Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 11.12, Limitation of Liability, 65746-65749 [2014-26233]
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Federal Register / Vol. 79, No. 214 / Wednesday, November 5, 2014 / Notices
states that allowing certain RHO orders
(ISOs designated RHO) and all non-RHO
orders to interact (and, in the case of
non-RHO orders, to be added to the
BATS Book where there is no contraside interest) during the period between
9:30 a.m. Eastern Time and the
occurrence of the Opening Process will
create a more orderly opening and
facilitate the price formation process
because Users will have the option to
enter orders that will either participate
in the Opening Process or immediately
interact with liquidity from the PreOpening Session, allowing trading to
continue while the Exchange is waiting
for the conditions necessary to complete
the Opening Process.40
The Exchange also believes that
certain features of the Opening Process
and Re-Opening Process are consistent
with the Act. The Exchange states that
the proposed exclusion of BATS Post
Only Orders, Partial Post Only at Limit
Orders, ISOs, and Minimum Quantity
Orders from participation in the
Opening Process is consistent with
Section 6(b)(5) of the Act because such
order types do not make sense in the
context of queuing orders for the
Opening Process.41 Moreover, according
to the Exchange, its proposal to allow an
ISO marked RHO to execute against
eligible Pre-Opening Session interest
during the period between 9:30 a.m.
Eastern Time and the occurrence of the
Opening Process, and then convert the
unexecuted portion of the order into a
non-ISO for queuing for participation in
the Opening Process, is consistent with
the requirements of Regulation NMS.42
According to the Exchange, after 9:30
a.m. Eastern Time, there may be a
protected bid or offer displayed by the
Exchange that a User who has submitted
an ISO designated RHO would like to
execute against, and this aspect of the
proposal would permit such an
execution to occur prior to the ISO
being converted into a non-ISO and
queued for participation in the Opening
Process.43
In addition, the Exchange states that
the proposed Contingent Opening
Process is designed 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 because it will help to
ensure that the Exchange opens trading
in a fair and orderly manner by
providing a means for opening trading
in a non-BATS-listed security when
there is no two-sided NBBO in the
security for fifteen minutes after the
beginning of Regular Trading Hours.44
The Exchange believes that fifteen
minutes is a reasonable amount of time
to wait for the establishment of a twosided NBBO because it marks a point at
which the market in a security has had
a sufficient amount of time to develop
while simultaneously providing a
reasonable cut-off point at which the
Exchange may open the security for
Regular Trading Hours trading.45 The
Exchange also believes that handling all
orders queued for participation in the
Opening Process in time sequence after
fifteen minutes will help to ensure that
trading opens in as fair and orderly a
manner as possible.46
Lastly, the Exchange states that the
proposed Opening Process will provide
Users with greater control and flexibility
when entering orders in non-BATSlisted securities by allowing them to
enter orders for participation in Regular
Hours Trading during the Pre-Opening
Session, rather than permitting them to
enter such orders only after Regular
Trading Hours have begun.47 According
to the Exchange, allowing Users that do
not want to participate in the PreOpening Session to enter RHO orders
prior to Regular Trading Hours will
simplify the order entry process for such
Users and remove impediments to a free
and open market.48
For the reasons noted above, the
Commission finds that the proposed
rule change is consistent with the Act,
including Section 6(b)(5) of the Act,49
which requires, among other things, that
the rules of an exchange be designed to
promote just and equitable principles of
trade, 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.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,50 that the
proposed rule change, SR–BATS–2014–
037, be, and hereby is, approved.
44 Id.
48 Id.
49 15
see also 17 CFR 242.600.
43 See Notice, supra note 3, 79 FR at 56424.
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73476; File No. SR–EDGX–
2014–24]
Self-Regulatory Organizations; EDGX
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change to Rule 11.12, Limitation
of Liability
October 30, 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 October
27, 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 Exchange. The Exchange has
designated this proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6)(iii)
thereunder,4 which renders it effective
upon filing with the Commission. 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 filed a proposal to
amend Rule 11.12, Limitation of
Liability, to harmonize its liability caps
with those set forth under BATS
Exchange, Inc. (‘‘BATS’’) Rule 11.16 and
BATS Y-Exchange, Inc. (‘‘BYX’’) Rule
11.16.5
The text of the proposed rule change
is available at the Exchange’s Web site
at https://www.directedge.com/, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6)(iii).
