81 FR 35106 - Self-Regulatory Organizations; NASDAQ BX, Inc.; 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 | 35106-35111 | |
| FR Document | 2016-12776 |
[Federal Register Volume 81, Number 105 (Wednesday, June 1, 2016)] [Notices] [Pages 35106-35111] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-12776] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-77914; File No. SR-BX-2016-028] Self-Regulatory Organizations; NASDAQ BX, Inc.; 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, NASDAQ BX, Inc. (``BX'' 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 rule 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://nasdaqomxbx.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 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 [[Page 35107]] 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 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 [[Page 35108]] 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 The Exchange currently has authority to prohibit and take action against manipulative trading activity, including disruptive quoting and trading activity, pursuant to its general market manipulation rules, including Rules 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 [[Page 35109]] 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 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 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 Rules 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 [[Page 35110]] 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 BX Market Maker, BX 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 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. [[Page 35111]] 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-BX-2016-028 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-BX-2016-028. 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-BX-2016-028, 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. 2016-12776 Filed 5-31-16; 8:45 am] BILLING CODE 8011-01-P
![35106 Federal Register / Vol. 81, No. 105 / Wednesday, June 1, 2016 / Notices
disapprove, the proposed rule change II. Self-Regulatory Organization’s Rules have been identified and
(File No. SR–NYSEArca–2016–49). Statement of the Purpose of, and confirmed, the Exchange or FINRA as its
For the Commission, by the Division of
Statutory Basis for, the Proposed Rule agent will commence the enforcement
Trading and Markets, pursuant to delegated
Change process, which might result in, among
authority.7 In its filing with the Commission, the other things, a censure, a requirement to
Exchange included statements take certain remedial actions, one or
Brent J. Fields, more restrictions on future business
concerning the purpose of and basis for
Secretary. activities, a monetary fine, or even a
the proposed rule change and discussed
[FR Doc. 2016–12774 Filed 5–31–16; 8:45 am]
any comments it received on the temporary or permanent ban from the
BILLING CODE 8011–01–P proposed rule change. The text of these securities industry.
statements may be examined at the The process described above, from the
places specified in Item IV below. The identification of disruptive and
SECURITIES AND EXCHANGE Exchange has prepared summaries, set potentially manipulative or improper
COMMISSION forth in sections A, B, and C below, of quoting and trading activity to a final
the most significant aspects of such resolution of the matter, can often take
[Release No. 34–77914; File No. SR–BX– statements. several years. The Exchange believes
2016–028]
that this time period is generally
A. Self-Regulatory Organization’s necessary and appropriate to afford the
Self-Regulatory Organizations; Statement of the Purpose of, and the subject Member adequate due process,
NASDAQ BX, Inc.; Notice of Filing and Statutory Basis for, the Proposed Rule particularly in complex cases. However,
Change as described below, the Exchange
Immediate Effectiveness of Proposed
1. Purpose believes that there are certain obvious
Rule Change To Provide a Process for
and uncomplicated cases of disruptive
an Expedited Suspension Proceeding The Exchange is filing this proposal to and manipulative behavior or cases
and Adopt a Rule To Prohibit adopt a new rule to clearly prohibit where the potential harm to investors is
Disruptive Quoting and Trading disruptive quoting and trading activity so large that the Exchange should have
Activity on the Exchange for the equities market the authority to initiate an expedited
and to amend Exchange Rules to permit suspension proceeding in order to stop
May 25, 2016.
the Exchange to take prompt action to the behavior from continuing on the
Pursuant to Section 19(b)(1) of the suspend Members or their clients that Exchange.
