Self-Regulatory Organizations: Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Rules Pertaining to Certain Listing Regulatory Reporting and Operational Requirements, 54425-54430 [2017-24930]
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Federal Register / Vol. 82, No. 221 / Friday, November 17, 2017 / Notices
to determine concentration limits and to
clarify certain other matters relating to
calculation of haircuts and limits. The
amendments also enhance the
governance process around the
Collateral and Haircut Policy. In ICE
Clear Europe’s view, the amendments
will help ICE Clear Europe more clearly
determine the liquidity of relevant
bonds, which in turn will facilitate
establishment of accurate concentration
limits. As a result, ICE Clear Europe
believes the amendments are consistent
with the requirements of Section
17A(b)(3)(F) 6 of the Act. In addition, for
the foregoing reasons, the amendments
will facilitate setting and enforcing
appropriately conservative haircuts and
concentration limits, and provide for a
review of the sufficiency of such
haircuts and limits not less than
annually, within the meaning of Rule
17Ad–22(e)(5).7
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(B) Clearing Agency’s Statement on
Burden on Competition
ICE Clear Europe does not believe the
proposed changes to the rules would
have any impact, or impose any burden,
on competition not necessary or
appropriate in furtherance of the
purpose of the Act. ICE Clear Europe is
adopting the amendments to the
Collateral and Haircut Policy in order to
enhance the calculations of
concentration limits and haircuts and
make certain other governance and
related enhancements to the Collateral
and Haircut Policy. The amendments
will apply to all Clearing Members and
products. ICE Clear Europe does not
believe the amendments would
materially affect the cost of clearing,
adversely affect access to clearing in
these products for Clearing Members or
their customers, or otherwise adversely
affect competition in clearing services.
Although the amendments may change
the haircuts or concentration limits for
particular bonds, which may affect the
costs and benefits of using those bonds
as collateral, ICE Clear Europe believe
that such changes are appropriate in
light of the risk management
enhancements provided by the revised
policy. As a result, ICE Clear Europe
believes that any impact or burden on
competition from such amendments
would be appropriate in furtherance of
the purpose of the Act.
6 15
7 17
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(e)(5).
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(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants or Others
Written comments relating to the
proposed changes to the rules have not
been solicited or received. ICE Clear
Europe will notify the Commission of
any written comments received by ICE
Clear Europe.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml) or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
ICEEU–2017–011 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–ICEEU–2017–011. 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
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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 ICE Clear Europe and on ICE
Clear Europe’s Web site at https://www.
theice.com/notices/Notices.shtml
?regulatoryFilings.
All comments received will be posted
without change. Persons submitting
comments are cautioned that we do not
redact or edit personal identifying
information from comment submissions.
You should submit only information
that you wish to make available
publicly. All submissions should refer
to File Number SR–ICEEU–2017–011
and should be submitted on or before
December 8, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.8
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–24935 Filed 11–16–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82058; File No. SR–IEX–
2017–39]
Self-Regulatory Organizations:
Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Adopt Rules
Pertaining to Certain Listing
Regulatory Reporting and Operational
Requirements
November 13, 2017.
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 October
31, 2017, the Investors Exchange LLC
(‘‘IEX’’ or the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
8 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 82, No. 221 / Friday, November 17, 2017 / Notices
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
Pursuant to the provisions of Section
19(b)(1) under the Securities Exchange
Act of 1934 (‘‘Act’’),4 and Rule 19b–4
thereunder,5 Investors Exchange LLC
(‘‘IEX’’ or ‘‘Exchange’’) is filing with the
Commission a proposed rule change to
adopt rules pertaining to certain listing
regulatory reporting and operational
requirements. The Exchange has
designated this proposal as noncontroversial and provided the
Commission with the notice required by
Rule 19b–4(f)(6)(iii) under the Act.6 The
text of the proposed rule change is
available at the Exchange’s Web site at
www.iextrading.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 the
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 statement [sic] 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
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1. Purpose
On June 17, 2016 the Commission
granted IEX’s application for registration
as a national securities exchange under
Section 6 of the Act including approval
of rules applicable to the qualification,
listing and delisting of companies on
the Exchange.7 The Exchange plans to
begin a listing program in 2017 and is
proposing to adopt rules pertaining to
certain listing regulatory reporting and
operational requirements, as described
below.
4 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
6 17 CFR 240.19b–4(f)(6)(iii).
7 See Securities Exchange Act Release No. 34–
78101 (June 17, 2016), 81 FR 41141 (June 23, 2016)
(File No. 10–222).
5 17
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Short-Interest Reporting
The Financial Industry Regulatory
Authority (‘‘FINRA’’), the Nasdaq Stock
Market (‘‘Nasdaq’’) and the New York
Stock Exchange (‘‘NYSE’’) each have
rules requiring that members of such
self-regulatory organization (‘‘SRO’’)
record and report specified short
positions in all customer and
proprietary accounts.8 This data is also
referred to as short interest. In the case
of Nasdaq, the recording and reporting
requirements apply to positions in
securities listed on Nasdaq, while the
FINRA and NYSE rules apply to all
equity securities. The FINRA, Nasdaq
and NYSE rules each require reporting
on a bi-monthly basis by their member
firms. FINRA, NYSE and Nasdaq firms
provide their short position reports to
FINRA through the Firm Gateway.9
Firms must report their mid-month
short positions as of the close of
business on the settlement date of the
15th of each month, or, where the 15th
is a non-settlement date, on the
preceding settlement date. Firms must
report their end-of-month short
positions as of the close of business on
the last business day of the month on
which transactions settle pursuant to
FINRA and exchange rules. Both reports
must be received by FINRA no later
than the second business day after the
reporting settlement date.
FINRA consolidates the short position
reports submitted by each firm, and
provides such reports to the relevant
listing exchange for each listed security
(i.e., NYSE, Nasdaq and Bats BZX
Exchange, Inc. (‘‘Bats’’)). In order to
provide transparency 10 regarding
aggregate short interest in equities
securities, the listing exchanges publish
the consolidated short interest data
seven business days after the reporting
settlement date. Similarly, FINRA
publishes consolidated short interest
data for securities that are not listed on
an exchange on the same time frame.
Short interest data is also used by
FINRA for regulatory purposes,
including to assess compliance with
Regulation SHO.
8 See FINRA Rule 4560, Nasdaq Rule 3360, and
NYSE Rule 4560.
9 FINRA members are required to report short
interest positions through a web-based interface
which is accessible via the Firm Gateway. See,
Regulatory Notice 16–32 entitled ‘‘Short Interest
Reporting’’ accessible at https://www.finra.org/sites/
default/files/notice_doc_file_ref/Regulatory-Notice16-32.pdf.
10 Short interest reporting and publication began
in 1986 in connection with a study and
recommendation by Irving M. Pollack (a former
Commissioner of the SEC) on behalf of the National
Association of Securities Dealers, Inc., the
predecessor to FINRA.
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IEX proposes to adopt a comparable
rule requiring short interest recording
and reporting in securities listed on IEX
by Members. Specifically, IEX proposes
to adopt new Rule 3.293, entitled ShortInterest Reporting, that requires IEX
Members, to the extent such information
is not otherwise reported to FINRA in
conformance with FINRA Rule 4560, to
comply with FINRA Rule 4560 with
respect to securities listed on IEX, as if
such rule were part of IEX’s rules, and
to report required information in the
form and manner specified by IEX.
