Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 11.21, Retail Orders, To Conform to the Rules of Bats BZX Exchange, Inc. and Bats BYX Exchange, Inc., 52718-52721 [2016-18792]
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Federal Register / Vol. 81, No. 153 / Tuesday, August 9, 2016 / Notices
asabaliauskas on DSK3SPTVN1PROD with NOTICES
proposed MRVP, under Rule 9.216(b),
the Exchange may impose a fine (not to
exceed $2,500) and/or a censure on any
Member or associated person with
respect to any rule listed in IEX Rule
9.218. If the Financial Industry
Regulatory Authority Department of
Enforcement or the Department of
Market Regulation, on behalf of the
Exchange, has reason to believe a
violation has occurred and if the
Member or associated person does not
dispute the violation, the Department of
Enforcement or the Department of
Market Regulation may prepare and
request that the Member or associated
person execute a minor rule violation
plan letter accepting a finding of
violation, consenting to the imposition
of sanctions, and agreeing to waive the
Member’s or associated person’s right to
a hearing before a Hearing Panel or, if
applicable, an Extended Hearing Panel,
and any right of appeal to the IEX
Appeals Committee, the Board, the
Commission, and the courts, or to
otherwise challenge the validity of the
letter, if the letter is accepted. The letter
must describe the act or practice
engaged in or omitted, the rule,
regulation, or statutory provision
violated, and the sanction or sanctions
to be imposed. Unless the letter states
otherwise, the effective date of any
sanction imposed will be a date to be
determined by IEX Regulation staff. In
the event the letter is not accepted by
the Member or associated person, or is
rejected by the Office of Disciplinary
Affairs, the matter can proceed in
accordance with the Exchange’s
disciplinary rules, which include
hearing rights for formal disciplinary
proceedings.8
Once IEX’s MRVP is effective, the
Exchange will provide to the
Commission a quarterly report for any
actions taken on minor rule violations
under the MRVP. The quarterly report
will include: The Exchange’s internal
file number for the case, the name of the
individual and/or organization, the
nature of the violation, the specific rule
provision violated, the sanction
imposed, the number of times the rule
violation occurred, and the date of the
disposition.9
11.151(a)(1) (Market Maker two-sided quotation
requirement); Rule 11.290 (Short sales); Rule 11.310
(Locking or crossing quotations in NMS stocks); and
Rule 11.420 (Order audit trail system requirements).
See Notice, supra note 3. When IEX’s MRVP is
declared effective, IEX will file a proposed rule
change to amend Rule 9.218 to specify the
violations to be included in the MRVP.
8 See, Notice, supra note 3.
9 The Exchange attached a sample form of the
quarterly report with its submission to the
Commission.
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The Commission finds that the
proposal is consistent with the public
interest, the protection of investors, and
otherwise in furtherance of the purposes
of the Act, as required by Rule 19d–
1(c)(2) under the Act,10 because the
MRVP will permit the Exchange to carry
out its oversight and enforcement
responsibilities as an SRO more
efficiently in cases where full
disciplinary proceedings are not
necessary due to the minor nature of the
particular violation.
In declaring the Exchange’s MRVP
effective, the Commission in no way
minimizes the importance of
compliance with Exchange rules and all
other rules subject to the imposition of
sanctions under Exchange Rule 9.216(b).
The Commission believes that the
violation of an SRO’s rules, as well as
Commission rules, is a serious matter.
However, Exchange Rule 9.216(b)
provides a reasonable means of
addressing violations that do not rise to
the level of requiring formal
disciplinary proceedings, while
providing greater flexibility in handling
certain violations. The Commission
expects that the Exchange will continue
to conduct surveillance and make
determinations based on its findings, on
a case-by-case basis, regarding whether
a sanction under the MRVP is
appropriate, or whether a violation
requires formal disciplinary action.
IT IS THEREFORE ORDERED,
pursuant to Rule 19d–1(c)(2) under the
Act,11 that the proposed MRVP for
Investors Exchange LLC, File No. 4–701,
be, and hereby is, declared effective.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Robert W. Errett,
Deputy Secretary.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78472; File No. SR–
BatsEDGX–2016–35]
Self-Regulatory Organizations; Bats
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change to Rule 11.21,
Retail Orders, To Conform to the Rules
of Bats BZX Exchange, Inc. and Bats
BYX Exchange, Inc.
August 3, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on July 22,
2016, Bats EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) 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
Exchange has designated this proposal
as a ‘‘non-controversial’’ proposed rule
change pursuant to Section 19(b)(3)(A)
of the Act 3 and Rule 19b–4(f)(6)(iii)
thereunder,4 which renders it effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to
amend Rule11.21, Retail Orders, to
conform to the rules of Bats BZX
Exchange, Inc. (‘‘BZX’’) and Bats BYX
Exchange, Inc. (‘‘BYX’’).5
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.
