Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Business Continuity Plan Requirements for Participants, 37656-37659 [2016-13715]
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37656
Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Notices
by each outstanding Share of that class.
Applicants state that the Fund will
comply with the provisions of rule 18f–
3 under the Act as if it were an openend investment company.
9. In the event the Fund imposes a
CDSC, the applicants will comply with
the provisions of rule 6c-10 under the
Act, as if that rule applied to closed-end
management investment companies.
With respect to any waiver of,
scheduled variation in, or elimination of
the CDSC, the Fund will comply with
rule 22d–1 under the Act as if the Fund
were an open-end investment company.
Applicants’ Legal Analysis
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Multiple Classes of Shares
1. Section 18(c) of the Act provides,
in relevant part, that a closed-end
investment company may not issue or
sell any senior security if, immediately
thereafter, the company has outstanding
more than one class of senior security.
Applicants state that the creation of
multiple classes of Shares of the Fund
may be prohibited by section 18(c).
2. Section 18(i) of the Act provides
that each share of stock issued by a
registered management investment
company will be a voting stock and
have equal voting rights with every
other outstanding voting stock.
Applicants state that permitting
multiple classes of Shares of the Fund
may violate section 18(i) of the Act
because each class would be entitled to
exclusive voting rights with respect to
matters solely related to that class.
3. Section 6(c) of the Act provides that
the Commission may exempt any
person, security or transaction or any
class or classes of persons, securities or
transactions from any provision of the
Act, or from any rule under the Act, if
and to the extent such exemption is
necessary or appropriate in the public
interest and consistent with the
protection of investors and the purposes
fairly intended by the policy and
provisions of the Act. Applicants
request an exemption under section 6(c)
from sections 18(c) and 18(i) to permit
the Fund to issue multiple classes of
Shares.
4. Applicants submit that the
proposed allocation of expenses and
voting rights among multiple classes is
equitable and will not discriminate
against any group or class of
shareholders. Applicants submit that
the proposed arrangements would
permit the Fund to facilitate the
distribution of its Shares and provide
investors with a broader choice of
shareholder options. Applicants assert
that the proposed closed-end
investment company multiple class
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structure does not raise the concerns
underlying section 18 of the Act to any
greater degree than open-end
investment companies’ multiple class
structures that are permitted by rule
18f–3 under the Act. Applicants state
that the Fund will comply with the
provisions of rule 18f–3 as if it were an
open-end investment company.
CDSCs
Applicants believe that the requested
relief meets the standards of section 6(c)
of the Act. Rule 6c–10 under the Act
permits open-end investment
companies to impose CDSCs, subject to
certain conditions. Applicants state that
any CDSC imposed by the Fund will
comply with rule 6c–10 under the Act
as if the rule were applicable to closedend investment companies. The Fund
also will disclose CDSCs in accordance
with the requirements of Form N–1A
concerning CDSCs as if the Fund were
an open-end investment company.
Applicants further state that the Fund
will apply the CDSC (and any waivers,
scheduled variations or eliminations of
the CDSC) uniformly to all shareholders
in a given class and consistently with
the requirements of rule 22d–1 under
the Act.
Asset-Based Service and/or Distribution
Fees
1. Section 17(d) of the Act and rule
17d–1 under the Act prohibit an
affiliated person of a registered
investment company or an affiliated
person of such person, acting as
principal, from participating in or
effecting any transaction in connection
with any joint enterprise or joint
arrangement in which the investment
company participates unless the
Commission issues an order permitting
the transaction. In reviewing
applications submitted under section
17(d) and rule 17d–1, the Commission
considers whether the participation of
the investment company in a joint
enterprise or joint arrangement is
consistent with the provisions, policies
and purposes of the Act, and the extent
to which the participation is on a basis
different from or less advantageous than
that of other participants.
2. Rule 17d–3 under the Act provides
an exemption from section 17(d) and
rule 17d–1 to permit open-end
investment companies to enter into
distribution arrangements pursuant to
rule 12b–1 under the Act. Applicants
request an order under section 17(d) and
rule 17d–1 under the Act to permit the
Fund to impose asset-based service and/
or distribution fees. Applicants have
agreed to comply with rules 12b–1 and
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17d–3 as if those rules applied to
closed-end investment companies.