Thus, as proposed, IEX Members are
subject to the following requirements:
(a) Each Member shall maintain a record of
total ‘‘short’’ positions in all customer and
proprietary firm accounts in securities listed
on IEX 11 and shall regularly report such
information to FINRA in such a manner as
may be prescribed by IEX. Reports shall be
received by FINRA no later than the second
business day after the reporting settlement
date designated by IEX.
(b) Members shall record and report all
gross short positions existing in each
individual firm or customer account,
including the account of a broker-dealer, that
resulted from (1) a ‘‘short sale’’, as that term
is defined in Rule 200(a) of SEC Regulation
SHO, or (2) where the transaction(s) that
caused the short position was marked ‘‘long,’’
consistent with SEC Regulation SHO, due to
the firm’s or the customer’s net long position
at the time of the transaction. Members shall
report only those short positions resulting
from short sales that have settled or reached
settlement date by the close of the reporting
settlement date designated by IEX.
(c) The recording and reporting
requirements shall not apply to:
(1) Any sale by any person, for an account
in which he has an interest, if such person
owns the security sold and intends to deliver
such security as soon as is possible without
undue inconvenience or expense; and
(2) any sale by an underwriter, or any
member of a syndicate or group participating
in the distribution of a security, in
connection with an over-allotment of
securities, or any lay-off sale by such a
person in connection with a distribution of
securities through rights or a standby
underwriting commitment.
While FINRA Rule 4560 requires such
recording and reporting in all equity
securities, not all IEX Members are also
members of FINRA. Therefore, the
Exchange believes that with the launch
of its listing program, it is appropriate
to add an IEX rule requiring recording
and reporting of short interest positions
11 FINRA Rule 4560(a) provides that the short
interest recording and reporting requirements are
not applicable to Restricted Equity Securities, as
defined in FINRA Rule 6420 which further
references the definition of ‘‘restricted security’’ in
Rule 144(a)(3) under the Securities Act of 1933.
Restricted securities are not eligible for listing on
IEX since they are subject to trading restrictions, so
this limitation is not necessary for inclusion in IEX
Rule 3.293.
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Federal Register / Vol. 82, No. 221 / Friday, November 17, 2017 / Notices
in securities listed on IEX, so that IEX
Members that are not FINRA members
are subject to such requirements and
their short positions in IEX listed
securities will be consolidated for
publication and available to FINRA for
regulatory purposes.
Further, as proposed, IEX Rule 3.293
specifies that information required to be
reported pursuant to FINRA Rule 4560
shall be reported to IEX in the form and
manner specified by IEX.12 As
proposed, IEX Rule 3.293 is
substantially similar to FINRA Rule
4560 except that Members are only
required to record and report short
positions in securities listed on IEX.
This limitation is substantially similar
to Nasdaq Rule 3360, which also limits
short interest reporting to securities
listed on Nasdaq.13
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Notification Requirements for Offering
Participants
SEC Regulation M is designed to
prevent manipulation by individuals
with an interest in the outcome of an
offering of securities, and prohibits
activities and conduct that could
artificially influence the market for an
offered security.14 Regulation M
generally prohibits underwriters,
broker-dealers, issuers and other
persons participating in a distribution
from directly or indirectly bidding for or
purchasing the offered security (or
inducing another person to do so)
during the applicable ‘‘restricted
period,’’ 15 which commences on the
later of one or five business days prior
to determination of the offering price 16
or such time that a person becomes a
distribution participant, and ends upon
such person’s completion of
participation in the distribution.
Regulation M also governs certain
market activities (i.e., stabilizing bids,
syndicate covering transactions and
12 IEX Members will use the FINRA Gateway to
report short interest positions. IEX believes that
virtually all IEX Members already have access to the
FINRA Firm Gateway. To the extent there are any
Members that do not already have access, FINRA
will provide such Members with access to the Firm
Gateway. Following effectiveness of this rule
change, and prior to listing launch, IEX will
disseminate a notice to Members advising of the
reporting process and timelines.
13 See Nasdaq Rule 3360(a).
14 See Securities Exchange Act Release No. 38067
(December 20, 1996), 62 FR 520 (January 3, 1997)
(File No. S7–11–96) (Anti-Manipulation Rules
Concerning Securities Offerings; Final Rules). See
also generally SEC Staff Legal Bulletin No. 9,
Frequently Asked Questions About Regulation M
(April 12, 2002 update) at https://www.sec.gov/
interps/legal/mrslb9.htm.
15 The term ‘‘restricted period’’ is defined in Rule
100(b) of Regulation M. See 17 CFR 242.100(b).
16 The term ‘‘offering price’’ means the price at
which the security is to be or is distributed. See 17
CFR 242.100(b).
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penalty bids 17) in connection with an
offering and requires that notification of
such activity be provided to the SRO
with direct authority over the principal
market in the United States for the
security for which the syndicate
covering transaction is effected or the
penalty bid is imposed. In the case of a
stabilizing bid, such notice must be
provided to the market on which the
stabilizing bid will be posted. Further,
Regulation M prohibits any person from
selling short a security that is the
subject of a public offering and
purchasing the security in the offering,
if the short sale was effected during the
restricted period.
IEX and FINRA are parties to a
regulatory services agreement pursuant
to which FINRA performs certain
regulatory functions on behalf of IEX.18
IEX and FINRA also entered into an
agreement to reduce regulatory
duplication for IEX Members that are
also members of FINRA whereby IEX
has allocated certain regulatory
responsibilities to FINRA pursuant to
Rule 17d–2 under the Act.19
Compliance with Regulation M is
included within the regulatory
functions and responsibilities that
FINRA performs with respect to IEX
Members. As part of FINRA’s program
to monitor for compliance with
Regulation M, FINRA reviews trading
and quoting activity for prohibited
purchases, bids or attempts to induce
bids or purchases during the applicable
restricted period and for prohibited
short sales during the restricted period
prior to the pricing of an offering. Thus,
FINRA must receive pertinent
distribution related information in a
timely fashion to facilitate its review of
IEX Members’ compliance with
Regulation M.
Accordingly, in preparation for
becoming a listing market, the Exchange
proposes to amend Rule 11.160, which
is currently reserved, to adopt
provisions requiring notification
requirements for offering participants
that are substantially identical to those
17 See 17 CFR 242.100(b) (definitions of
‘‘stabilizing,’’ ‘‘syndicate covering transaction,’’ and
‘‘penalty bid’’). Generally, a ‘‘stabilizing bid’’ is a
bid that is intended to maintain the price of the
offered security and is necessary to prevent or
retard a decline in the security’s price. A ‘‘penalty
bid’’ allows a lead underwriter to reclaim a selling
concession paid to a syndicate member if that
member’s customers sell their allocated shares in
the immediate aftermarket. A ‘‘syndicate covering
transaction’’ is generally defined as placing a bid or
effecting a purchase to reduce a syndicate short
position.
18 See IEX Rule 1.160(hh).
19 See Securities Exchange Act Release No. 78434
(July 28, 2016), 81 FR 51256 (August 3, 2016) (File
No. 4–700).
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specified in NYSE Rule 5190.20 As
proposed, Rule 11.160 is entitled
‘‘Notification Requirements for Offering
Participants’’ and includes the following
provisions:
• Paragraph (a) provides general
information and states that IEX Rule
11.160 sets forth the notice
requirements applicable to Members
participating in offerings of listed
securities for purposes of monitoring
compliance with the provisions of SEC
Regulation M. In addition, the
paragraph notes that Members also must
comply with all applicable rules
governing the withdrawal of quotations
in accordance with SEC Regulation M.
