83 FR 23509 - Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Supplementary Material to Rule 706 To Harmonize Its Sponsored Access Rules With Those of Its Affiliates
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 98 (May 21, 2018)
Federal Register Volume 83, Issue 98 (May 21, 2018)
| Page Range | 23509-23512 | |
| FR Document | 2018-10704 |
[Federal Register Volume 83, Number 98 (Monday, May 21, 2018)] [Notices] [Pages 23509-23512] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-10704] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-83237; File No. SR-GEMX-2018-15] Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Supplementary Material to Rule 706 To Harmonize Its Sponsored Access Rules With Those of Its Affiliates May 15, 2018. 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 9, 2018, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I and II 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 to amend Supplementary Material to Rule 706 to harmonize its sponsored access rules with those of its affiliates, The Nasdaq Stock Market LLC (``NQX''), Nasdaq BX, Inc. (``BX'') and Nasdaq PHLX LLC (``PHLX,'' and together with NQX and BX, ``Nasdaq Exchanges''). The text of the proposed rule change is available on the Exchange's website at http://nasdaqgemx.cchwallstreet.com/, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to amend Supplementary Material to Rule 706, which contains the Exchange's sponsored access rules, to harmonize these rules with those of the Nasdaq Exchanges.\3\ On March 9, 2016, the Exchange and its affiliates, International Securities Exchange, LLC (now, Nasdaq ISE, LLC) (``ISE'') and ISE Mercury, LLC (now, Nasdaq MRX, LLC) (``MRX'' and together with ISE and GEMX, ``ISE Exchanges''), were acquired by Nasdaq, Inc. (``Acquisition'').\4\ In the context of the Acquisition, the ISE Exchanges have been working to align certain of its rules and processes with those of the Nasdaq Exchanges in order to provide consistent standards across the six exchanges owned and operated by Nasdaq, Inc. (collectively, ``Affiliated Exchanges''). As part of this effort, the proposal set forth below harmonizes the Exchange's sponsored access rules with the Nasdaq Sponsored Access Rules in order to provide uniform standards and requirements for users of the Affiliated Exchanges.\5\ --------------------------------------------------------------------------- \3\ See NQX Rule 4615, BX Rule 4615 and PHLX Rule 1094 (collectively, ``Nasdaq Sponsored Access Rules''). \4\ See Securities Exchange Act Release No. 78119 (June 21, 2016), 81 FR 41611 (June 27, 2016) (SR-ISE-2016-11; SR-ISEGemini- 2016-05; SR-ISEMercury-2016-10). \5\ ISE and MRX will each file similar rule change proposals with the Commission to harmonize their sponsored access rules with the Nasdaq Sponsored Access Rules. --------------------------------------------------------------------------- In particular, the Exchange proposes to (1) define the term ``Sponsored Access'' and ``Customer Agreement;'' (2) specify the requirement to comply with Rule 15c3-5 under the Act (``Market Access Rule''); (3) remove the requirements that each Sponsored Customer and each Sponsoring Member enter into certain agreements with the Exchange; and (4) make a number of related, non-substantive changes. Each change is discussed in detail as follows. Defining Sponsored Access A Sponsored Customer is a non-member of the Exchange, such as an institutional investor, that gains access to the Exchange \6\ and trades under a Sponsoring Member's execution and clearing identity pursuant to a sponsorship arrangement between such non-member and Sponsoring Member, as set forth in Supplementary Material to Rule 706. The Exchange is proposing to define the term ``Sponsored Access'' to clarify the type of market access arrangement that is subject to this rule. Accordingly, the Exchange proposes to amend Supplementary Material .01(a) to Rule 706 to add the following definition: ``Sponsored Access shall mean an arrangement whereby a Member permits its customers to enter orders into the System that bypass the Member's trading system and are routed directly to the Exchange, including routing through a service bureau or other third party technology provider.'' This definition mirrors the language set forth in the Nasdaq Sponsored Access Rules,\7\ and is derived from the Commission's description of Sponsored Access used in the release approving the Market Access Rule.