5 See BATS Rule 11.16(d)(1)–(3); BYX Rule
11.16(d)(1)–(3).
47 Id.
42 Id.;
BILLING CODE 8011–01–P
1 15
46 Id.
41 Id.
[FR Doc. 2014–26231 Filed 11–4–14; 8:45 am]
51 17
45 Id.
40 Id.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.51
Brent J. Fields,
Secretary.
U.S.C. 78f(b)(5).
U.S.C. 78s(b)(2).
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Federal Register / Vol. 79, No. 214 / Wednesday, November 5, 2014 / Notices
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 11.12, Limitation of Liability, to
harmonize its liability caps with those
set forth under BATS Rule 11.16 and
BYX Rule 11.16.6 Earlier this year, the
Exchange and its affiliate EDGA
Exchange, Inc. (‘‘EDGA’’) received
approval to effect a merger (the
‘‘Merger’’) of the Exchange’s parent
company, Direct Edge Holdings LLC,
with BATS Global Markets, Inc., the
parent of BATS and BYX (together with
BATS, BYX, EDGA and EDGX, the
‘‘BGM Affiliated Exchanges’’).7 In the
context of the Merger, the BGM
Affiliated Exchanges are working to
align certain rules, retaining only
intended differences between the BGM
Affiliated Exchanges. As part of this
effort, BATS and BYX recently filed
proposed rule changes with the
Commission to amend paragraph (f) of
Rule 11.16 to align with EDGA Rule
11.12(d)(3) and (e) as well as EDGX Rule
11.12(d)(3) and (e).8 Thus, the proposal
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6 Id.
7 See Securities Exchange Act Release No. 71449
(January 30, 2014), 79 FR 6961 (February 5, 2014)
(SR–EDGX–2013–43; SR–EDGA–2013–34).
8 See Securities Exchange Act Release Nos. 73356
(October 15, 2014) (SR–BATS–2014–045); and
73357 (October 15, 2014) (SR–BYX–2014–027). In
sum, BATS and BYX amended Rule 11.16 to align
with Exchange Rule 11.12 to provide members with
additional time within which to submit a written
claim for compensation for ‘‘losses resulting
directly from the malfunction of the Exchange’s
physical equipment, devices and/or programming
or the negligent acts or omissions of its employees’’
and add a new paragraph (g) to Rule 11.16 to permit
the Exchange, subject to certain conditions and
limitations, to compensate Members for certain
losses incurred in connection with orders or
portions of orders routed by the Exchange through
its affiliated routing broker-dealer, BATS Trading,
Inc., to Trading Centers where such losses are
claimed by the Member to have resulted directly
from a malfunction of the physical equipment,
devices and/or programming, or the negligent acts
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set forth below harmonizes remaining
sections of Exchange Rule 11.12 and
BATS and BYX Rules 11.16 by aligning
the liability caps in order to provide
consistent member reimbursement
requirements for users of the BGM
Affiliated Exchanges.9
Rule 11.12 currently states that,
except as provided in subsection (d) of
the Rule, the Exchange and its affiliates
shall not be liable for any losses,
damages, or other claims arising out of
the Exchange or its use. Exchange Rule
11.16(d) provides a limited exception to
its general limitation of liability that
allows for the payment of compensation
to Members for ‘‘losses resulting directly
from the malfunction of the Exchange’s
physical equipment, devices and/or
programming or the negligent acts or
omissions of its employees’’ (‘‘Exchange
Systems Issues’’), subject to certain
conditions. Subsection (d)(1) of Rule
11.12 limits the aggregate limits of all
claims made by all Members during a
single calendar month to the larger of
$500,000, or the amount of any recovery
obtained by the Exchange under any
applicable insurance maintained by the
Exchange.
The Exchange now proposes to
renumber subsection (d)(1) of the Rule
11.12 and adopt new subsections (d)(1)
and (2) under Rule 11.12 to harmonize
its liability caps with those set forth
under existing rules of BATS and
BYX.10 Under the proposed rule change,
the Exchange would cap its liability for
Exchange Systems Issues under
proposed Rule 11.12(d)(1) and (2):
(i) To a single Member at the greater of
$100,000 or the amount recovered under
any applicable insurance policy on a
single trading day; (ii) to all Members at
the greater of $250,000 or the amount
recovered under any applicable
insurance policy on a single trading day.