• Paragraph (b) states that the terms
shall have the meanings as set forth in
Rules 100 and 101 of SEC Regulation M:
‘‘actively traded’’, ‘‘affiliated
purchaser’’, ‘‘covered security’’,
‘‘distribution’’, ‘‘distribution
participant’’, ‘‘offering price’’, ‘‘penalty
bid’’, ‘‘restricted period’’, ‘‘selling
security holder’’, ‘‘stabilizing’’ and
‘‘syndicate covering transaction’’.
• Paragraph (c) is entitled ‘‘Notice
Relating to Distributions of Listed
Securities Subject to a Restricted Period
Under SEC Regulation M’’ and sets forth
the notification requirements applicable
to distributions of listed securities that
are ‘‘covered securities’’ 21 subject to a
restricted period under Rule 101 or 102
of Regulation M. Required notices must
be provided in such form as specified by
the Exchange with respect to: The
Member’s determination as to whether a
one-day or five-day restricted period
applies under Rule 101 of Regulation M
and the basis for such determination,
including the contemplated date and
time of the commencement of the
restricted period, the listed security
name and symbol, and identification of
the distribution participants and
affiliated purchasers, no later than the
business day prior to the first complete
trading session of the applicable
restricted period, unless later
notification is necessary under specific
circumstances; the pricing of the
distribution, including the listed
security name and symbol, the type of
security, the number of shares offered,
the offering price, the last sale before the
distribution, the pricing basis, the SEC
effective date and time, the trade date,
the restricted period, and identification
of the distribution participants and
affiliated purchasers, no later than the
20 Proposed IEX Rule 11.160 is also substantially
similar to FINRA Rule 5190, except that the FINRA
rule has a broader scope since the IEX rule applies
only to offerings in securities listed on IEX, and
minor terminology differences.
21 The term ‘‘covered security’’ is defined in Rule
100(b) of Regulation M. See 17 CFR 242.100(b).
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close of business the next business day
following the pricing of the distribution,
unless later notification is necessary
under specific circumstances; and the
cancellation or postponement of any
distribution for which prior notification
of commencement of the restricted
period has been submitted under
paragraph (c)(1)(A) of Rule 11.160,
immediately upon the cancellation or
postponement of such distribution. If no
Member is acting as a manager (or in a
similar capacity) of such distribution,
then each Member that is a distribution
participant or affiliated purchaser shall
provide the notice required under
paragraph (c)(1) of Rule 11.160, unless
another Member has assumed
responsibility in writing for compliance
therewith. Paragraph (c) also provides
that any Member that is an issuer or
selling security holder in a distribution
of any listed security that is a covered
security subject to a restricted period
under Rule 102 of SEC Regulation M
shall comply with the notice
requirements of paragraph (c)(1) Rule
11.160, unless another Member has
assumed responsibility in writing for
compliance therewith.
• Paragraph (d) is entitled ‘‘Notice
Relating to Distributions of ‘‘Actively
Traded’’ Securities Under Regulation
M’’ and sets forth the notification
requirements applicable to distributions
of any listed security that is considered
an ‘‘actively traded’’ security under Rule
101 of Regulation M. Required notices
must be provided in such form as
specified by the Exchange with respect
to: The Member’s determination that no
restricted period applies under Rule 101
of SEC Regulation M and the basis for
such determination; and the pricing of
the distribution, including the listed
security name and symbol, the type of
security, the number of shares offered,
the offering price, the last sale before the
distribution, the pricing basis, the SEC
effective date and time, the trade date,
and identification of the distribution
participants and affiliated purchasers.
Paragraph (d) also provides that such
notice shall be provided no later than
the close of business the next business
day following the pricing of the
distribution, unless later notification is
necessary under specific circumstances.
Further if no Member is acting as a
manager (or in a similar capacity) of
such distribution, then each Member
that is a distribution participant or an
affiliated purchaser shall provide the
notice required, unless another Member
has assumed responsibility in writing
for compliance therewith.
• Paragraph (e) is entitled ‘‘Notice of
Stabilizing Bids, Penalty Bids and
Syndicate Covering Transactions in
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Listed Securities’’ and sets forth the
notification requirements for such
activities. Required notices must be
provided in such form as specified by
the Exchange with respect to: The
Member’s intention to conduct such
activity, prior to placing or transmitting
the stabilizing bid, imposing the penalty
bid or engaging in the first syndicate
covering transaction, including
identification of the listed security and
its symbol and the date such activity
will occur; and confirmation that the
Member has placed or transmitted a
stabilizing bid, imposed a penalty bid or
engaged in a syndicate covering
transaction, within one business day of
completion of such activity, including
identification of the listed security and
its symbol, the total number of shares
and the date(s) of such activity.
All required notifications pursuant to
IEX Rule 11.160 will be submitted by
IEX Members to FINRA through the
Firm Gateway.22 Upon effectiveness of
this rule change and prior to the first
IEX listing, the Exchange will
disseminate a regulatory circular to
Members advising of the form and
manner for submission of required
notifications through the FINRA Firm
Gateway.
Short Sale Circuit Breaker Restriction
Rule 201 of Regulation SHO 23
provides for the imposition of a short
sale circuit breaker, in a covered
security by trading centers in the event
that the price of a covered security 24
decreases by 10% or more from the
covered security’s closing price as
determined by the listing market 25 for
the covered security as of the end of
regular trading hours 26 on the prior day.
If the circuit breaker is triggered,
paragraph (b)(1) of Rule 201 requires
each trading center to establish,
maintain, and enforce written policies
and procedures reasonably designed to
prevent the execution or display of a
short sale order of a covered security at
a price that is less than or equal to the
22 Information regarding FINRA’s Firm Gateway
is available at: https://www.finra.org/sites/default/
files/NoticeDocument/p125975.pdf. IEX believes
that virtually all IEX Members that would be
required to submit notifications pursuant to IEX
Rule 11.160 already have access to the FINRA Firm
Gateway. Generally, such Members must be
members of FINRA in order to distribute shares to
the public, unless such Member is an issuer or
selling security holder in a distribution of a listed
security pursuant to Rule 102 of Regulation M. To
the extent there are any Members that fall into this
exception, and do not already have access to the
Firm Gateway, such Members will be provided with
access to the Firm Gateway.
23 17 CFR 242.201.
24 17 CFR 242.201(a)(1).
25 17 CFR 242.201(a)(3).
26 17 CFR 242.201(a)(7).
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current national best bid (subject to
certain specified exceptions) for the
remainder of the trading day on which
it is triggered and the following day.
Paragraph (b)(3) of Rule 201 further
provides that the listing market for a
covered security shall determine
whether the price of such covered
security has decreased by 10% or more
from the covered security’s closing price
as of the end of regular trading hours on
the prior day, and, if such decrease has
occurred shall immediately notify the
single plan processor responsible for
consolidation of information for the
covered security pursuant to Rule 603(b)
of Regulation NMS.27 The single plan
processor must then disseminate this
information, thereby triggering the short
sale circuit breaker restriction.28
Accordingly, in preparation for
becoming a listing market, the Exchange
proposes to amend IEX Rule 11.290 to
adopt provisions regarding the required
determinations and processes related to
the short sale circuit breaker. As
proposed, paragraph (b) of IEX Rule
11.290 is amended to add ‘‘Trigger
Price’’ as a defined term with respect to
the existing description of the Short
Sale Price Test. Paragraph (c) of IEX
Rule 11.290 (which is currently
reserved) is titled ‘‘Determination of
Trigger Price’’ and provides that, for
covered securities for which the
Exchange is the listing market, the
System 29 shall determine whether a
transaction in a covered security has
occurred at a Trigger Price 30 and shall
immediately notify the responsible
single plan processor. Further, the
System will not calculate the Trigger
Price of a covered security outside of the
Regular Market Session,31 and, if a
covered security did not trade on the
Exchange on the prior trading day (due
to a trading halt, trading suspension, or
otherwise), the Exchange’s
determination of the Trigger Price shall
be based on the last sale price on the
Exchange for that security on the most
recent day on which the security traded.