\8\ The Exchange believes that defining Sponsored Access in Supplementary Material .01(a) to Rule 706 will provide market participants with greater clarity regarding Sponsored Access and their obligations with respect to this type of access arrangement. --------------------------------------------------------------------------- \6\ For example, a broker-dealer may allow its customer--whether an institution such as a hedge fund, mutual fund, bank or insurance company, an individual, or another broker-dealer--to use the broker- dealer's MPID, account or other mechanism or mnemonic used to identify a market participant for the purposes of electronically accessing the Exchange. \7\ See NQX Rule 4615(a), BX Rule 4615(a) and PHLX Rule 1094(a). \8\ The Market Access Rule, among other things, requires broker- dealers providing others with access to an exchange or alternative trading system to establish, document, and maintain a system of risk management controls and supervisory procedures reasonably designed to manage the financial, regulatory, and other risks of providing such access. See Securities Exchange Act Release No. 63241 (November 3, 2010), 75 FR 69792 (November 15, 2010). --------------------------------------------------------------------------- Defining Customer Agreement The Exchange proposes to amend Supplementary Material .01(b)(1) to Rule 706 to define the agreement that Sponsored Customers must enter into and maintain with one or more Sponsoring Members to establish proper relationship(s) and account(s) through [[Page 23510]] which the Sponsored Customer may trade on the Exchange, as a ``Customer Agreement.'' \9\ --------------------------------------------------------------------------- \9\ The Nasdaq Sponsored Access Rules also similarly define ``Customer Agreement.'' See NQX Rule 4615(b)(i), BX Rule 4615(b)(i) and PHLX Rule 1094(b)(i). --------------------------------------------------------------------------- Market Access Rule Pursuant to Supplementary Material .01(b)(2) to Rule 706, the Sponsoring Member is responsible for the activities of the Sponsored Customer. Sponsored Customers are required to have procedures in place to comply with the Exchange's rules, and the Sponsoring Member takes responsibility for the Sponsored Customer's activity on the Exchange. Members may have multiple Sponsored Access relationships in place at a given time. The Exchange's examination program assesses compliance with the sponsored access rules set forth in Supplementary Material to Rule 706, among other rules.\10\ The Exchange now proposes to specifically enumerate in Supplementary Material .01(b)(2) to Rule 706 the member's obligation to comply with the Market Access Rule, with which Members are currently required to comply in connection with market access.\11\ The Exchange believes that specifying the obligation to comply with the Market Access Rule within the rule itself will reinforce that Supplementary Material to Rule 706 presupposes member compliance with the Market Access Rule. --------------------------------------------------------------------------- \10\ The Exchange has a Regulatory Services Agreement (``RSA'') with the Financial Industry Regulatory Authority (``FINRA'') to conduct regulatory examinations, among other obligations. \11\ See NQX Rule 4615(b)(ii)(A), BX Rule 4615(b)(ii)(A) and PHLX Rule 1094(b)(ii)(A) for consistent provisions. --------------------------------------------------------------------------- Elimination of Certain Contract Requirements The Exchange currently requires a Sponsored Customer Agreement between the Sponsored Customer and the Exchange,\12\ and a Sponsored Customer Addendum to the member access agreement (hereinafter, ``Addendum'') that is provided to the Exchange by the Sponsoring Member.\13\ At this time, the Exchange proposes to remove the existing requirements to submit the Sponsored Customer Agreement and Addendum to the Exchange in order to align its sponsored access rules with the Nasdaq Sponsored Access Rules. The Exchange will continue to require a Customer Agreement between the Sponsored Customer and Sponsoring Member pursuant to Supplementary Material .01(b)(2) to Rule 706.\14\ --------------------------------------------------------------------------- \12\ See Supplementary Material .01(a) to Rule 706. \13\ See Supplementary Material .01(b)(2)(i) and (b)(3) to Rule 706. \14\ The Nasdaq Sponsored Access Rules likewise only require a Customer Agreement between the sponsored participant and sponsoring member. See NQX Rule 4615(b)(i), BX Rule 4615(b)(i) and PHLX Rule 1094(b)(i). --------------------------------------------------------------------------- Today, only members may request connectivity to the Exchange by contacting Nasdaq Subscriber Services. A member may obtain separate ports for the purpose of providing Sponsored Access. If separate ports are requested by a member for the purpose of providing Sponsored Access, the member must request those ports from the Exchange and is responsible for the Sponsored Customer's activity on the Exchange.\15\ In all circumstances, the Exchange only permits members to request connectivity to the market and the member is responsible for all customer orders submitted through the member's port. In addition, such connection by the member requires approval by the Exchange for the purpose of testing as well as other relevant information sharing with the Exchange by the member to obtain a port. The Exchange is therefore aware of the member responsible for each of its ports. The Exchange may also request further information about a member's particular customer relationship, including the list of all Authorized Traders who may have access to the Exchange on behalf of the Sponsored Customer, as it deems necessary.