[FR Doc. 2016–18794 Filed 8–8–16; 8:45 am]
1 15
BILLING CODE 8011–01–P
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6)(iii).
5 See BYX Rule 11.24 and BZX Rule 11.25. See
Securities Exchange Act Release Nos. 68303
(November 27, 2012), 77 FR 71652 (December 3,
2012) (SR–BYX–2012–019); 72730 (July 31, 2014),
79 FR 45857 (August 6, 2014) (SR–BYX–2014–013);
73236 (September 26, 2014) 79 FR 59541 (October
2, 2014) (SR–BYX–2014–024); 76207 (October 21,
2015), 80 FR 65824 (October 27, 2015) (SR–BYX–
2015–45); 73237 (September 26, 2014), 79 FR 59537
(October 2, 2014) (SR–BATS–2014–043); 73677
(November 24, 2014), 79 FR 71150 (December 1,
2014) (SR–BATS–2014–058); and 76205 (October
21, 2015), 80 FR 65828 (October 27, 2015) (SR–
BATS–2015–90). The Exchange does not proposes
to adopt paragraphs (e), (f), (g) and (h) of BYX Rule
11.24 concerning the BYX Retail Price Improvement
Program. These paragraph are also not included in
BZX Rule 11.25.
2 17
10 17
CFR 240.19d–1(c)(2).
11 Id.
12 17
PO 00000
CFR 200.30–3(a)(44).
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Federal Register / Vol. 81, No. 153 / Tuesday, August 9, 2016 / Notices
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant parts of such
statements.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
In early 2014, the Exchange and its
affiliate, Bats EDGA Exchange, Inc.
(‘‘EDGA’’), received approval to effect a
merger (the ‘‘Merger’’) of the Exchange’s
parent company, Direct Edge Holdings
LLC, with Bats Global Markets, Inc., the
parent of BZX and BYX (together with
BZX, EDGA, and EDGX, the ‘‘BGM
Affiliated Exchanges’’).6 In the context
of the Merger, the BGM Affiliated
Exchanges are working to align certain
system and regulatory functionality,
retaining only intended differences
between the BGM Affiliated Exchanges.
Thus, the proposal set forth below is
intended to amend Exchange Rule
11.21, Retail Orders, to conform to the
rules of BZX and BYX in order to
provide a consistent rule set across each
of the BGM Affiliated Exchanges.7
First, the Exchange proposes to
amend paragraph (a) of Rule 11.21 to
include definitions of ‘‘Retail Member
Organization’’ and ‘‘Retail Order’’.
Subparagraph (a)(1) would define a
Retail Member Organization or RMO as
‘‘a Member 8 (or a division thereof) that
has been approved by the Exchange
under this Rule to submit Retail
Orders.’’ This definition is identical to
the definition of Retail Member
Organization under BYX Rule
11.24(a)(1) and BZX Rule 11.25(a)(1).
The Exchange also proposes to slightly
revise and relocate the definition of
Retail Order under current Rule
11.21(a). Exchange Rule 11.21(a)
currently defines a Retail Order as an
agency order or riskless principal order
that meets the criteria of the Financial
6 See Securities Exchange Act Release No. 71449
(January 30, 2014), 79 FR 6961 (February 5, 2014)
(SR–EDGX–2013–043; SR–EDGA–2013–034).
7 The Exchange notes that EDGA does not
currently include a Retail Order rule.
8 See Exchange Rule 1.5(n).
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Jkt 238001
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) Rule 5320.03 that originates
from a natural person; (ii) is submitted
to EDGX by a Member, provided that no
change is made to the terms of the order;
and (iii) does not originate from a
trading algorithm or any other
computerized methodology. The
Exchange proposes to renumber the
definition of Retail Order as
subparagraph (a)(2) and revise it to
specify that the Retail Order is to be
submitted by a Retail Member
Organization. The amended definition
of Retail Order under Exchange Rule
11.21(a)(2) would be identical to BYX
Rule 11.24(a)(2) and BZX Rule
11.25(a)(2).
Second the Exchange proposes to
consolidate paragraphs (b) and (c) to
Exchange Rule 11.21 into a single
paragraph (b) entitled, Retail Member
Organization Qualifications and
Application. Proposed Exchange Rule
11.21(b) would be identical to BYX Rule
11.24(b) and BZX Rule 11.25(b). Rule
11.21(b)(1) would state that to qualify as
a Retail Member Organization, a
Member must conduct a retail business
or route retail orders on behalf of
another broker-dealer. For purposes of
Exchange Rule 11.21, conducting a
retail business shall include carrying
retail customer accounts on a fully
disclosed basis.9
Current Rule 11.21(b) requires
Members to submit a signed written
attestation, in a form prescribed by the
Exchange, that they have implemented
policies and procedures that are
reasonably designed to ensure that
substantially all orders designated by
the Member as a Retail Order comply
with the above requirements. The
Exchange proposes to incorporate this
requirement into proposed Rule
11.21(b)(2). Proposed subparagraph
(b)(2) of Rule 11.21 would state that, to
become a Retail Member Organization, a
Member must submit: (A) An
application form; (B) supporting
documentation, which may include
sample marketing literature, Web site
screenshots, other publicly disclosed
materials describing the Member’s retail
order flow, and any other
documentation and information
requested by the Exchange in order to
confirm that the applicant’s order flow
would meet the requirements of the
9 Exchange Rule 11.21 does not currently state
that conducting a retail business shall include
carrying retail customer accounts on a fully
disclosed basis. The Exchange notes that this
provision is currently included in BYX Rule
11.24(b)(1) and BZX Rule 11.25(b)(1) and the
Exchange proposes to add it to Rule 11.21(b)(1) to
ensure this provision of the Exchange, BZX, and
BZX rules are fully harmonized.
