80 FR 71883 - Self-Regulatory Organizations: Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Delete Exchange Rule 610, Limitations on Dealings
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 80, Issue 221 (November 17, 2015)
Federal Register Volume 80, Issue 221 (November 17, 2015)
| Page Range | 71883-71887 | |
| FR Document | 2015-29218 |
[Federal Register Volume 80, Number 221 (Tuesday, November 17, 2015)] [Notices] [Pages 71883-71887] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-29218] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-76405; File No. SR-MIAX-2015-63] Self-Regulatory Organizations: Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Delete Exchange Rule 610, Limitations on Dealings November 10, 2015. Pursuant to the provisions of 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 November 4, 2015, Miami International Securities Exchange LLC (``MIAX'' or ``Exchange'') filed with the Securities and Exchange Commission (``Commission'') a proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \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 is filing a proposal to adopt a principles-based approach to prohibit the misuse of material, non-public information by Exchange Market Makers \3\ by deleting Exchange Rule 610, Limitations on Dealings. --------------------------------------------------------------------------- \3\ The term ``Market Makers'' refers to ``Lead Market Makers,'' ``Primary Lead Market Makers'' and ``Registered Market Makers'' collectively. A Lead Market Maker (``LMM'') is a Member registered with the Exchange for the purpose of making markets in securities traded on the Exchange and that is vested with the rights and responsibilities specified in Chapter VI of the Exchange Rules with respect to Lead Market Makers. A Primary Lead Market Maker (``PLMM'') is a Lead Market Maker appointed by the Exchange to act as the Primary Lead Market Maker for the purpose of making markets in securities traded on the Exchange. A Registered Market Maker (``RMM'') is a Member registered with the Exchange for the purpose of making markets in securities traded on the Exchange, who is not a Lead Market Maker. See Exchange Rule 100. --------------------------------------------------------------------------- The text of the proposed rule change is available on the Exchange's Web site at http://www.miaxoptions.com/filter/wotitle/rule_filing, at MIAX's principal office, 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 Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to adopt a principles-based approach to prohibit the misuse of material, non-public information by Market Makers by deleting Rule 610 (Limitations on Dealings). In so doing, the Exchange would harmonize its rules amongst its Members \4\ relating to protecting against the misuse of material, non-public information. The Exchange believes that Rule 610 is no longer necessary because all Members, including Market Makers, are subject to the Exchange's general principles-based requirements governing the protection against the misuse of material, non-public information, pursuant to Exchange Rule 303 (Prevention of the Misuse of Material Nonpublic Information), which obviates the need for separately-prescribed requirements for a subset of market participants on the Exchange. --------------------------------------------------------------------------- \4\ The term ``Member'' means an individual or organization approved to exercise trading rights associated with a Trading Permit. Members are deemed ``members'' under the Exchange Act. See Exchange Rule 100. --------------------------------------------------------------------------- Background The Exchange has three classes of registered Market Makers. Pursuant to Rule 600, a Market Maker is a Member with Registered Options Traders that is registered with the Exchange for the purpose of making transactions as a dealer-specialist. As the rule further provides, a Market Maker can be either a RMM, a LMM or a PLMM. All Market Makers are subject to the requirements of Rules 603 and 604, which set forth the obligations of Market Makers, particularly relating to quoting. Rule 603 specifies the obligations of Market Makers, which include making markets ``that, absent changed market conditions, will be honored for the number of contracts entered into the Exchange's System in all series of options classes to which the Market Maker is appointed.'' The quoting obligations of Market Makers are set forth in Rule 604. Rules 603 and 604 [[Page 71884]] describe the heightened obligations of a PLMM as distinguished from other Market Makers. Importantly, all Market Makers have access to the same information in the order book that is available to all other market participants. Moreover, none of the Exchange's Market Makers have agency obligations to the Exchange's order book. Notwithstanding that Market Makers have access to the same Exchange trading information as all other market participants on the Exchange, the Exchange has specific rules governing how Market Makers may operate. Rule 610(a) provides that ``[n]o Member, other than a Market Maker acting pursuant to Rule 603, limited partner, officer, employee, approved person(s), who is affiliated with a Market Maker or Member, shall, during the period of such affiliation, purchase or sell any option in which such Market Maker is appointed for any account in which such person(s) has a direct or indirect interest.'' Rule 610(b) further provides that an approved person or Member affiliated with a Member is not subject to the restrictions in Rule 610(a) if the affiliated Market Maker implements detailed Exchange-approved procedures to restrict the flow of material, non-public information to such affiliated party. The Exemption Guidelines set forth in Rule 610(e) through (j) outline the organizational structure of the so-called ``Chinese Wall'' procedures which are also referred to as an ``Information Barrier'', which a Market Maker must implement to be exempt from the requirements of Rule 610(a). The Information Barrier is meant to ensure that an affiliate of a Market Maker will not have access to material, non-public information and that a Market Maker will not misuse material, non-public information obtained from an affiliated Member. Proposed Rule Change The Exchange believes that the Exemption Guidelines in Rule 610 for