Applicants’ Condition
The applicants agree that any order
granting the requested relief will be
subject to the following condition:
Applicants will comply with the
provisions of rules 6c–10, 12b–1, 17d–
3, 18f–3 and 22d–1 under the Act, as
amended from time to time or replaced,
as if those rules applied to closed-end
management investment companies,
and will comply with NASD Conduct
Rule 2830, as amended from time to
time, as if that rule applied to all closedend management investment
companies.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–13717 Filed 6–9–16; 8:45 am]
BILLING CODE P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77995; File No. SR–CHX–
2016–07]
Self-Regulatory Organizations;
Chicago Stock Exchange, Inc.; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change To Adopt
Business Continuity Plan
Requirements for Participants
June 6, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 2 thereunder,
notice is hereby given that on May 24,
2016, the Chicago Stock Exchange, Inc.
(‘‘CHX’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
CHX proposes to amend the Rules of
the Exchange (‘‘CHX Rules’’) to adopt
Article 7, Rule 14, which corresponds to
a similar rule of the Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’)
regarding Business Continuity Plans
(‘‘BCPs’’).
1 15
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Notices
CHX has designated this proposed
rule change as non-controversial
pursuant to Section 19(b)(3)(A) 3 of the
Act and Rule 19b–4(f)(6) 4 thereunder
and has provided the Commission with
the notice required by Rule 19b–
4(f)(6)(iii).5
The text of this proposed rule change
is available on the Exchange’s Web site
at (www.chx.com) and in the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
CHX included statements concerning
the purpose of and basis for the
proposed rule changes 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
CHX has prepared summaries, set forth
in sections A, B and C below, of the
most significant aspects of such
statements.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Changes
1. Purpose
The Exchange proposes to adopt
Article 7, Rule 14 to require Participants
to maintain BCPs. The Exchange
recognizes that BCPs serve a critical
function in facilitating the operation of
orderly markets in the event of a
disruptive emergency. Given that the
Exchange does not currently require
Participants to maintain BCPs or
emergency contact information, the
Exchange now proposes to adopt such
standards and believes that adopting
BCP requirements that are similar to
FINRA Rule 4370 and the BCP rules of
other national securities exchanges 6
would better ensure that Participant
BCPs meet minimum standards that are,
when triggered, executed in a consistent
and predictable manner, which furthers
the purposes of Section 6(b)(5) of the
Act by removing impediments to and
perfecting the mechanism of a free and
open market and a national market
system, and, in general, protects
investors and the public interest.7
Moreover, the Exchange believes that
greater harmonization between CHX
Rules and FINRA Rules will result in
less burdensome and more efficient
3 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
5 17 CFR 240.19b–4(f)(6)(iii).
6 See e.g., NYSE MKT Equities Rule 4370.
7 15 U.S.C. 78f(b)(5).
4 17
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regulatory compliance for Participants
that are also members of FINRA (‘‘Dual
Members’’). To this end, the Exchange
proposes to adopt Article 7, Rule 14,
which is similar to FINRA Rule 4370,
except that proposed Article 7, Rule 14
differs from FINRA Rule 4370 in the
following ways:
• Addresses the unique membership,
organizational and rules structures of
the Exchange;
• Clarifies throughout proposed
Article 7, Rule 14 that Participant BCPs
must address a Participant’s existing
obligations to other interested parties, in
addition to its existing obligations to its
Customers,8 and defines ‘‘interested
parties,’’ as discussed below;
• Expands alternate communication
requirements to include Associated
Persons 9 of the Participant, in addition
to employees, and other interested
parties, in addition to Customers; and
• Expands alternate physical location
requirements to include Associated
Persons of the Participant, in addition to
employees.
Specifically, proposed paragraph (a)
provides as follows:
Each Participant must create and
maintain a written business continuity
plan (‘‘BCP’’) identifying procedures
relating to an emergency or significant
business disruption. Such procedures
must be reasonably designed to enable
the Participant to meet its existing
obligations to Customers and other
interested parties. The BCP must be
made available promptly upon request
to the Exchange staff.
