81 FR 34393 - Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change Removing From Its Rules Certain Internal Procedures Regarding the Use of Fine Income
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 104 (May 31, 2016)
Federal Register Volume 81, Issue 104 (May 31, 2016)
| Page Range | 34393-34398 | |
| FR Document | 2016-12673 |
[Federal Register Volume 81, Number 104 (Tuesday, May 31, 2016)] [Notices] [Pages 34393-34398] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-12673] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-77899; File No. SR-NYSE-2016-37] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change Removing From Its Rules Certain Internal Procedures Regarding the Use of Fine Income May 24, 2016. Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 (the ``Act'' or ``Exchange Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given that, on May 13, 2016, New York Stock Exchange LLC (``NYSE'' or the ``Exchange'') filed with the Securities and Exchange Commission (the ``Commission'') the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the self-regulatory organization. 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\ 15 U.S.C. 78a. \3\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of the Substance of the Proposed Rule Change The Exchange proposes to remove from its rules certain internal procedures regarding the use of fine income. The proposed rule change is available on the Exchange's Web site at www.nyse.com, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. [[Page 34394]] A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to remove from its rules certain internal procedures regarding the use of fine income, which were approved in 2007 (the ``Fine Income Procedures'') in order to align the Exchange's use of fine income with other self-regulatory organizations (``SROs''). The Exchange believes that the Fine Income Limitations [sic] are no longer necessary and are duplicative of the limitations on the use of regulatory assets and income, including fine income, set forth in Article IV, Section 4.05 of the operating agreement of the Exchange (``Section 4.05''). Section 4.05 prohibits the Exchange from using any regulatory assets or any regulatory fees, fines or penalties collected by the Exchange's regulatory staff for commercial purposes or distributing such assets, fees, fines or penalties to NYSE Group, Inc. (``NYSE Group''), the Exchange's member, or any other entity.\4\ --------------------------------------------------------------------------- \4\ See Ninth Amended and Restated Operating Agreement of New York Stock Exchange LLC, Art. IV, Sec. 4.05; see also Securities Exchange Act Release No. 75991 (September 28, 2015), 80 FR 59837 (October 2, 2015) (SR-NYSE-2015-27) (``NYSE Approval Order''), at 59839. --------------------------------------------------------------------------- For the reasons discussed below, the Exchange believes that together Section 4.05 and the provisions governing the Regulatory Oversight Committee (``ROC'') of the Exchange's Board of Directors adequately address the concerns underlying the Fine Income Procedures and provide sufficient protections to ensure the proper use of fine income by the Exchange. Background The Fine Income Procedures In 2006, New York Stock Exchange, Inc. merged with Archipelago Holdings, Inc. (the ``Archipelago Merger'').\5\ Prior to approval of rule changes related to the Archipelago Merger, in conversation with the staff of the Securities and Exchange Commission (``Commission''), the Exchange undertook to subsequently file a proposed rule change regarding the use of fines collected from member organizations following disciplinary action against such member organizations.\6\ On January 31, 2007, the Commission approved the proposed rule change establishing the Fine Income Procedures.\7\ --------------------------------------------------------------------------- \5\ See id. The Archipelago Merger had the effect of ``demutualizing'' New York Stock Exchange, Inc. by separating equity ownership from trading privileges, and converting it to a for-profit entity. See Securities Exchange Act Release No. 53382, 71 FR 11251, 11254 (February 27, 2006) [sic] (SR-NYSE-2005-77) (``Merger Approval Order''). In the resulting re-organization, the Exchange became a wholly-owned subsidiary of NYSE Group, and succeeded to New York Stock Exchange, Inc.'s registration as a national securities exchange under the Exchange Act. See id. at 11255. \6\ See id. at 11270, note 231. Subject to the requirement to file fees with the Commission, the Exchange determines, assesses, collects and retains certain registration and regulatory fees set forth in its Price List. \7\ See Securities Exchange Act Release No. 55216 (January 31, 2007), 72 FR 5779 (February 7, 2007) (NYSE-2006-109) (``Order Approving the Fine Income Procedures''). --------------------------------------------------------------------------- The Exchange's Fine Income Procedures referred to actions to be taken by the Exchange's subsidiary, NYSE Regulation, Inc. (``NYSE Regulation''), and NYSE Regulation's board of directors (the ``NYSE Regulation Board''), because at the time performance of certain of the Exchange's regulatory functions was delegated to NYSE Regulation. Such delegation was made in 2006 pursuant to a Delegation Agreement (the ``Delegation Agreement'') between the Exchange, NYSE Regulation, and NYSE Market (DE), Inc. (``NYSE Market (DE)'').\8\ --------------------------------------------------------------------------- \8\ See NYSE Approval Order, supra note 4, at 59839. The Exchange's market functions were delegated to NYSE Market (DE). Although the Delegation Agreement set forth the terms under which the Exchange delegated its functions to NYSE Regulation and NYSE Market (DE), the Exchange retained ultimate responsibility for the operations, rules and regulations developed by NYSE Regulation and NYSE Market (DE) and for their enforcement. --------------------------------------------------------------------------- As approved, the Fine Income Procedures provided that: \9\ --------------------------------------------------------------------------- \9\ See Securities Exchange Act Release No. 55003 (December 22, 2006), 71 FR 78497, 78498 (December 29, 2006) (NYSE-2006-109) (the ``Proposing Release''). ---------------------------------------------------------------------------Fines would play no role in the annual NYSE Regulation budget process. Beginning with the preparation of the 2007 operating budget, fines would be budgeted at zero, that is, budgeted expenses of NYSE Regulation would be offset entirely by budgeted income that did not include any anticipated income from fines. Among other things, this meant that fines would not offset amounts budgeted for compensation of NYSE Regulation employees or directors. During the course of a year, income from fines would be considered as available to fund non- compensation expenses of NYSE Regulation, which expenses were not anticipated in the budget process or which could not be included in the budget prepared in advance of the fiscal year because NYSE Regulation was unable to budget sufficient income from sources other than fines to offset the expenses. The use of fine income by NYSE Regulation would be subject to specific review and approval by the NYSE Regulation board of directors. On a quarterly basis, the staff of NYSE Regulation would provide to the NYSE Regulation Board a report on the amount of fine income received to date during the year and recommendations regarding its proposed use to fund regulatory expenses as above described. The use of the fine income would be subject to NYSE Regulation Board approval. Following each year, the staff of NYSE Regulation would provide the NYSE Regulation Board a report reprising the fines imposed and the utilization of fine income by NYSE Regulation during that year. This report would analyze fines imposed by NYSE Regulation for consistency with precedent from both other NYSE disciplinary cases as well as publicly available disciplinary cases adjudicated by the National Association of Securities Dealers, Inc. and the Commission. Each year the NYSE Regulation Board would also consider whether unused fine income had accumulated beyond a level reasonably necessary for future contingencies, and could determine to utilize any such excess to fund one or more special projects of NYSE Regulation, to reduce fees charged by NYSE Regulation to its member organizations or the markets that it serves, or for a charitable purpose. Amendment of the Fine Income Procedures Effective February 16, 2016, the Delegation Agreement terminated and NYSE Regulation ceased performing regulatory functions on behalf of the Exchange, which has re-integrated its regulatory functions. The ROC of the Exchange's Board of Directors now provides independent oversight of the regulatory function of the Exchange.\10\ --------------------------------------------------------------------------- \10\ See NYSE Approval Order, supra note 4, at 59838. Similarly, following termination of the Delegation Agreement, NYSE Market (DE)'s delegated market responsibilities are performed by the Exchange. --------------------------------------------------------------------------- In its filing proposing the creation of the ROC and termination of the Delegation Agreement, the Exchange addressed the Fine Income Procedures. Specifically, it ``reiterate[ed] [sic] the previous commitments that fines would play no role in the annual regulatory operating budget process and that the use of fine income by Exchange regulatory staff would be subject to review and approval by the proposed ROC.'' \11\ Accordingly, the ROC has [[Page 34395]] assumed the responsibilities previously held by the NYSE Regulation Board. --------------------------------------------------------------------------- \11\ See Securities Exchange Act Release No. 75288 (June 24, 2015), 80 FR 37316 (June 30, 2015) (SR-NYSE-2015-27), note 25. --------------------------------------------------------------------------- Proposed Amendment The Exchange proposes to delete the Fine Income Procedures from the Exchange rules. The Exchange would remain subject to Section 4.05, which prohibits it from using any regulatory assets or any regulatory fees, fines or penalties collected by the Exchange's regulatory staff for commercial purposes or distributing such assets, fees, fines or penalties to the Exchange's member or any other entity.