Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Rule 3220, Disruptive Quoting and Trading Activity Prohibited and Rule 12160, Expedited Suspension Proceeding, 95713-95719 [2016-31307]
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Federal Register / Vol. 81, No. 249 / Wednesday, December 28, 2016 / Notices
competitive with other exchanges. For
the reasons described above, the
Exchange believes that the proposed fee
changes reflect this competitive
environment.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act,22 and Rule
19b–4(f)(2) 23 thereunder. 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: (i)
Necessary or appropriate in the public
interest; (ii) for the protection of
investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes 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:
sradovich on DSK3GMQ082PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
ISEGemini–2016–22 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–ISEGemini–2016–22. 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–
ISEGemini–2016–22 and should be
submitted on or before January 18, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016–31305 Filed 12–27–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79646; File No. SR–BOX–
2016–59]
Self-Regulatory Organizations; BOX
Options Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Adopt Rule
3220, Disruptive Quoting and Trading
Activity Prohibited and Rule 12160,
Expedited Suspension Proceeding
December 21, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
14, 2016, BOX Options Exchange LLC
(‘‘BOX’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
24 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
22 15
U.S.C. 78s(b)(3)(A)(ii).
23 17 CFR 240.19b–4(f)(2).
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95713
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to adopt (i)
BOX Rule 3220 (Disruptive Quoting and
Trading Activity Prohibited) to clearly
prohibit disruptive quoting and trading
activity on the Exchange and (ii) BOX
Rule 12160 (Expedited Suspension
Proceeding) to permit the Exchange to
take prompt action to suspend Option
Participants or their clients that violate
Rule 3220. The text of the proposed rule
change is available from the principal
office of the Exchange, at the
Commission’s Public Reference Room
and also on the Exchange’s Internet Web
site at https://boxexchange.com.
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
self-regulatory organization 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 self-regulatory organization 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 the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to adopt BOX
Rule 3220 (Disruptive Quoting and
Trading Activity Prohibited) to clearly
prohibit disruptive quoting and trading
activity on the Exchange and to adopt a
new Exchange Rule 12160 (Expedited
Suspension Proceeding), to permit the
Exchange to take prompt action to
suspend Options Participants 3 and their
clients that violate such rule.
Background
As a national securities exchange
registered pursuant to Section 6 of the
Act, the Exchange is required to be
organized and to have the capacity to
enforce compliance by its members and
persons associated with its members,
with the Act, the rules and regulations
3 The term ‘‘Options Participant’’ or ‘‘Participant’’
means a firm, or organization that is registered with
the Exchange pursuant to the Rule 2000 Series for
purposes of participating in options trading on BOX
as an ‘‘Order Flow Provider’’ or ‘‘Market Maker’’.
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thereunder, and the Exchange’s Rules.
Further, the Exchange’s Rules are
required to be ‘‘designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade . . . and, in general,
to protect investors and the public
interest.’’ 4 In fulfilling these
requirements, the Exchange has
developed a comprehensive regulatory
program that includes automated
surveillance of trading activity that is
both operated directly by Exchange staff
and by staff of the Financial Industry
Regulatory Authority (‘‘FINRA’’)
pursuant to a Regulatory Services
Agreement (‘‘RSA’’). When disruptive
and potentially manipulative or
improper quoting and trading activity is
identified, the Exchange or FINRA
(acting as an agent of the Exchange)
conducts an investigation into the
activity, requesting additional
information from the Options
Participant or Options Participants
involved. To the extent violations of the
Act, the rules and regulations
thereunder, or Exchange Rules have
been identified and confirmed, the
Exchange or FINRA as its agent will
commence the enforcement process,
which might result in, among other
things, a censure, a requirement to take
certain remedial actions, one or more
restrictions on future business activities,
a monetary fine, or even a temporary or
permanent ban from the securities
industry.
The process described above, from the
identification of disruptive and
potentially manipulative or improper
quoting and trading activity to a final
resolution of the matter, can often take
several years. The Exchange believes
that this time period is generally
necessary and appropriate to afford the
subject Options Participant adequate
due process, particularly in complex
cases. However, as described below, the
Exchange believes that there are certain
obvious and uncomplicated cases of
disruptive and manipulative behavior or
cases where the potential harm to
investors is so large that the Exchange
should have the authority to initiate an
expedited suspension proceeding in
order to stop the behavior from
continuing on the Exchange.
In recent years, several cases have
been brought and resolved by the
Exchange and other SROs that involved
allegations of wide-spread market
manipulation, much of which was
ultimately being conducted by foreign
persons and entities using relatively
rudimentary technology to access the
markets and over which the Exchange
4 15
U.S.C. 78f(b)(1).
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and other SROs had no direct
jurisdiction. In each case, the conduct
involved a pattern of disruptive quoting
and trading activity indicative of
manipulative layering 5 or spoofing.6
The Exchange and other SROs were able
to identify the disruptive quoting and
trading activity in real-time or near realtime; nonetheless, in accordance with
Exchange Rules and the Act, the
Members responsible for such conduct
or responsible for their customers’
conduct were allowed to continue the
disruptive quoting and trading activity
on the Exchange and other exchanges
during the entirety of the subsequent
lengthy investigation and enforcement
process. The Exchange believes that it
should have the authority to initiate an
expedited suspension proceeding in
order to stop the behavior from
continuing on the Exchange if an
Options Participant is engaging in or
facilitating disruptive quoting and
trading activity and the Options
Participant has received sufficient
notice with an opportunity to respond,
but such activity has not ceased.
The following two examples are
instructive on the Exchange’s rationale
for the proposed rule change.
In July 2012, Biremis Corp. (formerly
Swift Trade Securities USA, Inc.) (the
‘‘Firm’’) and its CEO were barred from
the industry for, among other things,
supervisory violations related to a
failure by the Firm to detect and prevent
disruptive and allegedly manipulative
trading activities, including layering,
short sale violations, and anti-money
laundering violations.7 The Firm’s sole
business was to provide trade execution
services via a proprietary day trading
platform and order management system
to day traders located in foreign
jurisdictions. Thus, the disruptive and
allegedly manipulative trading activity
introduced by the Firm to U.S. markets
originated directly or indirectly from
foreign clients of the Firm. The pattern
of disruptive and allegedly
manipulative quoting and trading
5 ‘‘Layering’’ is a form of market manipulation in
which multiple, non-bona fide limit orders are
entered on one side of the market at various price
levels in order to create the appearance of a change
in the levels of supply and demand, thereby
artificially moving the price of the security. An
order is then executed on the opposite side of the
market at the artificially created price, and the nonbona fide orders are cancelled.
6 ‘‘Spoofing’’ is a form of market manipulation
that involves the market manipulator placing nonbona fide orders that are intended to trigger some
type of market movement and/or response from
other market participants, from which the market
manipulator might benefit by trading bona fide
orders.
7 See Biremis Corp. and Peter Beck, FINRA Letter
of Acceptance, Waiver and Consent No.
2010021162202, July 30, 2012.
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activity was widespread across multiple
exchanges, and the Exchange, FINRA,
and other SROs identified clear patterns
of the behavior in 2007 and 2008.
Although the Firm and its principals
were on notice of the disruptive and
allegedly manipulative quoting and
trading activity that was occurring, the
Firm took little to no action to attempt
to supervise or prevent such quoting
and trading activity until at least 2009.
Even when it put some controls in
place, they were deficient and the
pattern of disruptive and allegedly
manipulative trading activity continued
to occur. As noted above, the final
resolution of the enforcement action to
bar the Firm and its CEO from the
industry was not concluded until 2012,
four years after the disruptive and
allegedly manipulative trading activity
was first identified.
