81 FR 75174 - Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Phlx Rule 765 (Prohibition Against Trading Ahead of Customer Orders)
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 209 (October 28, 2016)
Federal Register Volume 81, Issue 209 (October 28, 2016)
| Page Range | 75174-75178 | |
| FR Document | 2016-26053 |
[Federal Register Volume 81, Number 209 (Friday, October 28, 2016)] [Notices] [Pages 75174-75178] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-26053] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79145; File No. SR-Phlx-2016-109] Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Phlx Rule 765 (Prohibition Against Trading Ahead of Customer Orders) October 24, 2016. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on October 20, 2016, NASDAQ PHLX LLC (``Phlx'' or ``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``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 [[Page 75175]] 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 Phlx Rule 765 (Prohibition Against Trading Ahead of Customer Orders). Phlx also proposes to amend Rule 3404 (Recording of Order Information) to include an additional order reporting requirement related to one of the exceptions in Rule 765. The text of the proposed rule change is set forth below. Proposed new language is italicized; deleted text is in brackets. * * * * * Rules of the Exchange * * * * * Rule 765 Prohibition Against Trading Ahead of Customer Orders (a) Phlx members and persons associated with a member shall comply with FINRA Rule 5320 as if such Rule were part of Phlx's rules. (b) For purposes of this Rule: (1) References to FINRA Rules 5310, 5320 and 7440 shall be construed as references to Phlx Rules 764, 765 and 3404, respectively; (2) The reference in FINRA Rule 5320 to an ``institutional account'', as defined in FINRA Rule 4512(c), shall be construed to apply to accounts of customers that do not meet the definition of ``non-institutional customer'', as defined in Phlx Rule 763(c); (3) FINRA Rule 5320.02(b) and the reference to FINRA Rule 6420 therein shall be disregarded; (4) References to ``FINRA'' shall be construed as references to ``Phlx''. (c) Phlx members and persons associated with a member relying upon the exception set forth in FINRA Rule 5320.03 shall comply with the reporting requirements stated therein. Phlx and FINRA are parties to the Regulatory Contract pursuant to which FINRA has agreed to perform certain functions on behalf of Phlx. Therefore, Phlx members are complying with Phlx Rule 765 by complying with FINRA Rule 5320.03 as written, including, for example, reporting requirements and notifications. In addition, functions performed by FINRA, FINRA departments, and FINRA staff under Phlx Rule 765 are being performed by FINRA on behalf of Phlx. * * * * * Rule 3000 NASDAQ OMX PSX * * * * * Rule 3404 Recording of Order Information With respect to orders for securities listed on the NASDAQ Stock Market or the Exchange, member organizations and persons associated with a member organization shall comply with the following Rule: (a) No Change. (b) Order Origination and Receipt Unless otherwise indicated, the following order information must be recorded under this Rule when an order is received or originated. For purposes of this Rule, the order origination or receipt time is the time the order is received from the customer. (1) through (16) No Change. (17) an identification of the order as related to a Program Trade or an Index Arbitrage Trade; [and] (18) the type of account, i.e., retail, wholesale, employee, proprietary, or any other type of account designated by the Exchange, for which the order is submitted[.]; and (19) if the member is relying on the exception provided in FINRA Rule 5320.02 with respect to the order, the unique identification of any appropriate information barriers in place at the department within the member where the order was received or originated. * * * * * II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Phlx proposes to adopt Rule 765 (Prohibition Against Trading Ahead of Customer Orders). This rule will largely incorporate FINRA Rule 5320 (Prohibition Against Trading Ahead of Customer Orders), commonly known as the ``Manning Rule'', by reference. Phlx also proposes to adopt, as part of Rule 3404 (Recording of Order Information), language that specifies how members shall comply with the exception set forth in FINRA Rule 5320.02 (No-Knowledge Exception) if the member implements information barriers in reliance on that exception. Phlx believes that Rule 765 will add important additional safeguards to the treatment of customer orders by members, and that the amendment to Rule 3404 will increase regulatory efficiency in conducting surveillance to ensure compliance with Rule 765. In addition, both The Nasdaq Stock Market LLC (``Nasdaq'') and NASDAQ BX, Inc. (``BX'') have previously adopted rules prohibiting the trading ahead of customer orders that reference FINRA Rule 5320, and so this proposal will further align the Phlx rules with Nasdaq and BX rules in this regard.\3\ --------------------------------------------------------------------------- \3\ FINRA Rule 5320 was previously codified as NASD IM-2110-2 (Trading Ahead of Customer Limit Order) and NASD Rule 2111 (Trading Ahead of Customer Market Orders). FINRA adopted FINRA Rule 5320 in 2011, which combined NASD IM-2110-2 and NASD Rule 2111 into one rule and made several changes. See Securities Exchange Act Release No. 63895 (February 11, 2011), 76 FR 9386 (February 17, 2011) (SR-FINRA- 2009-090). Nasdaq adopted IM-2110-2 as part of its Form 1 application that it submitted in 2001. See Securities Exchange Act Release No. 44396 (June 7, 2001), 66 FR 31952 (June 13, 2001) (File No. 10-131). Nasdaq subsequently amended that rule to reflect the adoption of FINRA Rule 5320. See Securities Exchange Act Release No. 68153 (November 5, 2012), 77 FR 67409 (November 9, 2012) (SR-NASDAQ- 2012-124). In 2008, BX adopted IM-2110-2 (Trading Ahead of Customer Limit Order), which incorporates NASD IM-2110-2 by reference, and Rule 2111 (Trading Ahead of Customer Market Orders), which incorporates