Self-Regulatory Organizations; Bats BYX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Rule 8.17 To Provide a Process for an Expedited Suspension Proceeding and Rule 12.15 To Prohibit Layering and Spoofing, 23046-23052 [2016-08940]
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Federal Register / Vol. 81, No. 75 / Tuesday, April 19, 2016 / Notices
enhancing order execution
opportunities for member organizations.
The Exchange believes that this could
promote competition between the
Exchange and other execution venues,
including those that currently offer
similar order types and comparable
transaction pricing, by encouraging
additional orders to be sent to the
Exchange for execution.
Finally, the Exchange notes that it
operates in a highly competitive market
in which market participants can
readily favor competing venues if they
deem fee levels at a particular venue to
be excessive or rebate opportunities
available at other venues to be more
favorable. In such an environment, the
Exchange must continually adjust its
fees and rebates to remain competitive
with other exchanges and with
alternative trading systems that have
been exempted from compliance with
the statutory standards applicable to
exchanges. Because competitors are free
to modify their own fees and credits in
response, and because market
participants may readily adjust their
order routing practices, the Exchange
believes that the degree to which fee
changes in this market may impose any
burden on competition is extremely
limited. As a result of all of these
considerations, the Exchange does not
believe that the proposed changes will
impair the ability of member
organizations or competing order
execution venues to maintain their
competitive standing in the financial
markets.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 16 of the Act and
subparagraph (f)(2) of Rule 19b–4 17
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
U.S.C. 78s(b)(3)(A).
17 17 CFR 240.19b–4(f)(2).
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 18 of the Act 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 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–
NYSE–2016–29 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSE–2016–29. 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
16 15
VerDate Sep<11>2014
18:02 Apr 18, 2016
publicly. All submissions should refer
to File Number SR–NYSE–2016–29 and
should be submitted on or before May
10, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–08941 Filed 4–18–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77602; File No. SRBatsBYX–2016–03]
Self-Regulatory Organizations; Bats
BYX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Adopt Rule
8.17 To Provide a Process for an
Expedited Suspension Proceeding and
Rule 12.15 To Prohibit Layering and
Spoofing
April 13, 2016.
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 March 31,
2016, Bats BYX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BYX’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I and
II 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 filed a proposal to
adopt a new rule to clearly prohibit
disruptive quoting and trading activity
on the Exchange, as further described
below. Further, the Exchange proposes
to amend Exchange Rules to permit the
Exchange to take prompt action to
suspend Members or their clients that
violate such rule.
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.
19 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
18 15
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U.S.C. 78s(b)(2)(B).
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Federal Register / Vol. 81, No. 75 / Tuesday, April 19, 2016 / Notices
Background
As a national securities exchange
registered pursuant to Section 6 of the
Act, the Exchange is required to be
organized and to have the capacity to
enforce compliance by its members and
persons associated with its members,
with the Act, the rules and regulations
thereunder, and the Exchange’s Rules.5
Further, the Exchange’s Rules are
required to be ‘‘designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade. . . . and, in
general, to protect investors and the
public interest.’’ 6 In fulfilling these
requirements, the Exchange has
developed a comprehensive regulatory
program that includes automated
surveillance of trading activity that is
both operated directly by Exchange staff
and by staff of the Financial Industry
Regulatory Authority (‘‘FINRA’’)
pursuant to a Regulatory Services
Agreement (‘‘RSA’’). When disruptive
and potentially manipulative or
improper quoting and trading activity is
identified, the Exchange or FINRA
(acting as an agent of the Exchange)
conducts an investigation into the
activity, requesting additional
information from the Member or
Members involved. To the extent
violations of the Act, the rules and
regulations thereunder, or Exchange
Rules have been identified and
confirmed, the Exchange or FINRA as its
agent will commence the enforcement
process, which might result in, among
other things, a censure, a requirement to
take certain remedial actions, one or
more restrictions on future business
activities, a monetary fine, or even a
temporary or permanent ban from the
securities industry.
The process described above, from the
identification of disruptive and
potentially manipulative or improper
quoting and trading activity to a final
resolution of the matter, can often take
several years. The Exchange believes
that this time period is generally
necessary and appropriate to afford the
subject Member adequate due process,
particularly in complex cases. However,
as described below, the Exchange
believes that there are certain obvious
and uncomplicated cases of disruptive
and manipulative behavior or cases
where the potential harm to investors is
so large that the Exchange should have
the authority to initiate an expedited
suspension proceeding in order to stop
the behavior from continuing on the
Exchange.
In recent years, several cases have
been brought and resolved by an
affiliate of the Exchange and other SROs
that involved allegations of wide-spread
market manipulation, much of which
was ultimately being conducted by
foreign persons and entities using
relatively rudimentary technology to
access the markets and over which the
Exchange and other SROs had no direct
jurisdiction. In each case, the conduct
involved a pattern of disruptive quoting
and trading activity indicative of
manipulative layering 7 or spoofing.8 An
3 The Exchange notes that the membership of the
Exchange and the membership of BZX is nearly
identical. BZX members and the public had the
opportunity to comment—and did comment—on an
identical BZX proposal to the current proposal
before the Staff approved the BZX proposal. See
https://www.sec.gov/comments/sr-bats-2015-101/
bats2015101.shtml.
4 See Securities Exchange Act Release No. 77171
(February 18, 2016) (SR–BATS–2015–101).
5 15 U.S.C. 78f(b)(1).
6 15 U.S.C. 78f(b)(5).
7 ‘‘Layering’’ is a form of market manipulation in
which multiple, non-bona fide limit orders are
entered on one side of the market at various price
levels in order to create the appearance of a change
in the levels of supply and demand, thereby
artificially moving the price of the security. An
order is then executed on the opposite side of the
market at the artificially created price, and the nonbona fide orders are cancelled.
8 ‘‘Spoofing’’ is a form of market manipulation
that involves the market manipulator placing nonbona fide orders that are intended to trigger some
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
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Introduction
The Exchange is filing this proposal to
adopt a new rule to clearly prohibit
disruptive quoting and trading activity
on the Exchange and to amend
Exchange Rules to permit the Exchange
to take prompt action to suspend
Members or their clients that violate
such rule. The proposal is identical to
the proposal of Bats BZX Exchange, Inc.,
formerly known as BATS Exchange, Inc.
(‘‘BZX’’),3 which was recently approved
by the Commission.4
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23047
affiliate of the Exchange and other SROs
were able to identify the disruptive
quoting and trading activity in real-time
or near real-time; nonetheless, in
accordance with Exchange Rules and
the Act, the Members responsible for
such conduct or responsible for their
customers’ conduct were allowed to
continue the disruptive quoting and
trading activity during the entirety of
the subsequent lengthy investigation
and enforcement process. The Exchange
believes that it should have the
authority to initiate an expedited
suspension proceeding in order to stop
the behavior from continuing on the
Exchange if a Member is engaging in or
facilitating disruptive quoting and
trading activity and the Member has
received sufficient notice with an
opportunity to respond, but such
activity has not ceased.
The following two examples are
instructive on the Exchange’s rationale
for the proposed rule change.
In July 2012, Biremis Corp. (formerly
Swift Trade Securities USA, Inc.) (the
‘‘Firm’’) and its CEO were barred from
the industry for, among other things,
supervisory violations related to a
failure by the Firm to detect and prevent
disruptive and allegedly manipulative
trading activities, including layering,
short sale violations, and anti-money
laundering violations.9 The Firm’s sole
business was to provide trade execution
services via a proprietary day trading
platform and order management system
to day traders located in foreign
jurisdictions. Thus, the disruptive and
allegedly manipulative trading activity
introduced by the Firm to U.S. markets
originated directly or indirectly from
foreign clients of the Firm. The pattern
of disruptive and allegedly
manipulative quoting and trading
activity was widespread across multiple
exchanges, and FINRA and other SROs
identified clear patterns of the behavior
in 2007 and 2008. Although the Firm
and its principals were on notice of the
disruptive and allegedly manipulative
quoting and trading activity that was
occurring, the Firm took little to no
action to attempt to supervise or prevent
such quoting and trading activity until
at least 2009. Even when it put some
controls in place, they were deficient
and the pattern of disruptive and
allegedly manipulative trading activity
continued to occur. As noted above, the
final resolution of the enforcement
type of market movement and/or response from
other market participants, from which the market
manipulator might benefit by trading bona fide
orders.