In September of 2012, Hold Brothers
On-Line Investment Services, Inc. (the
‘‘Firm’’) settled a regulatory action in
connection with the Firm’s provision of
a trading platform, trade software and
trade execution, support and clearing
services for day traders.8 Many traders
using the Firm’s services were located
in foreign jurisdictions. The Firm
ultimately settled the action with
FINRA and several exchanges, including
the Exchange, for a total monetary fine
of $3.4 million. In a separate action, the
Firm settled with the Commission for a
monetary fine of $2.5 million.9 Among
the alleged violations in the case were
disruptive and allegedly manipulative
quoting and trading activity, including
spoofing, layering, wash trading, and
pre-arranged trading. Through its
conduct and insufficient procedures and
controls, the Firm also allegedly
committed anti-money laundering
violations by failing to detect and report
manipulative and suspicious trading
activity. The Firm was alleged to have
not only provided foreign traders with
access to the U.S. markets to engage in
such activities, but that [sic] its
principals also owned and funded
foreign subsidiaries that engaged in the
disruptive and allegedly manipulative
quoting and trading activity. Although
the pattern of disruptive and allegedly
manipulative quoting and trading
activity was identified in 2009, as noted
above, the enforcement action was not
concluded until 2012. Thus, although
disruptive and allegedly manipulative
8 See Hold Brothers On-Line Investment Services,
LLC, FINRA Letter of Acceptance, Waiver and
Consent No. 2010023771001, September 25, 2012.
9 In the Matter of Hold Brothers On-Line
Investment Services, LLC, Exchange Act Release
No. 67924, September 25, 2012.
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quoting and trading was promptly
detected, it continued for several years.
The Exchange also notes the criminal
proceedings against Navinder Singh
Sarao. Mr. Sarao’s for [sic] manipulative
trading activity, which included forms
of layering and spoofing in the futures
markets, which has been linked as a
contributing factor to the ‘‘Flash Crash’’
of 2010, and yet continued through
2015.
The Exchange believes that the
activities described in the cases above
provide justification for the proposed
rule change, which is described below.
In addition, while the examples
provided are related to the equities
market, the Exchange believes that this
type of conduct should be prohibited for
options as well. The Exchange believes
that these patterns of disruptive and
allegedly manipulative quoting and
trading activity need to be addressed
and the product should not limit the
action taken by the Exchange.
Rule 12160—Expedited Suspension
Proceeding
The Exchange proposes to adopt new
Rule 12160, titled ‘‘Expedited
Suspension Proceeding,’’ to set forth
procedures for issuing suspension
orders, immediately prohibiting an
Options Participant from conducting
continued disruptive quoting and
trading activity on the Exchange.
Importantly, these procedures would
also provide the Exchange the authority
to order an Options Participant to cease
and desist from providing access to the
Exchange to a client of the Options
Participant that is conducting disruptive
quoting and trading activity in violation
of proposed Rule 3220. Proposed Rule
3220 would be titled, ‘‘Disruptive
Quoting and Trading Activity
Prohibited.’’ Under proposed paragraph
(a) of Rule 12160, with the prior written
authorization of the Chief Regulatory
Officer (‘‘CRO’’) or such other senior
officers as the CRO may designate, the
Office of General Counsel or Regulatory
Department of the Exchange (such
departments generally referred to as the
‘‘Exchange’’ for purposes of proposed
Rule 12160) may initiate an expedited
suspension proceeding with respect to
alleged violations of Rule 3220, which
is proposed as part of this filing and
described in detail below. Proposed
paragraph (a) would also set forth the
requirements for notice and service of
such notice pursuant to the Rule,
including the required method of
service and the content of notice.
Proposed paragraph (b) of Rule 12160
would govern the appointment of a
Hearing Panel as well as potential
disqualification or recusal of Panel
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Members. The proposed provision is
consistent with existing Exchange Rule
12060(a). The proposed rule provides
for a Panel Member to be recused in the
event he or she has a conflict of interest
or bias or other circumstances exist
where his or her fairness might
reasonably be questioned in accordance
with Rules [sic]12160(b)(2). In addition
to recusal initiated by such a Panel
Member, a party to the proceeding will
be permitted to file a motion to
disqualify a Panel Member. However,
due to the compressed schedule
pursuant to which the process would
operate under Rule 12160, the proposed
rule would require such motion to be
filed no later than 5 days after the
announcement of the Hearing Panel and
the Exchange’s brief in opposition to
such motion would be required to be
filed no later than 5 days after service
thereof. Pursuant to existing Rule
12060(a)(3), any time a person serving
on a Panel has a conflict of interest or
bias or circumstances otherwise exist
where his fairness might be reasonably
questioned, the person must withdraw
from the Panel. The applicable Panel
Member shall remove himself or herself
and the Panel Chairman may request the
Chairman of the Hearing Committee to
select a replacement such that the
Hearing Panel still meets the
compositional requirements described
in Rule 12060(a).
Under paragraph (c) of the proposed
Rule, the hearing would be held not
later than 15 days after service of the
notice initiating the suspension
proceeding, unless otherwise extended
by the Chairman of the Hearing Panel
with the consent of the Parties for good
cause shown. In the event of a recusal
or disqualification of a Panel Member,
the hearing shall be held not later than
five days after a replacement Panel
Member is appointed. Proposed
paragraph (c) would also govern how
the hearing is conducted, including the
authority of Panel Members, witnesses,
additional information that may be
required by the Hearing Panel, the
requirement that a transcript of the
proceeding be created and details
related to such transcript, and details
regarding the creation and maintenance
of the record of the proceeding.
Proposed paragraph (c) would also state
that if a Respondent fails to appear at a
hearing for which it has notice, the
allegations in the notice and
accompanying declaration may be
deemed admitted, and the Hearing
Panel may issue a suspension order
without further proceedings. Finally, as
proposed, if the Exchange fails to appear
at a hearing for which it has notice, the
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95715
Hearing Panel may order that the
suspension proceeding be dismissed.
Under paragraph (d) of the proposed
Rule, the Hearing Panel would be
required to issue a written decision
stating whether a suspension order
would be imposed. The Hearing Panel
would be required to issue the decision
not later than 10 days after receipt of the
hearing transcript, unless otherwise
extended by the Chairman of the
Hearing Panel with the consent of the
Parties for good cause shown. The Rule
would state that a suspension order
shall be imposed if the Hearing Panel
finds by a preponderance of the
evidence that the alleged violation
specified in the notice has occurred and
that the violative conduct or
continuation thereof is likely to result in
significant market disruption or other
significant harm to investors.
Proposed paragraph (d) would also
describe the content, scope and form of
a suspension order. As proposed, a
suspension order shall be limited to
ordering a Respondent to cease and
desist from violating proposed Rule
3220 and/or to ordering a Respondent to
cease and desist from providing access
to the Exchange to a client of
Respondent that is causing violations of
Rule 3220. Under the proposed rule, a
suspension order shall also set forth the
alleged violation and the significant
market disruption or other significant
harm to investors that is likely to result
without the issuance of an order. The
order shall describe in reasonable detail
the act or acts the Respondent is to take
or refrain from taking, and suspend such
Respondent unless and until such
action is taken or refrained from.
Finally, the order shall include the date
and hour of its issuance. As proposed,
a suspension order would remain
effective and enforceable unless
modified, set aside, limited, or revoked
pursuant to proposed paragraph (e), as
described below. Finally, paragraph (d)
would require service of the Hearing
Panel’s decision and any suspension
order consistent with other portions of
the proposed rule related to service.
Proposed paragraph (e) of Rule 12160
would state that at any time after the
Hearing Panel served the Respondent
with a suspension order, a Party could
apply to the Hearing Panel to have the
order modified, set aside, limited, or
revoked. If any part of a suspension
order is modified, set aside, limited, or
revoked, proposed paragraph (e) of Rule
12160 provides the Hearing Panel
discretion to leave the cease and desist
part of the order in place. For example,
if a suspension order suspends
Respondent unless and until
Respondent ceases and desists
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providing access to the Exchange to a
client of Respondent, and after the order
is entered the Respondent complies, the
Hearing Panel is permitted to modify
the order to lift the suspension portion
of the order while keeping in place the
cease and desist portion of the order.
With its broad modification powers, the
Hearing Panel also maintains the
discretion to impose conditions upon
the removal of a suspension—for
example, the Hearing Panel could
modify an order to lift the suspension
portion of the order in the event a
Respondent complies with the cease
and desist portion of the order but
additionally order that the suspension
will be re-imposed if Respondent
violates the cease and desist provisions
modified [sic] order in the future. The
Hearing Panel generally would be
required to respond to the request in
writing within 10 days after receipt of
the request. An application to modify,
set aside, limit or revoke a suspension
order would not stay the effectiveness of
the suspension order.
