83 FR 23517 - Self-Regulatory Organizations; Nasdaq ISE, 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 | 23517-23520 | |
| FR Document | 2018-10705 |
[Federal Register Volume 83, Number 98 (Monday, May 21, 2018)] [Notices] [Pages 23517-23520] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-10705] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-83238; File No. SR-ISE-2018-44] Self-Regulatory Organizations; Nasdaq ISE, 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 ISE, LLC (``ISE'' 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://ise.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, ISE Gemini, LLC (now, Nasdaq GEMX, LLC) (``GEMX'') 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\ GEMX 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 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 [[Page 23518]] 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. ISE will similarly require members requesting connectivity to ISE 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 ISE'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. 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 [[Page 23519]] 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 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 [[Page 23520]] 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. --------------------------------------------------------------------------- Clean-Up Changes 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-ISE-2018-44 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-ISE-2018-44. 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-ISE-2018-44 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. 2018-10705 Filed 5-18-18; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 83, No. 98 / Monday, May 21, 2018 / Notices 23517
For the Commission, by the Division of statements may be examined at the Sponsoring Member’s execution and
Trading and Markets, pursuant to delegated places specified in Item IV below. The clearing identity pursuant to a
authority.13 Exchange has prepared summaries, set sponsorship arrangement between such
Eduardo A. Aleman, forth in sections A, B, and C below, of non-member and Sponsoring Member,
Assistant Secretary. the most significant aspects of such as set forth in Supplementary Material
[FR Doc. 2018–10707 Filed 5–18–18; 8:45 am] statements. to Rule 706. The Exchange is proposing
BILLING CODE 8011–01–P to define the term ‘‘Sponsored Access’’
A. Self-Regulatory Organization’s
to clarify the type of market access
Statement of the Purpose of, and
arrangement that is subject to this rule.
Statutory Basis for, the Proposed Rule
SECURITIES AND EXCHANGE Accordingly, the Exchange proposes to
Change
COMMISSION amend Supplementary Material .01(a) to
1. Purpose Rule 706 to add the following
[Release No. 34–83238; File No. SR–ISE–
2018–44] The purpose of the proposed rule definition: ‘‘Sponsored Access shall
change is to amend Supplementary mean an arrangement whereby a
Self-Regulatory Organizations; Nasdaq Material to Rule 706, which contains the Member permits its customers to enter
ISE, LLC; Notice of Filing and Exchange’s sponsored access rules, to orders into the System that bypass the
Immediate Effectiveness of Proposed harmonize these rules with those of the Member’s trading system and are routed
Rule Change To Amend Nasdaq Exchanges.3 On March 9, 2016, directly to the Exchange, including
Supplementary Material to Rule 706 To the Exchange and its affiliates, ISE routing through a service bureau or
Harmonize Its Sponsored Access Gemini, LLC (now, Nasdaq GEMX, LLC) other third party technology provider.’’
Rules With Those of Its Affiliates (‘‘GEMX’’) and ISE Mercury, LLC (now, This definition mirrors the language set
Nasdaq MRX, LLC) (‘‘MRX’’ and forth in the Nasdaq Sponsored Access
May 15, 2018. Rules,7 and is derived from the
together with ISE and GEMX, ‘‘ISE
Pursuant to Section 19(b)(1) of the Exchanges’’), were acquired by Nasdaq, Commission’s description of Sponsored
Securities Exchange Act of 1934 Inc. (‘‘Acquisition’’).4 In the context of Access used in the release approving the
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 the Acquisition, the ISE Exchanges have Market Access Rule.8 The Exchange
notice is hereby given that on May 9, been working to align certain of its rules believes that defining Sponsored Access
2018, Nasdaq ISE, LLC (‘‘ISE’’ or and processes with those of the Nasdaq in Supplementary Material .01(a) to
‘‘Exchange’’) filed with the Securities Exchanges in order to provide Rule 706 will provide market
and Exchange Commission consistent standards across the six participants with greater clarity
(‘‘Commission’’) the proposed rule exchanges owned and operated by regarding Sponsored Access and their
change as described in Items I and II Nasdaq, Inc. (collectively, ‘‘Affiliated obligations with respect to this type of
below, which Items have been prepared Exchanges’’). As part of this effort, the access arrangement.
by the Exchange. The Commission is proposal set forth below harmonizes the Defining Customer Agreement
publishing this notice to solicit Exchange’s sponsored access rules with
comments on the proposed rule change The Exchange proposes to amend
the Nasdaq Sponsored Access Rules in
from interested persons. Supplementary Material .01(b)(1) to
order to provide uniform standards and
Rule 706 to define the agreement that
I. Self-Regulatory Organization’s requirements for users of the Affiliated
Sponsored Customers must enter into
Statement of the Terms of Substance of Exchanges.5
In particular, the Exchange proposes and maintain with one or more
the Proposed Rule Change Sponsoring Members to establish proper
to (1) define the term ‘‘Sponsored
The Exchange proposes to amend Access’’ and ‘‘Customer Agreement;’’ (2) relationship(s) and account(s) through
Supplementary Material to Rule 706 to specify the requirement to comply with which the Sponsored Customer may
harmonize its sponsored access rules Rule 15c3–5 under the Act (‘‘Market trade on the Exchange, as a ‘‘Customer
with those of its affiliates, The Nasdaq Access Rule’’); (3) remove the Agreement.’’ 9
Stock Market LLC (‘‘NQX’’), Nasdaq BX, requirements that each Sponsored Market Access Rule
Inc. (‘‘BX’’) and Nasdaq PHLX LLC Customer and each Sponsoring Member
(‘‘PHLX,’’ and together with NQX and Pursuant to Supplementary Material
enter into certain agreements with the .01(b)(2) to Rule 706, the Sponsoring
BX, ‘‘Nasdaq Exchanges’’). Exchange; and (4) make a number of
The text of the proposed rule change Member is responsible for the activities
related, non-substantive changes. Each
is available on the Exchange’s website at change is discussed in detail as follows. fund, mutual fund, bank or insurance company, an
http://ise.cchwallstreet.com/, at the individual, or another broker-dealer—to use the
principal office of the Exchange, and at Defining Sponsored Access
broker-dealer’s MPID, account or other mechanism
the Commission’s Public Reference A Sponsored Customer is a non- or mnemonic used to identify a market participant
Room. member of the Exchange, such as an for the purposes of electronically accessing the
Exchange.