Unlike FINRA Rule 4370(a), which
includes additional language that BCPs
must address ‘‘existing relationships
with other broker-dealers and counterparties,’’ the Exchange proposes to
clarify that requirement by omitting
such language from proposed Article 7
Rule 14(a) and, rather, provide that
BCPs must be reasonably designed to
enable the Participant to meet it existing
obligations to Customers and other
interested parties. Moreover, the
Exchange proposes to define ‘‘other
interested parties’’ to be inclusive of
other broker-dealers and counterparties, under proposed paragraph
(g)(3), which provides as follows:
8 Incidentally, the Exchange proposes to amend
CHX Article 1, Rule 1(hh) defining ‘‘Customer’’ to
correspond to FINRA Rule 160(b)(4), so as to
provide, ‘‘ ‘Customer’ shall not include a broker or
dealer registered with the Commission.’’ Currently,
CHX Article 1, Rule 1(hh) provides that
‘‘ ‘Customer’ means any person or entity other than
a broker or dealer registered with the Commission.’’
The Exchange proposes to harmonize its definition
of Customer with that of FINRA to clarify the scope
of the term.
9 See CHX Article 1, Rule 1(d) defining
‘‘Associated Person.’’
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37657
‘‘Interested parties’’ means any person or
entity to which Participant owes a fiduciary
and/or legal responsibility, including, but not
limited to, Customers, other brokers or
dealers, vendors and banks.
To further clarify the requirement, the
Exchange proposes to add the term
‘‘other interested parties’’ after all
subsequent references to ‘‘Customers’’
under proposed paragraphs (c)(4),
(c)(10) and (e).
Proposed paragraph (b) provides as
follows:
Each Participant must update its BCP
in the event of any material change to
the Participant’s operations, structure,
business or location. Each Participant
must also conduct an annual review of
its BCP to determine whether any
modifications are necessary in light of
changes to the Participant’s operations,
structure, business or location.
Proposed paragraph (c) provides as
follows:
The elements that comprise a BCP are
flexible and may be tailored to the size
and needs of a Participant. Each plan,
however, must at a minimum, address:
(1) Data back-up and recovery (hard
copy and electronic);
(2) All mission critical systems;
(3) Financial and operational
assessments;
(4) Alternate communications
between Customers and the Participant
and between other interested parties
and the Participant;
(5) Alternate communications
between the Participant and its
employees and between the Participant
and its Associated Persons;
(6) Alternate physical location of
employees and the Participant’s
Associated Persons;
(7) Critical business constituent, bank,
and counter-party impact;
(8) Regulatory reporting;
(9) Communications with all
regulators; and
(10) How the Participant will assure
Customers and other interested parties
have prompt access to their funds and
securities in the event that the
Participant determines that it is unable
to continue its business.
Each Participant must address the
above-listed categories to the extent
applicable and necessary. If any of the
above-listed categories is not applicable,
the Participant’s BCP need not address
the category. The Participant’s BCP,
however, must document the rationale
for not including such category in its
plan. If a Participant relies on another
entity for any one of the above-listed
categories or any mission critical
system, the Participant’s BCP must
address this relationship.
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37658
Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Notices
Notably, the Exchange proposes to
expand the alternate communications
and physical location requirements to
include Associated Persons under
proposed paragraphs (c)(5) and (c)(6).
Proposed paragraph (d) provides as
follows:
Each Participant must designate a
member of senior management to
approve the plan and he or she shall be
responsible for conducting the required
annual review. The member of senior
management must also be a registered
principal.
Proposed paragraph (e) provides as
follows:
Each Participant must disclose to its
Customers and other interested parties
how its BCP addresses the possibility of
a future significant business disruption
and how the Participant plans to
respond to events of varying scope. At
a minimum, such disclosure must be
made in writing to Customers and other
interested parties at account opening,
posted on the Participant’s Web site (if
the Participant maintains a Web site),
and mailed to Customers or other
interested parties upon request.
Proposed paragraph (f)(1) provides as
follows:
Each Participant shall report to the
Exchange, via such electronic or other
means as the Exchange may specify,
prescribed emergency contact
information for the Participant. The
emergency contact information for the
Participant includes designation of two
Associated Persons as emergency
contact persons. At least one emergency
contact person shall be a member of
senior management and a registered
principal of the Participant. If a
Participant designates a second
emergency contact person who is not a
registered principal, such person shall
be a member of senior management who
has knowledge of the Participant’s
business operations. A Participant with
only one Associated Person shall
designate as a second emergency contact
person an individual, either registered
with another firm or nonregistered, who
has knowledge of the Participant’s
business operations (e.g., the
Participant’s attorney, accountant, or
clearing firm contact).