Market Makers are no longer necessary and proposes to delete the Rule. Rather, the Exchange believes that Rule 303 governing the misuse of material, non-public information provides for an appropriate, principles-based approach to prevent the market abuses Rule 610 is designed to address. Specifically Rule 303 requires every Member to establish, maintain and enforce written procedures reasonably designed, taking into consideration the nature of such Member's business, to prevent the misuse of material, non-public information by such Member or persons associated with such Member. For purposes of this requirement, the misuse of material, non-public information includes, but is not limited to, the following: (a) Trading in any securities issued by a corporation, or in any related securities or related options or other derivative securities, while in possession of material, non-public information concerning that issuer; or (b) Trading in a security or related options or other derivative securities, while in possession of material non-public information concerning imminent transactions in the security or related securities; or (c) Disclosing to another person or entity any material, non-public information involving a corporation whose shares are publicly traded or an imminent transaction in an underlying security or related securities for the purpose of facilitating the possible misuse of such material, non-public information.\5\ --------------------------------------------------------------------------- \5\ See Exchange Rule 303, Interpretations and Policies .01. --------------------------------------------------------------------------- Because Market Makers are already subject to the requirements of Rule 303 and because Market Makers do not have any trading or information advantage over other Members, the Exchange does not believe that it is necessary to separately require specific limitations on dealings between Market Makers and their affiliates. Deleting Rule 610 would provide Market Makers and Members with the flexibility to adapt their policies and procedures as reasonably designed to reflect changes to their business model, business activities, or the securities market in a manner similar to how Members on the Exchange currently operate and consistent with Rule 303. As noted above, PLMMs are distinguished under Exchange rules from other Market Makers only to the extent that PLMMs have heightened obligations. However, none of these heightened obligations provides different or greater access to non-public information than any other market participant on the Exchange.\6\ Specifically, Market Makers on the Exchange do not have access to trading information provided by the Exchange, either at, or prior to, the point of execution, that is not made available to all other market participants on the Exchange in a similar manner. Further, as noted above, Market Makers on the Exchange do not have any agency responsibilities for orders on the order book. Accordingly, because Market Makers do not have any trading advantages at the Exchange due to their market role, the Exchange believes that they should be subject to the same rules as Members regarding the protection against the misuse of material, non-public information, which in this case, is existing Rule 303. --------------------------------------------------------------------------- \6\ See Exchange Rules 603 and 604. --------------------------------------------------------------------------- The Exchange notes that even with this proposed rule change, pursuant to Rule 303, a Market Maker would still be obligated to ensure that its policies and procedures reflect the current state of its business and continue to be reasonably designed to achieve compliance with applicable federal securities law and regulations, and with applicable Exchange rules, including being reasonably designed to protect against the misuse of material, non-public information. While an Information Barrier would not specifically be required under the proposal, Rule 303 already requires that a Member consider its business model or business activities in structuring its policies and procedures, which may dictate that an information barrier or other type of functional separation be part of the set of policies and procedures that would be reasonably designed to achieve compliance with applicable securities law and regulations, and with applicable Exchange rules. The Exchange is not proposing to change what is considered to be material, non-public information, and thus does not expect there to be any changes to the types of information that an affiliated person of a Market Maker could share with such Market Maker. In that regard, the proposed rule change will not permit an Electronic Exchange Member to have access to any non-public order or quote information of the affiliated Market Maker, including hidden or undisplayed size or price information of such orders and quotes. Market Makers are not allowed to post hidden or undisplayed orders and quotes on the Exchange. Members do not expect to receive any additional order or quote information as a result of this proposed rule change. Further, the Exchange does not believe that there will be any material change to existing Member Information Barriers as a result of removal of the Exchange's pre-approval requirements. In fact, the Exchange anticipates that eliminating the pre-approval requirement should facilitate implementation of changes to Member Information Barriers as necessary to protect against the misuse of material, non- public information. The Exchange also suggests that the pre-approval requirement is unnecessary because Market Makers now do not have agency responsibilities to the book, or time and place information advantages because of [[Page 71885]] their market role.