9 See Biremis Corp. and Peter Beck, FINRA Letter
of Acceptance, Waiver and Consent No.
2010021162202, July 30, 2012.
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action to bar the Firm and its CEO from
the industry was not concluded until
2012, four years after the disruptive and
allegedly manipulative trading activity
was first identified.
In September of 2012, Hold Brothers
On-Line Investment Services, Inc. (the
‘‘Firm’’) settled a regulatory action in
connection with the Firm’s provision of
a trading platform, trade software and
trade execution, support and clearing
services for day traders.10 Many traders
using the Firm’s services were located
in foreign jurisdictions. The Firm
ultimately settled the action with
FINRA and several exchanges for a total
monetary fine of $3.4 million. In a
separate action, the Firm settled with
the Commission for a monetary fine of
$2.5 million.11 Among the alleged
violations in the case were disruptive
and allegedly manipulative quoting and
trading activity, including spoofing,
layering, wash trading, and pre-arranged
trading. Through its conduct and
insufficient procedures and controls, the
Firm also allegedly committed antimoney laundering violations by failing
to detect and report manipulative and
suspicious trading activity. The Firm
was alleged to have not only provided
foreign traders with access to the U.S.
markets to engage in such activities, but
that its principals also owned and
funded foreign subsidiaries that engaged
in the disruptive and allegedly
manipulative quoting and trading
activity. Although the pattern of
disruptive and allegedly manipulative
quoting and trading activity was
identified in 2009, as noted above, the
enforcement action was not concluded
until 2012. Thus, although disruptive
and allegedly manipulative quoting and
trading was promptly detected, it
continued for several years.
The Exchange also notes the current
criminal proceedings that have
commenced against Navinder Singh
Sarao. Mr. Sarao’s allegedly
manipulative trading activity, which
included forms of layering and spoofing
in the futures markets, has been linked
as a contributing factor to the ‘‘Flash
Crash’’ of 2010, and yet continued
through 2015.
The Exchange believes that the
activities described in the cases above
provide justification for the proposed
rule change, which is described below.
10 See Hold Brothers On-Line Investment Services,
LLC, FINRA Letter of Acceptance, Waiver and
Consent No. 20100237710001, September 25, 2012.
11 In the Matter of Hold Brothers On-Line
Investment Services, LLC, Exchange Act Release No.
67924, September 25, 2012.
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Rule 8.17—Expedited Client Suspension
Proceeding
The Exchange proposes to adopt new
Rule 8.17 to set forth procedures for
issuing suspension orders, immediately
prohibiting a Member from conducting
continued disruptive quoting and
trading activity on the Exchange.
Importantly, these procedures would
also provide the Exchange the authority
to order a Member to cease and desist
from providing access to the Exchange
to a client of the Member that is
conducting disruptive quoting and
trading activity in violation of proposed
Rule 12.15.
Under proposed paragraph (a) of Rule
8.17, with the prior written
authorization of the Chief Regulatory
Officer (‘‘CRO’’) or such other senior
officers as the CRO may designate, the
Office of General Counsel or Regulatory
Department of the Exchange (such
departments generally referred to as the
‘‘Exchange’’ for purposes of proposed
Rule 8.17) may initiate an expedited
suspension proceeding with respect to
alleged violations of Rule 12.15, which
is proposed as part of this filing and
described in detail below. Proposed
paragraph (a) would also set forth the
requirements for notice and service of
such notice pursuant to the Rule,
including the required method of
service and the content of notice.
Proposed paragraph (b) of Rule 8.17
would govern the appointment of a
Hearing Panel as well as potential
disqualification or recusal of Hearing
Officers. The proposed provision is
consistent with existing Exchange Rule
8.6 and includes the requirement for a
Hearing Officer to be recused in the
event he or she has a conflict of interest
or bias or other circumstances exist
where his or her fairness might
reasonably be questioned. In addition to
recusal initiated by such a Hearing
Officer, a party to the proceeding will be
permitted to file a motion to disqualify
a Hearing Officer. However, due to the
compressed schedule pursuant to which
the process would operate under Rule
8.17, the proposed rule would require
such motion to be filed no later than 5
days after the announcement of the
Hearing Panel and the Exchange’s brief
in opposition to such motion would be
required to be filed no later than 5 days
after service thereof. Pursuant to
existing Rule 8.6(b), if the Hearing Panel
believes the Respondent has provided
satisfactory evidence in support of the
motion to disqualify, the applicable
Hearing Officer shall remove himself or
herself and request the Chief Executive
Officer to reassign the hearing to
another Hearing Officer such that the
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Hearing Panel still meets the
compositional requirements described
in Rule 8.6(a). If the Hearing Panel
determines that the Respondent’s
grounds for disqualification are
insufficient, it shall deny the
Respondent’s motion for
disqualification by setting forth the
reasons for the denial in writing and the
Hearing Panel will proceed with the
hearing.
Under paragraph (c) of the proposed
Rule, the hearing would be held not
later than 15 days after service of the
notice initiating the suspension
proceeding, unless otherwise extended
by the Chairman of the Hearing Panel
with the consent of the Parties for good
cause shown. In the event of a recusal
or disqualification of a Hearing Officer,
the hearing shall be held not later than
five days after a replacement Hearing
Officer is appointed. Proposed
paragraph (c) would also govern how
the hearing is conducted, including the
authority of Hearing Officers, witnesses,
additional information that may be
required by the Hearing Panel, the
requirement that a transcript of the
proceeding be created and details
related to such transcript, and details
regarding the creation and maintenance
of the record of the proceeding.
Proposed paragraph (c) would also state
that if a Respondent fails to appear at a
hearing for which it has notice, the
allegations in the notice and
accompanying declaration may be
deemed admitted, and the Hearing
Panel may issue a suspension order
without further proceedings. Finally, as
proposed, if the Exchange fails to appear
at a hearing for which it has notice, the
Hearing Panel may order that the
suspension proceeding be dismissed.
Under paragraph (d) of the proposed
Rule, the Hearing Panel would be
authorized to issue a written decision
stating whether a suspension order
would be imposed. The Hearing Panel
would be required to issue the decision
not later than 10 days after receipt of the
hearing transcript, unless otherwise
extended by the Chairman of the
Hearing Panel with the consent of the
Parties for good cause shown. The Rule
would state that a suspension order
shall be imposed if the Hearing Panel
finds by a preponderance of the
evidence that the alleged violation
specified in the notice has occurred and
that the violative conduct or
continuation thereof is likely to result in
significant market disruption or other
significant harm to investors.
Proposed paragraph (d) would also
describe the content, scope and form of
a suspension order. As proposed, a
suspension order shall be limited to
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ordering a Respondent to cease and
desist from violating proposed Rule
12.15, and/or to ordering a Respondent
to cease and desist from providing
access to the Exchange to a client of
Respondent that is causing violations of
Rule 12.15. Under the proposed rule, a
suspension order shall also set forth the
alleged violation and the significant
market disruption or other significant
harm to investors that is likely to result
without the issuance of an order. The
order shall describe in reasonable detail
the act or acts the Respondent is to take
or refrain from taking, and suspend such
Respondent unless and until such
action is taken or refrained from.
Finally, the order shall include the date
and hour of its issuance. As proposed,
a suspension order would remain
effective and enforceable unless
modified, set aside, limited, or revoked
pursuant to proposed paragraph (e), as
described below. Finally, paragraph (d)
would require service of the Hearing
Panel’s decision and any suspension
order consistent with other portions of
the proposed rule related to service.
