82 FR 10842 - Submission for OMB Review; Comment Request
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 30 (February 15, 2017)
Federal Register Volume 82, Issue 30 (February 15, 2017)
| Page Range | 10842-10844 | |
| FR Document | 2017-02974 |
[Federal Register Volume 82, Number 30 (Wednesday, February 15, 2017)] [Notices] [Pages 10842-10844] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-02974] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Submission for OMB Review; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission; Office of FOIA Services; 100 F Street NE., Washington, DC 20549-2736. Extension: [[Page 10843]] Rule 17a-10; SEC File No. 270-507, OMB Control No. 3235-0563. Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) the Securities and Exchange Commission (``Commission'') has submitted to the Office of Management and Budget (``OMB'') a request for extension of the previously approved collection of information discussed below. Section 17(a) of the Investment Company Act of 1940 (the ``Act''), generally prohibits affiliated persons of a registered investment company (``fund'') from borrowing money or other property from, or selling or buying securities or other property to or from, the fund or any company that the fund controls.\1\ Section 2(a)(3) of the Act defines ``affiliated person'' of a fund to include its investment advisers.\2\ Rule 17a-10 (17 CFR 270.17a-10) permits (i) a subadviser \3\ of a fund to enter into transactions with funds the subadviser does not advise but that are affiliated persons of a fund that it does advise (e.g., other funds in the fund complex), and (ii) a subadviser (and its affiliated persons) to enter into transactions and arrangements with funds the subadviser does advise, but only with respect to discrete portions of the subadvised fund for which the subadviser does not provide investment advice. --------------------------------------------------------------------------- \1\ 15 U.S.C. 80a-17(a). \2\ 15 U.S.C. 80a-2(a)(3)(E). \3\ As defined in rule 17a-10(b)(2). 17 CFR 270.17a-10(b)(2). --------------------------------------------------------------------------- To qualify for the exemptions in rule 17a-10, the subadvisory relationship must be the sole reason why section 17(a) prohibits the transaction. In addition, the advisory contracts of the subadviser entering into the transaction, and any subadviser that is advising the purchasing portion of the fund, must prohibit the subadvisers from consulting with each other concerning securities transactions of the fund, and limit their responsibility to providing advice with respect to discrete portions of the fund's portfolio.\4\ Section 17(a) of the Investment Company Act of 1940 (the ``Act''), generally prohibits affiliated persons of a registered investment company (``fund'') from borrowing money or other property from, or selling or buying securities or other property to or from, the fund or any company that the fund controls. Section 2(a)(3) of the Act defines ``affiliated person'' of a fund to include its investment advisers. Rule 17a-10 permits (i) a subadviser of a fund to enter into transactions with funds the subadviser does not advise but that are affiliated persons of a fund that it does advise (e.g., other funds in the fund complex), and (ii) a subadviser (and its affiliated persons) to enter into transactions and arrangements with funds the subadviser does advise, but only with respect to discrete portions of the subadvised fund for which the subadviser does not provide investment advice. --------------------------------------------------------------------------- \4\ 17 CFR 270.17a-10(a)(2). --------------------------------------------------------------------------- To qualify for the exemptions in rule 17a-10, the subadvisory relationship must be the sole reason why section 17(a) prohibits the transaction. In addition, the advisory contracts of the subadviser entering into the transaction, and any subadviser that is advising the purchasing portion of the fund, must prohibit the subadvisers from consulting with each other concerning securities transactions of the fund, and limit their responsibility to providing advice with respect to discrete portions of the fund's portfolio. This requirement regarding the prohibitions and limitations in advisory contracts of subadvisors relying on the rule constitutes a collection of information under the Paperwork Reduction Act of 1995 (``PRA'').\5\ --------------------------------------------------------------------------- \5\ 44 U.S.C. 3501. --------------------------------------------------------------------------- The staff assumes that all existing funds with subadvisory contracts amended those contracts to comply with the adoption of rule 17a-10 in 2003, which conditioned certain exemptions upon these contractual alterations, and therefore there is no continuing burden for those funds.