Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 3.5 (Advertising Practices) and Repeal Exchange Rule 3.20 (Initial or Partial Payments), 22580-22584 [2015-09272]
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Federal Register / Vol. 80, No. 77 / Wednesday, April 22, 2015 / Notices
that date, and June 28, 2015 is an
additional 60 days from that date.
The Commission finds it appropriate
to designate a longer period within
which to issue an order approving or
disapproving the proposed rule change
so that it has sufficient time to consider
the proposed rule change, the issues
raised in the comment letter that has
been submitted in connection with the
proposal and the response from the
Exchange and any comments that may
be submitted on the proposed rule
change, as modified by Amendment No.
2. As the Commission noted in the
Order Instituting Proceedings, the
proposal raises questions as to whether
the Exchange’s proposed rule change is
consistent with the requirements of
Sections 6(b)(5) 93 of the Act.94
Extending the time within which to
approve or disapprove the proposed
rule change, as modified by Amendment
No. 2, will enable the Commission to
more fully consider the issues raised by
the proposed rule change, the comment
letter received to date and the
Exchange’s response and any comments
that may be submitted on the proposed
rule change, as modified by Amendment
No. 2.
Accordingly, the Commission,
pursuant to Section 19(b)(2) of the
Act,95 designates June 28, 2015, as the
date by which the Commission should
either approve or disapprove the
proposed rule change, as modified by
Amendment No. 2 (File No. SR–Phlx–
2014–66).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.96
Brent J. Fields,
Secretary.
[FR Doc. 2015–09265 Filed 4–21–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
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[Release No. 34–74743; File No. SR–BATS–
2015–30]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Exchange
Rule 3.5 (Advertising Practices) and
Repeal Exchange Rule 3.20 (Initial or
Partial Payments)
April 16, 2015.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
93 15
U.S.C. 78f(b)(5).
supra note 10.
95 15 U.S.C. 78s(b)(2).
96 17 CFR 200.30–3(a)(12) and (a)(57).
94 See
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(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 1,
2015, BATS Exchange, Inc. (‘‘Exchange’’
or ‘‘BATS’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been
substantially 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) 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: (i)
Amend Exchange Rule 3.5 (Advertising
Practices); and (ii) repeal Exchange Rule
3.20 (Initial or Partial Payments) to
conform with the rules of the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) for purposes of an agreement
between the Exchange and FINRA
pursuant to Rule 17d–2 under the Act.5
The proposed rule change is identical to
proposed rule changes submitted by the
EDGX Exchange, Inc. (‘‘EDGX’’) and the
EDGA Exchange, Inc. (‘‘EDGA’’) that
were published by the Commission.6
The text of the proposed rule change
is available at the Exchange’s Web site
at www.batstrading.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
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,
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
5 17 CFR 240.17d–2.
6 See Securities Exchange Act Release Nos. 70837
(Nov. 8, 2013), 78 FR 68889 (Nov. 15, 2013) (SR–
EDGA–2013–32) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change to Amend
EDGA Rule 3.5 (Advertising Practices) and to
Repeal Rule 3.20 (Initial or Partial Payments) to
Conform with the Rules of the Financial Industry
Regulatory Authority); and 70836 (Nov. 8, 2013), 78
FR 68897 (Nov. 15, 2013) (SR–EDGX–2013–40)
(Notice of Filing and Immediate Effectiveness of
Proposed Rule Change to Amend EDGX Rule 3.5
(Advertising Practices) and to Repeal Rule 3.20
(Initial or Partial Payments) to Conform with the
Rules of the Financial Industry Regulatory
Authority).
2 17
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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
Pursuant to Rule 17d–2 under the
Act,7 the Exchange and FINRA entered
into an agreement to allocate regulatory
responsibility for common rules
(‘‘17d–2 Agreement’’). The 17d–2
Agreement covers common members of
the Exchange and FINRA (‘‘Common
Members’’) and allocates to FINRA
regulatory responsibility, with respect to
Common Members, for the following: (i)
Examination of Common Members 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 for violations of
federal securities laws, rules, and
regulations, and Exchange rules that the
Exchange has certified as identical or
substantially identical to FINRA rules;
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 with
comparable FINRA rules for purposes of
the 17d–2 Agreement, the Exchange
proposes to: (i) Amend Exchange Rule
3.5 (Advertising Practices); and (ii)
repeal Exchange Rule 3.20 (Initial or
Partial Payments).
Rule 3.5 (Advertising Practices)
The Exchange proposes to delete the
current text of Rule 3.5 and adopt text
that would require Exchange members 9
7 17
CFR 240.17d–2.
Securities and Exchange Release No. 61698
(Mar. 12, 2010), 75 FR 13151 (Mar. 18, 2010)
(approving File No. 10–196).
9 ‘‘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
8 See
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(‘‘Members’’) to comply with FINRA
Rule 2210 as if this Rule was part of the
Exchange’s rules and to rename Rule 3.5
‘‘Communications with the Public.’’ 10
The proposed rule text is substantially
the same as Rule 2210(a) of the Nasdaq
Stock Market LLC (‘‘Nasdaq’’), which
has been approved by the
Commission.11
Currently, Exchange Rule 3.5(d) and
(f) are excluded from the 17d–2
Agreement because they are not are
identical to, or substantially similar to,
certain FINRA rules. First, Exchange
Rule 3.5(d) requires that advertising and
sales literature be pre-approved and
signed or initialed by a supervisor while
FINRA Rule 2210(b) only requires
supervisory pre-approval for retail
communication, and different
supervisory review standards for
institutional communication, and
correspondence. Second, Rule 3.5(f) and
FINRA Rule 2210(d)(6) also contain
different content requirements for
testimonials. Exchange Rule 3.5(d) and
(f) were, therefore, excluded from the
17d–2 Agreement because their
requirements were not identical or
substantially similar to those required
under FINRA Rule 2210(b) and (d)(6)
respectively. To harmonize its rules
with FINRA, the Exchange proposes to
delete the current text of Rule 3.5 and
adopt text that would require Members
to comply with FINRA Rule 2210 as if
such Rule were part of the Exchange’s
rules so that Rule 3.5 may be
incorporated into the 17d–2 Agreement
in its entirety.