Proposed paragraph (e) of Rule 8.17
would state that at any time after the
Office of Hearing Officers served the
Respondent with a suspension order, a
Party could apply to the Hearing Panel
to have the order modified, set aside,
limited, or revoked. If any part of a
suspension order is modified, set aside,
limited, or revoked, proposed paragraph
(e) of Rule 8.17 provides the Hearing
Panel discretion to leave the cease and
desist part of the order in place. For
example, if a suspension order suspends
Respondent unless and until
Respondent ceases and desists
providing access to the Exchange to a
client of Respondent, and after the order
is entered the Respondent complies, the
Hearing Panel is permitted to modify
the order to lift the suspension portion
of the order while keeping in place the
cease and desist portion of the order.
With its broad modification powers, the
Hearing Panel also maintains the
discretion to impose conditions upon
the removal of a suspension—for
example, the Hearing Panel could
modify an order to lift the suspension
portion of the order in the event a
Respondent complies with the cease
and desist portion of the order but
additionally order that the suspension
will be re-imposed if Respondent
violates the cease and desist provisions
modified order in the future. The
Hearing Panel generally would be
required to respond to the request in
writing within 10 days after receipt of
the request. An application to modify,
set aside, limit or revoke a suspension
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order would not stay the effectiveness of
the suspension order.
Finally, proposed paragraph (f) would
provide that sanctions issued under the
proposed Rule 8.17 would constitute
final and immediately effective
disciplinary sanctions imposed by the
Exchange, and that the right to have any
action under the Rule reviewed by the
Commission would be governed by
Section 19 of the Act. The filing of an
application for review would not stay
the effectiveness of a suspension order
unless the Commission otherwise
ordered.
Rule 12.15—Disruptive Quoting and
Trading Activity Prohibited
The Exchange currently has authority
to prohibit and take action against
manipulative trading activity, including
disruptive quoting and trading activity,
pursuant to its general market
manipulation rules, including Rule 3.1.
The Exchange proposes to adopt new
Rule 12.15, which would more
specifically define and prohibit
disruptive quoting and trading activity
on the Exchange. As noted above, the
Exchange also proposes to apply the
proposed suspension rules to proposed
Rule 12.15.
Proposed Rule 12.15 would prohibit
Members from engaging in or facilitating
disruptive quoting and trading activity
on the Exchange, as described in
proposed Interpretation and Policies .01
and .02 of the Rule, including acting in
concert with other persons to effect such
activity. The Exchange believes that it is
necessary to extend the prohibition to
situations when persons are acting in
concert to avoid a potential loophole
where disruptive quoting and trading
activity is simply split between several
brokers or customers.
To provide proper context for the
situations in which the Exchange
proposes to utilize its proposed
authority, the Exchange believes it is
necessary to describe the types of
disruptive quoting and trading activity
that would cause the Exchange to use its
authority. Accordingly, the Exchange
proposes to adopt Interpretation and
Policy .01 and .02, providing additional
details regarding disruptive quoting and
trading activity. Proposed Interpretation
and Policy .01(a), which describes
disruptive quoting and trading activity
containing many of the elements
indicative of layering, would describe
disruptive quoting and trading activity
as a frequent pattern in which the
following facts are present: (a) A party
enters multiple limit orders on one side
of the market at various price levels (the
‘‘Displayed Orders’’); and (b) following
the entry of the Displayed Orders, the
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23049
level of supply and demand for the
security changes; and (c) the party
enters one or more orders on the
opposite side of the market of the
Displayed Orders (the ‘‘Contra-Side
Orders’’) that are subsequently
executed; and (d) following the
execution of the Contra-Side Orders, the
party cancels the Displayed Orders.
Proposed Interpretation and Policy
.01(b), which describes disruptive
quoting and trading activity containing
many of the elements indicative of
spoofing, would describe disruptive
quoting and trading activity as a
frequent pattern in which the following
facts are present: (a) A party narrows the
spread for a security by placing an order
inside the national best bid or offer; and
(b) the party then submits an order on
the opposite side of the market that
executes against another market
participant that joined the new inside
market established by the order
described in (a) that narrowed the
spread. The Exchange believes that the
proposed descriptions of disruptive
quoting and trading activity articulated
in the rule are consistent with the
activities that have been identified and
described in the client access cases
described above. The Exchange further
believes that the proposed descriptions
will provide Members with clear
descriptions of disruptive quoting and
trading activity that will help them to
avoid engaging in such activities or
allowing their clients to engage in such
activities.
The Exchange proposes to make clear
in Interpretation and Policy .02 that,
unless otherwise indicated, the
descriptions of disruptive quoting and
trading activity do not require the facts
to occur in a specific order in order for
the rule to apply. For instance, with
respect to the pattern defined in
proposed Interpretation and Policy
.01(a) it is of no consequence whether
a party first enters Displayed Orders and
then Contra-side Orders or vice-versa.
However, as proposed, it is required for
supply and demand to change following
the entry of the Displayed Orders. The
Exchange also proposes to make clear
that disruptive quoting and trading
activity includes a pattern or practice in
which some portion of the disruptive
quoting and trading activity is
conducted on the Exchange and the
other portions of the disruptive quoting
and trading activity are conducted on
one or more other exchanges. The
Exchange believes that this authority is
necessary to address market participants
who would otherwise seek to avoid the
prohibitions of the proposed Rule by
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spreading their activity amongst various
execution venues.
In sum, proposed Rule 12.15 coupled
with proposed Rule 8.17 would provide
the Exchange with authority to
promptly act to prevent disruptive
quoting and trading activity from
continuing on the Exchange. Below is
an example of how the proposed rule
would operate.
Assume that through its surveillance
program, Exchange staff identifies a
pattern of potentially disruptive quoting
and trading activity. After an initial
investigation the Exchange would then
contact the Member responsible for the
orders that caused the activity to request
an explanation of the activity as well as
any additional relevant information,
including the source of the activity. If
the Exchange were to continue to see
the same pattern from the same Member
and the source of the activity is the
same or has been previously identified
as a frequent source of disruptive
quoting and trading activity then the
Exchange could initiate an expedited
suspension proceeding by serving notice
on the Member that would include
details regarding the alleged violations
as well as the proposed sanction. In
such a case the proposed sanction
would likely be to order the Member to
cease and desist providing access to the
Exchange to the client that is
responsible for the disruptive quoting
and trading activity and to suspend
such Member unless and until such
action is taken. The Member would
have the opportunity to be heard in
front of a Hearing Panel at a hearing to
be conducted within 15 days of the
notice. If the Hearing Panel determined
that the violation alleged in the notice
did not occur or that the conduct or its
continuation would not have the
potential to result in significant market
disruption or other significant harm to
investors, then the Hearing Panel would
dismiss the suspension order
proceeding. If the Hearing Panel
determined that the violation alleged in
the notice did occur and that the
conduct or its continuation is likely to
result in significant market disruption
or other significant harm to investors,
then the Hearing Panel would issue the
order including the proposed sanction,
ordering the Member to cease providing
access to the client at issue and
suspending such Member unless and
until such action is taken. If such
Member wished for the suspension to be
lifted because the client ultimately
responsible for the activity no longer
would be provided access to the
Exchange, then such Member could
apply to the Hearing Panel to have the
order modified, set aside, limited or
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18:02 Apr 18, 2016
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revoked. The Exchange notes that the
issuance of a suspension order would
not alter the Exchange’s ability to
further investigate the matter and/or
later sanction the Member pursuant to
the Exchange’s standard disciplinary
process for supervisory violations or
other violations of Exchange rules or the
Act.12
The Exchange reiterates that it already
has broad authority to take action
against a Member in the event that such
Member is engaging in or facilitating
disruptive or manipulative trading
activity on the Exchange. For the
reasons described above, and in light of
recent cases like the client access cases
described above, as well as other cases
currently under investigation, the
Exchange believes that it is equally
important for the Exchange to have the
authority to promptly initiate expedited
suspension proceedings against any
Member who has demonstrated a clear
pattern or practice of disruptive quoting
and trading activity, as described above,
and to take action including ordering
such Member to terminate access to the
Exchange to one or more of such
Member’s clients if such clients are
responsible for the activity. The
Exchange recognizes that its proposed
authority to issue a suspension order is
a powerful measure that should be used
very cautiously. Consequently, the
proposed rules have been designed to
ensure that the proceedings are used to
address only the most clear and serious
types of disruptive quoting and trading
activity and that the interests of
Respondents are protected. For
example, to ensure that proceedings are
used appropriately and that the decision
to initiate a proceeding is made only at
the highest staff levels, the proposed
rules require the CRO or another senior
officer of the Exchange to issue written
authorization before the Exchange can
institute an expedited suspension
proceeding. In addition, the Exchange
believes that it would use this authority
in limited circumstances, when
12 The proposal will not supplant the Exchange’s
current investigative and enforcement process.
