81 FR 9566 - Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Rules 8.15, Imposition of Fines for Minor Violation(s) of Rules, and 25.3, Penalty for Minor Rule Violations, Amending the Exchange's Minor Rule Violation Plan

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 37 (February 25, 2016)

[Federal Register Volume 81, Number 37 (Thursday, February 25, 2016)]
[Notices]
[Pages 9566-9568]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-03942]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77181; File No. SR-EDGX-2016-03]


Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change to Rules 
8.15, Imposition of Fines for Minor Violation(s) of Rules, and 25.3, 
Penalty for Minor Rule Violations, Amending the Exchange's Minor Rule 
Violation Plan

February 19, 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 February 10, 2016, EDGX Exchange, Inc. (``EDGX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 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

    The Exchange is proposing to amend Rules 8.15 and 25.3 to amend the 
Exchange's Minor Rule Violation Plan.
    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Rule 8.15 applicable to the 
Exchange's equity platform (``EDGX Equities'') to remove the $2,500 
penalty limitation contained in Rule 8.15(a) in order to modify the 
permissible penalties for minor rule violations with respect to Rule 
25.3 applicable to the EDGX options platform (``EDGX Options'') and to 
allow the Exchange the discretion to impose penalties in excess of 
$2,500 under both the EDGX Equities and EDGX Options Minor Rule 
Violation Plans. The proposal further provides that only fines that do 
not exceed $2,500 will not be reported. Fines that exceed $2,500 will 
continue to be publicly reported by the Exchange \3\ and reported as 
final in compliance with SEC Rule 19d-1(c).\4\
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    \3\ As set forth in Interpretation and Policy .01 to Rule 8.11, 
except as provided in Rule 8.15(a), the staff shall cause details 
regarding all formal disciplinary actions where a final decision has 
been issued to be published on a Web site maintained by the 
Exchange.
    \4\ 17 CFR 240.19d-1(c).
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    Further, the Exchange proposes to amend the EDGX Options Minor Rule 
Violation Plan penalty schedule contained in Rule 25.3(d)--for 
violations of Rule 22.6(d) regarding Market Makers maintaining 
continuous bids and offers--to aggregate violations of Rule 22.6(d) 
that occur in a single month of a rolling 24-month period and sanction 
such aggregated violations as a single offense. The proposed amended 
penalty schedule is substantially similar to International Securities 
Exchange (``ISE'') Rule 1614(d)(11) Minor Rule Violation Plan penalties 
for continuous options quotation violations. In addition to these 
changes, the Exchange proposes to make minor non-substantive changes to 
conform to the Rules of BATS Exchange, Inc., specifically by 
capitalizing the term ``rule'' in Rule 8.15 and by adding the words 
``and Policy'' to Interpretation and Policy .01.
Removal of Penalty Limitation
    Rule 25.3 states that the Exchange may proceed under the Minor Rule 
Violation Plan pursuant to the procedures set forth in Rule 8.15 
applicable to EDGX Equities. Currently, Rule 8.15(a) states that the 
Exchange may impose a fine ``not to exceed $2,500'' for a minor rule 
violation. Because existing Rule 25.3 recommends the imposition of 
penalties in excess of $2,500 in certain circumstances, the

[[Page 9567]]