The Exchange believes that these
changes would help to avoid confusion
among Common Members by further
aligning Exchange Rule 3.5 with FINRA
Rule 2210. The proposed changes to
Rule 3.5 are designed to enable the
Exchange to incorporate Rule 3.5 into
the 17d–2 Agreement, further reducing
duplicative regulation of Common
Members.
term is defined in Section 3(a)(3) of the Act.’’
Exchange Rule 1.5(n).
10 The Exchange does not propose to require that
Members comply with FINRA Rule 2210(c). FINRA
Rule 2210(c) generally requires that FINRA
members file certain communications with FINRA.
The Exchange believes that it is inappropriate for
its rules to require Members to file certain
communications with FINRA as such filing
requirements under FINRA rules are between
FINRA and its members.
11 See Securities Exchange Act Release No. 53128
(Jan. 13, 2006), 71 FR 3550 (Jan. 23, 2006) (order
approving Nasdaq’s application for registration as a
national securities exchange); see also Securities
Exchange Act Release No. 58069 (June 30, 2008), 73
FR 39360 (July 9, 2008) (SR–Nasdaq–2008–054)
(Notice of Filing and Immediate Effectiveness).
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Summary of FINRA Rule 2210
FINRA Rule 2210 generally sets forth
the content, filing, supervisory review,
and record retention requirements for
FINRA member’s communications with
the public. A summary of FINRA Rule
2210 is below. A more complete
description of FINRA Rule 2210 is
provided in FINRA’s Regulatory Notice
12–29 12 and Regulatory Notice 14–30.13
FINRA Rule 2210 divides a Member’s
communications with the public into
the following three categories:
• Institutional communication.
FINRA Rule 2210(a)(3) defines
‘‘institutional communication’’ as ‘‘any
written (including electronic)
communication that is distributed or
made available only to institutional
investors, but does not include a
member’s internal communications.’’
• Retail communication. FINRA Rule
2210(a)(5) defines ‘‘retail
communication’’ as ‘‘any written
(including electronic) communication
that is distributed or made available to
more than 25 retail investors within any
30-day calendar period.’’ FINRA Rule
2210(a)(6) defines ‘‘Retail investor’’ as
‘‘any person other than an institutional
investor, regardless of whether the
person has an account with the
member.’’ Communications that are
considered advertisements and sales
literature fall under the definition of
‘‘retail communication.’’
• Correspondence. FINRA Rule
2210(a)(2) defines ‘‘correspondence’’ as
‘‘any written (including electronic)
communication that is distributed or
made available to fewer than 25 retail
investors within any 30-day calendar
period.’’
Supervisory Review. To comply with
the supervisory requirements of FINRA
Rule 2210(b), Common Members must
obtain supervisory pre-approval of all
retail communications, while
institutional communications and
correspondence would be subject to
supervisory review, but not preapproval.
Under FINRA Rule 2210(b)(1), all
retail communications must be
approved by a supervisor prior to their
first use or filing with FINRA under
FINRA Rule 2210(c). FINRA’s Rule
2210(b)(1)’s supervisory requirements
do not apply to a retail communication
if, at the time that a member intends to
publish or distribute it: (i) Another
12 See FINRA Regulatory Notice 12–29 (June
2012) available at https://finra.complinet.com/net_
file_store/new_rulebooks/f/i/FINRANotice12_
29.pdf.
13 See FINRA Regulatory Notice 14–30 (July 2014)
available at https://finra.complinet.com/net_file_
store/new_rulebooks/f/i/FINRANotice_14_30.pdf.
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22581
member has filed it with FINRA and has
received a letter from FINRA stating that
it appears to be consistent with
applicable standards; and (ii) the
member has not materially altered it and
will not use it in a manner that is
inconsistent with the conditions of
FINRA’s letter. The rule’s supervisory
review requirements also do not apply
to the following retail communications,
provided that the member supervises
and reviews such communications in
the same manner as required for
supervising and reviewing
correspondence pursuant to FINRA Rule
3110(b) and Supplemental Material
3110.06 through .09: (i) Any retail
communication that is excepted from
the definition of ‘‘research report’’
pursuant to NASD Rule 2711(a)(9)(A),
unless the communication makes any
financial or investment
recommendation; (ii) any retail
communication that is posted on an
online interactive electronic forum; and
(iii) any retail communication that does
not make any financial or investment
recommendation or otherwise promote a
product or service of the member.
For institutional communications,
FINRA Rule 2210(b)(3) requires that
members establish written procedures
that are appropriate to its business, size,
structure, and customers for the review
by an appropriately qualified registered
principal of institutional
communications used by the member
and its associated persons. These
procedures must be reasonably designed
to ensure that institutional
communications comply with
applicable standards. When these
procedures do not require review of all
institutional communications prior to
first use or distribution, they must
include provisions for: (i) The education
and training of associated persons as to
the firm’s procedures governing
institutional communications; (ii) the
documentation of their education and
training; and (iii) surveillance and
follow-up to ensure that these
procedures are implemented and
adhered to. Evidence that these
supervisory procedures have been
implemented and carried out must be
maintained and made available to
FINRA upon request.
FINRA Rule 2210(b)(2) states that
correspondence is subject to the
supervision and review requirements of
FINRA Rule 3110(b) and Supplemental
Material 3110.06 through .09. Under
FINRA Rule 3110(b)(4), each member
shall develop written procedures that
are appropriate to its business, size,
structure, and customers for reviewing
incoming and outgoing written
(including electronic) correspondence
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with the public relating to its
investment banking or securities
business, including procedures for
reviewing incoming written
correspondence directed to registered
representatives, and related to the
member’s investment banking or
securities business, to properly identify
and handle customer complaints and to
ensure that customer funds and
securities are handled in accordance
with firm procedures. Where these
procedures for the review of
correspondence do not require review of
all correspondence prior to use or
distribution, they must include
provisions for: (i) The education and
training of associated persons as to the
firm’s procedures governing
correspondence; (ii) the documentation
of their education and training; and (iii)
surveillance and follow-up to ensure
that these procedures are implemented
and adhered to.