PO 00000
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Fmt 4703
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52719
Retail Order definition; and (C) an
attestation, in a form prescribed by the
Exchange, that substantially all orders
submitted as Retail Orders will qualify
as such under this Rule. Proposed Rule
11.21(b)(2) is identical to BYX Rule
11.24(b)(2) and BZX Rule 11.25(b)(2).
The Exchange also proposes to adopt
subparagraphs (b)(3), (4), (5), and (6) to
Rule 11.21, the content of which is
identical to BYX Rule 11.24(b)(3), (4),
(5), and (6) and BZX Rule 11.25(b)(3),
(4), (5), and (6). Subparagraph (b)(3)
would state that after an applicant
submits the application form,
supporting documentation, and
attestation, the Exchange shall notify the
applicant of its decision in writing.
Subparagraph (b)(4) would allow a
disapproved applicant to: (A) Request
an appeal of such disapproval by the
Exchange as provided in proposed
paragraph (d) discussed below; and/or
(B) reapply for Retail Member
Organization status 90 days after the
disapproval notice is issued by the
Exchange. Subparagraph (b)(5) permits a
Retail Member Organization to
voluntarily withdraw from such status
at any time by giving written notice to
the Exchange.
Current Rule 11.21(c) states that if the
Member represents Retail Orders from
another broker-dealer customer, the
Member’s supervisory procedures must
be reasonably designed to assure that
the orders it receives from such brokerdealer customer that it designates as
Retail Orders meet the definition of a
Retail Order. The Member must: (i)
Obtain an annual written representation
from each broker-dealer customer that
sends it orders to be designated as Retail
Orders that entry of such orders as
Retail Orders will be in compliance
with the requirements specified by the
Exchange; and (ii) monitor whether its
broker-dealer customer’s Retail Order
flow continues to meet the applicable
requirements. The Exchange proposes to
incorporate this requirement into
proposed Rule 11.21(b)(6). Proposed
subparagraph (b)(6) of Rule 11.21 would
state that a Retail Member Organization
must have written policies and
procedures reasonably designed to
assure that it will only designate orders
as Retail Orders if all requirements of a
Retail Order are met. Such written
policies and procedures must require
the Member to: (i) Exercise due
diligence before entering a Retail Order
to assure that entry as a Retail Order is
in compliance with the requirements of
this Rule; and (ii) monitor whether
orders entered as Retail Orders meet the
applicable requirements. Subparagraph
(b)(6) would also require that if a Retail
Member Organization does not itself
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asabaliauskas on DSK3SPTVN1PROD with NOTICES
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Federal Register / Vol. 81, No. 153 / Tuesday, August 9, 2016 / Notices
conduct a retail business but routes
Retail Orders on behalf of another
broker-dealer, the Retail Member
Organization’s supervisory procedures
must be reasonably designed to assure
that the orders it receives from such
other broker-dealer that are designated
as Retail Orders meet the definition of
a Retail Order. The Retail Member
Organization must: (i) Obtain an annual
written representation, in a form
acceptable to the Exchange, from each
other broker-dealer that sends the Retail
Member Organization orders to be
designated as Retail Orders that entry of
such orders as Retail Orders will be in
compliance with the requirements of
this Rule; and (ii) monitor whether
Retail Order flow routed on behalf of
such other broker-dealers meets the
applicable requirements. Proposed
subparagraph (b)(6) of Rule 11.21 is
identical to BYX Rule 11.24(b)(6) and
BZX Rule 11.25(b)(6).
Proposed paragraph (c) to Rule 11.21
would set forth the process for
disqualifying a Member as a Retail
Member Organization and is identical to
BYX Rule 11.24(c) and BZX Rule
11.25(c). Subparagraph (c)(1) would
state that if a Retail Member
Organization designates orders
submitted to the Exchange as Retail
Orders and the Exchange determines, in
its sole discretion, that such orders fail
to meet any of the requirements set forth
in paragraph (a) of Rule 11.21 above, the
Exchange may disqualify a Member
from its status as a Retail Member
Organization. Subparagraph (c)(2)
would state that the Exchange shall
determine if and when a Member is
disqualified from its status as a Retail
Member Organization. When
disqualification determinations are
made, the Exchange shall provide a
written disqualification notice to the
Member. Subparagraph (c)(3) would
state that a Retail Member Organization
that is disqualified may: (A) Appeal
such disqualification as provided in
paragraph (d) discussed below; and/or
(B) reapply for Retail Member
Organization status 90 days after the
date of the disqualification notice from
the Exchange.