\7\ Moreover, the policies and procedures of Market Makers, including those relating to Information Barriers, would be subject to review by FINRA, on behalf of the Exchange, pursuant to a Regulatory Services Agreement. --------------------------------------------------------------------------- \7\ Member applicants are required to have information barrier policies and procedures in place and must represent that they comply with this requirement in their application for membership to MIAX. --------------------------------------------------------------------------- The Exchange further notes that under Rule 303, a Member would be able to structure its firm to provide for its options Market Makers, as applicable, to be structured with its equities and customer-facing businesses, provided that any such structuring would be done in a manner reasonably designed to protect against the misuse of material, non-public information. For example, pursuant to Rule 303 a Market Maker on the Exchange could be in the same independent trading unit, as defined in Rule 200(f) of Regulation SHO,\8\ as an equities market maker and other trading desks within the firm, including options trading desks, so that the firm could share post-trade information to better manage its risk across related securities. The Exchange believes it is appropriate, and consistent with Rule 303 and Section 15(g) of the Act \9\ for a firm to share options position and related hedging position information (e.g., equities, futures, and foreign currency) within a firm to better manage risk on a firm-wide basis. The Exchange notes, however, that if so structured, a firm would need to have policies and procedures, including Information Barriers as applicable, reasonably designed to protect against the misuse of material, non- public information, and specifically customer information, consistent with Rule 303. --------------------------------------------------------------------------- \8\ 17 CFR part 242.200(f). \9\ 15 U.S.C. 78o(g). --------------------------------------------------------------------------- The Exchange believes that the proposed reliance on the principles- based Rule 303 would ensure that a Member that operates a Market Maker would be required to protect against the misuse of any material, non- public information. As noted above, Rule 303 already requires that firms refrain from trading while in possession of material, non-public information concerning imminent transactions in the security or related product. The Exchange believes that moving to a principles-based approach rather than prescribing how and when to wall off a Market Maker from the rest of the firm would provide Members operating as Market Makers with appropriate tools to better manage risk across a firm, including integrating options positions with other positions of the firm or, as applicable, by the respective independent trading unit. Specifically, the Exchange believes that it is appropriate for risk management purposes for a Member operating a Market Maker to be able to consider both options Market Maker traded positions for purposes of calculating net positions consistent with Rule 200 of Regulation SHO, calculating intra-day net capital positions, and managing risk generally, and in compliance with Rule 15c3-5 under the Act (the ``Market Access Rule'').\10\ The Exchange notes that any risk management operations would need to operate consistent with the requirement to protect against the misuse of material, non-public information. --------------------------------------------------------------------------- \10\ 17 CFR part 240.15c3-5. --------------------------------------------------------------------------- The Exchange further notes that if Market Makers are integrated with other market making operations, they would be subject to existing rules that prohibit Members from disadvantaging their customers or other market participants by improperly capitalizing on a member organization's access to the receipt of material, non-public information. As such, a member organization that integrates its market maker operations together with equity market making would need to protect customer information consistent with existing obligations to protect such information. The Exchange has rules prohibiting Members from disadvantaging their customers or other market participants by improperly capitalizing on the Members' access to or receipt of material, nonpublic information. For example, Exchange Rule 1308 (Supervision of Accounts) requires Members to develop and maintain adequate controls over each of its business activities and to be responsible for internal supervision and control of the organization and compliance with securities laws and regulations.\11\ Additionally, Rule 301 (Just and Equitable Principles of Trade) prevents a person associated with a Member, who has knowledge of all material terms and conditions of (i) an order and a solicited order, (ii) an order being facilitated, or (iii) orders being crossed; the execution of which are imminent, to enter, based on such knowledge, an order to buy or sell an option for the same underlying security as any option that is the subject of the order, or an order to buy or sell the security underlying such class, or an order to buy or sell any related instrument unless certain circumstances are met.\12\ --------------------------------------------------------------------------- \11\ See Exchange Rule 1308. \12\ See Exchange Rule 301, Interpretations and Policies .02. --------------------------------------------------------------------------- 2. Statutory Basis MIAX believes that its proposed rule change is consistent with Section 6(b) of the Act \13\ in general, and furthers the objectives of Section 6(b)(5) of the Act \14\ 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 mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest. --------------------------------------------------------------------------- \13\ 15 U.S.C. 78f(b). \14\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Exchange believes that the proposed rule change would remove impediments to and perfect the mechanism of a free and open market by adopting a principles-based approach to permit a Member operating a Market Maker to maintain and enforce policies and procedures to, among other things, prohibit the misuse of material, non-public information and eliminate restrictions on how a Member structures its market making operations. The Exchange notes that the proposed rule change is based on an approved rule of the Exchange to which Market Makers are already subject, Rule 303, thus Market Makers would continue to be subject to current Exchange rules and to the requirements under the Act \15\ for protecting material, non-public order information. The Exchange believes that the proposed rule change would remove impediments to and perfect the mechanism of a free and open market because it would harmonize the