Record Retention. Under FINRA Rule
2210(b)(4)(A), members must maintain
all retail communications and
institutional communications for the
retention period required by Rule 17a–
4(b) under the Act and in a format and
media that comply with Rule 17a–4
under the Act. The records must
include:
• A copy of the communication and
the dates of first and (if applicable) last
use of such communication;
• the name of any registered principal
who approved the communication and
the date that approval was given;
• in the case of a retail
communication or an institutional
communication that is not approved
prior to first use by a registered
principal, the name of the person who
prepared or distributed the
communication;
• information concerning the source
of any statistical table, chart, graph, or
other illustration used in the
communication; and
• for any retail communication for
which principal approval is not
required pursuant to FINRA Rule
2210(b)(1)(C), the name of the member
that filed the retail communication with
the FINRA Advertising Regulation
Department, and a copy of the
corresponding review letter from the
Department.
Filing Requirements. Like Nasdaq
Rule 2210(a), Exchange Rule 3.5 would
expressly state that Members would not
be required to comply with FINRA Rule
2210(c). FINRA Rule 2210(c) generally
requires FINRA members to file certain
retail communications with FINRA
prior to first use. Exchange members
who are also FINRA members would
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continue to be subject to FINRA Rule
2210(c).
Content Standards. FINRA Rule
2210(d) sets forth general content
standards for all communications. All
member communications must be based
on principles of fair dealing and good
faith, must be fair and balanced, and
must provide a sound basis for
evaluating the facts in regard to any
particular security or type of security,
industry, or service. No member may
omit any material fact or qualification if
the omission, in light of the context of
the material presented, would cause the
communications to be misleading. No
member may make any false,
exaggerated, unwarranted, promissory,
or misleading statement or claim in any
communication. No member may
publish, circulate, or distribute any
communication that the member knows
or has reason to know contains any
untrue statement of a material fact or is
otherwise false or misleading.
Information may be placed in a legend
or footnote only in the event that such
placement would not inhibit an
investor’s understanding of the
communication. Members must ensure
that statements are clear and not
misleading within the context in which
they are made, and that they provide
balanced treatment of risks and
potential benefits. Communications
must be consistent with the risks of
fluctuating prices and the uncertainty of
dividends, rates of return, and yield
inherent to investments. Members must
consider the nature of the audience to
which the communication will be
directed and must provide details and
explanations appropriate to the
audience.
Communications may also not predict
or project performance, imply that past
performance will recur, or make any
exaggerated or unwarranted claim,
opinion, or forecast; provided, however,
communications may include: (i) A
hypothetical illustration of
mathematical principles, provided that
it does not predict or project the
performance of an investment or
investment strategy; (ii) an investment
analysis tool, or a written report
produced by an investment analysis
tool, that meets the requirements of
FINRA Rule 2214; and (iii) a price target
contained in a research report on debt
or equity securities, provided that the
price target has a reasonable basis, the
report discloses the valuation methods
used to determine the price target, and
the price target is accompanied by
disclosure concerning the risks that may
impede achievement of the price target.
Testimonials. To comply with FINRA
Rule 2210(d)(6): (i) If a testimonial
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includes a technical aspect of investing,
the person making the testimonial must
have the knowledge and expertise to
form a valid opinion; and (ii) retail
communications or correspondence
providing any testimonial concerning
the investment advice or investment
performance of a member or its products
must prominently disclose that the
testimonial: (a) May not be
representative of the experience of other
customers; (b) is no guarantee of future
performance or success; and (c) is a paid
testimonial, if more than $100 in value
has been paid.
Recommendations. FINRA Rule
2210(d)(7)(A) requires that retail
communications that include a
recommendation of securities must have
a reasonable basis for the
recommendation and must disclose, if
applicable, the following: (i) That at the
time the communication was published
or distributed, the member was making
a market in the security being
recommended, or in the underlying
security if the recommended security is
an option or security future, or that the
member or associated persons will sell
to or buy from customers on a principal
basis; (ii) that the member or any
associated person that is directly and
materially involved in the preparation
of the content of the communication has
a financial interest in any of the
securities of the issuer whose securities
are recommended, and the nature of the
financial interest (including, without
limitation, whether it consists of any
option, right, warrant, future, long or
short position), unless the extent of the
financial interest is nominal; and (iii)
that the member was manager or comanager of a public offering of any
securities of the issuer whose securities
are recommended within the past 12
months. Members must provide, or offer
to furnish upon request, available
investment information supporting the
recommendation. When a member
recommends a corporate equity security,
the member must provide the price at
the time the recommendation is made.
Retail communication or
correspondence may not refer, directly
or indirectly, to past specific
recommendations of the member that
were or would have been profitable to
any person; provided, however, that a
retail communication or correspondence
may set out or offer to furnish a list of
all recommendations as to the same
type, kind, grade, or classification of
securities made by the member within
the immediately preceding period of not
less than one year, if the communication
or list: (i) States the name of each
security recommended, the date and
nature of each recommendation (e.g.,
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whether to buy, sell, or hold), the
market price at that time, the price at
which the recommendation was to be
acted upon, and the market price of
each security as of the most recent
practicable date; and (ii) contains the
following cautionary legend, which
must appear prominently within the
communication or list: ‘‘it should not be
assumed that recommendations made in
the future will be profitable or will
equal the performance of the securities
in this list.’’
Rule 3.20 (Initial or Partial Payments)
The Exchange also proposes to delete
Exchange Rule 3.20 (Initial or Partial
Payments). In January 2010, FINRA
repealed NASD Rule 2450 (Initial or
Partial Payments) and does not
currently include a comparable rule in
its rulebook.14 Like NASD Rule 2450,
Exchange Rule 3.20 prohibits any
arrangement whereby the customer of a
Member submits partial or installment
payments for the purchase of a security
with the following exceptions: (i) If a
Member is acting as agent or broker in
the transaction, then the Member must
immediately make an actual purchase of
the security for the account of the
customer, and immediately take
possession or control of the security and
maintain possession or control of the
security as long as the Member is under
the obligation to deliver the security to
the customer; (ii) if a Member is acting
as principal in the transaction, the
Member must, at the time of the
transaction, own the security and
maintain possession or control of the
security as long as the Member is under
the obligation to deliver the security to
the customer; and (iii) if applicable to a
Member, the provisions of Regulation T
of the Federal Reserve Board 15 are
satisfied. The rule also prohibits a
Member, whether acting as principal or
agent, in connection with any
installment or partial sales transaction,
from making any agreement with the
customer whereby the Member would
be allowed to pledge or hypothecate any
security involved in such transaction for
any amount in excess of the
indebtedness of the customer to the
Member.