\6\ However, the staff assumes that all newly formed subadvised funds, and funds that enter into new contracts with subadvisers, will incur the one-time burden by amending their contracts to add the terms required by the rule. --------------------------------------------------------------------------- \6\ Transactions of Investment Companies With Portfolio and Subadviser Affiliates, Investment Company Act Release No. 25888 (Jan. 14, 2003) [68 FR 3153, (Jan. 22, 2003)]. We assume that funds formed after 2003 that intended to rely on rule 17a-10 would have included the required provision as a standard element in their initial subadvisory contracts. --------------------------------------------------------------------------- Based on an analysis of fund filings, the staff estimates that approximately 319 funds enter into new subadvisory agreements each year.\7\ Based on discussions with industry representatives, the staff estimates that it will require approximately 3 attorney hours to draft and execute additional clauses in new subadvisory contracts in order for funds and subadvisers to be able to rely on the exemptions in rule 17a-10. Because these additional clauses are identical to the clauses that a fund would need to insert in their subadvisory contracts to rely on rules 10f-3, 12d3-1, and 17e-1, and because we believe that funds that use one such rule generally use all of these rules, we apportion this 3 hour time burden equally among all four rules. Therefore, we estimate that the burden allocated to rule 17a-10 for this contract change would be 0.75 hours.\8\ Assuming that all 319 funds that enter into new subadvisory contracts each year make the modification to their contract required by the rule, we estimate that the rule's contract modification requirement will result in 239 burden hours annually, with an associated cost of approximately $90,820.\9\ --------------------------------------------------------------------------- \7\ Based on data from Morningstar, as of June 2016, there are 12,485 registered funds (open-end funds, closed-end funds, and exchange-traded funds), 4,629 funds of which have subadvisory relationships (approximately 37%). Based on data from the 2016 ICI Factbook, 862 new funds were established in 2015 (594 open-end funds + 258 exchange-traded funds + 10 closed-end funds (from the ICI Research Perspective, April 2016)). 862 new funds x 37% = 319 funds. \8\ This estimate is based on the following calculation: 3 hours / 4 rules = 0.75 hours. \9\ These estimates are based on the following calculations: (0.75 hours x 319 portfolios = 239 burden hours); ($380 per hour x 239 hours = $90,820 total cost). The Commission's estimates concerning the wage rates for attorney time are based on salary information for the securities industry compiled by the Securities Industry and Financial Markets Association. The estimated wage figure is based on published rates for in-house attorneys, modified to account for a 1,800-hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead, yielding an effective hourly rate of $380. See Securities Industry and Financial Markets Association, Report on Management & Professional Earnings in the Securities Industry 2013. --------------------------------------------------------------------------- The estimate of average burden hours is made solely for the purposes of the Paperwork Reduction Act. The estimate is not derived from a comprehensive or even a representative survey or study of the costs of Commission rules. Complying with this collection of information requirement is necessary to obtain the benefit of relying on rule 17a-10. Responses will not be kept confidential. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. The public may view the background documentation for this information collection at the following Web site, www.reginfo.gov. Comments should be directed to: (i) Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC 20503, or by sending an email to: [email protected]; and (ii) Pamela Dyson, Director/Chief Information Officer, Securities and Exchange Commission, c/o Remi Pavlik-Simon, 100 F Street NE., Washington, DC 20549 [[Page 10844]] or send an email to: [email protected]. Comments must be submitted to OMB within 30 days of this notice. Dated: February 8, 2017. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-02974 Filed 2-14-17; 8:45 am] BILLING CODE 8011-01-P
![10842 Federal Register / Vol. 82, No. 30 / Wednesday, February 15, 2017 / Notices
error positions.81 Also, the Exchange resolution of those positions will occur Nasdaq INET architecture, and that the
and NES will be required to make and promptly through a transparent process. migration will be on a symbol-by-
keep records to document all In addition, the Commission notes symbol basis. ISE has represented that it
determinations to treat positions as error that it has previously expressed concern will issue an alert to Members to
positions; all determinations to assign about the potential for unfair announce the relevant migration date
error positions to Members or to competition and conflicts of interest for specific symbols.92 ISE explained
liquidate error positions; and the between an exchange’s self-regulatory that the rules in ISE Chapter 19,