Currently, when Exchange surveillance staff
identifies a pattern of potentially disruptive quoting
and trading activity, the staff conducts an initial
analysis and investigation of that activity. After the
initial investigation, the Exchange then contacts the
Member responsible for the orders that caused the
activity to request an explanation of the activity as
well as any additional relevant information,
including the source of the activity. The Exchange
will continue this practice after this proposal
becomes operative. The Exchange will only seek an
expedited suspension when—after multiple
requests to a Member for an explanation of
activity—it continues to see the same pattern of
manipulation from the same Member and the
source of the activity is the same or has been
previously identified as a frequent source of
disruptive quoting and trading activity.
PO 00000
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Fmt 4703
Sfmt 4703
necessary to protect investors, other
Members and the Exchange. Further, the
Exchange believes that the proposed
expedited suspension provisions
described above that provide the
opportunity to respond as well as a
Hearing Panel determination prior to
taking action will ensure that the
Exchange would not utilize its authority
in the absence of a clear pattern or
practice of disruptive quoting and
trading activity.
2. Statutory Basis
The Exchange believes that the
proposed rule changes are consistent
with Section 6(b) of the Act 13 and
further the objectives of Section 6(b)(5)
of the Act 14 because they are designed
to prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in regulating
transactions in securities, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest. Pursuant to the
proposal, the Exchange will have a
mechanism to promptly initiate
expedited suspension proceedings in
the event the Exchange believes that it
has sufficient proof that a violation of
Rule 12.15 has occurred and is ongoing.
Further, the Exchange believes that
the proposal is consistent with Sections
6(b)(1) and 6(b)(6) of the Act,15 which
require that the rules of an exchange
enforce compliance with, and provide
appropriate discipline for, violations of
the Commission and Exchange rules.
The Exchange also believes that the
proposal is consistent with the public
interest, the protection of investors, or
otherwise in furtherance of the purposes
of the Act because the proposal helps to
strengthen the Exchange’s ability to
carry out its oversight and enforcement
responsibilities as a self-regulatory
organization in cases where awaiting the
conclusion of a full disciplinary
proceeding is unsuitable in view of the
potential harm to other Members and
their customers as well as the Exchange
if conduct is allowed to continue on the
Exchange. As explained above, the
Exchange notes that it has defined the
prohibited disruptive quoting and
trading activity by modifying the
traditional definitions of layering and
spoofing16 to eliminate an express intent
element that would not be proven on an
13 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
15 15 U.S.C. 78f(b)(1) and 78f(b)(6).
16 See supra, notes 7 and 8.
14 15
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mstockstill on DSK4VPTVN1PROD with NOTICES
expedited basis and would instead
require a thorough investigation into the
activity. As noted throughout this filing,
the Exchange believes it is necessary for
the protection of investors to make such
modifications in order to adopt an
expedited process rather than allowing
disruptive quoting and trading activity
to occur for several years. Through this
proposal, the Exchange does not intend
to modify the definitions of spoofing
and layering that have generally been
used by the Exchange and other
regulators in connection with actions
like those cited above.
The Exchange further believes that the
proposal is consistent with Section
6(b)(7) of the Act,17 which requires that
the rules of an exchange ‘‘provide a fair
procedure for the disciplining of
members and persons associated with
persons . . . and the prohibition or
limitation by the exchange of any
person with respect to access to services
offered by the exchange or a member
thereof.’’ Finally, the Exchange also
believes the proposal is consistent with
Sections 6(d)(1) and 6(d)(2) of the Act,18
which require that the rules of an
exchange with respect to a disciplinary
proceeding or proceeding that would
limit or prohibit access to or
membership in the exchange require the
exchange to: provide adequate and
specific notice of the charges brought
against a member or person associated
with a member, provide an opportunity
to defend against such charges, keep a
record, and provide details regarding
the findings and applicable sanctions in
the event a determination to impose a
disciplinary sanction is made. The
Exchange believes that each of these
requirements is addressed by the notice
and due process provisions included
within proposed Rule 8.17. Importantly,
as noted above, the Exchange
anticipates using the authority proposed
in this filing only in clear and egregious
cases when necessary to protect
investors, other Members and the
Exchange, and even in such cases, the
Respondent will be afforded due
process in connection with the
suspension proceedings.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule changes will result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. To the
contrary, the Exchange believes that
each self-regulatory organization should
be empowered to regulate trading
17 15
18 15
U.S.C. 78f(b)(7).
U.S.C. 78f(d)(1).
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18:02 Apr 18, 2016
Jkt 238001
occurring on their market consistent
with the Act and without regard to
competitive issues. The Exchange is
requesting authority to take appropriate
action if necessary for the protection of
investors, other Members and the
Exchange.
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 19 and Rule
19b–4(f)(6)thereunder.20 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, 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 21 and Rule 19b–4(f)(6)
thereunder.22
A proposed rule change filed under
Rule 19b–4(f)(6) 23 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),24 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 proposed
rule change may become operative
immediately. The Exchange asserts that
the waiver of the 30-day operative delay
will allow the Exchange to immediately
enforce the proposed rules to protect its
members and market participants from
the behavior proscribed by the proposed
rules. The Exchange further states that
19 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
21 15 U.S.C. 78s(b)(3)(A).
22 17 CFR 240.19b–4(f)(6). 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.
23 17 CFR 240.19b–4(f)(6).
24 17 CFR 240.19b–4(f)(6)(iii).
20 17
PO 00000
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Fmt 4703
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23051
waiver of the operative delay is
consistent with the protection of
investors and the public interest
because it is designed to protect
investors and the public from disruptive
quoting and trading activity.
Furthermore, the Commission notes that
it recently approved an identical
expedited disciplinary procedure for an
affiliate of the Exchange, BatsBZX,25
and the Exchange represents above that
the membership of the Exchange and
the membership of BatsBZX is nearly
identical.26 Based on the foregoing, the
Commission believes that waiver of the
operative delay is consistent with the
protection of investors and the public
interest. Accordingly, Commission
hereby waives the 30-day operative
delay and designates the proposal
operative upon filing.27
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
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 proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–BatsBYX–2016–03 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–BatsBYX–2016–03. This
file number should be included on the
subject line if email is used. To help the
25 See
supra,Error! Bookmark not defined..
supra, Error! Bookmark not defined..
27 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
26 See
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23052
Federal Register / Vol. 81, No. 75 / Tuesday, April 19, 2016 / Notices
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 such
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 SRBatsBYX–2016–03, and should be
submitted on or before May 10, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–08940 Filed 4–18–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No. IC–
32071; 812–14604]
Aptus Capital Advisors, LLC, et al.;
Notice of Application
April 13, 2016.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under section 6(c) of the
Investment Company Act of 1940 (the
‘‘Act’’) for an exemption from sections
2(a)(32), 5(a)(1), 22(d), and 22(e) of the
Act and rule 22c–1 under the Act, under
sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and
17(a)(2) of the Act, and under section
12(d)(1)(J) for an exemption from
mstockstill on DSK4VPTVN1PROD with NOTICES
AGENCY:
28 17
CFR 200.30–3(a)(12), (59).
VerDate Sep<11>2014
18:02 Apr 18, 2016
Jkt 238001
sections 12(d)(1)(A) and 12(d)(1)(B) of
the Act.