Paragraph (d) of Rule 11.21 would
mirror BYX Rule 11.24(d) and BZX Rule
11.25(d) by setting forth the processes
for Retail Member Organization to
appeal a disqualification determination.
Subparagraph (d)(1) would state that if
a Member disputes the Exchange’s
decision to disapprove it under
paragraph (b) of Rule 11.21 or disqualify
it under paragraph (c) of Rule 11.21, the
Member (‘‘appellant’’) may request,
within five business days after notice of
the decision is issued by the Exchange,
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20:00 Aug 08, 2016
Jkt 238001
that the Retail Attribution Panel (the
‘‘Panel’’) review the decision to
determine if it was correct. Pursuant to
subparagraph (d)(2), the Panel will
consist of the Exchange’s Chief
Regulatory Officer (‘‘CRO’’), or a
designee of the CRO, and two officers of
the Exchange designated by the Chief
Information Officer (‘‘CIO’’).
Subparagraph (d)(3) states that the Panel
shall review the facts and render a
decision within the time frame
prescribed by the Exchange.
Subparagraph (d)(4) would allow the
Panel to overturn or modify an action
taken by the Exchange under Rule 11.21
and state that a determination by the
Panel shall constitute final action by the
Exchange.
Lastly, the Exchange proposes to
renumber current paragraph (d) to Rule
11.21 as paragraph (e) and current
paragraph (e) to Rule 11.21 as paragraph
(f) and to replace references to Member
with the term Retail Member
Organization in both of these
paragraphs. Under Rule 11.21(e), Retail
Member Organizations will only be able
to designate their orders as Retail Orders
on either an order-by-order basis using
FIX ports or by designating certain of
their FIX ports at the Exchange as
‘‘Retail Order Ports.’’ Unless otherwise
instructed by the Retail Member
Organization, a Retail Order will be
identified as Retail when routed to an
away Trading Center. Under Rule
11.21(f), Retail Member Organizations
will continue to be permitted to
designate a Retail Order to be identified
as Retail on the EDGX Book Feed on an
order-by-order basis or to identify all its
Retail Orders as Retail on a port-by-port
basis where that port is also designated
as a Retail Order Port. A Retail Member
Organization that instructs the Exchange
to identify all its Retail Orders as Retail
on a Retail Order Port will continue to
be able to override such setting and
designate any individual Retail Order
from that port as Attributable or as NonAttributable, as set forth in Rule 11.6(a).
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder that
are applicable to a national securities
exchange, and, in particular, with the
requirements of Section 6(b) of the
Act.10 Specifically, the proposed change
is consistent with Section 6(b)(5) of the
Act,11 because it is designed to promote
just and equitable principles of trade, to
remove impediments to, and perfect the
10 15
11 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00111
Fmt 4703
Sfmt 4703
mechanism of, a free and open market
and a national market system, and, in
general, to protect investors and the
public interest. As mentioned above, the
proposed rule change would allow the
Exchange, BYX, and BZX to provide a
consistent set of rules as it relates to
Retail Orders and Retail Member
Organizations. Consistent rules, in turn,
will simplify the regulatory
requirements for Members of the
Exchange that are also participants on
BYX and BZX. The proposed rule
change would provide greater
harmonization between rules of similar
purpose on the Exchange, BYX, and
BZX, resulting in greater uniformity and
less burdensome and more efficient
regulatory compliance and
understanding of Exchange Rules. As
such, the proposed rule change would
foster cooperation and coordination
with persons engaged in facilitating
transactions in securities and would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system. Similarly,
the Exchange believes harmonizing
these rules across the Exchange, BYX,
and BZX promotes just and equitable
principles of trade by providing
consistent rules regarding Retail
Member Organizations and Retail
Orders.
Lastly, the Exchange also believes the
proposed qualification standards and
review process under Rule 11.21
promote just and equitable principles
and are not unfairly discriminatory
because they are designed to ensure that
Members are properly qualified as a
Retail Member Organization and only
attribute as Retail those orders that meet
the definition of Retail Orders. The
qualification process proposed herein
by the Exchange is not designed to
permit unfair discrimination, but rather
ensure that order that are designated to
be attributed are Retail are, in fact, order
submitted by a retail customer that
satisfy the proposed definition of Retail
Order. Lastly, the Exchange notes that
these qualification and review
provisions are substantially similar to
those included in the rules of the BYX,
BZX, New York Stock Exchange, Inc.’s
(‘‘NYSE’’), and NYSE MKT LLC (‘‘NYSE
MKT’’) that have been previously
approved by the Commission.12
12 See BYX Rule 11.24, BZX Rule 11.25, NYSE
Rule 107C, NYSE MKT LLC NYSE MKT Rule 107C,
and NYSE Arca, Inc. (‘‘NYSE Arca’’) Rule 7.44. The
Exchange notes that the NYSE, NYSE Arca, and
NYSE MKT programs do not allow members to elect
that their retail orders be identified as Retail on the
exchange’s proprietary data feeds.