In addition, the Exchange proposes to
add provisions to paragraph (d)(1) of
IEX Rule 11.290 to provide that the
Exchange may lift the Short Sale Price
27 17
CFR 242.603(b).
FAQ 1.3 of ‘‘Division of Trading and
Markets: Responses to Frequently Asked Questions
Concerning Rule 201 of Regulation SHO.’’
29 The term ‘‘System’’ is defined in IEX Rule
1.160(nn).
30 See amendments to Rule 11.290(b).
31 See Rule 1.160(gg).
28 See,
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Federal Register / Vol. 82, No. 221 / Friday, November 17, 2017 / Notices
Test 32 before the Short Sale Period 33
ends for securities for which the
Exchange is the listing market if the
Exchange determines pursuant to IEX
Rule 11.270 that the triggering
transaction was a clearly erroneous
execution as soon as practicable
following such determination. Further,
the Exchange may also lift the Short
Sale Price Test before the Short Sale
Period ends, for a covered security for
which the Exchange is the listing
market, if the Exchange has been
informed by another exchange or a selfregulatory organization (‘‘SRO’’) that a
transaction in the covered security that
occurred at the Trigger Price was a
clearly erroneous execution, as
determined by the rules of that
exchange or SRO. Finally, proposed
paragraph (d)(2) of IEX Rule 11.290
provides that if the Exchange
determines that the prior day’s closing
price for a listed security is incorrect in
the System and resulted in an incorrect
determination of the Trigger Price, the
Exchange may correct the prior day’s
closing price and lift the Short Sale
Price Test before the Short Sale Period
ends.
As proposed, the amendments to IEX
Rule 11.290 are substantially identical
to Bats Rule 11.19.
2. Statutory Basis
sradovich on DSK3GMQ082PROD with NOTICES
IEX believes that the proposed rule
change is consistent with the provisions
of Section 6 of the Act, in general and
with Sections 6(b) 34 of the Act in
general, and furthers the objectives of
Sections 6(b)(5) of the Act,35 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. The Exchange believes
that the proposed rule change supports
these objectives because it provides for
certain listing regulatory reporting and
operational requirements which are
32 The term ‘‘Short Sale Price Test’’ is defined in
IEX Rule 11.290(b), and encompasses the
restrictions of the short sale circuit breaker
pursuant to Rule 201 of Regulation SHO. 17 CFR
242.201.
33 The term ‘‘Short Sale Period’’ is defined in IEX
Rule 11.290(d), and encompasses the duration of
the short sale circuit breaker pursuant to Rule
201(b)(1)(ii) of Regulation SHO. 17 CFR
242.201(b)(1)(ii).
34 15 U.S.C. 78f.
35 15 U.S.C. 78f(b)(5).
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18:32 Nov 16, 2017
Jkt 244001
consistent with the public interest and
the protection of investors.
Short-Interest Reporting
The Exchange believes that it is
consistent with the Act to require IEX
Members to record and report short
interest in securities listed on IEX, to
the extent not otherwise reported to
FINRA. As discussed in the Purpose
section, recording and reporting of short
interest provides transparency regarding
aggregate short interest and is also used
by FINRA for regulatory purposes,
including to assess compliance with
Regulation SHO. The Exchange believes
that requiring short interest recording
and reporting by IEX Members in
securities listed on IEX is thus
consistent with the public interest and
the protection of investors in support of
these objectives. Further, the Exchange
believes that the requirement that all
IEX Members record and report short
interest is equitable and not unfairly
discriminatory because the requirement
will result in all IEX Members being
subject to such requirements, regardless
of whether such Member is a member of
FINRA.
The Exchange also notes that
proposed Rule 3.293 is substantially
identical to FINRA Rule 4560 and
Nasdaq Rule 3360, as described in the
Purpose section, and thus the Exchange
does not believe it raises any new or
novel issues not already considered by
the Commission.
Notification Requirements for Offering
Participants
The Exchange believes that it is
consistent with the Act to require IEX
Members that are offering participants
to provide the specified notifications to
IEX in such form as specified by IEX,
which, as discussed in the Purpose
section, will be to FINRA through the
Firm Gateway. The Exchange believes
that imposing the specified notification
requirements, and specifying that
notification be to FINRA through the
Firm Gateway, is consistent with the
public interest and the protection of
investors, since FINRA must receive
such notifications in order to monitor
IEX Members and other market
participants for compliance with
Regulation M. As described in the
Purpose section, as part of FINRA’s
program to monitor for compliance with
Regulation M, and pursuant to IEX
regulatory services agreement with
FINRA and allocation to FINRA
pursuant to Rule 17d–2 under the Act,
FINRA reviews trading and quoting
activity for prohibited purchases, bids
or attempts to induce bids or purchases
during the applicable restricted period
PO 00000
Frm 00114
Fmt 4703
Sfmt 4703
54429
and for prohibited short sales during the
restricted period prior to the pricing of
an offering. Thus, FINRA must receive
pertinent distribution related
information in a timely fashion to
facilitate its review of IEX Members’
compliance with Regulation M.
Accordingly, IEX believes that requiring
such notifications is consistent with the
protection of investors and the public
interest.
Further, the Exchange believes that
imposition of the notification
requirements is equitable and not
unfairly discriminatory because all IEX
Members will be subject to such
requirements in the same manner.
The Exchange also notes that the
proposed amendments to Rule 11.160
are substantially identical to those
specified in NYSE Rule 5190 and
substantially similar to FINRA Rule
5190, as described in the Purpose
section, and thus the Exchange does not
believe that the proposed amendments
raise any new or novel issues not
already considered by the Commission.
Short Sale Circuit Breaker Restriction
The Exchange believes that it is
consistent with the Act to amend IEX
Rule 11.290 to adopt provisions
regarding the required determinations
and processes related to the short sale
circuit breaker, as required by Rule 201
of Regulation SHO, as described in the
Purpose section. Further, the Exchange
believes that the rule amendments are
equitable and not unfairly
discriminatory because such
amendments will apply to all IEX
Members in the same manner.
The Exchange also believes that the
rule amendments are consistent with
the Act, since they are designed to
encourage fair and orderly trading and
markets. Additionally, as proposed the
rule amendments are substantially
identical to Bats Rule 11.19, and thus
the Exchange does not believe that the
proposed amendments raise any new or
novel issues not already considered by
the Commission.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
IEX does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. As described
in the Purpose and Statutory Basis
sections, the proposed rule change
effectuates listing regulatory reporting
and operational requirements and is not
designed to address or advance any
competitive issues. To the contrary, the
Exchange believes that the proposed
rule change facilitates competition since
E:\FR\FM\17NON1.SGM
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54430
Federal Register / Vol. 82, No. 221 / Friday, November 17, 2017 / Notices
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) 41 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
it is designed to effectuate IEX’s
operation as a listing market thereby
enhancing competition with the other
listing markets.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 36 and Rule 19b–
4(f)(6) thereunder.37
A proposed rule change filed under
Rule 19(b)–4(f)(6) normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii), the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest.38
The Exchange has asked the
Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest
because the proposed rule change is
substantially identical to the rules of
other self-regulatory organizations and
thus raises no novel issues.39
Accordingly, the Commission hereby
waives the 30-day operative delay and
designates the proposed rule change as
operative upon filing.40
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
36 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
38 Rule 19b–4(f)(6) requires an SRO to give the
Commission written notice of its intent to file the
proposed rule change at least five business days
prior to the –date of filing the proposed rule change,
or such shorter time as designated by the
Commission. See 17 CFR 240.19b–4(f)(6). The
Exchange has satisfied this requirement.