Finally, proposed paragraph (f) would
provide that sanctions issued under the
proposed Rule 12160 would constitute
final and immediately effective
disciplinary sanctions imposed by the
Exchange, and that the right to have any
action under the Rule reviewed by the
Commission would be governed by
Section 19 of the Act. The filing of an
application for review would not stay
the effectiveness of a suspension order
unless the Commission otherwise
ordered.
Rule 3220—Disruptive Quoting and
Trading Activity Prohibited
The Exchange currently has authority
to prohibit and take action against
manipulative trading activity, including
disruptive quoting and trading activity,
pursuant to its general market
manipulation rules, including Rules
3000, Just and Equitable Principles of
Trade, and 3050, Manipulation. The
Exchange proposes to adopt new Rule
3220, which would more specifically
define and prohibit disruptive quoting
and trading activity on the Exchange. As
noted above, the Exchange proposes to
apply the proposed suspension rules to
proposed Rule 3220.
Proposed Rule 3220 would prohibit
Option Participants from engaging in or
facilitating disruptive quoting and
trading activity on the Exchange, as
described in proposed Rule 3220(a)(1)
and (2), including acting in concert with
other persons to effect such activity. The
Exchange believes that it is necessary to
extend the prohibition to situations
when persons are acting in concert to
avoid a potential loophole where
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disruptive quoting and trading activity
is simply split between several brokers
or customers. The Exchange believes,
that with respect to persons acting in
concert perpetrating an abusive scheme,
it is important that the Exchange have
authority to act against the parties
perpetrating the abusive scheme,
whether it is one person or multiple
persons.
To provide proper context for the
situations in which the Exchange
proposes to utilize its proposed
authority, the Exchange believes it is
necessary to describe the types of
disruptive quoting and trading activity
that would cause the Exchange to use its
authority. Accordingly, the Exchange
proposes to adopt Rule 3220(a)(1) and
(2) providing additional details
regarding disruptive quoting and trading
activity. Proposed Rule 3220(a)(1)(i)
describes disruptive quoting and trading
activity containing many of the
elements indicative of layering. It would
describe disruptive quoting and trading
activity as a frequent pattern in which
the following facts are present: (i) A
party enters multiple limit orders on
one side of the market at various price
levels (the ‘‘Displayed Orders’’); and (ii)
following the entry of the Displayed
Orders, the level of supply and demand
for the security changes; and (iii) the
party enters one or more orders on the
opposite side of the market of the
Displayed Orders (the ‘‘Contra-Side
Orders’’) that are subsequently
executed; and (iv) following the
execution of the Contra-Side Orders, the
party cancels the Displayed Orders.
Proposed Rule 3220(a)(1)(ii) describes
disruptive quoting and trading activity
containing many of the elements
indicative of spoofing and would
describe disruptive quoting and trading
activity as a frequent pattern in which
the following facts are present: (i) a
party narrows the spread for a security
by placing an order inside the national
best bid or offer; and (ii) the party then
submits an order on the opposite side of
the market that executes against another
market participant that joined the new
inside market established by the order
described in proposed 3220(a)(1)(ii)(A)
that narrowed the spread. The Exchange
believes that the proposed descriptions
of disruptive quoting and trading
activity articulated in the rule are
consistent with the activities that have
been identified and described in the
client access cases described above. The
Exchange further believes that the
proposed descriptions will provide
Option Participants with clear
descriptions of disruptive quoting and
trading activity that will help them to
avoid engaging in such activities or
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allowing their clients to engage in such
activities.
The Exchange proposes to make clear
in proposed Rule 3220(a)(2), unless
otherwise indicated, the descriptions of
disruptive quoting and trading activity
do not require the facts to occur in a
specific order in order for the rule to
apply. For instance, with respect to the
pattern defined in proposed Rule
3220(a)(1)(i) it is of no consequence
whether a party first enters Displayed
Orders and then Contra-side Orders or
vice-versa. However, as proposed, it is
required for supply and demand to
change following the entry of the
Displayed Orders. The Exchange also
proposes to make clear that disruptive
quoting and trading activity includes a
pattern or practice in which some
portion of the disruptive quoting and
trading activity is conducted on the
Exchange and the other portions of the
disruptive quoting and trading activity
are conducted on one or more other
exchanges. The Exchange believes that
this authority is necessary to address
market participants who would
otherwise seek to avoid the prohibitions
of the proposed Rule by spreading their
activity amongst various execution
venues. In sum, proposed Rule 3220
coupled with proposed Rule 12160
would provide the Exchange with
authority to promptly act to prevent
disruptive quoting and trading activity
from continuing on the Exchange.
Below is an example of how the
proposed rule would operate.
Assume that through its surveillance
program, Exchange staff identifies a
pattern of potentially disruptive quoting
and trading activity. After an initial
investigation the Exchange would then
contact the Option Participant
responsible for the orders that caused
the activity to request an explanation of
the activity as well as any additional
relevant information, including the
source of the activity. If the Exchange
were to continue to see the same pattern
from the same Option Participant and
the source of the activity is the same or
has been previously identified as a
frequent source of disruptive quoting
and trading activity then the Exchange
could initiate an expedited suspension
proceeding by serving notice on the
Option Participant that would include
details regarding the alleged violations
as well as the proposed sanction. In
such a case the proposed sanction
would likely be to order the Option
Participant to cease and desist providing
access to the Exchange to the client that
is responsible for the disruptive quoting
and trading activity and to suspend
such Options Participant unless and
until such action is taken.
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The Options Participant would have
the opportunity to be heard in front of
a Hearing Panel at a hearing to be
conducted within 15 days of the notice.
If the Hearing Panel determined that the
violation alleged in the notice did not
occur or that the conduct or its
continuation would not have the
potential to result in significant market
disruption or other significant harm to
investors, then the Hearing Panel would
dismiss the suspension order
proceeding.
If the Hearing Panel determined that
the violation alleged in the notice did
occur and that the conduct or its
continuation is likely to result in
significant market disruption or other
significant harm to investors, then the
Hearing Panel would issue the order
including the proposed sanction,
ordering the Options Participant to
cease providing access to the client at
issue and suspending such Options
Participant unless and until such action
is taken. If such Option Participant
wished for the suspension to be lifted
because the client ultimately
responsible for the activity no longer
would be provided access to the
Exchange, then such Option Participant
could apply to the Hearing Panel to
have the order modified, set aside,
limited or revoked. The Exchange notes
that the issuance of a suspension order
would not alter the Exchange’s ability to
further investigate the matter and/or
later sanction the Options Participant
pursuant to the Exchange’s standard
disciplinary process for supervisory
violations or other violations of
Exchange rules or the Act.
The Exchange reiterates that it already
has broad authority to take action
against an Options Participant in the
event that such Options Participant is
engaging in or facilitating disruptive or
manipulative trading activity on the
Exchange. For the reasons described
above, and in light of recent cases like
the client access cases described above,
as well as other cases currently under
investigation, the Exchange believes that
it is equally important for the Exchange
to have the authority to promptly
initiate expedited suspension
proceedings against any Options
Participant who has demonstrated a
clear pattern or practice of disruptive
quoting and trading activity, as
described above, and to take action
including ordering such Options
Participant to terminate access to the
Exchange to one or more of such
Options Participant’s clients if such
clients are responsible for the activity.
The Exchange recognizes that its
proposed authority to issue a
suspension order is a powerful measure
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18:54 Dec 27, 2016
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that should be used very cautiously.