Exchange's approach to protecting against the misuse of material, non-public information and no longer subject Market Makers to additional requirements. The Exchange does not believe that the existing requirements applicable to Market Makers are narrowly tailored to their respective roles because neither market participant has access to Exchange trading information in a manner different from any other market participant on the Exchange and they do not have agency responsibilities to the order book. --------------------------------------------------------------------------- \15\ See, e.g., 15 U.S.C. 78o(g). --------------------------------------------------------------------------- The Exchange further believes the proposal is designed to prevent fraudulent and manipulative acts and practices and to promote just and equitable principles of trade because existing rules make clear to Market Makers and Members the type of conduct that is prohibited by the Exchange. While the proposal [[Page 71886]] eliminates specific requirements relating to the misuse of material, non-public information requiring pre-approval by the Exchange, Market Makers and Members would remain subject to existing Exchange rules requiring them to establish and maintain systems to supervise their activities, and to create, implement, and maintain written procedures that are reasonably designed to comply with applicable securities laws and Exchange rules, including the prohibition on the misuse of material, non-public information. The Exchange notes that the proposed rule change would still require that Members operating Market Makers maintain and enforce policies and procedures reasonably designed to ensure compliance with applicable federal securities laws and regulations and with Exchange rules. Even though there would no longer be pre-approval of Market Maker Information Barriers, any Market Maker's written policies and procedures would continue to be subject to oversight by the Exchange and therefore the elimination of prescribed restrictions should not reduce the effectiveness of the Exchange rules to protect against the misuse of material, non-public information. Rather, Members will be able to utilize a flexible, principles-based approach to modify their policies and procedures as appropriate to reflect changes to their business model, business activities, or to the securities market itself. Moreover, while specified Information Barriers may no longer be required, a Member's business model or business activities may dictate that an Information Barrier or functional separation be part of the set of policies and procedures that would be reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable Exchange rules. The Exchange therefore believes that the proposed rule change will maintain the existing protection of investors and the public interest that is currently applicable to Market Makers, while at the same time removing impediments to and perfecting a free and open market by moving to a principles-based approach to protect against the misuse of material non-public information. 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 that is not necessary or appropriate in furtherance of the purposes of the Act. On the contrary, the Exchange believes that the proposal will enhance competition by allowing Market Makers to comply with applicable Exchange rules in a manner best suited to their business models, business activities, and the securities markets, thus reducing regulatory burdens while still ensuring compliance with applicable securities laws and regulations and Exchange rules. The Exchange believes that the proposal will foster a fair and orderly marketplace without being overly burdensome upon Market Makers. Moreover, the Exchange believes that the proposed rule change would eliminate a burden on competition for Members which currently exists as a result of disparate rule treatment between the options and equities markets regarding how to protect against the misuse of material, non- public information. For those Members that are also members of equity exchanges, their respective equity market maker operations are now subject to a principles-based approach to protecting against the misuse of material non-public information.\16\ The Exchange believes it would remove a burden on competition to enable Members to similarly apply a principles-based approach to protecting against the misuse of material, non-public information in the options space. To this end, the Exchange notes that Rule 303 still requires a Member that operates as a Market Maker on the Exchange to evaluate its business to assure that its policies and procedures are reasonably designed to protect against the misuse of material, non-public information. However, with this proposed rule change, a Member that trades equities and options could look at its firm more holistically to structure its operations in a manner that provides it with better tools to manage its risks across multiple security classes, while at the same time protecting against the misuse of material non-public information. --------------------------------------------------------------------------- \16\ See Securities Exchange Act Release Nos. 60604 (Sept. 2, 2009), 76 FR 46272 (Sept. 8, 2009) (SR-NYSEArca-2009-78) (Order approving elimination of NYSE Arca rule that required market makers to establish and maintain specifically prescribed information barriers, including discussion of NYSE Arca and Nasdaq rules) (``Arca Approval Order''); 61574 (Feb. 23, 2010), 75 FR 9455 (Mar. 2, 2010) (SR-BATS-2010-003) (Order approving amendments to BATS Rule 5.5 to move to a principles-based approach to protecting against the misuse of material, non-public information, and noting that the proposed change is consistent with the approaches of NYSE Arca and Nasdaq) (``BATS Approval Order''); and 72534 (July 3, 2014), 79 FR 39440 (July 10, 2014) (SR-NYSE-2014-12) (Order approving amendments to NYSE Rule 98 governing designated market makers to move to a principles-based approach to prohibit the misuse of material nonpublic information) (``NYSE Approval Order''). --------------------------------------------------------------------------- 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 after the date of the filing, or such shorter time as the Commission may designate, it has become effective pursuant to 