NASD Rule 2111 by reference. See Securities and Exchange Act Release No. 59154 (December 23, 2008), 73 FR 80468 (December 31, 2008) (SR-BSE-2008-48). --------------------------------------------------------------------------- Proposed Rule 765 contains three distinct elements. First, Rule 765 states that members shall be required to comply with FINRA Rule 5320 as if that rule were part of Phlx's rules. As part of incorporating FINRA Rule 5320 by reference, Rule 765 states that references to FINRA shall be construed as references to Phlx, and replaces cross-references to other FINRA rules with cross-references to corresponding Phlx rules. Second, Rule 765 exempts members from complying with FINRA Rule 5320.02(b) and the reference to FINRA Rule 6420 therein, as those provisions deal with trading in OTC equity securities, which Phlx does not regulate. Finally, Rule 765 addresses how members and persons associated with a member relying upon the exception set forth in FINRA Rule 5320.03 (relating to riskless principal transactions) shall comply with the reporting requirements stated therein. These elements are further discussed below. [[Page 75176]] Compliance with FINRA Rule 5320 Rule 765 states that Phlx members and persons associated with a member shall comply with FINRA Rule 5320 as if such Rule were part of Phlx's rules. As part of incorporating FINRA Rule 5320 by reference, Rule 765 states that references to ``FINRA'' shall be construed as references to ``Phlx''. Rule 765 also changes cross-references from FINRA rules to Phlx rules. Specifically, FINRA Rule 5320 cross-references FINRA Rules 5310 (Best Execution and Interpositioning), 5320 (Prohibition Against Trading Ahead of Customer Orders) and 7440 (Recording of Order Information). Rule 765 changes those cross-references to references to Phlx Rules 764 (Best Execution and Interpositioning), 765 (Prohibition Against Trading Ahead of Customer Orders) and 3404 (Recording of Order Information), respectively. Finally, FINRA Rule 5320 contains an exception for large orders (10,000 shares or more, unless such orders are less than $100,000 in value) and for orders for customers that meet the definition of an ``institutional account'', as defined in FINRA Rule 4512(c). Phlx proposes to adopt a similar exception by cross-referencing Phlx Rule 763(c), which defines a ``non-institutional customer'' using the same criteria as FINRA Rule 4512(c).\4\ Although the two definitions use the same criteria, those criteria are used to define opposite concepts (``institutional account'' versus ``non-institutional customer''). Since the same criteria is used to define opposite concepts, Rule 765 states that the reference in FINRA Rule 5320 to an ``institutional account'' as defined in FINRA Rule 4512(c) shall be construed to apply to accounts of customers that do not meet the definition of ``non- institutional customer'', as defined in Rule 763(c). --------------------------------------------------------------------------- \4\ Rule 763(c) defines a non-institutional customer as ``a customer that is not (1) a bank, savings and loan association, insurance company, or registered investment company; (2) an investment adviser registered either with the Commission under Section 203 of the Investment Advisers Act of 1940 or with a state securities commission (or any agency or office performing like functions); or (3) any other entity (whether a natural person, corporation, partnership, trust, or otherwise) with total assets of at least $50 million.'' FINRA Rule 4512(c) uses the same criteria to define an ``institutional account''. See FINRA Rule 4512(c). --------------------------------------------------------------------------- Phlx believes that it is appropriate to adopt a Manning rule that is substantively the same as the current FINRA rule, including the various exceptions to that rule. First, Phlx believes that the rationale for initially adopting the Manning rule continues to apply today. In initially approving NASD IM-2110-2, the Commission found that the rule would enhance investor confidence by allowing more trade volume to be made available to customers by giving customer orders priority over the market maker's proprietary trading, which would result in quicker and more frequent executions for customers.\5\ The Commission also found that the rule would improve the price discovery process, as market makers would be encouraged to handle customer limit orders in a timely fashion, which would provide investors with a more accurate indication of the buy and sell interest at a given moment.\6\ Phlx believes that the reasons justifying the proposal of the original NASD rule also apply here. --------------------------------------------------------------------------- \5\ See Securities Exchange Act Release No. 34279 (June 29, 1994), 59 FR 16369 (July 7, 1994) (SR-NASD-93-58). \6\ Id. --------------------------------------------------------------------------- Second, as noted above, both Nasdaq and BX have adopted rules prohibiting the trading ahead of customer orders that largely adopt FINRA Rule 5320 by reference, and so this proposal will further align the Phlx rules with Nasdaq and BX rules in this regard. Phlx also believes that it is appropriate to incorporate by reference the various exceptions set forth in the FINRA rule. With respect to incorporating FINRA's definition of an institutional account, and that rule's corresponding carve-out for institutional accounts, the SEC noted in originally approving NASD IM-2110-2 (which allowed members to set the specific terms and conditions for acceptance of institutional orders) that institutional orders may qualify for special treatment. The SEC found that, because most market makers cannot typically fill institutional-size orders out of inventory, institutions generally only hold market makers to a ``best efforts'' standard in return for the willingness of the market maker to put up substantial capital to provide liquidity for large orders.