Current Rule 11.12(d)(1) would be renumbered as subsection (d)(3) and
continue to cap the Exchange’s liability
to all Members at the greater of $500,000
or the amount recovered under any
applicable insurance policy in a single
calendar month.11
or omissions of the employees, of such Trading
Centers.
9 The Exchange understands that EDGA is to file
a proposed rule change with the Commission to
adopt similar requirements.
10 See supra note 5.
11 The Exchange notes that under renumbered
Rule 11.12(g)(4) any compensation paid to Members
from reimbursement recovered from a Trading
Center for a routed order will not count against the
Exchange’s liability limits set forth in Rule 11.12(d),
nor any applicable insurance maintained by the
Exchange. Securities Exchange Act Release Nos.
71061 (December 12, 2013), 78 FR 76685 (December
18, 2013) (SR–EDGA–2013–36) (Notice of Filing
and Immediate Effectiveness of Proposed Rule
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65747
The Exchange also proposes to amend
Rule 11.12(d)(2) to align with the
proposed liability caps for a single
trading day. Specifically, proposed Rule
11.12(d)(2) would be amended to clarify
that, to the extent that all claims
resulting from Exchange Systems Issues
cannot be fully satisfied because in the
aggregate they exceed the applicable
maximum amount of liability provided
for, then the Exchange proposes to
allocate the maximum amount among
all such claims arising on a single
trading day or during a single calendar
month, as applicable, based on the
proportion that each such claim bears to
the sum of all such claims. Rule
11.12(d)(2) would also be renumbered
as Rule 11.12(e).
The Exchange also proposes to amend
Rule 11.12(e)(4) to align with the
amended liability caps as well as to
renumber other sections within Rule
11.12 to mirror BATS Rule 11.16 and
BYX Rule 11.16.
Implementation Date
The Exchange intends to implement
the proposed rule change on or about
November 6, 2014, which is the
anticipated operative date of recently
filed BATS and BYX proposed rule
changes to align BATS and BYX Rules
11.16 with EDGA and EDGX Rules
11.12(d)(3) and (e).12 The Exchange will
announce the implementation of the
proposed rule change via a trading
notice to be posted on the Exchange’s
Web site.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act 13 and furthers
the objectives of Section 6(b)(5) of the
Act,14 in that it is designed promote just
and equitable principles of trade,
remove impediments to, and perfect the
mechanism of, a free and open market
and a national market system, and, in
general, protect investors and the public
interest. The proposal, in effect, would
allow the Exchange to ensure that
compensation for a single incident did
not exceed the monthly cap of $500,000,
thereby providing [sic] enabling the
Exchange to possibly compensate
Members for instances on multiple
trading days per month subject to Rule
11.12(d)(3). The Exchange believes that
Change To Amend EDGX Rule 11.12, Limitations of
Liability); and 71062 (December 12, 2013), 78 FR
76693 (December 18, 2013) (SR–EDGX–2013–45)
(Notice of Filing and Immediate Effectiveness of
Proposed Rule Change To Amend EDGX Rule 11.12,
Limitations of Liability).
12 See supra note 8.
13 15 U.S.C. 78f(b).
14 15 U.S.C. 78f(b)(5).
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Federal Register / Vol. 79, No. 214 / Wednesday, November 5, 2014 / Notices
the proposed rule change is not
designed to permit unfair
discrimination between customers,
issuers, brokers or dealers. The
proposed rule change is substantially
similar to the existing rules of BATS
and BYX.15 The proposed rule change is
intended to align the liability caps for
Member reimbursements with that
currently provided by BATS and BYX in
order to provide a consistent rules
across the BGM Affiliated Exchanges.