19(b)(3)(A) of the Act \17\ and Rule 19b-4(f)(6) \18\ thereunder. --------------------------------------------------------------------------- \17\ 15 U.S.C. 78s(b)(3)(A). \18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) requires a self-regulatory organization 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 of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. --------------------------------------------------------------------------- At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule 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 CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to rule-comments@sec.gov. Please include File Number SR-MIAX-2015-63 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-MIAX-2015-63. This file [[Page 71887]] 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 (http://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 20549-1090, 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-MIAX-2015-63 and should be submitted on or before December 8, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\19\ --------------------------------------------------------------------------- \19\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2015-29218 Filed 11-16-15; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 80, No. 221 / Tuesday, November 17, 2015 / Notices 71883
change is consistent with the Act. SECURITIES AND EXCHANGE concerning the purpose of and basis for
Comments may be submitted by any of COMMISSION the proposed rule change and discussed
the following methods: any comments it received on the
[Release No. 34–76405; File No. SR–MIAX– proposed rule change. The text of these
Electronic Comments 2015–63] statements may be examined at the
• Use the Commission’s Internet Self-Regulatory Organizations: Miami places specified in Item IV below. The
comment form (http://www.sec.gov/ International Securities Exchange LLC; Exchange has prepared summaries, set
rules/sro.shtml); or Notice of Filing and Immediate forth in sections A, B, and C below, of
• Send an email to rule- Effectiveness of a Proposed Rule the most significant aspects of such
comments@sec.gov. Please include File Change To Delete Exchange Rule 610, statements.
Number SR–NYSEArca–2015–111 on Limitations on Dealings A. Self-Regulatory Organization’s
the subject line. Statement of the Purpose of, and
November 10, 2015.
Paper Comments Statutory Basis for, the Proposed Rule
Pursuant to the provisions of Section Change
• Send paper comments in triplicate 19(b)(1) of the Securities Exchange Act
to Brent J. Fields, Secretary, Securities of 1934 (‘‘Act’’) 1 and Rule 19b–4 1. Purpose
and Exchange Commission, 100 F Street thereunder,2 notice is hereby given that The Exchange proposes to adopt a
NE., Washington, DC 20549–1090. on November 4, 2015, Miami principles-based approach to prohibit
International Securities Exchange LLC the misuse of material, non-public
All submissions should refer to File
(‘‘MIAX’’ or ‘‘Exchange’’) filed with the information by Market Makers by
Number SR–NYSEArca–2015–111. This
Securities and Exchange Commission deleting Rule 610 (Limitations on
file number should be included on the
(‘‘Commission’’) a proposed rule change Dealings). In so doing, the Exchange
subject line if email is used. To help the
as described in Items I, II, and III below, would harmonize its rules amongst its
Commission process and review your
which Items have been prepared by the Members 4 relating to protecting against
comments more efficiently, please use
Exchange. The Commission is the misuse of material, non-public
only one method. The Commission will
publishing this notice to solicit information. The Exchange believes that
post all comments on the Commission’s
comments on the proposed rule change Rule 610 is no longer necessary because
Internet Web site (http://www.sec.gov/
from interested persons. all Members, including Market Makers,
rules/sro.shtml). Copies of the
submission, all subsequent I. Self-Regulatory Organization’s are subject to the Exchange’s general
amendments, all written statements Statement of the Terms of Substance of principles-based requirements
with respect to the proposed rule the Proposed Rule Change governing the protection against the
change that are filed with the misuse of material, non-public
The Exchange is filing a proposal to information, pursuant to Exchange Rule
Commission, and all written adopt a principles-based approach to
communications relating to the 303 (Prevention of the Misuse of
prohibit the misuse of material, non- Material Nonpublic Information), which
proposed rule change between the public information by Exchange Market
Commission and any person, other than obviates the need for separately-
Makers 3 by deleting Exchange Rule 610, prescribed requirements for a subset of
those that may be withheld from the Limitations on Dealings.
public in accordance with the market participants on the Exchange.
The text of the proposed rule change
provisions of 5 U.S.C. 552, will be is available on the Exchange’s Web site Background
available for Web site viewing and at http://www.miaxoptions.com/filter/ The Exchange has three classes of
printing in the Commission’s Public wotitle/rule_filing, at MIAX’s principal registered Market Makers. Pursuant to
Reference Section, 100 F Street NE., office, and at the Commission’s Public Rule 600, a Market Maker is a Member
Washington, DC 20549 on official Reference Room. with Registered Options Traders that is
business days between 10 a.m. and 3
II. Self-Regulatory Organization’s registered with the Exchange for the
p.m. Copies of the filing will also be
Statement of the Purpose of, and purpose of making transactions as a
available for inspection and copying at
Statutory Basis for, the Proposed Rule dealer-specialist. As the rule further
the NYSE’s principal office and on its
Change provides, a Market Maker can be either
Internet Web site at www.nyse.com. All
a RMM, a LMM or a PLMM. All Market
comments received will be posted In its filing with the Commission, the Makers are subject to the requirements
without change; the Commission does Exchange included statements of Rules 603 and 604, which set forth
not edit personal identifying
the obligations of Market Makers,
information from submissions. You 1 15 U.S.C. 78s(b)(1). particularly relating to quoting.
should submit only information that 2 17 CFR 240.19b–4.
