82 FR 25887 - Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Adopting Rules 5220-Equities, 996NY Options and 9560 and Amending Rule 8313
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 106 (June 5, 2017)
Federal Register Volume 82, Issue 106 (June 5, 2017)
| Page Range | 25887-25893 | |
| FR Document | 2017-11499 |
[Federal Register Volume 82, Number 106 (Monday, June 5, 2017)] [Notices] [Pages 25887-25893] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-11499] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-80804; File No. SR-NYSEMKT-2017-25] Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Adopting Rules 5220-- Equities, 996NY Options and 9560 and Amending Rule 8313 May 30, 2017. 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 May 17, 2017, NYSE MKT LLC (the ``Exchange'' or ``NYSE MKT'') 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 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 (1) new Rules 5220--Equities and 996NY (Options) that define and prohibit two types of disruptive quoting and trading activity on the Exchange; (2) a new Rule 9560 governing supplemental expedited suspension proceedings; and (3) amendments to Rule 8313 to permit release to the public of suspension notices and orders issued pursuant to proposed Rule 9560. The proposed rule change is available on the Exchange's Web site at www.nyse.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 self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those 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 Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes (1) a new Rule 5220--Equities (``Rule 5220'') and a new Rule 996NY (Options) that define and prohibits two types of disruptive quoting and trading activity on the Exchange; (2) a new Rule 9560 governing supplemental expedited suspension proceedings; and (3) amendments to Rule 8313 (Release of Disciplinary Complaints, Decisions and Other Information) to permit release to the public of suspension notices and orders issued pursuant to proposed Rule 9560. The proposed rule change is based on rules recently adopted by Bats BZX Exchange, Inc., formerly known as BATS Exchange, Inc. (``BATS''), and The Nasdaq Stock Market LLC (``NASDAQ'').\3\ The proposed rules are the same as those adopted by BATS and NASDAQ, with the following exceptions discussed below: (1) Conforming references to reflect the Exchange's equities and options membership; and (2) the call for review process in proposed Rule 9560(f). The Exchange believes that having consistent rules for issuing a cease and desist order on an expedited basis as other self-regulatory organizations (``SROs'') to halt certain disruptive and manipulative quoting and trading activity would enhance the Exchange's ability to protect investors and market integrity. --------------------------------------------------------------------------- \3\ On February 18, 2016, the SEC approved a proposed rule change filed by BATS to adopt new BATS Rule 12.15, which prohibits certain types of disruptive quoting and trading activities, and BATS Rule 8.17, which permits BATS to conduct a new expedited suspension proceeding when it believes BATS Rule 12.15 has been violated. See Securities Exchange Act Release No. 77171 (February 18, 2016), 81 FR 9017 (February 23, 2016) (SR-BATS-2015-101) (``BATS Approval Order''); see also Securities Exchange Act Release No. 77606 (April 13, 2016), 81 FR 23026 (April 19, 2016) (SR-BatsEDGA-2016-03) (adopting identical rules for Bats EDGA Exchange, Inc.); Securities Exchange Act Release No. 77602 (April 13, 2016), 81 FR 23046 (April 19, 2016) (SR-BatsBYX-2016-03) (adopting identical rules for Bats BYX Exchange, Inc.); Securities Exchange Act Release No. 77589 (April 12, 2016), 81 FR 22691 (April 18, 2016) (SR-BatsEDGX-2016-04) (adopting identical rules for Bats EDGX Exchange, Inc.). On May 19, 2016, NASDAQ filed a substantially similar proposed rule change with the SEC for immediate effectiveness. See Securities Exchange Act Release No. 77913 (May 25, 2016), 81 FR 35081 (June 1, 2016) (SR- NASDAQ-2016-074). NASDAQ has also extended the rule to other exchanges. See, e.g., Securities Exchange Act Release No. 78208 (June 30, 2016), 81 FR 44366 (July 7, 2016) (SR-NASDAQ-2016-092). Similarly, the Financial Industry Regulatory Authority, Inc. (``FINRA'') also recently prohibited disruptive quoting and trading and amended its procedural rules. See Securities Exchange Act Release No. 76361 (November 21, 2016), 81 FR 85650 (November 28, 2016) (SR-FINRA-2016-043). See also Securities Exchange Act Release No. 79182 (October 28, 2016), 81 FR 76639 (November 3, 2016) (SR- MIAX-2016-40) (adopting identical rules for Miami International Securities Exchange LLC); Securities Exchange Act Release No. 79646 (December 21, 2016), 81 FR 95713 (December 28, 2016) (SR-BOX-2016- 59) (adopting identical rules for BOX Options Exchange LLC). --------------------------------------------------------------------------- Background As a national securities exchange registered pursuant to Section 6 of the Act, the Exchange is required to be organized and to have the capacity to enforce compliance by its member organizations and persons associated with its member organizations, with the Act, the rules and regulations thereunder, and the Exchange's Rules.\4\ Further, the Exchange's Rules are required to be ``designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade . . . and, in general, [[Page 25888]] to protect investors and the public interest.'' \5\ --------------------------------------------------------------------------- \4\ 15 U.S.C. 78f(b)(1). \5\ 15 U.S.C. 78f(b)(1). --------------------------------------------------------------------------- In fulfilling these requirements, the Exchange has developed a comprehensive regulatory program that includes automated surveillance of trading activity operated directly by Exchange staff. When disruptive and potentially manipulative or improper quoting and trading activity is identified, the Exchange conducts an investigation into the activity and requests documents and information. To the extent violations of the Act, the rules and regulations thereunder, or Exchange Rules are identified, the Exchange will commence disciplinary proceedings, which could result in, among other things, a censure, a requirement to take certain remedial actions, one or more restrictions on future business activities, a monetary fine, or a temporary or permanent ban from the securities industry. The process described above, from the identification of disruptive and potentially manipulative or improper quoting and trading activity to a final resolution of the matter, can often take several years. The Exchange believes that this time period sometimes is necessary and appropriate to afford adequate due process, particularly in complex cases. However, as described below, the Exchange believes that there are certain obvious and uncomplicated cases of disruptive and manipulative behavior or cases where the potential harm to investors is so large that the Exchange should have the authority to initiate an expedited suspension proceeding in order to stop the behavior from continuing on the Exchange. In recent years, several cases have been brought and resolved by the Exchange and other SROs involving allegations of wide-spread market manipulation, much of which was ultimately being conducted by foreign persons and entities using relatively rudimentary technology to access the markets and over which the Exchange and other SROs had no direct jurisdiction. In each case, the conduct involved a pattern of disruptive quoting and trading activity indicative of manipulative layering \6\ or spoofing.\7\ --------------------------------------------------------------------------- \6\ ``Layering'' can include a form of market manipulation in which multiple, non-bona fide limit orders are entered on one side of the market at various price levels in order to create the appearance of a change in the levels of supply and demand, thereby artificially moving the price of the security. An order is then executed on the opposite side of the market at the artificially created price, and the non-bona fide orders are cancelled. \7\ ``Spoofing'' can include a form of market manipulation that involves the market manipulator placing non-bona fide orders that are intended to trigger some type of market movement and/or response from other market participants, from which the market manipulator might benefit by trading bona fide orders. --------------------------------------------------------------------------- The Exchange and other SROs were able to identify the disruptive quoting and trading activity in real-time or near real-time; nonetheless, the parties responsible for such conduct or responsible for their customers' conduct continued the disruptive quoting and trading activity on the Exchange and other exchanges during the entirety of the subsequent lengthy investigation and enforcement process. To supplement other Exchange Rules on which it may already rely to stop such activity from continuing, the Exchange believes that it should have additional authority to initiate expedited suspension proceedings in order to stop behavior from continuing on the Exchange if a member organization or a person associated with its member organization is engaging in or facilitating disruptive quoting and trading activity and the member organization or associated person has received sufficient notice with an opportunity to respond, but such activity has not ceased. The following examples involving the Exchange's affiliates the New York Stock Exchange LLC (``NYSE'') and NYSE Arca, Inc. (``NYSE Arca''), are instructive regarding the rationale for the proposed rule change. In July 2012, Biremis Corp. (formerly Swift Trade Securities USA, Inc.) (``Biremis'') and its CEO were barred from the securities industry for, among other things, supervisory violations related to a failure by Biremis to detect and prevent disruptive and allegedly manipulative trading activities, including layering, short sale violations, and anti-money laundering violations.