Securities Exchange Act of 1934 (the violate such rule. In recent years, several cases have
‘‘Act’’),1 and Rule 19b–4 thereunder,2 Background been brought and resolved by the
notice is hereby given that on May 19, Exchange and other SROs that involved
2016, NASDAQ BX, Inc. (‘‘BX’’ or As a national securities exchange allegations of wide-spread market
‘‘Exchange’’) filed with the Securities registered pursuant to Section 6 of the manipulation, much of which was
and Exchange Commission Act, the Exchange is required to be ultimately being conducted by foreign
organized and to have the capacity to persons and entities using relatively
(‘‘Commission’’) the proposed rule
enforce compliance by its members and rudimentary technology to access the
change as described in Items I, II and III
persons associated with its members, markets and over which the Exchange
below, which Items have been prepared with the Act, the rules and regulations
by the Exchange. The Commission is and other SROs had no direct
thereunder, and the Exchange’s Rules. jurisdiction. In each case, the conduct
publishing this notice to solicit Further, the Exchange’s Rules are involved a pattern of disruptive quoting
comments on the proposed rule change required to be ‘‘designed to prevent and trading activity indicative of
from interested persons. fraudulent and manipulative acts and manipulative layering 4 or spoofing.5
I. Self-Regulatory Organization’s practices, to promote just and equitable The Exchange and other SROs were able
Statement of the Terms of Substance of principles of trade . . . and, in general, to identify the disruptive quoting and
the Proposed Rule Change to protect investors and the public trading activity in real-time or near real-
interest.’’ 3 In fulfilling these time; nonetheless, in accordance with
The Exchange proposes to adopt a requirements, the Exchange has Exchange Rules and the Act, the
new rule to adopt a new equity rule to developed a comprehensive regulatory Members responsible for such conduct
clearly prohibit disruptive quoting and program that includes automated or responsible for their customers’
trading activity on the Exchange, as surveillance of trading activity that is conduct were allowed to continue the
further described below. Further the both operated directly by Exchange staff disruptive quoting and trading activity
Exchange proposes to amend Exchange and by staff of the Financial Industry on the Exchange and other exchanges
Rules to permit the Exchange to take Regulatory Authority (‘‘FINRA’’) during the entirety of the subsequent
prompt action to suspend Members or pursuant to a Regulatory Services
their clients that violate such rule. Agreement (‘‘RSA’’). When disruptive 4 ‘‘Layering’’ is a form of market manipulation in
and potentially manipulative or which multiple, non-bona fide limit orders are
The text of the proposed rule change entered on one side of the market at various price
improper quoting and trading activity is levels in order to create the appearance of a change
is available on the Exchange’s Web site identified, the Exchange or FINRA in the levels of supply and demand, thereby
at http:// (acting as an agent of the Exchange) artificially moving the price of the security. An
nasdaqomxbx.cchwallstreet.com/, at the conducts an investigation into the order is then executed on the opposite side of the
sradovich on DSK3TPTVN1PROD with NOTICES
market at the artificially created price, and the non-
principal office of the Exchange, and at activity, requesting additional bona fide orders are cancelled.
the Commission’s Public Reference information from the Member or 5 ‘‘Spoofing’’ is a form of market manipulation
Room. Members involved. To the extent that involves the market manipulator placing non-
violations of the Act, the rules and bona fide orders that are intended to trigger some
type of market movement and/or response from
7 17 CFR 200.30–3(a)(31). regulations thereunder, or Exchange other market participants, from which the market
1 15 U.S.C. 78s(b)(1). manipulator might benefit by trading bona fide
2 17 CFR 240.19b–4. 3 15 U.S.C. 78f(b)(1). orders.
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![35108 Federal Register / Vol. 81, No. 105 / Wednesday, June 1, 2016 / Notices
later than 15 days after service of the the act or acts the Respondent is to take unless the Commission otherwise
notice initiating the suspension or refrain from taking, and suspend such ordered.
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
cause shown. In the event of a recusal and hour of its issuance. As proposed, The The Exchange currently has
or disqualification of a Hearing Officer, a suspension order would remain authority to prohibit and take action
the hearing shall be held not later than effective and enforceable unless against manipulative trading activity,
five days after a replacement Hearing modified, set aside, limited, or revoked including disruptive quoting and
Officer is appointed. Proposed pursuant to proposed paragraph (e), as trading activity, pursuant to its general
paragraph (c) would also govern how described below. Finally, paragraph (d) market manipulation rules, including
the hearing is conducted, including the would require service of the Hearing Rules 2110, 2111 and 2120. The
authority of Hearing Officers, witnesses, Panel’s decision and any suspension Exchange proposes to adopt new Rule
additional information that may be order consistent with other portions of 2170, which would more specifically
required by the Hearing Panel, the the proposed rule related to service. define and prohibit disruptive quoting
requirement that a transcript of the Proposed paragraph (e) of Rule 9400 and trading activity on the Exchange. As
proceeding be created and details would state that at any time after the noted above, the Exchange also
related to such transcript, and details Hearing Officers served the Respondent proposes to apply the proposed
regarding the creation and maintenance suspension rules to proposed Rule 2170.
