81 FR 54897 - Self-Regulatory Organizations: Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Conform to Rules of the Financial Industry Regulatory Authority

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 159 (August 17, 2016)

Page Range		54897-54901
FR Document		2016-19585
Federal Register, Volume 81 Issue 159 (Wednesday, August 17, 2016)
[Federal Register Volume 81, Number 159 (Wednesday, August 17, 2016)]
[Notices]
[Pages 54897-54901]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-19585]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78555; File No. SR-IEX-2016-12]


Self-Regulatory Organizations: Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Conform 
to Rules of the Financial Industry Regulatory Authority

August 11, 2016.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on August 9, 2016, the Investors Exchange LLC (``IEX'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to

[[Page 54898]]

solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) under the Securities 
Exchange Act of 1934 (``Act''),\4\ and Rule 19b-4 thereunder,\5\ 
Investors Exchange LLC (``IEX'' or ``Exchange'') is filing with the 
Securities and Exchange Commission (``Commission'') a proposed rule 
change to conform Rule 3.260(d) and 5.110(e) to corresponding rules of 
the Financial Industry Regulatory Authority (``FINRA''). The Exchange 
has designated this proposal as ``non-controversial'' and provided the 
Commission with the notice required by Rule 19b-4(f)(6)(iii) under the 
Act.\6\
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CRF 240.19b-4.
    \6\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the proposed rule change is available at the Exchange's 
Web site at www.iextrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statement may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Pursuant to Rule 17d-2 under the Act,\7\ and subject to Commission 
approval, the Exchange and FINRA has entered into an agreement to 
allocate regulatory responsibility for common rules (the ``17d-2 
Agreement'').\8\ The 17d-2 Agreement covers common members of the 
Exchange and FINRA and allocates to FINRA regulatory responsibility, 
with respect to common members, for the following: (1) Examination of 
common members of the Exchange and FINRA for compliance with certain 
federal securities laws, rules and regulations and rules of the 
Exchange that the Exchange certifies are identical or substantially 
similar to FINRA rules; (2) investigation of common members of the 
Exchange and FINRA for violations of certain federal securities laws, 
rules and regulations, or Exchange rules that the Exchange certifies as 
identical or substantially identical to a FINRA rule; and (3) 
enforcement of compliance by common members with certain federal 
securities laws, rules and regulations, and the rules of the Exchange 
that the Exchange certifies as identical or substantially similar to 
FINRA rules.
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    \7\ 17 CFR 240.17d-2.
    \8\ See Securities Exchange Act Release No. 78434 (July 28, 
2016) (File No. 4-700).
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    The 17d-2 Agreement will include a certification by the Exchange 
that states that the requirements contained in certain Exchange rules 
are identical to, or substantially similar to, certain FINRA rules that 
have been identified as comparable. To conform to comparable FINRA 
rules for the purposes of the 17d-2 Agreement, as well as to make 
changes that IEX believes are appropriate, the Exchange proposes to 
amend Exchange Rules 3.260(d) and 5.110(e) to harmonize with FINRA 
Rules as described below.
IEX Rule 3.260
    IEX Rule 3.260 governs discretionary accounts and contains certain 
prohibitions and requirements as follows:

    (a) Excessive Transactions--The rule prohibits a Member from 
effecting purchase or sale transactions in a customer's account, 
with respect to which such member (or its agent or employee) has 
discretion, which are excessive in size or frequency in view of the 
financial resources and character of such account.
    (b) Authorization and Acceptance of Account--The rule provides 
that no Member or Registered Representative shall exercise any 
discretionary power in a customer's account unless such customer has 
given prior written authorization to a stated individual or 
individuals and the account has been accepted by the Member, as 
evidenced in writing by the Member or the partner, officer or 
manager, duly designated by the Member, in accordance with IEX Rule 
5.110.
    (c) Approval and Review of Transactions--The rule provides that 
the Member or the person duly designated shall approve promptly in 
writing each discretionary order entered and shall review all 
discretionary accounts at frequent intervals in order to detect and 
prevent transactions which are excessive in size or frequency in 
view of the financial resources and character of the account.
    (d) Exceptions--The rule provides an exception for discretion as 
to the price at which or the time when an order given by a customer 
for the purchase or sale of a definite amount of a specified 
security shall be executed, except that the authority to exercise 
time and price discretion will be considered to be in effect only 
until the end of the business day on which the customer granted such 
discretion, absent a specific, written contrary indication signed 
and dated by the customer. This limitation shall not apply to time 
and price discretion exercised in an institutional account, as 
defined in IEX Rule 5.110 pursuant to valid Good-Till-Canceled 
instructions issued on a ``not-held'' basis. Any exercise of time 
and price discretion must be reflected on the order ticket.