liquidation of error positions through obligations and its commercial interest including ISE Rules 1901, 1903, 1904,
the third-party broker-dealer.82 when the exchange is affiliated with one and 1905, are incorporated by reference
The Commission recognizes that of its members.88 The Commission has into the rulebooks of ISE Gemini and
technical or systems issues may occur, also previously expressed its concern ISE Mercury.93 ISE Gemini and ISE
and believes that proposed ISE Rule about the potential for misuse of Mercury submitted proposed rule
1904, in allowing the Exchange or NES confidential and proprietary changes that, among other things, would
to cancel orders affected by technical or information.89 The Commission believes permit ISE Gemini and ISE Mercury to
systems issues, should provide a that the requirement that NES provide each use NES to route options orders
reasonably efficient means for the complete time and price discretion for outbound to away markets, route
Exchange to handle such orders, and the liquidation of error positions to a options orders inbound from the
appears reasonably designed to permit third-party broker-dealer, including that Affiliated Exchanges, and utilize the
the Exchange to maintain fair and NES not attempt to exercise any same procedures for cancellation of
orderly markets.83 The Commission also influence or control over the timing or orders and handling of error accounts
believes that allowing the Exchange to methods of such trading, combined with described herein.94 ISE stated that it
resolve error positions through the use the requirement that the Exchange intends to begin implementation of the
of an error account maintained by NES establish and enforce policies and proposed rule changes for ISE Gemini
pursuant to the procedures set forth in procedures that are reasonably designed and ISE Mercury in the first quarter and
the rule, and as described above, is to restrict the flow of confidential and third quarter of 2017, respectively, on a
consistent with the Act. The proprietary information to the third- symbol-by-symbol basis. ISE further
Commission notes that the rule party broker-dealer liquidating such represented that it will add notations in
establishes criteria for determining positions, should help mitigate the each rulebook to cross-reference the
which positions are error positions,84 Commission’s concerns. In particular, amended rule text and clarify the
and that the Exchange or NES, in the Commission believes that these respective implementation dates.95
connection with a particular technical requirements should help assure that
none of the Exchange, NES, or the third- III. Conclusion
or systems issue, will be required to
either assign or liquidate all resulting party broker-dealer is able to misuse
It is therefore ordered, pursuant to
error positions.85 Also, the Exchange or confidential or proprietary information
Section 19(b)(2) of the Act,96 that the
NES will assign error positions that obtained in connection with the
liquidation of error positions for its own proposed rule change (SR–ISE–2016–
result from a particular technical or 27), as modified by Amendment No. 1,
systems issue to Members only if all benefit. The Commission also notes that
the Exchange and NES would be be, and hereby is, approved.
such error positions can be assigned to For the Commission, by the Division of
all of the Members affected by that required to make and keep records to
document all determinations concerning Trading and Markets, pursuant to delegated
technical or systems issue.86 If the authority.97
error positions and resulting
Exchange or NES cannot assign all error Eduardo A. Aleman,
assignments or liquidations.90 In
positions to all Members, NES will
addition, the Commission notes that the Assistant Secretary.
liquidate all of those error positions.87
proposed procedures for cancelling [FR Doc. 2017–02991 Filed 2–14–17; 8:45 am]
In this regard, the Commission believes
orders and the handling of error BILLING CODE 8011–01–P
that the new rule appears reasonably
positions are consistent with procedures
designed to further just and equitable
the Commission has approved for other
principles of trade and the protection of
exchanges.91 SECURITIES AND EXCHANGE
investors and the public interest, and to
COMMISSION
help prevent unfair discrimination, in IV. Implementation of Proposed Rule
that it should help assure the handling Change Submission for OMB Review;
of error positions will be based on clear ISE stated that it intends to begin Comment Request
and objective criteria, and that the implementation of the proposed rule
change in the second quarter of 2017, in Upon Written Request, Copies Available
81 See proposed ISE Rule 1904(c)(B)(ii). tandem with a technology migration to From: Securities and Exchange
82 See proposed ISE Rule 1904(d).
Commission; Office of FOIA Services;
83 The Commission notes that ISE stated that the
88 See supra notes 21 and 57 and accompanying 100 F Street NE., Washington, DC
proposed amendments to ISE Rule 1904 are text.
designed to maintain fair and orderly markets, 20549–2736.