\7\ Phlx believes that a similar rationale applies here, and that this rationale justifies incorporating this exception by reference. --------------------------------------------------------------------------- \7\ See Securities Exchange Act Release No. 34279 (June 29, 1994), 59 FR 16369 (July 6, 1994) (SR-NASD-93-58). --------------------------------------------------------------------------- Phlx also believes that it is appropriate to incorporate by reference the exception in FINRA Rule 5320 for riskless principal trades.\8\ In initially proposing this exception, the NASD stated that it considered trades that met the standards of the riskless principal exception to be functionally equivalent to an agency trade and therefore did not materially implicate a market maker's proprietary trading.\9\ According to NASD, this position was primarily based on the rule's requirement that only trades where a market maker gives the customer a trade price that reflects the market maker's actual cost in acquiring the stock would be eligible for the exception, as the requirement to ``trade flat'' effectively removed concerns that a member would breach its fiduciary duty to customer limit orders that it holds.\10\ Phlx believes that the same rationale applies here, and that this rationale justifies incorporating this exception by reference. --------------------------------------------------------------------------- \8\ FINRA Rule 5320.03 provides that the obligations under the rule ``shall not apply to a member's proprietary trade if such proprietary trade is for the purposes of facilitating the execution, on a riskless principal basis, of an order from a customer (whether its own customer or the customer of another broker-dealer) (the ``facilitated order''), provided that the member: (a) Submits a report, contemporaneously with the execution of the facilitated order, identifying the trade as riskless principal to FINRA (or another self-regulatory organization if not required under FINRA rules); and (b) has written policies and procedures to ensure that riskless principal transactions for which the member is relying upon this exception comply with applicable FINRA rules. At a minimum these policies and procedures must require that the customer order was received prior to the offsetting principal transaction, and that the offsetting principal transaction is at the same price as the customer order exclusive of any markup or markdown, commission equivalent or other fee and is allocated to a riskless principal or customer account in a consistent manner and within 60 seconds of execution. Members must have supervisory systems in place that produce records that enable the member and FINRA to reconstruct accurately, readily, and in a time-sequenced manner all facilitated orders for which the member relies on this exception.'' \9\ See Securities Exchange Act Release No. 46006 (May 30, 2002), 67 FR 39455 (June 7, 2002) (SR-NASD-2002-66). NASD extended this exception to NASD Rule 2111 (Trading Ahead of Customer Market Orders) when NASD adopted that rule in 2005. See Securities Exchange Act Release No. 52226 (August 9, 2005), 70 FR 48219 (August 16, 2005) (SR-NASD-2004-045). \10\ See Securities Exchange Act Release No. 46006 (May 30, 2002), 67 FR 39455 (June 7, 2002) (SR-NASD-2002-66). --------------------------------------------------------------------------- Exception From Requirement To Comply With FINRA Rule 5320.02(b) Rule 765 excludes a provision of FINRA's Manning rule that relates to the over-the-counter market. Specifically, Rule 765 provides that FINRA Rule 5320.02(b) and its reference to FINRA Rule 6420 therein shall be disregarded. FINRA Rule 5320.02 applies the Manning rule to OTC equity securities, which are defined in FINRA Rule 6420.\11\ Phlx is excluding FINRA Rule [[Page 75177]] 5320.02(b) and its reference to FINRA Rule 6420 from Rule 765 because this provision relates to over-the-counter securities, and Phlx does not regulate the over-the-counter market.\12\ --------------------------------------------------------------------------- \11\ FINRA Rule 5320.02 provides that, with respect to OTC equity securities, if a member implements and utilizes an effective system of internal controls, such as appropriate information barriers, that operate to prevent a non-market-making trading unit from obtaining knowledge of customer orders held by a separate trading unit, the non-market-making trading unit trading in a proprietary capacity may continue to trade at prices that would satisfy the customer orders held by the separate trading unit. FINRA defines an OTC equity security as ``any equity security that is not an `NMS stock' as that term is defined in Rule 600(b)(47) of SEC Regulation NMS; provided, however, that the term `OTC Equity Security' shall not include any Restricted Equity Security.'' See FINRA Rule 6420(f). \12\ Nasdaq proposed a similar exclusion when updating its Manning rule to reflect the adoption of FINRA Rule 5320. See Securities Exchange Act Release No. 68153 (November 5, 2012), 77 FR 67409 (November 9, 2012) (SR-NASDAQ-2012-124). --------------------------------------------------------------------------- Compliance With FINRA Rule 5320.03 Finally, Phlx proposes to adopt language governing how Phlx members may comply with one of the exceptions to FINRA's Manning rule; specifically, the exception for riskless principal trades.