\16\ --------------------------------------------------------------------------- \15\ In such cases, the Nasdaq Exchanges also require members to disclose the sponsored access arrangement as a condition to approving the member's port request. GEMX will similarly require members requesting connectivity to GEMX for the purpose of providing Sponsored Access to disclose sponsored access arrangements as a condition to approval. \16\ See Rule 1601. --------------------------------------------------------------------------- The Exchange believes that completing and submitting the Sponsored Customer Agreement and Addendum is unnecessarily burdensome in light of the current structure in place at the Exchange. The Sponsored Customer Agreement requirement was intended to ensure that the Sponsored Customer was informed of its obligation to comply with the Exchange's Certificate of Formation, By-Laws, Rules and procedures, including the requirements in Supplementary Material .01(b)(2)(iii)-(ix).\17\ The agreement also provided the Exchange with contractual privity, which would no longer exist with the removal of the Sponsored Customer Agreement. The Exchange does not believe the loss of privity with the Sponsored Customer creates a concern as the Exchange has the ability to remove access to the port at any time if it determines that the activity of the Sponsored Customer warrants such removal. In addition, as discussed below, the Sponsored Customer will be informed of its obligations through the Customer Agreement that it executed with the Sponsoring Member. As noted above, the Exchange only permits its members to request connectivity to the Exchange's trading system, and members remain responsible for all trades submitted through such ports. Pursuant to Supplementary Material .01(b)(2)(vii) to Rule 706, the trading activity of a Sponsored Customer must be monitored by the Sponsoring Member for compliance with the terms of the Customer Agreement with the Sponsored Customer. Finally, Sponsoring Members continue to be obligated to comply with Supplementary Material .01(b) to Rule 706 and the Market Access Rule. As such, the Sponsoring Member is responsible for any and all actions taken by its Sponsored Customer and any person acting on behalf of or in the name of such Sponsored Customer. --------------------------------------------------------------------------- \17\ These requirements include, among others, the Sponsored Customer's obligation to maintain, keep current and provide to the Sponsoring Member a list of Authorized Traders who may obtain access to the Exchange on behalf of the Sponsored Customer. In addition, the Sponsored Customer must take reasonable security precautions to prevent unauthorized use or access to the Exchange, and is responsible for having adequate procedures and controls in place to comply with GEMX's rules. --------------------------------------------------------------------------- The Addendum requirement was intended to notify the Exchange of the relationship between the Sponsoring Member and the Sponsored Customer, and to provide the Sponsoring Member's express acknowledgment of the Sponsoring Member's responsibility for the orders, executions and actions of its Sponsored Customer. However, as noted above, the Exchange may request additional information about a particular customer relationship as it deems necessary.\18\ The Exchange will also require that its members disclose the Sponsored Customer relationship as a condition for approving any ports requested for the purpose of providing Sponsored Access.\19\ Accordingly, the Exchange will continue to be notified of Sponsored Customer arrangements even with the removal of the Addendum. Furthermore, as discussed above, Sponsoring Members continue to be obligated to comply with Supplementary Material .01(b) to Rule 706 and the Market Access Rule, and are therefore responsible for any and all actions taken by its Sponsored Customer and any person acting on behalf of or in the name of such Sponsored Customer. [[Page 23511]] The Exchange, through its RSA with FINRA, reviews member compliance with Supplementary Material to Rule 706, including compliance with the Market Access Rule. --------------------------------------------------------------------------- \18\ See Rule 1601. \19\ See note 15 above. --------------------------------------------------------------------------- Supplementary Material .01(b)(1) to Rule 706 requires that the Sponsored Customer and the Sponsoring Member maintain a Customer Agreement with the sponsorship provisions set forth in paragraph (2) to ensure compliance with Exchange's rules and obligations related to security, among other things. Additionally, Supplementary Material .01(b)(2)(iv) and (v) require that the Customer Agreement include the Sponsored Customer's obligation to maintain, keep current and provide to the Sponsoring Member a list of Authorized Traders who have been granted access to the Exchange on behalf of the Sponsored Customer, and provide such Authorized Traders with appropriate training prior to any use or access to the Exchange. In addition, pursuant to the Customer Agreement provisions required by Rule 706, Supplementary Material .01(b)(vii), the Sponsored Customer is obligated to take reasonable security precautions to prevent unauthorized use or access to the Exchange, including unauthorized entry of information into the Exchange's System, or the information and data made available therein. Finally, the Customer Agreement must provide that the Sponsored Customer is responsible for any and all orders, trades and other messages and instructions entered, transmitted or received under identifiers, passwords and security codes of Authorized Traders, and for the trading and other consequences thereof, including granting unauthorized access to the Exchange.