Consistent rules, in turn, will simplify
the regulatory requirements for
Members of the Exchange that are also
participants on EDGA and EDGX. The
proposed rule change would provide
greater harmonization between EDGX
and EDGA 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.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The proposed rule change would not
impose any burden on competition. The
Exchange believes that the proposed
rule changes will not burden
intramarket competition because all
Members would be subject to the same
liability caps for claims resulting from
Exchange Systems Issues. The proposed
rule change is not designed to address
any competitive issues but rather is
designed to provide greater
harmonization among Exchange and
BATS and BYX rules of similar purpose,
resulting in less burdensome and more
efficient regulatory compliance for
common members of the BGM Affiliated
Exchanges.
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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)(iii) of the Act 16 and Rule
19b–4(f)(6) thereunder.17 Because the
15 See
supra note 5.
U.S.C. 78s(b)(3)(A)(iii).
17 17 CFR 240.19b–4(f)(6).
16 15
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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
for 30 days from the date on which it
was filed, or such shorter time as the
Commission may designate, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)
thereunder.18
A proposed rule change filed under
Rule 19b–4(f)(6) normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),19 the
Commission may 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. Waiver of the 30-day operative
delay would provide consistent rules
across the BGM Affiliated Exchanges
which will simplify the regulatory
requirements for Members of the
Exchange that are also participants on
EDGA, BATS and BYX. In addition, the
Commission notes that the proposed
rule change is identical to the existing
rules of BATS and BYX. Based on the
foregoing, the Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest.20 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. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
18 In addition, Rule 19b–4(f)(6)(iii) 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.
19 17 CFR 240.19b–4(f)(6)(iii).
20 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).
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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–2014–24 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–EDGX–2014–24. 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–
2014–24 and should be submitted on or
November 26, 2014.
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Federal Register / Vol. 79, No. 214 / Wednesday, November 5, 2014 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Brent J. Fields,
Secretary.
[FR Doc. 2014–26233 Filed 11–4–14; 8:45 am]
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73488; File No. SR–C2–
2014–020]
Self-Regulatory Organizations; C2
Options Exchange, Incorporated;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change Relating to the Automatic
Handling Process in No-Bid Series
October 31, 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 October
22, 2014, C2 Options Exchange,
Incorporated (the ‘‘Exchange’’ or ‘‘C2’’)
filed with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
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 proposes to amend its
rules regarding its automatic order
handling process. The text of the
proposed rule change is available on the
Exchange’s Web site (https://www.cboe.
com/AboutCBOE/CBOELegalRegulatory
Home.aspx), at the Exchange’s Office of
the Secretary, and at the Commission’s
Public Reference Room.
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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
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
21 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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1. Purpose
The Exchange proposes to amend its
rules regarding its automatic order
handling process. The proposed rule
change seeks to modify subparagraph
(h) to Rule 6.12, which sets forth how
the C2 System (the ‘‘System’’) 3 handles
market orders to sell in option series for
which the national best bid in the series
is zero (‘‘no-bid series’’).4 Currently, if
the System receives during the trading
day or has resting in the electronic book
(the ‘‘Book’’) 5 after the opening of
trading a market order to sell in a nobid series, it handles the order as
follows:
• If the Exchange best offer in that
series is less than or equal to $0.30, then
the System will consider, for the
remainder of the trading day, the market
order as a limit order to sell with a limit
price equal to the minimum trading
increment applicable to the series and
enter the order into the Book behind
limit orders to sell at the minimum
increment that are already resting in the
Book.
• If the Exchange best offer in that
series is greater than $0.30, then the
market order will be cancelled.
Based on experience since the
implementation of this parameter, the
Exchange now proposes to change the
parameter from $0.30 to $0.50. The
Exchange believes that the automatic
handling of market orders to sell in nobid series if the Exchange best offer is
less than or equal to $0.50 would reduce
the number of orders that are
automatically cancelled. Additionally,
the $0.50 threshold serves as a
protection feature for investors in
certain situations, such as when a series
is no-bid because the last bid traded just
prior to the entry of the market order to
sell. The purpose of this threshold is to
limit the automatic booking of market
orders to sell at minimum increments to
3 The System is the automated trading system
used by the Exchange for the trading of options
contracts.
4 The Exchange notes that, for singly listed series,
the national best bid is equivalent to the Exchange’s
best bid and the national best offer is equivalent to
the Exchange’s best offer.
5 For example, the Exchange receives a market
order to sell prior to the opening of a series and the
series opens with a sell market order imbalance
pursuant to Rule 6.11(e)(4). When the series opens
the market order to sell, which was resting in the
book prior to the opening of the series, will be
routed according to the no-bid procedures in Rule
6.12.
