81 FR 85657 - Order Granting Limited Exemption From Exchange Act Rule 15c2-11 to Certain Interdealer Quotation Systems Pursuant to Exchange Act Rule 15c2-11(h)

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 228 (November 28, 2016)

[Federal Register Volume 81, Number 228 (Monday, November 28, 2016)]
[Notices]
[Pages 85657-85659]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-28457]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79360; File No. TP 16-16]


Order Granting Limited Exemption From Exchange Act Rule 15c2-11 
to Certain Interdealer Quotation Systems Pursuant to Exchange Act Rule 
15c2-11(h)

November 21, 2016.
    By letter dated November 21, 2016 (the ``Letter''), Global OTC 
requested that the Securities and Exchange Commission (the 
``Commission'') grant a limited exemption from rule 15c2-11 under the 
Securities Exchange Act of 1934, as amended (the ``Exchange Act''), in 
connection with the publication or submission for publication of 
quotations for a covered over-the-counter (``OTC'') equity security (an 
``OTC Security'' or, plural, ``OTC Securities'') in the interdealer 
quotation system (``IDQS'') operated by Global OTC (``Global OTC 
IDQS''). Specifically, Global OTC seeks an exemption to permit broker-
dealers, consistent with the approach described below, to publish or 
submit for

[[Page 85658]]

publication quotations in Global OTC IDQS for an OTC Security that is 
already ``piggyback'' qualified, or ``piggyback'' eligible, under rule 
15c2-11(f)(3), in another IDQS, without the broker-dealer separately 
complying with the requirements of rule 15c2-11, subject to certain 
conditions.
    Rule 15c2-11, with certain exceptions, requires that a broker-
dealer that publishes or submits for publication quotations for OTC 
Securities in a quotation medium gather, review, and preserve certain 
specified information and have a reasonable basis under the 
circumstances for believing that the information is accurate in all 
material respects and was obtained from reliable sources.\1\ Rule 15c2-
11 includes an exception to the rule's requirements--the ``piggyback'' 
exception--for when a broker-dealer publishes, in an IDQS \2\ that 
specifically identifies as such unsolicited customer indications of 
interest, a quotation for an OTC Security that was already the subject 
of regular and frequent quotations in compliance with rule 15c2-
11(f)(3)(i).\3\ For this piggyback exception to apply, the security 
must have been the subject of quotations (exclusive of any identified 
customer interests) in the IDQS on each of at least 12 days within the 
previous 30 calendar days, with no more than 4 business days in 
succession without a quotation.\4\ Thus, if a publication or submission 
for publication of a quotation for an OTC Security meets all of the 
requirements of this exception, a broker-dealer can ``piggyback'' on 
either its own or other broker-dealers' previously published quotations 
in an IDQS.
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    \1\ See 17 CFR 240.15c2-11(a)-(c).
    \2\ Paragraph (e)(2) of rule 15c2-11 defines an IDQS to mean 
``any system of general circulation to brokers or dealers which 
regularly disseminates quotations of identified brokers or 
dealers.'' 17 CFR 240.15c2-11(e)(2). Global OTC represents that it 
qualifies as an IDQS because Global OTC IDQS does not accept or 
maintain dark orders and fully attributes to the broker-dealer 
representing the quotation all quotations submitted on Global OTC 
IDQS.
    \3\ See 17 CFR 240.15c2-11(f)(3)(i) (providing frequency of 
quotation requirements for a security to meet the piggyback 
exception).
    \4\ Id.
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    The Letter represents that the concerns the Commission raised in 
adopting rule 15c2-11 would not be implicated if exemptive relief, 
subject to the conditions below, were granted to broker-dealers 
publishing or submitting for publication quotations in Global OTC IDQS. 
Specifically, Global OTC describes in the Letter an approach based on 
transferability of piggyback eligibility from one IDQS to another IDQS 
to allow a broker-dealer to avail itself of the piggyback exception 
when quoting in Global OTC IDQS any OTC Security that (1) qualifies for 
the piggyback exception in another IDQS, or (2) is initially quoted in 
Global OTC IDQS based on the relief provided in this Order and then 
establishes and maintains piggyback eligibility under rule 15c2-
11(f)(3)(i) based on quotations (exclusive of any identified customer 
interests) in Global OTC IDQS. Global OTC represents that this approach 
would assist investors in OTC Securities by increasing competition, 
promoting fair and orderly markets, and providing redundancy in the 
event of systems failures by having an additional IDQS in which to 
continuously quote OTC Securities that already are eligible for the 
piggyback exception in another IDQS.
    Based on the facts and representations made in the Letter, we find 
that it is appropriate in the public interest, and is consistent with 
the protection of investors, to grant, and hereby grant, broker-dealers 
a limited exemption from rule 15c2-11 to permit a broker-dealer to 
publish or submit for publication quotations in Global OTC IDQS, or in 
any other IDQS,\5\ for an OTC Security that is piggyback eligible under 
rule 15c2-11(f)(3) in another IDQS, without the broker-dealer 
separately complying with the requirements of rule 15c2-11, subject to 
the conditions of this Order.
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    \5\ Based on the facts and representations, we believe it is 
appropriate to expand the scope of the exemptive relief to include 
publishing or submitting for publication quotations in any IDQS, not 
just Global OTC IDQS, provided that the conditions of this Order are 
satisfied.
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    The conditions of this Order are designed to extend the rule 15c2-
11(f)(3)(i) exception to broker-dealers that are publishing or 
submitting for publication quotations for already-quoted OTC Securities 
that are currently piggyback eligible under rule 15c2-11(f)(3) in an 
IDQS other than an IDQS in which piggyback eligibility has been 
established, while at the same time limiting the scope of relief by 
excluding from eligibility certain OTC Securities. The first condition 
limits the applicability of relief to an IDQS that meets the 
requirements to be an IDQS as defined in the rule \6\ and that meets 
the requirements of rule 15c2-11(f)(3)(i). Conditions two, three, and 
four are designed to help ensure that the relief is limited to 
quotations in an IDQS that has established, maintains, and enforces 
monitoring and review requirements to verify that the OTC Security is 
piggyback eligible in another IDQS (or has established piggyback 
eligibility in the IDQS) and that there are current quotations for that 
OTC Security in that other IDQS, and that the issuer of the OTC 
Security is not delinquent in its required filing obligations under the 
federal securities laws, on the day that a broker-dealer commences 
publishing or submitting for publication quotations for that OTC 
Security in the IDQS. Finally, condition five is designed to ensure 
that the IDQS maintains adequate books and records to demonstrate 
compliance with this Order.
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    \6\ See 17 CFR 240.15c2-11(e)(2); supra note 2.
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    This Order does not expand the number of OTC Securities that are 
already quoted pursuant to the exception from the requirements of rule 
15c2-11 contained in rule 15c2-11(f)(3); rather, this Order extends the 
rule 15c2-11(f)(3)(i) exception to quotations for these already-quoted 
OTC Securities published by broker-dealers in an IDQS other than the 
IDQS in which piggyback eligibility is established if, and only if, the 
requirements of Rule 15c2-11(f)(3)(i) are otherwise satisfied and the 
conditions of this Order are met. As such, we do not believe that the 
transfer of piggyback eligibility for these already-quoted OTC 
Securities under rule 15c2-11(f)(3), from one IDQS to another IDQS, as 
conditioned in this Order, constitutes a fraudulent, manipulative, or 
deceptive practice comprehended within the purpose of rule 15c2-11.