\8\ Biremis' sole business was providing trade execution services via a proprietary day trading platform and order management system to day traders located in foreign jurisdictions. Thus, the disruptive and allegedly manipulative trading activity introduced by Biremis to U.S. markets originated directly or indirectly from its foreign clients. The pattern of disruptive and allegedly manipulative quoting and trading activity was widespread across multiple exchanges, and the NYSE, FINRA, and other SROs identified clear patterns of the behavior in 2007 and 2008. Although Biremis and its principals were on notice of the disruptive and allegedly manipulative quoting and trading activity that was occurring, Biremis took little to no action to attempt to supervise or prevent such quoting and trading activity until at least 2009. Even when it put some controls in place, they were deficient and the pattern of disruptive and allegedly manipulative trading activity continued to occur. As noted above, the final resolution of the enforcement action to bar the firm and its CEO from the industry was not concluded until 2012, four years after the disruptive and allegedly manipulative trading activity was first identified. --------------------------------------------------------------------------- \8\ See Biremis Corp. and Peter Beck, FINRA Letter of Acceptance, Waiver and Consent No. 2010021162202, July 30, 2012. --------------------------------------------------------------------------- In September of 2012, Hold Brothers On-Line Investment Services, Inc. (``Hold Brothers'') settled a regulatory action in connection with its provision of a trading platform, trade software and trade execution, support and clearing services for day traders.\9\ Many traders using the firm's services were located in foreign jurisdictions. Hold Brothers ultimately settled the action with FINRA and several exchanges, including NYSE Arca, for a total monetary fine of $3.4 million. In a separate action, the Firm settled with the Commission for a monetary fine of $2.5 million.\10\ Among the alleged violations in the case were disruptive and allegedly manipulative quoting and trading activity, including spoofing, layering, wash trading, and pre-arranged trading. Through its conduct and insufficient procedures and controls, Hold Brothers also allegedly committed anti- money laundering violations by failing to detect and report manipulative and suspicious trading activity. Hold Brothers was alleged to have not only provided foreign traders with access to the U.S. markets to engage in such activities, but that its principals also owned and funded foreign subsidiaries that engaged in the disruptive and allegedly manipulative quoting and trading activity. Although the pattern of disruptive and allegedly manipulative quoting and trading activity was identified in 2009, as noted above, the enforcement action was not concluded until 2012. Thus, although disruptive and allegedly manipulative quoting and trading was promptly detected, it continued for several years. The Exchange also notes that criminal proceedings were initiated against Navinder Singh Sarao for manipulative trading activity, including forms of layering and spoofing in the futures markets, that were identified as a contributing factor to the ``Flash Crash'' of 2010, and yet continued through [[Page 25889]] 2015. In November 2016, Mr. Sarao pled guilty to one count each of wire fraud and spoofing.\11\ --------------------------------------------------------------------------- \9\ See Hold Brothers On-Line Investment Services, LLC, FINRA Letter of Acceptance, Waiver and Consent No. 20100237710001, September 25, 2012. \10\ In the Matter of Hold Brothers On-Line Investment Services, LLC, Exchange Act Release No. 67924, September 25, 2012. \11\ The plea agreement in United States v. Navinder Singh Sarao, Docket Number: 1:15-CR-00075-1 (N.D. Ill.), is available at https://www.justice.gov/criminal-fraud/file/910196/download. --------------------------------------------------------------------------- The Exchange believes that the activities described in the cases above provide justification for the proposed rule change, which is described below. Proposed Rule Change Proposed Rule 5220 The Exchange proposes to adopt new Rule 5220 of the Exchange's Equities Rules to define and prohibit disruptive quoting and trading activity on the Exchange. Proposed Rule 5220(a) would prohibit member organizations and covered persons \12\ from engaging in or facilitating disruptive quoting and trading activity on the Exchange, as described in proposed Rule 5220(b)(1) and (2), including acting in concert with other persons to effect such activity. The Exchange believes that it is necessary to extend the prohibition to situations when persons are acting in concert to avoid a potential loophole where disruptive quoting and trading activity is simply split between several brokers or customers. The Exchange also believes, that with respect to persons acting in concert perpetrating an abusive scheme, it is important that the Exchange have authority to act against the parties perpetrating the abusive scheme, whether it is one person or multiple persons. --------------------------------------------------------------------------- \12\ Rule 9120(g) defines ``covered person'' to include a member, principal executive, approved person, registered or non- registered employee of a member organization or an ATP Holder, or other person (excluding a member organization) subject to the jurisdiction of the Exchange. Rule 2(b)--Equities defines ``member organization'' as a registered broker or dealer (unless exempt pursuant to the Act) that is a member of FINRA or another registered securities exchange. --------------------------------------------------------------------------- The Exchange proposes to adopt Rule 5220(b)(1) and (2) providing additional details regarding disruptive quoting and trading activity. Proposed Rule 5220(b)(1) would describe disruptive quoting and trading activity containing many of the elements indicative of layering. For purposes of the proposed Rule, disruptive quoting and trading activity would include a frequent pattern in which the following facts are present:A party enters multiple limit orders on one side of the market at various price levels (the ``Displayed Orders'') (proposed Rule 5220(b)(1)(A)); and following the entry of the Displayed Orders, the level of supply and demand for the security changes (proposed Rule 5220(b)(1)(B)); and the party enters one or more orders on the opposite side of the market of the Displayed Orders (the ``Contra-Side Orders'') that are subsequently executed (proposed Rule 5220(b)(1)(C)); and following the execution of the Contra-Side Orders, the party cancels the Displayed Orders (proposed Rule 5220(b)(1)(D)). Proposed Rule 5220(b)(2) would describe disruptive quoting and trading activity containing many of the elements indicative of spoofing and would describe disruptive quoting and trading activity as a frequent pattern in which the following facts are present: A party narrows the spread for a security by placing an order inside the national best bid or offer (proposed Rule 5220(b)(2)(A)); and the party then submits an order on the opposite side of the market that executes against another market participant that joined the new inside market established by the order described in proposed (b)(2)(A) that narrowed the spread (proposed Rule 5220(b)(2)(B)). The Exchange believes that the proposed descriptions of disruptive quoting and trading activity articulated in the rule are consistent with the activities that have been identified and described in the client access cases described above and with the rules of other SROs.\13\ --------------------------------------------------------------------------- \13\ See, e.g., BATS Rule 12.15; NASDAQ Rule 2170. See generally note 4, supra. --------------------------------------------------------------------------- Proposed Rule 5220(c) would provide that, unless otherwise indicated, the descriptions of disruptive quoting and trading activity do not require the facts to occur in a specific order in order for the Rule to apply. For instance, with respect to the pattern defined in proposed Rule 5220(b)(1)(A)-(D), it is of no consequence whether a party first enters Displayed Orders and then Contra-side Orders or vice-versa. However, as proposed, it is required for supply and demand to change following the entry of the Displayed Orders. The Exchange also proposes to make clear that disruptive quoting and trading activity includes a pattern or practice in which some portion of the disruptive quoting and trading activity is conducted on the Exchange and the other portions of the disruptive quoting and trading activity are conducted on one or more other exchanges. The Exchange believes that this authority is necessary to address market participants who would otherwise seek to avoid the prohibitions of the proposed Rule by spreading their activity amongst various execution venues. Proposed Rule 996NY The Exchange proposes to adopt a new Rule 996NY of the Options Rules that would be substantially the same as proposed Rule 5220 and would apply to NYSE Amex Options. Like its equities counterpart, proposed Rule 996NY would define and prohibit disruptive quoting and trading activity on the Exchange. Proposed Rule 996NY(a) would prohibit ATP Holders or associated persons of ATP Holders \14\ from engaging in or facilitating disruptive quoting and trading activity on the Exchange, as described in proposed Rule 996NY(b)(1) and (2), including acting in concert with other persons to effect such activity. Proposed Rule 996NY(b)(1) would describe disruptive quoting and trading activity containing many of the elements indicative of layering. For purposes of the proposed Rule, disruptive quoting and trading activity would include a frequent pattern in which the following facts are present: --------------------------------------------------------------------------- \14\ On the NYSE Amex Options market, a permit holder is known as an ``Amex Trading Permit Holder'' or ``ATP Holder,'' which is defined in Rule 900.2NY(5) as a natural person, sole proprietorship, partnership, corporation, limited liability company or other organization, in good standing, that has been issued an ATP. See also Rule 900.2NY(4) (defining ``ATP'' as a permit issued by NYSE MKT for effecting securities transactions on the Exchange's Trading Facilities, defined in Rule 900.2NY(81) as, among places, the Exchange's facilities for the