\12\ --------------------------------------------------------------------------- \12\ All fine monies previously collected would remain subject to the restrictions in Section 4.05. --------------------------------------------------------------------------- In its Order Approving the Fine Income Procedures, the Commission stated that the Fine Income Procedures were ``to assure the proper exercise by NYSE Regulation of its power to fine member organizations of the Exchange and the proper use by NYSE Regulation of the funds so collected.'' \13\ The Exchange believes that Section 4.05 and the operating agreement provisions governing the ROC adequately address these concerns. --------------------------------------------------------------------------- \13\ Order Approving the Fine Income Procedures, supra note 7, at 5779. --------------------------------------------------------------------------- First, the Exchange believes that limitations on the use of fines is not the most effective way to assure proper exercise by Exchange regulatory staff of the Exchange's power to fine member organizations. Simply put, usage limitations on fine income do not provide oversight of regulatory performance. They just monitor how the resulting income is spent. The Exchange believes that the responsibility to assure proper exercise by Exchange regulatory staff of the Exchange's power to fine member organizations more properly lies with the ROC, which is responsible to oversee the Exchange's regulatory and self-regulatory organization responsibilities and assess the Company's regulatory performance.\14\ --------------------------------------------------------------------------- \14\ See Ninth Amended and Restated Operating Agreement of New York Stock Exchange LLC, Art. II, Sec. 2.03(h)(ii). The ROC is made up entirely of independent directors of the Exchange. --------------------------------------------------------------------------- In addition, the disciplinary process itself contains a powerful check on the improper exercise by Exchange regulatory staff of the power to fine members and member organizations, specifically the appellate process, whereby adverse hearing panel determinations can be appealed to the Committee for Review, a committee of the Board of Directors of the Exchange that includes independent directors and individuals associated with member organizations of the Exchange, which recommends a disposition to the Board of Directors of the Exchange. Final actions of the Exchange can be appealed to the Commission, and Commission determinations can be challenged in federal court. Second, the Exchange believes that, by setting clear limitations on its use, Section 4.05 is sufficient to ensure the proper use by the Exchange of fine income. Section 4.05 addresses this concern by prohibiting the use of fines for commercial purposes or distributions. Indeed, because Section 4.05 encompasses all regulatory assets and income, not just fines, it ensures the proper use by the Exchange of a broader range of regulatory funds, by prohibiting their use for commercial purposes or distributions. The Commission stated in its Order Approving the Fine Income Procedures that it believed the Fine Income Procedures would ``guard against the possibility that fines may be assessed to respond to budgetary needs rather than to serve a disciplinary purpose.'' \15\ Section 4.05 also guards against this possibility by limiting the use of fines. However, unlike the Fine Income Procedures, Section 4.05 also guards against the possibility that other regulatory income, such as examination, access, registration, qualification, arbitration, dispute resolution and other regulatory fees, or regulatory assets, could be used or assessed to respond to budgetary needs, by making them unavailable for commercial purposes or distributions. At the same time, the ROC is specifically charged with reviewing the regulatory budget of the Exchange and inquiring into the adequacy of resources available in the budget for regulatory activities.\16\ Accordingly, the Exchange believes that removing the Fine Income Procedures and relying on Section 4.05 and the provisions governing the ROC would provide adequate protections against the use of regulatory assets, or assessment of regulatory income, to respond to budgetary needs. --------------------------------------------------------------------------- \15\ Order Approving the Fine Income Procedures, supra note 7, at 5780. \16\ See note 14, supra. --------------------------------------------------------------------------- The Exchange believes that the circumstances that led to the Fine Income Procedures no longer exist. At the time the Fine Income Procedures were adopted, a predecessor to Section 4.05 was in effect (the ``Predecessor Section''). Indeed, the Commission cited that fact when approving the Archipelago Merger: The Commission further notes that the NYSE has taken steps to safeguard the use of regulatory monies. Specifically, New York Stock Exchange LLC will not be permitted to use any assets of, or any regulatory fees, fines, or penalties collected by, NYSE Regulation for commercial purposes or distribute such assets, fees, fines, or penalties to NYSE Group or any entity other than NYSE Regulation.\17\ --------------------------------------------------------------------------- \17\ See Merger Approval Order, supra note 5, at 11263. --------------------------------------------------------------------------- At the time, NYSE Regulation performed regulatory functions on behalf of the Exchange. On its face, the Predecessor Section, found in the Exchange's 2006 operating agreement, only limited the Exchange itself. NYSE Regulation had the obligation under the Delegation Agreement to assure compliance with the rules of the Exchange, but the Fine Income Procedures provided a more direct commitment by NYSE Regulation to ensure the proper exercise of NYSE Regulation's power to fine member organizations and the proper use by NYSE Regulation of fines collected. Today, because the Delegation Agreement is no longer in effect, the same entity that fines member organizations is directly subject to the limits of Section 4.05. Accordingly, the Exchange believes that removing the Fine Income Procedures and relying on Section 4.05 and the provisions governing the ROC would provide adequate protections against the concerns cited by the Commission in the Order Approving the Fine Income Procedures. Indeed, as pointed out above, Section 4.05 is wider in scope than the Fine Income Procedures, and so limits the Exchange's use of all regulatory assets and income, not just fine income. The proposed change would have the benefit of bringing the Exchange's restrictions on the use of regulatory assets and income into greater conformity with those of its affiliates NYSE MKT LLC and NYSE Arca, Inc. NYSE MKT LLC has substantially the same provision as Section 4.05 its operating agreement.\18\ The bylaws of NYSE Arca, Inc. also preclude the use of regulatory fees and penalties for commercial operations or dividends, limiting their use to funding legal, regulatory and surveillance operations.\19\ --------------------------------------------------------------------------- \18\ See Eighth Amended and Restated Operating Agreement of NYSE MKT LLC, Art. IV, Sec. 4.05 (``The Company shall not use any regulatory assets or any regulatory fees, fines or penalties collected by Exchange regulatory staff for commercial purposes or distribute such assets, fees, fines or penalties to the Member or any other entity.''). \19\ See Bylaws of NYSE Arca, Inc., Art. II, Sec. 2.06 (``Any revenues received by the Exchange from regulatory fees or regulatory penalties will be applied to fund the legal, regulatory and surveillance operations of the Exchange and will not be used to pay dividends. For purposes of this Section, regulatory penalties shall include restitution and disgorgement of funds intended for customers.''). --------------------------------------------------------------------------- In addition, removing the Fine Income Procedures from its rules would [[Page 34396]] make the Exchange's rules more consistent with the limitations on the use of regulatory assets and income of other SROs. Indeed, no other SRO limits the use of fine income to extra-budgetary use or subjects the use of fine income to specific review and approval by a regulatory oversight committee or any other body. Rather, other SROs' limitations on the use of regulatory funds are generally similar to Section 4.05, in that they provide that regulatory funds shall be used to fund the relevant SRO's legal, regulatory and (in some cases) surveillance operations, and shall not be used to make a distribution to the SRO's member or stockholder, as the case may be. For example, the limited liability company agreement of the BOX Options Exchange (``BOX'') provides that regulatory funds shall be used to the [sic] fund legal, regulatory and surveillance operations of BOX, and BOX shall not make any distribution to members using regulatory funds. BOX defines ``regulatory funds'' to include fees, fines or penalties derived from its regulatory operations.