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Federal Register / Vol. 81, No. 153 / Tuesday, August 9, 2016 / Notices
IV. Solicitation of Comments
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the act. To the
contrary, allowing the Exchange to
implement substantively identical rules
across the Exchange, BYX, and BZX
regarding Retail Orders and Retail
Member Organizations does not present
any competitive issues, but rather is
designed to provide greater
harmonization among the Exchange,
BYX, and BZX rules of similar purpose.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Because the foregoing proposed rule
change does not: (A) Significantly affect
the protection of investors or the public
interest; (B) impose any significant
burden on competition; and (C) by its
terms, become operative for 30 days
from the date on which it was filed or
such shorter time as the Commission
may designate it has become effective
pursuant to Section 19(b)(3)(A) of the
Act 13 and paragraph (f)(6) of Rule 19b–
4 thereunder,14 the Exchange has
designated this rule filing as noncontroversial. The Exchange has given
the Commission written notice of its
intent to file the proposed rule change,
along with a brief description and text
of the proposed rule change at least five
business days prior to the date of filing
of the proposed rule change, or such
shorter time as designated by the
Commission.
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: (1) Necessary or appropriate in
the public interest; (2) for the protection
of investors; or (3) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
VerDate Sep<11>2014
20:00 Aug 08, 2016
• 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–BatsEDGX–2016–35 on the
subject line.
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
U.S.C. 78s(b)(3)(A).
14 17 CFR 240.19b–4.
Electronic Comments
Paper Comments
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
13 15
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:
All submissions should refer to File
Number SR–BatsEDGX–2016–35. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
BatsEDGX–2016–35, and should be
submitted on or before August 30, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–18792 Filed 8–8–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
Commission will hold a Closed Meeting
on Thursday, August 11, 2016 at 2:00
p.m.
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the Closed Meeting. Certain
staff members who have an interest in
the matters also may be present.
The General Counsel of the
Commission, or her designee, has
certified that, in her opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (7), 9(B) and (10)
and 17 CFR 200.402(a)(3), (5), (7), 9(ii)
and (10), permit consideration of the
scheduled matter at the Closed Meeting.
Commissioner Stein, as duty officer,
voted to consider the items listed for the
Closed Meeting in closed session.
The subject matter of the Closed
Meeting will be:
Institution and settlement of
injunctive actions;
Institution and settlement of
administrative proceedings;
Adjudicatory matters; and
Other matters relating to enforcement
proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
For further information and to
ascertain what, if any, matters have been
added, deleted or postponed, please
contact Brent J. Fields from the Office of
the Secretary at (202) 551–5400.
Dated: August 4, 2016.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–18932 Filed 8–5–16; 11:15 am]
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[Federal Register Volume 81, Number 153 (Tuesday, August 9, 2016)]
[Notices]
[Pages 52718-52721]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18792]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78472; File No. SR-BatsEDGX-2016-35]
Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change to Rule
11.21, Retail Orders, To Conform to the Rules of Bats BZX Exchange,
Inc. and Bats BYX Exchange, Inc.
August 3, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on July 22, 2016, Bats EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') 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
Exchange has designated this proposal as a ``non-controversial''
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and
Rule 19b-4(f)(6)(iii) thereunder,\4\ which renders it effective upon
filing with the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to amend Rule11.21, Retail Orders, to
conform to the rules of Bats BZX Exchange, Inc. (``BZX'') and Bats BYX
Exchange, Inc. (``BYX'').\5\
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\5\ See BYX Rule 11.24 and BZX Rule 11.25. See Securities
Exchange Act Release Nos. 68303 (November 27, 2012), 77 FR 71652
(December 3, 2012) (SR-BYX-2012-019); 72730 (July 31, 2014), 79 FR
45857 (August 6, 2014) (SR-BYX-2014-013); 73236 (September 26, 2014)
79 FR 59541 (October 2, 2014) (SR-BYX-2014-024); 76207 (October 21,
2015), 80 FR 65824 (October 27, 2015) (SR-BYX-2015-45); 73237
(September 26, 2014), 79 FR 59537 (October 2, 2014) (SR-BATS-2014-
043); 73677 (November 24, 2014), 79 FR 71150 (December 1, 2014) (SR-
BATS-2014-058); and 76205 (October 21, 2015), 80 FR 65828 (October
27, 2015) (SR-BATS-2015-90). The Exchange does not proposes to adopt
paragraphs (e), (f), (g) and (h) of BYX Rule 11.24 concerning the
BYX Retail Price Improvement Program. These paragraph are also not
included in BZX Rule 11.25.