\13\ If a member relies upon the riskless principal exception, FINRA Rule 5320.03 requires that the member, among other things, submit a report contemporaneous with the execution of the customer trade identifying the trade as riskless principal, and have written policies and procedures in place to ensure that the riskless principal trades for which the member is relying upon the exception comply with applicable FINRA rules. Rule 765(c) states that members and persons associated with a member relying upon the exception set forth in FINRA Rule 5320.03 shall comply with the reporting requirements stated therein. The Rule further states that Phlx and FINRA are parties to the Regulatory Contract pursuant to which FINRA has agreed to perform certain functions on behalf of Phlx. Therefore, Phlx members are complying with Phlx Rule 765 by complying with FINRA Rule 5320.03 as written, including, for example, reporting requirements and notifications. In addition, Rule 765 states that functions performed by FINRA, FINRA departments, and FINRA staff under Phlx Rule 765 are being performed by FINRA on behalf of Phlx. Phlx believes that this provision provides useful clarification as to how members may comply with the rule's riskless principal exception. --------------------------------------------------------------------------- \13\ That exception is discussed in note 8 above. --------------------------------------------------------------------------- Rule 3404 and Compliance with the No-Knowledge Exception Phlx also proposes to adopt, as part of Rule 3404 (Recording of Order Information) language that specifies how members shall comply with the exception set forth in FINRA Rule 5320.02 (No-Knowledge Exception) if the member implements information barriers in reliance on that exception. Under this exception, if a member implements and utilizes an effective system of internal controls, such as appropriate information barriers, that operate to prevent one trading unit from obtaining knowledge of customer orders held by a separate trading unit, those other trading units trading in a proprietary capacity may continue to trade at prices that would satisfy the customer orders held by the separate trading unit.\14\ FINRA Rule 5320.02 further specifies that, if a member implements and utilizes appropriate information barriers in reliance on this exception, the member must uniquely identify such information barriers as prescribed in FINRA Rule 7440(b)(19).\15\ That rule states that, if the member is relying on the exception provided in FINRA Rule 5320.02 with respect to the order, the member must record the unique identification of any appropriate information barriers in place at the department within the member where the order was received or originated. Members must record this information when an order is received or originated, which means the time the order is received from the customer.\16\ --------------------------------------------------------------------------- \14\ See FINRA Rule 5320.02. This exception applies to NMS stocks, as defined in Rule 600 of Regulation NMS. See 17 CFR 242.600(47). \15\ FINRA Rule 7440(b)(19) has subsequently been re-numbered as Rule 7440(b)(20). See Securities Exchange Act Release No. 77523 (April 5, 2016), 81 FR 21427 (April 11, 2016) (SR-FINRA-2016-006). \16\ See FINRA Rule 7440(b)(20). --------------------------------------------------------------------------- As part of incorporating FINRA's Manning rule, Phlx proposes to adopt, as Rule 3404(b)(19), corresponding language that sets forth how members shall comply with the no-knowledge exception if members utilize information barriers in reliance on that exception. Just as FINRA Rule 5320.02 references the applicable requirement in FINRA Rule 7440(b) that members identify the appropriate information barriers in place in connection with the order that is subject to the no-knowledge exception, Rule 765 shall reference the corresponding requirement in Rule 3404. Phlx believes that it is appropriate to adopt a corresponding requirement that a member identify, at the time of order receipt or origination, the appropriate information barriers in place if a member is utilizing information barriers in reliance on the no-knowledge exception. In initially proposing this requirement as part of FINRA Rule 7440, FINRA stated that it would enhance regulatory efficiency by allowing FINRA to ascertain, on an automated basis, those firms that are claiming the no-knowledge exception, thereby reducing the number of ``false positives'' where trading ahead may otherwise be indicated.\17\ Phlx believes that the same rationale applies here. Phlx also notes that Nasdaq has incorporated the no-knowledge exception as part of its Manning rule and the corresponding language that sets forth how members shall comply with the no-knowledge exception if members utilize information barriers in reliance on that exception.\18\ --------------------------------------------------------------------------- \17\ See Securities Exchange Act Release No. 65692 (November 4, 2011), 76 FR 70195 (November 10, 2011) (Notice of filing of SR- FINRA-2011-063). \18\ See Nasdaq Rule 5320A and Rule 7440A. --------------------------------------------------------------------------- 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,\19\ in general, and furthers the objectives of Section 6(b)(5) of the Act,\20\ 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. Phlx believes that the proposed rule will add important additional safeguards to the treatment of customer orders by members, and notes that the SEC has previously found that the Manning rule may result in increased market quality for market participants. Phlx also notes that the SEC has previously approved the various exceptions to the rule, such as the exception for institutional accounts and the riskless principal exception, which Phlx proposes to incorporate by reference. Phlx believes that the proposed amendment to Rule 3404 will increase regulatory efficiency in conducting surveillance to ensure compliance with Rule 765. Finally, Nasdaq and BX already contain rules prohibiting trading ahead of customer orders that reference the applicable FINRA rule, and so this proposal will further align the Phlx rules with Nasdaq and BX rules in this regard. --------------------------------------------------------------------------- \19\ 15 U.S.C. 78f(b). \20\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- 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. The proposed rule will apply equally to all similarly-situated members, i.e., members that handle customer market and limit orders. To the extent that the rule contains exceptions for certain kinds of accounts (such as trades for accounts of customers that do not meet the definition of ``non-institutional [[Page 75178]] customer'') and certain kinds of trades (such as riskless principal trades), and additional reporting requirements for firms that use information barriers pursuant to the no-knowledge exception, these exceptions and requirements will also apply equally to all similarly- situated market participants. In addition, the SEC has previously found that such exceptions and requirements are consistent with the Act. 