\20\ Similarly, the limited liability company agreements of International Securities Exchange, LLC, and its affiliates ISE Gemini, LLC and ISE Mercury, LLC provide that regulatory funds shall not be used for non-regulatory purposes, but rather shall be used to fund legal, regulatory and surveillance operations, and the SRO shall not make any distribution to its member using regulatory funds.\21\ --------------------------------------------------------------------------- \20\ See Box Options Exchange Limited Liability Company Agreement, Art. 1, Sec. 1.1 and Art. 8, Sec. 8.1. The definition also states that ``Regulatory Funds shall not include revenues derived from listing 6 A/72816686.20 [sic] fees, market data revenues, transaction revenues or any other aspect of the commercial operations of the Exchange or a facility of the Exchange, even if a portion of such revenues are used to pay costs associated with the regulatory operations of the Exchange.'' Id. \21\ Such agreements define ``Regulatory Funds'' to mean ``fees, fines or penalties derived from the regulatory operations of the Company, provided that Regulatory Funds shall not include revenues derived from listing fees, market data revenues, transaction revenues or any other aspect of the commercial operations of the Company or a facility of the Company, even if a portion of such revenues are used to pay costs associated with the regulatory operations of the Company.'' See Third Amended and Restated Limited Liability Company Agreement of International Securities Exchange, LLC, Art. III, Sec. 3.3(ii); Second Amended and Restated Limited Liability Company Agreement of ISE Gemini, LLC, Art. III, Sec. 3.3(ii); and Limited Liability Company Agreement of ISE Mercury, LLC, Art. III, Sec. 3.3(ii). --------------------------------------------------------------------------- Section 4.05 is more restrictive than the provisions of some other SROs, whose rules allow the use of regulatory funds for restitution and disgorgement of funds intended for customers. For example, the governing documents of affiliates BATS BZX Exchange, Inc., BATS BYX Exchange, Inc., BATS EDGX Exchange, Inc., and EDGA Exchange, Inc. provide that revenues received from fees derived from the regulatory function or regulatory penalties may be used to pay restitution and disgorgement of funds intended for customers, as well as to fund legal and regulatory operations, including surveillance and enforcement activities. Such funds may not be used for non-regulatory purposes or distributed to the stockholder.\22\ The limited liability company agreement of Miami International Securities Exchange, LLC, and bylaws of National Stock Exchange, Inc., have similar provisions.\23\ --------------------------------------------------------------------------- \22\ See Fourth Amended and Restated Bylaws of BATS BZX Exchange, Inc., Art. X, Sec. 4; Fourth Amended and Restated Bylaws of BATS BYX Exchange, Inc., Art. X, Sec. 4; Fifth Amended and Restated Bylaws of BATS EDGX Exchange, Inc., Art. X, Sec. 4; and Fifth Amended and Restated Bylaws of BATS EDGA Exchange, Inc., Art. X, Sec. 4. \23\ See Second Amended and Restated Limited Liability Company Agreement of Miami International Securities Exchange, LLC, Art. IX, Sec. 9.4 (``Any Regulatory Funds will not be used for non-regulatory purposes or distributed to the LLC Member, but rather, shall be applied to fund the legal and regulatory operations of the Company (including surveillance and enforcement activities), or, as the case may be, shall be used to pay restitution and disgorgement of funds intended for customers.''); Amended and Restated By-laws of National Stock Exchange, Inc., [sic] Art. X, Sec. 10.4 (``Any revenues received by the Exchange from fees derived from its regulatory function or regulatory penalties will not be used to pay dividends and shall be applied to fund the legal and regulatory operations of the Exchange (including surveillance and enforcement activities), or, as the case may be, shall be used to pay restitution and disgorgement of funds intended for customers.''); see also Amended and Restated By-Laws of Miami International Securities Exchange, LLC, Art. IX, Sec. 9.4. --------------------------------------------------------------------------- The limitations imposed on the NASDAQ Stock Market LLC (``Nasdaq'') in its operating agreement are also less restrictive than the limitations imposed on the Exchange by Section 4.05. They simply limit Nasdaq from making a distribution to its member using regulatory funds. ``Regulatory funds'' is defined to mean fees, fines, or penalties derived from the regulatory operations of Nasdaq.\24\ When the NASDAQ OMX Group, Inc. acquired the Boston Stock Exchange (``BSE''), the BSE by-laws were amended to include a similar provision that dividends could not be paid to the stockholders using regulatory funds, also defined as fees, fines, or penalties derived from regulatory operations.\25\ The Commission described the provision as ``intended to preclude BSE from using its authority to raise regulatory funds for the purpose of benefiting its shareholders, or for other non-regulatory purposes, such as executive compensation.'' \26\ The Exchange believes that Section 4.05, which is more expansive in its scope, meets the same goal. --------------------------------------------------------------------------- \24\ See Second Amended Limited Liability Company Agreement of The NASDAQ Stock Market LLC, Sec. 15. The definition of Regulatory Funds also states that ```Regulatory Funds' shall not be construed to include revenues derived from listing fees, market data revenues, transaction revenues, or any other aspect of the commercial operations of the Company, even if a portion of such revenues are used to pay costs associated with the regulatory operations of the Company.'' Id, Sch. A. See also by-laws of NASDAQ BX, Inc., Art. IX, Sec. 9.8, and Second Amended Limited Liability Company Agreement of NASDAQ PHLX LLC, Sec. 14. \25\ See Securities Exchange Act Release No. 58324 (August 7, 2008), 73 FR 46936 (August 12, 2008) (SR-BSE- 2008-02; SR-BSE-2008- 23; SR-BSE-2008- 25; SR-BSECC-2008-01), at 46942. \26\ See Securities Exchange Act Release No. 58324 (August 7, 2008), 73 FR 46936 (August 12, 2008) (SR-BSE- 2008-02; SR-BSE-2008- 23; SR-BSE-2008- 25; SR-BSECC-2008-01), at 46942. --------------------------------------------------------------------------- 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Exchange Act \27\ in general, and Section 6(b)(1) \28\ in particular, in that it enables the Exchange to be so organized as to have the capacity to be able to carry out the purposes of the Exchange Act and to comply, and to enforce compliance by its exchange members and persons associated with its exchange members, with the provisions of the Exchange Act, the rules and regulations thereunder, and the rules of the Exchange. Deletion of the Fine Income Procedures would not diminish the Exchange's ability to adequately ensure the proper exercise of the Exchange's power to fine member organizations and the proper use by the Exchange of the funds collected through the disciplinary process. --------------------------------------------------------------------------- \27\ 15 U.S.C. 78f(b). \28\ 15 U.S.C. 78f(b)(1). --------------------------------------------------------------------------- The Exchange believes that Section 4.05 and the operating agreement provisions governing the ROC adequately address the concerns underlying adoption of the Fine Income Procedures, rendering the Fine Income Procedures superfluous. First, the Fine Income Procedures cannot assure the proper exercise by Exchange regulatory staff of the Exchange's power to fine member organizations of the Exchange, as usage limitations on fine income do not provide oversight of regulatory performance. The responsibility more properly lies with the ROC, which is responsible for overseeing the Exchange's regulatory and self- regulatory organization responsibilities and assessing its regulatory performance, including reviewing the regulatory budget and inquiring into the adequacy of resources available in the budget for regulatory activities.\29\ In [[Page 34397]] addition, the disciplinary process itself contains a powerful check on the improper exercise by Exchange regulatory staff of the power to fine members and member organizations, specifically, the appellate process, whereby adverse hearing panel determinations can be appealed to the Committee for Review, which recommends a disposition to the Board of Directors of the Exchange. Final actions of the Exchange can be appealed to the Commission, and Commission determinations can be challenged in federal court. Second, by setting clear imitations [sic] on its use, Section 4.05 is not only sufficient to ensure the proper use by the Exchange of fine income but also, because it encompasses all regulatory assets and income, ensures the proper use by the Exchange of a broader range of regulatory funds, by prohibiting their use for commercial purposes or distributions. --------------------------------------------------------------------------- \29\ See note 14, supra. --------------------------------------------------------------------------- Finally, the Exchange believes that Section 4.05 and the operating agreement provisions governing the ROC would provide adequate protections against the assessment of regulatory income, or the use of regulatory assets, to respond to budgetary needs. By limiting their use, Section 4.05 guards against the possibility that fines may be assessed to respond to budgetary needs rather than to serve a disciplinary purpose. However, unlike the Fine Income