set forth in New Rule 7.25 for a security that is an ETP participating in the Program,35 and does 35 All ETPs that are allowed to participate in the Program have a pool of underlying assets. See New Rule 7.25(b)(2). Should the program be modified to PO 00000 Frm 00111 Fmt 4703 Sfmt 4703 18367 not extend to any other activities, any other security of the trust related to the participating ETP, or any other issuers.36 In addition, persons relying on this exemption are directed to the anti-fraud and anti-manipulation provisions of the Exchange Act, particularly Sections 9(a) and 10(b), and Rule 10b–5 thereunder. Responsibility for compliance with these and any other applicable provisions of the federal securities laws must rest with the persons relying on this exemption. This order does not represent Commission views with respect to any other question that the proposed activities may raise, including, but not limited to the adequacy of the disclosure required by federal securities laws and rules, and the applicability of other federal or state laws and rules to, the proposed activities. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.37 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–07188 Filed 3–31–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–71811; File No. SR–EDGA– 2014–007] Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 12.6 to Conform to FINRA Rule 5320, BATS Rule 12.6 and BATS–Y Rule 12.6 Relating to Trading Ahead of Customer Orders March 26, 2014. 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 March 21, 2014, EDGA Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGA’’) 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 include other ETPs, such as exchange-traded notes, that do not have a pool of underlying assets, the Commission would consider this a material change and outside the scope of this exemptive relief. 36 Other activities, such as ETP redemptions, are not covered by this exemptive relief. 37 17 CFR 200.30–3(a)(6). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. E:\FR\FM\01APN1.SGM 01APN1 18368 Federal Register / Vol. 79, No. 62 / Tuesday, April 1, 2014 / Notices solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing with the Commission a proposal to amend Rule 12.6, Customer Priority, to make it substantially similar to Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) Rule 5320, BATS Exchange, Inc. (‘‘BATS’’) Rule 12.6 and BATS–Y Exchange, Inc. (‘‘BYX’’) Rule 12.6. 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 mstockstill on DSK4VPTVN1PROD with NOTICES 1. Purpose The Exchange proposes to amend Rule 12.6, which limits trading ahead of customer orders by Members,3 to make the rule substantially similar to FINRA Rule 5320,4 BATS Rule 12.6 and BYX Rule 12.6.5 On January 31, 2014, Direct Edge Holdings LLC (‘‘DE Holdings’’), the former parent company of the Exchange, completed its business combination 3 The term ‘‘Member’’ is defined as ‘‘any registered broker or dealer, or any person associated with a registered broker or dealer, that has been admitted to membership in the Exchange. A Member will have the status of a ‘‘member’’ of the Exchange as that term is defined in Section 3(a)(3) of the Act.’’ See Exchange Rule 1.5(n). 4 See Securities Exchange Act Release No. 63895 (February 11, 2011), 76 FR 9386 (February 17, 2011) (SR–FINRA–2009–090). 5 See Securities Exchange Act Release No. 70952 (November 27, 2013), 78 FR 72949 (December 4, 2013) (SR–BATS–2013–056) (order approving proposal to amend BATS Rule 12.6); see also Securities Exchange Act Release No. 70951 (November 27, 2013), 78 FR 72944 (December 4, 2013) (SR–BYX–2013–036) (order approving proposal to amend Rule 12.6). VerDate Mar<15>2010 16:02 Mar 31, 2014 Jkt 232001 with BATS Global Markets, Inc., the parent company of BATS and BYX.6 As part of its effort to reduce regulatory duplication and relieve firms that are members of the Exchange, BATS, and BYX of conflicting or unnecessary regulatory burdens, the Exchange is now engaged in the process of reviewing and amending certain Exchange, BATS, and BYX Rules. In addition, pursuant to Rule 17d–2 under the Act,7 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 EDGA and FINRA for violations of federal securities laws, rules or regulations, or Exchange rules that the Exchange has 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.8 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 to comparable FINRA rules for purposes of the 17d–2 Agreement, as well as BATS and BYX rules for purposes of its harmonization efforts due to its business combination, the Exchange proposes to amend Rule 12.6, Customer Priority, to align with FINRA Rule 5320, BATS Rule 12.6, and BYX Rule 12.6. As with FINRA Rule 5320, BATS Rule 12.6 and BYX Rule 12.6, amended Rule 6 See Securities Exchange Act Release No. 71449 (January 30, 2014), 79 FR 6961 (February 5, 2014) (SR–EDGA–2013–34). Upon completion of the Combination, DE Holdings and BATS Global Markets, Inc. each became intermediate holding companies, held under a single new holding company. The new holding company, formerly named ‘‘BATS Global Markets Holdings, Inc.,’’ changed its name to ‘‘BATS Global Markets, Inc.’’ 7 17 CFR 240.17d-2. 8 See Securities Exchange Act Release No. 61698 (March 12, 2010), 75 FR 13151 (March 18, 2010) (approving File No. 10–196). PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 12.6 would prohibit Members from trading ahead of customer orders, subject to specified exceptions. The amended rule would include exceptions for large orders and institutional accounts, proprietary transactions effected by a trading unit of a Member with no knowledge of customer orders held by another trading unit of the Member, riskless principal transactions, intermarket sweep orders (‘‘ISOs’’), and odd lot and bona fide error transactions, discussed in detail below. Amended Rule 12.6 would also provide the same guidance as FINRA Rule 5320, BATS Rule 12.6 and BYX Rule 12.6, on minimum price improvement standards, order handling procedures, and trading outside normal market hours. Background Current Rule 12.6, the customer order protection