89 See, e.g., Securities Exchange Act Release No.
ensure full trade certainty for market participants, Extension:
67280, supra note 23, at 39554.
and avoid disrupting the clearance and settlement 90 See proposed ISE Rule 1904(d).
process. See ISE Notice, supra note 4, at 96099. The
91 See, e.g., Securities Exchange Act Release Nos. 92 See
Commission also notes that ISE stated that a ISE Notice, supra note 4, at 96098.
mstockstill on DSK3G9T082PROD with NOTICES
decision to cancel orders due to a technical or 66963 (May 10, 2012), 77 FR 28919 (May 16, 2012) 93 See id.
systems issue is not equivalent to the Exchange (SR–NYSEArca–2012–22); 67010 (May 17, 2012), 77 94 See Securities Exchange Act Release Nos.
declaring self-help against a routing destination FR 30564 (May 23, 2012) (SR–EDGX–2012–08);
79664, supra note 49; and 79663, supra note 49.
pursuant to ISE Rule 1901(b)(1)(i). See id. at 96097 67011 (May 17, 2012), 77 FR 30562 (May 23, 2012)
The Commission is also today approving these
n.29. (SR–EDGA–2012–09); and 67280, supra note 23.
The Commission also notes that ISE’s proposed rule proposed rule changes. See ISE Gemini and ISE
84 See proposed ISE Rule 1904(b). Mercury Exchange Routing Order, supra note 49.
is consistent with the corresponding rules of the
85 See proposed ISE Rule 1904(c). 95 See ISE Notice, supra note 4, at 96098.
Nasdaq Exchanges. See Phlx Rule 1080(m)(v);
86 See proposed ISE Rule 1904(c)(A). 96 15 U.S.C. 78s(b)(2).
Nasdaq Options Rules, Chapter VI, Section 11(g);
87 See proposed ISE Rule 1904(c)(B). BX Options Rules, Chapter VI, Section 11(g). 97 17 CFR 200.30–3(a)(12).
VerDate Sep<11>2014 18:44 Feb 14, 2017 Jkt 241001 PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 E:\FR\FM\15FEN1.SGM 15FEN1](https://thefederalregister.org/doc/82_FR_10872/page/1.svg)
![Federal Register / Vol. 82, No. 30 / Wednesday, February 15, 2017 / Notices 10843
Rule 17a–10; SEC File No. 270–507, OMB that it does advise (e.g., other funds in order for funds and subadvisers to be
Control No. 3235–0563. the fund complex), and (ii) a subadviser able to rely on the exemptions in rule
Notice is hereby given that pursuant (and its affiliated persons) to enter into 17a–10. Because these additional
to the Paperwork Reduction Act of 1995 transactions and arrangements with clauses are identical to the clauses that
(44 U.S.C. 3501 et seq.) the Securities funds the subadviser does advise, but a fund would need to insert in their
and Exchange Commission only with respect to discrete portions of subadvisory contracts to rely on rules
(‘‘Commission’’) has submitted to the the subadvised fund for which the 10f–3, 12d3–1, and 17e–1, and because
Office of Management and Budget subadviser does not provide investment we believe that funds that use one such
(‘‘OMB’’) a request for extension of the advice. rule generally use all of these rules, we
previously approved collection of To qualify for the exemptions in rule apportion this 3 hour time burden
information discussed below. 17a–10, the subadvisory relationship equally among all four rules. Therefore,
Section 17(a) of the Investment must be the sole reason why section we estimate that the burden allocated to
Company Act of 1940 (the ‘‘Act’’), 17(a) prohibits the transaction. In rule 17a–10 for this contract change
generally prohibits affiliated persons of addition, the advisory contracts of the would be 0.75 hours.8 Assuming that all
a registered investment company subadviser entering into the transaction, 319 funds that enter into new
(‘‘fund’’) from borrowing money or other and any subadviser that is advising the subadvisory contracts each year make
property from, or selling or buying purchasing portion of the fund, must the modification to their contract
securities or other property to or from, prohibit the subadvisers from consulting required by the rule, we estimate that
the fund or any company that the fund with each other concerning securities the rule’s contract modification
controls.1 Section 2(a)(3) of the Act transactions of the fund, and limit their requirement will result in 239 burden
defines ‘‘affiliated person’’ of a fund to responsibility to providing advice with hours annually, with an associated cost
include its investment advisers.2 Rule respect to discrete portions of the fund’s of approximately $90,820.9
17a–10 (17 CFR 270.17a–10) permits (i) portfolio. This requirement regarding The estimate of average burden hours
a subadviser 3 of a fund to enter into the prohibitions and limitations in is made solely for the purposes of the
transactions with funds the subadviser advisory contracts of subadvisors Paperwork Reduction Act. The estimate
does not advise but that are affiliated relying on the rule constitutes a is not derived from a comprehensive or
persons of a fund that it does advise collection of information under the even a representative survey or study of
(e.g., other funds in the fund complex), Paperwork Reduction Act of 1995 the costs of Commission rules.