Proposed paragraph (f)(2) provides as
follows:
Each Participant must promptly
update its emergency contact
information, via such electronic or other
means as the Exchange may specify, in
the event of any material change, but in
any event not later than 30 days
following any change in such
information. In addition, each
Participant shall review and, if
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necessary, update its required contact
information within 17 business days
after the end of each calendar year.
Proposed paragraph (f)(2) is similar to
FINRA Rule 4370(f)(2), except that
proposed paragraph (f)(2) includes the
explicit timing requirements of FINRA
Rule 4517(c)(1). Since CHX Rules do not
include a rule or provision similar to
FINRA Rule 4517, the Exchange
believes it is appropriate to incorporate
such timing requirements into proposed
paragraph (f)(2).
Proposed paragraph (g) provides as
follows:
For purposes of this Rule, the
following terms shall have the meanings
specified below:
(1) ‘‘Mission critical system’’ means
any system that is necessary, depending
on the nature of a Participant’s business,
to ensure prompt and accurate
processing of securities transactions,
including, but not limited to, order
taking, order entry, execution,
comparison, allocation, clearance and
settlement of securities transactions, the
maintenance of Customer or other
interested party accounts, access to
Customer or other interested party
accounts and the delivery of funds and
securities.
(2) ‘‘Financial and operational
assessment’’ means a set of written
procedures that allow a Participant to
identify changes in its operational,
financial, and credit risk exposures.
(3) ‘‘Interested parties’’ means any
person or entity to which Participant
owes a fiduciary and/or legal
responsibility, including, but not
limited to, Customers, other brokers or
dealers, counter-parties, vendors and
banks.
Operative Date
The Exchange proposes to make the
proposed rule change operative
pursuant to two weeks’ notice by the
Exchange to its Participants via
Information Memorandum, but not on a
date prior to the expiration of the thirty
(30) days pre-operative waiting period
contained in Rule 19b–4(f)(6)(iii) under
the Act.10
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act 11 in general, and
furthers the objectives of Sections
6(b)(5) of the Act 12 in particular, in that
they are designed to prevent fraudulent
and manipulative acts and practices, to
promote just and equitable principles of
CFR 240.19b–4(f)(6)(iii).
U.S.C. 78f.
12 15 U.S.C. 78f(b)(5).
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Specifically, the Exchange believes
that adopting standardized BCP
requirements that are similar to FINRA
Rule 4370 and the BCP rules of other
national securities exchanges 13 would
better ensure that Participant BCPs meet
minimum standards that are, when
triggered, executed in a consistent and
predictable manner, which furthers the
purposes of Section 6(b)(5) of the Act by
removing impediments to and
perfecting the mechanism of a free and
open market and a national market
system, and, in general, protects
investors and the public interest.14
The Exchange also believes that the
proposed rule change supports the
objectives of the Act by providing
greater harmonization between CHX
Rules and FINRA Rules, which would
result in less burdensome and more
efficient regulatory compliance for Dual
Members. To the extent that proposed
Article 7, Rule 14 differs from FINRA
Rules 4370 and 4517(c)(1), such
differences are non-substantive in
nature, merely clarify the scope of the
rule, expands certain alternative
communication and location
requirements to apply to Associated
Persons of a Participant or, in the case
of the proposed term ‘‘interested
parties,’’ better defines the type of
contra-parties that must be
contemplated in the BCP.
B. Self-Regulatory Organization’s
Statement of Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. To the
contrary, the proposed rule change will
harmonize CHX Rules with FINRA
Rules regarding BCPs and, thus, has no
impact on competition.
C. Self-Regulatory Organization’s
Statement on Comments Regarding the
Proposed Rule Changes Received From
Members, Participants or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Changes and Timing for
Commission Action
The Exchange believes that the
proposal qualifies for immediate
effectiveness upon filing as non-
10 17
11 15
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13 See
14 See
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supra note 6.
supra note 12.