    IEX Rule 3.260 is identical to NASD Rule 2510 (which is a FINRA 
rule) except that paragraph (d) of the IEX rule does not contain an 
exception contained in NASD Rule 2510(d) for bulk exchanges at net 
asset value of money market mutual funds utilizing negative response 
letters provided the bulk exchange is limited to situations involving 
mergers and acquisitions of funds, changes of clearing members and 
exchange of funds used in sweep accounts, the negative response letter 
contains a tabular comparison of the nature and amount of the fees 
charged by each fund, the negative response letter contains a 
comparative description of the investment objectives of each fund and a 
prospectus of the fund to be purchased, and the negative response 
feature will not be activated until at least 30 days after the date on 
which the letter was mailed.
    To harmonize IEX Rule 3.260 with NASD Rule 2510, the Exchange 
proposes to adopt an identical exception for bulk transfers as is 
contained in NASD Rule 2510(d) so that it may be incorporated into the 
17d-2 Agreement in its entirety. The exception was added to NASD rules 
in 1992 in order to eliminate an obstacle to the efficient and timely 
execution of bulk exchanges of money market mutual funds in the 
situations set forth in NASD Rule 2510. In Notice to Members 93-1 
announcing the rule change,\9\ the NASD explained the reason for 
adoption of the exception as follows:
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    \9\ See http://finra.complinet.com/en/display/display.html?rbid=2403&element_id=1638.

    The NASD recognized that it is often necessary to notify 
hundreds and, sometimes, several thousand money market mutual fund 
share-owners of an impending fund exchange. It may be an extremely 
difficult, if not impossible, administrative task to contact each 
non-replier and solicit approval of the fund exchange. At best, 
contacting individuals for approval results in considerable delays 
and added cost. The NASD determined that, by eliminating an obstacle 
to the efficient and timely execution of such bulk exchanges, where 
customers are at little or no risk, customers and NASD members would 
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benefit.


[[Page 54899]]