Applicants
request an order that would permit (a)
series of certain open-end management
investment companies to issue shares
(‘‘Shares’’) redeemable in large
aggregations only (‘‘Creation Units’’); (b)
secondary market transactions in Shares
to occur at negotiated market prices
rather than at net asset value (‘‘NAV’’);
(c) certain series to pay redemption
proceeds, under certain circumstances,
more than seven days after the tender of
Shares for redemption; (d) certain
affiliated persons of the series to deposit
securities into, and receive securities
from, the series in connection with the
purchase and redemption of Creation
Units; and (e) certain registered
management investment companies and
unit investment trusts outside of the
same group of investment companies as
the series to acquire Shares.
APPLICANTS: Aptus Capital Advisors,
LLC (‘‘Initial Adviser’’), ETF Series
Solutions (‘‘Trust’’) and Quasar
Distributors, LLC (‘‘Quasar’’).
FILING DATES: The application was filed
on January 20, 2016, and amended on
March 23, 2016.
HEARING OR NOTIFICATION OF HEARING: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on May 9, 2016, and
should be accompanied by proof of
service on applicants, in the form of an
affidavit, or for lawyers, a certificate of
service. Pursuant to rule 0–5 under the
Act, hearing requests should state the
nature of the writer’s interest, any facts
bearing upon the desirability of a
hearing on the matter, the reason for the
request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
writing to the Commission’s Secretary.
ADDRESSES: Secretary, Securities and
Exchange Commission, 100 F Street NE.,
Washington, DC 20549–1090;
Applicants: Initial Adviser: 407 Johnson
Ave., Fairhope, AL 36532; the Trust and
Quasar: 615 East Michigan Street, 4th
Floor, Milwaukee, Wisconsin 53202.
FOR FURTHER INFORMATION CONTACT:
Courtney S. Thornton, at (202) 551–
6812, or David J. Marcinkus, Branch
Chief, at (202) 551–6821 (Division of
Investment Management, Chief
Counsel’s Office).
SUMMARY OF APPLICATION:
PO 00000
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The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
SUPPLEMENTARY INFORMATION:
Applicants’ Representations
1. The Trust, a Delaware statutory
trust, is registered under the Act as a
series open-end management
investment company. Each series will
operate as an exchange traded fund
(‘‘ETF’’).
2. The Initial Adviser will be the
investment adviser to the new series of
the Trust (‘‘Initial Fund’’). Each Adviser
(as defined below) will be registered as
an investment adviser under the
Investment Advisers Act of 1940
(‘‘Advisers Act’’). The Adviser may
enter into sub-advisory agreements with
one or more investment advisers to act
as sub-advisers to particular Funds
(each, a ‘‘Sub-Adviser’’). Any SubAdviser will either be registered under
the Advisers Act or will not be required
to register thereunder.
3. The Trust will enter into a
distribution agreement with one or more
distributors. Each distributor for a Fund
will be a broker-dealer (‘‘Broker’’)
registered under the Securities
Exchange Act of 1934 (‘‘Exchange Act’’)
and will act as distributor and principal
underwriter (‘‘Distributor’’) for one or
more of the Funds. No Distributor will
be affiliated with any national securities
exchange, as defined in Section 2(a)(26)
of the Act (‘‘Exchange’’). The Distributor
for each Fund will comply with the
terms and conditions of the requested
order. Quasar, a Delaware limited
liability company and broker-dealer
registered under the Exchange Act, will
act as the initial Distributor of the
Funds.
4. Applicants request that the order
apply to the Initial Fund and any
additional series of the Trust, and any
other open-end management investment
company or series thereof, that may be
created in the future (‘‘Future Funds’’
and together with the Initial Fund,
‘‘Funds’’), each of which will operate as
an ETF and will track a specified index
comprised of domestic or foreign equity
and/or fixed income securities (each, an
‘‘Underlying Index’’). Any Future Fund
will (a) be advised by the Initial Adviser
or an entity controlling, controlled by,
or under common control with the
Initial Adviser (each, an ‘‘Adviser’’) and
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]]>Agencies
[Federal Register Volume 81, Number 75 (Tuesday, April 19, 2016)]
[Notices]
[Pages 23046-23052]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08940]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77602; File No. SR-BatsBYX-2016-03]
Self-Regulatory Organizations; Bats BYX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt
Rule 8.17 To Provide a Process for an Expedited Suspension Proceeding
and Rule 12.15 To Prohibit Layering and Spoofing
April 13, 2016.
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 March 31, 2016, Bats BYX Exchange, Inc. (the ``Exchange'' or
``BYX'') filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I and II
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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to adopt a new rule to clearly
prohibit disruptive quoting and trading activity on the Exchange, as
further described below. Further, the Exchange proposes to amend
Exchange Rules to permit the Exchange to take prompt action to suspend
Members or their clients that violate such rule.
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.
[[Page 23047]]
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
Introduction
The Exchange is filing this proposal to adopt a new rule to clearly
prohibit disruptive quoting and trading activity on the Exchange and to
amend Exchange Rules to permit the Exchange to take prompt action to
suspend Members or their clients that violate such rule. The proposal
is identical to the proposal of Bats BZX Exchange, Inc., formerly known
as BATS Exchange, Inc. (``BZX''),\3\ which was recently approved by the
Commission.\4\
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\3\ The Exchange notes that the membership of the Exchange and
the membership of BZX is nearly identical. BZX members and the
public had the opportunity to comment--and did comment--on an
identical BZX proposal to the current proposal before the Staff
approved the BZX proposal. See https://www.sec.gov/comments/sr-bats-2015-101/bats2015101.shtml.
\4\ See Securities Exchange Act Release No. 77171 (February 18,
2016) (SR-BATS-2015-101).
---------------------------------------------------------------------------
Background
As a national securities exchange registered pursuant to Section 6
of the Act, the Exchange is required to be organized and to have the
capacity to enforce compliance by its members and persons associated
with its members, with the Act, the rules and regulations thereunder,
and the Exchange's Rules.\5\ Further, the Exchange's Rules are required
to be ``designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade. . . .
and, in general, to protect investors and the public interest.'' \6\ In
fulfilling these requirements, the Exchange has developed a
comprehensive regulatory program that includes automated surveillance
of trading activity that is both operated directly by Exchange staff
and by staff of the Financial Industry Regulatory Authority (``FINRA'')
pursuant to a Regulatory Services Agreement (``RSA''). When disruptive
and potentially manipulative or improper quoting and trading activity
is identified, the Exchange or FINRA (acting as an agent of the
Exchange) conducts an investigation into the activity, requesting
additional information from the Member or Members involved. To the
extent violations of the Act, the rules and regulations thereunder, or
Exchange Rules have been identified and confirmed, the Exchange or
FINRA as its agent will commence the enforcement process, which might
result in, among other things, a censure, a requirement to take certain
remedial actions, one or more restrictions on future business
activities, a monetary fine, or even a temporary or permanent ban from
the securities industry.
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78f(b)(1).
\6\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The process described above, from the identification of disruptive
and potentially manipulative or improper quoting and trading activity
to a final resolution of the matter, can often take several years. The
Exchange believes that this time period is generally necessary and
appropriate to afford the subject Member adequate due process,
particularly in complex cases. However, as described below, the
Exchange believes that there are certain obvious and uncomplicated
cases of disruptive and manipulative behavior or cases where the
potential harm to investors is so large that the Exchange should have
the authority to initiate an expedited suspension proceeding in order
to stop the behavior from continuing on the Exchange.
In recent years, several cases have been brought and resolved by an
affiliate of the Exchange and other SROs that involved allegations of
wide-spread market manipulation, much of which was ultimately being
conducted by foreign persons and entities using relatively rudimentary
technology to access the markets and over which the Exchange and other
SROs had no direct jurisdiction. In each case, the conduct involved a
pattern of disruptive quoting and trading activity indicative of
manipulative layering \7\ or spoofing.\8\ An affiliate of the Exchange
and other SROs were able to identify the disruptive quoting and trading
activity in real-time or near real-time; nonetheless, in accordance
with Exchange Rules and the Act, the Members responsible for such
conduct or responsible for their customers' conduct were allowed to
continue the disruptive quoting and trading activity during the
entirety of the subsequent lengthy investigation and enforcement
process. The Exchange believes that it should have the authority to
initiate an expedited suspension proceeding in order to stop the
behavior from continuing on the Exchange if a Member is engaging in or
facilitating disruptive quoting and trading activity and the Member has
received sufficient notice with an opportunity to respond, but such
activity has not ceased.