Rule 603 specifies the obligations of
you wish to make available publicly. All 3 The term ‘‘Market Makers’’ refers to ‘‘Lead
Market Makers,’’ ‘‘Primary Lead Market Makers’’ Market Makers, which include making
submissions should refer to File
and ‘‘Registered Market Makers’’ collectively. A markets ‘‘that, absent changed market
Number SR–NYSEArca–2015–111 and Lead Market Maker (‘‘LMM’’) is a Member conditions, will be honored for the
should be submitted on or before registered with the Exchange for the purpose of number of contracts entered into the
December 8, 2015. making markets in securities traded on the
Exchange and that is vested with the rights and Exchange’s System in all series of
For the Commission, by the Division of responsibilities specified in Chapter VI of the options classes to which the Market
Trading and Markets, pursuant to delegated Exchange Rules with respect to Lead Market Maker is appointed.’’ The quoting
mstockstill on DSK4VPTVN1PROD with NOTICES
authority.21 Makers. A Primary Lead Market Maker (‘‘PLMM’’) obligations of Market Makers are set
Robert W. Errett, is a Lead Market Maker appointed by the Exchange
to act as the Primary Lead Market Maker for the forth in Rule 604. Rules 603 and 604
Deputy Secretary. purpose of making markets in securities traded on
[FR Doc. 2015–29232 Filed 11–16–15; 8:45 am] the Exchange. A Registered Market Maker (‘‘RMM’’) 4 The term ‘‘Member’’ means an individual or
BILLING CODE 8011–01–P
is a Member registered with the Exchange for the organization approved to exercise trading rights
purpose of making markets in securities traded on associated with a Trading Permit. Members are
the Exchange, who is not a Lead Market Maker. See deemed ‘‘members’’ under the Exchange Act. See
21 17 CFR 200.30–3(a)(12). Exchange Rule 100. Exchange Rule 100.
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describe the heightened obligations of a purposes of this requirement, the market role, the Exchange believes that
PLMM as distinguished from other misuse of material, non-public they should be subject to the same rules
Market Makers. Importantly, all Market information includes, but is not limited as Members regarding the protection
Makers have access to the same to, the following: against the misuse of material, non-
information in the order book that is (a) Trading in any securities issued by public information, which in this case,
available to all other market a corporation, or in any related is existing Rule 303.
participants. Moreover, none of the securities or related options or other The Exchange notes that even with
Exchange’s Market Makers have agency derivative securities, while in this proposed rule change, pursuant to
obligations to the Exchange’s order possession of material, non-public Rule 303, a Market Maker would still be
book. information concerning that issuer; or obligated to ensure that its policies and
Notwithstanding that Market Makers (b) Trading in a security or related procedures reflect the current state of its
have access to the same Exchange options or other derivative securities, business and continue to be reasonably
trading information as all other market while in possession of material non- designed to achieve compliance with
participants on the Exchange, the public information concerning applicable federal securities law and
Exchange has specific rules governing imminent transactions in the security or regulations, and with applicable
how Market Makers may operate. Rule related securities; or Exchange rules, including being
610(a) provides that ‘‘[n]o Member, (c) Disclosing to another person or reasonably designed to protect against
other than a Market Maker acting entity any material, non-public the misuse of material, non-public
pursuant to Rule 603, limited partner, information involving a corporation information. While an Information
officer, employee, approved person(s), whose shares are publicly traded or an Barrier would not specifically be
who is affiliated with a Market Maker or imminent transaction in an underlying required under the proposal, Rule 303
Member, shall, during the period of security or related securities for the already requires that a Member consider
such affiliation, purchase or sell any purpose of facilitating the possible its business model or business activities
option in which such Market Maker is misuse of such material, non-public in structuring its policies and
appointed for any account in which information.5 procedures, which may dictate that an
such person(s) has a direct or indirect Because Market Makers are already information barrier or other type of
interest.’’ Rule 610(b) further provides subject to the requirements of Rule 303 functional separation be part of the set
that an approved person or Member and because Market Makers do not have of policies and procedures that would
affiliated with a Member is not subject any trading or information advantage be reasonably designed to achieve
to the restrictions in Rule 610(a) if the over other Members, the Exchange does compliance with applicable securities
affiliated Market Maker implements not believe that it is necessary to law and regulations, and with
detailed Exchange-approved procedures separately require specific limitations applicable Exchange rules.
