81 FR 35081 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Provide a Process for an Expedited Suspension Proceeding and Adopt a Rule To Prohibit Disruptive Quoting and Trading Activity
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 105 (June 1, 2016)
Federal Register Volume 81, Issue 105 (June 1, 2016)
| Page Range | 35081-35086 | |
| FR Document | 2016-12775 |
[Federal Register Volume 81, Number 105 (Wednesday, June 1, 2016)] [Notices] [Pages 35081-35086] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-12775] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-77913; File No. SR-NASDAQ-2016-074] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Provide a Process for an Expedited Suspension Proceeding and Adopt a Rule To Prohibit Disruptive Quoting and Trading Activity May 25, 2016. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on May 19, 2016, The NASDAQ Stock Market LLC (``NASDAQ'' or ``Exchange'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I, II and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to adopt a new equity rule to clearly prohibit disruptive quoting and trading activity on the Exchange, as further described below. Further the Exchange proposes to amend Exchange Rules to permit the Exchange to take prompt action to suspend Members or their clients that violate such rule. The text of the proposed rule change is available on the Exchange's Web site at http://nasdaq.cchwallstreet.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 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 the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange is filing this proposal to adopt a new rule to clearly prohibit disruptive quoting and trading activity on the Exchange for the equities market and to amend Exchange Rules to permit the Exchange to take prompt action to suspend Members or their clients that violate such rule. Background As a national securities exchange registered pursuant to Section 6 of the Act, the Exchange is required to be organized and to have the capacity to enforce compliance by its members and persons associated with its members, with the Act, the rules and regulations thereunder, and the Exchange's Rules. Further, the Exchange's Rules are required to be ``designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade . . . and, in general, to protect investors and the public interest.'' \3\ In fulfilling these requirements, the Exchange has developed a comprehensive regulatory program that includes automated surveillance of trading activity that is both operated directly by Exchange staff and by staff of the Financial Industry Regulatory Authority (``FINRA'') pursuant to a Regulatory Services Agreement (``RSA''). When disruptive and potentially manipulative or improper quoting and trading activity is identified, the Exchange or FINRA (acting as an agent of the Exchange) conducts an investigation into the activity, requesting additional information from the Member or Members involved. To the extent violations of the Act, the rules and regulations thereunder, or Exchange Rules have been identified and confirmed, the Exchange or FINRA as its agent will commence the enforcement process, which might result in, among other things, a censure, a requirement to take certain remedial actions, one or more restrictions on future business [[Page 35082]] activities, a monetary fine, or even a temporary or permanent ban from the securities industry. --------------------------------------------------------------------------- \3\ 15 U.S.C. 78f(b)(1). --------------------------------------------------------------------------- The process described above, from the identification of disruptive and potentially manipulative or improper quoting and trading activity to a final resolution of the matter, can often take several years. The Exchange believes that this time period is generally necessary and appropriate to afford the subject Member adequate due process, particularly in complex cases. However, as described below, the Exchange believes that there are certain obvious and uncomplicated cases of disruptive and manipulative behavior or cases where the potential harm to investors is so large that the Exchange should have the authority to initiate an expedited suspension proceeding in order to stop the behavior from continuing on the Exchange. In recent years, several cases have been brought and resolved by the Exchange and other SROs that involved allegations of wide-spread market manipulation, much of which was ultimately being conducted by foreign persons and entities using relatively rudimentary technology to access the markets and over which the Exchange and other SROs had no direct jurisdiction. In each case, the conduct involved a pattern of disruptive quoting and trading activity indicative of manipulative layering \4\ or spoofing.\5\ The Exchange and other SROs were able to identify the disruptive quoting and trading activity in real-time or near real-time; nonetheless, in accordance with Exchange Rules and the Act, the Members responsible for such conduct or responsible for their customers' conduct were allowed to continue the disruptive quoting and trading activity on the Exchange and other exchanges during the entirety of the subsequent lengthy investigation and enforcement process. The Exchange believes that it should have the authority to initiate an expedited suspension proceeding in order to stop the behavior from continuing on the Exchange if a Member is engaging in or facilitating disruptive quoting and trading activity and the Member has received sufficient notice with an opportunity to respond, but such activity has not ceased. --------------------------------------------------------------------------- \4\ ``Layering'' is a form of market manipulation in which multiple, non-bona fide limit orders are entered on one side of the market at various price levels in order to create the appearance of a change in the levels of supply and demand, thereby artificially moving the price of the security. An order is then executed on the opposite side of the market at the artificially created price, and the non-bona fide orders are cancelled. \5\ ``Spoofing'' is a form of market manipulation that involves the market manipulator placing non-bona fide orders that are intended to trigger some type of market movement and/or response from other market participants, from which the market manipulator might benefit by trading bona fide orders. --------------------------------------------------------------------------- The following two examples are instructive on the Exchange's rationale for the proposed rule change. In July 2012, Biremis Corp. (formerly Swift Trade Securities USA, Inc.) (the ``Firm'') and its CEO were barred from the industry for, among other things, supervisory violations related to a failure by the Firm to detect and prevent disruptive and allegedly manipulative trading activities, including layering, short sale violations, and anti-money laundering violations.\6\ The Firm's sole business was to provide trade execution services via a proprietary day trading platform and order management system to day traders located in foreign jurisdictions. Thus, the disruptive and allegedly manipulative trading activity introduced by the Firm to U.S. markets originated directly or indirectly from foreign clients of the Firm. The pattern of disruptive and allegedly manipulative quoting and trading activity was widespread across multiple exchanges, and the Exchange, FINRA, and other SROs identified clear patterns of the behavior in 2007 and 2008. Although the Firm and its principals were on notice of the disruptive and allegedly manipulative quoting and trading activity that was occurring, the Firm took little to no action to attempt to supervise or prevent such quoting and trading activity until at least 2009. Even when it put some controls in place, they were deficient and the pattern of disruptive and allegedly manipulative trading activity continued to occur. As noted above, the final resolution of the enforcement action to bar the Firm and its CEO from the industry was not concluded until 2012, four years after the disruptive and allegedly manipulative trading activity was first identified. --------------------------------------------------------------------------- \6\ See Biremis Corp. and Peter Beck, FINRA Letter of Acceptance, Waiver and Consent No. 2010021162202, July 30, 2012. --------------------------------------------------------------------------- In September of 2012, Hold Brothers On-Line Investment Services, Inc. (the ``Firm'') settled a regulatory action in connection with the Firm's provision of a trading platform, trade software and trade execution, support and clearing services for day traders.