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Federal Register / Vol. 81, No. 112 / Friday, June 10, 2016 / Notices
controversial under Section 19(b)(3)(A)
of the Act 15 and paragraph (f)(6) of Rule
19b–4 thereunder.16
The Exchange asserts that the
proposed rule change: (1) Will not
significantly affect the protection of
investors or the public interest, (2) will
not impose any significant burden on
competition, and (3) and will not
become operative for 30 days from the
date on which it was filed, or such
shorter time as the Commission may
designate. In addition, the Exchange
provided the Commission with written
notice of its intent to file the proposed
rule change, along with a brief
description and text of the proposed
rule change, at least five business days
prior to the date of filing, or such
shorter time as designated by the
Commission.17 While the Exchange
does not currently have a rule that
requires Participants maintain BCPs, the
Exchange believes that the proposed
rule change raises no novel issues, as it
is substantively consistent with FINRA
Rules 4370 and 4517(c)(1). Moreover,
although proposed Article 7, Rule 14
differs from FINRA Rule 4370 in that
the proposed rule expands alternative
communication and location
requirements to Associated Persons of
Participants and explicitly requires
BCPs contemplate a broader range of
contra-parties (i.e., interested parties),
the Exchange believes that such
differences are non-controversial as they
merely expand FINRA Rule 4370
requirements to additional parties that
rely on the orderly operation of the
Participant in the event of an
emergency. The Exchange also notes
that the proposed rule change would
apply to all Participants and not only
Dual Members. As such, the Exchange
has designated this rule filing as noncontroversial under Section 19(b)(3)(A)
of the Act 18 and paragraph (f)(6) of Rule
19b–4 thereunder.19
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
under Section 19(b)(2)(B) of the Act to
determine whether the proposed rule
should be approved or disapproved.
15 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4.
17 17 CFR 240.19b–4(f)(6)(iii).
18 15 U.S.C. 78s(b)(3)(A).
19 17 CFR 240.19b–4.
16 17
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IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CHX–2016–07 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–CHX–2016–07. 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 such
filing will also be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–CHX–
2016–07 and should be submitted on or
before July 1, 2016.
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37659
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–13715 Filed 6–9–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77996; File No. SR–NYSE–
2016–22]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Designation of a Longer Period for
Commission Action on a Proposed
Rule Change, as Modified by
Amendment No. 5, To Adopt Initial and
Continued Listing Standards for the
Listing of Equity Investment Tracking
Stocks and Adopt Listing Fees
Specific to Equity Investment Tracking
Stocks
June 6, 2016.
On April 7, 2016, the New York Stock
Exchange LLC (‘‘NYSE’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
adopt initial and continued listing
standards for the listing of Equity
Investment Tracking Stocks and to
adopt fees for Equity Investment
Tracking Stocks. The proposed rule
change was published for comment in
the Federal Register on April 27, 2016.3
On April 20, 2016, the Exchange filed
Amendment No. 1 to the proposed rule
change, which superseded the original
filing in its entirety.4 On May 17, 2016,
the Exchange filed Amendment No. 5 to
the proposal, which superseded the
filing, as amended by Amendment No.
1. Amendment No. 5 was published for
comment in the Federal Register on
May 23, 2016.5 No comments have been
received on the proposed rule change in
response to both the original publication
20 17
CFR 200.30–3(a)(12).
U.S.C.78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 77674
(April 21, 2016), 81 FR 24919 (April 27, 2016).
4 On May 13, 2016, the Exchange submitted and
withdrew Amendment No. 2 to the proposed rule
change. On May 13, 2016, the Exchange filed
Amendment No. 3 to the proposed rule change, and
on May 16, 2016 the Exchange withdrew
Amendment No. 3 to the proposed rule change. On
May 16, 2016 the Exchange submitted Amendment
No. 4 to the proposal, and on May 17, 2016, the
Exchange withdrew Amendment No. 4 to the
proposed rule change.
5 See Securities Exchange Act Release No. 77850
(May 17, 2016), 81 FR 32360 (May 23, 2016).
1 15
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[Federal Register Volume 81, Number 112 (Friday, June 10, 2016)]
[Notices]
[Pages 37656-37659]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-13715]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77995; File No. SR-CHX-2016-07]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Adopt Business Continuity Plan Requirements for Participants
June 6, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on May 24, 2016, the Chicago Stock Exchange, Inc. (``CHX'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CHX proposes to amend the Rules of the Exchange (``CHX Rules'') to
adopt Article 7, Rule 14, which corresponds to a similar rule of the
Financial Industry Regulatory Authority, Inc. (``FINRA'') regarding
Business Continuity Plans (``BCPs'').