\20\ The contents and the requirement for a Customer Agreement are unchanged. --------------------------------------------------------------------------- \20\ See Rule 706, Supplementary Material .01(b)(vii). --------------------------------------------------------------------------- Clean-Up Changes The Exchange proposes to correct two typographical errors in subsections (vii) and (ix) of Supplementary Material .01(b)(2) to Rule 706. First in subsection (vii), the Exchange proposes to correct a typo by replacing ``of'' with ``or'' in the first sentence. The proposed sentence would therefore state ``Sponsored Customer shall take reasonable security precautions to prevent unauthorized use or access to the Exchange . . .'' Second, subsection (ix) would be amended to correct a typo in the last portion of the first sentence. In particular, the phrase ``. . . Sponsored Customers access to and use of the Exchange'' should be ``. . . Sponsored Customer's access to and use of the Exchange.'' Both of these proposed changes are non-substantive clean-ups, and are intended to ensure that the rule text is as accurate and clear as possible. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,\21\ in general, and furthers the objectives of Section 6(b)(5) of the Act,\22\ in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest. Overall, the proposed rule change is intended to align the Exchange's sponsored access rules in Supplementary Material to Rule 706 with the Nasdaq Sponsored Access Rules, and is part of the Exchange's continued effort to promote efficiency and conformity of its processes with those of the Nasdaq Exchanges. Consistent rules and processes across the Affiliated Exchanges would in turn simplify the regulatory requirements for members of the Exchange that are also participants on the Nasdaq Exchanges. The Exchange believes that its proposal would provide greater harmonization among similar rules and procedures of the Affiliated Exchanges, resulting in greater uniformity and more efficient regulatory compliance. As such, the proposed rule change would foster cooperation and coordination with persons engaged in facilitating transactions in securities and would remove impediments to and perfect the mechanism of a free and open market and national market system. --------------------------------------------------------------------------- \21\ 15 U.S.C. 78f(b). \22\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- Defining Sponsored Access Adding a definition of Sponsored Access will assist market participants to understand the type of arrangements that are subject to Supplementary Material to Rule 706, and such clarity will serve to promote just and equitable principles of trade. The Exchange believes that adding the Sponsored Access definition will provide its members with additional guidance with respect to this Rule. Defining Customer Agreement Defining the agreement that Sponsored Customers must enter into and maintain with one or more Sponsoring Members to establish proper relationship(s) and account(s) through which the Sponsored Customer may trade on the Exchange, as a ``Customer Agreement'' will also serve to provide members with clarity on the agreement that the Exchange will continue to require and the obligations that are contained within the Customer Agreement. This amendment is non-substantive. Market Access Rule As discussed above, Exchange members will continue to be required to comply with Supplementary Material to Rule 706 and the Market Access Rule. The Exchange believes that specifically enumerating the member's responsibility to comply with the Market Access Rule within the Rule itself will provide members with additional guidance concerning the application of the Rule. This change is non-substantive as members are currently responsible for complying with the Market Access Rule. Elimination of Certain Contract Requirements Removing the requirements to submit and complete a Sponsored Customer Agreement and Addendum will remove impediments to and perfect the mechanism of a free and open market by aligning the Exchange's sponsored access rules with the Nasdaq Sponsored Access Rules, which currently do not require additional agreements for their sponsored participants other than a Customer Agreement.