Section 220.8 of Regulation T permits
the purchase of a security in a cash
account predicated on either: (i) There
being sufficient funds in the account; or
(ii) the Member accepts in good faith the
customer’s agreement that full cash
payment will be made.16 The rule
further stipulates that payment must be
made within a specified payment
period.17 Regulation T also allows the
purchase of a security in a margin
account, whereby a customer must
deposit an initial requirement, based
upon the amount of the transaction,
within the specified payment period.
The Exchange proposes to repeal
Exchange Rule 3.20 in light of the
explicit provisions in Regulation T
requiring the deposit of sufficient funds
within the specified payment period.
The Exchange also believes that the
hypothecation prohibition in Exchange
Rule 3.20 would no longer be relevant
because it is predicated on a partial or
installment payment under the rule. The
Exchange notes that, notwithstanding
the repeal of Exchange Rule 3.20,
Members are required to comply with
all applicable federal securities laws,
including Regulation T.
2. Statutory Basis
The Exchange believes that proposed
rule change is consistent with Section
6(b)(5) of the Act,18 which requires,
among other things, that the Exchange’s
rules be designed to prevent fraudulent
and manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities,
and to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system. The Exchange believes that the
proposed rule change would further
these requirements by eliminating
duplicative and unnecessary rules and
advancing the development of a more
efficient and effective Exchange
Rulebook. The Exchange believes that
the proposed rule change would provide
greater harmonization between
Exchange and FINRA rules of similar
purpose, resulting in greater uniformity
and less burdensome and more efficient
regulatory compliance. Accordingly, the
Exchange believes that 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.
Section 220.8(a)(1) of Regulation T.
to Section 220.2 of Regulation T,
‘‘payment period’’ means the number of business
days in the standard securities settlement cycle in
the United States, as defined in Rule 15c6–1(a)
under the Act (17 CFR 240.15c6–1(a)), plus two
business days.
18 15 U.S.C. 78f(b)(5).
17 According
14 See Securities Exchange Act Release No. 61542
(Feb. 18, 2010), 75 FR 8768 (Feb. 25, 2010) (SR–
FINRA–2009–093) (order approving proposal to
repeal NASD Rule 2450).
15 Federal Reserve Board, Regulation T (Credit by
Brokers and Dealers), 12 CFR 220 et seq.
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change would impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes that the proposed
rule change is not designed to address
any competitive issues but rather is
designed to provide greater
harmonization among Exchange and
FINRA rules of similar purpose,
resulting in less burdensome and more
efficient regulatory compliance for
Common Members and facilitating
FINRA’s performance of its regulatory
functions under the 17d–2 Agreement.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange has neither solicited
nor received written comments on the
proposal.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has designated the
proposed rule change as noncontroversial under Section 19(b)(3)(A)
of the Act 19 and Rule 19b–4(f)(6) 20
thereunder. 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 after the date of
the filing, or such shorter time as the
Commission may designate if consistent
with the protection of investors and the
public interest, the proposed rule
change has become effective pursuant to
Section 19(b)(3)(A) of the Act and Rule
19b–4(f)(6) thereunder.21
At any time within 60 days of the
filing of the proposed rule change, the
Commission may summarily
temporarily suspend the proposed rule
change if it appears to the Commission
that this action is: (i) Necessary or
appropriate in the public interest; (ii) for
the protection of investors; or (iii)
otherwise in furtherance of the purposes
of the Act. If the Commission takes this
action, it shall institute proceedings
19 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4.
21 Rule 19b–4(f)(6) also requires that the Exchange
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
satisfied this requirement.
20 17
16 See
PO 00000
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22583
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Federal Register / Vol. 80, No. 77 / Wednesday, April 22, 2015 / Notices
under Section 19(b)(2)(B) of the Act 22 to
determine whether the proposed rule
change 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 proposal is
consistent with the Act. Comments may
be submitted by any of the following
methods:
asabaliauskas on DSK5VPTVN1PROD with NOTICES
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 No. SR–
BATS–2015–30 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 No.
SR–BATS–2015–30. This file number
should be included on the subject line
if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing will also 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 No. SR–BATS–
2015–30 and should be submitted on or
before May 13, 2015.
22 15
23 17
U.S.C. 78s(b)(2)(B).
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
18:00 Apr 21, 2015
Jkt 235001
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Brent J. Fields,
Secretary.
[FR Doc. 2015–09272 Filed 4–21–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74742; File No. SR–
NASDAQ–2015–011]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Order
Approving a Proposed Rule Change,
as Modified by Amendments No. 1 and
No. 2, To List and Trade the Shares of
the First Trust Strategic Floating Rate
ETF of First Trust Exchange-Traded
Fund IV
April 16, 2015.
I. Introduction
On February 12, 2015, The NASDAQ
Stock Market LLC (the ‘‘Exchange’’ or
‘‘Nasdaq’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’) 2 and Rule 19b–4
thereunder,3 a proposed rule change to
list and trade shares (‘‘Shares’’) of the
First Trust Strategic Floating Rate ETF
(the ‘‘Fund’’) of First Trust ExchangeTraded Fund IV (the ‘‘Trust’’) under
NASDAQ Rule 5735. The proposed rule
change was published for comment in
the Federal Register on March 3, 2015.4
On April 6, 2015, the Exchange filed
Amendment No. 1 to the proposed rule
change.5 On April 15, 2015, the
Exchange filed Amendment No. 2 to the
proposed rule change.6 The Commission
received no comments on the proposed
rule change. This order approves the
proposed rule change, as modified by
Amendments No. 1 and No. 2.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
4 See Securities Exchange Act Release No. 74378
(February 25, 2015), 80 FR 11509 (‘‘Notice’’).