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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 52719]]
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
In early 2014, the Exchange and its affiliate, Bats EDGA Exchange,
Inc. (``EDGA''), received approval to effect a merger (the ``Merger'')
of the Exchange's parent company, Direct Edge Holdings LLC, with Bats
Global Markets, Inc., the parent of BZX and BYX (together with BZX,
EDGA, and EDGX, the ``BGM Affiliated Exchanges'').\6\ In the context of
the Merger, the BGM Affiliated Exchanges are working to align certain
system and regulatory functionality, retaining only intended
differences between the BGM Affiliated Exchanges. Thus, the proposal
set forth below is intended to amend Exchange Rule 11.21, Retail
Orders, to conform to the rules of BZX and BYX in order to provide a
consistent rule set across each of the BGM Affiliated Exchanges.\7\
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\6\ See Securities Exchange Act Release No. 71449 (January 30,
2014), 79 FR 6961 (February 5, 2014) (SR-EDGX-2013-043; SR-EDGA-
2013-034).
\7\ The Exchange notes that EDGA does not currently include a
Retail Order rule.
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First, the Exchange proposes to amend paragraph (a) of Rule 11.21
to include definitions of ``Retail Member Organization'' and ``Retail
Order''. Subparagraph (a)(1) would define a Retail Member Organization
or RMO as ``a Member \8\ (or a division thereof) that has been approved
by the Exchange under this Rule to submit Retail Orders.'' This
definition is identical to the definition of Retail Member Organization
under BYX Rule 11.24(a)(1) and BZX Rule 11.25(a)(1). The Exchange also
proposes to slightly revise and relocate the definition of Retail Order
under current Rule 11.21(a). Exchange Rule 11.21(a) currently defines a
Retail Order as an agency order or riskless principal order that meets
the criteria of the Financial Industry Regulatory Authority, Inc.
(``FINRA'') Rule 5320.03 that originates from a natural person; (ii) is
submitted to EDGX by a Member, provided that no change is made to the
terms of the order; and (iii) does not originate from a trading
algorithm or any other computerized methodology. The Exchange proposes
to renumber the definition of Retail Order as subparagraph (a)(2) and
revise it to specify that the Retail Order is to be submitted by a
Retail Member Organization. The amended definition of Retail Order
under Exchange Rule 11.21(a)(2) would be identical to BYX Rule
11.24(a)(2) and BZX Rule 11.25(a)(2).
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\8\ See Exchange Rule 1.5(n).
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Second the Exchange proposes to consolidate paragraphs (b) and (c)
to Exchange Rule 11.21 into a single paragraph (b) entitled, Retail
Member Organization Qualifications and Application. Proposed Exchange
Rule 11.21(b) would be identical to BYX Rule 11.24(b) and BZX Rule
11.25(b). Rule 11.21(b)(1) would state that to qualify as a Retail
Member Organization, a Member must conduct a retail business or route
retail orders on behalf of another broker-dealer. For purposes of
Exchange Rule 11.21, conducting a retail business shall include
carrying retail customer accounts on a fully disclosed basis.\9\
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\9\ Exchange Rule 11.21 does not currently state that conducting
a retail business shall include carrying retail customer accounts on
a fully disclosed basis. The Exchange notes that this provision is
currently included in BYX Rule 11.24(b)(1) and BZX Rule 11.25(b)(1)
and the Exchange proposes to add it to Rule 11.21(b)(1) to ensure
this provision of the Exchange, BZX, and BZX rules are fully
harmonized.
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Current Rule 11.21(b) requires Members to submit a signed written
attestation, in a form prescribed by the Exchange, that they have
implemented policies and procedures that are reasonably designed to
ensure that substantially all orders designated by the Member as a
Retail Order comply with the above requirements. The Exchange proposes
to incorporate this requirement into proposed Rule 11.21(b)(2).
Proposed subparagraph (b)(2) of Rule 11.21 would state that, to become
a Retail Member Organization, a Member must submit: (A) An application
form; (B) supporting documentation, which may include sample marketing
literature, Web site screenshots, other publicly disclosed materials
describing the Member's retail order flow, and any other documentation
and information requested by the Exchange in order to confirm that the
applicant's order flow would meet the requirements of the Retail Order
definition; and (C) an attestation, in a form prescribed by the
Exchange, that substantially all orders submitted as Retail Orders will
qualify as such under this Rule. Proposed Rule 11.21(b)(2) is identical
to BYX Rule 11.24(b)(2) and BZX Rule 11.25(b)(2).
The Exchange also proposes to adopt subparagraphs (b)(3), (4), (5),
and (6) to Rule 11.21, the content of which is identical to BYX Rule
11.24(b)(3), (4), (5), and (6) and BZX Rule 11.25(b)(3), (4), (5), and
(6). Subparagraph (b)(3) would state that after an applicant submits
the application form, supporting documentation, and attestation, the
Exchange shall notify the applicant of its decision in writing.