rule, generally prohibits Members from trading on a proprietary basis ahead of, or along with, customer orders that are executable at the same price as the proprietary order. The rule contains several exceptions that make it permissible for a Member to enter a proprietary order while representing a customer order that could be executed at the same price, including permitting transactions for the purposes of facilitating the execution, on a riskless principal basis, of one or more customer orders. Proposal To Adopt Text of FINRA Rule 5320, BATS Rule 12.6 and BYX Rule 12.6 To harmonize its rules with FINRA, BATS, and BYX, the Exchange proposes to delete the current text of Rule 12.6 and its supplementary material and adopt the text and supplementary material of FINRA Rule 5320, with certain technical changes, as Rule 12.6. The proposed text of proposed Rule 12.6 would be identical to the text of BATS Rule 12.6 and BYX Rule 12.6. FINRA Rule 5320, BATS Rule 12.6, and BYX Rule 12.6 generally provide that a member that accepts and holds an order in an equity security from its own customer, or a customer of another broker-dealer, without immediately executing the order is prohibited from trading that security on the same side of the market for its own account at a price that would satisfy the customer order, unless it immediately thereafter executes the customer order up to the size and at the same or better price at which it traded for its own account. Exceptions Amended Rule 12.6 would include exceptions to the prohibition against trading ahead of customer orders. That E:\FR\FM\01APN1.SGM 01APN1 Federal Register / Vol. 79, No. 62 / Tuesday, April 1, 2014 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES is, a Member that meets the conditions of an exception would be permitted to trade a security on the same side of the market for its own account at a price that would satisfy a customer order in certain circumstances. The exceptions are set out below. Large Orders and Institutional Accounts One exception would permit a Member to negotiate terms and conditions with respect to the acceptance of certain large-sized orders (orders of 10,000 shares or more unless such orders are less than $100,000 in value) or orders from institutional accounts. The term ‘‘institutional account’’ will be defined in accordance with FINRA Rule 4512(c) and Interpretation and Policy .01 under both BATS and BYX Rules 12.6. That is, an institutional account will be defined as the account of: (1) A bank, savings and loan association, insurance company or registered investment company; (2) an investment adviser registered either with the SEC under Section 203 of the Investment Advisers Act or with a state securities commission (or any agency or office performing like functions); or (3) any other person (whether a natural person, corporation, partnership, trust or otherwise) with total assets of at least $50 million. This exception would require the Member to provide clear and comprehensive written disclosure to each customer at account opening and annually thereafter that: (a) States that the Member may trade proprietarily at prices that would satisfy the customer order, and (b) provides the customer with a meaningful opportunity to opt in to the Rule 12.6 protections with respect to all or any portion of its order. If a customer does not opt in to the protections with respect to all or any portion of its order, the Member may reasonably conclude that such customer has consented to the Member trading a security on the same side of the market for its own account at a price that would satisfy the customer’s order.9 In lieu of providing written disclosure to customers at account opening and annually thereafter, the proposed rule would permit Members to provide clear and comprehensive oral disclosure to, and obtain consent from, a customer on an order-by-order basis. The Member would be required to document who provided such consent and that such consent evidences the customer’s understanding of the terms and 9 A customer would retain the right to withdraw consent at any time. Therefore, a Member’s reasonable conclusion that a customer has consented to the Member trading along with such customer’s order is subject to further instruction and modification from the customer. VerDate Mar<15>2010 16:02 Mar 31, 2014 Jkt 232001 conditions of the order. If a customer opted in to the Rule 12.6 protections, a Member could still obtain consent on an order-by-order basis to trade ahead of or along with an order from that customer, provided that the Member documented who provided such consent and that such consent evidenced the customer’s understanding of the terms and conditions of the order. No-Knowledge Exception The Exchange is also proposing to include in Interpretation and Policy .02 a ‘‘no-knowledge’’ exception to its customer order protection rule. The proposed exception would allow one trading unit of a Member to trade in a proprietary capacity and at prices that would satisfy customer orders held by another, separate trading unit of the Member. The No-Knowledge Exception would be applicable with respect to NMS stocks, as defined in Rule 600 of Regulation NMS under the Act. To avail itself of the No-Knowledge Exception, a Member would be required to meet certain conditions. First, it would have to implement and utilize an effective system of internal controls (such as appropriate information barriers) that operate to prevent the proprietary trading unit from obtaining knowledge of the customer orders held by a separate trading unit. As proposed, Interpretation and Policy .02 will make clear that appropriate information barriers must, at a minimum, comply with the Exchange’s existing requirements regarding the prevention of the misuse of material, non-public information, which are set forth in Exchange Rule 5.5. Second, the Member would have to provide, at account opening and annually thereafter, a written description of how it handles customer orders and the circumstances under which it may trade proprietarily, including in a market-making capacity, at prices that would satisfy the customer order. A