\23\ The Exchange believes that its proposal would create equivalent sponsored access standards and requirements among the Affiliated Exchanges and also provide clarity to its members, which is beneficial to both investors and the public interest. While elimination of the Sponsored Customer Agreement requirement will also eliminate the Exchange's contractual privity with the Sponsored Customer, the Exchange notes that any potential concerns to the loss of privity are mitigated by the Exchange's ability to restrict the Sponsored Customer's access to a port at any time it is warranted by the Sponsored Customer's trading activity. As discussed above, connectivity to the Exchange must be requested by a member of the Exchange. Such connection requires approval by the Exchange, testing and other security features as well as information sharing with the Exchange by the member. In addition, Supplementary Material .01(b)(2) to Rule 706 delineates the terms of the required contractual relationship between the Sponsoring Member and the Sponsored Customer in [[Page 23512]] the Customer Agreement, which remains in effect. The Exchange also believes that the Addendum is unnecessary in light of the fact that Sponsoring Members must request connectivity to the Exchange as well as enter into a Customer Agreement with the Sponsored Customer. Furthermore, as discussed above, the Exchange will require members to disclose the Sponsored Customer relationship as a condition to approving the member's port request to provide Sponsored Access. Finally, as is the case with other Exchange rules, the Exchange examines for compliance with Supplementary Material to Rule 706 and may request information about any customer relationship which concerns the Exchange pursuant to Rule 1601. --------------------------------------------------------------------------- \23\ See NQX Rule 4615, BX Rule 4615 and PHLX Rule 1094. --------------------------------------------------------------------------- The Exchange believes that the proposed changes to correct the two typos in subsections (vii) and (ix) of Supplementary Material .01(b)(2) to Rule 706 will add further clarification to the Exchange's Rulebook and alleviate potential confusion as to the applicability of the Exchange's rules, which will protect investors and the public interest. 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 because all members would be subject to the same sponsored access requirements, as discussed above. The proposed rule change is designed to provide greater harmonization among the sponsored access rules across the Affiliated Exchanges, resulting in more efficient regulatory compliance for common members, and is not intended to have any competitive effect. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act \24\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\25\ --------------------------------------------------------------------------- \24\ 15 U.S.C. 78s(b)(3)(A)(iii). \25\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. --------------------------------------------------------------------------- A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the Act \26\ normally does not become operative for 30 days after the date of its filing. However, Rule 19b-4(f)(6)(iii)\27\ permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Exchange represents that waiver of the operative delay would allow the Exchange to harmonize its sponsored access rule to the rules of the Nasdaq Exchanges.\28\ The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest because the proposed rule change would simplify the regulatory requirements of members of the Exchange that are also participants on the Nasdaq Exchanges. Further, the Commission does not believe that the proposed rule change raises any new or novel issues. Accordingly, the Commission hereby waives the operative delay and designates the proposal operative upon filing.\29\ --------------------------------------------------------------------------- \26\ 17 CFR 240.19b-4(f)(6). \27\ 17 CFR 240.19b-4(f)(6)(iii). \28\ See supra note 3. \29\ For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). --------------------------------------------------------------------------- At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-GEMX-2018-15 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-GEMX-2018-15. 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 website (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 website 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. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-GEMX-2018-15 and should be submitted on or before June 11, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\30\ --------------------------------------------------------------------------- \30\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-10704 Filed 5-18-18; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 83, No. 98 / Monday, May 21, 2018 / Notices 23509
proposed rule change (ICEEU–2018– II. Self-Regulatory Organization’s enter into certain agreements with the
001) be, and hereby is, approved.32 Statement of the Purpose of, and Exchange; and (4) make a number of
For the Commission, by the Division of
Statutory Basis for, the Proposed Rule related, non-substantive changes. Each
Trading and Markets, pursuant to delegated
Change change is discussed in detail as follows.