39 See supra notes 12–13 and accompanying text
and supra note 20 and accompanying text. See also
Bats Rule 11.19.
40 For purposes only of waiving the operative
delay for this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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37 17
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18:32 Nov 16, 2017
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IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
IEX–2017–39 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–IEX–2017–39. This file
number should be included in 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 Section, 100 F Street NE.,
Washington, DC 20549–1090. Copies of
the filing will also be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–IEX–2017–39 and should
be submitted on or before December 8,
2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–24930 Filed 11–16–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82056; File No. SR–OCC–
2017–806]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing of Advance Notice
Concerning Liquidity for Same-Day
Settlement
November 13, 2017.
Pursuant to Section 806(e)(1) of Title
VIII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act,
entitled Payment, Clearing and
Settlement Supervision Act of 2010
(‘‘Clearing Supervision Act’’) 1 and Rule
19b–4(n)(1)(i) of the Securities Exchange
Act of 1934 (‘‘Act’’),2 notice is hereby
given that on October 13, 2017, The
Options Clearing Corporation (‘‘OCC’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) an
advance notice as described in Items I,
II and III below, which Items have been
prepared by OCC. The Commission is
publishing this notice to solicit
comments on the advance notice from
interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Advance
Notice
This advance notice is filed in
connection with a proposed change to
modify the tools available to OCC in
order to provide a mechanism for
addressing the risks of liquidity
shortfalls, specifically, in the
extraordinary situation where OCC faces
a liquidity need to meet its same-day
settlement obligations as a result of a
bank or securities or commodities
clearing organization failing to achieve
daily settlement.
The proposed changes to OCC’s ByLaws were submitted as Exhibit 5 of the
42 17
CFR 200.30–3(a)(12).
U.S.C. 5465(e)(1).
2 17 CFR 240.19b–4(n)(1)(i).
1 12
41 15
PO 00000
U.S.C. 78s(b)(2)(B).
Frm 00115
Fmt 4703
Sfmt 4703
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]]>Agencies
[Federal Register Volume 82, Number 221 (Friday, November 17, 2017)]
[Notices]
[Pages 54425-54430]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-24930]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82058; File No. SR-IEX-2017-39]
Self-Regulatory Organizations: Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Adopt
Rules Pertaining to Certain Listing Regulatory Reporting and
Operational Requirements
November 13, 2017.
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 October 31, 2017, the Investors Exchange LLC (``IEX'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to
[[Page 54426]]
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Pursuant to the provisions of Section 19(b)(1) under the Securities
Exchange Act of 1934 (``Act''),\4\ and Rule 19b-4 thereunder,\5\
Investors Exchange LLC (``IEX'' or ``Exchange'') is filing with the
Commission a proposed rule change to adopt rules pertaining to certain
listing regulatory reporting and operational requirements. The Exchange
has designated this proposal as non-controversial and provided the
Commission with the notice required by Rule 19b-4(f)(6)(iii) under the
Act.\6\ The text of the proposed rule change is available at the
Exchange's Web site at www.iextrading.com, at the principal office of
the Exchange, and at the Commission's Public Reference Room.
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\4\ 15 U.S.C. 78s(b)(1).
\5\ 17 CFR 240.19b-4.
\6\ 17 CFR 240.19b-4(f)(6)(iii).
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II. Self-Regulatory Organization's Statement of the Purpose of, and the
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 statement [sic] 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
On June 17, 2016 the Commission granted IEX's application for
registration as a national securities exchange under Section 6 of the
Act including approval of rules applicable to the qualification,
listing and delisting of companies on the Exchange.\7\ The Exchange
plans to begin a listing program in 2017 and is proposing to adopt
rules pertaining to certain listing regulatory reporting and
operational requirements, as described below.
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 34-78101 (June 17,
2016), 81 FR 41141 (June 23, 2016) (File No. 10-222).
---------------------------------------------------------------------------
Short-Interest Reporting
The Financial Industry Regulatory Authority (``FINRA''), the Nasdaq
Stock Market (``Nasdaq'') and the New York Stock Exchange (``NYSE'')
each have rules requiring that members of such self-regulatory
organization (``SRO'') record and report specified short positions in
all customer and proprietary accounts.\8\ This data is also referred to
as short interest. In the case of Nasdaq, the recording and reporting
requirements apply to positions in securities listed on Nasdaq, while
the FINRA and NYSE rules apply to all equity securities. The FINRA,
Nasdaq and NYSE rules each require reporting on a bi-monthly basis by
their member firms. FINRA, NYSE and Nasdaq firms provide their short
position reports to FINRA through the Firm Gateway.\9\ Firms must
report their mid-month short positions as of the close of business on
the settlement date of the 15th of each month, or, where the 15th is a
non-settlement date, on the preceding settlement date. Firms must
report their end-of-month short positions as of the close of business
on the last business day of the month on which transactions settle
pursuant to FINRA and exchange rules. Both reports must be received by
FINRA no later than the second business day after the reporting
settlement date.
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\8\ See FINRA Rule 4560, Nasdaq Rule 3360, and NYSE Rule 4560.
\9\ FINRA members are required to report short interest
positions through a web-based interface which is accessible via the
Firm Gateway. See, Regulatory Notice 16-32 entitled ``Short Interest
Reporting'' accessible at https://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-16-32.pdf.
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FINRA consolidates the short position reports submitted by each
firm, and provides such reports to the relevant listing exchange for
each listed security (i.e., NYSE, Nasdaq and Bats BZX Exchange, Inc.
(``Bats'')). In order to provide transparency \10\ regarding aggregate
short interest in equities securities, the listing exchanges publish
the consolidated short interest data seven business days after the
reporting settlement date. Similarly, FINRA publishes consolidated
short interest data for securities that are not listed on an exchange
on the same time frame. Short interest data is also used by FINRA for
regulatory purposes, including to assess compliance with Regulation
SHO.
---------------------------------------------------------------------------
\10\ Short interest reporting and publication began in 1986 in
connection with a study and recommendation by Irving M. Pollack (a
former Commissioner of the SEC) on behalf of the National
Association of Securities Dealers, Inc., the predecessor to FINRA.
---------------------------------------------------------------------------
IEX proposes to adopt a comparable rule requiring short interest
recording and reporting in securities listed on IEX by Members.
Specifically, IEX proposes to adopt new Rule 3.293, entitled Short-
Interest Reporting, that requires IEX Members, to the extent such
information is not otherwise reported to FINRA in conformance with
FINRA Rule 4560, to comply with FINRA Rule 4560 with respect to
securities listed on IEX, as if such rule were part of IEX's rules, and
to report required information in the form and manner specified by IEX.
Thus, as proposed, IEX Members are subject to the following
requirements:
(a) Each Member shall maintain a record of total ``short''
positions in all customer and proprietary firm accounts in
securities listed on IEX \11\ and shall regularly report such
information to FINRA in such a manner as may be prescribed by IEX.
Reports shall be received by FINRA no later than the second business
day after the reporting settlement date designated by IEX.