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65749
only those for true zero-bid options, as
options in no-bid series with an offer of
more than $0.50 are less likely to be
worthless.
For example, if the CBOE Hybrid
System receives a market order to sell in
a no-bid series with a minimum
increment of $0.01 and the Exchange
best offer is $0.01, the System will
consider, for the remainder of the
trading day, the order as a limit order
with a price of $0.01 and submit it to
the Book behind other limit orders to
sell at the minimum increment that are
already resting in the Book. At that
point, even if the series is no-bid
because, for example, the last bid just
traded and the limit order trades at
$0.01, the next bid entered after the
trade would not be higher than $0.01.6
However, if the System receives a
market order to sell in a no-bid series
with a minimum increment of $0.01 and
the Exchange best offer is $1.20
(because, for example, the last bid of
$1.00 just traded and a new bid has not
yet populated the Exchange’s quote), the
System will instead cancel the order. It
would be unfair to the entering firm to
let its market order trade as a limit order
for $0.01 because, for example, the firm
submitted the order during the brief
time when there were no disseminated
bids in a series trading significantly
higher than the minimum increment.
The Exchange believes the threshold
of $0.50 is reasonable. The Exchange
notes that this threshold is less than the
current acceptable price range (‘‘APR’’)
parameter for series with a bid price of
less than $100.00.7 Pursuant to the price
check provision in Rule 6.17 8 the
6 If the order does not execute during the trading
day as a limit order and remains outstanding after
the close of trading (i.e., a GTC order), the System
at that time will no longer consider the order as a
limit order and will again handle the order as a
market order to sell after the close of trading. The
market order will stay on the Book until the
opening of the next trading day (or until cancelled),
at which point it may execute during the open or,
if it remains unexecuted after the opening of
trading, it will either execute with the best bid at
the time or, if the series is still no-bid, again be
handled pursuant to proposed Rule 6.12(h).
7 The acceptable APR parameter is determined by
the Exchange on a class-by-class basis. See Rule
6.17 and C2 Regulatory Circular RG14–020
(Operational System Settings—APR and OEPW).
8 Rule 6.17 also provides that the System will not
automatically execute eligible orders that are
marketable if the execution would follow an initial
partial execution on the Exchange and would be at
a subsequent price that is not within an acceptable
tick distance from the initial execution. The APR
for purposes of Rule 6.17 is determined by the
Exchange on a class-by-class basis and may not be
less than $0.375 between the bid and offer for each
option contract for which the bid is less than $2,
$0.60 where the bid is at least $2 but does not
exceed $5, $0.75 where the bid is more than $5 but
does not exceed $10, $1.20 where the bid is more
than $10 but does not exceed $20, and $1.50 where
E:\FR\FM\05NON1.SGM
Continued
05NON1
]]>Agencies
[Federal Register Volume 79, Number 214 (Wednesday, November 5, 2014)]
[Notices]
[Pages 65746-65749]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-26233]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73476; File No. SR-EDGX-2014-24]
Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change to Rule
11.12, Limitation of Liability
October 30, 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 October 27, 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 Exchange. The Exchange
has designated this proposal as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6)(iii) thereunder,\4\ which renders it effective upon filing with
the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to amend Rule 11.12, Limitation of
Liability, to harmonize its liability caps with those set forth under
BATS Exchange, Inc. (``BATS'') Rule 11.16 and BATS Y-Exchange, Inc.
(``BYX'') Rule 11.16.\5\
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\5\ See BATS Rule 11.16(d)(1)-(3); BYX Rule 11.16(d)(1)-(3).