Subparagraph (b)(4) would allow a disapproved applicant to: (A) Request
an appeal of such disapproval by the Exchange as provided in proposed
paragraph (d) discussed below; and/or (B) reapply for Retail Member
Organization status 90 days after the disapproval notice is issued by
the Exchange. Subparagraph (b)(5) permits a Retail Member Organization
to voluntarily withdraw from such status at any time by giving written
notice to the Exchange.
Current Rule 11.21(c) states that if the Member represents Retail
Orders from another broker-dealer customer, the Member's supervisory
procedures must be reasonably designed to assure that the orders it
receives from such broker-dealer customer that it designates as Retail
Orders meet the definition of a Retail Order. The Member must: (i)
Obtain an annual written representation from each broker-dealer
customer that sends it orders to be designated as Retail Orders that
entry of such orders as Retail Orders will be in compliance with the
requirements specified by the Exchange; and (ii) monitor whether its
broker-dealer customer's Retail Order flow continues to meet the
applicable requirements. The Exchange proposes to incorporate this
requirement into proposed Rule 11.21(b)(6). Proposed subparagraph
(b)(6) of Rule 11.21 would state that a Retail Member Organization must
have written policies and procedures reasonably designed to assure that
it will only designate orders as Retail Orders if all requirements of a
Retail Order are met. Such written policies and procedures must require
the Member to: (i) Exercise due diligence before entering a Retail
Order to assure that entry as a Retail Order is in compliance with the
requirements of this Rule; and (ii) monitor whether orders entered as
Retail Orders meet the applicable requirements. Subparagraph (b)(6)
would also require that if a Retail Member Organization does not itself
[[Page 52720]]
conduct a retail business but routes Retail Orders on behalf of another
broker-dealer, the Retail Member Organization's supervisory procedures
must be reasonably designed to assure that the orders it receives from
such other broker-dealer that are designated as Retail Orders meet the
definition of a Retail Order. The Retail Member Organization must: (i)
Obtain an annual written representation, in a form acceptable to the
Exchange, from each other broker-dealer that sends the Retail Member
Organization orders to be designated as Retail Orders that entry of
such orders as Retail Orders will be in compliance with the
requirements of this Rule; and (ii) monitor whether Retail Order flow
routed on behalf of such other broker-dealers meets the applicable
requirements. Proposed subparagraph (b)(6) of Rule 11.21 is identical
to BYX Rule 11.24(b)(6) and BZX Rule 11.25(b)(6).
Proposed paragraph (c) to Rule 11.21 would set forth the process
for disqualifying a Member as a Retail Member Organization and is
identical to BYX Rule 11.24(c) and BZX Rule 11.25(c). Subparagraph
(c)(1) would state that if a Retail Member Organization designates
orders submitted to the Exchange as Retail Orders and the Exchange
determines, in its sole discretion, that such orders fail to meet any
of the requirements set forth in paragraph (a) of Rule 11.21 above, the
Exchange may disqualify a Member from its status as a Retail Member
Organization. Subparagraph (c)(2) would state that the Exchange shall
determine if and when a Member is disqualified from its status as a
Retail Member Organization. When disqualification determinations are
made, the Exchange shall provide a written disqualification notice to
the Member. Subparagraph (c)(3) would state that a Retail Member
Organization that is disqualified may: (A) Appeal such disqualification
as provided in paragraph (d) discussed below; and/or (B) reapply for
Retail Member Organization status 90 days after the date of the
disqualification notice from the Exchange.
Paragraph (d) of Rule 11.21 would mirror BYX Rule 11.24(d) and BZX
Rule 11.25(d) by setting forth the processes for Retail Member
Organization to appeal a disqualification determination. Subparagraph
(d)(1) would state that if a Member disputes the Exchange's decision to
disapprove it under paragraph (b) of Rule 11.21 or disqualify it under
paragraph (c) of Rule 11.21, the Member (``appellant'') may request,
within five business days after notice of the decision is issued by the
Exchange, that the Retail Attribution Panel (the ``Panel'') review the
decision to determine if it was correct. Pursuant to subparagraph
(d)(2), the Panel will consist of the Exchange's Chief Regulatory
Officer (``CRO''), or a designee of the CRO, and two officers of the
Exchange designated by the Chief Information Officer (``CIO'').
Subparagraph (d)(3) states that the Panel shall review the facts and
render a decision within the time frame prescribed by the Exchange.
Subparagraph (d)(4) would allow the Panel to overturn or modify an
action taken by the Exchange under Rule 11.21 and state that a
determination by the Panel shall constitute final action by the
Exchange.