Procedures, Section 4.05 also guards against the possibility that other regulatory income, such as examination, access, registration, qualification, arbitration, dispute resolution and other regulatory fees, or regulatory assets, could be used or assessed to respond to budgetary needs, by making them unavailable for commercial purposes or distributions. For the same reasons, the Exchange believes that the proposed deletion of the Fine Income Procedures is consistent with Section 6(b)(4),\30\ which requires that the rules of the exchange provide for the equitable allocation of reasonable dues, fees, and other charges among the exchange's members and issuers and other persons using its facilities, and Section 6(b)(5),\31\ which requires that the rules of the exchange be 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 regulating, clearing, settling, processing information with respect to, and 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. As noted, the Exchange believes that the responsibility to assure the proper exercise by Exchange regulatory staff of the Exchange's power to fine member organizations more properly lies with the ROC, and that, by setting clear imitations [sic] on its use, Section 4.05 is not only sufficient to ensure the proper use by the Exchange of fine income but also, because it encompasses all regulatory assets and income, ensures the proper use by the Exchange of a broader range of regulatory funds, by prohibiting their use for commercial purposes or distributions. Finally, the Exchange believes that Section 4.05 and the operating agreement provisions governing the ROC would provide adequate protections against the assessment of regulatory income, or the use of regulatory assets, to respond to budgetary needs. Section 4.05 not only guards against the possibility that fines may be assessed to respond to budgetary needs rather than to serve a disciplinary purpose, but also guards against the possibility that other regulatory income or regulatory assets could be used or assessed in that manner, by making them unavailable for commercial purposes or distributions. --------------------------------------------------------------------------- \30\ 15 U.S.C. 78f(b)(4). \31\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Exchange believes that the proposed deletion of the Fine Income Procedures is consistent with the Exchange's present governance structure, centered on a ROC. Today, because the Delegation Agreement is no longer in effect, the same entity that fines member organizations is directly subject to the limits of Section 4.05. Accordingly, the proposed deletion is consistent with ensuring that the Exchange is so organized as to have the capacity to be able to carry out the purposes of the Exchange Act and to comply, and to enforce compliance by its exchange members and persons associated with its exchange members, with the provisions of the Exchange Act, the rules and regulations thereunder, and the rules of the Exchange. The Exchange notes that the proposed change would have the additional benefit of making the Exchange's rules more consistent with the limitations on the use of regulatory assets and income of other SROs and bringing the Exchange's restrictions on the use of regulatory assets and income into greater conformity with those of its affiliates NYSE MKT LLC and NYSE Arca, Inc. Indeed, no other SRO limits the use of fine income to extra-budgetary use or subjects the use of fine income to specific review and approval by a regulatory oversight committee or any other body.\32\ Rather, other SROs' limitations on the use of regulatory funds are generally similar to Section 4.05, in that they provide that regulatory funds shall be used to fund the relevant SRO's legal, regulatory and (in some cases) surveillance operations, and shall not be used to make a distribution to the SRO's member or stockholder, as the case may be. In fact, Section 4.05 is more restrictive than the provisions of some other SROs, whose rules allow the use of regulatory funds for restitution and disgorgement of funds intended for customers, or simply limit the SRO from making a distribution to its member using regulatory funds. --------------------------------------------------------------------------- \32\ See notes 20-25 [sic] and accompanying text. --------------------------------------------------------------------------- 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 Exchange Act. The proposed rule change is not intended to address competitive issues but rather is concerned solely with the administration and functioning of the Exchange. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. 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 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: [[Page 34398]] Electronic Comments Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-NYSE-2016-37 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-NYSE-2016-37. 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 (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 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NYSE-2016-37, and should be submitted on or before June 21, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\33\ --------------------------------------------------------------------------- \33\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2016-12673 Filed 5-27-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 104 / Tuesday, May 31, 2016 / Notices 34393
surveillance procedures relating to Paper Comments SECURITIES AND EXCHANGE
trading in the Shares and may obtain COMMISSION
information via ISG from other • Send paper comments in triplicate
exchanges that are members of ISG or to Secretary, Securities and Exchange
[Release No. 34–77899; File No. SR–NYSE–
with which the Exchange has entered Commission, 100 F Street NE.,
2016–37]
into a comprehensive surveillance Washington, DC 20549–1090.
sharing agreement. In addition, as noted All submissions should refer to File Self-Regulatory Organizations; New
above, investors have ready access to Number SR–NYSEArca–2016–70. This York Stock Exchange LLC; Notice of
information regarding each Fund’s file number should be included on the Filing of Proposed Rule Change
holdings, the Portfolio Indicative Value, Removing From Its Rules Certain
subject line if email is used. To help the
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and last sale information for the Shares. of Fine Income
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B. Self-Regulatory Organization’s only one method. The Commission will
Statement on Burden on Competition May 24, 2016.
post all comments on the Commission’s
The Exchange does not believe that Internet Web site (http://www.sec.gov/ Pursuant to Section 19(b)(1) 1 of the
the proposed rule change will impose rules/sro.shtml). Copies of the Securities Exchange Act of 1934 (the
any burden on competition that is not submission, all subsequent ‘‘Act’’ or ‘‘Exchange Act’’) 2 and Rule
necessary or appropriate in furtherance amendments, all written statements 19b–4 thereunder,3 notice is hereby
of the purpose of the Act. The Exchange with respect to the proposed rule given that, on May 13, 2016, New York
believes the proposed rule change is change that are filed with the Stock Exchange LLC (‘‘NYSE’’ or the
designed to allow the Funds to invest in Commission, and all written ‘‘Exchange’’) filed with the Securities
a broader range of debt securities communications relating to the and Exchange Commission (the
thereby helping the Funds to achieve proposed rule change between the ‘‘Commission’’) the proposed rule
their respective investment objective. Commission and any person, other than change as described in Items I, II, and
those that may be withheld from the III below, which Items have been
C. Self-Regulatory Organization’s
public in accordance with the prepared by the self-regulatory
Statement on Comments on the
provisions of 5 U.S.C. 552, will be organization. The Commission is
Proposed Rule Change Received From
Members, Participants, or Others available for Web site viewing and publishing this notice to solicit
printing in the Commission’s Public comments on the proposed rule change
No written comments were solicited Reference Room, 100 F Street NE., from interested persons.
or received with respect to the proposed Washington, DC 20549, on official
rule change. I. Self-Regulatory Organization’s
business days between the hours of Statement of the Terms of the Substance
III. Date of Effectiveness of the 10:00 a.m. and 3:00 p.m. Copies of the of the Proposed Rule Change
Proposed Rule Change and Timing for filing also will be available for
Commission Action inspection and copying at the principal The Exchange proposes to remove
Within 45 days of the date of office of the Exchange. All comments from its rules certain internal
publication of this notice in the Federal received will be posted without change; procedures regarding the use of fine
Register or within such longer period the Commission does not edit personal income. The proposed rule change is
up to 90 days (i) as the Commission may identifying information from available on the Exchange’s Web site at
designate if it finds such longer period submissions. You should submit only www.nyse.com, at the principal office of
to be appropriate and publishes its information that you wish to make the Exchange, and at the Commission’s
reasons for so finding or (ii) as to which available publicly. All submissions Public Reference Room.
the self-regulatory organization should refer to File Number SR–
II. Self-Regulatory Organization’s
consents, the Commission will: NYSEArca–2016–70, and should be
Statement of the Purpose of, and
(A) By order approve or disapprove submitted on or before June 21, 2016.