    Although such bulk transfers cannot be effected on the Exchange, 
IEX believes it is appropriate to include the exception provided in 
NASD Rule 2510(d) to eliminate the obstacles and provide the benefits 
identified by the NASD in adopting the exception, as well as to enable 
incorporation of IEX Rule 3.260 into the 17d-2 Agreement in its 
entirety. Incorporating the exception into IEX Rule 3.260 would provide 
appropriate flexibility to allow IEX Members to perform bulk exchanges 
in the limited situations specified in the rule in an efficient manner 
that is designed to protect investors and the public interest. Absent 
the exception, IEX Members would technically be prohibited from 
effecting bulk transfers in the manner permitted by FINRA rules.\10\
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    \10\ Each IEX Member subject to IEX Rule 3.260 is required to be 
a FINRA member, pursuant to Section 15(b)(8) of the Act, since the 
rule relates to customer accounts and the Member would thus be 
ineligible for the exemption provided in Rule 15b9-1 under the Act.
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IEX Rule 5.110(e)
    IEX Rule 5.110(e) governs the responsibility of an IEX Member to 
investigate applicants for registration, including that ``. . . each 
member shall establish and implement written procedures reasonably 
designed to verify the accuracy and completeness of the information 
contained in an applicant's Form U4 \11\ no later than 30 calendar days 
after the form is filed with IEX.'' The rule is substantially identical 
to FINRA Rule 3110(e) except that in the sentence quoted above, FINRA 
Rule 3110(e) specifies that the verification requirement applies only 
to an applicant's initial or transfer Form U4.\12\ The Exchange 
inadvertently omitted the ``initial or transfer'' language in Rule 
5.110(e). The Exchange proposes to harmonize IEX Rule 5.110(e) with 
FINRA Rule 3110(e) by adding the omitted language contained in the 
FINRA rule in order to clarify the requirement, avoid confusion to IEX 
Members in applying the relevant provision, and enable Rule 5.110 to be 
incorporated into the 17d-2 Agreement in its entirety. Adding the 
omitted language will make clear to IEX Members that the verification 
requirement does not apply to updates or amendments to a registered 
person's Form U4 \13\ if such filing is not an initial or transfer Form 
U4. IEX believes that in determining to require verification for 
initial and transfer Forms U4, FINRA imposes an appropriate requirement 
consistent with public interest and investor protection concerns in 
that FINRA requires verification at key times in a registered person's 
employment. In this regard, IEX notes that FINRA has substantial 
expertise administering the CRD system and overseeing its members (and 
those of its client national securities exchanges) Form U4 reporting 
obligations. Accordingly, IEX believes that it is appropriate to 
harmonize with FINRA's approach on what triggers should be required for 
Members to verify the accuracy and completeness of Form U4 information 
for their registered personnel, and that the triggers are consistent 
with investor protection and the public interest. Moreover, for IEX 
Members that are also FINRA members, the proposed change will align IEX 
rules with FINRA rules thereby alleviating potential confusion.
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    \11\ Form U4 is the Uniform Application for Securities Industry 
Registration or Transfer which must be used by representatives of 
broker-dealers, among other entities, to become registered in the 
appropriate jurisdictions and/or SROs. Both FINRA and IEX, as well 
as all other national securities exchanges, require representatives 
of broker-dealer members to register on Form U4.
    \12\ In its proposed rule filing to adopt FINRA Rule 3110 in its 
current form, FINRA stated that the term ``initial Form U4'' refers 
to the Form U4 filing required when an individual is registering 
with a FINRA member for the first time, including in the context of 
dual registration, or is registering with a FINRA member after more 
than two years have passed since the individual was last registered 
with a FINRA member. The term ``transfer Form U4'' refers to the 
Form U4 filing required when a registered person transfers from one 
FINRA member to another FINRA member. (See, SR-FINRA-2014-038). 
Since FINRA administers the Form U4 filing process in its CRD 
system, in part on behalf of IEX, the Exchange would apply the same 
meanings in the application of Rule 5.110(e).
    \13\ The instructions to the Form U4, state that the 
``individual is under a continuing obligation to amend and update 
information required by Form U4 as changes occur.'' See, Form U4 
Uniform Application for Securities Industry Registration or 
Transfer, available at http://www.finra.org/sites/default/files/AppSupportDoc/p015111.pdf.
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2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\14\ in general and furthers the 
objectives of Sections 6(b)(5) of the Act,\15\ in particular, in that 
it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and 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.
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    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(5).
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    With respect to the proposed change to add an exception to Rule 
3.260 to permit bulk transfers under the specified circumstances, the 
Exchange believes that the exception is consistent with Section 6(b)(5) 
of the Act \16\ because the exception is narrowly drawn and includes 
protections designed to help prevent fraudulent and manipulative acts 
and protect investors and the public interest. The exception is limited 
to situations involving mergers and acquisitions of funds, changes of 
clearing members and exchange of funds used in sweep accounts. The 
Exchange does not believe that these situations raise concerns 
regarding abuse of discretion in customer accounts by the Member, but 
rather are more administrative in nature. In addition, and as described 
above, the exception to permit negative response letters in lieu of 
prior written authorization from customers for bulk exchanges includes 
four requirements that are designed to protect customers--the negative 
response letter must contain a tabular comparison of the nature and 
amount of the fees charged by each fund, the negative response letter 
must contain a comparative description of the investment objectives of 
each fund, a prospectus of the fund to be purchased must be included 
with the negative response letter, and the negative response feature 
may not be activated until at least 30 days after the date on which the 
letter was mailed. These protections provide relevant disclosures to 
customers regarding the bulk exchange and 30 days to potentially 
contact the Member to object to the exchange. Based on these 
considerations, IEX believes it is appropriate to include the exception 
provided in NASD Rule 2510(d) to eliminate the obstacles and provide 
the benefits identified by the NASD in adopting the exception. 
Incorporating the exception into IEX Rule 3.260 would provide 
appropriate flexibility to allow IEX Members to perform bulk exchanges 
in the limited situations specified in the rule in an efficient manner 
that is designed to protect investors and the public interest, as well 
as to remove impediments to and perfect the mechanism of a free and 
open market and a national market system.
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    \16\ 15 U.S.C. 78f(b)(5).
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    Further, as noted above, each IEX Member subject to Rule 3.260 must 
also be a FINRA member. In this regard, the Exchange believes that the 
proposed rule change will further the objectives of Section 6(b)(5) of 
the Act \17\ by providing greater harmonization between IEX and FINRA 
rules of similar purpose, enable IEX to incorporate IEX Rule 3.260 in 
its entirety into the pending 17d-2

[[Page 54900]]