[[Page 37657]]
CHX has designated this proposed rule change as non-controversial
pursuant to Section 19(b)(3)(A) \3\ of the Act and Rule 19b-4(f)(6) \4\
thereunder and has provided the Commission with the notice required by
Rule 19b-4(f)(6)(iii).\5\
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\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
\5\ 17 CFR 240.19b-4(f)(6)(iii).
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The text of this proposed rule change is available on the
Exchange's Web site at (www.chx.com) and in the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the CHX included statements
concerning the purpose of and basis for the proposed rule changes 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 CHX has prepared summaries, set forth in sections A,
B and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Changes
1. Purpose
The Exchange proposes to adopt Article 7, Rule 14 to require
Participants to maintain BCPs. The Exchange recognizes that BCPs serve
a critical function in facilitating the operation of orderly markets in
the event of a disruptive emergency. Given that the Exchange does not
currently require Participants to maintain BCPs or emergency contact
information, the Exchange now proposes to adopt such standards and
believes that adopting BCP requirements that are similar to FINRA Rule
4370 and the BCP rules of other national securities exchanges \6\ would
better ensure that Participant BCPs meet minimum standards that are,
when triggered, executed in a consistent and predictable manner, which
furthers the purposes of Section 6(b)(5) of the Act by removing
impediments to and perfecting the mechanism of a free and open market
and a national market system, and, in general, protects investors and
the public interest.\7\ Moreover, the Exchange believes that greater
harmonization between CHX Rules and FINRA Rules will result in less
burdensome and more efficient regulatory compliance for Participants
that are also members of FINRA (``Dual Members''). To this end, the
Exchange proposes to adopt Article 7, Rule 14, which is similar to
FINRA Rule 4370, except that proposed Article 7, Rule 14 differs from
FINRA Rule 4370 in the following ways:
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\6\ See e.g., NYSE MKT Equities Rule 4370.
\7\ 15 U.S.C. 78f(b)(5).
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Addresses the unique membership, organizational and rules
structures of the Exchange;
Clarifies throughout proposed Article 7, Rule 14 that
Participant BCPs must address a Participant's existing obligations to
other interested parties, in addition to its existing obligations to
its Customers,\8\ and defines ``interested parties,'' as discussed
below;
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\8\ Incidentally, the Exchange proposes to amend CHX Article 1,
Rule 1(hh) defining ``Customer'' to correspond to FINRA Rule
160(b)(4), so as to provide, `` `Customer' shall not include a
broker or dealer registered with the Commission.'' Currently, CHX
Article 1, Rule 1(hh) provides that `` `Customer' means any person
or entity other than a broker or dealer registered with the
Commission.'' The Exchange proposes to harmonize its definition of
Customer with that of FINRA to clarify the scope of the term.
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Expands alternate communication requirements to include
Associated Persons \9\ of the Participant, in addition to employees,
and other interested parties, in addition to Customers; and
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\9\ See CHX Article 1, Rule 1(d) defining ``Associated Person.''
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Expands alternate physical location requirements to
include Associated Persons of the Participant, in addition to
employees.
Specifically, proposed paragraph (a) provides as follows:
Each Participant must create and maintain a written business
continuity plan (``BCP'') identifying procedures relating to an
emergency or significant business disruption. Such procedures must be
reasonably designed to enable the Participant to meet its existing
obligations to Customers and other interested parties. The BCP must be
made available promptly upon request to the Exchange staff.
Unlike FINRA Rule 4370(a), which includes additional language that BCPs
must address ``existing relationships with other broker-dealers and
counter-parties,'' the Exchange proposes to clarify that requirement by
omitting such language from proposed Article 7 Rule 14(a) and, rather,
provide that BCPs must be reasonably designed to enable the Participant
to meet it existing obligations to Customers and other interested
parties. Moreover, the Exchange proposes to define ``other interested
parties'' to be inclusive of other broker-dealers and counter-parties,
under proposed paragraph (g)(3), which provides as follows:
``Interested parties'' means any person or entity to which
Participant owes a fiduciary and/or legal responsibility, including,
but not limited to, Customers, other brokers or dealers, vendors and
banks.