---------------------------------------------------------------------------
\7\ ``Layering'' is a form of market manipulation in which
multiple, non-bona fide limit orders are entered on one side of the
market at various price levels in order to create the appearance of
a change in the levels of supply and demand, thereby artificially
moving the price of the security. An order is then executed on the
opposite side of the market at the artificially created price, and
the non-bona fide orders are cancelled.
\8\ ``Spoofing'' is a form of market manipulation that involves
the market manipulator placing non-bona fide orders that are
intended to trigger some type of market movement and/or response
from other market participants, from which the market manipulator
might benefit by trading bona fide orders.
---------------------------------------------------------------------------
The following two examples are instructive on the Exchange's
rationale for the proposed rule change.
In July 2012, Biremis Corp. (formerly Swift Trade Securities USA,
Inc.) (the ``Firm'') and its CEO were barred from the industry for,
among other things, supervisory violations related to a failure by the
Firm to detect and prevent disruptive and allegedly manipulative
trading activities, including layering, short sale violations, and
anti-money laundering violations.\9\ The Firm's sole business was to
provide trade execution services via a proprietary day trading platform
and order management system to day traders located in foreign
jurisdictions. Thus, the disruptive and allegedly manipulative trading
activity introduced by the Firm to U.S. markets originated directly or
indirectly from foreign clients of the Firm. The pattern of disruptive
and allegedly manipulative quoting and trading activity was widespread
across multiple exchanges, and FINRA and other SROs identified clear
patterns of the behavior in 2007 and 2008. Although the Firm and its
principals were on notice of the disruptive and allegedly manipulative
quoting and trading activity that was occurring, the Firm took little
to no action to attempt to supervise or prevent such quoting and
trading activity until at least 2009. Even when it put some controls in
place, they were deficient and the pattern of disruptive and allegedly
manipulative trading activity continued to occur. As noted above, the
final resolution of the enforcement
[[Page 23048]]
action to bar the Firm and its CEO from the industry was not concluded
until 2012, four years after the disruptive and allegedly manipulative
trading activity was first identified.
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\9\ See Biremis Corp. and Peter Beck, FINRA Letter of
Acceptance, Waiver and Consent No. 2010021162202, July 30, 2012.
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In September of 2012, Hold Brothers On-Line Investment Services,
Inc. (the ``Firm'') settled a regulatory action in connection with the
Firm's provision of a trading platform, trade software and trade
execution, support and clearing services for day traders.\10\ Many
traders using the Firm's services were located in foreign
jurisdictions. The Firm ultimately settled the action with FINRA and
several exchanges for a total monetary fine of $3.4 million. In a
separate action, the Firm settled with the Commission for a monetary
fine of $2.5 million.\11\ Among the alleged violations in the case were
disruptive and allegedly manipulative quoting and trading activity,
including spoofing, layering, wash trading, and pre-arranged trading.
Through its conduct and insufficient procedures and controls, the Firm
also allegedly committed anti-money laundering violations by failing to
detect and report manipulative and suspicious trading activity. The
Firm was alleged to have not only provided foreign traders with access
to the U.S. markets to engage in such activities, but that its
principals also owned and funded foreign subsidiaries that engaged in
the disruptive and allegedly manipulative quoting and trading activity.
Although the pattern of disruptive and allegedly manipulative quoting
and trading activity was identified in 2009, as noted above, the
enforcement action was not concluded until 2012. Thus, although
disruptive and allegedly manipulative quoting and trading was promptly
detected, it continued for several years.
---------------------------------------------------------------------------
\10\ See Hold Brothers On-Line Investment Services, LLC, FINRA
Letter of Acceptance, Waiver and Consent No. 20100237710001,
September 25, 2012.
\11\ In the Matter of Hold Brothers On-Line Investment Services,
LLC, Exchange Act Release No. 67924, September 25, 2012.
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The Exchange also notes the current criminal proceedings that have
commenced against Navinder Singh Sarao. Mr. Sarao's allegedly
manipulative trading activity, which included forms of layering and
spoofing in the futures markets, has been linked as a contributing
factor to the ``Flash Crash'' of 2010, and yet continued through 2015.
The Exchange believes that the activities described in the cases
above provide justification for the proposed rule change, which is
described below.
Rule 8.17--Expedited Client Suspension Proceeding
The Exchange proposes to adopt new Rule 8.17 to set forth
procedures for issuing suspension orders, immediately prohibiting a
Member from conducting continued disruptive quoting and trading
activity on the Exchange. Importantly, these procedures would also
provide the Exchange the authority to order a Member to cease and
desist from providing access to the Exchange to a client of the Member
that is conducting disruptive quoting and trading activity in violation
of proposed Rule 12.15.
Under proposed paragraph (a) of Rule 8.17, with the prior written
authorization of the Chief Regulatory Officer (``CRO'') or such other
senior officers as the CRO may designate, the Office of General Counsel
or Regulatory Department of the Exchange (such departments generally
referred to as the ``Exchange'' for purposes of proposed Rule 8.17) may
initiate an expedited suspension proceeding with respect to alleged
violations of Rule 12.15, which is proposed as part of this filing and
described in detail below. Proposed paragraph (a) would also set forth
the requirements for notice and service of such notice pursuant to the
Rule, including the required method of service and the content of
notice.
Proposed paragraph (b) of Rule 8.17 would govern the appointment of
a Hearing Panel as well as potential disqualification or recusal of
Hearing Officers. The proposed provision is consistent with existing
Exchange Rule 8.6 and includes the requirement for a Hearing Officer to
be recused in the event he or she has a conflict of interest or bias or
other circumstances exist where his or her fairness might reasonably be
questioned. In addition to recusal initiated by such a Hearing Officer,
a party to the proceeding will be permitted to file a motion to
disqualify a Hearing Officer. However, due to the compressed schedule
pursuant to which the process would operate under Rule 8.17, the
proposed rule would require such motion to be filed no later than 5
days after the announcement of the Hearing Panel and the Exchange's
brief in opposition to such motion would be required to be filed no
later than 5 days after service thereof. Pursuant to existing Rule
8.6(b), if the Hearing Panel believes the Respondent has provided
satisfactory evidence in support of the motion to disqualify, the
applicable Hearing Officer shall remove himself or herself and request
the Chief Executive Officer to reassign the hearing to another Hearing
Officer such that the Hearing Panel still meets the compositional
requirements described in Rule 8.6(a). If the Hearing Panel determines
that the Respondent's grounds for disqualification are insufficient, it
shall deny the Respondent's motion for disqualification by setting
forth the reasons for the denial in writing and the Hearing Panel will
proceed with the hearing.
Under paragraph (c) of the proposed Rule, the hearing would be held
not later than 15 days after service of the notice initiating the
suspension proceeding, unless otherwise extended by the Chairman of the
Hearing Panel with the consent of the Parties for good cause shown. In
the event of a recusal or disqualification of a Hearing Officer, the
hearing shall be held not later than five days after a replacement
Hearing Officer is appointed. Proposed paragraph (c) would also govern
how the hearing is conducted, including the authority of Hearing
Officers, witnesses, additional information that may be required by the
Hearing Panel, the requirement that a transcript of the proceeding be
created and details related to such transcript, and details regarding
the creation and maintenance of the record of the proceeding. Proposed
paragraph (c) would also state that if a Respondent fails to appear at
a hearing for which it has notice, the allegations in the notice and
accompanying declaration may be deemed admitted, and the Hearing Panel
may issue a suspension order without further proceedings. Finally, as
proposed, if the Exchange fails to appear at a hearing for which it has
notice, the Hearing Panel may order that the suspension proceeding be
dismissed.