Agreement between the Exchange and FINRA (subject to SEC approval), 
resulting in less burdensome and more efficient regulatory compliance. 
As such, the proposed rule change would foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities and would remove impediments to and perfect the mechanism of 
a free and open market and a national market system in accordance with 
Section 6(b)(5) of the Act.\18\
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    \17\ 15 U.S.C. 78f(b)(5).
    \18\ 15 U.S.C. 78f(b)(5).
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    IEX believes that the proposed change to Rule 5.110(e) is 
consistent with Section 6(b)(5) of the Act \19\ because it will serve 
to correct an inadvertent omission in the rule thereby clarifying the 
applicable verification requirement for IEX Members. As discussed above 
in the Purpose section, IEX believes that the FINRA Form U4 
verification requirements are designed to protect investors and the 
public interest by requiring verification at key times in a registered 
person's employment. In addition, and as noted above, FINRA has 
substantial expertise administering the CRD system and overseeing its 
members (and those of its client national securities exchanges) Form U4 
reporting obligations through SEC approved rules.\20\ Accordingly, IEX 
believes that the proposed rule change would further the objectives of 
Section 6(b)(5) of the Act \21\ by imposing appropriately balanced Form 
U4 verification requirements that are designed to prevent fraudulent 
and manipulative acts and practices and to promote just and equitable 
principles of trade. Further, the Exchange believes that providing 
greater harmonization between IEX and FINRA rules of similar purpose 
will result in less burdensome and more efficient regulatory compliance 
for IEX Members that are also FINRA members, and facilitate FINRA's 
performance of its regulatory performance under the pending 17d-2 
Agreement (subject to SEC approval), thereby removing impediments to 
and perfecting the mechanism of a free and open market and a national 
market system, consistent with the objectives of Section 6(b)(5). In 
addition, alignment of IEX rules with FINRA rules will alleviate any 
confusion among market participants regarding the applicable 
verification requirements, including for IEX Members that are not FINRA 
members.
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    \19\ 15 U.S.C. 78f(b)(5).
    \20\ See Release No. 34-73966, File No. SR-FINRA-2014-038 
(December 30, 2014); 80 FR 546 (January 6, 2015).
    \21\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    IEX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. The proposed rule 
change is not designed to address any competitive issues but rather to 
provide greater harmonization among Exchange and FINRA rules of similar 
purpose, resulting in less burdensome and more efficient regulatory 
compliance for common members and facilitating FINRA's performance of 
its regulatory performance on the pending 17d-2 Agreement (subject to 
SEC approval). Moreover, harmonization of the specified IEX's rules 
with FINRA rules will promote competition by removing disparate 
requirements between IEX Members and FINRA members.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has designated this rule filing as non-controversial 
under Section 19(b)(3)(A) \22\ of the Act and Rule 19b-4(f)(6) \23\ 
thereunder. Because the foregoing rule 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 if consistent with the protection of 
investors and the public interest, provided that the self-regulatory 
organization has given 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,\24\ the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \25\ and Rule 19b-
4(f)(6) thereunder.\26\
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(6).
    \24\ The Exchange has fulfilled this requirement.
    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \27\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\28\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the Exchange 
may harmonize its rules with FINRA to coincide with IEX's launch of 
exchange operations during a security-by-security phase-in period 
scheduled to begin on August 19, 2016. The Exchange represents that the 
proposed changes do not present any new or novel issues as IEX is 
harmonizing these two rules to the comparable rules of FINRA. The 
Exchange also represents that further harmonizing them now will allow 
them to coincide with the recently effective bilateral 17d-2 plan, 
which should reduce burdens on members while the increased coordination 
should promote investor protection. Because IEX's proposal does not 
raise any new or novel issues and seeks only to harmonize two IEX rules 
to the corresponding rules of FINRA that are covered by the FINRA-IEX 
bilateral 17d-2 plan, the Commission believes that waiver of the 
operative delay is consistent with the protection of investors and the 
public interest because it will allow IEX to update those two rules to 
coincide with the operation of the bilateral 17d-2 plan, which the 
Commission recently declared effective, as IEX begins operations as an 
exchange.\29\
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    \27\ 17 CFR 240.19b-4(f)(6).
    \28\ 17 CFR 240.19b-4(f)(6)(iii).
    \29\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \30\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \30\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

[[Page 54901]]

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-IEX-2016-12 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-IEX-2016-12. This file 
number should be included in the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (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 will also be available 
for inspection and copying at the IEX's principal office and on its 
Internet Web site at www.iextrading.com. All comments received will be 
posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-IEX-2016-12 and should be submitted on 
or before September 7, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-19585 Filed 8-16-16; 8:45 am]
 BILLING CODE 8011-01-P
Federal Register / Vol. 81, No. 159 / Wednesday, August 17, 2016 / Notices 54897