trading of options at 11 Wall Street, New York, NY). An ATP Holder must be registered as a broker or dealer. --------------------------------------------------------------------------- A party enters multiple limit orders on one side of the market at various price levels (the ``Displayed Orders'') (proposed Rule 996NY(b)(1)(A)); and following the entry of the Displayed Orders, the level of supply and demand for the security changes (proposed Rule 996NY(b)(1)(B)); and the party enters one or more orders on the opposite side of the market of the Displayed Orders (the ``Contra-Side Orders'') that are subsequently executed (proposed Rule 996NY(b)(1)(C)); and following the execution of the Contra-Side Orders, the party cancels the Displayed Orders (proposed Rule 996NY(b)(1)(D)). Proposed Rule 996NY(b)(2) would describe disruptive quoting and trading activity containing many of the elements indicative of spoofing and would describe disruptive quoting and trading activity as a frequent pattern in which the following facts are present: A party narrows the spread for a security by placing an order inside the national best bid or offer (proposed Rule 996NY(b)(2)(A)); and [[Page 25890]] the party then submits an order on the opposite side of the market that executes against another market participant that joined the new inside market established by the order described in proposed (b)(2)(A) that narrowed the spread (proposed Rule 996NY(b)(2)(B)). As with proposed Rule 5220, the Exchange believes that the proposed descriptions of disruptive quoting and trading activity articulated in Rule 996NY are consistent with the activities that have been identified and described in the client access cases described above and with the rules of other SROs.\15\ --------------------------------------------------------------------------- \15\ See, e.g., BATS Rule 12.15; NASDAQ Rule 2170; BOX Options Exchange LLC Rule 3220. See generally note 3, supra. --------------------------------------------------------------------------- Proposed Rule 996NY(c) would provide that, unless otherwise indicated, the descriptions of disruptive quoting and trading activity do not require the facts to occur in a specific order in order for the Rule to apply. The proposed Rule would also make clear that disruptive quoting and trading activity includes a pattern or practice in which some portion of the disruptive quoting and trading activity is conducted on the Exchange and the other portions of the disruptive quoting and trading activity are conducted on one or more other exchanges. Proposed Rule 9560 The Exchange proposes a new Rule 9560 for its Code of Procedure that would set forth procedures for issuing suspension orders, immediately prohibiting a member organization or covered person from conducting continued disruptive quoting and trading activity on the Exchange. Importantly, these procedures would also provide the Exchange the authority to order a member organization or covered person to cease and desist from providing access to the Exchange to a client that is conducting disruptive quoting and trading activity. Under proposed paragraph (a)(1) of Rule 9560, with the prior written authorization of the Chief Regulatory Officer (``CRO'') or such other senior officers as the CRO may designate, the Exchange's Enforcement department may initiate an expedited suspension proceeding with respect to alleged violations of Rule 5220 or Rule 996NY (Disruptive Quoting and Trading Activity Prohibited). Proposed paragraph (a) would also set forth the requirements for notice ((a)(2)) and service of such notice ((a)(3)) pursuant to the Rule, including the required method of service and the content of notice. Proposed paragraph (b) of Rule 9560 would govern the appointment of a Hearing Panel as well as potential disqualification or recusal of Hearing Officers. The proposed provision is consistent with current Rule 9231(b), which governs the appointment of a hearing panel or extended hearing panel to conduct disciplinary proceedings. The Exchange's Rules provide for a Hearing Officer to be recused in the event he or she has a conflict of interest or bias or other circumstances exist where his or her fairness might reasonably be questioned in accordance with Rules [sic] 9233(a). In addition to recusal initiated by such a Hearing Officer, a party to the proceeding will be permitted to file a motion to disqualify a Hearing Officer. However, due to the compressed schedule pursuant to which the process would operate under Rule 9560, the proposed rule would require such motion to be filed no later than 5 days after the announcement of the Hearing Panel and the Exchange's brief in opposition to such motion would be required to be filed no later than 5 days after service thereof. Pursuant to existing Rule 9233(c), a motion for disqualification of a Hearing Officer shall be decided by the Chief Hearing Officer based on a prompt investigation. The applicable Hearing Officer shall remove himself or herself and request the Chief Executive Officer to reassign the hearing to another Hearing Officer such that the Hearing Panel still meets the compositional requirements described in Rule 9231(b). If the Chief Hearing Officer determines that the Respondent's grounds for disqualification are insufficient, it shall deny the Respondent's motion for disqualification by setting forth the reasons for the denial in writing and the Hearing Panel will proceed with the hearing. Under paragraph (c)(1) of the proposed Rule, the hearing would be held not later than 15 days after service of the notice initiating the suspension proceeding, unless otherwise extended by the Chairman of the Hearing Panel with the consent of the Parties for good cause shown. In the event of a recusal or disqualification of a Hearing Officer, the hearing shall be held not later than five days after a replacement Hearing Officer is appointed. Under paragraph (c)(2) of the proposed Rule, a notice of date, time, and place of the hearing shall be served on the Parties not later than seven days before the hearing, unless otherwise ordered by the Chairman of the Hearing Panel. Under the proposed Rule, service shall be made by personal service or overnight commercial courier and shall be effective upon service. Proposed paragraph (c) would also govern how the hearing is conducted, including the authority of Hearing Officers ((c)(3), witnesses ((c)(4)), additional information that may be required by the Hearing Panel ((c)(5)), the requirement that a transcript of the proceeding be created and details related to such transcript ((c)(6)), and details regarding the creation and maintenance of the record of the proceeding ((c)(7)). Proposed paragraph (c)(8) would also provide that if a Respondent fails to appear at a hearing for which it has notice, the allegations in the notice and accompanying declaration may be deemed admitted, and the Hearing Panel may issue a suspension order without further proceedings. Finally, as proposed, if the Exchange fails to appear at a hearing for which it has notice, the Hearing Panel may order that the suspension proceeding be dismissed. Under paragraph (d)(1) of the proposed Rule, the Hearing Panel would be required to issue a written decision stating whether a suspension order would be imposed. The Hearing Panel would be required to issue the decision not later than 10 days after receipt of the hearing transcript, unless otherwise extended by the Chairman of the Hearing Panel with the consent of the Parties for good cause shown. The proposed Rule would state that a suspension order shall be imposed if the Hearing Panel finds by a preponderance of the evidence that the alleged violation specified in the notice has occurred and that the violative conduct or continuation thereof is likely to result in significant market disruption or other significant harm to investors. Proposed paragraph (d)(2) would also describe the content, scope and form of a suspension order. As proposed, a suspension order shall be limited to ordering a Respondent to cease and desist from violating proposed Rule 5220, and/or to ordering a Respondent to cease and desist from providing access to the Exchange to a client of Respondent that is causing violations of proposed Rule 5220 ((d)(2)(A)). Under the proposed rule, a suspension order shall also set forth the alleged violation and the significant market disruption or other significant harm to investors that is likely to result without the issuance of an order ((d)(2)(B)). The order shall describe in reasonable detail the act or acts the Respondent is to take or refrain from taking, and suspend such Respondent unless and until such action is taken or refrained from [[Page 25891]] ((d)(2)(C)). Finally, the order shall include the date and hour of its issuance ((d)(2)(D)). As proposed, under proposed paragraph (d)(3), a suspension order would remain effective and enforceable unless modified, set aside, limited, or revoked pursuant to proposed paragraph (e), as described below. Finally, paragraph (d)(4) would require service of the Hearing Panel's decision and any suspension order consistent with other portions of the proposed rule related to service. Proposed paragraph (e) of Rule 9560 would provide that at any time after the Hearing Officers served the Respondent with a suspension order, a Party could apply to the Hearing Panel to have the order modified, set aside, limited, or revoked. If any part of a suspension order is modified, set aside, limited, or revoked, proposed paragraph (e) of Rule 9560 provides the Hearing Panel discretion to leave the cease and desist part of the order in place. For example, if a suspension order suspends Respondent unless and until Respondent ceases and desists providing access to the Exchange to a client of Respondent, and after the order is entered the Respondent complies, the Hearing Panel is permitted to modify the order to lift the suspension portion of the order while keeping in place the cease and desist portion of the order. With its broad modification powers, the Hearing Panel also maintains the discretion to impose conditions upon the removal of a suspension--for example, the Hearing Panel could modify an order to lift the suspension portion of the order in the event a Respondent complies with the cease and desist portion of the order but additionally order