Under paragraph (d) of the proposed Rule, the Hearing Panel would
be authorized to issue a written decision stating whether a suspension
order would be imposed. The Hearing Panel would be required to issue
the decision not later than 10 days after receipt of the hearing
transcript, unless otherwise extended by the Chairman of the Hearing
Panel with the consent of the Parties for good cause shown. The Rule
would state that a suspension order shall be imposed if the Hearing
Panel finds by a preponderance of the evidence that the alleged
violation specified in the notice has occurred and that the violative
conduct or continuation thereof is likely to result in significant
market disruption or other significant harm to investors.
Proposed paragraph (d) would also describe the content, scope and
form of a suspension order. As proposed, a suspension order shall be
limited to
[[Page 23049]]
ordering a Respondent to cease and desist from violating proposed Rule
12.15, and/or to ordering a Respondent to cease and desist from
providing access to the Exchange to a client of Respondent that is
causing violations of Rule 12.15. Under the proposed rule, a suspension
order shall also set forth the alleged violation and the significant
market disruption or other significant harm to investors that is likely
to result without the issuance of an order. The order shall describe in
reasonable detail the act or acts the Respondent is to take or refrain
from taking, and suspend such Respondent unless and until such action
is taken or refrained from. Finally, the order shall include the date
and hour of its issuance. As proposed, a suspension order would remain
effective and enforceable unless modified, set aside, limited, or
revoked pursuant to proposed paragraph (e), as described below.
Finally, paragraph (d) would require service of the Hearing Panel's
decision and any suspension order consistent with other portions of the
proposed rule related to service.
Proposed paragraph (e) of Rule 8.17 would state that at any time
after the Office of Hearing Officers served the Respondent with a
suspension order, a Party could apply to the Hearing Panel to have the
order modified, set aside, limited, or revoked. If any part of a
suspension order is modified, set aside, limited, or revoked, proposed
paragraph (e) of Rule 8.17 provides the Hearing Panel discretion to
leave the cease and desist part of the order in place. For example, if
a suspension order suspends Respondent unless and until Respondent
ceases and desists providing access to the Exchange to a client of
Respondent, and after the order is entered the Respondent complies, the
Hearing Panel is permitted to modify the order to lift the suspension
portion of the order while keeping in place the cease and desist
portion of the order. With its broad modification powers, the Hearing
Panel also maintains the discretion to impose conditions upon the
removal of a suspension--for example, the Hearing Panel could modify an
order to lift the suspension portion of the order in the event a
Respondent complies with the cease and desist portion of the order but
additionally order that the suspension will be re-imposed if Respondent
violates the cease and desist provisions modified order in the future.
The Hearing Panel generally would be required to respond to the request
in writing within 10 days after receipt of the request. An application
to modify, set aside, limit or revoke a suspension order would not stay
the effectiveness of the suspension order.
Finally, proposed paragraph (f) would provide that sanctions issued
under the proposed Rule 8.17 would constitute final and immediately
effective disciplinary sanctions imposed by the Exchange, and that the
right to have any action under the Rule reviewed by the Commission
would be governed by Section 19 of the Act. The filing of an
application for review would not stay the effectiveness of a suspension
order unless the Commission otherwise ordered.
Rule 12.15--Disruptive Quoting and Trading Activity Prohibited
The Exchange currently has authority to prohibit and take action
against manipulative trading activity, including disruptive quoting and
trading activity, pursuant to its general market manipulation rules,
including Rule 3.1. The Exchange proposes to adopt new Rule 12.15,
which would more specifically define and prohibit disruptive quoting
and trading activity on the Exchange. As noted above, the Exchange also
proposes to apply the proposed suspension rules to proposed Rule 12.15.
Proposed Rule 12.15 would prohibit Members from engaging in or
facilitating disruptive quoting and trading activity on the Exchange,
as described in proposed Interpretation and Policies .01 and .02 of the
Rule, including acting in concert with other persons to effect such
activity. The Exchange believes that it is necessary to extend the
prohibition to situations when persons are acting in concert to avoid a
potential loophole where disruptive quoting and trading activity is
simply split between several brokers or customers.
To provide proper context for the situations in which the Exchange
proposes to utilize its proposed authority, the Exchange believes it is
necessary to describe the types of disruptive quoting and trading
activity that would cause the Exchange to use its authority.
Accordingly, the Exchange proposes to adopt Interpretation and Policy
.01 and .02, providing additional details regarding disruptive quoting
and trading activity. Proposed Interpretation and Policy .01(a), which
describes disruptive quoting and trading activity containing many of
the elements indicative of layering, would describe disruptive quoting
and trading activity as a frequent pattern in which the following facts
are present: (a) A party enters multiple limit orders on one side of
the market at various price levels (the ``Displayed Orders''); and (b)
following the entry of the Displayed Orders, the level of supply and
demand for the security changes; and (c) the party enters one or more
orders on the opposite side of the market of the Displayed Orders (the
``Contra-Side Orders'') that are subsequently executed; and (d)
following the execution of the Contra-Side Orders, the party cancels
the Displayed Orders. Proposed Interpretation and Policy .01(b), which
describes disruptive quoting and trading activity containing many of
the elements indicative of spoofing, would describe disruptive quoting
and trading activity as a frequent pattern in which the following facts
are present: (a) A party narrows the spread for a security by placing
an order inside the national best bid or offer; and (b) the party then
submits an order on the opposite side of the market that executes
against another market participant that joined the new inside market
established by the order described in (a) that narrowed the spread. The
Exchange believes that the proposed descriptions of disruptive quoting
and trading activity articulated in the rule are consistent with the
activities that have been identified and described in the client access
cases described above. The Exchange further believes that the proposed
descriptions will provide Members with clear descriptions of disruptive
quoting and trading activity that will help them to avoid engaging in
such activities or allowing their clients to engage in such activities.
The Exchange proposes to make clear in Interpretation and Policy
.02 that, unless otherwise indicated, the descriptions of disruptive
quoting and trading activity do not require the facts to occur in a
specific order in order for the rule to apply. For instance, with
respect to the pattern defined in proposed Interpretation and Policy
.01(a) it is of no consequence whether a party first enters Displayed
Orders and then Contra-side Orders or vice-versa. However, as proposed,
it is required for supply and demand to change following the entry of
the Displayed Orders. The Exchange also proposes to make clear that
disruptive quoting and trading activity includes a pattern or practice
in which some portion of the disruptive quoting and trading activity is
conducted on the Exchange and the other portions of the disruptive
quoting and trading activity are conducted on one or more other
exchanges. The Exchange believes that this authority is necessary to
address market participants who would otherwise seek to avoid the
prohibitions of the proposed Rule by
[[Page 23050]]
spreading their activity amongst various execution venues.
In sum, proposed Rule 12.15 coupled with proposed Rule 8.17 would
provide the Exchange with authority to promptly act to prevent
disruptive quoting and trading activity from continuing on the
Exchange. Below is an example of how the proposed rule would operate.
Assume that through its surveillance program, Exchange staff
identifies a pattern of potentially disruptive quoting and trading
activity. After an initial investigation the Exchange would then
contact the Member responsible for the orders that caused the activity
to request an explanation of the activity as well as any additional
relevant information, including the source of the activity. If the
Exchange were to continue to see the same pattern from the same Member
and the source of the activity is the same or has been previously
identified as a frequent source of disruptive quoting and trading
activity then the Exchange could initiate an expedited suspension
proceeding by serving notice on the Member that would include details
regarding the alleged violations as well as the proposed sanction. In
such a case the proposed sanction would likely be to order the Member
to cease and desist providing access to the Exchange to the client that
is responsible for the disruptive quoting and trading activity and to
suspend such Member unless and until such action is taken. The Member
would have the opportunity to be heard in front of a Hearing Panel at a
hearing to be conducted within 15 days of the notice. If the Hearing
Panel determined that the violation alleged in the notice did not occur
or that the conduct or its continuation would not have the potential to
result in significant market disruption or other significant harm to
investors, then the Hearing Panel would dismiss the suspension order
proceeding. If the Hearing Panel determined that the violation alleged
in the notice did occur and that the conduct or its continuation is
likely to result in significant market disruption or other significant
harm to investors, then the Hearing Panel would issue the order
including the proposed sanction, ordering the Member to cease providing
access to the client at issue and suspending such Member unless and
until such action is taken. If such Member wished for the suspension to
be lifted because the client ultimately responsible for the activity no
longer would be provided access to the Exchange, then such Member could
apply to the Hearing Panel to have the order modified, set aside,
limited or revoked. The Exchange notes that the issuance of a
suspension order would not alter the Exchange's ability to further
investigate the matter and/or later sanction the Member pursuant to the
Exchange's standard disciplinary process for supervisory violations or
other violations of Exchange rules or the Act.\12\
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\12\ The proposal will not supplant the Exchange's current
investigative and enforcement process. Currently, when Exchange
surveillance staff identifies a pattern of potentially disruptive
quoting and trading activity, the staff conducts an initial analysis
and investigation of that activity. After the initial investigation,
the Exchange then contacts the Member responsible for the orders
that caused the activity to request an explanation of the activity
as well as any additional relevant information, including the source
of the activity. The Exchange will continue this practice after this
proposal becomes operative. The Exchange will only seek an expedited
suspension when--after multiple requests to a Member for an
explanation of activity--it continues to see the same pattern of
manipulation from the same Member and the source of the activity is
the same or has been previously identified as a frequent source of
disruptive quoting and trading activity.