Consequently, the proposed rules have
been designed to ensure that the
proceedings are used to address only the
most clear and serious types of
disruptive quoting and trading activity
and that the interests of Respondents are
protected. For example, to ensure that
proceedings are used appropriately and
that the decision to initiate a proceeding
is made only at the highest staff levels,
the proposed rules require the CRO or
another senior officer of the Exchange to
issue written authorization before the
Exchange can institute an expedited
suspension proceeding. In addition, the
rule by its terms is limited to violations
of Rules [sic] 3220, when necessary to
protect investors, other Options
Participants and the Exchange. The
Exchange will initiate disciplinary
action for violations of Rule 3220,
pursuant to Rule 12160. Further, the
Exchange believes that the proposed
expedited suspension provisions
described above that provide the
opportunity to respond as well as a
Hearing Panel determination prior to
taking action will ensure that the
Exchange would not utilize its authority
in the absence of a clear pattern or
practice of disruptive quoting and
trading activity.
2. Statutory Basis
The Exchange believes that the
proposal is consistent with the
requirements of Section 6(b) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),10 in general, and Section 6(b)(5)
of the Act,11 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general to protect investors and the
public interest. Pursuant to the
proposal, the Exchange will have a
mechanism to promptly initiate
expedited suspension proceedings in
the event the Exchange believes that it
has sufficient proof that a violation of
Rule 3220 has occurred and is ongoing.
Further, the Exchange believes that
the proposal is consistent with Sections
6(b)(1) and 6(b)(6) of the Act,12 which
require that the rules of an exchange
enforce compliance with, and provide
appropriate discipline for, violations of
the Commission and Exchange rules.
10 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
12 15 U.S.C. 78f(b)(1) and 78f(b)(6).
11 15
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95717
The Exchange also believes that the
proposal is consistent with the public
interest, the protection of investors, or
otherwise in furtherance of the purposes
of the Act because the proposal helps to
strengthen the Exchange’s ability to
carry out its oversight and enforcement
responsibilities as a self-regulatory
organization in cases where awaiting the
conclusion of a full disciplinary
proceeding is unsuitable in view of the
potential harm to other Options
Participants and their customers. Also,
the Exchange notes that if this type of
conduct is allowed to continue on the
Exchange, the Exchange’s reputation
could be harmed because it may appear
to the public that the Exchange is not
acting to address the behavior. The
expedited process would enable the
Exchange to address the behavior with
greater speed.
As explained above, the Exchange
notes that it has defined the prohibited
disruptive quoting and trading activity
by modifying the traditional definitions
of layering and spoofing 13 to eliminate
an express intent element that would
not be proven on an expedited basis and
would instead require a thorough
investigation into the activity. As noted
throughout this filing, the Exchange
believes it is necessary for the
protection of investors to make such
modifications in order to adopt an
expedited process rather than allowing
disruptive quoting and trading activity
to occur for several years.
Through this proposal, the Exchange
does not intend to modify the
definitions of spoofing and layering that
have generally been used by the
Exchange and other regulators in
connection with actions like those cited
above. The Exchange believes that the
pattern of disruptive and allegedly
manipulative quoting and trading
activity was widespread across multiple
exchanges, and the Exchange, FINRA,
and other SROs identified clear patterns
of the behavior in 2007 and 2008 in the
equities markets.14 The Exchange
believes that this proposal will provide
the Exchange with the necessary means
to enforce against such behavior in an
expedited manner while providing
Options Participants with the necessary
due process. The Exchange believes that
its proposal is consistent with the Act
because it provides the Exchange with
the ability to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
13 See
supra, notes 5 and 6.
Section 3 herein, the Purpose section, for
examples of conduct referred to herein.
14 See
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sradovich on DSK3GMQ082PROD with NOTICES
investors and the public interest from
such ongoing behavior.
Further, the Exchange believes that
adopting a rule applicable to Options
Participants is consistent with the Act
because the Exchange believes that this
type of behavior should be prohibited
for all Options Participants. The type of
product should not be the determining
factor, rather the behavior which
challenges the market structure is the
primary concern for the Exchange.
While this behavior may not be as
prevalent on the options market today,
the Exchange does not believe that the
possibility of such behavior in the
future would not have the same market
impact and thereby warrant an
expedited process.
The Exchange further believes that the
proposal is consistent with Section
6(b)(7) of the Act,15 which requires that
the rules of an exchange ‘‘provide a fair
procedure for the disciplining of
members and persons associated with
members . . . and the prohibition or
limitation by the exchange of any
person with respect to access to services
offered by the exchange or a member
thereof.’’ Finally, the Exchange also
believes the proposal is consistent with
Sections 6(d)(1) and 6(d)(2) of the Act,16
which require that the rules of an
exchange with respect to a disciplinary
proceeding or proceeding that would
limit or prohibit access to or
membership in the exchange require the
exchange to: Provide adequate and
specific notice of the charges brought
against a member or person associated
with a member, provide an opportunity
to defend against such charges, keep a
record, and provide details regarding
the findings and applicable sanctions in
the event a determination to impose a
disciplinary sanction is made. The
Exchange believes that each of these
requirements is addressed by the notice
and due process provisions included
within Rule 12160. Importantly, as
noted above, the Exchange will use the
authority only in clear and egregious
cases when necessary to protect
investors, other Options Participants
and the Exchange, and in such cases,
the Respondent will be afforded due
process in connection with the
suspension proceedings.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. To the
15 15
U.S.C. 78f(b)(7).
78f(d)(1) and (d)(2).
18:54 Dec 27, 2016
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 comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 17 and Rule
19b–4(f)(6) thereunder.18 Because the
proposed rule change does not: (i)
significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
17 15
16 U.S.C.
VerDate Sep<11>2014
contrary, the Exchange believes that
each self-regulatory organization should
be empowered to regulate trading
occurring on its market consistent with
the Act and without regard to
competitive issues. The Exchange is
requesting authority to take appropriate
action if necessary for the protection of
investors, other Options Participants
and the Exchange. The Exchange also
believes that it is important for all
exchanges to be able to take similar
action to enforce their rules against
manipulative conduct thereby leaving
no exchange prey to such conduct. The
Exchange does not believe that the
proposed rule change imposes an undue
burden on competition, rather this
process will provide the Exchange with
the necessary means to enforce against
violations of manipulative quoting and
trading activity in an expedited manner,
while providing Options Participants
with the necessary due process. The
Exchange’s proposal would treat all
Options Participants in a uniform
manner with respect to the type of
disciplinary action that would be taken
for violations of manipulative quoting
and trading activity.
18 17
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PO 00000
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
Frm 00164
Fmt 4703
Sfmt 4703
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) 19 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–BOX–2016–59 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–BOX–2016–59. 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 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
19 15
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U.S.C. 78s(b)(2)(B).
28DEN1
Federal Register / Vol. 81, No. 249 / Wednesday, December 28, 2016 / Notices
information that you wish to make
available publicly. All submissions
should refer to File Number SR–BOX–
2016–59, and should be submitted on or
before January 18, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016–31307 Filed 12–27–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79642; File No. SR–
NYSEMKT–2016–118]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending Rule 123D—
Equities and the Listed Company
Manual
December 21, 2016.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on December
13, 2016, NYSE MKT LLC (the
‘‘Exchange’’ or ‘‘NYSE MKT’’) 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 selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
sradovich on DSK3GMQ082PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 123D—Equities and the Listed
Company Manual to eliminate the
requirement for Floor Official approval
for halts in trading. The proposed rule
change is available on the Exchange’s
Web site at www.nyse.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
20 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
VerDate Sep<11>2014
18:54 Dec 27, 2016
Jkt 241001
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those 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
The Exchange proposes to amend
Rule 123D—Equities and the Company
Guide to eliminate the requirement for
Floor Official 4 approval before halting
trading in a security. The Exchange
believes that in today’s trading
environment, the requirement for Floor
Official approval before halting trading
in a security is unnecessary and
duplicative of Exchange obligations to
assess whether to halt trading in a
security under Section 402 of the NYSE
MKT Company Guide.
Current Rule 123D(d)—Equities
provides that once trading has
commenced, trading may only be halted
with the approval of a Floor Governor
or two Floor Officials and that an
Executive Floor Governor, or in their
absence a Senior Floor Governor, should
be consulted if it is felt that trading
should be halted in a bank or brokerage
stock due to a potential misperception
regarding the company’s financial
viability.5 The rule further provides that
if a listed company notifies the
Exchange in advance of publication
concerning news which might have a
substantial market impact, the Exchange
should advise an Executive Floor
Governor or Floor Governor, or in their
absence, a Floor Official, and specifies
procedures for Floor Governors to
overrule the Exchange’s determination
that a security should be halted.