\7\ Many traders using the Firm's services were located in foreign jurisdictions. The Firm ultimately settled the action with FINRA and several exchanges, including the Exchange, for a total monetary fine of $3.4 million. In a separate action, the Firm settled with the Commission for a monetary fine of $2.5 million.\8\ Among the alleged violations in the case were disruptive and allegedly manipulative quoting and trading activity, including spoofing, layering, wash trading, and pre-arranged trading. Through its conduct and insufficient procedures and controls, the Firm also allegedly committed anti-money laundering violations by failing to detect and report manipulative and suspicious trading activity. The Firm was alleged to have not only provided foreign traders with access to the U.S. markets to engage in such activities, but that its principals also owned and funded foreign subsidiaries that engaged in the disruptive and allegedly manipulative quoting and trading activity. Although the pattern of disruptive and allegedly manipulative quoting and trading activity was identified in 2009, as noted above, the enforcement action was not concluded until 2012. Thus, although disruptive and allegedly manipulative quoting and trading was promptly detected, it continued for several years. --------------------------------------------------------------------------- \7\ See Hold Brothers On-Line Investment Services, LLC, FINRA Letter of Acceptance, Waiver and Consent No. 20100237710001, September 25, 2012. \8\ In the Matter of Hold Brothers On-Line Investment Services, LLC, Exchange Act Release No. 67924, September 25, 2012. --------------------------------------------------------------------------- The Exchange also notes the current criminal proceedings that have commenced against Navinder Singh Sarao. Mr. Sarao's allegedly manipulative trading activity, which included forms of layering and spoofing in the futures markets, has been linked as a contributing factor to the ``Flash Crash'' of 2010, and yet continued through 2015. The Exchange believes that the activities described in the cases above provide justification for the proposed rule change, which is described below. Rule 9400--Expedited Client Suspension Proceeding The Exchange proposes to adopt new Rule 9400, which is currently reserved, to set forth procedures for issuing suspension orders, immediately prohibiting a Member from conducting continued disruptive quoting and trading activity on the Exchange. Importantly, these procedures would also provide the Exchange the authority to order a Member to cease and desist from providing access to the Exchange to a client of the Member that is conducting disruptive quoting and trading activity in violation of proposed Rule 2170. Under proposed paragraph (a) of Rule 9400, with the prior written authorization of the Chief Regulatory Officer (``CRO'') or such other senior officers as the CRO may designate, the Office of General Counsel or Regulatory [[Page 35083]] Department of the Exchange (such departments generally referred to as the ``Exchange'' for purposes of proposed Rule 9400) may initiate an expedited suspension proceeding with respect to alleged violations of Rule 2170, which is proposed as part of this filing and described in detail below. Proposed paragraph (a) would also set forth the requirements for notice and service of such notice pursuant to the Rule, including the required method of service and the content of notice. Proposed paragraph (b) of Rule 9400 would govern the appointment of a Hearing Panel as well as potential disqualification or recusal of Hearing Officers. The proposed provision is consistent with existing Exchange Rule 9231(b). The Exchange's Rules provide for a Hearing Officer to be recused in the event he or she has a conflict of interest or bias or other circumstances exist where his or her fairness might reasonably be questioned in accordance with Rules 9233(a). In addition to recusal initiated by such a Hearing Officer, a party to the proceeding will be permitted to file a motion to disqualify a Hearing Officer. However, due to the compressed schedule pursuant to which the process would operate under Rule 9400, the proposed rule would require such motion to be filed no later than 5 days after the announcement of the Hearing Panel and the Exchange's brief in opposition to such motion would be required to be filed no later than 5 days after service thereof. Pursuant to existing Rule 9233(c), a motion for disqualification of a Hearing Officer shall be decided by the Chief Hearing Officer based on a prompt investigation. The applicable Hearing Officer shall remove himself or herself and request the Chief Executive Officer to reassign the hearing to another Hearing Officer such that the Hearing Panel still meets the compositional requirements described in Rule 9231(b). If the Chief Hearing Officer determines that the Respondent's grounds for disqualification are insufficient, it shall deny the Respondent's motion for disqualification by setting forth the reasons for the denial in writing and the Hearing Panel will proceed with the hearing. Under paragraph (c) of the proposed Rule, the hearing would be held not later than 15 days after service of the notice initiating the suspension proceeding, unless otherwise extended by the Chairman of the Hearing Panel with the consent of the Parties for good cause shown. In the event of a recusal or disqualification of a Hearing Officer, the hearing shall be held not later than five days after a replacement Hearing Officer is appointed. Proposed paragraph (c) would also govern how the hearing is conducted, including the authority of Hearing Officers, witnesses, additional information that may be required by the Hearing Panel, the requirement that a transcript of the proceeding be created and details related to such transcript, and details regarding the creation and maintenance of the record of the proceeding. Proposed paragraph (c) would also state that if a Respondent fails to appear at a hearing for which it has notice, the allegations in the notice and accompanying declaration may be deemed admitted, and the Hearing Panel may issue a suspension order without further proceedings. Finally, as proposed, if the Exchange fails to appear at a hearing for which it has notice, the Hearing Panel may order that the suspension proceeding be dismissed. Under paragraph (d) of the proposed Rule, the Hearing Panel would be required to issue a written decision stating whether a suspension order would be imposed. The Hearing Panel would be required to issue the decision not later than 10 days after receipt of the hearing transcript, unless otherwise extended by the Chairman of the Hearing Panel with the consent of the Parties for good cause shown. The Rule would state that a suspension order shall be imposed if the Hearing Panel finds by a preponderance of the evidence that the alleged violation specified in the notice has occurred and that the violative conduct or continuation thereof is likely to result in significant market disruption or other significant harm to investors. Proposed paragraph (d) would also describe the content, scope and form of a suspension order. As proposed, a suspension order shall be limited to ordering a Respondent to cease and desist from violating proposed Rule 2170, and/or to ordering a Respondent to cease and desist from providing access to the Exchange to a client of Respondent that is causing violations of Rule 2170. Under the proposed rule, a suspension order shall also set forth the alleged violation and the significant market disruption or other significant harm to investors that is likely to result without the issuance of an order. The order shall describe in reasonable detail the act or acts the Respondent is to take or refrain from taking, and suspend such Respondent unless and until such action is taken or refrained from. Finally, the order shall include the date and hour of its issuance. As proposed, a suspension order would remain effective and enforceable unless modified, set aside, limited, or revoked pursuant to proposed paragraph (e), as described below. Finally, paragraph (d) would require service of the Hearing Panel's decision and any suspension order consistent with other portions of the proposed rule related to service. Proposed paragraph (e) of Rule 9400 would state that at any time after the Hearing Officers served the Respondent with a suspension order, a Party could apply to the Hearing Panel to have the order modified, set aside, limited, or revoked. If any part of a suspension order is modified, set aside, limited, or revoked, proposed paragraph (e) of Rule 9400 provides the Hearing Panel discretion to leave