with a suspension order, a Party could
of the record of the proceeding. Proposed Rule 2170 would prohibit
apply to the Hearing Panel to have the
Proposed paragraph (c) would also state Members from engaging in or facilitating
order modified, set aside, limited, or disruptive quoting and trading activity
that if a Respondent fails to appear at a revoked. If any part of a suspension
hearing for which it has notice, the on the Exchange, as described in
order is modified, set aside, limited, or proposed Rule 2170(i) and (ii),
allegations in the notice and revoked, proposed paragraph (e) of Rule
accompanying declaration may be including acting in concert with other
9400 provides the Hearing Panel persons to effect such activity. The
deemed admitted, and the Hearing discretion to leave the cease and desist
Panel may issue a suspension order Exchange believes that it is necessary to
part of the order in place. For example, extend the prohibition to situations
without further proceedings. Finally, as if a suspension order suspends
proposed, if the Exchange fails to appear when persons are acting in concert to
Respondent unless and until avoid a potential loophole where
at a hearing for which it has notice, the Respondent ceases and desists
Hearing Panel may order that the disruptive quoting and trading activity
providing access to the Exchange to a is simply split between several brokers
suspension proceeding be dismissed. client of Respondent, and after the order
Under paragraph (d) of the proposed or customers. The Exchange believes,
is entered the Respondent complies, the that with respect to persons acting in
Rule, the Hearing Panel would be
Hearing Panel is permitted to modify concert perpetrating an abusive scheme,
required to issue a written decision
the order to lift the suspension portion it is important that the Exchange have
stating whether a suspension order
of the order while keeping in place the authority to act against the parties
would be imposed. The Hearing Panel
cease and desist portion of the order. perpetrating the abusive scheme,
would be required to issue the decision
With its broad modification powers, the whether it is one person or multiple
not later than 10 days after receipt of the
hearing transcript, unless otherwise Hearing Panel also maintains the persons.
extended by the Chairman of the discretion to impose conditions upon To provide proper context for the
Hearing Panel with the consent of the the removal of a suspension—for situations in which the Exchange
Parties for good cause shown. The Rule example, the Hearing Panel could proposes to utilize its proposed
would state that a suspension order modify an order to lift the suspension authority, the Exchange believes it is
shall be imposed if the Hearing Panel portion of the order in the event a necessary to describe the types of
finds by a preponderance of the Respondent complies with the cease disruptive quoting and trading activity
evidence that the alleged violation and desist portion of the order but that would cause the Exchange to use its
specified in the notice has occurred and additionally order that the suspension authority. Accordingly, the Exchange
that the violative conduct or will be re-imposed if Respondent proposes to adopt Rule 2170(i) and (ii)
continuation thereof is likely to result in violates the cease and desist provisions providing additional details regarding
significant market disruption or other [sic] modified order in the future. The disruptive quoting and trading activity.