to restrict the flow of material, non- on dealings between Market Makers and The Exchange is not proposing to
public information to such affiliated their affiliates. Deleting Rule 610 would change what is considered to be
party. The Exemption Guidelines set provide Market Makers and Members material, non-public information, and
forth in Rule 610(e) through (j) outline with the flexibility to adapt their thus does not expect there to be any
the organizational structure of the so- policies and procedures as reasonably changes to the types of information that
called ‘‘Chinese Wall’’ procedures designed to reflect changes to their an affiliated person of a Market Maker
which are also referred to as an business model, business activities, or could share with such Market Maker. In
‘‘Information Barrier’’, which a Market the securities market in a manner that regard, the proposed rule change
Maker must implement to be exempt similar to how Members on the will not permit an Electronic Exchange
from the requirements of Rule 610(a). Exchange currently operate and Member to have access to any non-
The Information Barrier is meant to consistent with Rule 303. public order or quote information of the
ensure that an affiliate of a Market As noted above, PLMMs are affiliated Market Maker, including
Maker will not have access to material, distinguished under Exchange rules hidden or undisplayed size or price
non-public information and that a from other Market Makers only to the information of such orders and quotes.
Market Maker will not misuse material, extent that PLMMs have heightened Market Makers are not allowed to post
non-public information obtained from obligations. However, none of these hidden or undisplayed orders and
an affiliated Member. heightened obligations provides quotes on the Exchange. Members do
different or greater access to non-public not expect to receive any additional
Proposed Rule Change order or quote information as a result of
information than any other market
The Exchange believes that the participant on the Exchange.6 this proposed rule change.
Exemption Guidelines in Rule 610 for Specifically, Market Makers on the Further, the Exchange does not
Market Makers are no longer necessary Exchange do not have access to trading believe that there will be any material
and proposes to delete the Rule. Rather, information provided by the Exchange, change to existing Member Information
the Exchange believes that Rule 303 either at, or prior to, the point of Barriers as a result of removal of the
governing the misuse of material, non- execution, that is not made available to Exchange’s pre-approval requirements.
public information provides for an all other market participants on the In fact, the Exchange anticipates that
appropriate, principles-based approach Exchange in a similar manner. Further, eliminating the pre-approval
to prevent the market abuses Rule 610 as noted above, Market Makers on the requirement should facilitate
is designed to address. Specifically Rule Exchange do not have any agency implementation of changes to Member
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303 requires every Member to establish, responsibilities for orders on the order Information Barriers as necessary to
maintain and enforce written book. Accordingly, because Market protect against the misuse of material,
procedures reasonably designed, taking Makers do not have any trading non-public information. The Exchange
into consideration the nature of such advantages at the Exchange due to their also suggests that the pre-approval
Member’s business, to prevent the requirement is unnecessary because
misuse of material, non-public 5 See Exchange Rule 303, Interpretations and Market Makers now do not have agency
information by such Member or persons Policies .01. responsibilities to the book, or time and
associated with such Member. For 6 See Exchange Rules 603 and 604. place information advantages because of
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![Federal Register / Vol. 80, No. 221 / Tuesday, November 17, 2015 / Notices 71887
number should be included on the notice is hereby given that on November (‘‘Equity Trader’’) 3 and the Limited
subject line if email is used. To help the 4, 2015, The NASDAQ Stock Market Representative—Proprietary Trader
Commission process and review your LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed (‘‘Proprietary Trader’’) 4 registration
comments more efficiently, please use with the Securities and Exchange categories from its own registration
only one method. The Commission will Commission (‘‘SEC’’ or ‘‘Commission’’) rules relating to securities trading
post all comments on the Commission’s the proposed rule change as described activity. It is also therefore retiring its
Internet Web site (http://www.sec.gov/ in Items I, II, and III, below, which Items Limited Principal—Proprietary Trader
rules/sro.shtml). have been prepared by the Exchange. (‘‘Proprietary Trader Principal’’) 5
Copies of the submission, all The Commission is publishing this registration category. To take the place
subsequent amendments, all written notice to solicit comments on the of the retired registration categories,
statements with respect to the proposed proposed rule change from interested Nasdaq is establishing new Securities
rule change that are filed with the persons. Trader and Securities Trader Principal
Commission, and all written registration categories. This filing is, in
communications relating to the I. Self-Regulatory Organization’s
all material respects, based upon SR–