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\11\ FINRA Rule 4560(a) provides that the short interest
recording and reporting requirements are not applicable to
Restricted Equity Securities, as defined in FINRA Rule 6420 which
further references the definition of ``restricted security'' in Rule
144(a)(3) under the Securities Act of 1933. Restricted securities
are not eligible for listing on IEX since they are subject to
trading restrictions, so this limitation is not necessary for
inclusion in IEX Rule 3.293.
---------------------------------------------------------------------------
(b) Members shall record and report all gross short positions
existing in each individual firm or customer account, including the
account of a broker-dealer, that resulted from (1) a ``short sale'',
as that term is defined in Rule 200(a) of SEC Regulation SHO, or (2)
where the transaction(s) that caused the short position was marked
``long,'' consistent with SEC Regulation SHO, due to the firm's or
the customer's net long position at the time of the transaction.
Members shall report only those short positions resulting from short
sales that have settled or reached settlement date by the close of
the reporting settlement date designated by IEX.
(c) The recording and reporting requirements shall not apply to:
(1) Any sale by any person, for an account in which he has an
interest, if such person owns the security sold and intends to
deliver such security as soon as is possible without undue
inconvenience or expense; and
(2) any sale by an underwriter, or any member of a syndicate or
group participating in the distribution of a security, in connection
with an over-allotment of securities, or any lay-off sale by such a
person in connection with a distribution of securities through
rights or a standby underwriting commitment.
While FINRA Rule 4560 requires such recording and reporting in all
equity securities, not all IEX Members are also members of FINRA.
Therefore, the Exchange believes that with the launch of its listing
program, it is appropriate to add an IEX rule requiring recording and
reporting of short interest positions
[[Page 54427]]
in securities listed on IEX, so that IEX Members that are not FINRA
members are subject to such requirements and their short positions in
IEX listed securities will be consolidated for publication and
available to FINRA for regulatory purposes.
Further, as proposed, IEX Rule 3.293 specifies that information
required to be reported pursuant to FINRA Rule 4560 shall be reported
to IEX in the form and manner specified by IEX.\12\ As proposed, IEX
Rule 3.293 is substantially similar to FINRA Rule 4560 except that
Members are only required to record and report short positions in
securities listed on IEX. This limitation is substantially similar to
Nasdaq Rule 3360, which also limits short interest reporting to
securities listed on Nasdaq.\13\
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\12\ IEX Members will use the FINRA Gateway to report short
interest positions. IEX believes that virtually all IEX Members
already have access to the FINRA Firm Gateway. To the extent there
are any Members that do not already have access, FINRA will provide
such Members with access to the Firm Gateway. Following
effectiveness of this rule change, and prior to listing launch, IEX
will disseminate a notice to Members advising of the reporting
process and timelines.
\13\ See Nasdaq Rule 3360(a).
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Notification Requirements for Offering Participants
SEC Regulation M is designed to prevent manipulation by individuals
with an interest in the outcome of an offering of securities, and
prohibits activities and conduct that could artificially influence the
market for an offered security.\14\ Regulation M generally prohibits
underwriters, broker-dealers, issuers and other persons participating
in a distribution from directly or indirectly bidding for or purchasing
the offered security (or inducing another person to do so) during the
applicable ``restricted period,'' \15\ which commences on the later of
one or five business days prior to determination of the offering price
\16\ or such time that a person becomes a distribution participant, and
ends upon such person's completion of participation in the
distribution. Regulation M also governs certain market activities
(i.e., stabilizing bids, syndicate covering transactions and penalty
bids \17\) in connection with an offering and requires that
notification of such activity be provided to the SRO with direct
authority over the principal market in the United States for the
security for which the syndicate covering transaction is effected or
the penalty bid is imposed. In the case of a stabilizing bid, such
notice must be provided to the market on which the stabilizing bid will
be posted. Further, Regulation M prohibits any person from selling
short a security that is the subject of a public offering and
purchasing the security in the offering, if the short sale was effected
during the restricted period.
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\14\ See Securities Exchange Act Release No. 38067 (December 20,
1996), 62 FR 520 (January 3, 1997) (File No. S7-11-96) (Anti-
Manipulation Rules Concerning Securities Offerings; Final Rules).
See also generally SEC Staff Legal Bulletin No. 9, Frequently Asked
Questions About Regulation M (April 12, 2002 update) at https://www.sec.gov/interps/legal/mrslb9.htm.
\15\ The term ``restricted period'' is defined in Rule 100(b) of
Regulation M. See 17 CFR 242.100(b).
\16\ The term ``offering price'' means the price at which the
security is to be or is distributed. See 17 CFR 242.100(b).
\17\ See 17 CFR 242.100(b) (definitions of ``stabilizing,''
``syndicate covering transaction,'' and ``penalty bid''). Generally,
a ``stabilizing bid'' is a bid that is intended to maintain the
price of the offered security and is necessary to prevent or retard
a decline in the security's price. A ``penalty bid'' allows a lead
underwriter to reclaim a selling concession paid to a syndicate
member if that member's customers sell their allocated shares in the
immediate aftermarket. A ``syndicate covering transaction'' is
generally defined as placing a bid or effecting a purchase to reduce
a syndicate short position.
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IEX and FINRA are parties to a regulatory services agreement
pursuant to which FINRA performs certain regulatory functions on behalf
of IEX.\18\ IEX and FINRA also entered into an agreement to reduce
regulatory duplication for IEX Members that are also members of FINRA
whereby IEX has allocated certain regulatory responsibilities to FINRA
pursuant to Rule 17d-2 under the Act.\19\ Compliance with Regulation M
is included within the regulatory functions and responsibilities that
FINRA performs with respect to IEX Members. As part of FINRA's program
to monitor for compliance with Regulation M, FINRA reviews trading and
quoting activity for prohibited purchases, bids or attempts to induce
bids or purchases during the applicable restricted period and for
prohibited short sales during the restricted period prior to the
pricing of an offering. Thus, FINRA must receive pertinent distribution
related information in a timely fashion to facilitate its review of IEX
Members' compliance with Regulation M.
---------------------------------------------------------------------------
\18\ See IEX Rule 1.160(hh).
\19\ See Securities Exchange Act Release No. 78434 (July 28,
2016), 81 FR 51256 (August 3, 2016) (File No. 4-700).
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Accordingly, in preparation for becoming a listing market, the
Exchange proposes to amend Rule 11.160, which is currently reserved, to
adopt provisions requiring notification requirements for offering
participants that are substantially identical to those specified in
NYSE Rule 5190.\20\ As proposed, Rule 11.160 is entitled ``Notification
Requirements for Offering Participants'' and includes the following
provisions:
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\20\ Proposed IEX Rule 11.160 is also substantially similar to
FINRA Rule 5190, except that the FINRA rule has a broader scope
since the IEX rule applies only to offerings in securities listed on
IEX, and minor terminology differences.
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Paragraph (a) provides general information and states that
IEX Rule 11.160 sets forth the notice requirements applicable to
Members participating in offerings of listed securities for purposes of
monitoring compliance with the provisions of SEC Regulation M. In
addition, the paragraph notes that Members also must comply with all
applicable rules governing the withdrawal of quotations in accordance
with SEC Regulation M.
Paragraph (b) states that the terms shall have the
meanings as set forth in Rules 100 and 101 of SEC Regulation M:
``actively traded'', ``affiliated purchaser'', ``covered security'',
``distribution'', ``distribution participant'', ``offering price'',
``penalty bid'', ``restricted period'', ``selling security holder'',
``stabilizing'' and ``syndicate covering transaction''.