5 In Amendment No. 1, the Exchange clarified
that the quotation and last-sale information will be
available via the Options Price Reporting Authority
only for U.S. exchange-listed options that the Fund
holds. Amendment No. 1 is not subject to notice
and comment because it is a technical amendment
that does not materially alter the substance of the
proposed rule change or raise any novel regulatory
issues.
6 In Amendment No. 2, the Exchange removed
exchange-listed options on U.S. Treasury securities
from the types of derivative instruments in which
the Fund may invest. Amendment No. 2 is not
subject to notice and comment because it does not
materially alter the substance of the proposed rule
change or raise any novel regulatory issues.
2 15
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Frm 00112
Fmt 4703
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II. Description of the Proposal
The Exchange proposes to list and
trade the Shares under Nasdaq Rule
5735, which governs the listing and
trading of Managed Fund Shares on the
Exchange. The Fund will be an activelymanaged exchange-traded fund (‘‘ETF’’).
The Shares will be offered by the Trust.7
The Trust is registered with the
Commission as an investment company
and has filed a registration statement on
Form N–1A (‘‘Registration Statement’’)
with the Commission.8 The Fund will
be a series of the Trust.
First Trust Advisors L.P. will be the
investment adviser (‘‘Adviser’’) to the
Fund. First Trust Portfolios L.P. (the
‘‘Distributor’’) will be the principal
underwriter and distributor of the
Fund’s Shares. The Bank of New York
Mellon Corporation will act as the
administrator, accounting agent,
custodian and transfer agent to the
Fund. The Exchange states that the
Adviser is not a broker-dealer, although
it is affiliated with the Distributor, a
broker-dealer.9 In addition, the
Exchange states that the Adviser has
implemented a fire wall with respect to
its broker-dealer affiliate regarding
access to information concerning the
composition and/or changes to the
portfolio, and that personnel who make
decisions on the Fund’s portfolio
composition will be subject to
procedures designed to prevent the use
and dissemination of material nonpublic information regarding the Fund’s
portfolio.10 In the event (a) the Adviser
becomes, or becomes newly affiliated
with, a broker-dealer, or (b) any new
adviser or sub-adviser is a registered
broker-dealer or becomes affiliated with
another broker-dealer, it will implement
a fire wall with respect to its relevant
personnel and/or such broker-dealer
affiliate, as applicable, regarding access
to information concerning the
composition and/or changes to the
portfolio and will be subject to
procedures designed to prevent the use
and dissemination of material nonpublic information regarding such
7 The Commission has issued an order, upon
which the Trust may rely, granting certain
exemptive relief under the Investment Company
Act of 1940 (‘‘1940 Act’’). See Investment Company
Act Release No. 30029 (April 10, 2012) (File No.
812–13795) (the ‘‘Exemptive Relief ’’). In addition,
the Commission has issued no-action relief that the
Fund believes affects its ability to invest in
derivatives notwithstanding certain representations
in the application for the Exemptive Relief. See
Commission No-Action Letter (December 6, 2012).
8 See Post-Effective Amendment No. 104 to
Registration Statement on Form N–1A for the Trust,
dated January 29, 2015 (File Nos. 333–174332 and
811–22559).
9 See Notice, supra note 4, 80 FR at 11510.
10 See id.
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]]>Agencies
[Federal Register Volume 80, Number 77 (Wednesday, April 22, 2015)]
[Notices]
[Pages 22580-22584]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-09272]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74743; File No. SR-BATS-2015-30]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Exchange Rule 3.5 (Advertising Practices) and Repeal Exchange Rule 3.20
(Initial or Partial Payments)
April 16, 2015.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 1, 2015, BATS Exchange, Inc. (``Exchange'' or ``BATS'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been substantially 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) 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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to: (i) Amend Exchange Rule 3.5
(Advertising Practices); and (ii) repeal Exchange Rule 3.20 (Initial or
Partial Payments) to conform with the rules of the Financial Industry
Regulatory Authority, Inc. (``FINRA'') for purposes of an agreement
between the Exchange and FINRA pursuant to Rule 17d-2 under the Act.\5\
The proposed rule change is identical to proposed rule changes
submitted by the EDGX Exchange, Inc. (``EDGX'') and the EDGA Exchange,
Inc. (``EDGA'') that were published by the Commission.\6\
---------------------------------------------------------------------------
\5\ 17 CFR 240.17d-2.
\6\ See Securities Exchange Act Release Nos. 70837 (Nov. 8,
2013), 78 FR 68889 (Nov. 15, 2013) (SR-EDGA-2013-32) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change to Amend
EDGA Rule 3.5 (Advertising Practices) and to Repeal Rule 3.20
(Initial or Partial Payments) to Conform with the Rules of the
Financial Industry Regulatory Authority); and 70836 (Nov. 8, 2013),
78 FR 68897 (Nov. 15, 2013) (SR-EDGX-2013-40) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change to Amend EDGX Rule
3.5 (Advertising Practices) and to Repeal Rule 3.20 (Initial or
Partial Payments) to Conform with the Rules of the Financial
Industry Regulatory Authority).
---------------------------------------------------------------------------
The text of the proposed rule change is available at the Exchange's
Web site at www.batstrading.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
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
Pursuant to Rule 17d-2 under the Act,\7\ the Exchange and FINRA
entered into an agreement to allocate regulatory responsibility for
common rules (``17d-2 Agreement''). The 17d-2 Agreement covers common
members of the Exchange and FINRA (``Common Members'') and allocates to
FINRA regulatory responsibility, with respect to Common Members, for
the following: (i) Examination of Common Members 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 for
violations of federal securities laws, rules, and regulations, and
Exchange rules that the Exchange has certified as identical or
substantially identical to FINRA rules; 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\
---------------------------------------------------------------------------
\7\ 17 CFR 240.17d-2.