Lastly, the Exchange proposes to renumber current paragraph (d) to
Rule 11.21 as paragraph (e) and current paragraph (e) to Rule 11.21 as
paragraph (f) and to replace references to Member with the term Retail
Member Organization in both of these paragraphs. Under Rule 11.21(e),
Retail Member Organizations will only be able to designate their orders
as Retail Orders on either an order-by-order basis using FIX ports or
by designating certain of their FIX ports at the Exchange as ``Retail
Order Ports.'' Unless otherwise instructed by the Retail Member
Organization, a Retail Order will be identified as Retail when routed
to an away Trading Center. Under Rule 11.21(f), Retail Member
Organizations will continue to be permitted to designate a Retail Order
to be identified as Retail on the EDGX Book Feed on an order-by-order
basis or to identify all its Retail Orders as Retail on a port-by-port
basis where that port is also designated as a Retail Order Port. A
Retail Member Organization that instructs the Exchange to identify all
its Retail Orders as Retail on a Retail Order Port will continue to be
able to override such setting and designate any individual Retail Order
from that port as Attributable or as Non-Attributable, as set forth in
Rule 11.6(a).
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder that are applicable to a national securities exchange, and,
in particular, with the requirements of Section 6(b) of the Act.\10\
Specifically, the proposed change is consistent with Section 6(b)(5) of
the Act,\11\ because it is designed to promote just and equitable
principles of trade, to remove impediments to, and perfect the
mechanism of, a free and open market and a national market system, and,
in general, to protect investors and the public interest. As mentioned
above, the proposed rule change would allow the Exchange, BYX, and BZX
to provide a consistent set of rules as it relates to Retail Orders and
Retail Member Organizations. Consistent rules, in turn, will simplify
the regulatory requirements for Members of the Exchange that are also
participants on BYX and BZX. The proposed rule change would provide
greater harmonization between rules of similar purpose on the Exchange,
BYX, and BZX, resulting in greater uniformity and less burdensome and
more efficient regulatory compliance and understanding of Exchange
Rules. As such, the proposed rule change would foster cooperation and
coordination with persons engaged in facilitating transactions in
securities and would remove impediments to and perfect the mechanism of
a free and open market and a national market system. Similarly, the
Exchange believes harmonizing these rules across the Exchange, BYX, and
BZX promotes just and equitable principles of trade by providing
consistent rules regarding Retail Member Organizations and Retail
Orders.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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Lastly, the Exchange also believes the proposed qualification
standards and review process under Rule 11.21 promote just and
equitable principles and are not unfairly discriminatory because they
are designed to ensure that Members are properly qualified as a Retail
Member Organization and only attribute as Retail those orders that meet
the definition of Retail Orders. The qualification process proposed
herein by the Exchange is not designed to permit unfair discrimination,
but rather ensure that order that are designated to be attributed are
Retail are, in fact, order submitted by a retail customer that satisfy
the proposed definition of Retail Order. Lastly, the Exchange notes
that these qualification and review provisions are substantially
similar to those included in the rules of the BYX, BZX, New York Stock
Exchange, Inc.'s (``NYSE''), and NYSE MKT LLC (``NYSE MKT'') that have
been previously approved by the Commission.\12\
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\12\ See BYX Rule 11.24, BZX Rule 11.25, NYSE Rule 107C, NYSE
MKT LLC NYSE MKT Rule 107C, and NYSE Arca, Inc. (``NYSE Arca'') Rule
7.44. The Exchange notes that the NYSE, NYSE Arca, and NYSE MKT
programs do not allow members to elect that their retail orders be
identified as Retail on the exchange's proprietary data feeds.
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[[Page 52721]]
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the act. To the contrary, allowing the
Exchange to implement substantively identical rules across the
Exchange, BYX, and BZX regarding Retail Orders and Retail Member
Organizations does not present any competitive issues, but rather is
designed to provide greater harmonization among the Exchange, BYX, and
BZX rules of similar purpose.
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
Because the foregoing proposed rule change does not: (A)
Significantly affect the protection of investors or the public
interest; (B) impose any significant burden on competition; and (C) by
its terms, become operative for 30 days from the date on which it was
filed or such shorter time as the Commission may designate it has
become effective pursuant to Section 19(b)(3)(A) of the Act \13\ and
paragraph (f)(6) of Rule 19b-4 thereunder,\14\ the Exchange has
designated this rule filing as non-controversial. The Exchange has
given the Commission written notice of its intent to file the proposed
rule change, along with a brief description and text of the proposed
rule change at least five business days prior to the date of filing of
the proposed rule change, or such shorter time as designated by the
Commission.
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 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: (1)
Necessary or appropriate in the public interest; (2) for the protection
of investors; or (3) otherwise in furtherance of the purposes of the
Act. If the Commission takes such action, the Commission shall
institute proceedings to determine whether the proposed rule should be
approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BatsEDGX-2016-35 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-BatsEDGX-2016-35. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BatsEDGX-2016-35, and should
be submitted on or before August 30, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-18792 Filed 8-8-16; 8:45 am]
BILLING CODE 8011-01-P