Commensurate with the evolution of
the equities markets and trading on the
Exchange towards more automated
processes, the procedures and situations
requiring approvals by Floor Officials
have also evolved. For example, the
Exchange previously eliminated the
ability of a Floor broker to seek an
4 ‘‘Floor Official’’ encompasses Floor Governor,
Floor Official, Executive Floor Governor and Senior
Floor Governor, as their responsibilities are
currently assigned in connection with trading halts.
See also Rules 46—Equities and 46A—Equities
defining Floor Governor, Floor Official, and
Executive Floor Governor.
5 See Rules 46—Equities and 46A—Equities
(defining the terms Floor Official, Senior Floor
Official, Executive Floor Official, Floor Governor,
and Executive Floor Governor).
PO 00000
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95719
exception to Rule 122—Equities
requirements if Floor Official
permission is obtained.6 In connection
with trading halts, the Exchange is
responsible for determining whether to
halt trading in a security under Section
402 of the Company Guide. Thus,
requiring Floor Official approval before
a trading halt can be invoked is an
unnecessary pro forma step rather than
a substantive requirement. Moreover,
obtaining Floor Governor approval adds
an extra manual step to the process,
which could impede the timely
dissemination of a trading halt. Finally,
given market fragmentation and highly
automated equities trading
environment, the Exchange does not
believe that Floor Governors, who do
not have contact with the listed
company, should be in a position to
override an Exchange determination to
halt trading in a security. Consequently,
the Exchange proposes to delete Rule
123D(d)—Equities in its entirety as
unnecessary and duplicative of existing
Exchange obligations specified in the
Company Guide.
The Exchange also proposes to make
a related change to Section 402 of the
Company Guide to delete a reference to
Rule 123D—Equities that would be
rendered obsolete by the proposed
deletion of Rule 123D(d)—Equities. In
addition, the Exchange also proposes to
make a related change to Section 404 of
the Company Guide to delete a reference
to a consultation with trading floor
officials that would be rendered
obsolete by the proposed deletion of
Rule 123D(d)—Equities. In addition, the
Exchange proposes to re-letter the
remaining subsections of Rule 123D—
Equities to account for the deletion of
Rule 123D(d)—Equities.
The Exchange proposes to make a
related change to eliminate the
requirement in Rule 123D(e)—Equities
that an ‘‘Equipment Changeover’’ halt in
trading requires the approval of a Floor
Governor or two Floor Officials as such
approval is no longer necessary. An
Equipment Changeover halt is a nonregulatory halt condition that only halts
trading on the Exchange. The Exchange
believes that if circumstances arise
warranting an Equipment Changeover
halt, obtaining Floor Official approval
before halting trading adds an
unnecessary step that is no longer
needed in today’s automated markets.
Because of the procedural changes
associated with the proposed rule
6 See also Securities Exchange Act Release No.
67346 (July 3, 2012), 77 FR 40671 (July 10, 2012)
(SR–NYSEMKT–2012–15) (notice of filing and
immediate effectiveness of proposed rule change
amending certain Exchange rules related to floor
official duties and responsibilities).
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]]>Agencies
[Federal Register Volume 81, Number 249 (Wednesday, December 28, 2016)]
[Notices]
[Pages 95713-95719]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31307]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79646; File No. SR-BOX-2016-59]
Self-Regulatory Organizations; BOX Options Exchange LLC; Notice
of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt
Rule 3220, Disruptive Quoting and Trading Activity Prohibited and Rule
12160, Expedited Suspension Proceeding
December 21, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 14, 2016, BOX Options Exchange LLC (``BOX'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt (i) BOX Rule 3220 (Disruptive
Quoting and Trading Activity Prohibited) to clearly prohibit disruptive
quoting and trading activity on the Exchange and (ii) BOX Rule 12160
(Expedited Suspension Proceeding) to permit the Exchange to take prompt
action to suspend Option Participants or their clients that violate
Rule 3220. The text of the proposed rule change is available from the
principal office of the Exchange, at the Commission's Public Reference
Room and also on the Exchange's Internet Web site at https://boxexchange.com.
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 self-regulatory organization
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 self-regulatory organization
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to adopt BOX Rule 3220 (Disruptive Quoting
and Trading Activity Prohibited) to clearly prohibit disruptive quoting
and trading activity on the Exchange and to adopt a new Exchange Rule
12160 (Expedited Suspension Proceeding), to permit the Exchange to take
prompt action to suspend Options Participants \3\ and their clients
that violate such rule.
---------------------------------------------------------------------------
\3\ The term ``Options Participant'' or ``Participant'' means a
firm, or organization that is registered with the Exchange pursuant
to the Rule 2000 Series for purposes of participating in options
trading on BOX as an ``Order Flow Provider'' or ``Market Maker''.
---------------------------------------------------------------------------
Background
As a national securities exchange registered pursuant to Section 6
of the Act, the Exchange is required to be organized and to have the
capacity to enforce compliance by its members and persons associated
with its members, with the Act, the rules and regulations
[[Page 95714]]
thereunder, and the Exchange's Rules. Further, the Exchange's Rules are
required to be ``designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade . . .
and, in general, to protect investors and the public interest.'' \4\ In
fulfilling these requirements, the Exchange has developed a
comprehensive regulatory program that includes automated surveillance
of trading activity that is both operated directly by Exchange staff
and by staff of the Financial Industry Regulatory Authority (``FINRA'')
pursuant to a Regulatory Services Agreement (``RSA''). When disruptive
and potentially manipulative or improper quoting and trading activity
is identified, the Exchange or FINRA (acting as an agent of the
Exchange) conducts an investigation into the activity, requesting
additional information from the Options Participant or Options
Participants involved. To the extent violations of the Act, the rules
and regulations thereunder, or Exchange Rules have been identified and
confirmed, the Exchange or FINRA as its agent will commence the
enforcement process, which might result in, among other things, a
censure, a requirement to take certain remedial actions, one or more
restrictions on future business activities, a monetary fine, or even a
temporary or permanent ban from the securities industry.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------
The process described above, from the identification of disruptive
and potentially manipulative or improper quoting and trading activity
to a final resolution of the matter, can often take several years. The
Exchange believes that this time period is generally necessary and
appropriate to afford the subject Options Participant adequate due
process, particularly in complex cases. However, as described below,
the Exchange believes that there are certain obvious and uncomplicated
cases of disruptive and manipulative behavior or cases where the
potential harm to investors is so large that the Exchange should have
the authority to initiate an expedited suspension proceeding in order
to stop the behavior from continuing on the Exchange.
In recent years, several cases have been brought and resolved by
the Exchange and other SROs that involved allegations of wide-spread
market manipulation, much of which was ultimately being conducted by
foreign persons and entities using relatively rudimentary technology to
access the markets and over which the Exchange and other SROs had no
direct jurisdiction. In each case, the conduct involved a pattern of
disruptive quoting and trading activity indicative of manipulative
layering \5\ or spoofing.\6\ The Exchange and other SROs were able to
identify the disruptive quoting and trading activity in real-time or
near real-time; nonetheless, in accordance with Exchange Rules and the
Act, the Members responsible for such conduct or responsible for their
customers' conduct were allowed to continue the disruptive quoting and
trading activity on the Exchange and other exchanges during the
entirety of the subsequent lengthy investigation and enforcement
process. The Exchange believes that it should have the authority to
initiate an expedited suspension proceeding in order to stop the
behavior from continuing on the Exchange if an Options Participant is
engaging in or facilitating disruptive quoting and trading activity and
the Options Participant has received sufficient notice with an
opportunity to respond, but such activity has not ceased.
---------------------------------------------------------------------------
\5\ ``Layering'' is a form of market manipulation in which
multiple, non-bona fide limit orders are entered on one side of the
market at various price levels in order to create the appearance of
a change in the levels of supply and demand, thereby artificially
moving the price of the security. An order is then executed on the
opposite side of the market at the artificially created price, and
the non-bona fide orders are cancelled.