Paragraph (c) is entitled ``Notice Relating to
Distributions of Listed Securities Subject to a Restricted Period Under
SEC Regulation M'' and sets forth the notification requirements
applicable to distributions of listed securities that are ``covered
securities'' \21\ subject to a restricted period under Rule 101 or 102
of Regulation M. Required notices must be provided in such form as
specified by the Exchange with respect to: The Member's determination
as to whether a one-day or five-day restricted period applies under
Rule 101 of Regulation M and the basis for such determination,
including the contemplated date and time of the commencement of the
restricted period, the listed security name and symbol, and
identification of the distribution participants and affiliated
purchasers, no later than the business day prior to the first complete
trading session of the applicable restricted period, unless later
notification is necessary under specific circumstances; the pricing of
the distribution, including the listed security name and symbol, the
type of security, the number of shares offered, the offering price, the
last sale before the distribution, the pricing basis, the SEC effective
date and time, the trade date, the restricted period, and
identification of the distribution participants and affiliated
purchasers, no later than the
[[Page 54428]]
close of business the next business day following the pricing of the
distribution, unless later notification is necessary under specific
circumstances; and the cancellation or postponement of any distribution
for which prior notification of commencement of the restricted period
has been submitted under paragraph (c)(1)(A) of Rule 11.160,
immediately upon the cancellation or postponement of such distribution.
If no Member is acting as a manager (or in a similar capacity) of such
distribution, then each Member that is a distribution participant or
affiliated purchaser shall provide the notice required under paragraph
(c)(1) of Rule 11.160, unless another Member has assumed responsibility
in writing for compliance therewith. Paragraph (c) also provides that
any Member that is an issuer or selling security holder in a
distribution of any listed security that is a covered security subject
to a restricted period under Rule 102 of SEC Regulation M shall comply
with the notice requirements of paragraph (c)(1) Rule 11.160, unless
another Member has assumed responsibility in writing for compliance
therewith.
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\21\ The term ``covered security'' is defined in Rule 100(b) of
Regulation M. See 17 CFR 242.100(b).
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Paragraph (d) is entitled ``Notice Relating to
Distributions of ``Actively Traded'' Securities Under Regulation M''
and sets forth the notification requirements applicable to
distributions of any listed security that is considered an ``actively
traded'' security under Rule 101 of Regulation M. Required notices must
be provided in such form as specified by the Exchange with respect to:
The Member's determination that no restricted period applies under Rule
101 of SEC Regulation M and the basis for such determination; and the
pricing of the distribution, including the listed security name and
symbol, the type of security, the number of shares offered, the
offering price, the last sale before the distribution, the pricing
basis, the SEC effective date and time, the trade date, and
identification of the distribution participants and affiliated
purchasers. Paragraph (d) also provides that such notice shall be
provided no later than the close of business the next business day
following the pricing of the distribution, unless later notification is
necessary under specific circumstances. Further if no Member is acting
as a manager (or in a similar capacity) of such distribution, then each
Member that is a distribution participant or an affiliated purchaser
shall provide the notice required, unless another Member has assumed
responsibility in writing for compliance therewith.
Paragraph (e) is entitled ``Notice of Stabilizing Bids,
Penalty Bids and Syndicate Covering Transactions in Listed Securities''
and sets forth the notification requirements for such activities.
Required notices must be provided in such form as specified by the
Exchange with respect to: The Member's intention to conduct such
activity, prior to placing or transmitting the stabilizing bid,
imposing the penalty bid or engaging in the first syndicate covering
transaction, including identification of the listed security and its
symbol and the date such activity will occur; and confirmation that the
Member has placed or transmitted a stabilizing bid, imposed a penalty
bid or engaged in a syndicate covering transaction, within one business
day of completion of such activity, including identification of the
listed security and its symbol, the total number of shares and the
date(s) of such activity.
All required notifications pursuant to IEX Rule 11.160 will be
submitted by IEX Members to FINRA through the Firm Gateway.\22\ Upon
effectiveness of this rule change and prior to the first IEX listing,
the Exchange will disseminate a regulatory circular to Members advising
of the form and manner for submission of required notifications through
the FINRA Firm Gateway.
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\22\ Information regarding FINRA's Firm Gateway is available at:
https://www.finra.org/sites/default/files/NoticeDocument/p125975.pdf.
IEX believes that virtually all IEX Members that would be required
to submit notifications pursuant to IEX Rule 11.160 already have
access to the FINRA Firm Gateway. Generally, such Members must be
members of FINRA in order to distribute shares to the public, unless
such Member is an issuer or selling security holder in a
distribution of a listed security pursuant to Rule 102 of Regulation
M. To the extent there are any Members that fall into this
exception, and do not already have access to the Firm Gateway, such
Members will be provided with access to the Firm Gateway.
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Short Sale Circuit Breaker Restriction
Rule 201 of Regulation SHO \23\ provides for the imposition of a
short sale circuit breaker, in a covered security by trading centers in
the event that the price of a covered security \24\ decreases by 10% or
more from the covered security's closing price as determined by the
listing market \25\ for the covered security as of the end of regular
trading hours \26\ on the prior day. If the circuit breaker is
triggered, paragraph (b)(1) of Rule 201 requires each trading center to
establish, maintain, and enforce written policies and procedures
reasonably designed to prevent the execution or display of a short sale
order of a covered security at a price that is less than or equal to
the current national best bid (subject to certain specified exceptions)
for the remainder of the trading day on which it is triggered and the
following day.
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\23\ 17 CFR 242.201.
\24\ 17 CFR 242.201(a)(1).
\25\ 17 CFR 242.201(a)(3).
\26\ 17 CFR 242.201(a)(7).
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Paragraph (b)(3) of Rule 201 further provides that the listing
market for a covered security shall determine whether the price of such
covered security has decreased by 10% or more from the covered
security's closing price as of the end of regular trading hours on the
prior day, and, if such decrease has occurred shall immediately notify
the single plan processor responsible for consolidation of information
for the covered security pursuant to Rule 603(b) of Regulation NMS.\27\
The single plan processor must then disseminate this information,
thereby triggering the short sale circuit breaker restriction.\28\
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\27\ 17 CFR 242.603(b).
\28\ See, FAQ 1.3 of ``Division of Trading and Markets:
Responses to Frequently Asked Questions Concerning Rule 201 of
Regulation SHO.''
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Accordingly, in preparation for becoming a listing market, the
Exchange proposes to amend IEX Rule 11.290 to adopt provisions
regarding the required determinations and processes related to the
short sale circuit breaker. As proposed, paragraph (b) of IEX Rule
11.290 is amended to add ``Trigger Price'' as a defined term with
respect to the existing description of the Short Sale Price Test.
Paragraph (c) of IEX Rule 11.290 (which is currently reserved) is
titled ``Determination of Trigger Price'' and provides that, for
covered securities for which the Exchange is the listing market, the
System \29\ shall determine whether a transaction in a covered security
has occurred at a Trigger Price \30\ and shall immediately notify the
responsible single plan processor. Further, the System will not
calculate the Trigger Price of a covered security outside of the
Regular Market Session,\31\ and, if a covered security did not trade on
the Exchange on the prior trading day (due to a trading halt, trading
suspension, or otherwise), the Exchange's determination of the Trigger
Price shall be based on the last sale price on the Exchange for that
security on the most recent day on which the security traded. In
addition, the Exchange proposes to add provisions to paragraph (d)(1)
of IEX Rule 11.290 to provide that the Exchange may lift the Short Sale
Price
[[Page 54429]]
Test \32\ before the Short Sale Period \33\ ends for securities for
which the Exchange is the listing market if the Exchange determines
pursuant to IEX Rule 11.270 that the triggering transaction was a
clearly erroneous execution as soon as practicable following such
determination. Further, the Exchange may also lift the Short Sale Price
Test before the Short Sale Period ends, for a covered security for
which the Exchange is the listing market, if the Exchange has been
informed by another exchange or a self-regulatory organization
(``SRO'') that a transaction in the covered security that occurred at
the Trigger Price was a clearly erroneous execution, as determined by
the rules of that exchange or SRO. Finally, proposed paragraph (d)(2)
of IEX Rule 11.290 provides that if the Exchange determines that the
prior day's closing price for a listed security is incorrect in the
System and resulted in an incorrect determination of the Trigger Price,
the Exchange may correct the prior day's closing price and lift the
Short Sale Price Test before the Short Sale Period ends.