authority.33 In its filing with the Commission, the Defining Sponsored Access
Eduardo A. Aleman, Exchange included statements
A Sponsored Customer is a non-
concerning the purpose of and basis for
Assistant Secretary. member of the Exchange, such as an
the proposed rule change and discussed
[FR Doc. 2018–10710 Filed 5–18–18; 8:45 am] institutional investor, that gains access
any comments it received on the
to the Exchange 6 and trades under a
BILLING CODE 8011–01–P proposed rule change. The text of these
Sponsoring Member’s execution and
statements may be examined at the
clearing identity pursuant to a
places specified in Item IV below. The
SECURITIES AND EXCHANGE sponsorship arrangement between such
Exchange has prepared summaries, set
COMMISSION non-member and Sponsoring Member,
forth in sections A, B, and C below, of
as set forth in Supplementary Material
the most significant aspects of such
to Rule 706. The Exchange is proposing
[Release No. 34–83237; File No. SR–GEMX– statements.
to define the term ‘‘Sponsored Access’’
2018–15]
A. Self-Regulatory Organization’s to clarify the type of market access
Self-Regulatory Organizations; Nasdaq Statement of the Purpose of, and arrangement that is subject to this rule.
Statutory Basis for, the Proposed Rule Accordingly, the Exchange proposes to
GEMX, LLC; Notice of Filing and
Change amend Supplementary Material .01(a) to
Immediate Effectiveness of Proposed
Rule 706 to add the following
Rule Change To Amend 1. Purpose
definition: ‘‘Sponsored Access shall
Supplementary Material to Rule 706 To The purpose of the proposed rule mean an arrangement whereby a
Harmonize Its Sponsored Access change is to amend Supplementary Member permits its customers to enter
Rules With Those of Its Affiliates Material to Rule 706, which contains the orders into the System that bypass the
Exchange’s sponsored access rules, to Member’s trading system and are routed
May 15, 2018.
harmonize these rules with those of the directly to the Exchange, including
Pursuant to Section 19(b)(1) of the Nasdaq Exchanges.3 On March 9, 2016, routing through a service bureau or
Securities Exchange Act of 1934 the Exchange and its affiliates, other third party technology provider.’’
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 International Securities Exchange, LLC This definition mirrors the language set
notice is hereby given that on May 9, (now, Nasdaq ISE, LLC) (‘‘ISE’’) and ISE forth in the Nasdaq Sponsored Access
2018, Nasdaq GEMX, LLC (‘‘GEMX’’ or Mercury, LLC (now, Nasdaq MRX, LLC) Rules,7 and is derived from the
‘‘Exchange’’) filed with the Securities (‘‘MRX’’ and together with ISE and Commission’s description of Sponsored
and Exchange Commission GEMX, ‘‘ISE Exchanges’’), were Access used in the release approving the
(‘‘Commission’’) the proposed rule acquired by Nasdaq, Inc. Market Access Rule.8 The Exchange
change as described in Items I and II (‘‘Acquisition’’).4 In the context of the believes that defining Sponsored Access
Acquisition, the ISE Exchanges have in Supplementary Material .01(a) to
below, which Items have been prepared
been working to align certain of its rules Rule 706 will provide market
by the Exchange. The Commission is
and processes with those of the Nasdaq participants with greater clarity
publishing this notice to solicit Exchanges in order to provide regarding Sponsored Access and their
comments on the proposed rule change consistent standards across the six obligations with respect to this type of
from interested persons. exchanges owned and operated by access arrangement.
I. Self-Regulatory Organization’s Nasdaq, Inc. (collectively, ‘‘Affiliated
Exchanges’’). As part of this effort, the Defining Customer Agreement
Statement of the Terms of Substance of
the Proposed Rule Change proposal set forth below harmonizes the The Exchange proposes to amend
Exchange’s sponsored access rules with Supplementary Material .01(b)(1) to
The Exchange proposes to amend the Nasdaq Sponsored Access Rules in Rule 706 to define the agreement that
Supplementary Material to Rule 706 to order to provide uniform standards and Sponsored Customers must enter into
harmonize its sponsored access rules requirements for users of the Affiliated and maintain with one or more
with those of its affiliates, The Nasdaq Exchanges.5 Sponsoring Members to establish proper
Stock Market LLC (‘‘NQX’’), Nasdaq BX, In particular, the Exchange proposes relationship(s) and account(s) through
Inc. (‘‘BX’’) and Nasdaq PHLX LLC to (1) define the term ‘‘Sponsored
(‘‘PHLX,’’ and together with NQX and Access’’ and ‘‘Customer Agreement;’’ (2) 6 For example, a broker-dealer may allow its
specify the requirement to comply with customer—whether an institution such as a hedge
BX, ‘‘Nasdaq Exchanges’’). fund, mutual fund, bank or insurance company, an
Rule 15c3–5 under the Act (‘‘Market individual, or another broker-dealer—to use the
The text of the proposed rule change Access Rule’’); (3) remove the broker-dealer’s MPID, account or other mechanism
is available on the Exchange’s website at requirements that each Sponsored or mnemonic used to identify a market participant
http://nasdaqgemx.cchwallstreet.com/, Customer and each Sponsoring Member for the purposes of electronically accessing the
Exchange.