significant harm to investors. Hearing Panel generally would be Proposed Rule 2170(i)(a) describes
Proposed paragraph (d) would also required to respond to the request in disruptive quoting and trading activity
describe the content, scope and form of writing within 10 days after receipt of containing many of the elements
a suspension order. As proposed, a the request. An application to modify, indicative of layering. It would describe
suspension order shall be limited to set aside, limit or revoke a suspension disruptive quoting and trading activity
ordering a Respondent to cease and order would not stay the effectiveness of as a frequent pattern in which the
desist from violating proposed Rule the suspension order. following facts are [sic] present: (i) A
2170 and/or to ordering a Respondent to Finally, proposed paragraph (f) would party enters multiple limit orders on
cease and desist from providing access provide that sanctions issued under the one side of the market at various price
to the Exchange to a client of proposed Rule 9400 would constitute levels (the ‘‘Displayed Orders’’); and (ii)
Respondent that is causing violations of final and immediately effective following the entry of the Displayed
sradovich on DSK3TPTVN1PROD with NOTICES
Rule 2170. Under the proposed rule, a disciplinary sanctions imposed by the Orders, the level of supply and demand
suspension order shall also set forth the Exchange, and that the right to have any for the security changes; and (iii) the
alleged violation and the significant action under the Rule reviewed by the party enters one or more orders on the
market disruption or other significant Commission would be governed by opposite side of the market of the
harm to investors that is likely to result Section 19 of the Act. The filing of an Displayed Orders (the ‘‘Contra-Side
without the issuance of an order. The application for review would not stay Orders’’) that are subsequently
order shall describe in reasonable detail the effectiveness of a suspension order executed; and (iv) following the
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![35110 Federal Register / Vol. 81, No. 105 / Wednesday, June 1, 2016 / Notices
pursuant to Rule 4611(c).9 Also, allowed to continue on the Exchange, Sections 6(d)(1) and 6(d)(2) of the
pursuant to Rule 9555(a)(2) 10 if a the Exchange’s reputation could be Act,17which require that the rules of an
member, associated person, or other harmed because it may appear to the exchange with respect to a disciplinary
person cannot continue to have access public that the Exchange is not acting to proceeding or proceeding that would
to services offered by the Exchange or a address the behavior. The proposed limit or prohibit access to or
member thereof with safety to investors, expedited process would enable the membership in the exchange require the
creditors, members, or the Exchange, the Exchange to address the behavior with exchange to: provide adequate and
Exchange’s Regulation Department staff greater speed. specific notice of the charges brought
may provide written notice to such As explained above, the Exchange
against a member or person associated
member or person limiting or notes that it has defined the prohibited
with a member, provide an opportunity
prohibiting access to services offered by disruptive quoting and trading activity
by modifying the traditional definitions to defend against such charges, keep a
the Exchange or a member thereof. This record, and provide details regarding
ability to impose a temporary restriction of layering and spoofing 14 to eliminate
an express intent element that would the findings and applicable sanctions in
upon Members assists the Exchange in
not be proven on an expedited basis and the event a determination to impose a
maintaining the integrity of the market
and protecting investors and the public would instead require a thorough disciplinary sanction is made. The
interest. investigation into the activity. As noted Exchange believes that each of these
throughout this filing, the Exchange requirements is addressed by the notice
2. Statutory Basis believes it is necessary for the and due process provisions included
The Exchange believes that its protection of investors to make such within proposed Rule 9400.
proposal is consistent with Section 6(b) modifications in order to adopt an Importantly, as noted above, the
of the Act 11 in general, and furthers the expedited process rather than allowing Exchange will use the authority
objectives of Section 6(b)(5) of the Act 12 disruptive quoting and trading activity proposed in this filing only in clear and
in particular, in that it is designed to to occur for several years. egregious cases when necessary to
promote just and equitable principles of Through this proposal, the Exchange protect investors, other Members and
trade, to remove impediments to and does not intend to modify the the Exchange, and even in such cases,
perfect the mechanism of a free and definitions of spoofing and layering that the Respondent will be afforded due
open market and a national market have generally been used by the process in connection with the
system, and, in general to protect Exchange and other regulators in suspension proceedings.
investors and the public interest. connection with actions like those cited
Pursuant to the proposal, the Exchange above. The Exchange believes that the B. Self-Regulatory Organization’s
will have a mechanism to promptly pattern of disruptive and allegedly Statement on Burden on Competition
initiate expedited suspension manipulative quoting and trading
activity was widespread across multiple The Exchange does not believe that
proceedings in the event the Exchange
believes that it has sufficient proof that exchanges, and the Exchange, FINRA, the proposed rule change will impose
a violation of Rule 2170 has occurred and other SROs identified clear patterns any burden on competition not
and is ongoing. of the behavior in 2007 and 2008 in the necessary or appropriate in furtherance
Further, the Exchange believes that equities markets.15 The Exchange of the purposes of the Act. To the
the proposal is consistent with Sections believes that this proposal will provide contrary, the Exchange believes that
6(b)(1) and 6(b)(6) of the Act,13 which the Exchange with the necessary means each self-regulatory organization should
require that the rules of an exchange to enforce against such behavior in an be empowered to regulate trading
enforce compliance with, and provide expedited manner while providing occurring on their [sic] market
appropriate discipline for, violations of Members with the necessary due consistent with the Act and without
the Commission and Exchange rules. process. The Exchange believes that its regard to competitive issues. The
The Exchange also believes that the proposal is consistent with the Act Exchange is requesting authority to take
proposal is consistent with the public because it provides the Exchange with appropriate action if necessary for the
interest, the protection of investors, or the ability to remove impediments to protection of investors, other Members
otherwise in furtherance of the purposes and perfect the mechanism of a free and and the Exchange. The Exchange also
of the Act because the proposal helps to open market and a national market believes that it is important for all
strengthen the Exchange’s ability to system, and, in general to protect exchanges to be able to take similar
carry out its oversight and enforcement investors and the public interest from action to enforce its [sic] rules against
responsibilities as a self-regulatory such ongoing behavior. manipulative conduct thereby leaving
organization in cases where awaiting the The Exchange further believes that the
proposal is consistent with Section no exchange prey to such conduct.