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The text of the proposed rule change is available at the Exchange's
Web site at https://www.directedge.com/, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
[[Page 65747]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 11.12, Limitation of Liability,
to harmonize its liability caps with those set forth under BATS Rule
11.16 and BYX Rule 11.16.\6\ Earlier this year, the Exchange and its
affiliate EDGA Exchange, Inc. (``EDGA'') received approval to effect a
merger (the ``Merger'') of the Exchange's parent company, Direct Edge
Holdings LLC, with BATS Global Markets, Inc., the parent of BATS and
BYX (together with BATS, BYX, EDGA and EDGX, the ``BGM Affiliated
Exchanges'').\7\ In the context of the Merger, the BGM Affiliated
Exchanges are working to align certain rules, retaining only intended
differences between the BGM Affiliated Exchanges. As part of this
effort, BATS and BYX recently filed proposed rule changes with the
Commission to amend paragraph (f) of Rule 11.16 to align with EDGA Rule
11.12(d)(3) and (e) as well as EDGX Rule 11.12(d)(3) and (e).\8\ Thus,
the proposal set forth below harmonizes remaining sections of Exchange
Rule 11.12 and BATS and BYX Rules 11.16 by aligning the liability caps
in order to provide consistent member reimbursement requirements for
users of the BGM Affiliated Exchanges.\9\
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\6\ Id.
\7\ See Securities Exchange Act Release No. 71449 (January 30,
2014), 79 FR 6961 (February 5, 2014) (SR-EDGX-2013-43; SR-EDGA-2013-
34).
\8\ See Securities Exchange Act Release Nos. 73356 (October 15,
2014) (SR-BATS-2014-045); and 73357 (October 15, 2014) (SR-BYX-2014-
027). In sum, BATS and BYX amended Rule 11.16 to align with Exchange
Rule 11.12 to provide members with additional time within which to
submit a written claim for compensation for ``losses resulting
directly from the malfunction of the Exchange's physical equipment,
devices and/or programming or the negligent acts or omissions of its
employees'' and add a new paragraph (g) to Rule 11.16 to permit the
Exchange, subject to certain conditions and limitations, to
compensate Members for certain losses incurred in connection with
orders or portions of orders routed by the Exchange through its
affiliated routing broker-dealer, BATS Trading, Inc., to Trading
Centers where such losses are claimed by the Member to have resulted
directly from a malfunction of the physical equipment, devices and/
or programming, or the negligent acts or omissions of the employees,
of such Trading Centers.
\9\ The Exchange understands that EDGA is to file a proposed
rule change with the Commission to adopt similar requirements.
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Rule 11.12 currently states that, except as provided in subsection
(d) of the Rule, the Exchange and its affiliates shall not be liable
for any losses, damages, or other claims arising out of the Exchange or
its use. Exchange Rule 11.16(d) provides a limited exception to its
general limitation of liability that allows for the payment of
compensation to Members for ``losses resulting directly from the
malfunction of the Exchange's physical equipment, devices and/or
programming or the negligent acts or omissions of its employees''
(``Exchange Systems Issues''), subject to certain conditions.
Subsection (d)(1) of Rule 11.12 limits the aggregate limits of all
claims made by all Members during a single calendar month to the larger
of $500,000, or the amount of any recovery obtained by the Exchange
under any applicable insurance maintained by the Exchange.
The Exchange now proposes to renumber subsection (d)(1) of the Rule
11.12 and adopt new subsections (d)(1) and (2) under Rule 11.12 to
harmonize its liability caps with those set forth under existing rules
of BATS and BYX.\10\ Under the proposed rule change, the Exchange would
cap its liability for Exchange Systems Issues under proposed Rule
11.12(d)(1) and (2): (i) To a single Member at the greater of $100,000
or the amount recovered under any applicable insurance policy on a
single trading day; (ii) to all Members at the greater of $250,000 or
the amount recovered under any applicable insurance policy on a single
trading day. Current Rule 11.12(d)(1) would be re-numbered as
subsection (d)(3) and continue to cap the Exchange's liability to all
Members at the greater of $500,000 or the amount recovered under any
applicable insurance policy in a single calendar month.\11\
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\10\ See supra note 5.
\11\ The Exchange notes that under renumbered Rule 11.12(g)(4)
any compensation paid to Members from reimbursement recovered from a
Trading Center for a routed order will not count against the
Exchange's liability limits set forth in Rule 11.12(d), nor any
applicable insurance maintained by the Exchange. Securities Exchange
Act Release Nos. 71061 (December 12, 2013), 78 FR 76685 (December
18, 2013) (SR-EDGA-2013-36) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Amend EDGX Rule 11.12,
Limitations of Liability); and 71062 (December 12, 2013), 78 FR
76693 (December 18, 2013) (SR-EDGX-2013-45) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change To Amend EDGX Rule
11.12, Limitations of Liability).