at the principal office of the Exchange, 7 See NQX Rule 4615(a), BX Rule 4615(a) and
and at the Commission’s Public 3 See NQX Rule 4615, BX Rule 4615 and PHLX
PHLX Rule 1094(a).
Reference Room. Rule 1094 (collectively, ‘‘Nasdaq Sponsored Access
sradovich on DSK3GMQ082PROD with NOTICES
8 The Market Access Rule, among other things,
Rules’’). requires broker-dealers providing others with access
4 See Securities Exchange Act Release No. 78119
32 In approving the proposed rule change, the
to an exchange or alternative trading system to
(June 21, 2016), 81 FR 41611 (June 27, 2016) (SR– establish, document, and maintain a system of risk
Commission considered the proposal’s impact on ISE–2016–11; SR–ISEGemini–2016–05; SR– management controls and supervisory procedures
efficiency, competition, and capital formation. 15 ISEMercury–2016–10). reasonably designed to manage the financial,
U.S.C. 78c(f). 5 ISE and MRX will each file similar rule change regulatory, and other risks of providing such access.
33 17 CFR 200.30–3(a)(12).
proposals with the Commission to harmonize their See Securities Exchange Act Release No. 63241
1 15 U.S.C. 78s(b)(1).
sponsored access rules with the Nasdaq Sponsored (November 3, 2010), 75 FR 69792 (November 15,
2 17 CFR 240.19b–4. Access Rules. 2010).
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![23512 Federal Register / Vol. 83, No. 98 / Monday, May 21, 2018 / Notices
the Customer Agreement, which 19(b)(3)(A)(iii) of the Act 24 and Comments may be submitted by any of
remains in effect. The Exchange also subparagraph (f)(6) of Rule 19b–4 the following methods:
believes that the Addendum is thereunder.25
A proposed rule change filed Electronic Comments
unnecessary in light of the fact that
Sponsoring Members must request pursuant to Rule 19b–4(f)(6) under the • Use the Commission’s internet
connectivity to the Exchange as well as Act 26 normally does not become comment form (http://www.sec.gov/
enter into a Customer Agreement with operative for 30 days after the date of its rules/sro.shtml); or
the Sponsored Customer. Furthermore, filing. However, Rule 19b–4(f)(6)(iii)27
as discussed above, the Exchange will permits the Commission to designate a • Send an email to rule-comments@
require members to disclose the shorter time if such action is consistent sec.gov. Please include File Number SR–
Sponsored Customer relationship as a with the protection of investors and the GEMX–2018–15 on the subject line.
condition to approving the member’s public interest. The Exchange has asked Paper Comments
port request to provide Sponsored the Commission to waive the 30-day
Access. Finally, as is the case with other operative delay so that the proposal may • Send paper comments in triplicate
Exchange rules, the Exchange examines become operative immediately upon to Secretary, Securities and Exchange
for compliance with Supplementary filing. The Exchange represents that Commission, 100 F Street NE,
Material to Rule 706 and may request waiver of the operative delay would Washington, DC 20549–1090.