\8\ See Securities and Exchange Release No. 61698 (Mar. 12,
2010), 75 FR 13151 (Mar. 18, 2010) (approving File No. 10-196).
---------------------------------------------------------------------------
The 17d-2 Agreement included a certification by the Exchange that
states that the requirements contained in certain Exchange rules are
identical to, or substantially similar to, certain FINRA rules that
have been identified as comparable. To conform with comparable FINRA
rules for purposes of the 17d-2 Agreement, the Exchange proposes to:
(i) Amend Exchange Rule 3.5 (Advertising Practices); and (ii) repeal
Exchange Rule 3.20 (Initial or Partial Payments).
Rule 3.5 (Advertising Practices)
The Exchange proposes to delete the current text of Rule 3.5 and
adopt text that would require Exchange members \9\
[[Page 22581]]
(``Members'') to comply with FINRA Rule 2210 as if this Rule was part
of the Exchange's rules and to rename Rule 3.5 ``Communications with
the Public.'' \10\ The proposed rule text is substantially the same as
Rule 2210(a) of the Nasdaq Stock Market LLC (``Nasdaq''), which has
been approved by the Commission.\11\
---------------------------------------------------------------------------
\9\ ``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.'' Exchange Rule 1.5(n).
\10\ The Exchange does not propose to require that Members
comply with FINRA Rule 2210(c). FINRA Rule 2210(c) generally
requires that FINRA members file certain communications with FINRA.
The Exchange believes that it is inappropriate for its rules to
require Members to file certain communications with FINRA as such
filing requirements under FINRA rules are between FINRA and its
members.
\11\ See Securities Exchange Act Release No. 53128 (Jan. 13,
2006), 71 FR 3550 (Jan. 23, 2006) (order approving Nasdaq's
application for registration as a national securities exchange); see
also Securities Exchange Act Release No. 58069 (June 30, 2008), 73
FR 39360 (July 9, 2008) (SR-Nasdaq-2008-054) (Notice of Filing and
Immediate Effectiveness).
---------------------------------------------------------------------------
Currently, Exchange Rule 3.5(d) and (f) are excluded from the 17d-2
Agreement because they are not are identical to, or substantially
similar to, certain FINRA rules. First, Exchange Rule 3.5(d) requires
that advertising and sales literature be pre-approved and signed or
initialed by a supervisor while FINRA Rule 2210(b) only requires
supervisory pre-approval for retail communication, and different
supervisory review standards for institutional communication, and
correspondence. Second, Rule 3.5(f) and FINRA Rule 2210(d)(6) also
contain different content requirements for testimonials. Exchange Rule
3.5(d) and (f) were, therefore, excluded from the 17d-2 Agreement
because their requirements were not identical or substantially similar
to those required under FINRA Rule 2210(b) and (d)(6) respectively. To
harmonize its rules with FINRA, the Exchange proposes to delete the
current text of Rule 3.5 and adopt text that would require Members to
comply with FINRA Rule 2210 as if such Rule were part of the Exchange's
rules so that Rule 3.5 may be incorporated into the 17d-2 Agreement in
its entirety.
The Exchange believes that these changes would help to avoid
confusion among Common Members by further aligning Exchange Rule 3.5
with FINRA Rule 2210. The proposed changes to Rule 3.5 are designed to
enable the Exchange to incorporate Rule 3.5 into the 17d-2 Agreement,
further reducing duplicative regulation of Common Members.
Summary of FINRA Rule 2210
FINRA Rule 2210 generally sets forth the content, filing,
supervisory review, and record retention requirements for FINRA
member's communications with the public. A summary of FINRA Rule 2210
is below. A more complete description of FINRA Rule 2210 is provided in
FINRA's Regulatory Notice 12-29 \12\ and Regulatory Notice 14-30.\13\
---------------------------------------------------------------------------
\12\ See FINRA Regulatory Notice 12-29 (June 2012) available at
https://finra.complinet.com/net_file_store/new_rulebooks/f/i/FINRANotice12_29.pdf.
\13\ See FINRA Regulatory Notice 14-30 (July 2014) available at
https://finra.complinet.com/net_file_store/new_rulebooks/f/i/FINRANotice_14_30.pdf.
---------------------------------------------------------------------------
FINRA Rule 2210 divides a Member's communications with the public
into the following three categories:
Institutional communication. FINRA Rule 2210(a)(3) defines
``institutional communication'' as ``any written (including electronic)
communication that is distributed or made available only to
institutional investors, but does not include a member's internal
communications.''
Retail communication. FINRA Rule 2210(a)(5) defines
``retail communication'' as ``any written (including electronic)
communication that is distributed or made available to more than 25
retail investors within any 30-day calendar period.'' FINRA Rule
2210(a)(6) defines ``Retail investor'' as ``any person other than an
institutional investor, regardless of whether the person has an account
with the member.'' Communications that are considered advertisements
and sales literature fall under the definition of ``retail
communication.''
Correspondence. FINRA Rule 2210(a)(2) defines
``correspondence'' as ``any written (including electronic)
communication that is distributed or made available to fewer than 25
retail investors within any 30-day calendar period.''
Supervisory Review. To comply with the supervisory requirements of
FINRA Rule 2210(b), Common Members must obtain supervisory pre-approval
of all retail communications, while institutional communications and
correspondence would be subject to supervisory review, but not pre-
approval.
Under FINRA Rule 2210(b)(1), all retail communications must be
approved by a supervisor prior to their first use or filing with FINRA
under FINRA Rule 2210(c). FINRA's Rule 2210(b)(1)'s supervisory
requirements do not apply to a retail communication if, at the time
that a member intends to publish or distribute it: (i) Another member
has filed it with FINRA and has received a letter from FINRA stating
that it appears to be consistent with applicable standards; and (ii)
the member has not materially altered it and will not use it in a
manner that is inconsistent with the conditions of FINRA's letter. The
rule's supervisory review requirements also do not apply to the
following retail communications, provided that the member supervises
and reviews such communications in the same manner as required for
supervising and reviewing correspondence pursuant to FINRA Rule 3110(b)
and Supplemental Material 3110.06 through .09: (i) Any retail
communication that is excepted from the definition of ``research
report'' pursuant to NASD Rule 2711(a)(9)(A), unless the communication
makes any financial or investment recommendation; (ii) any retail
communication that is posted on an online interactive electronic forum;
and (iii) any retail communication that does not make any financial or
investment recommendation or otherwise promote a product or service of
the member.