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 \21\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\22\ --------------------------------------------------------------------------- \21\ 15 U.S.C. 78s(b)(3)(A)(iii). \22\ 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 proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-Phlx-2016-109 on the subject line. Paper Comments Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-Phlx-2016-109. 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 Number SR-Phlx-2016-109 and should be submitted on or before November 18, 2016. --------------------------------------------------------------------------- \23\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\23\ Robert W. Errett, Deputy Secretary. [FR Doc. 2016-26053 Filed 10-27-16; 8:45 am] BILLING CODE 8011-01-P
![75174 Federal Register / Vol. 81, No. 209 / Friday, October 28, 2016 / Notices
and a national market system by making Rule 19b–4(f)(6)(iii),19 the Commission Internet Web site (http://www.sec.gov/
the MIAX market, more transparent and may designate a shorter time if such rules/sro.shtml). Copies of the
accessible to market participants as action is consistent with the protection submission, all subsequent
MIAX begins to trade complex orders. of investors and the public interest. The amendments, all written statements
Exchange has asked the Commission to with respect to the proposed rule
B. Self-Regulatory Organization’s change that are filed with the
waive the 30-day operative delay. The
Statement on Burden on Competition Commission believes that waiving the Commission, and all written
The Exchange does not believe that 30-day operative delay is consistent communications relating to the
the proposed rule change will impose with the protection of investors and the proposed rule change between the
any burden on competition that is not public interest. Such waiver will allow Commission and any person, other than
necessary or appropriate in furtherance the Exchange to offer the features those that may be withheld from the
of the purposes of the Act. On the relating to the trading of complex orders public in accordance with the
contrary, the Exchange believes that the that will be embedded in the Exchange’s provisions of 5 U.S.C. 552, will be
addition of information concerning enumerated ports and market data available for Web site viewing and
complex orders to the various ports and products on the date that coincides with printing in the Commission’s Public
market data products will enhance the projected October 24, 2016 launch of Reference Room, 100 F Street NE.,
inter-market competition by the trading of complex orders on the Washington, DC 20549, on official
supplementing existing ports and data Exchange.20 Accordingly, the business days between the hours of
products with information concerning Commission hereby waives the 30-day 10:00 a.m. and 3:00 p.m. Copies of the
complex orders traded on MIAX. This operative delay requirement and filing also will be available for
transparency and access should enable designates the proposed rule change as inspection and copying at the principal
MIAX to compete with other exchanges operative upon filing with the office of the Exchange. All comments
for order flow in complex orders in the Commission. received will be posted without change;
options markets. At any time within 60 days of the the Commission does not edit personal
Additionally, respecting intra-market filing of the proposed rule change, the identifying information from
competition, the value-added features Commission summarily may submissions. You should submit only
relating to complex orders in the various temporarily suspend such rule change if information that you wish to make
ports and data products are available to it appears to the Commission that such available publicly. All submissions
all subscribers at no additional cost, action is necessary or appropriate in the should refer to File Number SR–MIAX–
thus providing all subscribers to the public interest; for the protection of 2016–36, and should be submitted on or
ports and data products with an even investors; or otherwise in furtherance of before November 18, 2016.
playing field with respect to information the purposes of the Act. For the Commission, by the Division of
and access to trade complex orders on IV. Solicitation of Comments Trading and Markets, pursuant to delegated
MIAX. authority.21
Interested persons are invited to Robert W. Errett,
C. Self-Regulatory Organization’s submit written data, views, and Deputy Secretary.
Statement on Comments on the arguments concerning the foregoing,
[FR Doc. 2016–26054 Filed 10–27–16; 8:45 am]
Proposed Rule Change Received From including whether the proposed rule
BILLING CODE 8011–01–P
Members, Participants, or Others change is consistent with the Act.
Written comments were neither Comments may be submitted by any of
solicited nor received. the following methods: SECURITIES AND EXCHANGE
III. Date of Effectiveness of the Electronic Comments COMMISSION
Proposed Rule Change and Timing for • Use the Commission’s Internet [Release No. 34–79145; File No. SR–Phlx–
Commission Action comment form (http://www.sec.gov/ 2016–109]
Because the foregoing proposed rule rules/sro.shtml); or
• Send an email to rule-comments@ Self-Regulatory Organizations;
change does not: (i) Significantly affect NASDAQ PHLX LLC; Notice of Filing
sec.gov. Please include File Number SR–
the protection of investors or the public and Immediate Effectiveness of
MIAX–2016–36 on the subject line.
interest; (ii) impose any significant Proposed Rule Change To Adopt Phlx
burden on competition; and (iii) become Paper Comments Rule 765 (Prohibition Against Trading
operative for 30 days from the date on • Send paper comments in triplicate Ahead of Customer Orders)
which it was filed, or such shorter time to Secretary, Securities and Exchange
as the Commission may designate, it has October 24, 2016.