that the suspension will be re-imposed if Respondent violates the cease and desist provisions modified order in the future. The Hearing Panel generally would be required to respond to the request in writing within 10 days after receipt of the request. An application to modify, set aside, limit or revoke a suspension order would not stay the effectiveness of the suspension order. Proposed paragraph (f) would describe the call for review process by the Exchange Board of Directors. Specifically, the proposed Rule would provide that if there is no pending application to the Hearing Panel to have a suspension order modified, set aside, limited, or revoked, the Exchange Board of Directors, in accordance with Rule 9310 (Review by Exchange Board of Directors), may call for review the Hearing Panel decision on whether to issue a suspension order. Further, the proposed Rule would provide that a call for review by the Exchange Board of Directors shall not stay the effectiveness of a suspension order. Finally, proposed paragraph (g) would provide that sanctions issued under the proposed Rule 9560 would constitute final and immediately effective disciplinary sanctions imposed by the Exchange, and that the right to have any action under the Rule reviewed by the Commission would be governed by Section 19 of the Act. The filing of an application for review would not stay the effectiveness of a suspension order unless the Commission otherwise ordered. Proposed Amendments to Rule 8313 Finally, the Exchange proposes amendments to Rule 8313 to permit release to the public of suspension notices and orders issued pursuant to proposed Rule 9560. Specifically, the Exchange proposes to amend Rule 8313(a)(3), which provides that the Exchange shall release to the public information with respect to any suspension, cancellation, expulsion, or bar that constitutes final Exchange action imposed pursuant various Exchange Rules, to include a reference to proposed Rule 9560. The Exchange also proposes to include a notice of the initiation of a suspension proceeding served pursuant to proposed Rule 9560 in the definition of ``disciplinary complaint'' under Rule 8313(e)(1). Similarly, the Exchange would include suspension orders issued pursuant to proposed Rule 9560 in the definition of ``disciplinary decision'' under Rule 8313(e)(2). The proposed amendments to Rule 8313 are consistent with the FINRA Rule 8313 and the rules of the other SROs modeled on FINRA Rule 8313.\16\ --------------------------------------------------------------------------- \16\ See FINRA Rule 8313; BATS Rule 8.18. --------------------------------------------------------------------------- * * * * * In summary, proposed Rule 5220 and Rule 996NY, coupled with proposed Rule 9560, would provide the Exchange with another form and means of authority to promptly act to prevent disruptive quoting and trading activity from continuing on the Exchange. The following example illustrates how the proposed rule would operate. Assume that through its surveillance program, Exchange staff identifies a pattern of potentially disruptive quoting and trading activity. After an initial investigation, the Exchange would contact the member organization or covered person responsible for the orders that caused the activity to request an explanation of the activity as well as any additional relevant information, including the source of the activity. If the Exchange were to continue to see the same pattern from the same member organization or covered person and the source of the activity is the same or has been previously identified as a frequent source of disruptive quoting and trading activity then the Exchange could initiate an expedited suspension proceeding by serving notice on the member organization or covered person that would include details regarding the alleged violations as well as the proposed sanction. In such a case the proposed sanction would likely be to order the member organization or covered person to cease and desist providing access to the Exchange to the client that is responsible for the disruptive quoting and trading activity and to suspend such member organization or covered person unless and until such action is taken. The member organization or covered person would have the opportunity to be heard in front of a Hearing Panel at a hearing to be conducted within 15 days of the notice. If the Hearing Panel determined that the violation alleged in the notice did not occur or that the conduct or its continuation would not have the potential to result in significant market disruption or other significant harm to investors, then the Hearing Panel would dismiss the suspension order proceeding. If the Hearing Panel determined that the violation alleged in the notice did occur and that the conduct or its continuation is likely to result in significant market disruption or other significant harm to investors, then the Hearing Panel would issue the order including the proposed sanction, ordering the member organization or covered person to cease providing access to the client at issue and suspending such Member unless and until such action is taken. If such member organization or covered person wished for the suspension to be lifted because the client ultimately responsible for the activity no longer would be provided access to the Exchange, then such member organization or covered person could apply to the Hearing Panel to have the order modified, set aside, limited or revoked. The Exchange notes that the issuance of a suspension order would not alter the Exchange's ability to further investigate the matter and/or later sanction the member or member organization pursuant to the Exchange's standard disciplinary process for supervisory violations or other violations of Exchange rules or the Act. The Exchange reiterates that it already has broad authority to take action [[Page 25892]] against a member organization or covered person in the event that such member organization or covered person is engaging in or facilitating disruptive or manipulative trading activity on the Exchange. For the reasons described above, and in light of recent matters such as the client access cases described above, as well as other cases currently under investigation, the Exchange believes that it is equally important for the Exchange to have this supplemental authority to promptly initiate expedited suspension proceedings against any member organization or covered person who has demonstrated a clear pattern or practice of disruptive quoting and trading activity, as described above, and to take action including ordering such member organization or covered person to terminate access to the Exchange to one or more clients that are [sic] responsible for the violative activity. The Exchange recognizes that its proposed authority to issue a suspension order is a powerful measure that should be used very cautiously. Consequently, the proposed rules have been designed to ensure that the proceedings are used to address only the most clear and serious types of disruptive quoting and trading activity and that the interests of respondents are protected. For example, to ensure that proceedings are used appropriately and that the decision to initiate a proceeding is made only at the highest staff levels, the proposed rules require the CRO or another senior officer of the Exchange to issue written authorization before the Exchange can institute an expedited suspension proceeding. In addition, the rule by its terms is limited to violations of proposed Rule 5220 or Rule 996NY, when necessary to protect investors, other member organizations or covered persons, and the Exchange. Further, the Exchange believes that the proposed expedited suspension provisions described above that provide the opportunity to respond as well as a Hearing Panel determination prior to taking action will ensure that the Exchange would not utilize its authority in the absence of a clear pattern or practice of disruptive quoting and trading activity. Notwithstanding the adoption of the proposed rules along with existing disciplinary rules in the 9000 series, the Exchange also notes that that pursuant to Rule 9555(a)(2) (Failure to Meet the Eligibility or Qualification Standards or Prerequisites for Access to Services), if a member organization or covered person cannot continue to have access to services offered by the Exchange or a member thereof with safety to investors, creditors, members, or the Exchange, the Exchange may provide written notice to such member or person limiting or prohibiting access to services offered by the Exchange or a member thereof. This ability to impose a temporary restriction upon Members assists the Exchange in maintaining the integrity of the market and protecting investors and the public interest. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,\17\ in general, and furthers the objectives of Section 6(b)(5) of the Act,\18\ in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest. Pursuant to the proposal, the Exchange will have a mechanism to promptly initiate expedited suspension proceedings in the event the Exchange believes that it has sufficient proof that a violation of proposed Rule 5220 or 996NY has occurred and is ongoing. --------------------------------------------------------------------------- \17\ 15 U.S.C. 78f(b). \18\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- Further, the Exchange believes that the proposal is consistent with Sections 6(b)(1) and 6(b)(6) of the Act,\19\ which require that the rules of an exchange enforce compliance with, and provide appropriate discipline for, violations of the Commission and Exchange rules. The Exchange believes that the proposal is consistent with the public interest, the protection of investors, or otherwise in furtherance of the purposes of the Act because the proposal helps to strengthen the Exchange's ability to carry out its oversight and enforcement responsibilities as a self-regulatory organization in cases where awaiting the conclusion of a full disciplinary proceeding is unsuitable in view of the potential harm to other member organization and their customers. The Exchange notes that if this type of conduct is allowed to continue on the Exchange, the Exchange's reputation could be harmed because it may appear to the public that the Exchange is not acting to address the behavior. The proposed expedited process would enable the Exchange to address the behavior with greater speed. --------------------------------------------------------------------------- \19\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- As noted throughout this filing, the Exchange believes that these rule proposals are necessary for the protection of investors rather than allowing disruptive quoting and trading activity to occur for several years. The Exchange believes that the pattern of disruptive and allegedly manipulative quoting and trading activity was widespread across multiple exchanges, and the Exchange, FINRA, and other SROs identified clear patterns of the behavior in 2007 and 2008 in the equities markets.