Member must maintain records indicating which orders rely on the noknowledge exception and produce these records to the Exchange upon request. The onus will be on the Member to produce sufficient documentation justifying reliance on the No-Knowledge exception for any given trade. To ensure clarity and transparency regarding this exception and others, the Exchange will be issuing a regulatory notice informing Members of these proposed rule changes. The Exchange will include in the regulatory notice the effective date for the rule as amended, which shall be at least 30 days after the effectiveness of the amendments to Rule 12.6 in order to allow Members to make any necessary PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 18369 changes to their internal policies or processes. Riskless Principal Exception Amended Rule 12.6 would not apply to a proprietary trade made by the Member to facilitate the execution, on a riskless principal basis, of another order from a customer (whether its own customer or the customer of another broker-dealer). To take advantage of this exception, the Member would have to: (a) Submit a report, contemporaneously with the execution of the facilitated order, identifying the trade as riskless principal to the Exchange, and (b) have written policies and procedures to ensure that riskless principal transactions relied upon for this exception comply with applicable Exchange rules. At a minimum, these policies and procedures would have to require: (1) Receipt of the customer order before execution of the offsetting principal transaction, and (2) execution of the offsetting principal transaction at the same price as the customer order, exclusive of any markup or markdown, commission equivalent, or other fee and allocation to a riskless principal or customer account in a consistent manner and within 60 seconds of execution. Members would have to have supervisory systems in place that produce records that enable the Member and the Exchange to reconstruct accurately, readily, and in a timesequenced manner all orders on which the Member relies in claiming this exception. ISO Exception The proposed rule change would also exempt a Member from the obligation to execute a customer order in a manner consistent with Rule 12.6 with regard to trading for its own account when the Member routed an ISO in compliance with Rule 600(b)(30)(ii) of Regulation NMS if the customer order is received after the Member routed the ISO. If a Member routes an ISO to facilitate a customer order, and that customer has consented to not receiving the better prices obtained by the ISO, the Member would also be exempt with respect to any trading for its own account that is the result of the ISO as it pertains to the consenting customer’s order. Odd Lot and Bona Fide Error Exception The Exchange proposes to except a Member’s proprietary trade that: (1) To offset a customer order that is an amount less than a normal unit of trading (i.e., an order less than one round lot, which is typically 100 shares), or (2) corrects a bona fide error. E:\FR\FM\01APN1.SGM 01APN1 18370 Federal Register / Vol. 79, No. 62 / Tuesday, April 1, 2014 / Notices With respect to bona fide errors, the Member would be required to demonstrate and document the basis upon which a transaction meets the bona fide error exception. For purposes of this proposed Rule, the Exchange will adopt the definition of ‘‘bona fide error’’ found in Regulation NMS’s exemption for error correction transactions.10 Thus, a bona fide error is: (i) The inaccurate conveyance or execution of any term of an order including, but not limited to, price, number of shares or other unit of trading; identification of the security; identification of the account for which securities are purchased or sold; lost or otherwise misplaced order tickets; short sales that were instead sold long or vice versa; or the execution of an order on the wrong side of a market; (ii) the unauthorized or unintended purchase sale or allocation of securities or the failure to follow specific client instructions; (iii) the incorrect entry of data into relevant systems, including reliance on incorrect cash positions, withdrawals, or securities positions reflected in an account; or (iv) a delay, outage, or failure of a communication system used to transmit market data prices or to facilitate the delivery or execution of an order. 11 mstockstill on DSK4VPTVN1PROD with NOTICES Minimum Price Improvement Standards The proposed rule change establishes the minimum amount of price improvement necessary for a Member to execute an order on a proprietary basis when holding an unexecuted limit order in that same security without being required to execute the held limit order. In addition, if the minimum price improvement standards set forth in proposed Interpretation and Policy .06, paragraphs (a) through (g) would trigger the protection of a pending customer limit order, any better-priced customer limit order(s) must also be protected under this Rule, even if those betterpriced limit orders would not be directly triggered under these minimum price improvement standards. Order Handling Procedures The proposed rule change provides that a Member must make every effort to execute a marketable customer order that it receives fully and promptly. A Member holding a marketable customer order that has not been immediately executed would have to make every effort to cross such order with any other order received by the Member on the other side of the market, up to the size of such order at a price that is no less than the best bid and no greater than the 10 Securities Exchange Act Release No. 55884 (June 8, 2007), 72 FR 32926, 32927 (June 14, 2007) (Order Exempting Certain Error Correction Transactions from Rule 611 of Regulation NMS under the Securities Exchange Act of 1934). 