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The Exchange also proposes to amend Rule 11.12(d)(2) to align with
the proposed liability caps for a single trading day. Specifically,
proposed Rule 11.12(d)(2) would be amended to clarify that, to the
extent that all claims resulting from Exchange Systems Issues cannot be
fully satisfied because in the aggregate they exceed the applicable
maximum amount of liability provided for, then the Exchange proposes to
allocate the maximum amount among all such claims arising on a single
trading day or during a single calendar month, as applicable, based on
the proportion that each such claim bears to the sum of all such
claims. Rule 11.12(d)(2) would also be renumbered as Rule 11.12(e).
The Exchange also proposes to amend Rule 11.12(e)(4) to align with
the amended liability caps as well as to renumber other sections within
Rule 11.12 to mirror BATS Rule 11.16 and BYX Rule 11.16.
Implementation Date
The Exchange intends to implement the proposed rule change on or
about November 6, 2014, which is the anticipated operative date of
recently filed BATS and BYX proposed rule changes to align BATS and BYX
Rules 11.16 with EDGA and EDGX Rules 11.12(d)(3) and (e).\12\ The
Exchange will announce the implementation of the proposed rule change
via a trading notice to be posted on the Exchange's Web site.
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\12\ See supra note 8.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \13\ and furthers the objectives of
Section 6(b)(5) of the Act,\14\ in that it is designed promote just and
equitable principles of trade, remove impediments to, and perfect the
mechanism of, a free and open market and a national market system, and,
in general, protect investors and the public interest. The proposal, in
effect, would allow the Exchange to ensure that compensation for a
single incident did not exceed the monthly cap of $500,000, thereby
providing [sic] enabling the Exchange to possibly compensate Members
for instances on multiple trading days per month subject to Rule
11.12(d)(3). The Exchange believes that
[[Page 65748]]
the proposed rule change is not designed to permit unfair
discrimination between customers, issuers, brokers or dealers. The
proposed rule change is substantially similar to the existing rules of
BATS and BYX.\15\ The proposed rule change is intended to align the
liability caps for Member reimbursements with that currently provided
by BATS and BYX in order to provide a consistent rules across the BGM
Affiliated Exchanges. Consistent rules, in turn, will simplify the
regulatory requirements for Members of the Exchange that are also
participants on EDGA and EDGX. The proposed rule change would provide
greater harmonization between EDGX and EDGA 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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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
\15\ See supra note 5.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change would not impose any burden on
competition. The Exchange believes that the proposed rule changes will
not burden intramarket competition because all Members would be subject
to the same liability caps for claims resulting from Exchange Systems
Issues. The proposed rule change is not designed to address any
competitive issues but rather is designed to provide greater
harmonization among Exchange and BATS and BYX rules of similar purpose,
resulting in less burdensome and more efficient regulatory compliance
for common members of the BGM Affiliated Exchanges.
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)(iii) of the Act \16\ and Rule 19b-4(f)(6) thereunder.\17\
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 for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6)
thereunder.\18\
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\16\ 15 U.S.C. 78s(b)(3)(A)(iii).
\17\ 17 CFR 240.19b-4(f)(6).
\18\ In addition, Rule 19b-4(f)(6)(iii) 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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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative prior to 30 days after the date of the filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\19\ the Commission may
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. Waiver of the 30-day
operative delay would provide consistent rules across the BGM
Affiliated Exchanges which will simplify the regulatory requirements
for Members of the Exchange that are also participants on EDGA, BATS
and BYX. In addition, the Commission notes that the proposed rule
change is identical to the existing rules of BATS and BYX. Based on the
foregoing, the Commission believes that waiving the 30-day operative
delay is consistent with the protection of investors and the public
interest.\20\ The Commission hereby grants the Exchange's request and
designates the proposal operative upon filing.
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\19\ 17 CFR 240.19b-4(f)(6)(iii).
\20\ 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).
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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. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
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-2014-24 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-EDGX-2014-24. 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-2014-24 and should be
submitted on or November 26, 2014.
[[Page 65749]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2014-26233 Filed 11-4-14; 8:45 am]
BILLING CODE 8011-01-P