\20\ The Exchange believes that this proposal will provide the Exchange with additional means to enforce against such behavior in an expedited manner while providing member organizations or covered person with the necessary due process. The Exchange believes that its proposal is consistent with the Act because it provides the Exchange with the ability 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 from such ongoing behavior. --------------------------------------------------------------------------- \20\ See Section 3 herein, the Purpose section, for examples of conduct referred to herein. --------------------------------------------------------------------------- The Exchange believes that the proposal is also consistent with Section 6(b)(7) of the Act,\21\ which requires that the rules of an exchange ``provide a fair procedure for the disciplining of members and persons associated with members . . . and the prohibition or limitation by the exchange of any person with respect to access to services offered by the exchange or a member thereof.'' Finally, the Exchange also believes the proposal is consistent with Sections 6(d)(1) and 6(d)(2) of the Act,\22\ which require that the rules of an exchange with respect to a disciplinary proceeding or proceeding that would limit or prohibit access to or membership in the exchange require the exchange to: Provide adequate and specific notice of the charges brought against a member or person associated with a member, provide an opportunity to defend against such charges, keep a record, and provide details regarding the findings and applicable sanctions in the event a determination to impose a disciplinary sanction is made. The Exchange believes that each of these requirements is addressed by the notice and due process provisions included within proposed Rule 9560. Importantly, as noted above, the Exchange will use the authority proposed in this filing only in clear and egregious cases when necessary to protect investors, other member organizations or covered persons and the Exchange, and even in such cases, [[Page 25893]] respondents will be afforded due process in connection with the suspension proceedings. --------------------------------------------------------------------------- \21\ 15 U.S.C. 78f(b)(7). \22\ 15 U.S.C. 78f(d)(1). --------------------------------------------------------------------------- Finally, the Exchange believes that amending Rule 8313 to permit release to the public of suspension notices and orders issued pursuant to proposed Rule 9560 furthers the objectives of Section 6(b)(5) of the Act \23\ by providing greater clarity, consistency, and transparency regarding the release of disciplinary complaints, decisions and other information to the public. The Exchange also believes that the proposed rule change promotes greater transparency to the Exchange's disciplinary process by providing greater access to information regarding its disciplinary actions and valuable guidance and information to persons subject to the Exchange's jurisdiction, regulators, and the investing public. --------------------------------------------------------------------------- \23\ 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. To the contrary, the Exchange believes that each self-regulatory organization should be empowered to regulate trading occurring on their [sic] market consistent with the Act and without regard to competitive issues. The Exchange is requesting authority to take appropriate action if necessary for the protection of investors, other member organizations or covered persons, and the Exchange. The Exchange also believes that it is important for all exchanges to be able to take similar action to enforce its [sic] rules against manipulative conduct thereby leaving no exchange prey to such conduct. The Exchange does not believe that the proposed rule change imposes an undue burden on competition, rather this process will provide the Exchange with necessary means to enforce against violations of manipulative quoting and trading activity in an expedited manner, while providing member organizations or covered persons with the necessary due process. Finally, the proposed rule change is designed to enhance the Exchange's rules governing the release of disciplinary complaints, decisions and other information to the public, thereby providing greater clarity and consistency and resulting in less burdensome and more efficient regulatory compliance and facilitating performance of regulatory functions. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act \24\ and Rule 19b-4(f)(6) thereunder.\25\ Because the 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 prior to 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b- 4(f)(6)(iii) thereunder. --------------------------------------------------------------------------- \24\ 15 U.S.C. 78s(b)(3)(A)(iii). \25\ 17 CFR 240.19b-4(f)(6). --------------------------------------------------------------------------- A proposed rule change filed under Rule 19b-4(f)(6) \26\ normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b4(f)(6)(iii),\27\ the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. --------------------------------------------------------------------------- \26\ 17 CFR 240.19b-4(f)(6). \27\ 17 CFR 240.19b-4(f)(6)(iii). --------------------------------------------------------------------------- At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) \28\ of the Act to determine whether the proposed rule change should be approved or disapproved. --------------------------------------------------------------------------- \28\ 15 U.S.C. 78s(b)(2)(B). --------------------------------------------------------------------------- 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-NYSEMKT-2017-25 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-NYSEMKT-2017-25. 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-NYSEMKT-2017-25 and should be submitted on or before June 26, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\29\ --------------------------------------------------------------------------- \29\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-11499 Filed 6-2-17; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 82, No. 106 / Monday, June 5, 2017 / Notices 25887
rules/sro.shtml). Copies of the solicit comments on the proposed rule the same as those adopted by BATS and
submission, all subsequent change from interested persons. NASDAQ, with the following
amendments, all written statements exceptions discussed below: (1)
I. Self-Regulatory Organization’s
with respect to the proposed rule Conforming references to reflect the
Statement of the Terms of Substance of
change that are filed with the the Proposed Rule Change Exchange’s equities and options
Commission, and all written membership; and (2) the call for review
communications relating to the The Exchange proposes (1) new Rules
process in proposed Rule 9560(f). The
proposed rule change between the 5220—Equities and 996NY (Options)
Exchange believes that having
Commission and any person, other than that define and prohibit two types of
disruptive quoting and trading activity consistent rules for issuing a cease and
those that may be withheld from the desist order on an expedited basis as
public in accordance with the on the Exchange; (2) a new Rule 9560
governing supplemental expedited other self-regulatory organizations
provisions of 5 U.S.C. 552, will be (‘‘SROs’’) to halt certain disruptive and
available for Web site viewing and suspension proceedings; and (3)
amendments to Rule 8313 to permit manipulative quoting and trading
printing in the Commission’s Public
release to the public of suspension activity would enhance the Exchange’s
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official notices and orders issued pursuant to ability to protect investors and market
business days between the hours of proposed Rule 9560. The proposed rule integrity.
10:00 a.m. and 3:00 p.m. Copies of the change is available on the Exchange’s
Background
filing also will be available for Web site at www.nyse.com, at the
inspection and copying at the principal principal office of the Exchange, and at As a national securities exchange
office of the Exchange. All comments the Commission’s Public Reference registered pursuant to Section 6 of the
received will be posted without change; Room. Act, the Exchange is required to be
the Commission does not edit personal II. Self-Regulatory Organization’s organized and to have the capacity to
identifying information from Statement of the Purpose of, and enforce compliance by its member
submissions. You should submit only Statutory Basis for, the Proposed Rule organizations and persons associated
information that you wish to make Change with its member organizations, with the
available publicly. All submissions Act, the rules and regulations
In its filing with the Commission, the
should refer to File Number SR– thereunder, and the Exchange’s Rules.4
self-regulatory organization included
NYSEArca–2017–53 and should be Further, the Exchange’s Rules are
statements concerning the purpose of,
submitted on or before June 26, 2017. required to be ‘‘designed to prevent
and basis for, the proposed rule change
For the Commission, by the Division of and discussed any comments it received fraudulent and manipulative acts and
Trading and Markets, pursuant to delegated on the proposed rule change. The text practices, to promote just and equitable
authority.31 of those statements may be examined at principles of trade . . . and, in general,
Eduardo A. Aleman, the places specified in Item IV below.