and (ii) a subadviser (and its affiliated (‘‘PRA’’).5 Complying with this collection of
persons) to enter into transactions and The staff assumes that all existing information requirement is necessary to
arrangements with funds the subadviser funds with subadvisory contracts obtain the benefit of relying on rule
does advise, but only with respect to amended those contracts to comply with 17a–10. Responses will not be kept
discrete portions of the subadvised fund the adoption of rule 17a–10 in 2003, confidential. An agency may not
for which the subadviser does not which conditioned certain exemptions conduct or sponsor, and a person is not
provide investment advice. upon these contractual alterations, and required to respond to, a collection of
To qualify for the exemptions in rule therefore there is no continuing burden information unless it displays a
17a–10, the subadvisory relationship for those funds.6 However, the staff currently valid control number.
must be the sole reason why section assumes that all newly formed The public may view the background
17(a) prohibits the transaction. In subadvised funds, and funds that enter documentation for this information
addition, the advisory contracts of the into new contracts with subadvisers, collection at the following Web site,
subadviser entering into the transaction, will incur the one-time burden by www.reginfo.gov. Comments should be
and any subadviser that is advising the amending their contracts to add the directed to: (i) Desk Officer for the
purchasing portion of the fund, must terms required by the rule. Securities and Exchange Commission,
prohibit the subadvisers from consulting Based on an analysis of fund filings, Office of Information and Regulatory
with each other concerning securities the staff estimates that approximately Affairs, Office of Management and
transactions of the fund, and limit their 319 funds enter into new subadvisory Budget, Room 10102, New Executive
responsibility to providing advice with agreements each year.7 Based on Office Building, Washington, DC 20503,
respect to discrete portions of the fund’s discussions with industry or by sending an email to: Shagufta_
portfolio.4 Section 17(a) of the representatives, the staff estimates that Ahmed@omb.eop.gov; and (ii) Pamela
Investment Company Act of 1940 (the it will require approximately 3 attorney Dyson, Director/Chief Information
‘‘Act’’), generally prohibits affiliated hours to draft and execute additional Officer, Securities and Exchange
persons of a registered investment clauses in new subadvisory contracts in Commission, c/o Remi Pavlik-Simon,
company (‘‘fund’’) from borrowing 100 F Street NE., Washington, DC 20549
5 44 U.S.C. 3501.
money or other property from, or selling
6 Transactions of Investment Companies With 8 This estimate is based on the following
or buying securities or other property to
Portfolio and Subadviser Affiliates, Investment calculation: 3 hours ÷ 4 rules = 0.75 hours.