Exchange believes the penalty limitation in 8.15(a) is obsolete, 
inappropriate, and unnecessarily confusing. Moreover, abiding by the 
terms of the penalty limitation contained in 8.15(a) for purposes of 
the EDGX Options Minor Rule Violation Plan deprives Rule 25.3 of much 
of its meaning and effectiveness. Further, it is the Exchange's 
position that the penalty limitation currently contained in Rule 
8.15(a) is also unnecessary because the Exchange must exercise its 
discretion to opt to proceed under the Minor Rule Violation Plan rather 
than under its default process, the formal disciplinary process. As a 
practical matter, if an individual or entity exceeds the prescribed 
Minor Rule Violation Plan fine threshold of $2,500, it will oftentimes 
be appropriate for the Exchange to decline to exercise its discretion 
to proceed under the Minor Rule Violation Plan and to instead proceed 
under the formal disciplinary process. The Exchange, however, believes 
it should have the discretion to elect to proceed under the Minor Rule 
Violation Plan for a minor rule violation that would otherwise 
cumulatively exceed $2,500. Accordingly, the Exchange proposes to 
eliminate the penalty limitation in Rule 8.15(a).
    The Exchange recognizes, however, a fine exceeding $2,500 must be 
reported as final in accordance with SEC Rule 19d-1(c),\5\ regardless 
of whether or not it is imposed under the Minor Rule Violation Plan. 
The Exchange provides, therefore, that only fines that do not exceed 
$2,500 will not be reported. Fines that exceed $2,500 will continue to 
be reported as final in compliance with SEC Rule 19d-1(c).\6\
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    \5\ 17 CFR 240.19d-1(c).
    \6\ Id.
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Amendment to MRVP for Continuous Quoting Violations
    The Exchange proposes to amend Rule 25.3(d) to impose fines for 
violations of Rule 22.6(d)--regarding a Market Maker's failure to 
maintain continuous bids and offers--under the Minor Rule Violation 
Plan by aggregating the violations that occur in a month and 
sanctioning the violations as a single offense. The Exchange proposes 
to continue its current recommendation of issuing a letter of caution 
for the first offense in a rolling 24-month period. For the second 
violation in the period, the Exchange proposes to issue a $1,000 
penalty; for the third a $2,500 penalty; for the fourth a $5,000 
penalty. Finally, if there occurs a fifth violation within a rolling 
24-month period, the Exchange believes that such a violation is 
inappropriate for disposition under the Minor Rule Violation Plan, and 
the proposed amendment to Rule 25.3(d) directs that the violation be 
enforced in a formal disciplinary action. The Exchange believes it is 
appropriate to recommend higher penalties than recommended in current 
Rule 25.3(d) because the Exchange is aggregating violations that occur 
in a month and sanctioning the violations as a single offense.
    As with other violations covered under the Exchange's Minor Rule 
Violation Plan, the Exchange may elect to forgo the Minor Rule 
Violation Plan and enforce any egregious violations of its rules under 
the Exchange's formal disciplinary process.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange, and, in particular, 
with the requirements of Section 6(b) of the Act.\7\ Specifically, the 
proposal is consistent with Section 6(b)(5) of the Act,\8\ which 
requires exchange rules to promote just and equitable principles of 
trade, remove impediments to, and perfect the mechanism of, a free and 
open market and a national market system, and, in general, protect 
investors and the public interest. The Exchange also believes the 
proposed rule change is consistent with Section 6(b)(1) of the Act,\9\ 
which requires that the Exchange be organized and have the capacity to 
be able to carry out the purposes of the Act such that it can enforce 
compliance with the Act by persons registered with the Exchange. The 
Exchange also believes the proposed rule change furthers the objectives 
of Section 6(b)(6) \10\ of the Act, which requires that the rules of an 
exchange provide that its members and persons associated with its 
members be appropriately disciplined for violation of the provisions of 
the Act, the rules and regulations thereunder, or the rules of the 
exchange, by expulsion, suspension, limitation of activities, 
functions, and operations, fine, censure, being suspended or barred 
from being associated with a member, or any other fitting sanction. 
Finally, the Exchange believes that the proposed rule change furthers 
the objectives of Section 6(b)(7) of the Act,\11\ in particular, in 
that it provides fair procedures for the disciplining of members and 
persons associated with members.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ 15 U.S.C. 78f(b)(1).
    \10\ 15 U.S.C. 78f(b)(6).
    \11\ 15 U.S.C. 78f(b)(7).
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    The Exchange believes the proposed rule change for Rule 8.15(a) 
fulfills the requirements set forth above because it modifies the 
procedures for the Exchange to discipline minor EDGX Options rule 
violations by removing the $2,500 penalty limitation from the EDGX 
Equities and EDGX Options Minor Rule Violation Plan and makes other 
minor stylistic and conforming changes. The proposed rule change 
further provides that the Exchange will not report fines that do not 
exceed $2,500 under the Minor Rule Violation Plan except as required 
under SEC Rule 19d-1(c).\12\
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    \12\ 17 CFR 240.19d-1(c).
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    The Exchange believes the proposed rule change for Rule 25.3(d) 
fulfills the requirements set forth above because it permits the 
Exchange to levy progressively larger fines against a repeat-offender 
and prescribes that after five violations in a rolling 24-month period, 
the conduct is outside the purview of the Minor Rule Violation Plan, 
and formal disciplinary action is appropriate. Further, the Exchange 
believes the proposed rule change for Rule 25.3(d) fulfills the 
requirements set forth above because it clearly defines when and how a 
Market Maker may be disciplined under the Minor Rule Violation Plan. 
The Exchange also notes that the proposed rule change for Rule 25.3(d) 
is based on and substantially similar to ISE Rule 1614(d)(11).

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes the proposal is consistent with Section 
6(b)(8) of the Act \13\ in that it does not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The proposed change merely amends the procedures 
the Exchange intends to follow with regard to minor EDGX Options Rule 
22.6(d) violations and removes an obsolete and unnecessary penalty 
limitation. Thus, the Exchange does not believe the proposed rule 
change will have any effect on competition.
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    \13\ 15 U.S.C. 78f(b)(8).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any

[[Page 9568]]

unsolicited written comments from Members or other interested parties.

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

    Because the foregoing proposed rule change does not: (A) 
Significantly affect the protection of investors or the public 
interest; (B) impose any significant burden on competition; and (C) by 
its terms, 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) of the Act \14\ and 
paragraph (f)(6) of Rule 19b-4 thereunder,\15\ the Exchange has 
designated this rule filing as non-controversial. The Exchange has 
given the Commission written notice of its intent to file the proposed 
rule change, along with a brief description and text of 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.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b 4.
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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: (1) 
Necessary or appropriate in the public interest; (2) for the protection 
of investors; or (3) 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 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-EDGX-2016-03 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-EDGX-2016-03. 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 such 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-EDGX-2016-03, and should be 
submitted on or before March 17, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-03942 Filed 2-24-16; 8:45 am]
BILLING CODE 8011-01-P