the Nasdaq Stock Market LLC burdening competition. The Exchange amendments, all written statements
(‘‘Nasdaq’’).8 also does not believe the proposed rule with respect to the proposed rule
The Exchange operates in a highly change would impact intramarket change that are filed with the
competitive market in which exchanges competition as it would apply to all Commission, and all written
offer connectivity services as a means to Members and non-Members equally. communications relating to the
facilitate the trading activities of proposed rule change between the
Members and other participants. C. Self-Regulatory Organization’s Commission and any person, other than
Accordingly, fees charged for Statement on Comments on the those that may be withheld from the
connectivity are constrained by the Proposed Rule Change Received From public in accordance with the
active competition for the order flow of Members, Participants, or Others provisions of 5 U.S.C. 552, will be
such participants as well as demand for The Exchange has not solicited, and available for Web site viewing and
market data from the Exchange. If a does not intend to solicit, comments on printing in the Commission’s Public
particular exchange charges excessive this proposed rule change. The Reference Room, 100 F Street NE.,
fees for connectivity, affected Members Exchange has not received any written Washington, DC 20549, on official
will opt to terminate their connectivity comments from members or other business days between the hours of
arrangements with that exchange, and interested parties. 10:00 a.m. and 3:00 p.m. Copies of the
adopt a possible range of alternative filing also will be available for
III. Date of Effectiveness of the
strategies, including routing to the inspection and copying at the principal
Proposed Rule Change and Timing for
applicable exchange through another office of the Exchange. All comments
Commission Action
participant or market center or taking received will be posted without change;
that exchange’s data indirectly. The foregoing rule change has become the Commission does not edit personal
Accordingly, an exchange charging effective pursuant to section 19(b)(3)(A) identifying information from
excessive fees would stand to lose not of the Act 10 and paragraph (f) of Rule submissions. You should submit only
only connectivity revenues, but also 19b–4 thereunder.11 At any time within information that you wish to make
revenues associated with the execution 60 days of the filing of the proposed rule available publicly. All submissions
of orders routed to it by affected change, the Commission summarily may should refer to File Number SR–
members, and, to the extent applicable, temporarily suspend such rule change if BatsBYX–2016–20, and should be
market data revenues. The Exchange it appears to the Commission that such submitted on or before September 7,
believes that this competitive dynamic action is necessary or appropriate in the 2016.
imposes powerful restraints on the public interest, for the protection of For the Commission, by the Division of
ability of any exchange to charge investors, or otherwise in furtherance of Trading and Markets, pursuant to delegated
unreasonable fees for connectivity. the purposes of the Act. authority.12
B. Self-Regulatory Organization’s IV. Solicitation of Comments
Robert W. Errett,
Statement on Burden on Competition Interested persons are invited to Deputy Secretary.
The Exchange believes its proposed submit written data, views, and [FR Doc. 2016–19573 Filed 8–16–16; 8:45 am]
amendment to its fee schedule would arguments concerning the foregoing,
BILLING CODE 8011–01–P
not impose any burden on competition including whether the proposed rule
that is not necessary or appropriate in change is consistent with the Act.
furtherance of the purposes of the Act Comments may be submitted by any of SECURITIES AND EXCHANGE
in that it is simply designed to set forth the following methods: COMMISSION
the Exchange’s pro-rata billing for Electronic Comments
logical ports and is similar to that [Release No. 34–78555; File No. SR–IEX–
currently offered by one of the • Use the Commission’s Internet 2016–12]
Exchange’s competitors.9 Members may comment form (http://www.sec.gov/
rules/sro.shtml); or Self-Regulatory Organizations:
opt to disfavor the Exchange’s pricing if Investors Exchange LLC; Notice of
they believe that alternatives offer them • Send an email to rule-comments@
sec.gov. Please include File Number SR– Filing and Immediate Effectiveness of
better value. Accordingly, the Exchange Proposed Rule Change To Conform to
does not believe that the proposed BatsBYX–2016–20 on the subject line.
Rules of the Financial Industry
change will impair the ability of Paper Comments Regulatory Authority
Members or competing venues to
maintain their competitive standing in • Send paper comments in triplicate August 11, 2016.
the financial markets. to Secretary, Securities and Exchange Pursuant to Section 19(b)(1) 1 of the
The Exchange believes that fees for Commission, 100 F Street NE., Securities Exchange Act of 1934 (the
connectivity are constrained by the Washington, DC 20549–1090. ‘‘Act’’) 2 and Rule 19b–4 thereunder,3
robust competition for order flow among All submissions should refer to File notice is hereby given that, on August
exchanges and non-exchange markets. Number SR–BatsBYX–2016–20. This 9, 2016, the Investors Exchange LLC
Further, excessive fees for connectivity, file number should be included on the (‘‘IEX’’ or the ‘‘Exchange’’) filed with the
including logical port fees, would serve subject line if email is used. To help the Securities and Exchange Commission
to impair an exchange’s ability to Commission process and review your (the ‘‘Commission’’) the proposed rule
compete for order flow rather than comments more efficiently, please use change as described in Items I and II
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only one method. The Commission will below, which Items have been prepared
8 See Nasdaq Price List—Trade Connectivity post all comments on the Commission’s by the self-regulatory organization. The
available at http://www.nasdaqtrader.com/ Internet Web site (http://www.sec.gov/ Commission is publishing this notice to
Trader.aspx?id=PriceListTrading2#connectivity. rules/sro.shtml). Copies of the
The Exchange notes that, unlike as proposed by the
Exchange, Nasdaq does not pro-rate where the submission, all subsequent 12 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
session is terminated within the first month of
service. 10 15 U.S.C. 78s(b)(3)(A). 2 15 U.S.C. 78a.
9 Id. 11 17 CFR 240.19b–4(f). 3 17 CFR 240.19b–4.