11 Id. VerDate Mar<15>2010 16:02 Mar 31, 2014 Jkt 232001 best offer at the time that the subsequent order is received by the Member and that is consistent with the terms of the orders. If a Member were holding multiple orders on both sides of the market that have not been executed, the Member would have to make every effort to cross or otherwise execute such orders in a manner reasonable and consistent with the objectives of the proposed Rule and with the terms of the orders. A Member could satisfy the crossing requirement by contemporaneously buying from the seller and selling to the buyer at the same price. Trading Outside Normal Market Hours Under the proposed amendments to Rule 12.6, a Member generally could limit the life of a customer order to the period of normal market hours of 9:30 a.m. to 4:00 p.m. Eastern Time. However, if the customer and Member agreed to the processing of the customer’s order outside normal market hours, the protections of amended Rule 12.6 would apply to that customer’s order at all times the customer order is executable by the Member. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 12 in general, and furthers the objectives of Section 6(b)(5) of the Act 13 in particular, in that it is designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in 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. The Exchange believes that amending the rule to conform to FINRA Rule 5320, BATS Rule 12.6 and BYX Rule 12.6 will contribute to investor protection by defining important parameters by which Members must abide when trading proprietarily while holding customer limit and market orders, and foster cooperation by harmonizing requirements across self-regulatory organizations. The Exchange also believes that including this rule will reinforce the importance of and ensure that Members are aware of these requirements. Members who are also members of FINRA, BATS, or BYX are subject to different regulatory standards when seeking to comply with applicable rules regarding customer protection. The 12 15 13 15 PO 00000 U.S.C. 78f(b). U.S.C. 78f(b)(5). Frm 00114 Fmt 4703 Sfmt 4703 Exchange believes that the proposed rule change will provide greater harmonization between similar Exchange and FINRA, BATS, and BYX rules, resulting in greater uniformity and, less burdensome and more efficient regulatory compliance for common members. 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. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. To the contrary, the Exchange believes that the proposal enhances cooperation among markets and other trading venues to promote fair and orderly markets and to protect the interests of the public and of investors. Specifically, by aligning the Exchange’s customer protection rules with those of FINRA, BATS, BYX and other exchanges,14 the proposed rule change will reduce the complexity of the customer order protection rules for those Members that are also subject to the customer order protection rules of FINRA and other exchanges. As a result, the proposed rule will help assure the protection of customer orders without imposing undue regulatory costs on industry participants. In addition, the proposed rule change is not designed to address any competitive issues but rather is designed to provide greater harmonization among similar Exchange and FINRA rules, 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. 14 See, e.g., Securities Exchange Act Release No. 64418 (May 6, 2011), 76 FR 27735 (May 12, 2011) (SR–CHX–2011–08) (notice of filing and immediate effectiveness of proposed rule change of Chicago Stock Exchange, Inc. to adopt customer order protection language consistent with FINRA Rule 5320); Securities Exchange Act Release No. 65165 (August 18, 2011), 76 FR 53009 (August 24, 2011) (SR–NYSEAmex–2011–59) (notice of filing and immediate effectiveness of proposed rule change of NYSE Amex LLC (now known as NYSE MKT LLC) to adopt customer order protection language that is substantially the same as FINRA Rule 5320); and Securities Exchange Act Release No. 65166 (August 18, 2011), 76 FR 53012 (August 24, 2011) (SR– NYSEArca–2011–57) (notice of filing and immediate effectiveness of proposed rule change of NYSE Arca, Inc. to adopt customer order protection language that is substantially the same as FINRA Rule 5320). E:\FR\FM\01APN1.SGM 01APN1 Federal Register / Vol. 79, No. 62 / Tuesday, April 1, 2014 / Notices Paper Comments 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 The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act 15 and Rule 19b– 4(f)(6) thereunder.16 Because the proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative prior to 30 days from the date on which it was filed, 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 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: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–EDGA–2014–007 on the subject line. U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 17 15 U.S.C. 78s(b)(3)(A). 18 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires the Exchange to give the Commission written notice of the Exchange’s 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 satisfied this requirement. • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–EDGA–2014–007. 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– 2014–007 and should be submitted on or before April 22, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–07194 Filed 3–31–14; 8:45 am] BILLING CODE 8011–01–P 15 15 mstockstill on DSK4VPTVN1PROD with NOTICES 16 17 VerDate Mar<15>2010 16:02 Mar 31, 2014 Jkt 232001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–71812; File No. SR–EDGX– 2014–008] Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 12.6 To Conform to FINRA Rule 5320, BATS Rule 12.6 and BATS–Y Rule 12.6 Relating to Trading Ahead of Customer Orders March 26, 2014. 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 March 21, 2014, 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing with the Commission a proposal to amend Rule 12.6, Customer Priority, to make it substantially similar to Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) Rule 5320, BATS Exchange, Inc. (‘‘BATS’’) Rule 12.6 and BATS–Y Exchange, Inc. (‘‘BYX’’) Rule 12.6. 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. 1 15 19 17 PO 00000 CFR 200.30–3(a)(12). Frm 00115 Fmt 4703 Sfmt 4703 18371 2 17 E:\FR\FM\01APN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 01APN1