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\29\ The term ``System'' is defined in IEX Rule 1.160(nn).
\30\ See amendments to Rule 11.290(b).
\31\ See Rule 1.160(gg).
\32\ The term ``Short Sale Price Test'' is defined in IEX Rule
11.290(b), and encompasses the restrictions of the short sale
circuit breaker pursuant to Rule 201 of Regulation SHO. 17 CFR
242.201.
\33\ The term ``Short Sale Period'' is defined in IEX Rule
11.290(d), and encompasses the duration of the short sale circuit
breaker pursuant to Rule 201(b)(1)(ii) of Regulation SHO. 17 CFR
242.201(b)(1)(ii).
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As proposed, the amendments to IEX Rule 11.290 are substantially
identical to Bats Rule 11.19.
2. Statutory Basis
IEX believes that the proposed rule change is consistent with the
provisions of Section 6 of the Act, in general and with Sections 6(b)
\34\ of the Act in general, and furthers the objectives of Sections
6(b)(5) of the Act,\35\ 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. The Exchange believes that
the proposed rule change supports these objectives because it provides
for certain listing regulatory reporting and operational requirements
which are consistent with the public interest and the protection of
investors.
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\34\ 15 U.S.C. 78f.
\35\ 15 U.S.C. 78f(b)(5).
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Short-Interest Reporting
The Exchange believes that it is consistent with the Act to require
IEX Members to record and report short interest in securities listed on
IEX, to the extent not otherwise reported to FINRA. As discussed in the
Purpose section, recording and reporting of short interest provides
transparency regarding aggregate short interest and is also used by
FINRA for regulatory purposes, including to assess compliance with
Regulation SHO. The Exchange believes that requiring short interest
recording and reporting by IEX Members in securities listed on IEX is
thus consistent with the public interest and the protection of
investors in support of these objectives. Further, the Exchange
believes that the requirement that all IEX Members record and report
short interest is equitable and not unfairly discriminatory because the
requirement will result in all IEX Members being subject to such
requirements, regardless of whether such Member is a member of FINRA.
The Exchange also notes that proposed Rule 3.293 is substantially
identical to FINRA Rule 4560 and Nasdaq Rule 3360, as described in the
Purpose section, and thus the Exchange does not believe it raises any
new or novel issues not already considered by the Commission.
Notification Requirements for Offering Participants
The Exchange believes that it is consistent with the Act to require
IEX Members that are offering participants to provide the specified
notifications to IEX in such form as specified by IEX, which, as
discussed in the Purpose section, will be to FINRA through the Firm
Gateway. The Exchange believes that imposing the specified notification
requirements, and specifying that notification be to FINRA through the
Firm Gateway, is consistent with the public interest and the protection
of investors, since FINRA must receive such notifications in order to
monitor IEX Members and other market participants for compliance with
Regulation M. As described in the Purpose section, as part of FINRA's
program to monitor for compliance with Regulation M, and pursuant to
IEX regulatory services agreement with FINRA and allocation to FINRA
pursuant to Rule 17d-2 under the Act, FINRA reviews trading and quoting
activity for prohibited purchases, bids or attempts to induce bids or
purchases during the applicable restricted period and for prohibited
short sales during the restricted period prior to the pricing of an
offering. Thus, FINRA must receive pertinent distribution related
information in a timely fashion to facilitate its review of IEX
Members' compliance with Regulation M. Accordingly, IEX believes that
requiring such notifications is consistent with the protection of
investors and the public interest.
Further, the Exchange believes that imposition of the notification
requirements is equitable and not unfairly discriminatory because all
IEX Members will be subject to such requirements in the same manner.
The Exchange also notes that the proposed amendments to Rule 11.160
are substantially identical to those specified in NYSE Rule 5190 and
substantially similar to FINRA Rule 5190, as described in the Purpose
section, and thus the Exchange does not believe that the proposed
amendments raise any new or novel issues not already considered by the
Commission.
Short Sale Circuit Breaker Restriction
The Exchange believes that it is consistent with the Act to amend
IEX Rule 11.290 to adopt provisions regarding the required
determinations and processes related to the short sale circuit breaker,
as required by Rule 201 of Regulation SHO, as described in the Purpose
section. Further, the Exchange believes that the rule amendments are
equitable and not unfairly discriminatory because such amendments will
apply to all IEX Members in the same manner.
The Exchange also believes that the rule amendments are consistent
with the Act, since they are designed to encourage fair and orderly
trading and markets. Additionally, as proposed the rule amendments are
substantially identical to Bats Rule 11.19, and thus the Exchange does
not believe that the proposed amendments raise any new or novel issues
not already considered by the Commission.
B. Self-Regulatory Organization's Statement on Burden on Competition
IEX does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. As described in the Purpose and
Statutory Basis sections, the proposed rule change effectuates listing
regulatory reporting and operational requirements and is not designed
to address or advance any competitive issues. To the contrary, the
Exchange believes that the proposed rule change facilitates competition
since
[[Page 54430]]
it is designed to effectuate IEX's operation as a listing market
thereby enhancing competition with the other listing markets.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \36\ and Rule 19b-
4(f)(6) thereunder.\37\
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\36\ 15 U.S.C. 78s(b)(3)(A).
\37\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19(b)-4(f)(6) normally does
not become operative prior to 30 days after the date of the filing.
However, pursuant to Rule 19b-4(f)(6)(iii), the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest.\38\ The Exchange has
asked the Commission to waive the 30-day operative delay so that the
proposal may become operative immediately upon filing. The Commission
believes that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest because the proposed
rule change is substantially identical to the rules of other self-
regulatory organizations and thus raises no novel issues.\39\
Accordingly, the Commission hereby waives the 30-day operative delay
and designates the proposed rule change as operative upon filing.\40\
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\38\ Rule 19b-4(f)(6) requires an SRO to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the -date of filing the proposed
rule change, or such shorter time as designated by the Commission.
See 17 CFR 240.19b-4(f)(6). The Exchange has satisfied this
requirement.
\39\ See supra notes 12-13 and accompanying text and supra note
20 and accompanying text. See also Bats Rule 11.19.
\40\ For purposes only of waiving the operative delay for this
proposal, the Commission has considered the proposed rule's impact
on efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \41\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\41\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the 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-IEX-2017-39 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-IEX-2017-39. This file
number should be included in 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 Section, 100 F Street
NE., Washington, DC 20549-1090. Copies of the filing will also be
available for inspection and copying at the principal office of the
Exchange. All comments received will be posted without change. Persons
submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-IEX-2017-39 and should be
submitted on or before December 8, 2017.
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\42\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-24930 Filed 11-16-17; 8:45 am]
BILLING CODE 8011-01-P