For institutional communications, FINRA Rule 2210(b)(3) requires
that members establish written procedures that are appropriate to its
business, size, structure, and customers for the review by an
appropriately qualified registered principal of institutional
communications used by the member and its associated persons. These
procedures must be reasonably designed to ensure that institutional
communications comply with applicable standards. When these procedures
do not require review of all institutional communications prior to
first use or distribution, they must include provisions for: (i) The
education and training of associated persons as to the firm's
procedures governing institutional communications; (ii) the
documentation of their education and training; and (iii) surveillance
and follow-up to ensure that these procedures are implemented and
adhered to. Evidence that these supervisory procedures have been
implemented and carried out must be maintained and made available to
FINRA upon request.
FINRA Rule 2210(b)(2) states that correspondence is subject to the
supervision and review requirements of FINRA Rule 3110(b) and
Supplemental Material 3110.06 through .09. Under FINRA Rule 3110(b)(4),
each member shall develop written procedures that are appropriate to
its business, size, structure, and customers for reviewing incoming and
outgoing written (including electronic) correspondence
[[Page 22582]]
with the public relating to its investment banking or securities
business, including procedures for reviewing incoming written
correspondence directed to registered representatives, and related to
the member's investment banking or securities business, to properly
identify and handle customer complaints and to ensure that customer
funds and securities are handled in accordance with firm procedures.
Where these procedures for the review of correspondence do not require
review of all correspondence prior to use or distribution, they must
include provisions for: (i) The education and training of associated
persons as to the firm's procedures governing correspondence; (ii) the
documentation of their education and training; and (iii) surveillance
and follow-up to ensure that these procedures are implemented and
adhered to.
Record Retention. Under FINRA Rule 2210(b)(4)(A), members must
maintain all retail communications and institutional communications for
the retention period required by Rule 17a-4(b) under the Act and in a
format and media that comply with Rule 17a-4 under the Act. The records
must include:
A copy of the communication and the dates of first and (if
applicable) last use of such communication;
the name of any registered principal who approved the
communication and the date that approval was given;
in the case of a retail communication or an institutional
communication that is not approved prior to first use by a registered
principal, the name of the person who prepared or distributed the
communication;
information concerning the source of any statistical
table, chart, graph, or other illustration used in the communication;
and
for any retail communication for which principal approval
is not required pursuant to FINRA Rule 2210(b)(1)(C), the name of the
member that filed the retail communication with the FINRA Advertising
Regulation Department, and a copy of the corresponding review letter
from the Department.
Filing Requirements. Like Nasdaq Rule 2210(a), Exchange Rule 3.5
would expressly state that Members would not be required to comply with
FINRA Rule 2210(c). FINRA Rule 2210(c) generally requires FINRA members
to file certain retail communications with FINRA prior to first use.
Exchange members who are also FINRA members would continue to be
subject to FINRA Rule 2210(c).
Content Standards. FINRA Rule 2210(d) sets forth general content
standards for all communications. All member communications must be
based on principles of fair dealing and good faith, must be fair and
balanced, and must provide a sound basis for evaluating the facts in
regard to any particular security or type of security, industry, or
service. No member may omit any material fact or qualification if the
omission, in light of the context of the material presented, would
cause the communications to be misleading. No member may make any
false, exaggerated, unwarranted, promissory, or misleading statement or
claim in any communication. No member may publish, circulate, or
distribute any communication that the member knows or has reason to
know contains any untrue statement of a material fact or is otherwise
false or misleading. Information may be placed in a legend or footnote
only in the event that such placement would not inhibit an investor's
understanding of the communication. Members must ensure that statements
are clear and not misleading within the context in which they are made,
and that they provide balanced treatment of risks and potential
benefits. Communications must be consistent with the risks of
fluctuating prices and the uncertainty of dividends, rates of return,
and yield inherent to investments. Members must consider the nature of
the audience to which the communication will be directed and must
provide details and explanations appropriate to the audience.
Communications may also not predict or project performance, imply
that past performance will recur, or make any exaggerated or
unwarranted claim, opinion, or forecast; provided, however,
communications may include: (i) A hypothetical illustration of
mathematical principles, provided that it does not predict or project
the performance of an investment or investment strategy; (ii) an
investment analysis tool, or a written report produced by an investment
analysis tool, that meets the requirements of FINRA Rule 2214; and
(iii) a price target contained in a research report on debt or equity
securities, provided that the price target has a reasonable basis, the
report discloses the valuation methods used to determine the price
target, and the price target is accompanied by disclosure concerning
the risks that may impede achievement of the price target.
Testimonials. To comply with FINRA Rule 2210(d)(6): (i) If a
testimonial includes a technical aspect of investing, the person making
the testimonial must have the knowledge and expertise to form a valid
opinion; and (ii) retail communications or correspondence providing any
testimonial concerning the investment advice or investment performance
of a member or its products must prominently disclose that the
testimonial: (a) May not be representative of the experience of other
customers; (b) is no guarantee of future performance or success; and
(c) is a paid testimonial, if more than $100 in value has been paid.
Recommendations. FINRA Rule 2210(d)(7)(A) requires that retail
communications that include a recommendation of securities must have a
reasonable basis for the recommendation and must disclose, if
applicable, the following: (i) That at the time the communication was
published or distributed, the member was making a market in the
security being recommended, or in the underlying security if the
recommended security is an option or security future, or that the
member or associated persons will sell to or buy from customers on a
principal basis; (ii) that the member or any associated person that is
directly and materially involved in the preparation of the content of
the communication has a financial interest in any of the securities of
the issuer whose securities are recommended, and the nature of the
financial interest (including, without limitation, whether it consists
of any option, right, warrant, future, long or short position), unless
the extent of the financial interest is nominal; and (iii) that the
member was manager or co-manager of a public offering of any securities
of the issuer whose securities are recommended within the past 12
months. Members must provide, or offer to furnish upon request,
available investment information supporting the recommendation. When a
member recommends a corporate equity security, the member must provide
the price at the time the recommendation is made.