Agencies

[Federal Register Volume 79, Number 62 (Tuesday, April 1, 2014)]
[Notices]
[Pages 18367-18371]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-07194]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71811; File No. SR-EDGA-2014-007]


Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rule 12.6 to Conform to FINRA Rule 5320, BATS Rule 12.6 and BATS-Y Rule 
12.6 Relating to Trading Ahead of Customer Orders

March 26, 2014.
    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 March 21, 2014, EDGA Exchange, Inc. (the ``Exchange'' or 
``EDGA'') 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

[[Page 18368]]

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 is filing with the Commission a proposal to amend Rule 
12.6, Customer Priority, to make it substantially similar to Financial 
Industry Regulatory Authority, Inc. (``FINRA'') Rule 5320, BATS 
Exchange, Inc. (``BATS'') Rule 12.6 and BATS-Y Exchange, Inc. (``BYX'') 
Rule 12.6. 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
    The Exchange proposes to amend Rule 12.6, which limits trading 
ahead of customer orders by Members,\3\ to make the rule substantially 
similar to FINRA Rule 5320,\4\ BATS Rule 12.6 and BYX Rule 12.6.\5\
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    \3\ The term ``Member'' is defined as ``any registered broker or 
dealer, or any person associated with a registered broker or dealer, 
that has been admitted to membership in the Exchange. A Member will 
have the status of a ``member'' of the Exchange as that term is 
defined in Section 3(a)(3) of the Act.'' See Exchange Rule 1.5(n).
    \4\ See Securities Exchange Act Release No. 63895 (February 11, 
2011), 76 FR 9386 (February 17, 2011) (SR-FINRA-2009-090).
    \5\ See Securities Exchange Act Release No. 70952 (November 27, 
2013), 78 FR 72949 (December 4, 2013) (SR-BATS-2013-056) (order 
approving proposal to amend BATS Rule 12.6); see also Securities 
Exchange Act Release No. 70951 (November 27, 2013), 78 FR 72944 
(December 4, 2013) (SR-BYX-2013-036) (order approving proposal to 
amend Rule 12.6).
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    On January 31, 2014, Direct Edge Holdings LLC (``DE Holdings''), 
the former parent company of the Exchange, completed its business 
combination with BATS Global Markets, Inc., the parent company of BATS 
and BYX.\6\ As part of its effort to reduce regulatory duplication and 
relieve firms that are members of the Exchange, BATS, and BYX of 
conflicting or unnecessary regulatory burdens, the Exchange is now 
engaged in the process of reviewing and amending certain Exchange, 
BATS, and BYX Rules.
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    \6\ See Securities Exchange Act Release No. 71449 (January 30, 
2014), 79 FR 6961 (February 5, 2014) (SR-EDGA-2013-34). Upon 
completion of the Combination, DE Holdings and BATS Global Markets, 
Inc. each became intermediate holding companies, held under a single 
new holding company. The new holding company, formerly named ``BATS 
Global Markets Holdings, Inc.,'' changed its name to ``BATS Global 
Markets, Inc.''
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    In addition, pursuant to Rule 17d-2 under the Act,\7\ 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 EDGA and FINRA for violations of 
federal securities laws, rules or regulations, or Exchange rules that 
the Exchange has 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.\8\ 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.
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    \7\ 17 CFR 240.17d-2.
    \8\ See Securities Exchange Act Release No. 61698 (March 12, 
2010), 75 FR 13151 (March 18, 2010) (approving File No. 10-196).
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    To conform to comparable FINRA rules for purposes of the 17d-2 
Agreement, as well as BATS and BYX rules for purposes of its 
harmonization efforts due to its business combination, the Exchange 
proposes to amend Rule 12.6, Customer Priority, to align with FINRA 
Rule 5320, BATS Rule 12.6, and BYX Rule 12.6.
    As with FINRA Rule 5320, BATS Rule 12.6 and BYX Rule 12.6, amended 
Rule 12.6 would prohibit Members from trading ahead of customer orders, 
subject to specified exceptions. The amended rule would include 
exceptions for large orders and institutional accounts, proprietary 
transactions effected by a trading unit of a Member with no knowledge 
of customer orders held by another trading unit of the Member, riskless 
principal transactions, intermarket sweep orders (``ISOs''), and odd 
lot and bona fide error transactions, discussed in detail below. 
Amended Rule 12.6 would also provide the same guidance as FINRA Rule 
5320, BATS Rule 12.6 and BYX Rule 12.6, on minimum price improvement 
standards, order handling procedures, and trading outside normal market 
hours.
Background
    Current Rule 12.6, the customer order protection rule, generally 
prohibits Members from trading on a proprietary basis ahead of, or 
along with, customer orders that are executable at the same price as 
the proprietary order. The rule contains several exceptions that make 
it permissible for a Member to enter a proprietary order while 
representing a customer order that could be executed at the same price, 
including permitting transactions for the purposes of facilitating the 
execution, on a riskless principal basis, of one or more customer 
orders.
Proposal To Adopt Text of FINRA Rule 5320, BATS Rule 12.6 and BYX Rule 
12.6
    To harmonize its rules with FINRA, BATS, and BYX, the Exchange 
proposes to delete the current text of Rule 12.6 and its supplementary 
material and adopt the text and supplementary material of FINRA Rule 
5320, with certain technical changes, as Rule 12.6. The proposed text 
of proposed Rule 12.6 would be identical to the text of BATS Rule 12.6 
and BYX Rule 12.6. FINRA Rule 5320, BATS Rule 12.6, and BYX Rule 12.6 
generally provide that a member that accepts and holds an order in an 
equity security from its own customer, or a customer of another broker-
dealer, without immediately executing the order is prohibited from 
trading that security on the same side of the market for its own 
account at a price that would satisfy the customer order, unless it 
immediately thereafter executes the customer order up to the size and 
at the same or better price at which it traded for its own account.
Exceptions
    Amended Rule 12.6 would include exceptions to the prohibition 
against trading ahead of customer orders. That