the cease and desist part of the order in place. For example, if a suspension order suspends Respondent unless and until Respondent ceases and desists providing access to the Exchange to a client of Respondent, and after the order is entered the Respondent complies, the Hearing Panel is permitted to modify the order to lift the suspension portion of the order while keeping in place the cease and desist portion of the order. With its broad modification powers, the Hearing Panel also maintains the discretion to impose conditions upon the removal of a suspension--for example, the Hearing Panel could modify an order to lift the suspension portion of the order in the event a Respondent complies with the cease and desist portion of the order but additionally order that the suspension will be re-imposed if Respondent violates the cease and desist provisions [sic] modified order in the future. The Hearing Panel generally would be required to respond to the request in writing within 10 days after receipt of the request. An application to modify, set aside, limit or revoke a suspension order would not stay the effectiveness of the suspension order. Finally, proposed paragraph (f) would provide that sanctions issued under the proposed Rule 9400 would constitute final and immediately effective disciplinary sanctions imposed by the Exchange, and that the right to have any action under the Rule reviewed by the Commission would be governed by Section 19 of the Act. The filing of an application for review would not stay the effectiveness of a suspension order unless the Commission otherwise ordered. Rule 2170--Disruptive Quoting and Trading Activity Prohibited The Exchange currently has authority to prohibit and take action against manipulative trading activity, including disruptive quoting and trading activity, pursuant to its general market [[Page 35084]] manipulation rules, including Rules 2110, 2111 and 2120. The Exchange proposes to adopt new Rule 2170, which would more specifically define and prohibit disruptive quoting and trading activity on the Exchange. As noted above, the Exchange also proposes to apply the proposed suspension rules to proposed Rule 2170. Proposed Rule 2170 would prohibit Members from engaging in or facilitating disruptive quoting and trading activity on the Exchange, as described in proposed Rule 2170(i) and (ii), including acting in concert with other persons to effect such activity. The Exchange believes that it is necessary to extend the prohibition to situations when persons are acting in concert to avoid a potential loophole where disruptive quoting and trading activity is simply split between several brokers or customers. The Exchange believes, that with respect to persons acting in concert perpetrating an abusive scheme, it is important that the Exchange have authority to act against the parties perpetrating the abusive scheme, whether it is one person or multiple persons. To provide proper context for the situations in which the Exchange proposes to utilize its proposed authority, the Exchange believes it is necessary to describe the types of disruptive quoting and trading activity that would cause the Exchange to use its authority. Accordingly, the Exchange proposes to adopt Rule 2170(i) and (ii) providing additional details regarding disruptive quoting and trading activity. Proposed Rule 2170(i)(a) describes disruptive quoting and trading activity containing many of the elements indicative of layering. It would describe disruptive quoting and trading activity as a frequent pattern in which the following facts are [sic] present: (i) A party enters multiple limit orders on one side of the market at various price levels (the ``Displayed Orders''); and (ii) following the entry of the Displayed Orders, the level of supply and demand for the security changes; and (iii) the party enters one or more orders on the opposite side of the market of the Displayed Orders (the ``Contra-Side Orders'') that are subsequently executed; and (iv) following the execution of the Contra-Side Orders, the party cancels the Displayed Orders. Proposed Rule 2170(i)(b) describes disruptive quoting and trading activity containing many of the elements indicative of spoofing and would [sic]describe disruptive quoting and trading activity as a frequent pattern in which the following facts are present: (i) A party narrows the spread for a security by placing an order inside the national best bid or offer; and (ii) the party then submits an order on the opposite side of the market that executes against another market participant that joined the new inside market established by the order described in proposed (b)(i) that narrowed the spread. The Exchange believes that the proposed descriptions of disruptive quoting and trading activity articulated in the rule are consistent with the activities that have been identified and described in the client access cases described above. The Exchange further believes that the proposed descriptions will provide Members with clear descriptions of disruptive quoting and trading activity that will help them to avoid engaging in such activities or allowing their clients to engage in such activities. The Exchange proposes to make clear in proposed Rule 2170(ii), unless otherwise indicated, the descriptions of disruptive quoting and trading activity do not require the facts to occur in a specific order in order for the rule to apply. For instance, with respect to the pattern defined in proposed Rule 2170(i)(a) it is of no consequence whether a party first enters Displayed Orders and then Contra-side Orders or vice-versa. However, as proposed, it is required for supply and demand to change following the entry of the Displayed Orders. The Exchange also proposes to make clear that disruptive quoting and trading activity includes a pattern or practice in which some portion of the disruptive quoting and trading activity is conducted on the Exchange and the other portions of the disruptive quoting and trading activity are conducted on one or more other exchanges. The Exchange believes that this authority is necessary to address market participants who would otherwise seek to avoid the prohibitions of the proposed Rule by spreading their activity amongst various execution venues. In sum, proposed Rule 2170 coupled with proposed Rule 9400 would provide the Exchange with authority to promptly act to prevent disruptive quoting and trading activity from continuing on the Exchange. Below is an example of how the proposed rule would operate. Assume that through its surveillance program, Exchange staff identifies a pattern of potentially disruptive quoting and trading activity. After an initial investigation the Exchange would then contact the Member responsible for the orders that caused the activity to request an explanation of the activity as well as any additional relevant information, including the source of the activity. If the Exchange were to continue to see the same pattern from the same Member and the source of the activity is the same or has been previously identified as a frequent source of disruptive quoting and trading activity then the Exchange could initiate an expedited suspension proceeding by serving notice on the Member that would include details regarding the alleged violations as well as the proposed sanction. In such a case the proposed sanction would likely be to order the Member to cease and desist providing access to the Exchange to the client that is responsible for the disruptive quoting and trading activity and to suspend such Member unless and until such action is taken. The Member would have the opportunity to be heard in front of a Hearing Panel at a hearing to be conducted within 15 days of the notice. If the Hearing Panel determined that the violation alleged in the notice did not occur or that the conduct or its continuation would not have the potential to result in significant market disruption or other significant harm to investors, then the Hearing Panel would dismiss the suspension order proceeding. If the Hearing Panel determined that the violation alleged in the notice did occur and that the conduct or its continuation is likely to result in significant market disruption or other significant harm to investors, then the Hearing Panel would issue the order including the proposed sanction, ordering the Member to cease providing access to the client at issue and suspending such Member unless and until such action is taken. If such Member wished for the suspension to be lifted because the client ultimately responsible for the activity no longer would be provided access to the Exchange, then such Member could apply to the Hearing Panel to have the order modified, set aside, limited or revoked. The