---------------------------------------------------------------------------
The Exchange reiterates that it already has broad authority to take
action against a Member in the event that such Member is engaging in or
facilitating disruptive or manipulative trading activity on the
Exchange. For the reasons described above, and in light of recent cases
like the client access cases described above, as well as other cases
currently under investigation, the Exchange believes that it is equally
important for the Exchange to have the authority to promptly initiate
expedited suspension proceedings against any Member who has
demonstrated a clear pattern or practice of disruptive quoting and
trading activity, as described above, and to take action including
ordering such Member to terminate access to the Exchange to one or more
of such Member's clients if such clients are responsible for the
activity. The Exchange recognizes that its proposed authority to issue
a suspension order is a powerful measure that should be used very
cautiously. Consequently, the proposed rules have been designed to
ensure that the proceedings are used to address only the most clear and
serious types of disruptive quoting and trading activity and that the
interests of Respondents are protected. For example, to ensure that
proceedings are used appropriately and that the decision to initiate a
proceeding is made only at the highest staff levels, the proposed rules
require the CRO or another senior officer of the Exchange to issue
written authorization before the Exchange can institute an expedited
suspension proceeding. In addition, the Exchange believes that it would
use this authority in limited circumstances, when necessary to protect
investors, other Members and the Exchange. Further, the Exchange
believes that the proposed expedited suspension provisions described
above that provide the opportunity to respond as well as a Hearing
Panel determination prior to taking action will ensure that the
Exchange would not utilize its authority in the absence of a clear
pattern or practice of disruptive quoting and trading activity.
2. Statutory Basis
The Exchange believes that the proposed rule changes are consistent
with Section 6(b) of the Act \13\ and further the objectives of Section
6(b)(5) of the Act \14\ because they are designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest. Pursuant to the proposal, the Exchange will have a
mechanism to promptly initiate expedited suspension proceedings in the
event the Exchange believes that it has sufficient proof that a
violation of Rule 12.15 has occurred and is ongoing.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Further, the Exchange believes that the proposal is consistent with
Sections 6(b)(1) and 6(b)(6) of the Act,\15\ which require that the
rules of an exchange enforce compliance with, and provide appropriate
discipline for, violations of the Commission and Exchange rules. The
Exchange also believes that the proposal is consistent with the public
interest, the protection of investors, or otherwise in furtherance of
the purposes of the Act because the proposal helps to strengthen the
Exchange's ability to carry out its oversight and enforcement
responsibilities as a self-regulatory organization in cases where
awaiting the conclusion of a full disciplinary proceeding is unsuitable
in view of the potential harm to other Members and their customers as
well as the Exchange if conduct is allowed to continue on the Exchange.
As explained above, the Exchange notes that it has defined the
prohibited disruptive quoting and trading activity by modifying the
traditional definitions of layering and spoofing\16\ to eliminate an
express intent element that would not be proven on an
[[Page 23051]]
expedited basis and would instead require a thorough investigation into
the activity. As noted throughout this filing, the Exchange believes it
is necessary for the protection of investors to make such modifications
in order to adopt an expedited process rather than allowing disruptive
quoting and trading activity to occur for several years. Through this
proposal, the Exchange does not intend to modify the definitions of
spoofing and layering that have generally been used by the Exchange and
other regulators in connection with actions like those cited above.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
\16\ See supra, notes 7 and 8.
---------------------------------------------------------------------------
The Exchange further believes that the proposal is consistent with
Section 6(b)(7) of the Act,\17\ which requires that the rules of an
exchange ``provide a fair procedure for the disciplining of members and
persons associated with persons . . . and the prohibition or limitation
by the exchange of any person with respect to access to services
offered by the exchange or a member thereof.'' Finally, the Exchange
also believes the proposal is consistent with Sections 6(d)(1) and
6(d)(2) of the Act,\18\ which require that the rules of an exchange
with respect to a disciplinary proceeding or proceeding that would
limit or prohibit access to or membership in the exchange require the
exchange to: provide adequate and specific notice of the charges
brought against a member or person associated with a member, provide an
opportunity to defend against such charges, keep a record, and provide
details regarding the findings and applicable sanctions in the event a
determination to impose a disciplinary sanction is made. The Exchange
believes that each of these requirements is addressed by the notice and
due process provisions included within proposed Rule 8.17. Importantly,
as noted above, the Exchange anticipates using the authority proposed
in this filing only in clear and egregious cases when necessary to
protect investors, other Members and the Exchange, and even in such
cases, the Respondent will be afforded due process in connection with
the suspension proceedings.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78f(b)(7).
\18\ 15 U.S.C. 78f(d)(1).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. To the contrary,
the Exchange believes that each self-regulatory organization should be
empowered to regulate trading occurring on their market consistent with
the Act and without regard to competitive issues. The Exchange is
requesting authority to take appropriate action if necessary for the
protection of investors, other Members and the Exchange.
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 \19\ and Rule 19b-4(f)(6)thereunder.\20\
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, 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 \21\ and Rule 19b-
4(f)(6) thereunder.\22\
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\19\ 15 U.S.C. 78s(b)(3)(A)(iii).
\20\ 17 CFR 240.19b-4(f)(6).
\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 17 CFR 240.19b-4(f)(6). 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.
---------------------------------------------------------------------------
A proposed rule change filed under Rule 19b-4(f)(6) \23\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\24\ 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 proposed
rule change may become operative immediately. The Exchange asserts that
the waiver of the 30-day operative delay will allow the Exchange to
immediately enforce the proposed rules to protect its members and
market participants from the behavior proscribed by the proposed rules.
The Exchange further states that waiver of the operative delay is
consistent with the protection of investors and the public interest
because it is designed to protect investors and the public from
disruptive quoting and trading activity. Furthermore, the Commission
notes that it recently approved an identical expedited disciplinary
procedure for an affiliate of the Exchange, BatsBZX,\25\ and the
Exchange represents above that the membership of the Exchange and the
membership of BatsBZX is nearly identical.\26\ Based on the foregoing,
the Commission believes that waiver of the operative delay is
consistent with the protection of investors and the public interest.
Accordingly, Commission hereby waives the 30-day operative delay and
designates the proposal operative upon filing.\27\
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\23\ 17 CFR 240.19b-4(f)(6).
\24\ 17 CFR 240.19b-4(f)(6)(iii).
\25\ See supra,Error! Bookmark not defined..
\26\ See supra, Error! Bookmark not defined..
\27\ For purposes only of waiving the 30-day operative delay,
the Commission has 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 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 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-BatsBYX-2016-03 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-BatsBYX-2016-03. This
file number should be included on the subject line if email is used. To
help the
[[Page 23052]]
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 such 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-BatsBYX-2016-03, and should
be submitted on or before May 10, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12), (59).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-08940 Filed 4-18-16; 8:45 am]
BILLING CODE 8011-01-P