conclusion of a full disciplinary
proceeding is unsuitable in view of the 6(b)(7) of the Act,16 which requires that The Exchange does not believe that
potential harm to other Members and the rules of an exchange ‘‘provide a fair the proposed rule change imposes an
their customers. Also, the Exchange procedure for the disciplining of undue burden on competition, rather
notes that if this type of conduct is members and persons associated with this process will provide the Exchange
members . . . and the prohibition or with the necessary means to enforce
9 For example, such temporary restrictions may limitation by the exchange of any against violations of manipulative
be necessary to address a system problem at a person with respect to access to services quoting and trading activity in an
sradovich on DSK3TPTVN1PROD with NOTICES
particular BX Market Maker, BX ECN or Order offered by the exchange or a member
Entry Firm or at the Exchange, or an unexpected
expedited manner, while providing
period of extremely high message traffic. thereof.’’ Finally, the Exchange also Members with the necessary due
10 See Rule 9555, entitled ‘‘Failure to Meet the believes the proposal is consistent with process.
Eligibility or Qualification Standards or
Prerequisites for Access to Services.’’ 14 See supra, notes 4 and 5.
11 15 U.S.C. 78f(b). 15 See Section 3 herein, the Purpose section, for
12 15 U.S.C. 78f(b)(5). examples of conduct referred to herein.
13 15 U.S.C. 78f(b)(1) and 78f(b)(6). 16 15 U.S.C. 78f(b)(7). 17 U.S.C. 78f(d)(1).
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![Federal Register / Vol. 81, No. 105 / Wednesday, June 1, 2016 / Notices 35111
C. Self-Regulatory Organization’s should be included on the subject line Municipal Securities Rulemaking Board
Statement on Comments on the if email is used. To help the (the ‘‘MSRB’’ or ‘‘Board’’) filed with the
Proposed Rule Change Received From Commission process and review your Securities and Exchange Commission
Members, Participants, or Others comments more efficiently, please use (the ‘‘SEC’’ or ‘‘Commission’’) the
No written comments were either only one method. The Commission will proposed rule change as described in
solicited or received. post all comments on the Commission’s Items I, II, and III below, which Items
Internet Web site (http://www.sec.gov/ have been prepared by the MSRB. The
III. Date of Effectiveness of the rules/sro.shtml). Copies of the Commission is publishing this notice to
Proposed Rule Change and Timing for submission, all subsequent solicit comments on the proposed rule
Commission Action amendments, all written statements change from interested persons.
Because the foregoing proposed rule with respect to the proposed rule
I. Self-Regulatory Organization’s
change does not: (i) significantly affect change that are filed with the
Statement of the Terms of Substance of
the protection of investors or the public Commission, and all written
the Proposed Rule Change
interest; (ii) impose any significant communications relating to the
proposed rule change between the The MSRB filed with the Commission
burden on competition; and (iii) become
Commission and any person, other than a proposed rule change consisting of
operative for 30 days from the date on
those that may be withheld from the proposed amendments to Rule G–12, on
which it was filed, or such shorter time
public in accordance with the uniform practice, regarding close-out
as the Commission may designate, it has
provisions of 5 U.S.C. 552, will be procedures for municipal securities
become effective pursuant to Section
available for Web site viewing and (‘‘proposed rule change’’).