Assistant Secretary. The Exchange has prepared summaries, disruptive quoting and trading activities, and BATS
[FR Doc. 2017–11501 Filed 6–2–17; 8:45 am] set forth in sections A, B, and C below, Rule 8.17, which permits BATS to conduct a new
of the most significant parts of such expedited suspension proceeding when it believes
BILLING CODE 8011–01–P
BATS Rule 12.15 has been violated. See Securities
statements. Exchange Act Release No. 77171 (February 18,
2016), 81 FR 9017 (February 23, 2016) (SR–BATS–
SECURITIES AND EXCHANGE A. Self-Regulatory Organization’s
2015–101) (‘‘BATS Approval Order’’); see also
COMMISSION Statement of the Purpose of, and Securities Exchange Act Release No. 77606 (April
Statutory Basis for, the Proposed Rule 13, 2016), 81 FR 23026 (April 19, 2016) (SR–
[Release No. 34–80804; File No. SR– Change BatsEDGA–2016–03) (adopting identical rules for
NYSEMKT–2017–25] Bats EDGA Exchange, Inc.); Securities Exchange Act
1. Purpose Release No. 77602 (April 13, 2016), 81 FR 23046
Self-Regulatory Organizations; NYSE (April 19, 2016) (SR–BatsBYX–2016–03) (adopting
The Exchange proposes (1) a new identical rules for Bats BYX Exchange, Inc.);
MKT LLC; Notice of Filing and Rule 5220—Equities (‘‘Rule 5220’’) and Securities Exchange Act Release No. 77589 (April
Immediate Effectiveness of Proposed a new Rule 996NY (Options) that define 12, 2016), 81 FR 22691 (April 18, 2016) (SR–
Rule Change Adopting Rules 5220— and prohibits two types of disruptive BatsEDGX–2016–04) (adopting identical rules for
Equities, 996NY Options and 9560 and quoting and trading activity on the Bats EDGX Exchange, Inc.). On May 19, 2016,
NASDAQ filed a substantially similar proposed rule
Amending Rule 8313 Exchange; (2) a new Rule 9560 change with the SEC for immediate effectiveness.
governing supplemental expedited See Securities Exchange Act Release No. 77913
May 30, 2017.
suspension proceedings; and (3) (May 25, 2016), 81 FR 35081 (June 1, 2016) (SR–
Pursuant to Section 19(b)(1) of the amendments to Rule 8313 (Release of NASDAQ–2016–074). NASDAQ has also extended
Securities Exchange Act of 1934 Disciplinary Complaints, Decisions and
the rule to other exchanges. See, e.g., Securities
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 Exchange Act Release No. 78208 (June 30, 2016), 81
Other Information) to permit release to FR 44366 (July 7, 2016) (SR–NASDAQ–2016–092).
notice is hereby given that on May 17, the public of suspension notices and Similarly, the Financial Industry Regulatory
2017, NYSE MKT LLC (the ‘‘Exchange’’ orders issued pursuant to proposed Rule Authority, Inc. (‘‘FINRA’’) also recently prohibited
or ‘‘NYSE MKT’’) filed with the 9560. disruptive quoting and trading and amended its
Securities and Exchange Commission procedural rules. See Securities Exchange Act
The proposed rule change is based on Release No. 76361 (November 21, 2016), 81 FR
asabaliauskas on DSKBBXCHB2PROD with NOTICES
(‘‘SEC’’ or ‘‘Commission’’) the proposed rules recently adopted by Bats BZX 85650 (November 28, 2016) (SR–FINRA–2016–043).
rule change as described in Items I, II, Exchange, Inc., formerly known as See also Securities Exchange Act Release No. 79182
and III below, which Items have been BATS Exchange, Inc. (‘‘BATS’’), and (October 28, 2016), 81 FR 76639 (November 3, 2016)
prepared by the Exchange. The The Nasdaq Stock Market LLC
(SR–MIAX–2016–40) (adopting identical rules for
Commission is publishing this notice to Miami International Securities Exchange LLC);
(‘‘NASDAQ’’).3 The proposed rules are Securities Exchange Act Release No. 79646
(December 21, 2016), 81 FR 95713 (December 28,
31 17 CFR 200.30–3(a)(12). 3 On February 18, 2016, the SEC approved a 2016) (SR–BOX–2016–59) (adopting identical rules
1 15 U.S.C. 78s(b)(1). proposed rule change filed by BATS to adopt new for BOX Options Exchange LLC).
2 17 CFR 240.19b–4. BATS Rule 12.15, which prohibits certain types of 4 15 U.S.C. 78f(b)(1).
VerDate Sep<11>2014 17:31 Jun 02, 2017 Jkt 241001 PO 00000 Frm 00133 Fmt 4703 Sfmt 4703 E:\FR\FM\05JNN1.SGM 05JNN1](https://thefederalregister.org/doc/82_FR_25993/page/1.svg)
![25890 Federal Register / Vol. 82, No. 106 / Monday, June 5, 2017 / Notices
• the party then submits an order on required method of service and the shall be made by personal service or
the opposite side of the market that content of notice. overnight commercial courier and shall
executes against another market Proposed paragraph (b) of Rule 9560 be effective upon service.
participant that joined the new inside would govern the appointment of a Proposed paragraph (c) would also
market established by the order Hearing Panel as well as potential govern how the hearing is conducted,
described in proposed (b)(2)(A) that disqualification or recusal of Hearing including the authority of Hearing
narrowed the spread (proposed Rule Officers. The proposed provision is Officers ((c)(3), witnesses ((c)(4)),
996NY(b)(2)(B)). consistent with current Rule 9231(b), additional information that may be
As with proposed Rule 5220, the which governs the appointment of a required by the Hearing Panel ((c)(5)),
Exchange believes that the proposed hearing panel or extended hearing panel the requirement that a transcript of the
descriptions of disruptive quoting and to conduct disciplinary proceedings. proceeding be created and details
trading activity articulated in Rule The Exchange’s Rules provide for a related to such transcript ((c)(6)), and
996NY are consistent with the activities Hearing Officer to be recused in the details regarding the creation and
that have been identified and described event he or she has a conflict of interest maintenance of the record of the
in the client access cases described or bias or other circumstances exist proceeding ((c)(7)). Proposed paragraph
above and with the rules of other where his or her fairness might (c)(8) would also provide that if a
SROs.15 reasonably be questioned in accordance Respondent fails to appear at a hearing
with Rules [sic] 9233(a). In addition to for which it has notice, the allegations
Proposed Rule 996NY(c) would
recusal initiated by such a Hearing in the notice and accompanying
provide that, unless otherwise
Officer, a party to the proceeding will be declaration may be deemed admitted,
indicated, the descriptions of disruptive
permitted to file a motion to disqualify and the Hearing Panel may issue a
quoting and trading activity do not
a Hearing Officer. However, due to the suspension order without further
require the facts to occur in a specific
compressed schedule pursuant to which proceedings. Finally, as proposed, if the
order in order for the Rule to apply. The
the process would operate under Rule Exchange fails to appear at a hearing for
proposed Rule would also make clear 9560, the proposed rule would require which it has notice, the Hearing Panel
that disruptive quoting and trading such motion to be filed no later than 5 may order that the suspension
activity includes a pattern or practice in days after the announcement of the proceeding be dismissed.