Statutory Basis for, the Proposed Rule
the proposed rule change, or For the Commission, by the Division of Change
(B) institute proceedings to determine Trading and Markets, pursuant to delegated
whether the proposed rule change authority.18 In its filing with the Commission, the
should be disapproved. Robert W. Errett, self-regulatory organization included
IV. Solicitation of Comments Deputy Secretary. statements concerning the purpose of,
[FR Doc. 2016–12668 Filed 5–27–16; 8:45 am] and basis for, the proposed rule change
Interested persons are invited to and discussed any comments it received
submit written data, views, and BILLING CODE 8011–01–P
on the proposed rule change. The text
arguments concerning the foregoing, of those statements may be examined at
including whether the proposed rule the places specified in Item IV below.
change is consistent with the Act. The Exchange has prepared summaries,
Comments may be submitted by any of
set forth in sections A, B, and C below,
the following methods:
of the most significant parts of such
sradovich on DSK3TPTVN1PROD with NOTICES
Electronic Comments statements.
• Use the Commission’s Internet
comment form (http://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@ 1 15 U.S.C. 78s(b)(1).
sec.gov. Please include File Number SR– 2 15 U.S.C. 78a.
NYSEArca–2016–70 on the subject line. 18 17 CFR 200.30–3(a)(12). 3 17 CFR 240.19b–4.
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A. Self-Regulatory Organization’s organizations following disciplinary review and approval by the NYSE
Statement of the Purpose of, and action against such member Regulation board of directors. On a
Statutory Basis for, the Proposed Rule organizations.6 On January 31, 2007, the quarterly basis, the staff of NYSE
Change Commission approved the proposed Regulation would provide to the NYSE
rule change establishing the Fine Regulation Board a report on the
1. Purpose
Income Procedures.7 amount of fine income received to date
The Exchange proposes to remove The Exchange’s Fine Income during the year and recommendations
from its rules certain internal Procedures referred to actions to be regarding its proposed use to fund
procedures regarding the use of fine taken by the Exchange’s subsidiary, regulatory expenses as above described.
income, which were approved in 2007 NYSE Regulation, Inc. (‘‘NYSE The use of the fine income would be
(the ‘‘Fine Income Procedures’’) in order Regulation’’), and NYSE Regulation’s subject to NYSE Regulation Board
to align the Exchange’s use of fine board of directors (the ‘‘NYSE approval. Following each year, the staff
income with other self-regulatory Regulation Board’’), because at the time of NYSE Regulation would provide the
organizations (‘‘SROs’’). The Exchange performance of certain of the Exchange’s NYSE Regulation Board a report
believes that the Fine Income regulatory functions was delegated to reprising the fines imposed and the
Limitations [sic] are no longer necessary NYSE Regulation. Such delegation was utilization of fine income by NYSE
and are duplicative of the limitations on made in 2006 pursuant to a Delegation Regulation during that year. This report
the use of regulatory assets and income, Agreement (the ‘‘Delegation would analyze fines imposed by NYSE
including fine income, set forth in Agreement’’) between the Exchange, Regulation for consistency with
Article IV, Section 4.05 of the operating NYSE Regulation, and NYSE Market precedent from both other NYSE
agreement of the Exchange (‘‘Section (DE), Inc. (‘‘NYSE Market (DE)’’).8 disciplinary cases as well as publicly
4.05’’). Section 4.05 prohibits the As approved, the Fine Income available disciplinary cases adjudicated
Exchange from using any regulatory Procedures provided that: 9 by the National Association of
assets or any regulatory fees, fines or • Fines would play no role in the Securities Dealers, Inc. and the
penalties collected by the Exchange’s annual NYSE Regulation budget Commission.
regulatory staff for commercial purposes process. Beginning with the preparation
or distributing such assets, fees, fines or of the 2007 operating budget, fines Each year the NYSE Regulation Board
penalties to NYSE Group, Inc. (‘‘NYSE would be budgeted at zero, that is, would also consider whether unused
Group’’), the Exchange’s member, or any budgeted expenses of NYSE Regulation fine income had accumulated beyond a
other entity.4 would be offset entirely by budgeted level reasonably necessary for future
For the reasons discussed below, the income that did not include any contingencies, and could determine to
Exchange believes that together Section anticipated income from fines. Among utilize any such excess to fund one or
4.05 and the provisions governing the other things, this meant that fines would more special projects of NYSE
Regulatory Oversight Committee not offset amounts budgeted for Regulation, to reduce fees charged by
(‘‘ROC’’) of the Exchange’s Board of compensation of NYSE Regulation NYSE Regulation to its member
Directors adequately address the employees or directors. During the organizations or the markets that it
concerns underlying the Fine Income course of a year, income from fines serves, or for a charitable purpose.
Procedures and provide sufficient would be considered as available to Amendment of the Fine Income
protections to ensure the proper use of fund non-compensation expenses of Procedures
fine income by the Exchange. NYSE Regulation, which expenses were
not anticipated in the budget process or Effective February 16, 2016, the
Background Delegation Agreement terminated and
which could not be included in the
The Fine Income Procedures budget prepared in advance of the fiscal NYSE Regulation ceased performing
In 2006, New York Stock Exchange, year because NYSE Regulation was regulatory functions on behalf of the
Inc. merged with Archipelago Holdings, unable to budget sufficient income from Exchange, which has re-integrated its
Inc. (the ‘‘Archipelago Merger’’).5 Prior sources other than fines to offset the regulatory functions. The ROC of the
to approval of rule changes related to expenses. Exchange’s Board of Directors now
the Archipelago Merger, in conversation • The use of fine income by NYSE provides independent oversight of the
with the staff of the Securities and Regulation would be subject to specific regulatory function of the Exchange.10
Exchange Commission (‘‘Commission’’), In its filing proposing the creation of
the Exchange undertook to subsequently 6 See id. at 11270, note 231. Subject to the
the ROC and termination of the
requirement to file fees with the Commission, the Delegation Agreement, the Exchange
file a proposed rule change regarding Exchange determines, assesses, collects and retains
the use of fines collected from member certain registration and regulatory fees set forth in addressed the Fine Income Procedures.
its Price List. Specifically, it ‘‘reiterate[ed] [sic] the
4 See Ninth Amended and Restated Operating 7 See Securities Exchange Act Release No. 55216 previous commitments that fines would
Agreement of New York Stock Exchange LLC, Art. (January 31, 2007), 72 FR 5779 (February 7, 2007) play no role in the annual regulatory
IV, Sec. 4.05; see also Securities Exchange Act (NYSE–2006–109) (‘‘Order Approving the Fine
Income Procedures’’).