or from, the fund or any company that Company Act Release No. 25888 (Jan. 14, 2003) [68 9 These estimates are based on the following
the fund controls. Section 2(a)(3) of the FR 3153, (Jan. 22, 2003)]. We assume that funds calculations: (0.75 hours × 319 portfolios = 239
Act defines ‘‘affiliated person’’ of a fund formed after 2003 that intended to rely on rule 17a– burden hours); ($380 per hour × 239 hours =
to include its investment advisers. Rule 10 would have included the required provision as $90,820 total cost). The Commission’s estimates
a standard element in their initial subadvisory concerning the wage rates for attorney time are
17a–10 permits (i) a subadviser of a contracts. based on salary information for the securities
fund to enter into transactions with 7 Based on data from Morningstar, as of June industry compiled by the Securities Industry and
mstockstill on DSK3G9T082PROD with NOTICES
funds the subadviser does not advise 2016, there are 12,485 registered funds (open-end Financial Markets Association. The estimated wage
but that are affiliated persons of a fund funds, closed-end funds, and exchange-traded figure is based on published rates for in-house
funds), 4,629 funds of which have subadvisory attorneys, modified to account for a 1,800-hour
1 15
relationships (approximately 37%). Based on data work-year and multiplied by 5.35 to account for
U.S.C. 80a–17(a). from the 2016 ICI Factbook, 862 new funds were bonuses, firm size, employee benefits, and
2 15 U.S.C. 80a–2(a)(3)(E). established in 2015 (594 open-end funds + 258 overhead, yielding an effective hourly rate of $380.
3 As defined in rule 17a–10(b)(2). 17 CFR
exchange-traded funds + 10 closed-end funds (from See Securities Industry and Financial Markets
270.17a–10(b)(2). the ICI Research Perspective, April 2016)). 862 new Association, Report on Management & Professional
4 17 CFR 270.17a–10(a)(2). funds × 37% = 319 funds. Earnings in the Securities Industry 2013.
VerDate Sep<11>2014 18:44 Feb 14, 2017 Jkt 241001 PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 E:\FR\FM\15FEN1.SGM 15FEN1](https://thefederalregister.org/doc/82_FR_10872/page/2.svg)
![10844 Federal Register / Vol. 82, No. 30 / Wednesday, February 15, 2017 / Notices
or send an email to: PRA_Mailbox@ 20, 2016, each of the NASDAQ Affiliated Exchanges.13 Thus, NES is an
sec.gov. Comments must be submitted to Exchanges filed an Amendment No. 1 to affiliate of the NASDAQ Exchanges, as
OMB within 30 days of this notice. its respective proposed rule change. The well as an affiliate of the ISE Exchanges.
Dated: February 8, 2017. proposed rule changes, each as modified Absent an effective filing, the rules of
Eduardo A. Aleman,
by Amendment No. 1 thereto, were Nasdaq, BX, and Phlx would prohibit
published for comment in the Federal NES from being a member of each of
Assistant Secretary.
Register on December 29, 2016.5 The those Exchanges. Today, NES is a
[FR Doc. 2017–02974 Filed 2–14–17; 8:45 am]
Commission received no comments on member of each of the NASDAQ
BILLING CODE 8011–01–P the proposals. This order approves the Exchanges and performs certain limited
proposed rule changes, as modified by activities for each, pursuant to effective
their respective Amendment No. 1s. filings pursuant to Section 19(b).14
SECURITIES AND EXCHANGE
Among other activities, each of the
COMMISSION II. Background
NASDAQ Exchanges accepts options
[Release No. 34–79996; File Nos. SR–BX– Phlx Rule 985(b)(i)(A) prohibits Phlx orders routed inbound from each of the
2016–068; SR–NASDAQ–2016–169; SR– or any entity with which it is affiliated other NASDAQ Exchanges pursuant to
Phlx–2016–120] from, directly or indirectly, acquiring or certain limitations and conditions.15
maintaining an ownership interest in, or With the current proposed rule changes,
Self-Regulatory Organizations; engaging in a business venture with, an the NASDAQ Exchanges seek approval
NASDAQ BX, Inc.; The Nasdaq Stock Exchange member or an affiliate of an to permit NES to also route options
Market LLC; NASDAQ PHLX LLC; Exchange member in the absence of an orders inbound from the ISE Exchanges
Order Granting Approval of Proposed effective filing under Section 19(b) of pursuant to those same limitations and
Rule Changes, as Modified by the Act.6 Nasdaq’s and BX’s rules conditions.16
Amendment No. 1s, To Accept Orders include similar prohibitions.7 NES is a
Routed Inbound From the International registered broker-dealer that is a III. Discussion and Commission
Stock Exchange, LLC, ISE Gemini, member of NOM,8 BX,9 and Phlx,10 and Findings
LLC, and ISE Mercury, LLC, by Nasdaq currently provides to members of each, After careful review, the Commission
Execution Services, LLC optional routing services to other finds that the proposed rule changes,
February 9, 2017. markets.11 NES is owned by Nasdaq, each as modified by Amendment No. 1,
Inc.,12 which also owns all of the
I. Introduction (SR–NASDAQ–2013–028) (order approving a
today approving these proposed rules changes. See proposed rule change to make permanent a pilot
On December 9, 2016, NASDAQ BX, program to permit NASDAQ to accept inbound
Securities Exchange Act Release Nos. 79994
Inc. (‘‘BX’’), The NASDAQ Stock Market (February 9, 2017); and 79995 (February 9, 2017) orders routed by NES from the BX Equities market
LLC (‘‘Nasdaq’’), and NASDAQ PHLX (‘‘ISE Exchange Routing Orders’’). and PSX) at 19352 n.6 and accompanying text.