[[Page 18369]]

is, a Member that meets the conditions of an exception would be 
permitted to trade a security on the same side of the market for its 
own account at a price that would satisfy a customer order in certain 
circumstances. The exceptions are set out below.
Large Orders and Institutional Accounts
    One exception would permit a Member to negotiate terms and 
conditions with respect to the acceptance of certain large-sized orders 
(orders of 10,000 shares or more unless such orders are less than 
$100,000 in value) or orders from institutional accounts. The term 
``institutional account'' will be defined in accordance with FINRA Rule 
4512(c) and Interpretation and Policy .01 under both BATS and BYX Rules 
12.6. That is, an institutional account will be defined as the account 
of: (1) A bank, savings and loan association, insurance company or 
registered investment company; (2) an investment adviser registered 
either with the SEC under Section 203 of the Investment Advisers Act or 
with a state securities commission (or any agency or office performing 
like functions); or (3) any other person (whether a natural person, 
corporation, partnership, trust or otherwise) with total assets of at 
least $50 million. This exception would require the Member to provide 
clear and comprehensive written disclosure to each customer at account 
opening and annually thereafter that: (a) States that the Member may 
trade proprietarily at prices that would satisfy the customer order, 
and (b) provides the customer with a meaningful opportunity to opt in 
to the Rule 12.6 protections with respect to all or any portion of its 
order. If a customer does not opt in to the protections with respect to 
all or any portion of its order, the Member may reasonably conclude 
that such customer has consented to the Member trading a security on 
the same side of the market for its own account at a price that would 
satisfy the customer's order.\9\
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    \9\ A customer would retain the right to withdraw consent at any 
time. Therefore, a Member's reasonable conclusion that a customer 
has consented to the Member trading along with such customer's order 
is subject to further instruction and modification from the 
customer.
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    In lieu of providing written disclosure to customers at account 
opening and annually thereafter, the proposed rule would permit Members 
to provide clear and comprehensive oral disclosure to, and obtain 
consent from, a customer on an order-by-order basis. The Member would 
be required to document who provided such consent and that such consent 
evidences the customer's understanding of the terms and conditions of 
the order. If a customer opted in to the Rule 12.6 protections, a 
Member could still obtain consent on an order-by-order basis to trade 
ahead of or along with an order from that customer, provided that the 
Member documented who provided such consent and that such consent 
evidenced the customer's understanding of the terms and conditions of 
the order.
No-Knowledge Exception
    The Exchange is also proposing to include in Interpretation and 
Policy .02 a ``no-knowledge'' exception to its customer order 
protection rule. The proposed exception would allow one trading unit of 
a Member to trade in a proprietary capacity and at prices that would 
satisfy customer orders held by another, separate trading unit of the 
Member. The No-Knowledge Exception would be applicable with respect to 
NMS stocks, as defined in Rule 600 of Regulation NMS under the Act.
    To avail itself of the No-Knowledge Exception, a Member would be 
required to meet certain conditions. First, it would have to implement 
and utilize an effective system of internal controls (such as 
appropriate information barriers) that operate to prevent the 
proprietary trading unit from obtaining knowledge of the customer 
orders held by a separate trading unit. As proposed, Interpretation and 
Policy .02 will make clear that appropriate information barriers must, 
at a minimum, comply with the Exchange's existing requirements 
regarding the prevention of the misuse of material, non-public 
information, which are set forth in Exchange Rule 5.5. Second, the 
Member would have to provide, at account opening and annually 
thereafter, a written description of how it handles customer orders and 
the circumstances under which it may trade proprietarily, including in 
a market-making capacity, at prices that would satisfy the customer 
order. A Member must maintain records indicating which orders rely on 