Retail communication or correspondence may not refer, directly or
indirectly, to past specific recommendations of the member that were or
would have been profitable to any person; provided, however, that a
retail communication or correspondence may set out or offer to furnish
a list of all recommendations as to the same type, kind, grade, or
classification of securities made by the member within the immediately
preceding period of not less than one year, if the communication or
list: (i) States the name of each security recommended, the date and
nature of each recommendation (e.g.,
[[Page 22583]]
whether to buy, sell, or hold), the market price at that time, the
price at which the recommendation was to be acted upon, and the market
price of each security as of the most recent practicable date; and (ii)
contains the following cautionary legend, which must appear prominently
within the communication or list: ``it should not be assumed that
recommendations made in the future will be profitable or will equal the
performance of the securities in this list.''
Rule 3.20 (Initial or Partial Payments)
The Exchange also proposes to delete Exchange Rule 3.20 (Initial or
Partial Payments). In January 2010, FINRA repealed NASD Rule 2450
(Initial or Partial Payments) and does not currently include a
comparable rule in its rulebook.\14\ Like NASD Rule 2450, Exchange Rule
3.20 prohibits any arrangement whereby the customer of a Member submits
partial or installment payments for the purchase of a security with the
following exceptions: (i) If a Member is acting as agent or broker in
the transaction, then the Member must immediately make an actual
purchase of the security for the account of the customer, and
immediately take possession or control of the security and maintain
possession or control of the security as long as the Member is under
the obligation to deliver the security to the customer; (ii) if a
Member is acting as principal in the transaction, the Member must, at
the time of the transaction, own the security and maintain possession
or control of the security as long as the Member is under the
obligation to deliver the security to the customer; and (iii) if
applicable to a Member, the provisions of Regulation T of the Federal
Reserve Board \15\ are satisfied. The rule also prohibits a Member,
whether acting as principal or agent, in connection with any
installment or partial sales transaction, from making any agreement
with the customer whereby the Member would be allowed to pledge or
hypothecate any security involved in such transaction for any amount in
excess of the indebtedness of the customer to the Member.
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\14\ See Securities Exchange Act Release No. 61542 (Feb. 18,
2010), 75 FR 8768 (Feb. 25, 2010) (SR-FINRA-2009-093) (order
approving proposal to repeal NASD Rule 2450).
\15\ Federal Reserve Board, Regulation T (Credit by Brokers and
Dealers), 12 CFR 220 et seq.
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Section 220.8 of Regulation T permits the purchase of a security in
a cash account predicated on either: (i) There being sufficient funds
in the account; or (ii) the Member accepts in good faith the customer's
agreement that full cash payment will be made.\16\ The rule further
stipulates that payment must be made within a specified payment
period.\17\ Regulation T also allows the purchase of a security in a
margin account, whereby a customer must deposit an initial requirement,
based upon the amount of the transaction, within the specified payment
period.
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\16\ See Section 220.8(a)(1) of Regulation T.
\17\ According to Section 220.2 of Regulation T, ``payment
period'' means the number of business days in the standard
securities settlement cycle in the United States, as defined in Rule
15c6-1(a) under the Act (17 CFR 240.15c6-1(a)), plus two business
days.
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The Exchange proposes to repeal Exchange Rule 3.20 in light of the
explicit provisions in Regulation T requiring the deposit of sufficient
funds within the specified payment period. The Exchange also believes
that the hypothecation prohibition in Exchange Rule 3.20 would no
longer be relevant because it is predicated on a partial or installment
payment under the rule. The Exchange notes that, notwithstanding the
repeal of Exchange Rule 3.20, Members are required to comply with all
applicable federal securities laws, including Regulation T.
2. Statutory Basis
The Exchange believes that proposed rule change is consistent with
Section 6(b)(5) of the Act,\18\ which requires, among other things,
that the Exchange's rules be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system. The Exchange believes that the
proposed rule change would further these requirements by eliminating
duplicative and unnecessary rules and advancing the development of a
more efficient and effective Exchange Rulebook. The Exchange believes
that the proposed rule change would provide greater harmonization
between Exchange and FINRA rules of similar purpose, resulting in
greater uniformity and less burdensome and more efficient regulatory
compliance. Accordingly, the Exchange believes that 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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\18\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes that
the proposed rule change is not designed to address any competitive
issues but rather is designed to provide greater harmonization among
Exchange and FINRA rules of similar purpose, resulting in less
burdensome and more efficient regulatory compliance for Common Members
and facilitating FINRA's performance of its regulatory functions under
the 17d-2 Agreement.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposal.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has designated the proposed rule change as non-
controversial under Section 19(b)(3)(A) of the Act \19\ and Rule 19b-
4(f)(6) \20\ thereunder. 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 after the date of the filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest, the proposed rule
change has become effective pursuant to Section 19(b)(3)(A) of the Act
and Rule 19b-4(f)(6) thereunder.\21\
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\19\ 15 U.S.C. 78s(b)(3)(A).
\20\ 17 CFR 240.19b-4.
\21\ Rule 19b-4(f)(6) also requires that the Exchange give the
Commission written notice of its intent to file the proposed rule
change, along with a brief description and text of the proposed rule
change, at least five business days prior to the date of filing of
the proposed rule change, or such shorter time as designated by the
Commission. The Exchange satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily temporarily suspend the proposed
rule change if it appears to the Commission that this action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes this action, it shall
institute proceedings
[[Page 22584]]
under Section 19(b)(2)(B) of the Act \22\ to determine whether the
proposed rule change should be approved or disapproved.
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\22\ 15 U.S.C. 78s(b)(2)(B).
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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 proposal 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 No. SR-BATS-2015-30 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 No. SR-BATS-2015-30. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing will also 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 No. SR-BATS-2015-30 and should be
submitted on or before May 13, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-09272 Filed 4-21-15; 8:45 am]
BILLING CODE 8011-01-P