13 See Securities Exchange Act Release No. 78119
LLC (‘‘Phlx’’ and, each of BX, Nasdaq, 5 See Securities Exchange Act Release Nos. 79661
(December 22, 2016), 81 FR 96100 (SR–BX–2016– (June 21, 2016), 81 FR 41611 (June 27, 2016) (SR–
and Phlx a ‘‘NASDAQ Exchange’’ or ISE–2016–11; SR–ISE Gemini–2016–05; SR–ISE
068) (‘‘BX Notice’’); 79662 (December 22, 2016), 81
‘‘Exchange’’) filed with the Securities FR 96087 (SR–NASDAQ–2016–169) (‘‘Nasdaq Mercury–2016–10) (order approving a proposed
and Exchange Commission Notice’’); and 79660 (December 22, 2016), 81 FR rule change relating to Nasdaq, Inc.’s acquisition of
(‘‘Commission’’), pursuant to Section 96060 (SR–Phlx–2016–120) (‘‘Phlx Notice’’). ISE, ISE Gemini, and ISE Mercury).
14 See, e.g., supra note 11; and Securities
19(b)(1) of the Securities Exchange Act 6 15 U.S.C. 78s(b). Phlx Rule 985 also prohibits a
Exchange Act Release Nos. 69233, supra note 12;
of 1934 (‘‘Act’’),1 and Rule 19b–4 Phlx member from being or becoming an affiliate of
Phlx, or an affiliate of an entity affiliated with Phlx, 69232 (March 25, 2013), 78 FR 19342 (March 29,
thereunder,2 proposed rule changes to in the absence of an effective filing under Section 2013) (SR–BX–2013–013) (order approving a
permit BX, Phlx, and The NASDAQ 19(b) of the Act. See Phlx Rule 958(b)(i)(B). proposed rule change to make permanent a pilot
program to permit BX to accept inbound orders
Options Market LLC (‘‘NOM’’) 3 to 7 Pursuant to Nasdaq Rule 2160(a): ‘‘(1) Nasdaq or
routed by NES from PSX); 69229 (March 25, 2013),
accept options orders routed inbound any entity with which it is affiliated shall not,
78 FR 19337 (March 29, 2013) (SR–Phlx–2013–15)
directly or indirectly, acquire or maintain an
from the International Stock Exchange, ownership interest in, or engage in a business
(order approving a proposed rule change to make
LLC (‘‘ISE’’), ISE Gemini, LLC (‘‘ISE permanent a pilot program to permit PSX to accept
venture with, a Nasdaq member or an affiliate of a
inbound orders routed by NES from BX); 71416
Gemini’’), and ISE Mercury, LLC (‘‘ISE Nasdaq member in the absence of an effective filing
(January 28, 2014), 79 FR 6244 (February 3, 2014)
Mercury’’ and, together with ISE and under Section 19(b) of the Act; and (2) a Nasdaq
(SR–Phlx–2014–05) (notice of filing and immediate
member shall not be or become an affiliate of
ISE Gemini, the ‘‘ISE Exchanges’’) by Nasdaq, or an affiliate of an entity affiliated with
effectiveness of proposed rule change to permit
Nasdaq Execution Services, LLC Phlx to receive inbound orders in options routed
Nasdaq, in the absence of an effective filing under
through NES from NOM and BX); 71420 (January
(‘‘NES’’), an affiliate of both the Section 19(b) of the Act.’’