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54900 Federal Register / Vol. 81, No. 159 / Wednesday, August 17, 2016 / Notices

Agreement between the Exchange and B. Self-Regulatory Organization’s to Rule 19b–4(f)(6)(iii),28 the
FINRA (subject to SEC approval), Statement on Burden on Competition Commission may designate a shorter
resulting in less burdensome and more IEX does not believe that the time if such action is consistent with the
efficient regulatory compliance. As proposed rule change will result in any protection of investors and the public
such, the proposed rule change would burden on competition that is not interest. The Exchange has asked the
foster cooperation and coordination necessary or appropriate in furtherance Commission to waive the 30-day
with persons engaged in facilitating of the purposes of the Act, as amended. operative delay so that the Exchange
transactions in securities and would The proposed rule change is not may harmonize its rules with FINRA to
remove impediments to and perfect the designed to address any competitive coincide with IEX’s launch of exchange
mechanism of a free and open market issues but rather to provide greater operations during a security-by-security
and a national market system in harmonization among Exchange and phase-in period scheduled to begin on
accordance with Section 6(b)(5) of the FINRA rules of similar purpose, August 19, 2016. The Exchange
Act.18 resulting in less burdensome and more represents that the proposed changes do
IEX believes that the proposed change efficient regulatory compliance for not present any new or novel issues as
to Rule 5.110(e) is consistent with common members and facilitating IEX is harmonizing these two rules to
Section 6(b)(5) of the Act 19 because it FINRA’s performance of its regulatory the comparable rules of FINRA. The
will serve to correct an inadvertent performance on the pending 17d–2 Exchange also represents that further
omission in the rule thereby clarifying Agreement (subject to SEC approval). harmonizing them now will allow them
the applicable verification requirement Moreover, harmonization of the to coincide with the recently effective
for IEX Members. As discussed above in specified IEX’s rules with FINRA rules bilateral 17d–2 plan, which should
the Purpose section, IEX believes that will promote competition by removing reduce burdens on members while the
the FINRA Form U4 verification disparate requirements between IEX increased coordination should promote
requirements are designed to protect Members and FINRA members. investor protection. Because IEX’s
investors and the public interest by proposal does not raise any new or
requiring verification at key times in a C. Self-Regulatory Organization’s novel issues and seeks only to
registered person’s employment. In Statement on Comments on the harmonize two IEX rules to the
addition, and as noted above, FINRA Proposed Rule Change Received From corresponding rules of FINRA that are
has substantial expertise administering Members, Participants, or Others covered by the FINRA–IEX bilateral
the CRD system and overseeing its Written comments were neither 17d–2 plan, the Commission believes
members (and those of its client solicited nor received. that waiver of the operative delay is
national securities exchanges) Form U4 consistent with the protection of
III. Date of Effectiveness of the investors and the public interest
reporting obligations through SEC
Proposed Rule Change and Timing for because it will allow IEX to update
approved rules.20 Accordingly, IEX
Commission Action those two rules to coincide with the
believes that the proposed rule change
would further the objectives of Section The Exchange has designated this rule operation of the bilateral 17d–2 plan,
6(b)(5) of the Act 21 by imposing filing as non-controversial under which the Commission recently
appropriately balanced Form U4 Section 19(b)(3)(A) 22 of the Act and declared effective, as IEX begins
verification requirements that are Rule 19b–4(f)(6) 23 thereunder. Because operations as an exchange.29
designed to prevent fraudulent and the foregoing rule does not (i) At any time within 60 days of the
significantly affect the protection of filing of the proposed rule change, the
manipulative acts and practices and to
investors or the public interest; (ii) Commission summarily may
promote just and equitable principles of
impose any significant burden on temporarily suspend such rule change if
trade. Further, the Exchange believes
competition; and (iii) become operative it appears to the Commission that such
that providing greater harmonization
for 30 days from the date on which it action is necessary or appropriate in the
between IEX and FINRA rules of similar
was filed, or such shorter time as the public interest, for the protection of
purpose will result in less burdensome
Commission may designate if consistent investors, or otherwise in furtherance of
and more efficient regulatory
with the protection of investors and the the purposes of the Act. If the
compliance for IEX Members that are
public interest, provided that the self- Commission takes such action, the
also FINRA members, and facilitate
regulatory organization has given the Commission shall institute proceedings
FINRA’s performance of its regulatory
Commission written notice of its intent under Section 19(b)(2)(B) 30 of the Act to
performance under the pending 17d–2
to file the proposed rule change at least determine whether the proposed rule
Agreement (subject to SEC approval),
five business days prior to the date of change should be approved or
thereby removing impediments to and
filing of the proposed rule change or disapproved.
perfecting the mechanism of a free and
open market and a national market such shorter time as designated by the IV. Solicitation of Comments
system, consistent with the objectives of Commission,24 the proposed rule Interested persons are invited to
Section 6(b)(5). In addition, alignment change has become effective pursuant to submit written data, views and
of IEX rules with FINRA rules will Section 19(b)(3)(A) of the Act 25 and arguments concerning the foregoing,
alleviate any confusion among market Rule 19b–4(f)(6) thereunder.26 including whether the proposed rule
participants regarding the applicable A proposed rule change filed under
change is consistent with the Act.
verification requirements, including for Rule 19b–4(f)(6) 27 normally does not
Comments may be submitted by any of
IEX Members that are not FINRA become operative prior to 30 days after
the following methods:
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members. the date of the filing. However, pursuant
28 17 CFR 240.19b–4(f)(6)(iii).
18 15 22 15 U.S.C. 78s(b)(3)(A).
U.S.C. 78f(b)(5). 29 For purposes only of accelerating the operative
19 15 U.S.C. 78f(b)(5). 23 17 CFR 240.19b–4(f)(6).
date of this proposal, the Commission has
20 See Release No. 34–73966, File No. SR– 24 The Exchange has fulfilled this requirement.
considered the proposed rule’s impact on
25 15 U.S.C. 78s(b)(3)(A).
FINRA–2014–038 (December 30, 2014); 80 FR 546 efficiency, competition, and capital formation. 15
(January 6, 2015). 26 17 CFR 240.19b–4(f)(6). U.S.C. 78c(f).
21 15 U.S.C. 78f(b)(5). 27 17 CFR 240.19b–4(f)(6). 30 15 U.S.C. 78s(b)(2)(B).