proposed rule change between the Statement of the Terms of Substance of
FINRA–2015–017, which was recently
Commission and any person, other than the Proposed Rule Change
approved by the Commission.6
those that may be withheld from the The Exchange proposes to a proposal
public in accordance with the [sic] to retire the Limited Representative New Nasdaq Securities Trader
provisions of 5 U.S.C. 552, will be —Equity Trader, Limited Registration Category
available for Web site viewing and Representative—Proprietary Trader and Currently, under Nasdaq Rule
printing in the Commission’s Public Limited Principal—Proprietary Trader 1032(a)(1), each person associated with
Reference Room, 100 F Street NE., registration categories and to establish a member who is included within the
Washington, DC 20549–1090, on official the Securities Trader and Securities definition of a ‘‘representative’’ 7 in Rule
business days between the hours of Trader Principal registration categories. 1011 is required to register with Nasdaq
10:00 a.m. and 3:00 p.m. Copies of the The Exchange is also amending its rules as a General Securities Representative
filing also will be available for to establish the Series 57 examination as and to pass an appropriate qualification
inspection and copying at the principal the appropriate qualification examination before such registration
office of the Exchange. All comments examination for Securities Traders and may become effective, unless his or her
received will be posted without change; deleting the rule referring to the S501 activities are so limited as to qualify
the Commission does not edit personal continuing education program currently him for one or more limited categories
identifying information from applicable to Proprietary Traders. of representative registration also set
submissions. You should submit only The text of the proposed rule change forth in Rule 1032. The appropriate
information that you wish to make is available on the Exchange’s Web site qualification examination for General
available publicly. at http://nasdaq.cchwallstreet.com, at Securities Representative is the Series 7
All submissions should refer to File the principal office of the Exchange, and examination.
Number SR–MIAX–2015–63 and should at the Commission’s Public Reference Nasdaq Rule 1032(f) currently also
be submitted on or before December 8, Room. requires each person associated with a
2015. member who is included within the
II. Self-Regulatory Organization’s
For the Commission, by the Division of definition of a representative to register
Trading and Markets, pursuant to delegated Statement of the Purpose of, and
with Nasdaq as an Equity Trader if, with
authority.19 Statutory Basis for, the Proposed Rule
respect to transactions in equity,
Robert W. Errett, Change
preferred or convertible debt securities
Deputy Secretary. In its filing with the Commission, the on Nasdaq, such person is engaged in
[FR Doc. 2015–29218 Filed 11–16–15; 8:45 am] Exchange included statements proprietary trading, the execution of
BILLING CODE 8011–01–P concerning the purpose of and basis for transactions on an agency basis, or the
the proposed rule change and discussed direct supervision of such activities
any comments it received on the (collectively, ‘‘Nasdaq equities
SECURITIES AND EXCHANGE proposed rule change. The text of these trading’’), other than any person
COMMISSION statements may be examined at the associated with (A) a member whose
[Release No. 34–76410; File No. SR– places specified in Item IV below. The trading activities are conducted
NASDAQ–2015–138] Exchange has prepared summaries, set principally on behalf of an investment
forth in sections A, B, and C below, of company that is registered with the
Self-Regulatory Organizations; The the most significant aspects of such Commission pursuant to the Investment
NASDAQ Stock Market LLC; Notice of statements. Company Act of 1940 and that controls,
Filing and Immediate Effectiveness of A. Self-Regulatory Organization’s is controlled by or is under common
Proposed Rule Change To Establish Statement of the Purpose of, and control, with the member (an
the Securities Trader and Securities Statutory Basis for, the Proposed Rule ‘‘investment company firm’’), or (B) a
Trader Principal Registration Change proprietary trading firm. Therefore,
Categories and To Retire Other
Registration Categories 1. Purpose 3 Rule 1032(f).
4 Rule 1032(c).
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November 10, 2015. The Exchange is proposing herein to 5 Rule 1022(h).
Pursuant to Section 19(b)(1) of the replace the Series 56 with the Series 57 6 See Securities Exchange Act Release No. 75783
Securities Exchange Act of 1934 examination, and to make additional (August 28, 2015), 80 FR 53369 (September 3, 2015)
(‘‘Act’’) 1, and Rule 19b–4 thereunder,2 changes to its registration rules. (approving SR–FINRA–2015–017) referred to herein
Specifically, in response to the FINRA as the ‘‘FINRA Amendments’’. According to the
release, FINRA’s expected effective date for the
19 17 CFR 200.30–3(a)(12). Amendments (defined below), the FINRA Amendments is January 4, 2016.
1 15 U.S.C. 78s(b)(1). Exchange is proposing to retire the 7 The term ‘‘representative’’ is defined in
2 17 CFR 240.19b–4. Limited Representative—Equity Trader Exchange Rule 1011.
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Document Created: 2015-12-14 14:00:58
Document Modified: 2015-12-14 14:00:58
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 80 FR 71883 |
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