28, 2014), 79 FR 6256 (February 3, 2014)(SR–BX–
NASDAQ Exchanges and the ISE Pursuant to BX Rule 2140(a): ‘‘(1) [BX] or any 2014–004) (notice of filing and immediate
Exchanges (the NASDAQ Exchanges, entity with which it is affiliated shall not, directly effectiveness of proposed rule change to permit BX
or indirectly, acquire or maintain an ownership to receive inbound orders in options routed through
together with the ISE Exchanges, the interest in, or engage in a business venture with, [a NES from NOM and Phlx); and 71418 (January 28,
‘‘Affiliated Exchanges’’).4 On December BX] member or an affiliate of [a BX] member in the 2014), 79 FR 6262 (February 3, 2014) (SR–
absence of an effective filing under Section 19(b) of NASDAQ–2014–008) (notice of filing and
1 15 U.S.C. 78s(b)(1). the Act; and (2) [a BX] member shall not be or immediate effectiveness of proposed rule change to
2 17 CFR 240.19b–4. become an affiliate of [BX], or an affiliate of an permit NOM to receive inbound orders in options
3 NOM is a facility of Nasdaq. See Nasdaq entity affiliated with [BX], in the absence of an routed through NES from BX and Phlx).
effective filing under Section 19(b) of the Act.’’
Options Rules, Chapter I, Section 1(a)(28). 8 See Nasdaq Notice, supra note 5, at 96087.
15 See Securities Exchange Act Release Nos.
4 The ISE Exchanges submitted related proposed 71416, supra note 14; 71420, supra note 14; and
9 See BX Notice, supra note 5, at 96100.
rule changes that, among other things, would 71418, supra note 14. With respect to Nasdaq,
mstockstill on DSK3G9T082PROD with NOTICES
10 See Phlx Notice, supra note 5, at 96061.
permit each ISE Exchange to use NES to route routing of options orders is permitted into NOM
11 See Phlx Rule 1080(m)(iii); Nasdaq Options from BX and Phlx, into Phlx from NOM and BX,
options orders outbound to away markets. See
Securities Exchange Act Release Nos. 79665 Rules, Chapter VI, Section 11(e); and BX Options and into BX from NOM and Phlx. See id.
(December 22, 2016), 81 FR 96092 (December 29, Rules, Chapter VI, Section 11(e). See also Phlx 16 See Phlx Notice, supra note 5, at 96062; Nasdaq
2016) (SR–ISE–2016–27); 79664 (December 22, Notice, supra note 5, at 96061; Nasdaq Notice, Notice, supra note 5, at 96088; and BX Notice,
2016), 81 FR 96136 (December 29, 2016) (SR– supra note 5, at 96087; and BX Notice, supra note supra note 5, at 96101. In the case of Nasdaq,
ISEGemini–2016–16); and 79663 (December 22, 5, at 96100. Nasdaq proposes to permit NES to route options
2016), 81 FR 96089 (December 29, 2016) (SR– 12 See Securities Exchange Act Release No. 69233 orders into NOM. See Nasdaq Notice, supra note 5,
ISEMercury–2016–22). The Commission is also (March 25, 2013), 78 FR 19352 (March 29, 2013) at 96087.
VerDate Sep<11>2014 18:44 Feb 14, 2017 Jkt 241001 PO 00000 Frm 00111 Fmt 4703 Sfmt 4703 E:\FR\FM\15FEN1.SGM 15FEN1](https://thefederalregister.org/doc/82_FR_10872/page/3.svg)
Document Created: 2017-02-15 00:54:58
Document Modified: 2017-02-15 00:54:58
| 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 | 82 FR 10842 |
2025 Federal Register | Disclaimer | Privacy Policy
USC | CFR | eCFR