Commission, 100 F Street NE.,
become effective pursuant to Section Pursuant to Section 19(b)(1) of the
Washington, DC 20549–1090.
19(b)(3)(A) of the Act 17 and Rule 19b– Securities Exchange Act of 1934
All submissions should refer to File (‘‘Act’’),1 and Rule 19b–4 thereunder,2
4(f)(6) thereunder.18 Number SR–MIAX–2016–36. This file
A proposed rule change filed under notice is hereby given that on October
number should be included on the 20, 2016, NASDAQ PHLX LLC (‘‘Phlx’’
Rule 19b–4(f)(6) normally does not subject line if email is used. To help the
become operative for 30 days from the or ‘‘Exchange’’) filed with the Securities
Commission process and review your and Exchange Commission (‘‘SEC’’ or
date of filing. However, pursuant to comments more efficiently, please use ‘‘Commission’’) the proposed rule
only one method. The Commission will
mstockstill on DSK3G9T082PROD with NOTICES
17 15 U.S.C. 78s(b)(3)(A). change as described in Items I, II, and
18 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
post all comments on the Commission’s III, below, which Items have been
4(f)(6) requires a self-regulatory organization to give prepared by the Exchange. The
19 17 CFR 240.19b–4(f)(6)(iii).
the Commission written notice of its intent to file Commission is publishing this notice to
the proposed rule change at least five business days 20 For purposes only of waiving the 30-day
prior to the date of filing of the proposed rule operative delay, the Commission has also
21 17 CFR 200.30–3(a)(12).
change, or such shorter time as designated by the considered the proposed rule’s impact on
1 15 U.S.C. 78s(b)(1).
Commission. The Exchange has satisfied this efficiency, competition, and capital formation. See
requirement. 15 U.S.C. 78c(f). 2 17 CFR 240.19b–4.
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![Federal Register / Vol. 81, No. 209 / Friday, October 28, 2016 / Notices 75175
solicit comments on the proposed rule Rule 3404 Recording of Order forth in FINRA Rule 5320.02 (No-
change from interested persons. Information Knowledge Exception) if the member
I. Self-Regulatory Organization’s With respect to orders for securities implements information barriers in
Statement of the Terms of Substance of listed on the NASDAQ Stock Market or reliance on that exception.
the Proposed Rule Change the Exchange, member organizations Phlx believes that Rule 765 will add
and persons associated with a member important additional safeguards to the
The Exchange proposes to adopt Phlx
organization shall comply with the treatment of customer orders by
Rule 765 (Prohibition Against Trading
following Rule: members, and that the amendment to
Ahead of Customer Orders). Phlx also (a) No Change.
proposes to amend Rule 3404 Rule 3404 will increase regulatory
(b) Order Origination and Receipt efficiency in conducting surveillance to
(Recording of Order Information) to Unless otherwise indicated, the
include an additional order reporting ensure compliance with Rule 765. In
following order information must be
requirement related to one of the addition, both The Nasdaq Stock Market
recorded under this Rule when an order
exceptions in Rule 765. LLC (‘‘Nasdaq’’) and NASDAQ BX, Inc.
is received or originated. For purposes
The text of the proposed rule change of this Rule, the order origination or (‘‘BX’’) have previously adopted rules
is set forth below. Proposed new receipt time is the time the order is prohibiting the trading ahead of
language is italicized; deleted text is in received from the customer. customer orders that reference FINRA
brackets. (1) through (16) No Change. Rule 5320, and so this proposal will
* * * * * (17) an identification of the order as further align the Phlx rules with Nasdaq
related to a Program Trade or an Index and BX rules in this regard.3
Rules of the Exchange
Arbitrage Trade; [and] Proposed Rule 765 contains three
* * * * * (18) the type of account, i.e., retail, distinct elements. First, Rule 765 states
Rule 765 Prohibition Against Trading wholesale, employee, proprietary, or that members shall be required to
Ahead of Customer Orders any other type of account designated by comply with FINRA Rule 5320 as if that
the Exchange, for which the order is rule were part of Phlx’s rules. As part of
(a) Phlx members and persons submitted[.]; and
associated with a member shall comply incorporating FINRA Rule 5320 by
(19) if the member is relying on the
with FINRA Rule 5320 as if such Rule reference, Rule 765 states that references
exception provided in FINRA Rule
were part of Phlx’s rules. to FINRA shall be construed as
5320.02 with respect to the order, the
(b) For purposes of this Rule: unique identification of any appropriate references to Phlx, and replaces cross-
(1) References to FINRA Rules 5310, information barriers in place at the references to other FINRA rules with
5320 and 7440 shall be construed as department within the member where cross-references to corresponding Phlx
references to Phlx Rules 764, 765 and the order was received or originated. rules. Second, Rule 765 exempts
3404, respectively; members from complying with FINRA
(2) The reference in FINRA Rule 5320 * * * * *
Rule 5320.02(b) and the reference to
to an ‘‘institutional account’’, as defined II. Self-Regulatory Organization’s FINRA Rule 6420 therein, as those
in FINRA Rule 4512(c), shall be Statement of the Purpose of, and provisions deal with trading in OTC
construed to apply to accounts of Statutory Basis for, the Proposed Rule equity securities, which Phlx does not
customers that do not meet the Change regulate. Finally, Rule 765 addresses
definition of ‘‘non-institutional how members and persons associated
In its filing with the Commission, the
customer’’, as defined in Phlx Rule with a member relying upon the
Exchange included statements
763(c); exception set forth in FINRA Rule
(3) FINRA Rule 5320.02(b) and the concerning the purpose of and basis for
the proposed rule change and discussed 5320.03 (relating to riskless principal
reference to FINRA Rule 6420 therein
any comments it received on the transactions) shall comply with the
shall be disregarded;
(4) References to ‘‘FINRA’’ shall be proposed rule change. The text of these reporting requirements stated therein.