which some portion of the disruptive Hearing Panel and the Exchange’s brief Under paragraph (d)(1) of the
quoting and trading activity is in opposition to such motion would be proposed Rule, the Hearing Panel would
conducted on the Exchange and the required to be filed no later than 5 days be required to issue a written decision
other portions of the disruptive quoting after service thereof. Pursuant to stating whether a suspension order
and trading activity are conducted on existing Rule 9233(c), a motion for would be imposed. The Hearing Panel
one or more other exchanges. disqualification of a Hearing Officer would be required to issue the decision
Proposed Rule 9560 shall be decided by the Chief Hearing not later than 10 days after receipt of the
Officer based on a prompt investigation. hearing transcript, unless otherwise
The Exchange proposes a new Rule The applicable Hearing Officer shall extended by the Chairman of the
9560 for its Code of Procedure that remove himself or herself and request Hearing Panel with the consent of the
would set forth procedures for issuing the Chief Executive Officer to reassign Parties for good cause shown. The
suspension orders, immediately the hearing to another Hearing Officer proposed Rule would state that a
prohibiting a member organization or such that the Hearing Panel still meets suspension order shall be imposed if the
covered person from conducting the compositional requirements Hearing Panel finds by a preponderance
continued disruptive quoting and described in Rule 9231(b). If the Chief of the evidence that the alleged
trading activity on the Exchange. Hearing Officer determines that the violation specified in the notice has
Importantly, these procedures would Respondent’s grounds for occurred and that the violative conduct
also provide the Exchange the authority disqualification are insufficient, it shall or continuation thereof is likely to result
to order a member organization or deny the Respondent’s motion for in significant market disruption or other
covered person to cease and desist from disqualification by setting forth the significant harm to investors.
providing access to the Exchange to a reasons for the denial in writing and the Proposed paragraph (d)(2) would also
client that is conducting disruptive Hearing Panel will proceed with the describe the content, scope and form of
quoting and trading activity. hearing. a suspension order. As proposed, a
Under proposed paragraph (a)(1) of Under paragraph (c)(1) of the suspension order shall be limited to
Rule 9560, with the prior written proposed Rule, the hearing would be ordering a Respondent to cease and
authorization of the Chief Regulatory held not later than 15 days after service desist from violating proposed Rule
Officer (‘‘CRO’’) or such other senior of the notice initiating the suspension 5220, and/or to ordering a Respondent
officers as the CRO may designate, the proceeding, unless otherwise extended to cease and desist from providing
Exchange’s Enforcement department by the Chairman of the Hearing Panel access to the Exchange to a client of
may initiate an expedited suspension with the consent of the Parties for good Respondent that is causing violations of
proceeding with respect to alleged cause shown. In the event of a recusal proposed Rule 5220 ((d)(2)(A)). Under
violations of Rule 5220 or Rule 996NY or disqualification of a Hearing Officer, the proposed rule, a suspension order
(Disruptive Quoting and Trading the hearing shall be held not later than shall also set forth the alleged violation
asabaliauskas on DSKBBXCHB2PROD with NOTICES
Activity Prohibited). five days after a replacement Hearing and the significant market disruption or
Proposed paragraph (a) would also set Officer is appointed. other significant harm to investors that
forth the requirements for notice ((a)(2)) Under paragraph (c)(2) of the is likely to result without the issuance
and service of such notice ((a)(3)) proposed Rule, a notice of date, time, of an order ((d)(2)(B)). The order shall
pursuant to the Rule, including the and place of the hearing shall be served describe in reasonable detail the act or
on the Parties not later than seven days acts the Respondent is to take or refrain
15 See, e.g., BATS Rule 12.15; NASDAQ Rule before the hearing, unless otherwise from taking, and suspend such
2170; BOX Options Exchange LLC Rule 3220. See ordered by the Chairman of the Hearing Respondent unless and until such
generally note 3, supra. Panel. Under the proposed Rule, service action is taken or refrained from
VerDate Sep<11>2014 17:31 Jun 02, 2017 Jkt 241001 PO 00000 Frm 00136 Fmt 4703 Sfmt 4703 E:\FR\FM\05JNN1.SGM 05JNN1](https://thefederalregister.org/doc/82_FR_25993/page/4.svg)
![25892 Federal Register / Vol. 82, No. 106 / Monday, June 5, 2017 / Notices
against a member organization or provide written notice to such member protection of investors rather than
covered person in the event that such or person limiting or prohibiting access allowing disruptive quoting and trading
member organization or covered person to services offered by the Exchange or a activity to occur for several years. The
is engaging in or facilitating disruptive member thereof. This ability to impose Exchange believes that the pattern of
or manipulative trading activity on the a temporary restriction upon Members disruptive and allegedly manipulative
Exchange. For the reasons described assists the Exchange in maintaining the quoting and trading activity was
above, and in light of recent matters integrity of the market and protecting widespread across multiple exchanges,
such as the client access cases described investors and the public interest. and the Exchange, FINRA, and other
above, as well as other cases currently SROs identified clear patterns of the
2. Statutory Basis
under investigation, the Exchange behavior in 2007 and 2008 in the
believes that it is equally important for The Exchange believes that the equities markets.20 The Exchange
the Exchange to have this supplemental proposed rule change is consistent with believes that this proposal will provide
authority to promptly initiate expedited Section 6(b) of the Act,17 in general, and the Exchange with additional means to
suspension proceedings against any furthers the objectives of Section 6(b)(5) enforce against such behavior in an
member organization or covered person of the Act,18 in particular, in that it is expedited manner while providing
who has demonstrated a clear pattern or designed to prevent fraudulent and member organizations or covered person
practice of disruptive quoting and manipulative acts and practices, to with the necessary due process. The
trading activity, as described above, and promote just and equitable principles of Exchange believes that its proposal is
to take action including ordering such trade, to foster cooperation and consistent with the Act because it
member organization or covered person coordination with persons engaged in provides the Exchange with the ability
to terminate access to the Exchange to facilitating transactions in securities, to remove impediments to and perfect
one or more clients that are [sic] and to remove impediments to and the mechanism of a free and open
responsible for the violative activity. perfect the mechanism of a free and market and a national market system,
The Exchange recognizes that its open market and a national market and, in general to protect investors and
proposed authority to issue a system, and, in general to protect the public interest from such ongoing
suspension order is a powerful measure investors and the public interest. behavior.
that should be used very cautiously. Pursuant to the proposal, the Exchange The Exchange believes that the
Consequently, the proposed rules have will have a mechanism to promptly proposal is also consistent with Section
been designed to ensure that the initiate expedited suspension 6(b)(7) of the Act,21 which requires that
proceedings are used to address only the proceedings in the event the Exchange the rules of an exchange ‘‘provide a fair
most clear and serious types of believes that it has sufficient proof that procedure for the disciplining of
disruptive quoting and trading activity a violation of proposed Rule 5220 or members and persons associated with
and that the interests of respondents are 996NY has occurred and is ongoing. members . . . and the prohibition or
protected. For example, to ensure that Further, the Exchange believes that limitation by the exchange of any
proceedings are used appropriately and the proposal is consistent with Sections person with respect to access to services
that the decision to initiate a proceeding 6(b)(1) and 6(b)(6) of the Act,19 which offered by the exchange or a member
is made only at the highest staff levels, require that the rules of an exchange thereof.’’ Finally, the Exchange also
the proposed rules require the CRO or enforce compliance with, and provide believes the proposal is consistent with
another senior officer of the Exchange to appropriate discipline for, violations of Sections 6(d)(1) and 6(d)(2) of the Act,22
issue written authorization before the the Commission and Exchange rules. which require that the rules of an
Exchange can institute an expedited The Exchange believes that the proposal exchange with respect to a disciplinary
suspension proceeding. In addition, the is consistent with the public interest, proceeding or proceeding that would
rule by its terms is limited to violations the protection of investors, or otherwise limit or prohibit access to or
of proposed Rule 5220 or Rule 996NY, in furtherance of the purposes of the Act membership in the exchange require the
when necessary to protect investors, because the proposal helps to strengthen exchange to: Provide adequate and
other member organizations or covered the Exchange’s ability to carry out its specific notice of the charges brought
persons, and the Exchange. oversight and enforcement against a member or person associated
Further, the Exchange believes that responsibilities as a self-regulatory with a member, provide an opportunity
the proposed expedited suspension organization in cases where awaiting the to defend against such charges, keep a
provisions described above that provide conclusion of a full disciplinary record, and provide details regarding
the opportunity to respond as well as a proceeding is unsuitable in view of the the findings and applicable sanctions in
Hearing Panel determination prior to potential harm to other member the event a determination to impose a
taking action will ensure that the organization and their customers. The disciplinary sanction is made. The
Exchange would not utilize its authority Exchange notes that if this type of Exchange believes that each of these
in the absence of a clear pattern or conduct is allowed to continue on the requirements is addressed by the notice
practice of disruptive quoting and Exchange, the Exchange’s reputation and due process provisions included
trading activity. Notwithstanding the could be harmed because it may appear within proposed Rule 9560.