the no-knowledge exception and produce these records to the Exchange 
upon request. The onus will be on the Member to produce sufficient 
documentation justifying reliance on the No-Knowledge exception for any 
given trade. To ensure clarity and transparency regarding this 
exception and others, the Exchange will be issuing a regulatory notice 
informing Members of these proposed rule changes. The Exchange will 
include in the regulatory notice the effective date for the rule as 
amended, which shall be at least 30 days after the effectiveness of the 
amendments to Rule 12.6 in order to allow Members to make any necessary 
changes to their internal policies or processes.
Riskless Principal Exception
    Amended Rule 12.6 would not apply to a proprietary trade made by 
the Member to facilitate the execution, on a riskless principal basis, 
of another order from a customer (whether its own customer or the 
customer of another broker-dealer). To take advantage of this 
exception, the Member would have to: (a) Submit a report, 
contemporaneously with the execution of the facilitated order, 
identifying the trade as riskless principal to the Exchange, and (b) 
have written policies and procedures to ensure that riskless principal 
transactions relied upon for this exception comply with applicable 
Exchange rules. At a minimum, these policies and procedures would have 
to require: (1) Receipt of the customer order before execution of the 
offsetting principal transaction, and (2) execution of the offsetting 
principal transaction at the same price as the customer order, 
exclusive of any markup or markdown, commission equivalent, or other 
fee and allocation to a riskless principal or customer account in a 
consistent manner and within 60 seconds of execution.
    Members would have to have supervisory systems in place that 
produce records that enable the Member and the Exchange to reconstruct 
accurately, readily, and in a time-sequenced manner all orders on which 
the Member relies in claiming this exception.
ISO Exception
    The proposed rule change would also exempt a Member from the 
obligation to execute a customer order in a manner consistent with Rule 
12.6 with regard to trading for its own account when the Member routed 
an ISO in compliance with Rule 600(b)(30)(ii) of Regulation NMS if the 
customer order is received after the Member routed the ISO. If a Member 
routes an ISO to facilitate a customer order, and that customer has 
consented to not receiving the better prices obtained by the ISO, the 
Member would also be exempt with respect to any trading for its own 
account that is the result of the ISO as it pertains to the consenting 
customer's order.
Odd Lot and Bona Fide Error Exception
    The Exchange proposes to except a Member's proprietary trade that: 
(1) To offset a customer order that is an amount less than a normal 
unit of trading (i.e., an order less than one round lot, which is 
typically 100 shares), or (2) corrects a bona fide error.

[[Page 18370]]

With respect to bona fide errors, the Member would be required to 
demonstrate and document the basis upon which a transaction meets the 
bona fide error exception. For purposes of this proposed Rule, the 
Exchange will adopt the definition of ``bona fide error'' found in 
Regulation NMS's exemption for error correction transactions.\10\ Thus, 
a bona fide error is:
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    \10\ Securities Exchange Act Release No. 55884 (June 8, 2007), 
72 FR 32926, 32927 (June 14, 2007) (Order Exempting Certain Error 
Correction Transactions from Rule 611 of Regulation NMS under the 
Securities Exchange Act of 1934).

    (i) The inaccurate conveyance or execution of any term of an 
order including, but not limited to, price, number of shares or 
other unit of trading; identification of the security; 
identification of the account for which securities are purchased or 
sold; lost or otherwise misplaced order tickets; short sales that 
were instead sold long or vice versa; or the execution of an order 
on the wrong side of a market; (ii) the unauthorized or unintended 
purchase sale or allocation of securities or the failure to follow 
specific client instructions; (iii) the incorrect entry of data into 
relevant systems, including reliance on incorrect cash positions, 
withdrawals, or securities positions reflected in an account; or 
(iv) a delay, outage, or failure of a communication system used to 
transmit market data prices or to facilitate the delivery or 
execution of an order. \11\
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    \11\ Id.