Exchange notes that the issuance of a suspension order would not alter the Exchange's ability to further investigate the matter and/or later sanction the Member pursuant to the Exchange's standard disciplinary process for supervisory violations or other violations of Exchange rules or the Act. The Exchange reiterates that it already has broad authority to take action against a Member in the event that such Member is engaging in or facilitating disruptive or manipulative trading activity on the Exchange. For the reasons described above, and in light of recent cases like the client access cases described above, as well as other cases [[Page 35085]] currently under investigation, the Exchange believes that it is equally important for the Exchange to have the authority to promptly initiate expedited suspension proceedings against any Member who has demonstrated a clear pattern or practice of disruptive quoting and trading activity, as described above, and to take action including ordering such Member to terminate access to the Exchange to one or more of such Member's clients if such clients are responsible for the activity. The Exchange recognizes that its proposed authority to issue a suspension order is a powerful measure that should be used very cautiously. Consequently, the proposed rules have been designed to ensure that the proceedings are used to address only the most clear and serious types of disruptive quoting and trading activity and that the interests of Respondents are protected. For example, to ensure that proceedings are used appropriately and that the decision to initiate a proceeding is made only at the highest staff levels, the proposed rules require the CRO or another senior officer of the Exchange to issue written authorization before the Exchange can institute an expedited suspension proceeding. In addition, the rule by its terms is limited to violations of Rule 2170, when necessary to protect investors, other Members and the Exchange. The Exchange will initiate disciplinary action for violations of Rule 2170, pursuant to Rule 9400. Further, the Exchange believes that the proposed expedited suspension provisions described above that provide the opportunity to respond as well as a Hearing Panel determination prior to taking action will ensure that the Exchange would not utilize its authority in the absence of a clear pattern or practice of disruptive quoting and trading activity. Notwithstanding the adoption of the proposed rules along with existing disciplinary rules in the 9000 series, the Exchange also notes that that it may impose temporary restrictions upon the automated entry or updating of orders or quotes/orders as the Exchange may determine to be necessary to protect the integrity of the Exchange's systems pursuant to Rule 4611(c).\9\ Also, pursuant to Rule 9555(a)(2) \10\ if a member, associated person, or other person cannot continue to have access to services offered by the Exchange or a member thereof with safety to investors, creditors, members, or the Exchange, the Exchange's Regulation Department staff may provide written notice to such member or person limiting or prohibiting access to services offered by the Exchange or a member thereof. This ability to impose a temporary restriction upon Members assists the Exchange in maintaining the integrity of the market and protecting investors and the public interest. --------------------------------------------------------------------------- \9\ For example, such temporary restrictions may be necessary to address a system problem at a particular NASDAQ Market Maker, NASDAQ ECN or Order Entry Firm or at the Exchange, or an unexpected period of extremely high message traffic. \10\ See Rule 9555, entitled ``Failure to Meet the Eligibility or Qualification Standards or Prerequisites for Access to Services.'' --------------------------------------------------------------------------- 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act \11\ in general, and furthers the objectives of Section 6(b)(5) of the Act \12\ in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest. Pursuant to the proposal, the Exchange will have a mechanism to promptly initiate expedited suspension proceedings in the event the Exchange believes that it has sufficient proof that a violation of Rule 2170 has occurred and is ongoing. --------------------------------------------------------------------------- \11\ 15 U.S.C. 78f(b). \12\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- Further, the Exchange believes that the proposal is consistent with Sections 6(b)(1) and 6(b)(6) of the Act,\13\ which require that the rules of an exchange enforce compliance with, and provide appropriate discipline for, violations of the Commission and Exchange rules. The Exchange also believes that the proposal is consistent with the public interest, the protection of investors, or otherwise in furtherance of the purposes of the Act because the proposal helps to strengthen the Exchange's ability to carry out its oversight and enforcement responsibilities as a self-regulatory organization in cases where awaiting the conclusion of a full disciplinary proceeding is unsuitable in view of the potential harm to other Members and their customers. Also, the Exchange notes that if this type of conduct is allowed to continue on the Exchange, the Exchange's reputation could be harmed because it may appear to the public that the Exchange is not acting to address the behavior. The proposed expedited process would enable the Exchange to address the behavior with greater speed. --------------------------------------------------------------------------- \13\ 15 U.S.C. 78f(b)(1) and 78f(b)(6). --------------------------------------------------------------------------- As explained above, the Exchange notes that it has defined the prohibited disruptive quoting and trading activity by modifying the traditional definitions of layering and spoofing \14\ to eliminate an express intent element that would not be proven on an expedited basis and would instead require a thorough investigation into the activity. As noted throughout this filing, the Exchange believes it is necessary for the protection of investors to make such modifications in order to adopt an expedited process rather than allowing disruptive quoting and trading activity to occur for several years. --------------------------------------------------------------------------- \14\ See supra, notes 4 and 5. --------------------------------------------------------------------------- Through this proposal, the Exchange does not intend to modify the definitions of spoofing and layering that have generally been used by the Exchange and other regulators in connection with actions like those cited above. The Exchange believes that the pattern of disruptive and allegedly manipulative quoting and trading activity was widespread across multiple exchanges, and the Exchange, FINRA, and other SROs identified clear patterns of the behavior in 2007 and 2008 in the equities markets.\15\ The Exchange believes that this proposal will provide the Exchange with the necessary means to enforce against such behavior in an expedited manner while providing Members with the necessary due process. The Exchange believes that its proposal is consistent with the Act because it provides the Exchange with the ability to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest from such ongoing behavior. --------------------------------------------------------------------------- \15\ See Section 3 herein, the Purpose section, for examples of conduct referred to herein. --------------------------------------------------------------------------- The Exchange further believes that the proposal is consistent with Section 6(b)(7) of the Act,\16\ which requires that the rules of an exchange ``provide a fair procedure for the disciplining of members and persons associated with members . . . and the prohibition or limitation by the exchange of any person with respect to access to services offered by the exchange or a member thereof.'' Finally, the Exchange also believes the proposal is consistent with Sections 6(d)(1) and 6(d)(2) of the Act,\17\ which require that the rules of an exchange with respect to a disciplinary proceeding or proceeding that would limit or prohibit access to or membership in the exchange require the exchange to: Provide adequate and specific notice of the charges brought against a member or person associated [[Page 35086]] with a member, provide an opportunity to defend against such charges, keep a record, and provide details regarding the findings and applicable sanctions in the event a determination to impose a disciplinary sanction is made. The Exchange believes that each of