\6\ ``Spoofing'' is a form of market manipulation that involves
the market manipulator placing non-bona fide orders that are
intended to trigger some type of market movement and/or response
from other market participants, from which the market manipulator
might benefit by trading bona fide orders.
---------------------------------------------------------------------------
The following two examples are instructive on the Exchange's
rationale for the proposed rule change.
In July 2012, Biremis Corp. (formerly Swift Trade Securities USA,
Inc.) (the ``Firm'') and its CEO were barred from the industry for,
among other things, supervisory violations related to a failure by the
Firm to detect and prevent disruptive and allegedly manipulative
trading activities, including layering, short sale violations, and
anti-money laundering violations.\7\ The Firm's sole business was to
provide trade execution services via a proprietary day trading platform
and order management system to day traders located in foreign
jurisdictions. Thus, the disruptive and allegedly manipulative trading
activity introduced by the Firm to U.S. markets originated directly or
indirectly from foreign clients of the Firm. The pattern of disruptive
and allegedly manipulative quoting and trading activity was widespread
across multiple exchanges, and the Exchange, FINRA, and other SROs
identified clear patterns of the behavior in 2007 and 2008. Although
the Firm and its principals were on notice of the disruptive and
allegedly manipulative quoting and trading activity that was occurring,
the Firm took little to no action to attempt to supervise or prevent
such quoting and trading activity until at least 2009. Even when it put
some controls in place, they were deficient and the pattern of
disruptive and allegedly manipulative trading activity continued to
occur. As noted above, the final resolution of the enforcement action
to bar the Firm and its CEO from the industry was not concluded until
2012, four years after the disruptive and allegedly manipulative
trading activity was first identified.
---------------------------------------------------------------------------
\7\ See Biremis Corp. and Peter Beck, FINRA Letter of
Acceptance, Waiver and Consent No. 2010021162202, July 30, 2012.
---------------------------------------------------------------------------
In September of 2012, Hold Brothers On-Line Investment Services,
Inc. (the ``Firm'') settled a regulatory action in connection with the
Firm's provision of a trading platform, trade software and trade
execution, support and clearing services for day traders.\8\ Many
traders using the Firm's services were located in foreign
jurisdictions. The Firm ultimately settled the action with FINRA and
several exchanges, including the Exchange, for a total monetary fine of
$3.4 million. In a separate action, the Firm settled with the
Commission for a monetary fine of $2.5 million.\9\ Among the alleged
violations in the case were disruptive and allegedly manipulative
quoting and trading activity, including spoofing, layering, wash
trading, and pre-arranged trading. Through its conduct and insufficient
procedures and controls, the Firm also allegedly committed anti-money
laundering violations by failing to detect and report manipulative and
suspicious trading activity. The Firm was alleged to have not only
provided foreign traders with access to the U.S. markets to engage in
such activities, but that [sic] its principals also owned and funded
foreign subsidiaries that engaged in the disruptive and allegedly
manipulative quoting and trading activity. Although the pattern of
disruptive and allegedly manipulative quoting and trading activity was
identified in 2009, as noted above, the enforcement action was not
concluded until 2012. Thus, although disruptive and allegedly
manipulative
[[Page 95715]]
quoting and trading was promptly detected, it continued for several
years.
---------------------------------------------------------------------------
\8\ See Hold Brothers On-Line Investment Services, LLC, FINRA
Letter of Acceptance, Waiver and Consent No. 2010023771001,
September 25, 2012.
\9\ In the Matter of Hold Brothers On-Line Investment Services,
LLC, Exchange Act Release No. 67924, September 25, 2012.
---------------------------------------------------------------------------
The Exchange also notes the criminal proceedings against Navinder
Singh Sarao. Mr. Sarao's for [sic] manipulative trading activity, which
included forms of layering and spoofing in the futures markets, which
has been linked as a contributing factor to the ``Flash Crash'' of
2010, and yet continued through 2015.
The Exchange believes that the activities described in the cases
above provide justification for the proposed rule change, which is
described below. In addition, while the examples provided are related
to the equities market, the Exchange believes that this type of conduct
should be prohibited for options as well. The Exchange believes that
these patterns of disruptive and allegedly manipulative quoting and
trading activity need to be addressed and the product should not limit
the action taken by the Exchange.
Rule 12160--Expedited Suspension Proceeding
The Exchange proposes to adopt new Rule 12160, titled ``Expedited
Suspension Proceeding,'' to set forth procedures for issuing suspension
orders, immediately prohibiting an Options Participant from conducting
continued disruptive quoting and trading activity on the Exchange.
Importantly, these procedures would also provide the Exchange the
authority to order an Options Participant to cease and desist from
providing access to the Exchange to a client of the Options Participant
that is conducting disruptive quoting and trading activity in violation
of proposed Rule 3220. Proposed Rule 3220 would be titled, ``Disruptive
Quoting and Trading Activity Prohibited.'' Under proposed paragraph (a)
of Rule 12160, with the prior written authorization of the Chief
Regulatory Officer (``CRO'') or such other senior officers as the CRO
may designate, the Office of General Counsel or Regulatory Department
of the Exchange (such departments generally referred to as the
``Exchange'' for purposes of proposed Rule 12160) may initiate an
expedited suspension proceeding with respect to alleged violations of
Rule 3220, which is proposed as part of this filing and described in
detail below. Proposed paragraph (a) would also set forth the
requirements for notice and service of such notice pursuant to the
Rule, including the required method of service and the content of
notice.
Proposed paragraph (b) of Rule 12160 would govern the appointment
of a Hearing Panel as well as potential disqualification or recusal of
Panel Members. The proposed provision is consistent with existing
Exchange Rule 12060(a). The proposed rule provides for a Panel Member
to be recused in the event he or she has a conflict of interest or bias
or other circumstances exist where his or her fairness might reasonably
be questioned in accordance with Rules [sic]12160(b)(2). In addition to
recusal initiated by such a Panel Member, a party to the proceeding
will be permitted to file a motion to disqualify a Panel Member.
However, due to the compressed schedule pursuant to which the process
would operate under Rule 12160, the proposed rule would require such
motion to be filed no later than 5 days after the announcement of the
Hearing Panel and the Exchange's brief in opposition to such motion
would be required to be filed no later than 5 days after service
thereof. Pursuant to existing Rule 12060(a)(3), any time a person
serving on a Panel has a conflict of interest or bias or circumstances
otherwise exist where his fairness might be reasonably questioned, the
person must withdraw from the Panel. The applicable Panel Member shall
remove himself or herself and the Panel Chairman may request the
Chairman of the Hearing Committee to select a replacement such that the
Hearing Panel still meets the compositional requirements described in
Rule 12060(a).
Under paragraph (c) of the proposed Rule, the hearing would be held
not later than 15 days after service of the notice initiating the
suspension proceeding, unless otherwise extended by the Chairman of the
Hearing Panel with the consent of the Parties for good cause shown. In
the event of a recusal or disqualification of a Panel Member, the
hearing shall be held not later than five days after a replacement
Panel Member is appointed. Proposed paragraph (c) would also govern how
the hearing is conducted, including the authority of Panel Members,
witnesses, additional information that may be required by the Hearing
Panel, the requirement that a transcript of the proceeding be created
and details related to such transcript, and details regarding the
creation and maintenance of the record of the proceeding. Proposed
paragraph (c) would also state that if a Respondent fails to appear at
a hearing for which it has notice, the allegations in the notice and
accompanying declaration may be deemed admitted, and the Hearing Panel
may issue a suspension order without further proceedings. Finally, as
proposed, if the Exchange fails to appear at a hearing for which it has
notice, the Hearing Panel may order that the suspension proceeding be
dismissed.
Under paragraph (d) of the proposed Rule, the Hearing Panel would
be required to issue a written decision stating whether a suspension
order would be imposed. The Hearing Panel would be required to issue
the decision not later than 10 days after receipt of the hearing
transcript, unless otherwise extended by the Chairman of the Hearing
Panel with the consent of the Parties for good cause shown. The Rule
would state that a suspension order shall be imposed if the Hearing
Panel finds by a preponderance of the evidence that the alleged
violation specified in the notice has occurred and that the violative
conduct or continuation thereof is likely to result in significant
market disruption or other significant harm to investors.