Minimum Price Improvement Standards
    The proposed rule change establishes the minimum amount of price 
improvement necessary for a Member to execute an order on a proprietary 
basis when holding an unexecuted limit order in that same security 
without being required to execute the held limit order.
    In addition, if the minimum price improvement standards set forth 
in proposed Interpretation and Policy .06, paragraphs (a) through (g) 
would trigger the protection of a pending customer limit order, any 
better-priced customer limit order(s) must also be protected under this 
Rule, even if those better-priced limit orders would not be directly 
triggered under these minimum price improvement standards.
Order Handling Procedures
    The proposed rule change provides that a Member must make every 
effort to execute a marketable customer order that it receives fully 
and promptly. A Member holding a marketable customer order that has not 
been immediately executed would have to make every effort to cross such 
order with any other order received by the Member on the other side of 
the market, up to the size of such order at a price that is no less 
than the best bid and no greater than the best offer at the time that 
the subsequent order is received by the Member and that is consistent 
with the terms of the orders. If a Member were holding multiple orders 
on both sides of the market that have not been executed, the Member 
would have to make every effort to cross or otherwise execute such 
orders in a manner reasonable and consistent with the objectives of the 
proposed Rule and with the terms of the orders. A Member could satisfy 
the crossing requirement by contemporaneously buying from the seller 
and selling to the buyer at the same price.
Trading Outside Normal Market Hours
    Under the proposed amendments to Rule 12.6, a Member generally 
could limit the life of a customer order to the period of normal market 
hours of 9:30 a.m. to 4:00 p.m. Eastern Time. However, if the customer 
and Member agreed to the processing of the customer's order outside 
normal market hours, the protections of amended Rule 12.6 would apply 
to that customer's order at all times the customer order is executable 
by the Member.
Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \12\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \13\ in particular, in that it is designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in 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. The Exchange believes that 
amending the rule to conform to FINRA Rule 5320, BATS Rule 12.6 and BYX 
Rule 12.6 will contribute to investor protection by defining important 
parameters by which Members must abide when trading proprietarily while 
holding customer limit and market orders, and foster cooperation by 
harmonizing requirements across self-regulatory organizations. The 
Exchange also believes that including this rule will reinforce the 
importance of and ensure that Members are aware of these requirements.
---------------------------------------------------------------------------

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

    Members who are also members of FINRA, BATS, or BYX are subject to 
different regulatory standards when seeking to comply with applicable 
rules regarding customer protection. The Exchange believes that the 
proposed rule change will provide greater harmonization between similar 
Exchange and FINRA, BATS, and BYX rules, resulting in greater 
uniformity and, less burdensome and more efficient regulatory 
compliance for common members. 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.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. To the contrary, the Exchange 
believes that the proposal enhances cooperation among markets and other 
trading venues to promote fair and orderly markets and to protect the 
interests of the public and of investors. Specifically, by aligning the 
Exchange's customer protection rules with those of FINRA, BATS, BYX and 
other exchanges,\14\ the proposed rule change will reduce the 
complexity of the customer order protection rules for those Members 
that are also subject to the customer order protection rules of FINRA 
and other exchanges. As a result, the proposed rule will help assure 
the protection of customer orders without imposing undue regulatory 
costs on industry participants. In addition, the proposed rule change 
is not designed to address any competitive issues but rather is 
designed to provide greater harmonization among similar Exchange and 
FINRA rules, 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.
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    \14\ See, e.g., Securities Exchange Act Release No. 64418 (May 
6, 2011), 76 FR 27735 (May 12, 2011) (SR-CHX-2011-08) (notice of 
filing and immediate effectiveness of proposed rule change of 
Chicago Stock Exchange, Inc. to adopt customer order protection 
language consistent with FINRA Rule 5320); Securities Exchange Act 
Release No. 65165 (August 18, 2011), 76 FR 53009 (August 24, 2011) 
(SR-NYSEAmex-2011-59) (notice of filing and immediate effectiveness 
of proposed rule change of NYSE Amex LLC (now known as NYSE MKT LLC) 
to adopt customer order protection language that is substantially 
the same as FINRA Rule 5320); and Securities Exchange Act Release 
No. 65166 (August 18, 2011), 76 FR 53012 (August 24, 2011) (SR-
NYSEArca-2011-57) (notice of filing and immediate effectiveness of 
proposed rule change of NYSE Arca, Inc. to adopt customer order 
protection language that is substantially the same as FINRA Rule 
5320).

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[[Page 18371]]

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \15\ and Rule 19b-4(f)(6) thereunder.\16\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, 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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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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 satisfied this requirement.
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    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:

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-2014-007 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-EDGA-2014-007. 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-2014-007 and should be 
submitted on or before April 22, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-07194 Filed 3-31-14; 8:45 am]
BILLING CODE 8011-01-P
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