adoption of the proposed rules along to the public that the Exchange is not Importantly, as noted above, the
with existing disciplinary rules in the acting to address the behavior. The Exchange will use the authority
9000 series, the Exchange also notes that proposed expedited process would proposed in this filing only in clear and
asabaliauskas on DSKBBXCHB2PROD with NOTICES
that pursuant to Rule 9555(a)(2) (Failure enable the Exchange to address the egregious cases when necessary to
to Meet the Eligibility or Qualification behavior with greater speed. protect investors, other member
Standards or Prerequisites for Access to As noted throughout this filing, the organizations or covered persons and
Services), if a member organization or Exchange believes that these rule the Exchange, and even in such cases,
covered person cannot continue to have proposals are necessary for the
access to services offered by the 20 See Section 3 herein, the Purpose section, for
Exchange or a member thereof with 17 15 U.S.C. 78f(b). examples of conduct referred to herein.
safety to investors, creditors, members, 18 15 U.S.C. 78f(b)(5). 21 15 U.S.C. 78f(b)(7).
or the Exchange, the Exchange may 19 15 U.S.C. 78f(b)(5). 22 15 U.S.C. 78f(d)(1).
VerDate Sep<11>2014 17:31 Jun 02, 2017 Jkt 241001 PO 00000 Frm 00138 Fmt 4703 Sfmt 4703 E:\FR\FM\05JNN1.SGM 05JNN1](https://thefederalregister.org/doc/82_FR_25993/page/6.svg)
![Federal Register / Vol. 82, No. 106 / Monday, June 5, 2017 / Notices 25893
respondents will be afforded due C. Self-Regulatory Organization’s Electronic Comments
process in connection with the Statement on Comments on the
suspension proceedings. Proposed Rule Change Received From • Use the Commission’s Internet
Members, Participants, or Others comment form (http://www.sec.gov/
Finally, the Exchange believes that
rules/sro.shtml); or
amending Rule 8313 to permit release to No written comments were solicited
the public of suspension notices and • Send an email to rule-comments@
or received with respect to the proposed
orders issued pursuant to proposed Rule sec.gov. Please include File Number SR–
rule change.
9560 furthers the objectives of Section NYSEMKT–2017–25 on the subject line.
6(b)(5) of the Act 23 by providing greater III. Date of Effectiveness of the
Proposed Rule Change and Timing for Paper Comments
clarity, consistency, and transparency
regarding the release of disciplinary Commission Action • Send paper comments in triplicate
complaints, decisions and other The Exchange has filed the proposed to Secretary, Securities and Exchange
information to the public. The Exchange rule change pursuant to Section Commission, 100 F Street NE.,
also believes that the proposed rule 19(b)(3)(A)(iii) of the Act 24 and Rule Washington, DC 20549–1090.
change promotes greater transparency to 19b–4(f)(6) thereunder.25 Because the
the Exchange’s disciplinary process by All submissions should refer to File
proposed rule change does not: (i) Number SR–NYSEMKT–2017–25. This
providing greater access to information Significantly affect the protection of
regarding its disciplinary actions and file number should be included on the
investors or the public interest; (ii) subject line if email is used. To help the
valuable guidance and information to impose any significant burden on
persons subject to the Exchange’s Commission process and review your
competition; and (iii) become operative
jurisdiction, regulators, and the comments more efficiently, please use
prior to 30 days from the date on which
investing public. it was filed, or such shorter time as the only one method. The Commission will
Commission may designate, if post all comments on the Commission’s
B. Self-Regulatory Organization’s Internet Web site (http://www.sec.gov/
Statement on Burden on Competition consistent with the protection of
investors and the public interest, the rules/sro.shtml). Copies of the
The Exchange does not believe that proposed rule change has become submission, all subsequent
the proposed rule change will impose effective pursuant to Section 19(b)(3)(A) amendments, all written statements
any burden on competition not of the Act and Rule 19b–4(f)(6)(iii) with respect to the proposed rule
necessary or appropriate in furtherance thereunder. change that are filed with the
of the purposes of the Act. To the A proposed rule change filed under Commission, and all written
contrary, the Exchange believes that Rule 19b–4(f)(6) 26 normally does not communications relating to the
each self-regulatory organization should become operative prior to 30 days after proposed rule change between the
be empowered to regulate trading the date of the filing. However, pursuant Commission and any person, other than
occurring on their [sic] market to Rule 19b4(f)(6)(iii),27 the Commission those that may be withheld from the
consistent with the Act and without may designate a shorter time if such public in accordance with the
regard to competitive issues. The action is consistent with the protection provisions of 5 U.S.C. 552, will be
Exchange is requesting authority to take of investors and the public interest. available for Web site viewing and
appropriate action if necessary for the At any time within 60 days of the printing in the Commission’s Public
protection of investors, other member filing of such proposed rule change, the Reference Room, 100 F Street NE.,
organizations or covered persons, and Commission summarily may Washington, DC 20549, on official
the Exchange. The Exchange also temporarily suspend such rule change if business days between the hours of
believes that it is important for all it appears to the Commission that such 10:00 a.m. and 3:00 p.m. Copies of the
exchanges to be able to take similar action is necessary or appropriate in the filing also will be available for
action to enforce its [sic] rules against public interest, for the protection of inspection and copying at the principal
manipulative conduct thereby leaving investors, or otherwise in furtherance of office of the Exchange. All comments
no exchange prey to such conduct. The the purposes of the Act. If the received will be posted without change;
Exchange does not believe that the Commission takes such action, the the Commission does not edit personal
proposed rule change imposes an undue Commission shall institute proceedings identifying information from
burden on competition, rather this under Section 19(b)(2)(B) 28 of the Act to submissions. You should submit only
process will provide the Exchange with determine whether the proposed rule information that you wish to make
necessary means to enforce against change should be approved or available publicly. All submissions
violations of manipulative quoting and disapproved. should refer to File Number SR–
trading activity in an expedited manner,
IV. Solicitation of Comments NYSEMKT–2017–25 and should be
while providing member organizations
or covered persons with the necessary submitted on or before June 26, 2017.
Interested persons are invited to
due process. Finally, the proposed rule submit written data, views and
For the Commission, by the Division of
change is designed to enhance the arguments concerning the foregoing,
Trading and Markets, pursuant to delegated
Exchange’s rules governing the release authority.29
including whether the proposed rule
of disciplinary complaints, decisions
asabaliauskas on DSKBBXCHB2PROD with NOTICES
change is consistent with the Act.
and other information to the public, Comments may be submitted by any of Eduardo A. Aleman,
thereby providing greater clarity and the following methods: Assistant Secretary.
consistency and resulting in less [FR Doc. 2017–11499 Filed 6–2–17; 8:45 am]
burdensome and more efficient 24 15 U.S.C. 78s(b)(3)(A)(iii). BILLING CODE 8011–01–P
regulatory compliance and facilitating 25 17 CFR 240.19b–4(f)(6).
performance of regulatory functions. 26 17 CFR 240.19b–4(f)(6).
27 17 CFR 240.19b–4(f)(6)(iii).
23 15 U.S.C. 78f(b)(5). 28 15 U.S.C. 78s(b)(2)(B). 29 17 CFR 200.30–3(a)(12).
VerDate Sep<11>2014 17:31 Jun 02, 2017 Jkt 241001 PO 00000 Frm 00139 Fmt 4703 Sfmt 9990 E:\FR\FM\05JNN1.SGM 05JNN1](https://thefederalregister.org/doc/82_FR_25993/page/7.svg)
Document Created: 2018-11-14 10:00:45
Document Modified: 2018-11-14 10:00:45
| 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 25887 |
2025 Federal Register | Disclaimer | Privacy Policy
USC | CFR | eCFR