operating budget process and that the
Release No. 75991 (September 28, 2015), 80 FR
59837 (October 2, 2015) (SR–NYSE–2015–27) 8 See NYSE Approval Order, supra note 4, at use of fine income by Exchange
(‘‘NYSE Approval Order’’), at 59839. 59839. The Exchange’s market functions were regulatory staff would be subject to
5 See id. The Archipelago Merger had the effect delegated to NYSE Market (DE). Although the review and approval by the proposed
of ‘‘demutualizing’’ New York Stock Exchange, Inc. Delegation Agreement set forth the terms under ROC.’’ 11 Accordingly, the ROC has
by separating equity ownership from trading which the Exchange delegated its functions to
sradovich on DSK3TPTVN1PROD with NOTICES
privileges, and converting it to a for-profit entity. NYSE Regulation and NYSE Market (DE), the
See Securities Exchange Act Release No. 53382, 71 Exchange retained ultimate responsibility for the 10 See NYSE Approval Order, supra note 4, at
FR 11251, 11254 (February 27, 2006) [sic] (SR– operations, rules and regulations developed by 59838. Similarly, following termination of the
NYSE–2005–77) (‘‘Merger Approval Order’’). In the NYSE Regulation and NYSE Market (DE) and for Delegation Agreement, NYSE Market (DE)’s
resulting re-organization, the Exchange became a their enforcement. delegated market responsibilities are performed by
wholly-owned subsidiary of NYSE Group, and 9 See Securities Exchange Act Release No. 55003 the Exchange.
succeeded to New York Stock Exchange, Inc.’s (December 22, 2006), 71 FR 78497, 78498 11 See Securities Exchange Act Release No. 75288
registration as a national securities exchange under (December 29, 2006) (NYSE–2006–109) (the (June 24, 2015), 80 FR 37316 (June 30, 2015) (SR–
the Exchange Act. See id. at 11255. ‘‘Proposing Release’’). NYSE–2015–27), note 25.
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![34396 Federal Register / Vol. 81, No. 104 / Tuesday, May 31, 2016 / Notices
make the Exchange’s rules more Exchange, Inc., and EDGA Exchange, fines, or penalties derived from
consistent with the limitations on the Inc. provide that revenues received from regulatory operations.25 The
use of regulatory assets and income of fees derived from the regulatory Commission described the provision as
other SROs. Indeed, no other SRO limits function or regulatory penalties may be ‘‘intended to preclude BSE from using
the use of fine income to extra- used to pay restitution and its authority to raise regulatory funds for
budgetary use or subjects the use of fine disgorgement of funds intended for the purpose of benefiting its
income to specific review and approval customers, as well as to fund legal and shareholders, or for other non-regulatory
by a regulatory oversight committee or regulatory operations, including purposes, such as executive
any other body. Rather, other SROs’ surveillance and enforcement activities. compensation.’’ 26 The Exchange
limitations on the use of regulatory Such funds may not be used for non- believes that Section 4.05, which is
funds are generally similar to Section regulatory purposes or distributed to the more expansive in its scope, meets the
4.05, in that they provide that regulatory stockholder.22 The limited liability same goal.
funds shall be used to fund the relevant company agreement of Miami
SRO’s legal, regulatory and (in some International Securities Exchange, LLC, 2. Statutory Basis
cases) surveillance operations, and shall and bylaws of National Stock Exchange, The Exchange believes that the
not be used to make a distribution to the Inc., have similar provisions.23 proposed rule change is consistent with
SRO’s member or stockholder, as the The limitations imposed on the Section 6(b) of the Exchange Act 27 in
case may be. NASDAQ Stock Market LLC (‘‘Nasdaq’’) general, and Section 6(b)(1) 28 in
For example, the limited liability in its operating agreement are also less particular, in that it enables the
company agreement of the BOX Options restrictive than the limitations imposed Exchange to be so organized as to have
Exchange (‘‘BOX’’) provides that on the Exchange by Section 4.05. They the capacity to be able to carry out the
regulatory funds shall be used to the simply limit Nasdaq from making a purposes of the Exchange Act and to
[sic] fund legal, regulatory and distribution to its member using comply, and to enforce compliance by
surveillance operations of BOX, and regulatory funds. ‘‘Regulatory funds’’ is its exchange members and persons
BOX shall not make any distribution to defined to mean fees, fines, or penalties associated with its exchange members,
members using regulatory funds. BOX derived from the regulatory operations with the provisions of the Exchange Act,
defines ‘‘regulatory funds’’ to include of Nasdaq.24 When the NASDAQ OMX the rules and regulations thereunder,
fees, fines or penalties derived from its Group, Inc. acquired the Boston Stock and the rules of the Exchange. Deletion
regulatory operations.20 Similarly, the Exchange (‘‘BSE’’), the BSE by-laws of the Fine Income Procedures would
limited liability company agreements of were amended to include a similar not diminish the Exchange’s ability to
International Securities Exchange, LLC, provision that dividends could not be adequately ensure the proper exercise of
and its affiliates ISE Gemini, LLC and paid to the stockholders using the Exchange’s power to fine member
ISE Mercury, LLC provide that regulatory funds, also defined as fees, organizations and the proper use by the
regulatory funds shall not be used for Exchange of the funds collected through
non-regulatory purposes, but rather 22 See Fourth Amended and Restated Bylaws of
the disciplinary process.
shall be used to fund legal, regulatory BATS BZX Exchange, Inc., Art. X, Sec. 4; Fourth
Amended and Restated Bylaws of BATS BYX The Exchange believes that Section
and surveillance operations, and the Exchange, Inc., Art. X, Sec. 4; Fifth Amended and 4.05 and the operating agreement
SRO shall not make any distribution to Restated Bylaws of BATS EDGX Exchange, Inc., Art. provisions governing the ROC
its member using regulatory funds.21 X, Sec. 4; and Fifth Amended and Restated Bylaws
adequately address the concerns
Section 4.05 is more restrictive than of BATS EDGA Exchange, Inc., Art. X, Sec. 4.
23 See Second Amended and Restated Limited underlying adoption of the Fine Income
the provisions of some other SROs, Procedures, rendering the Fine Income
Liability Company Agreement of Miami
whose rules allow the use of regulatory International Securities Exchange, LLC, Art. IX, Sec. Procedures superfluous. First, the Fine
funds for restitution and disgorgement 9.4 (‘‘Any Regulatory Funds will not be used for Income Procedures cannot assure the
of funds intended for customers. For non-regulatory purposes or distributed to the LLC
Member, but rather, shall be applied to fund the proper exercise by Exchange regulatory
example, the governing documents of
legal and regulatory operations of the Company staff of the Exchange’s power to fine
affiliates BATS BZX Exchange, Inc., (including surveillance and enforcement activities), member organizations of the Exchange,
BATS BYX Exchange, Inc., BATS EDGX or, as the case may be, shall be used to pay
restitution and disgorgement of funds intended for
as usage limitations on fine income do
20 See Box Options Exchange Limited Liability customers.’’); Amended and Restated By-laws of not provide oversight of regulatory
Company Agreement, Art. 1, Sec. 1.1 and Art. 8, National Stock Exchange, Inc., [sic] Art. X, Sec. 10.4 performance. The responsibility more
Sec. 8.1. The definition also states that ‘‘Regulatory (‘‘Any revenues received by the Exchange from fees properly lies with the ROC, which is
Funds shall not include revenues derived from derived from its regulatory function or regulatory
penalties will not be used to pay dividends and
responsible for overseeing the
listing 6 A/72816686.20 [sic] fees, market data
revenues, transaction revenues or any other aspect shall be applied to fund the legal and regulatory Exchange’s regulatory and self-
of the commercial operations of the Exchange or a operations of the Exchange (including surveillance regulatory organization responsibilities
facility of the Exchange, even if a portion of such and enforcement activities), or, as the case may be, and assessing its regulatory
revenues are used to pay costs associated with the shall be used to pay restitution and disgorgement
of funds intended for customers.’’); see also
performance, including reviewing the
regulatory operations of the Exchange.’’ Id.