construed as references to ‘‘Phlx’’. statements may be examined at the These elements are further discussed
(c) Phlx members and persons places specified in Item IV below. The below.
associated with a member relying upon Exchange has prepared summaries, set
the exception set forth in FINRA Rule forth in sections A, B, and C below, of 3 FINRA Rule 5320 was previously codified as
5320.03 shall comply with the reporting the most significant aspects of such NASD IM–2110–2 (Trading Ahead of Customer
statements. Limit Order) and NASD Rule 2111 (Trading Ahead
requirements stated therein. Phlx and of Customer Market Orders). FINRA adopted FINRA
FINRA are parties to the Regulatory A. Self-Regulatory Organization’s Rule 5320 in 2011, which combined NASD IM–
Contract pursuant to which FINRA has Statement of the Purpose of, and 2110–2 and NASD Rule 2111 into one rule and
agreed to perform certain functions on made several changes. See Securities Exchange Act
Statutory Basis for, the Proposed Rule Release No. 63895 (February 11, 2011), 76 FR 9386
behalf of Phlx. Therefore, Phlx members Change (February 17, 2011) (SR–FINRA–2009–090). Nasdaq
are complying with Phlx Rule 765 by adopted IM–2110–2 as part of its Form 1
complying with FINRA Rule 5320.03 as 1. Purpose application that it submitted in 2001. See Securities
written, including, for example, Exchange Act Release No. 44396 (June 7, 2001), 66
Phlx proposes to adopt Rule 765 FR 31952 (June 13, 2001) (File No. 10–131). Nasdaq
reporting requirements and (Prohibition Against Trading Ahead of subsequently amended that rule to reflect the
notifications. In addition, functions Customer Orders). This rule will largely adoption of FINRA Rule 5320. See Securities
performed by FINRA, FINRA incorporate FINRA Rule 5320 Exchange Act Release No. 68153 (November 5,
mstockstill on DSK3G9T082PROD with NOTICES
departments, and FINRA staff under 2012), 77 FR 67409 (November 9, 2012) (SR–
(Prohibition Against Trading Ahead of NASDAQ–2012–124). In 2008, BX adopted IM–
Phlx Rule 765 are being performed by Customer Orders), commonly known as 2110–2 (Trading Ahead of Customer Limit Order),
FINRA on behalf of Phlx. the ‘‘Manning Rule’’, by reference. Phlx which incorporates NASD IM–2110–2 by reference,
* * * * * also proposes to adopt, as part of Rule and Rule 2111 (Trading Ahead of Customer Market
Orders), which incorporates NASD Rule 2111 by
3404 (Recording of Order Information), reference. See Securities and Exchange Act Release
Rule 3000 NASDAQ OMX PSX language that specifies how members No. 59154 (December 23, 2008), 73 FR 80468
* * * * * shall comply with the exception set (December 31, 2008) (SR–BSE–2008–48).
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![75178 Federal Register / Vol. 81, No. 209 / Friday, October 28, 2016 / Notices
customer’’) and certain kinds of trades Electronic Comments SECURITIES AND EXCHANGE
(such as riskless principal trades), and COMMISSION
additional reporting requirements for • Use the Commission’s Internet
comment form (http://www.sec.gov/ [Investment Company Act Release No.
firms that use information barriers 32324; 812–14542]
pursuant to the no-knowledge rules/sro.shtml); or
exception, these exceptions and • Send an email to rule-comments@ ALAIA Market Linked Trust and Beech
requirements will also apply equally to sec.gov. Please include File Number SR- Hill Securities, Inc.; Notice of
all similarly-situated market Phlx-2016–109 on the subject line. Application
participants. In addition, the SEC has
Paper Comments October 24, 2016.
previously found that such exceptions
AGENCY: Securities and Exchange
and requirements are consistent with • Send paper comments in triplicate Commission (‘‘Commission’’).
the Act. to Brent J. Fields, Secretary, Securities ACTION: Notice of an application under
C. Self-Regulatory Organization’s and Exchange Commission, 100 F Street (a) section 6(c) of the Investment
Statement on Comments on the NE., Washington, DC 20549–1090. Company Act of 1940 (‘‘Act’’) for an
Proposed Rule Change Received From All submissions should refer to File exemption from sections 2(a)(32),
Members, Participants, or Others Number SR–Phlx–2016–109. This file 2(a)(35), 14(a), 19(b), 22(d) and
number should be included on the 26(a)(2)(C) of the Act and rules 19b–1
No written comments were either and rule 22c–1 thereunder and (b)
subject line if email is used. To help the
solicited or received. sections 11(a) and 11(c) of the Act for
Commission process and review your
approval of certain exchange and
III. Date of Effectiveness of the comments more efficiently, please use
rollover privileges.