To further clarify the requirement, the Exchange proposes to add the
term ``other interested parties'' after all subsequent references to
``Customers'' under proposed paragraphs (c)(4), (c)(10) and (e).
Proposed paragraph (b) provides as follows:
Each Participant must update its BCP in the event of any material
change to the Participant's operations, structure, business or
location. Each Participant must also conduct an annual review of its
BCP to determine whether any modifications are necessary in light of
changes to the Participant's operations, structure, business or
location.
Proposed paragraph (c) provides as follows:
The elements that comprise a BCP are flexible and may be tailored
to the size and needs of a Participant. Each plan, however, must at a
minimum, address:
(1) Data back-up and recovery (hard copy and electronic);
(2) All mission critical systems;
(3) Financial and operational assessments;
(4) Alternate communications between Customers and the Participant
and between other interested parties and the Participant;
(5) Alternate communications between the Participant and its
employees and between the Participant and its Associated Persons;
(6) Alternate physical location of employees and the Participant's
Associated Persons;
(7) Critical business constituent, bank, and counter-party impact;
(8) Regulatory reporting;
(9) Communications with all regulators; and
(10) How the Participant will assure Customers and other interested
parties have prompt access to their funds and securities in the event
that the Participant determines that it is unable to continue its
business.
Each Participant must address the above-listed categories to the
extent applicable and necessary. If any of the above-listed categories
is not applicable, the Participant's BCP need not address the category.
The Participant's BCP, however, must document the rationale for not
including such category in its plan. If a Participant relies on another
entity for any one of the above-listed categories or any mission
critical system, the Participant's BCP must address this relationship.
[[Page 37658]]
Notably, the Exchange proposes to expand the alternate
communications and physical location requirements to include Associated
Persons under proposed paragraphs (c)(5) and (c)(6).
Proposed paragraph (d) provides as follows:
Each Participant must designate a member of senior management to
approve the plan and he or she shall be responsible for conducting the
required annual review. The member of senior management must also be a
registered principal.
Proposed paragraph (e) provides as follows:
Each Participant must disclose to its Customers and other
interested parties how its BCP addresses the possibility of a future
significant business disruption and how the Participant plans to
respond to events of varying scope. At a minimum, such disclosure must
be made in writing to Customers and other interested parties at account
opening, posted on the Participant's Web site (if the Participant
maintains a Web site), and mailed to Customers or other interested
parties upon request.
Proposed paragraph (f)(1) provides as follows:
Each Participant shall report to the Exchange, via such electronic
or other means as the Exchange may specify, prescribed emergency
contact information for the Participant. The emergency contact
information for the Participant includes designation of two Associated
Persons as emergency contact persons. At least one emergency contact
person shall be a member of senior management and a registered
principal of the Participant. If a Participant designates a second
emergency contact person who is not a registered principal, such person
shall be a member of senior management who has knowledge of the
Participant's business operations. A Participant with only one
Associated Person shall designate as a second emergency contact person
an individual, either registered with another firm or nonregistered,
who has knowledge of the Participant's business operations (e.g., the
Participant's attorney, accountant, or clearing firm contact).
Proposed paragraph (f)(2) provides as follows:
Each Participant must promptly update its emergency contact
information, via such electronic or other means as the Exchange may
specify, in the event of any material change, but in any event not
later than 30 days following any change in such information. In
addition, each Participant shall review and, if necessary, update its
required contact information within 17 business days after the end of
each calendar year.
Proposed paragraph (f)(2) is similar to FINRA Rule 4370(f)(2), except
that proposed paragraph (f)(2) includes the explicit timing
requirements of FINRA Rule 4517(c)(1). Since CHX Rules do not include a
rule or provision similar to FINRA Rule 4517, the Exchange believes it
is appropriate to incorporate such timing requirements into proposed
paragraph (f)(2).
Proposed paragraph (g) provides as follows:
For purposes of this Rule, the following terms shall have the
meanings specified below:
(1) ``Mission critical system'' means any system that is necessary,
depending on the nature of a Participant's business, to ensure prompt
and accurate processing of securities transactions, including, but not
limited to, order taking, order entry, execution, comparison,
allocation, clearance and settlement of securities transactions, the
maintenance of Customer or other interested party accounts, access to
Customer or other interested party accounts and the delivery of funds
and securities.