21 Such agreements define ‘‘Regulatory Funds’’ to Amended and Restated By-Laws of Miami regulatory budget and inquiring into the
mean ‘‘fees, fines or penalties derived from the International Securities Exchange, LLC, Art. IX, Sec. adequacy of resources available in the
regulatory operations of the Company, provided 9.4. budget for regulatory activities.29 In
24 See Second Amended Limited Liability
that Regulatory Funds shall not include revenues
derived from listing fees, market data revenues, Company Agreement of The NASDAQ Stock Market 25 See Securities Exchange Act Release No. 58324
transaction revenues or any other aspect of the LLC, Sec. 15. The definition of Regulatory Funds
(August 7, 2008), 73 FR 46936 (August 12, 2008)
commercial operations of the Company or a facility also states that ‘‘‘Regulatory Funds’ shall not be
sradovich on DSK3TPTVN1PROD with NOTICES
(SR–BSE– 2008–02; SR–BSE–2008–23; SR–BSE–
of the Company, even if a portion of such revenues construed to include revenues derived from listing
2008– 25; SR–BSECC–2008–01), at 46942.
are used to pay costs associated with the regulatory fees, market data revenues, transaction revenues, or 26 See Securities Exchange Act Release No. 58324
operations of the Company.’’ See Third Amended any other aspect of the commercial operations of
the Company, even if a portion of such revenues are (August 7, 2008), 73 FR 46936 (August 12, 2008)
and Restated Limited Liability Company Agreement
of International Securities Exchange, LLC, Art. III, used to pay costs associated with the regulatory (SR–BSE– 2008–02; SR–BSE–2008–23; SR–BSE–
Sec. 3.3(ii); Second Amended and Restated Limited operations of the Company.’’ Id, Sch. A. See also 2008– 25; SR–BSECC–2008–01), at 46942.
27 15 U.S.C. 78f(b).
Liability Company Agreement of ISE Gemini, LLC, by-laws of NASDAQ BX, Inc., Art. IX, Sec. 9.8, and
28 15 U.S.C. 78f(b)(1).
Art. III, Sec. 3.3(ii); and Limited Liability Company Second Amended Limited Liability Company
Agreement of ISE Mercury, LLC, Art. III, Sec. 3.3(ii). Agreement of NASDAQ PHLX LLC, Sec. 14. 29 See note 14, supra.
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![Federal Register / Vol. 81, No. 104 / Tuesday, May 31, 2016 / Notices 34397
addition, the disciplinary process itself remove impediments to, and perfect the income to specific review and approval
contains a powerful check on the mechanism of a free and open market by a regulatory oversight committee or
improper exercise by Exchange and a national market system and, in any other body.32 Rather, other SROs’
regulatory staff of the power to fine general, to protect investors and the limitations on the use of regulatory
members and member organizations, public interest. As noted, the Exchange funds are generally similar to Section
specifically, the appellate process, believes that the responsibility to assure 4.05, in that they provide that regulatory
whereby adverse hearing panel the proper exercise by Exchange funds shall be used to fund the relevant
determinations can be appealed to the regulatory staff of the Exchange’s power SRO’s legal, regulatory and (in some
Committee for Review, which to fine member organizations more cases) surveillance operations, and shall
recommends a disposition to the Board properly lies with the ROC, and that, by not be used to make a distribution to the
of Directors of the Exchange. Final setting clear imitations [sic] on its use, SRO’s member or stockholder, as the
actions of the Exchange can be appealed Section 4.05 is not only sufficient to case may be. In fact, Section 4.05 is
to the Commission, and Commission ensure the proper use by the Exchange more restrictive than the provisions of
determinations can be challenged in of fine income but also, because it some other SROs, whose rules allow the
federal court. Second, by setting clear encompasses all regulatory assets and use of regulatory funds for restitution
imitations [sic] on its use, Section 4.05 income, ensures the proper use by the and disgorgement of funds intended for
is not only sufficient to ensure the Exchange of a broader range of customers, or simply limit the SRO from
proper use by the Exchange of fine regulatory funds, by prohibiting their making a distribution to its member
income but also, because it encompasses use for commercial purposes or using regulatory funds.
all regulatory assets and income, distributions. Finally, the Exchange
ensures the proper use by the Exchange believes that Section 4.05 and the B. Self-Regulatory Organization’s
of a broader range of regulatory funds, operating agreement provisions Statement on Burden on Competition
by prohibiting their use for commercial governing the ROC would provide The Exchange does not believe that
purposes or distributions. adequate protections against the the proposed rule change will impose
Finally, the Exchange believes that assessment of regulatory income, or the any burden on competition that is not
Section 4.05 and the operating use of regulatory assets, to respond to necessary or appropriate in furtherance
agreement provisions governing the budgetary needs. Section 4.05 not only of the purposes of the Exchange Act.
ROC would provide adequate guards against the possibility that fines The proposed rule change is not
protections against the assessment of may be assessed to respond to budgetary intended to address competitive issues
regulatory income, or the use of needs rather than to serve a disciplinary but rather is concerned solely with the
regulatory assets, to respond to purpose, but also guards against the administration and functioning of the
budgetary needs. By limiting their use, possibility that other regulatory income Exchange.
Section 4.05 guards against the or regulatory assets could be used or
possibility that fines may be assessed to assessed in that manner, by making C. Self-Regulatory Organization’s
respond to budgetary needs rather than them unavailable for commercial Statement on Comments on the
to serve a disciplinary purpose. purposes or distributions. Proposed Rule Change Received From
However, unlike the Fine Income The Exchange believes that the Members, Participants, or Others
Procedures, Section 4.05 also guards proposed deletion of the Fine Income No written comments were solicited
against the possibility that other Procedures is consistent with the or received with respect to the proposed
regulatory income, such as examination, Exchange’s present governance rule change.
access, registration, qualification, structure, centered on a ROC. Today,
arbitration, dispute resolution and other because the Delegation Agreement is no III. Date of Effectiveness of the
regulatory fees, or regulatory assets, longer in effect, the same entity that Proposed Rule Change and Timing for
could be used or assessed to respond to fines member organizations is directly Commission Action
budgetary needs, by making them subject to the limits of Section 4.05. Within 45 days of the date of
unavailable for commercial purposes or Accordingly, the proposed deletion is publication of this notice in the Federal
distributions. consistent with ensuring that the Register or up to 90 days (i) as the
For the same reasons, the Exchange Exchange is so organized as to have the Commission may designate if it finds
believes that the proposed deletion of capacity to be able to carry out the such longer period to be appropriate
the Fine Income Procedures is purposes of the Exchange Act and to and publishes its reasons for so finding
consistent with Section 6(b)(4),30 which comply, and to enforce compliance by or (ii) as to which the self-regulatory
requires that the rules of the exchange its exchange members and persons organization consents, the Commission
provide for the equitable allocation of associated with its exchange members, will:
reasonable dues, fees, and other charges with the provisions of the Exchange Act, (A) By order approve or disapprove
among the exchange’s members and the rules and regulations thereunder, the proposed rule change, or
issuers and other persons using its and the rules of the Exchange. (B) institute proceedings to determine
facilities, and Section 6(b)(5),31 which The Exchange notes that the proposed whether the proposed rule change
requires that the rules of the exchange change would have the additional should be disapproved.
be designed to prevent fraudulent and benefit of making the Exchange’s rules
more consistent with the limitations on IV. Solicitation of Comments
manipulative acts and practices, to
promote just and equitable principles of the use of regulatory assets and income Interested persons are invited to
of other SROs and bringing the submit written data, views, and
sradovich on DSK3TPTVN1PROD with NOTICES
trade, to foster cooperation and
coordination with persons engaged in Exchange’s restrictions on the use of arguments concerning the foregoing,
regulating, clearing, settling, processing regulatory assets and income into including whether the proposed rule
information with respect to, and greater conformity with those of its change is consistent with the Act.
facilitating transactions in securities, to affiliates NYSE MKT LLC and NYSE Comments may be submitted by any of
Arca, Inc. Indeed, no other SRO limits the following methods:
30 15 U.S.C. 78f(b)(4). the use of fine income to extra-
31 15 U.S.C. 78f(b)(5). budgetary use or subjects the use of fine 32 See notes 20–25 [sic] and accompanying text.