these requirements is addressed by the notice and due process provisions included within proposed Rule 9400. Importantly, as noted above, the Exchange will use the authority proposed in this filing only in clear and egregious cases when necessary to protect investors, other Members and the Exchange, and even in such cases, the Respondent will be afforded due process in connection with the suspension proceedings. --------------------------------------------------------------------------- \16\ 15 U.S.C. 78f(b)(7). \17\ U.S.C. 78f(d)(1). --------------------------------------------------------------------------- B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. To the contrary, the Exchange believes that each self-regulatory organization should be empowered to regulate trading occurring on their [sic]market consistent with the Act and without regard to competitive issues. The Exchange is requesting authority to take appropriate action if necessary for the protection of investors, other Members and the Exchange. The Exchange also believes that it is important for all exchanges to be able to take similar action to enforce its [sic] rules against manipulative conduct thereby leaving no exchange prey to such conduct. The Exchange does not believe that the proposed rule change imposes an undue burden on competition, rather this process will provide the Exchange with the necessary means to enforce against violations of manipulative quoting and trading activity in an expedited manner, while providing Members with the necessary due process. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act \18\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\19\ --------------------------------------------------------------------------- \18\ 15 U.S.C. 78s(b)(3)(a)(iii). \19\ 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: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposal 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 [email protected]. Please include File No. SR-NASDAQ-2016-074 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 No. SR-NASDAQ-2016-074. 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 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 No. SR-NASDAQ-2016-074, and should be submitted on or before June 22, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\20\ --------------------------------------------------------------------------- \20\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Brent J. Fields, Secretary. [FR Doc. 2016-12775 Filed 5-31-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 105 / Wednesday, June 1, 2016 / Notices 35081
IV. Solicitation of Comments For the Commission, by the Division of the proposed rule change and discussed
Trading and Markets, pursuant to delegated any comments it received on the
Interested persons are invited to authority.8 proposed rule change. The text of these
submit written data, views, and Brent J. Fields, statements may be examined at the
arguments concerning the foregoing, Secretary. places specified in Item IV below. The
including whether the proposed rule [FR Doc. 2016–12792 Filed 5–31–16; 8:45 am] Exchange has prepared summaries, set
change is consistent with the Act. BILLING CODE 8011–01–P forth in sections A, B, and C below, of
Comments may be submitted by any of the most significant aspects of such
the following methods: statements.
SECURITIES AND EXCHANGE
Electronic Comments COMMISSION A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
• Use the Commission’s Internet [Release No. 34–77913; File No. SR– Statutory Basis for, the Proposed Rule
comment form (http://www.sec.gov/ NASDAQ–2016–074] Change
rules/sro.shtml); or
Self-Regulatory Organizations; The 1. Purpose
• Send an email to rule-comments@ NASDAQ Stock Market LLC; Notice of
sec.gov. Please include File Number SR– The Exchange is filing this proposal to
Filing and Immediate Effectiveness of adopt a new rule to clearly prohibit
ISE–2016–14 on the subject line. Proposed Rule Change To Provide a disruptive quoting and trading activity
Paper Comments Process for an Expedited Suspension on the Exchange for the equities market
Proceeding and Adopt a Rule To and to amend Exchange Rules to permit
• Send paper comments in triplicate Prohibit Disruptive Quoting and the Exchange to take prompt action to
to Brent J. Fields, Secretary, Securities Trading Activity suspend Members or their clients that
and Exchange Commission, 100 F Street violate such rule.
May 25, 2016.
NE., Washington, DC 20549–1090.
Pursuant to Section 19(b)(1) of the Background
All submissions should refer to File Securities Exchange Act of 1934 (the
Number SR–ISE–2016–14. This file ‘‘Act’’),1 and Rule 19b–4 thereunder,2 As a national securities exchange
notice is hereby given that on May 19, registered pursuant to Section 6 of the
number should be included on the
2016, The NASDAQ Stock Market LLC Act, the Exchange is required to be
subject line if email is used. To help the
(‘‘NASDAQ’’ or ‘‘Exchange’’) filed with organized and to have the capacity to
Commission process and review your
the Securities and Exchange enforce compliance by its members and
comments more efficiently, please use persons associated with its members,
only one method. The Commission will Commission (‘‘Commission’’) the
proposed rule change as described in with the Act, the rules and regulations
post all comments on the Commission’s thereunder, and the Exchange’s Rules.
Internet Web site (http://www.sec.gov/ Items I, II and III below, which Items
have been prepared by the Exchange. Further, the Exchange’s Rules are
rules/sro.shtml). Copies of the required to be ‘‘designed to prevent
submission, all subsequent The Commission is publishing this
notice to solicit comments on the fraudulent and manipulative acts and
amendments, all written statements practices, to promote just and equitable
proposed rule change from interested
with respect to the proposed rule principles of trade . . . and, in general,
persons.
change that are filed with the to protect investors and the public
Commission, and all written I. Self-Regulatory Organization’s interest.’’ 3 In fulfilling these
communications relating to the Statement of the Terms of Substance of requirements, the Exchange has
proposed rule change between the the Proposed Rule Change developed a comprehensive regulatory
Commission and any person, other than The Exchange proposes to adopt a program that includes automated
those that may be withheld from the new equity rule to clearly prohibit surveillance of trading activity that is
public in accordance with the disruptive quoting and trading activity both operated directly by Exchange staff
provisions of 5 U.S.C. 552, will be on the Exchange, as further described and by staff of the Financial Industry
available for Web site viewing and below. Further the Exchange proposes Regulatory Authority (‘‘FINRA’’)
printing in the Commission’s Public to amend Exchange Rules to permit the pursuant to a Regulatory Services
Reference Room, 100 F Street NE., Exchange to take prompt action to Agreement (‘‘RSA’’). When disruptive
Washington, DC 20549 on official suspend Members or their clients that and potentially manipulative or
business days between the hours of violate such rule. improper quoting and trading activity is
10:00 a.m. and 3:00 p.m. Copies of such The text of the proposed rule change identified, the Exchange or FINRA
is available on the Exchange’s Web site (acting as an agent of the Exchange)
filing also will be available for
at http://nasdaq.cchwallstreet.com, at conducts an investigation into the
inspection and copying at the principal
the principal office of the Exchange, and activity, requesting additional
office of the Exchange. All comments information from the Member or
received will be posted without change; at the Commission’s Public Reference
Room. Members involved. To the extent
the Commission does not edit personal violations of the Act, the rules and
identifying information from II. Self-Regulatory Organization’s regulations thereunder, or Exchange
submissions. You should submit only Statement of the Purpose of, and Rules have been identified and
information that you wish to make Statutory Basis for, the Proposed Rule confirmed, the Exchange or FINRA as its
sradovich on DSK3TPTVN1PROD with NOTICES
available publicly. All submissions Change agent will commence the enforcement
should refer to File Number SR–ISE– In its filing with the Commission, the process, which might result in, among
2016–14, and should be submitted on or Exchange included statements other things, a censure, a requirement to
before June 22, 2016. concerning the purpose of and basis for take certain remedial actions, one or
more restrictions on future business
1 15 U.S.C. 78s(b)(1).