Proposed paragraph (d) would also describe the content, scope and
form of a suspension order. As proposed, a suspension order shall be
limited to ordering a Respondent to cease and desist from violating
proposed Rule 3220 and/or to ordering a Respondent to cease and desist
from providing access to the Exchange to a client of Respondent that is
causing violations of Rule 3220. Under the proposed rule, a suspension
order shall also set forth the alleged violation and the significant
market disruption or other significant harm to investors that is likely
to result without the issuance of an order. The order shall describe in
reasonable detail the act or acts the Respondent is to take or refrain
from taking, and suspend such Respondent unless and until such action
is taken or refrained from. Finally, the order shall include the date
and hour of its issuance. As proposed, a suspension order would remain
effective and enforceable unless modified, set aside, limited, or
revoked pursuant to proposed paragraph (e), as described below.
Finally, paragraph (d) would require service of the Hearing Panel's
decision and any suspension order consistent with other portions of the
proposed rule related to service.
Proposed paragraph (e) of Rule 12160 would state that at any time
after the Hearing Panel served the Respondent with a suspension order,
a Party could apply to the Hearing Panel to have the order modified,
set aside, limited, or revoked. If any part of a suspension order is
modified, set aside, limited, or revoked, proposed paragraph (e) of
Rule 12160 provides the Hearing Panel discretion to leave the cease and
desist part of the order in place. For example, if a suspension order
suspends Respondent unless and until Respondent ceases and desists
[[Page 95716]]
providing access to the Exchange to a client of Respondent, and after
the order is entered the Respondent complies, the Hearing Panel is
permitted to modify the order to lift the suspension portion of the
order while keeping in place the cease and desist portion of the order.
With its broad modification powers, the Hearing Panel also maintains
the discretion to impose conditions upon the removal of a suspension--
for example, the Hearing Panel could modify an order to lift the
suspension portion of the order in the event a Respondent complies with
the cease and desist portion of the order but additionally order that
the suspension will be re-imposed if Respondent violates the cease and
desist provisions modified [sic] order in the future. The Hearing Panel
generally would be required to respond to the request in writing within
10 days after receipt of the request. An application to modify, set
aside, limit or revoke a suspension order would not stay the
effectiveness of the suspension order.
Finally, proposed paragraph (f) would provide that sanctions issued
under the proposed Rule 12160 would constitute final and immediately
effective disciplinary sanctions imposed by the Exchange, and that the
right to have any action under the Rule reviewed by the Commission
would be governed by Section 19 of the Act. The filing of an
application for review would not stay the effectiveness of a suspension
order unless the Commission otherwise ordered.
Rule 3220--Disruptive Quoting and Trading Activity Prohibited
The Exchange currently has authority to prohibit and take action
against manipulative trading activity, including disruptive quoting and
trading activity, pursuant to its general market manipulation rules,
including Rules 3000, Just and Equitable Principles of Trade, and 3050,
Manipulation. The Exchange proposes to adopt new Rule 3220, which would
more specifically define and prohibit disruptive quoting and trading
activity on the Exchange. As noted above, the Exchange proposes to
apply the proposed suspension rules to proposed Rule 3220.
Proposed Rule 3220 would prohibit Option Participants from engaging
in or facilitating disruptive quoting and trading activity on the
Exchange, as described in proposed Rule 3220(a)(1) and (2), including
acting in concert with other persons to effect such activity. The
Exchange believes that it is necessary to extend the prohibition to
situations when persons are acting in concert to avoid a potential
loophole where disruptive quoting and trading activity is simply split
between several brokers or customers. The Exchange believes, that with
respect to persons acting in concert perpetrating an abusive scheme, it
is important that the Exchange have authority to act against the
parties perpetrating the abusive scheme, whether it is one person or
multiple persons.
To provide proper context for the situations in which the Exchange
proposes to utilize its proposed authority, the Exchange believes it is
necessary to describe the types of disruptive quoting and trading
activity that would cause the Exchange to use its authority.
Accordingly, the Exchange proposes to adopt Rule 3220(a)(1) and (2)
providing additional details regarding disruptive quoting and trading
activity. Proposed Rule 3220(a)(1)(i) describes disruptive quoting and
trading activity containing many of the elements indicative of
layering. It would describe disruptive quoting and trading activity as
a frequent pattern in which the following facts are present: (i) A
party enters multiple limit orders on one side of the market at various
price levels (the ``Displayed Orders''); and (ii) following the entry
of the Displayed Orders, the level of supply and demand for the
security changes; and (iii) the party enters one or more orders on the
opposite side of the market of the Displayed Orders (the ``Contra-Side
Orders'') that are subsequently executed; and (iv) following the
execution of the Contra-Side Orders, the party cancels the Displayed
Orders.
Proposed Rule 3220(a)(1)(ii) describes disruptive quoting and
trading activity containing many of the elements indicative of spoofing
and would describe disruptive quoting and trading activity as a
frequent pattern in which the following facts are present: (i) a party
narrows the spread for a security by placing an order inside the
national best bid or offer; and (ii) the party then submits an order on
the opposite side of the market that executes against another market
participant that joined the new inside market established by the order
described in proposed 3220(a)(1)(ii)(A) that narrowed the spread. The
Exchange believes that the proposed descriptions of disruptive quoting
and trading activity articulated in the rule are consistent with the
activities that have been identified and described in the client access
cases described above. The Exchange further believes that the proposed
descriptions will provide Option Participants with clear descriptions
of disruptive quoting and trading activity that will help them to avoid
engaging in such activities or allowing their clients to engage in such
activities.
The Exchange proposes to make clear in proposed Rule 3220(a)(2),
unless otherwise indicated, the descriptions of disruptive quoting and
trading activity do not require the facts to occur in a specific order
in order for the rule to apply. For instance, with respect to the
pattern defined in proposed Rule 3220(a)(1)(i) it is of no consequence
whether a party first enters Displayed Orders and then Contra-side
Orders or vice-versa. However, as proposed, it is required for supply
and demand to change following the entry of the Displayed Orders. The
Exchange also proposes to make clear that disruptive quoting and
trading activity includes a pattern or practice in which some portion
of the disruptive quoting and trading activity is conducted on the
Exchange and the other portions of the disruptive quoting and trading
activity are conducted on one or more other exchanges. The Exchange
believes that this authority is necessary to address market
participants who would otherwise seek to avoid the prohibitions of the
proposed Rule by spreading their activity amongst various execution
venues. In sum, proposed Rule 3220 coupled with proposed Rule 12160
would provide the Exchange with authority to promptly act to prevent
disruptive quoting and trading activity from continuing on the
Exchange.
Below is an example of how the proposed rule would operate.
Assume that through its surveillance program, Exchange staff
identifies a pattern of potentially disruptive quoting and trading
activity. After an initial investigation the Exchange would then
contact the Option Participant responsible for the orders that caused
the activity to request an explanation of the activity as well as any
additional relevant information, including the source of the activity.
If the Exchange were to continue to see the same pattern from the same
Option Participant and the source of the activity is the same or has
been previously identified as a frequent source of disruptive quoting
and trading activity then the Exchange could initiate an expedited
suspension proceeding by serving notice on the Option Participant that
would include details regarding the alleged violations as well as the
proposed sanction. In such a case the proposed sanction would likely be
to order the Option Participant to cease and desist providing access to
the Exchange to the client that is responsible for the disruptive
quoting and trading activity and to suspend such Options Participant
unless and until such action is taken.
[[Page 95717]]
The Options Participant would have the opportunity to be heard in
front of a Hearing Panel at a hearing to be conducted within 15 days of
the notice. If the Hearing Panel determined that the violation alleged
in the notice did not occur or that the conduct or its continuation
would not have the potential to result in significant market disruption
or other significant harm to investors, then the Hearing Panel would
dismiss the suspension order proceeding.