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Electronic Comments SECURITIES AND EXCHANGE forth in Sections A, B, and C below, of
COMMISSION the most significant parts of such
• Use the Commission’s Internet statements.
comment form (http://www.sec.gov/ [Release No. 34–77889; File No. SR–
rules/sro.shtml); or BatsEDGA–2016–09] A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
• Send an email to rule-comments@ Self-Regulatory Organizations; Bats Statutory Basis for, the Proposed Rule
sec.gov. Please include File Number SR– EDGA Exchange, Inc.; Notice of Filing Change
NYSE–2016–37 on the subject line. and Immediate Effectiveness of a
Proposed Change to the Market Data 1. Purpose
Paper Comments The Exchange proposes to amend the
Section of its Fee Schedule
• Send paper comments in triplicate Market Data section of its fee schedule
May 24, 2016. to: (i) Decrease the User fees for the
to Secretary, Securities and Exchange Pursuant to Section 19(b)(1) of the
Commission, 100 F Street NE., EDGA Top and EDGA Last Sale feeds;
Securities Exchange Act of 1934 (the and (ii) amend the New External
Washington, DC 20549–1090. ‘‘Act’’),1 and Rule 19b–4 thereunder,2 Distributor Credit for the Bats One Feed.
All submissions should refer to File notice is hereby given that on May 17, EDGA Top and Last Sale Fees
Number SR–NYSE–2016–37. This file 2016, Bats EDGA Exchange, Inc. (the EDGA Top is a market data feed that
number should be included on the ‘‘Exchange’’ or ‘‘EDGA’’) filed with the includes top of book quotations and
subject line if email is used. To help the Securities and Exchange Commission execution information for all equity
Commission process and review your (‘‘Commission’’) the proposed rule securities traded on the Exchange.5
change as described in Items I, II and III EDGA Last Sale is a market data feed
comments more efficiently, please use
below, which Items have been prepared that includes last sale information for all
only one method. The Commission will
by the Exchange. The Exchange has equity securities traded on Exchange.6
post all comments on the Commission’s
designated the proposed rule change as The Exchange proposes to decrease the
Internet Web site (http://www.sec.gov/ one establishing or changing a member User fees for the EDGA Top and EDGA
rules/sro.shtml). Copies of the due, fee, or other charge imposed by the Last Sale feeds. 7
submission, all subsequent Exchange under Section 19(b)(3)(A)(ii) The Exchange does not currently
amendments, all written statements of the Act 3 and Rule 19b–4(f)(2) charge an External Distributor8 of EDGA
with respect to the proposed rule thereunder,4 which renders the Last Sale or EDGA Top a Distributor fee.
change that are filed with the proposed rule change effective upon The Exchange does, however, charge
Commission, and all written filing with the Commission. The those who receive either EDGA Top or
communications relating to the Commission is publishing this notice to EDGA Last Sale from External
proposed rule change between the solicit comments on the proposed rule Distributors different fees for both their
Commission and any person, other than change from interested persons. Professional9 and Non-Professional10
those that may be withheld from the
I. Self-Regulatory Organization’s 5 See Exchange Rule 13.8(c).
public in accordance with the
Statement of the Terms of Substance of 6 See Exchange Rule 13.8(d).
provisions of 5 U.S.C. 552, will be the Proposed Rule Change 7 The Exchange notes that Bats BYX Exchange,
available for Web site viewing and Inc. (‘‘BYX’’) and Bats EDGX Exchange, Inc.
printing in the Commission’s Public The Exchange filed a proposal to (‘‘EDGX’’) also filed proposed rule changes with
Reference Room, 100 F Street NE., amend the Market Data section of its fee Commission to amend similar fees for their
Washington, DC 20549 on official schedule to: (i) Decrease the User fees respective Top and Last Sale market data products.
for the EDGA Top and EDGA Last Sale See File Nos. SR-BatsBYX–2016–08 and SR-
business days between the hours of BatsEDGX–2016–18. The Exchange represents that
feeds; and (ii) amend the New External
10:00 a.m. and 3:00 p.m. Copies of such the proposed fees will continue to not cause the
Distributor Credit for the Bats One Feed. combined cost of subscribing to EDGX, EDGA, BYX,
filing also will be available for
The text of the proposed rule change and Bats BZX Exchange Inc.’s (‘‘BZX’’) individual
inspection and copying at the principal is available at the Exchange’s Web site Top and Last Sale feeds to be greater than those
office of the Exchange. All comments at www.batstrading.com, at the currently charged to subscribe to the Bats One Feed.
received will be posted without change; See Securities Exchange Act Release Nos. 74285
principal office of the Exchange, and at (February 18, 2015), 80 FR 9828 (February 24, 2015)
the Commission does not edit personal the Commission’s Public Reference (SR–BATS–2015–11); 74283 (February 18, 2015), 80
identifying information from Room. FR 9809 (February 24, 2015) (SR–EDGA–2015–09);
submissions. You should submit only 74282 (February 17, 2015), 80 FR 9487 (February
information that you wish to make II. Self-Regulatory Organization’s 23, 2015) (SR–EDGX–2015–09); and 74284
Statement of the Purpose of, and (February 18, 2015), 80 FR 9792 (February 24, 2015)
available publicly. All submissions (SR–BYX–2015–09) (‘‘Initial Bats One Feed Fee
should refer to File Number SR–NYSE– Statutory Basis for, the Proposed Rule Filings’’). In these filings, the Exchange represented
2016–37, and should be submitted on or Change that the cost of subscribing to each of the
underlying individual feeds necessary to create the
before June 21, 2016. In its filing with the Commission, the Bats One Feed would not be greater than the cost
Exchange included statements of subscribing to the Bats One Feed. Id.
For the Commission, by the Division of
concerning the purpose of and basis for 8 An ‘‘External Distributor’’ of an Exchange
Trading and Markets, pursuant to delegated Market Data product is defined as ‘‘a Distributor
the proposed rule change and discussed
authority.33 that receives the Exchange Market Data product and
any comments it received on the then distributes that data to a third party or one or
Robert W. Errett, proposed rule change. The text of these more Users outside the Distributor’s own entity.’’
sradovich on DSK3TPTVN1PROD with NOTICES
Deputy Secretary. statements may be examined at the See the Exchange Fee Schedule available at http://
[FR Doc. 2016–12673 Filed 5–27–16; 8:45 am] places specified in Item IV below. The batstrading.com/support/fee_schedule/edga/.
9 A ‘‘Professional User’’ is defined as ‘‘any User
BILLING CODE 8011–01–P Exchange has prepared summaries, set
other than a Non-Professional User.’’ See the
Exchange Fee Schedule available at http://
1 15 U.S.C. 78s(b)(1). batstrading.com/support/fee_schedule/edga/.
2 17 CFR 240.19b–4. 10 A ‘‘Non-Professional User’’ is defined as ‘‘a
3 15 U.S.C. 78s(b)(3)(A)(ii).
natural person who is not: (i) registered or qualified
33 17 CFR 200.30–3(a)(12). 4 17 CFR 240.19b–4(f)(2). in any capacity with the Commission, the
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Document Created: 2016-05-28 03:57:55
Document Modified: 2016-05-28 03:57:55
| 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 | 81 FR 34393 |
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