8 17 CFR 200.30–3(a)(12). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78f(b)(1).
VerDate Sep<11>2014 21:59 May 31, 2016 Jkt 238001 PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 E:\FR\FM\01JNN1.SGM 01JNN1](https://thefederalregister.org/doc/81_FR_35186/page/1.svg)
![Federal Register / Vol. 81, No. 105 / Wednesday, June 1, 2016 / Notices 35083
Department of the Exchange (such Officer is appointed. Proposed pursuant to proposed paragraph (e), as
departments generally referred to as the paragraph (c) would also govern how described below. Finally, paragraph (d)
‘‘Exchange’’ for purposes of proposed the hearing is conducted, including the would require service of the Hearing
Rule 9400) may initiate an expedited authority of Hearing Officers, witnesses, Panel’s decision and any suspension
suspension proceeding with respect to additional information that may be order consistent with other portions of
alleged violations of Rule 2170, which required by the Hearing Panel, the the proposed rule related to service.
is proposed as part of this filing and requirement that a transcript of the Proposed paragraph (e) of Rule 9400
described in detail below. Proposed proceeding be created and details would state that at any time after the
paragraph (a) would also set forth the related to such transcript, and details Hearing Officers served the Respondent
requirements for notice and service of regarding the creation and maintenance with a suspension order, a Party could
such notice pursuant to the Rule, of the record of the proceeding. apply to the Hearing Panel to have the
including the required method of Proposed paragraph (c) would also state order modified, set aside, limited, or
service and the content of notice. that if a Respondent fails to appear at a revoked. If any part of a suspension
Proposed paragraph (b) of Rule 9400 hearing for which it has notice, the order is modified, set aside, limited, or
would govern the appointment of a allegations in the notice and revoked, proposed paragraph (e) of Rule
Hearing Panel as well as potential accompanying declaration may be 9400 provides the Hearing Panel
disqualification or recusal of Hearing deemed admitted, and the Hearing discretion to leave the cease and desist
Officers. The proposed provision is Panel may issue a suspension order part of the order in place. For example,
consistent with existing Exchange Rule without further proceedings. Finally, as if a suspension order suspends
9231(b). The Exchange’s Rules provide proposed, if the Exchange fails to appear Respondent unless and until
for a Hearing Officer to be recused in the at a hearing for which it has notice, the Respondent ceases and desists
event he or she has a conflict of interest Hearing Panel may order that the providing access to the Exchange to a
or bias or other circumstances exist suspension proceeding be dismissed. client of Respondent, and after the order
where his or her fairness might Under paragraph (d) of the proposed is entered the Respondent complies, the
reasonably be questioned in accordance Rule, the Hearing Panel would be Hearing Panel is permitted to modify
with Rules 9233(a). In addition to required to issue a written decision the order to lift the suspension portion
recusal initiated by such a Hearing stating whether a suspension order of the order while keeping in place the
Officer, a party to the proceeding will be would be imposed. The Hearing Panel cease and desist portion of the order.
permitted to file a motion to disqualify would be required to issue the decision With its broad modification powers, the
a Hearing Officer. However, due to the not later than 10 days after receipt of the Hearing Panel also maintains the
compressed schedule pursuant to which hearing transcript, unless otherwise discretion to impose conditions upon
the process would operate under Rule extended by the Chairman of the the removal of a suspension—for
9400, the proposed rule would require Hearing Panel with the consent of the example, the Hearing Panel could
such motion to be filed no later than 5 Parties for good cause shown. The Rule modify an order to lift the suspension
days after the announcement of the would state that a suspension order portion of the order in the event a
Hearing Panel and the Exchange’s brief shall be imposed if the Hearing Panel Respondent complies with the cease
in opposition to such motion would be finds by a preponderance of the and desist portion of the order but
required to be filed no later than 5 days evidence that the alleged violation additionally order that the suspension
after service thereof. Pursuant to specified in the notice has occurred and will be re-imposed if Respondent
existing Rule 9233(c), a motion for that the violative conduct or violates the cease and desist provisions
disqualification of a Hearing Officer continuation thereof is likely to result in [sic] modified order in the future. The
shall be decided by the Chief Hearing significant market disruption or other Hearing Panel generally would be
Officer based on a prompt investigation. significant harm to investors. required to respond to the request in
The applicable Hearing Officer shall Proposed paragraph (d) would also writing within 10 days after receipt of
remove himself or herself and request describe the content, scope and form of the request. An application to modify,
the Chief Executive Officer to reassign a suspension order. As proposed, a set aside, limit or revoke a suspension
the hearing to another Hearing Officer suspension order shall be limited to order would not stay the effectiveness of
such that the Hearing Panel still meets ordering a Respondent to cease and the suspension order.
the compositional requirements desist from violating proposed Rule Finally, proposed paragraph (f) would
described in Rule 9231(b). If the Chief 2170, and/or to ordering a Respondent provide that sanctions issued under the
Hearing Officer determines that the to cease and desist from providing proposed Rule 9400 would constitute
Respondent’s grounds for access to the Exchange to a client of final and immediately effective
disqualification are insufficient, it shall Respondent that is causing violations of disciplinary sanctions imposed by the
deny the Respondent’s motion for Rule 2170. Under the proposed rule, a Exchange, and that the right to have any
disqualification by setting forth the suspension order shall also set forth the action under the Rule reviewed by the
reasons for the denial in writing and the alleged violation and the significant Commission would be governed by
Hearing Panel will proceed with the market disruption or other significant Section 19 of the Act. The filing of an
hearing. harm to investors that is likely to result application for review would not stay
Under paragraph (c) of the proposed without the issuance of an order. The the effectiveness of a suspension order
Rule, the hearing would be held not order shall describe in reasonable detail unless the Commission otherwise
later than 15 days after service of the the act or acts the Respondent is to take ordered.