19(b)(3)(A)(iii) of the Act 18 and
printing in the Commission’s Public The text of the proposed rule change
subparagraph (f)(6) of Rule 19b–4
Reference Room, 100 F Street NE., is available on the MSRB’s Web site at
thereunder.19
Washington, DC 20549, on official www.msrb.org/Rules-and-
At any time within 60 days of the
business days between the hours of Interpretations/SEC-Filings/2016-
filing of the proposed rule change, the
10:00 a.m. and 3:00 p.m. Copies of the Filings.aspx, at the MSRB’s principal
Commission summarily may
filing also will be available for office, and at the Commission’s Public
temporarily suspend such rule change if
inspection and copying at the principal Reference Room.
it appears to the Commission that such
action is: (i) necessary or appropriate in office of the Exchange. All comments II. Self-Regulatory Organization’s
the public interest; (ii) for the protection received will be posted without change; Statement of the Purpose of, and
of investors; or (iii) otherwise in the Commission does not edit personal Statutory Basis for, the Proposed Rule
furtherance of the purposes of the Act. identifying information from Change
If the Commission takes such action, the submissions. You should submit only
information that you wish to make In its filing with the Commission, the
Commission shall institute proceedings MSRB included statements concerning
to determine whether the proposed rule available publicly. All submissions
should refer to File No. SR–BX–2016– the purpose of and basis for the
should be approved or disapproved. proposed rule change and discussed any
028, and should be submitted on or
IV. Solicitation of Comments before June 22, 2016. comments it received on the proposed
rule change. The text of these statements
Interested persons are invited to For the Commission, by the Division of
Trading and Markets, pursuant to delegated may be examined at the places specified
submit written data, views, and
authority.20 in Item IV below. The MSRB has
arguments concerning the foregoing,
Brent J. Fields, prepared summaries, set forth in
including whether the proposal is
Secretary.
Sections A, B, and C below, of the most
consistent with the Act. Comments may
significant aspects of such statements.
be submitted by any of the following [FR Doc. 2016–12776 Filed 5–31–16; 8:45 am]
methods: BILLING CODE 8011–01–P A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Electronic Comments
Statutory Basis for, the Proposed Rule
• Use the Commission’s Internet SECURITIES AND EXCHANGE Change
comment form (http://www.sec.gov/ COMMISSION
rules/sro.shtml); or 1. Purpose
[Release No. 34–77903; File No. SR–MSRB–
• Send an email to rule-comments@ 2016–07] Background
sec.gov. Please include File No. SR–BX– Rule G–12(h) 3 and the MSRB’s
2016–028 on the subject line. Self-Regulatory Organizations; Manual on Close-Out Procedures 4
Paper Comments Municipal Securities Rulemaking provide optional procedures that can be
Board; Notice of Filing of a Proposed used by brokers, dealers, or municipal
• Send paper comments in triplicate Rule Change Consisting of Proposed securities dealers (‘‘dealers’’) to close
to Secretary, Securities and Exchange Amendments to MSRB Rule G–12, on out open inter-dealer fail transactions.
Commission, 100 F Street NE., Uniform Practice, Regarding Close-Out The rule currently allows the
Washington, DC 20549–1090. Procedures for Municipal Securities purchasing dealer to issue a notice of
All submissions should refer to File No. close-out to the selling dealer on any
SR–BX–2016–028. This file number May 25, 2016.
Pursuant to Section 19(b)(1) of the business day from five to 90 business
days after the scheduled settlement
sradovich on DSK3TPTVN1PROD with NOTICES
18 15 U.S.C. 78s(b)(3)(a)(iii). Securities Exchange Act of 1934 (the
19 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– ‘‘Exchange Act’’ or ‘‘Act’’) 1 and Rule date.5 Rule G–12(h) currently does not
4(f)(6) requires a self-regulatory organization to give 19b–4 thereunder,2 notice is hereby 3 See
the Commission written notice of its intent to file MSRB Rule G–12.
given that on May 11, 2016, the 4 SeeManual on Close-Out Procedures.
the proposed rule change at least five business days
prior to the date of filing of the proposed rule 5 The purchasing dealer may initiate a close-out
20 17 CFR 200.30–3(a)(12).
change, or such shorter time as designated by the within 15 business days after a reclamation made
1 15 U.S.C. 78s(b)(1).
Commission. The Exchange has satisfied this under Rule G–12(g)(iii)(C) or G–12(g)(iii)(D), even
requirement. 2 17 CFR 240.19b–4. Continued
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Document Created: 2018-02-08 07:27:22
Document Modified: 2018-02-08 07:27:22
| 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 35106 |
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