Proposed Rule Change and Timing for only one method. The Commission will
Commission Action post all comments on the Commission’s Applicants: ALAIA Market Linked
Internet Web site (http://www.sec.gov/ Trust and Beech Hill Securities Inc.
Because the foregoing proposed rule rules/sro.shtml). (‘‘BHSI’’).1
change does not: (i) Significantly affect Summary of Application: Applicants
the protection of investors or the public Copies of the submission, all
subsequent amendments, all written request an order to permit certain unit
interest; (ii) impose any significant investment trusts (‘‘UIT’’) to: (a) Impose
burden on competition; and (iii) become statements with respect to the proposed
sales charges on a deferred basis and
operative for 30 days from the date on rule change that are filed with the
waive the deferred sales charge in
which it was filed, or such shorter time Commission, and all written certain cases; (b) offer unitholders
as the Commission may designate, it has communications relating to the certain exchange and rollover options;
become effective pursuant to Section proposed rule change between the (c) publicly offer units without requiring
19(b)(3)(A)(iii) of the Act 21 and Commission and any person, other than the Depositor to take for its own account
subparagraph (f)(6) of Rule 19b–4 those that may be withheld from the $100,000 worth of units; and (d)
thereunder.22 public in accordance with the distribute capital gains resulting from
provisions of 5 U.S.C. 552, will be the sale of portfolio securities within a
At any time within 60 days of the
available for Web site viewing and reasonable time after receipt.
filing of the proposed rule change, the
printing in the Commission’s Public Filing Dates: The application was
Commission summarily may
Reference Room, 100 F Street NE., filed on September 3, 2015, and
temporarily suspend such rule change if
Washington, DC 20549, on official amended on January 6, 2016, and
it appears to the Commission that such October 17, 2016.
business days between the hours of
action is: (i) Necessary or appropriate in Hearing or Notification of Hearing: An
10:00 a.m. and 3:00 p.m. Copies of the
the public interest; (ii) for the protection order granting the requested relief will
filing also will be available for
of investors; or (iii) otherwise in be issued unless the Commission orders
inspection and copying at the principal
furtherance of the purposes of the Act. a hearing. Interested persons may
If the Commission takes such action, the office of the Exchange. All comments
received will be posted without change; request a hearing by writing to the
Commission shall institute proceedings Commission’s Secretary and serving
to determine whether the proposed rule the Commission does not edit personal
applicants with a copy of the request,
should be approved or disapproved. identifying information from
personally or by mail. Hearing requests
submissions. You should submit only
IV. Solicitation of Comments should be received by the Commission
information that you wish to make
by 5:30 p.m. on November 17, 2016, and
available publicly. should be accompanied by proof of
Interested persons are invited to
submit written data, views, and All submissions should refer to File service on applicants, in the form of an
arguments concerning the foregoing, Number SR–Phlx–2016–109 and should affidavit, or for lawyers, a certificate of
including whether the proposed rule be submitted on or before November 18, service. Pursuant to rule 0–5 under the
change is consistent with the Act. 2016. Act, hearing requests should state the
Comments may be submitted by any of For the Commission, by the Division of nature of the writer’s interest, any facts
the following methods: Trading and Markets, pursuant to delegated 1 Applicants also request relief for future unit
authority.23 investment trusts (collectively, with ALAIA Market
mstockstill on DSK3G9T082PROD with NOTICES
21 15 U.S.C. 78s(b)(3)(A)(iii). Robert W. Errett, Linked Trust, the ‘‘Trusts’’) and series of the Trusts
22 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– (‘‘Series’’) that are sponsored by BHSI or any entity
Deputy Secretary.
4(f)(6) requires a self-regulatory organization to give controlling, controlled by or under common control
the Commission written notice of its intent to file [FR Doc. 2016–26053 Filed 10–27–16; 8:45 am] with BHSI (together with BHSI, the ‘‘Depositors’’).
the proposed rule change at least five business days BILLING CODE 8011–01–P Any future Trust and Series that relies on the
prior to the date of filing of the proposed rule requested order will comply with the terms and
change, or such shorter time as designated by the conditions of the application. All existing entities
Commission. The Exchange has satisfied this that currently intend to rely on the requested order
requirement. 23 17 CFR 200.30–3(a)(12). are named as applicants.
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Document Created: 2018-02-13 16:40:02
Document Modified: 2018-02-13 16:40:02
| 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 75174 |
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