notice initiating the suspension or refrain from taking, and suspend such
sradovich on DSK3TPTVN1PROD with NOTICES
proceeding, unless otherwise extended Respondent unless and until such Rule 2170—Disruptive Quoting and
by the Chairman of the Hearing Panel action is taken or refrained from. Trading Activity Prohibited
with the consent of the Parties for good Finally, the order shall include the date The Exchange currently has authority
cause shown. In the event of a recusal and hour of its issuance. As proposed, to prohibit and take action against
or disqualification of a Hearing Officer, a suspension order would remain manipulative trading activity, including
the hearing shall be held not later than effective and enforceable unless disruptive quoting and trading activity,
five days after a replacement Hearing modified, set aside, limited, or revoked pursuant to its general market
VerDate Sep<11>2014 21:59 May 31, 2016 Jkt 238001 PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 E:\FR\FM\01JNN1.SGM 01JNN1](https://thefederalregister.org/doc/81_FR_35186/page/3.svg)
![35084 Federal Register / Vol. 81, No. 105 / Wednesday, June 1, 2016 / Notices
manipulation rules, including Rules security by placing an order inside the the Exchange were to continue to see
2110, 2111 and 2120. The Exchange national best bid or offer; and (ii) the the same pattern from the same Member
proposes to adopt new Rule 2170, party then submits an order on the and the source of the activity is the
which would more specifically define opposite side of the market that same or has been previously identified
and prohibit disruptive quoting and executes against another market as a frequent source of disruptive
trading activity on the Exchange. As participant that joined the new inside quoting and trading activity then the
noted above, the Exchange also market established by the order Exchange could initiate an expedited
proposes to apply the proposed described in proposed (b)(i) that suspension proceeding by serving notice
suspension rules to proposed Rule 2170. narrowed the spread. The Exchange on the Member that would include
Proposed Rule 2170 would prohibit believes that the proposed descriptions details regarding the alleged violations
Members from engaging in or facilitating of disruptive quoting and trading as well as the proposed sanction. In
disruptive quoting and trading activity activity articulated in the rule are such a case the proposed sanction
on the Exchange, as described in consistent with the activities that have would likely be to order the Member to
proposed Rule 2170(i) and (ii), been identified and described in the cease and desist providing access to the
including acting in concert with other client access cases described above. The Exchange to the client that is
persons to effect such activity. The Exchange further believes that the responsible for the disruptive quoting
Exchange believes that it is necessary to proposed descriptions will provide and trading activity and to suspend
extend the prohibition to situations Members with clear descriptions of such Member unless and until such
when persons are acting in concert to disruptive quoting and trading activity action is taken.
avoid a potential loophole where that will help them to avoid engaging in The Member would have the
disruptive quoting and trading activity such activities or allowing their clients opportunity to be heard in front of a
is simply split between several brokers to engage in such activities. Hearing Panel at a hearing to be
or customers. The Exchange believes, The Exchange proposes to make clear conducted within 15 days of the notice.
that with respect to persons acting in in proposed Rule 2170(ii), unless If the Hearing Panel determined that the
concert perpetrating an abusive scheme, otherwise indicated, the descriptions of violation alleged in the notice did not
it is important that the Exchange have disruptive quoting and trading activity occur or that the conduct or its
authority to act against the parties do not require the facts to occur in a continuation would not have the
perpetrating the abusive scheme, specific order in order for the rule to potential to result in significant market
whether it is one person or multiple apply. For instance, with respect to the disruption or other significant harm to
persons. pattern defined in proposed Rule investors, then the Hearing Panel would
To provide proper context for the 2170(i)(a) it is of no consequence dismiss the suspension order
situations in which the Exchange whether a party first enters Displayed proceeding.
proposes to utilize its proposed Orders and then Contra-side Orders or If the Hearing Panel determined that
authority, the Exchange believes it is vice-versa. However, as proposed, it is the violation alleged in the notice did
necessary to describe the types of required for supply and demand to occur and that the conduct or its
disruptive quoting and trading activity change following the entry of the continuation is likely to result in
that would cause the Exchange to use its Displayed Orders. The Exchange also significant market disruption or other
authority. Accordingly, the Exchange proposes to make clear that disruptive significant harm to investors, then the
proposes to adopt Rule 2170(i) and (ii) quoting and trading activity includes a Hearing Panel would issue the order
providing additional details regarding pattern or practice in which some including the proposed sanction,
disruptive quoting and trading activity. portion of the disruptive quoting and ordering the Member to cease providing
Proposed Rule 2170(i)(a) describes trading activity is conducted on the access to the client at issue and
disruptive quoting and trading activity Exchange and the other portions of the suspending such Member unless and
containing many of the elements disruptive quoting and trading activity until such action is taken. If such
indicative of layering. It would describe are conducted on one or more other Member wished for the suspension to be
disruptive quoting and trading activity exchanges. The Exchange believes that lifted because the client ultimately
as a frequent pattern in which the this authority is necessary to address responsible for the activity no longer
following facts are [sic] present: (i) A market participants who would would be provided access to the
party enters multiple limit orders on otherwise seek to avoid the prohibitions Exchange, then such Member could
one side of the market at various price of the proposed Rule by spreading their apply to the Hearing Panel to have the
levels (the ‘‘Displayed Orders’’); and (ii) activity amongst various execution order modified, set aside, limited or
following the entry of the Displayed venues. In sum, proposed Rule 2170 revoked. The Exchange notes that the
Orders, the level of supply and demand coupled with proposed Rule 9400 issuance of a suspension order would
for the security changes; and (iii) the would provide the Exchange with not alter the Exchange’s ability to
party enters one or more orders on the authority to promptly act to prevent further investigate the matter and/or
opposite side of the market of the disruptive quoting and trading activity later sanction the Member pursuant to
Displayed Orders (the ‘‘Contra-Side from continuing on the Exchange. the Exchange’s standard disciplinary
Orders’’) that are subsequently Below is an example of how the process for supervisory violations or
executed; and (iv) following the proposed rule would operate. other violations of Exchange rules or the
execution of the Contra-Side Orders, the Assume that through its surveillance Act.