If the Hearing Panel determined that the violation alleged in the
notice did occur and that the conduct or its continuation is likely to
result in significant market disruption or other significant harm to
investors, then the Hearing Panel would issue the order including the
proposed sanction, ordering the Options Participant to cease providing
access to the client at issue and suspending such Options Participant
unless and until such action is taken. If such Option Participant
wished for the suspension to be lifted because the client ultimately
responsible for the activity no longer would be provided access to the
Exchange, then such Option Participant could apply to the Hearing Panel
to have the order modified, set aside, limited or revoked. The Exchange
notes that the issuance of a suspension order would not alter the
Exchange's ability to further investigate the matter and/or later
sanction the Options Participant pursuant to the Exchange's standard
disciplinary process for supervisory violations or other violations of
Exchange rules or the Act.
The Exchange reiterates that it already has broad authority to take
action against an Options Participant in the event that such Options
Participant is engaging in or facilitating disruptive or manipulative
trading activity on the Exchange. For the reasons described above, and
in light of recent cases like the client access cases described above,
as well as other cases currently under investigation, the Exchange
believes that it is equally important for the Exchange to have the
authority to promptly initiate expedited suspension proceedings against
any Options Participant who has demonstrated a clear pattern or
practice of disruptive quoting and trading activity, as described
above, and to take action including ordering such Options Participant
to terminate access to the Exchange to one or more of such Options
Participant's clients if such clients are responsible for the activity.
The Exchange recognizes that its proposed authority to issue a
suspension order is a powerful measure that should be used very
cautiously. Consequently, the proposed rules have been designed to
ensure that the proceedings are used to address only the most clear and
serious types of disruptive quoting and trading activity and that the
interests of Respondents are protected. For example, to ensure that
proceedings are used appropriately and that the decision to initiate a
proceeding is made only at the highest staff levels, the proposed rules
require the CRO or another senior officer of the Exchange to issue
written authorization before the Exchange can institute an expedited
suspension proceeding. In addition, the rule by its terms is limited to
violations of Rules [sic] 3220, when necessary to protect investors,
other Options Participants and the Exchange. The Exchange will initiate
disciplinary action for violations of Rule 3220, pursuant to Rule
12160. Further, the Exchange believes that the proposed expedited
suspension provisions described above that provide the opportunity to
respond as well as a Hearing Panel determination prior to taking action
will ensure that the Exchange would not utilize its authority in the
absence of a clear pattern or practice of disruptive quoting and
trading activity.
2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Securities Exchange Act of 1934
(the ``Act''),\10\ in general, and Section 6(b)(5) of the Act,\11\ in
particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general to protect investors and the
public interest. Pursuant to the proposal, the Exchange will have a
mechanism to promptly initiate expedited suspension proceedings in the
event the Exchange believes that it has sufficient proof that a
violation of Rule 3220 has occurred and is ongoing.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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Further, the Exchange believes that the proposal is consistent with
Sections 6(b)(1) and 6(b)(6) of the Act,\12\ which require that the
rules of an exchange enforce compliance with, and provide appropriate
discipline for, violations of the Commission and Exchange rules. The
Exchange also believes that the proposal is consistent with the public
interest, the protection of investors, or otherwise in furtherance of
the purposes of the Act because the proposal helps to strengthen the
Exchange's ability to carry out its oversight and enforcement
responsibilities as a self-regulatory organization in cases where
awaiting the conclusion of a full disciplinary proceeding is unsuitable
in view of the potential harm to other Options Participants and their
customers. Also, the Exchange notes that if this type of conduct is
allowed to continue on the Exchange, the Exchange's reputation could be
harmed because it may appear to the public that the Exchange is not
acting to address the behavior. The expedited process would enable the
Exchange to address the behavior with greater speed.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
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As explained above, the Exchange notes that it has defined the
prohibited disruptive quoting and trading activity by modifying the
traditional definitions of layering and spoofing \13\ to eliminate an
express intent element that would not be proven on an expedited basis
and would instead require a thorough investigation into the activity.
As noted throughout this filing, the Exchange believes it is necessary
for the protection of investors to make such modifications in order to
adopt an expedited process rather than allowing disruptive quoting and
trading activity to occur for several years.
---------------------------------------------------------------------------
\13\ See supra, notes 5 and 6.
---------------------------------------------------------------------------
Through this proposal, the Exchange does not intend to modify the
definitions of spoofing and layering that have generally been used by
the Exchange and other regulators in connection with actions like those
cited above. The Exchange believes that the pattern of disruptive and
allegedly manipulative quoting and trading activity was widespread
across multiple exchanges, and the Exchange, FINRA, and other SROs
identified clear patterns of the behavior in 2007 and 2008 in the
equities markets.\14\ The Exchange believes that this proposal will
provide the Exchange with the necessary means to enforce against such
behavior in an expedited manner while providing Options Participants
with the necessary due process. The Exchange believes that its proposal
is consistent with the Act because it provides the Exchange with the
ability to remove impediments to and perfect the mechanism of a free
and open market and a national market system, and, in general to
protect
[[Page 95718]]
investors and the public interest from such ongoing behavior.
---------------------------------------------------------------------------
\14\ See Section 3 herein, the Purpose section, for examples of
conduct referred to herein.
---------------------------------------------------------------------------
Further, the Exchange believes that adopting a rule applicable to
Options Participants is consistent with the Act because the Exchange
believes that this type of behavior should be prohibited for all
Options Participants. The type of product should not be the determining
factor, rather the behavior which challenges the market structure is
the primary concern for the Exchange. While this behavior may not be as
prevalent on the options market today, the Exchange does not believe
that the possibility of such behavior in the future would not have the
same market impact and thereby warrant an expedited process.
The Exchange further believes that the proposal is consistent with
Section 6(b)(7) of the Act,\15\ which requires that the rules of an
exchange ``provide a fair procedure for the disciplining of members and
persons associated with members . . . and the prohibition or limitation
by the exchange of any person with respect to access to services
offered by the exchange or a member thereof.'' Finally, the Exchange
also believes the proposal is consistent with Sections 6(d)(1) and
6(d)(2) of the Act,\16\ which require that the rules of an exchange
with respect to a disciplinary proceeding or proceeding that would
limit or prohibit access to or membership in the exchange require the
exchange to: Provide adequate and specific notice of the charges
brought against a member or person associated with a member, provide an
opportunity to defend against such charges, keep a record, and provide
details regarding the findings and applicable sanctions in the event a
determination to impose a disciplinary sanction is made. The Exchange
believes that each of these requirements is addressed by the notice and
due process provisions included within Rule 12160. Importantly, as
noted above, the Exchange will use the authority only in clear and
egregious cases when necessary to protect investors, other Options
Participants and the Exchange, and in such cases, the Respondent will
be afforded due process in connection with the suspension proceedings.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(b)(7).
\16\ U.S.C. 78f(d)(1) and (d)(2).
---------------------------------------------------------------------------
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, the Exchange
believes that each self-regulatory organization should be empowered to
regulate trading occurring on its market consistent with the Act and
without regard to competitive issues. The Exchange is requesting
authority to take appropriate action if necessary for the protection of
investors, other Options Participants and the Exchange. The Exchange
also believes that it is important for all exchanges to be able to take
similar action to enforce their rules against manipulative conduct
thereby leaving no exchange prey to such conduct. The Exchange does not
believe that the proposed rule change imposes an undue burden on
competition, rather this process will provide the Exchange with the
necessary means to enforce against violations of manipulative quoting
and trading activity in an expedited manner, while providing Options
Participants with the necessary due process. The Exchange's proposal
would treat all Options Participants in a uniform manner with respect
to the type of disciplinary action that would be taken for violations
of manipulative quoting and trading activity.
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 comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \17\ and Rule 19b-4(f)(6) thereunder.\18\
Because the proposed rule change does not: (i) significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78s(b)(3)(A)(iii).
\18\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of 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) \19\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
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-BOX-2016-59 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BOX-2016-59. 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 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
[[Page 95719]]
information that you wish to make available publicly. All submissions
should refer to File Number SR-BOX-2016-59, and should be submitted on
or before January 18, 2017.
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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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-31307 Filed 12-27-16; 8:45 am]
BILLING CODE 8011-01-P