(2) ``Financial and operational assessment'' means a set of written
procedures that allow a Participant to identify changes in its
operational, financial, and credit risk exposures.
(3) ``Interested parties'' means any person or entity to which
Participant owes a fiduciary and/or legal responsibility, including,
but not limited to, Customers, other brokers or dealers, counter-
parties, vendors and banks.
Operative Date
The Exchange proposes to make the proposed rule change operative
pursuant to two weeks' notice by the Exchange to its Participants via
Information Memorandum, but not on a date prior to the expiration of
the thirty (30) days pre-operative waiting period contained in Rule
19b-4(f)(6)(iii) under the Act.\10\
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\10\ 17 CFR 240.19b-4(f)(6)(iii).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \11\ in general, and furthers the
objectives of Sections 6(b)(5) of the Act \12\ in particular, in that
they are designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest.
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\11\ 15 U.S.C. 78f.
\12\ 15 U.S.C. 78f(b)(5).
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Specifically, the Exchange believes that adopting standardized BCP
requirements that are similar to FINRA Rule 4370 and the BCP rules of
other national securities exchanges \13\ would better ensure that
Participant BCPs meet minimum standards that are, when triggered,
executed in a consistent and predictable manner, which furthers the
purposes of Section 6(b)(5) of the Act by removing impediments to and
perfecting the mechanism of a free and open market and a national
market system, and, in general, protects investors and the public
interest.\14\
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\13\ See supra note 6.
\14\ See supra note 12.
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The Exchange also believes that the proposed rule change supports
the objectives of the Act by providing greater harmonization between
CHX Rules and FINRA Rules, which would result in less burdensome and
more efficient regulatory compliance for Dual Members. To the extent
that proposed Article 7, Rule 14 differs from FINRA Rules 4370 and
4517(c)(1), such differences are non-substantive in nature, merely
clarify the scope of the rule, expands certain alternative
communication and location requirements to apply to Associated Persons
of a Participant or, in the case of the proposed term ``interested
parties,'' better defines the type of contra-parties that must be
contemplated in the BCP.
B. Self-Regulatory Organization's Statement of Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. To the contrary, the
proposed rule change will harmonize CHX Rules with FINRA Rules
regarding BCPs and, thus, has no impact on competition.
C. Self-Regulatory Organization's Statement on Comments Regarding the
Proposed Rule Changes Received From Members, Participants or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Changes and Timing for
Commission Action
The Exchange believes that the proposal qualifies for immediate
effectiveness upon filing as non-
[[Page 37659]]
controversial under Section 19(b)(3)(A) of the Act \15\ and paragraph
(f)(6) of Rule 19b-4 thereunder.\16\
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4.
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The Exchange asserts that the proposed rule change: (1) Will not
significantly affect the protection of investors or the public
interest, (2) will not impose any significant burden on competition,
and (3) and will not become operative for 30 days from the date on
which it was filed, or such shorter time as the Commission may
designate. In addition, the Exchange provided the Commission with
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at least
five business days prior to the date of filing, or such shorter time as
designated by the Commission.\17\ While the Exchange does not currently
have a rule that requires Participants maintain BCPs, the Exchange
believes that the proposed rule change raises no novel issues, as it is
substantively consistent with FINRA Rules 4370 and 4517(c)(1).
Moreover, although proposed Article 7, Rule 14 differs from FINRA Rule
4370 in that the proposed rule expands alternative communication and
location requirements to Associated Persons of Participants and
explicitly requires BCPs contemplate a broader range of contra-parties
(i.e., interested parties), the Exchange believes that such differences
are non-controversial as they merely expand FINRA Rule 4370
requirements to additional parties that rely on the orderly operation
of the Participant in the event of an emergency. The Exchange also
notes that the proposed rule change would apply to all Participants and
not only Dual Members. As such, the Exchange has designated this rule
filing as non-controversial under Section 19(b)(3)(A) of the Act \18\
and paragraph (f)(6) of Rule 19b-4 thereunder.\19\
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\17\ 17 CFR 240.19b-4(f)(6)(iii).
\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4.
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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 under
Section 19(b)(2)(B) of the Act to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-CHX-2016-07 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-CHX-2016-07. 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 such filing will also be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-CHX-2016-07 and should be
submitted on or before July 1, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-13715 Filed 6-9-16; 8:45 am]
BILLING CODE 8011-01-P