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Federal Register / Vol. 81, No. 159 / Wednesday, August 17, 2016 / Notices 54901

Electronic Comments SECURITIES AND EXCHANGE 2016, FINRA responded to the comment
COMMISSION letters received in response to the
• Use the Commission’s Internet Notice and filed an amendment to the
comment form (http://www.sec.gov/ [Release No. 34–78557; File No. SR–FINRA–
2016–015]
proposed rule change (‘‘Amendment No.
rules/sro.shtml); or 1’’).5
• Send an email to rule-comments@ Self-Regulatory Organizations; This order provides notice of filing of
sec.gov. Please include File Number SR– Financial Industry Regulatory Amendment No. 1 and approves the
IEX–2016–12 on the subject line. Authority, Inc.; Notice of Filing of proposal, as modified by Amendment
Amendment No. 1 and Order Granting No. 1, on an accelerated basis.
Paper Comments Accelerated Approval of a Proposed II. Description of the Proposed Rule
• Send paper comments in triplicate Rule Change Amending Rule 12904 Change
to Secretary, Securities and Exchange (Awards) of the Code of Arbitration
Procedure for Customer Disputes and Original Proposal
Commission, 100 F Street NE.,
Rule 13904 (Awards) of the Code of FINRA Rule 12904 (Awards) of the
Washington, DC 20549–1090.
Arbitration Procedure for Industry Code of Arbitration Procedure for
All submissions should refer to File Disputes To Permit Award Offsets in Customer Disputes (‘‘Customer Code’’)
Number SR–IEX–2016–12. This file Arbitration, as Modified by Amendment and Rule 13904 (Awards) of the Code of
number should be included in the No. 1 Arbitration Procedure for Industry
subject line if email is used. To help the Disputes (‘‘Industry Code’’) (together,
August 11, 2016.
Commission process and review your ‘‘Codes’’) address awards issued by
comments more efficiently, please use I. Introduction arbitrators at the FINRA Office of
only one method. The Commission will On May 3, 2016, Financial Industry Dispute Resolution forum. Currently,
post all comments on the Commission’s Regulatory Authority, Inc. (‘‘FINRA’’) these rules provide, among other
Internet Web site (http://www.sec.gov/ filed with the Securities and Exchange matters, that awards must be in writing
Commission (‘‘Commission’’), pursuant and signed by a majority of the
rules/sro.shtml). Copies of the
to section 19(b)(1) of the Securities arbitrators or as required by applicable
submission, all subsequent
Exchange Act of 1934 (‘‘Exchange law. The rules itemize required
amendments, all written statements elements of awards, including a
with respect to the proposed rule Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change to provide that statement of the damages awarded, and
change that are filed with the provide that all monetary awards shall
Commission, and all written absent specification to the contrary in
an arbitration award, when arbitrators be paid within 30 days of receipt unless
communications relating to the a motion to vacate has been filed in a
proposed rule change between the order opposing parties to pay each other
damages, the monetary awards shall court of competent jurisdiction.6 Rules
Commission and any person, other than 12904 and 13904 do not, however,
offset, and the party that owes the larger
those that may be withheld from the require arbitrators to specify whether
amount shall pay the net difference.
public in accordance with the The proposed rule change was opposing parties in a case should offset
provisions of 5 U.S.C. 552, will be published for comment in the Federal amounts awarded to each other.
available for Web site viewing and Register on May 23, 2016.3 The public Accordingly, FINRA has stated that