information about any customer allow the Exchange to harmonize its
sponsored access rule to the rules of the All submissions should refer to File
relationship which concerns the Number SR–GEMX–2018–15. This file
Exchange pursuant to Rule 1601. Nasdaq Exchanges.28 The Commission
believes that waiving the 30-day number should be included on the
The Exchange believes that the subject line if email is used. To help the
proposed changes to correct the two operative delay is consistent with the
protection of investors and the public Commission process and review your
typos in subsections (vii) and (ix) of comments more efficiently, please use
Supplementary Material .01(b)(2) to interest because the proposed rule
change would simplify the regulatory only one method. The Commission will
Rule 706 will add further clarification to post all comments on the Commission’s
the Exchange’s Rulebook and alleviate requirements of members of the
Exchange that are also participants on internet website (http://www.sec.gov/
potential confusion as to the rules/sro.shtml). Copies of the
applicability of the Exchange’s rules, the Nasdaq Exchanges. Further, the
Commission does not believe that the submission, all subsequent
which will protect investors and the amendments, all written statements
public interest. proposed rule change raises any new or
novel issues. Accordingly, the with respect to the proposed rule
B. Self-Regulatory Organization’s Commission hereby waives the change that are filed with the
Statement on Burden on Competition operative delay and designates the Commission, and all written
proposal operative upon filing.29 communications relating to the
The Exchange does not believe that proposed rule change between the
At any time within 60 days of the
the proposed rule change will impose Commission and any person, other than
filing of the proposed rule change, the
any burden on competition not Commission summarily may those that may be withheld from the
necessary or appropriate in furtherance temporarily suspend such rule change if public in accordance with the
of the purposes of the Act because all it appears to the Commission that such provisions of 5 U.S.C. 552, will be
members would be subject to the same action is: (i) Necessary or appropriate in available for website viewing and
sponsored access requirements, as the public interest; (ii) for the protection printing in the Commission’s Public
discussed above. The proposed rule of investors; or (iii) otherwise in Reference Room, 100 F Street NE,
change is designed to provide greater furtherance of the purposes of the Act. Washington, DC 20549, on official
harmonization among the sponsored If the Commission takes such action, the business days between the hours of
access rules across the Affiliated Commission shall institute proceedings 10:00 a.m. and 3:00 p.m. Copies of the
Exchanges, resulting in more efficient to determine whether the proposed rule filing also will be available for
regulatory compliance for common should be approved or disapproved. inspection and copying at the principal
members, and is not intended to have office of the Exchange. All comments
any competitive effect. IV. Solicitation of Comments
received will be posted without change.
C. Self-Regulatory Organization’s Interested persons are invited to Persons submitting comments are
Statement on Comments on the submit written data, views, and cautioned that we do not redact or edit
Proposed Rule Change Received From arguments concerning the foregoing, personal identifying information from
Members, Participants, or Others including whether the proposed rule comment submissions. You should
change is consistent with the Act. submit only information that you wish
No written comments were either to make available publicly. All
solicited or received. 24 15 U.S.C. 78s(b)(3)(A)(iii). submissions should refer to File
25 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
III. Date of Effectiveness of the 4(f)(6) requires a self-regulatory organization to give
Number SR–GEMX–2018–15 and
Proposed Rule Change and Timing for the Commission written notice of its intent to file should be submitted on or before June
Commission Action the proposed rule change at least five business days 11, 2018.
prior to the date of filing of the proposed rule
Because the foregoing proposed rule change, or such shorter time as designated by the For the Commission, by the Division of
change does not: (i) Significantly affect Commission. The Exchange has satisfied this Trading and Markets, pursuant to delegated
sradovich on DSK3GMQ082PROD with NOTICES
requirement. authority.30
the protection of investors or the public 26 17 CFR 240.19b–4(f)(6).
interest; (ii) impose any significant 27 17 CFR 240.19b–4(f)(6)(iii).
Eduardo A. Aleman,
burden on competition; and (iii) become 28 See supra note 3. Assistant Secretary.
operative for 30 days from the date on 29 For purposes only of waiving the 30-day [FR Doc. 2018–10704 Filed 5–18–18; 8:45 am]
which it was filed, or such shorter time operative delay, the Commission has also BILLING CODE 8011–01–P
considered the proposed rule’s impact on
as the Commission may designate, it has efficiency, competition, and capital formation. See
become effective pursuant to Section 15 U.S.C. 78c(f). 30 17 CFR 200.30–3(a)(12).
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Document Created: 2018-11-02 11:07:26
Document Modified: 2018-11-02 11:07:26
| 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 | 83 FR 23509 |
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