Conclusion

    It is hereby ordered, pursuant to Exchange Act rule 15c2-11(h), 
that broker-dealers are exempt from the requirements of rule 15c2-11 
solely to permit broker-dealers to publish or submit for publication 
quotations in Global OTC IDQS or in any similarly situated IDQS for an 
OTC Security that is piggyback eligible under rule 15c2-11(f)(3) in 
another IDQS, subject to the following conditions:
    1. The IDQS meets the requirements to be an IDQS as defined in the 
rule \7\ and specifically identifies as such unsolicited indications of 
customer interest of the kind described in paragraph (f)(2) of rule 
15c2-11.
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    \7\ See 17 CFR 240.15c2-11(e)(2); supra note 2.
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    2. The IDQS permits a broker-dealer to commence publishing or 
submitting for publication quotations in such IDQS for the OTC 
Security, in reliance on this Order, only if (a) the OTC Security is 
piggyback eligible under rule 15c2-11(f)(3) in another IDQS; and (b) 
the OTC Security has current quotations in that other IDQS, and the 
symbol for the OTC Security does not contain the fifth letter 
identifier appended by FINRA to

[[Page 85659]]

the symbols of OTC Securities to identify issuers that are delinquent 
in their required filings, on the day the broker-dealer commences 
quoting in such IDQS.
    3. Once a broker-dealer commences publishing or submitting for 
publication quotations in the IDQS for the OTC Security in accordance 
with condition 2, such IDQS permits broker-dealers to continue 
publishing or submitting for publication quotations in such IDQS for 
the OTC Security only if the OTC Security continues to be piggyback 
eligible under rule 15c2-11(f)(3) in another IDQS or has established 
and maintains piggyback eligibility under rule 15c2-11(f)(3)(i) based 
on quotations (exclusive of any identified customer interests) in such 
IDQS.
    4. The IDQS establishes, maintains, and enforces policies and 
procedures reasonably designed to ensure compliance with this Order.
    5. The IDQS maintains books and records sufficient to demonstrate 
that such IDQS is complying with the terms of this Order, and such IDQS 
promptly provides such records to Commission staff upon request.
    This Order is subject to modification or revocation at any time the 
Commission determines that such action is necessary or appropriate in 
furtherance of the purposes of the Exchange Act. In addition, persons 
relying on this Order are directed to the anti-fraud and anti-
manipulation provisions of the federal securities laws, particularly 
section 10(b) of the Exchange Act and rule 10b-5 thereunder. 
Responsibility for compliance with these and any other applicable 
provisions of the federal securities laws must rest with the persons 
relying on this Order. This Order should not be considered a view with 
respect to any other question that the publication or submission for 
publication of quotations in reliance on this Order may raise, 
including, but not limited to, the applicability of other federal or 
state laws to such activity.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
Robert W. Errett,
Deputy Secretary.
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    \8\ 17 CFR 200.30-3(a)(6).
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[FR Doc. 2016-28457 Filed 11-25-16; 8:45 am]
 BILLING CODE 8011-01-P