printing in the Commission’s Public comment period closed on June 13, when arbitrators order opposing parties
Reference Room, 100 F Street NE., 2016. On July 1, 2016, FINRA extended in a case to pay each other monetary
Washington, DC 20549 on official the time period in which the damages, but do not specify whether the
business days between the hours of Commission must approve the proposed party that owes the higher amount must
10:00 a.m. and 3:00 p.m. Copies of the rule change, disapprove the proposed pay the net difference, the lack of clarity
filing will also be available for rule change, or institute proceedings to has resulted in parties asking arbitrators
inspection and copying at the IEX’s determine whether to approve or to revise an award after a case has
principal office and on its Internet Web disapprove the proposed rule change to closed or in post-award litigation.7 For
site at www.iextrading.com. All August 19, 2016. The Commission example, arbitrators may award
comments received will be posted received nine comment letters in damages to a firm because an associated
response to the Notice.4 On July 15, person failed to pay money owed on a
without change; the Commission does
promissory note and award a lesser
not edit personal identifying 1 15 U.S.C. 78s(b)(1). amount to the associated person on a
information from submissions. You 2 17 counterclaim. If the arbitrators do not
CFR 240.19b–4.
should submit only information that 3 See Exchange Act Release No. 77844 (May 17,
specify that awards should be offset, the
you wish to make available publicly. All 2016), 81 FR 32359 (May 23, 2016) (File No. SR– firm may be required to pay the
submissions should refer to File FINRA–2016–015) (‘‘Notice’’).
4 See Letters from Leonard Steiner, Steiner &
Number SR–IEX–2016–12 and should President, Public Investors Arbitration Bar
Libo, dated May 9, 2016 (‘‘Steiner Letter’’); Steven
be submitted on or before September 7, B. Caruso, Maddox Hargett Caruso, P.C., dated May Association, dated June 13, 2016 (‘‘PIABA Letter’’);
2016. 18, 2016 (‘‘Caruso Letter’’); George H. Friedman, Bev Kennedy, Oakville, Ontario, Canada, dated June
Adjunct Professor of Law, Fordham Law School, 26, 2016 (‘‘Kennedy Letter’’). Comment letters are
For the Commission, by the Division of and immediate past FINRA Director of Arbitration, available at www.sec.gov.
5 See Letter from Margo A. Hassan, Associate
Trading and Markets, pursuant to delegated dated May 23, 2016 (‘‘Friedman Letter’’); James L.
authority.31 Komie, Schuyler, Roche and Crisham, P.C., dated Chief Counsel, FINRA, to the Commission, dated
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June 7, 2016 (‘‘Komie Letter’’); Thomas E. Wall, July 15, 2016 (‘‘FINRA Letter’’). The FINRA Letter
Robert W. Errett, Attorney at Law and Public Arbitrator for FINRA, and the text of Amendment No. 1 are available on
Deputy Secretary. dated June 11, 2016 (‘‘Wall Letter’’); Kevin Carroll, FINRA’s Web site at http://www.finra.org, at the
Managing Director and Associate General Counsel, principal office of FINRA, at the Commission’s Web
[FR Doc. 2016–19585 Filed 8–16–16; 8:45 am] site at http://www.sec.gov/rules/sro/finra/2015/34-
Securities Industry and Financial Markets
BILLING CODE 8011–01–P Association, dated June 13, 2016 (‘‘SIFMA Letter’’); 75655.pdf, and at the Commission’s Public
David T. Bellaire, Executive Vice President and Reference Room.
6 See Notice at 32359.
General Counsel, Financial Services Institute, dated
31 17 CFR 200.30–3(a)(12). June 13, 2016 (‘‘FSI Letter’’); Hugh Berkson, 7 See id.

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Document Created: 2018-02-09 11:35:25
Document Modified: 2018-02-09 11:35:25
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 54897