party cancels the Displayed Orders. program, Exchange staff identifies a The Exchange reiterates that it already
Proposed Rule 2170(i)(b) describes pattern of potentially disruptive quoting has broad authority to take action
sradovich on DSK3TPTVN1PROD with NOTICES
disruptive quoting and trading activity and trading activity. After an initial against a Member in the event that such
containing many of the elements investigation the Exchange would then Member is engaging in or facilitating
indicative of spoofing and would contact the Member responsible for the disruptive or manipulative trading
[sic]describe disruptive quoting and orders that caused the activity to request activity on the Exchange. For the
trading activity as a frequent pattern in an explanation of the activity as well as reasons described above, and in light of
which the following facts are present: (i) any additional relevant information, recent cases like the client access cases
A party narrows the spread for a including the source of the activity. If described above, as well as other cases
VerDate Sep<11>2014 21:59 May 31, 2016 Jkt 238001 PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 E:\FR\FM\01JNN1.SGM 01JNN1](https://thefederalregister.org/doc/81_FR_35186/page/4.svg)
![35086 Federal Register / Vol. 81, No. 105 / Wednesday, June 1, 2016 / Notices
with a member, provide an opportunity which it was filed, or such shorter time those that may be withheld from the
to defend against such charges, keep a as the Commission may designate, it has public in accordance with the
record, and provide details regarding become effective pursuant to Section provisions of 5 U.S.C. 552, will be
the findings and applicable sanctions in 19(b)(3)(A)(iii) of the Act 18 and available for Web site viewing and
the event a determination to impose a subparagraph (f)(6) of Rule 19b–4 printing in the Commission’s Public
disciplinary sanction is made. The thereunder.19 Reference Room, 100 F Street NE.,
Exchange believes that each of these At any time within 60 days of the Washington, DC 20549, on official
requirements is addressed by the notice filing of the proposed rule change, the business days between the hours of
and due process provisions included Commission summarily may 10:00 a.m. and 3:00 p.m. Copies of the
within proposed Rule 9400. temporarily suspend such rule change if filing also will be available for
Importantly, as noted above, the it appears to the Commission that such inspection and copying at the principal
Exchange will use the authority action is: (i) Necessary or appropriate in office of the Exchange. All comments
proposed in this filing only in clear and the public interest; (ii) for the protection received will be posted without change;
egregious cases when necessary to of investors; or (iii) otherwise in the Commission does not edit personal
protect investors, other Members and furtherance of the purposes of the Act. identifying information from
the Exchange, and even in such cases, If the Commission takes such action, the submissions. You should submit only
the Respondent will be afforded due Commission shall institute proceedings information that you wish to make
process in connection with the to determine whether the proposed rule available publicly. All submissions
suspension proceedings. should be approved or disapproved. should refer to File No. SR–NASDAQ–
B. Self-Regulatory Organization’s 2016–074, and should be submitted on
IV. Solicitation of Comments
Statement on Burden on Competition or before June 22, 2016.
Interested persons are invited to
The Exchange does not believe that For the Commission, by the Division of
submit written data, views, and Trading and Markets, pursuant to delegated
the proposed rule change will impose arguments concerning the foregoing, authority.20
any burden on competition not including whether the proposal is Brent J. Fields,
necessary or appropriate in furtherance consistent with the Act. Comments may
of the purposes of the Act. To the Secretary.
be submitted by any of the following
contrary, the Exchange believes that [FR Doc. 2016–12775 Filed 5–31–16; 8:45 am]
methods:
each self-regulatory organization should BILLING CODE 8011–01–P
be empowered to regulate trading Electronic Comments
occurring on their [sic]market consistent • Use the Commission’s Internet
with the Act and without regard to comment form (http://www.sec.gov/ SECURITIES AND EXCHANGE
competitive issues. The Exchange is rules/sro.shtml); or COMMISSION
requesting authority to take appropriate • Send an email to rule-comments@
action if necessary for the protection of sec.gov. Please include File No. SR– [Release No. 34–77920; File No. SR–
investors, other Members and the NASDAQ–2016–074 on the subject line. NYSEArca–2016–46]
Exchange. The Exchange also believes Self-Regulatory Organizations; NYSE
Paper Comments
that it is important for all exchanges to Arca, Inc.; Order Approving a
be able to take similar action to enforce • Send paper comments in triplicate
Proposed Rule Change, as Modified by
its [sic] rules against manipulative to Secretary, Securities and Exchange
Amendment No. 2, To List and Trade
conduct thereby leaving no exchange Commission, 100 F Street NE.,
Shares of the AdvisorShares
prey to such conduct. Washington, DC 20549–1090.
Cornerstone Small Cap ETF Under
The Exchange does not believe that All submissions should refer to File No. NYSE Arca Equities Rule 8.600
the proposed rule change imposes an SR–NASDAQ–2016–074. This file
undue burden on competition, rather number should be included on the May 25, 2016.
this process will provide the Exchange subject line if email is used. To help the
with the necessary means to enforce I. Introduction
Commission process and review your
against violations of manipulative comments more efficiently, please use On March 28, 2016, NYSE Arca, Inc.
quoting and trading activity in an only one method. The Commission will (‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
expedited manner, while providing post all comments on the Commission’s with the Securities and Exchange
Members with the necessary due Internet Web site (http://www.sec.gov/ Commission (‘‘Commission’’), pursuant
process. rules/sro.shtml). Copies of the to Section 19(b)(1) of the Securities
submission, all subsequent Exchange Act of 1934 (‘‘Exchange
C. Self-Regulatory Organization’s
amendments, all written statements Act’’) 1 and Rule 19b–4 thereunder,2 a
Statement on Comments on the
with respect to the proposed rule proposed rule change to list and trade
Proposed Rule Change Received From
change that are filed with the shares (‘‘Shares’’) of the AdvisorShares
Members, Participants, or Others
Commission, and all written Cornerstone Small Cap ETF (‘‘Fund’’),
No written comments were either communications relating to the which will be offered by the
solicited or received. proposed rule change between the AdvisorShares Trust (‘‘Trust’’). The
III. Date of Effectiveness of the Commission and any person, other than proposed rule change was published for
Proposed Rule Change and Timing for comment in the Federal Register on
sradovich on DSK3TPTVN1PROD with NOTICES
Commission Action 18 15 U.S.C. 78s(b)(3)(a)(iii). April 15, 2016.3 On May 4, 2016, the
19 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– Exchange filed Amendment No. 1 to the
Because the foregoing proposed rule 4(f)(6) requires a self-regulatory organization to give
change does not: (i) Significantly affect the Commission written notice of its intent to file 20 17
the proposed rule change at least five business days CFR 200.30–3(a)(12).
the protection of investors or the public 1 15 U.S.C. 78s(b)(1).
prior to the date of filing of the proposed rule
interest; (ii) impose any significant change, or such shorter time as designated by the 2 17 CFR 240.19b–4.
burden on competition; and (iii) become Commission. The Exchange has satisfied this 3 See Securities Exchange Act Release No. 77576
operative for 30 days from the date on requirement. (April 11, 2016), 81 FR 22337.
VerDate Sep<11>2014 21:59 May 31, 2016 Jkt 238001 PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 E:\FR\FM\01JNN1.SGM 01JNN1](https://thefederalregister.org/doc/81_FR_35186/page/6.svg)
Document Created: 2018-02-08 07:26:54
Document Modified: 2018-02-08 07:26:54
| 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 35081 |
2025 Federal Register | Disclaimer | Privacy Policy
USC | CFR | eCFR