institutional investor, that gains access
II. Self-Regulatory Organization’s 7 See NQX Rule 4615(a), BX Rule 4615(a) and
to the Exchange 6 and trades under a PHLX Rule 1094(a).
Statement of the Purpose of, and
8 The Market Access Rule, among other things,
Statutory Basis for, the Proposed Rule 3 See NQX Rule 4615, BX Rule 4615 and PHLX requires broker-dealers providing others with access
Change Rule 1094 (collectively, ‘‘Nasdaq Sponsored Access to an exchange or alternative trading system to
In its filing with the Commission, the Rules’’). establish, document, and maintain a system of risk
4 See Securities Exchange Act Release No. 78119 management controls and supervisory procedures
sradovich on DSK3GMQ082PROD with NOTICES
Exchange included statements (June 21, 2016), 81 FR 41611 (June 27, 2016) (SR– reasonably designed to manage the financial,
concerning the purpose of and basis for ISE–2016–11; SR–ISEGemini-2016–05; SR– regulatory, and other risks of providing such access.
the proposed rule change and discussed ISEMercury–2016–10). See Securities Exchange Act Release No. 63241
any comments it received on the 5 GEMX and MRX will each file similar rule (November 3, 2010), 75 FR 69792 (November 15,
change proposals with the Commission to 2010).
proposed rule change. The text of these harmonize their sponsored access rules with the 9 The Nasdaq Sponsored Access Rules also
Nasdaq Sponsored Access Rules. similarly define ‘‘Customer Agreement.’’ See NQX
1 15 U.S.C. 78s(b)(1). 6 For example, a broker-dealer may allow its Rule 4615(b)(i), BX Rule 4615(b)(i) and PHLX Rule
2 17 CFR 240.19b–4. customer—whether an institution such as a hedge 1094(b)(i).
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![23520 Federal Register / Vol. 83, No. 98 / Monday, May 21, 2018 / Notices
require members to disclose the A proposed rule change filed • Send an email to rule-comments@
Sponsored Customer relationship as a pursuant to Rule 19b–4(f)(6) under the sec.gov. Please include File Number SR–
condition to approving the member’s Act 26 normally does not become ISE–2018–44 on the subject line.
port request to provide Sponsored operative for 30 days after the date of its
Access. Finally, as is the case with other filing. However, Rule 19b–4(f)(6)(iii) 27 Paper Comments
Exchange rules, the Exchange examines permits the Commission to designate a • Send paper comments in triplicate
for compliance with Supplementary shorter time if such action is consistent
to Secretary, Securities and Exchange
Material to Rule 706 and may request with the protection of investors and the
Commission, 100 F Street NE,
information about any customer public interest. The Exchange has asked
relationship which concerns the the Commission to waive the 30-day Washington, DC 20549–1090.
Exchange pursuant to Rule 1601. operative delay so that the proposal may All submissions should refer to File
become operative immediately upon Number SR–ISE–2018–44. This file
Clean-Up Changes
filing. The Exchange represents that number should be included on the
The Exchange believes that the waiver of the operative delay would subject line if email is used. To help the
proposed changes to correct the two allow the Exchange to harmonize its Commission process and review your
typos in subsections (vii) and (ix) of sponsored access rule to the rules of the
Supplementary Material .01(b)(2) to comments more efficiently, please use
Nasdaq Exchanges.28 The Commission only one method. The Commission will
Rule 706 will add further clarification to believes that waiving the 30-day
the Exchange’s Rulebook and alleviate post all comments on the Commission’s
operative delay is consistent with the
potential confusion as to the internet website (http://www.sec.gov/
protection of investors and the public
applicability of the Exchange’s rules, interest because the proposed rule rules/sro.shtml). Copies of the
which will protect investors and the change would simplify the regulatory submission, all subsequent
public interest. requirements of members of the amendments, all written statements
Exchange that are also participants on with respect to the proposed rule
B. Self-Regulatory Organization’s
the Nasdaq Exchanges. Further, the change that are filed with the
Statement on Burden on Competition
Commission does not believe that the Commission, and all written
The Exchange does not believe that proposed rule change raises any new or communications relating to the
the proposed rule change will impose novel issues. Accordingly, the proposed rule change between the
any burden on competition not Commission hereby waives the Commission and any person, other than
necessary or appropriate in furtherance operative delay and designates the those that may be withheld from the
of the purposes of the Act because all proposal operative upon filing.29 public in accordance with the
members would be subject to the same At any time within 60 days of the provisions of 5 U.S.C. 552, will be
sponsored access requirements, as filing of the proposed rule change, the available for website viewing and
discussed above. The proposed rule Commission summarily may printing in the Commission’s Public
change is designed to provide greater temporarily suspend such rule change if
harmonization among the sponsored Reference Room, 100 F Street NE,
it appears to the Commission that such Washington, DC 20549, on official
access rules across the Affiliated action is: (i) Necessary or appropriate in
Exchanges, resulting in more efficient business days between the hours of
the public interest; (ii) for the protection
regulatory compliance for common 10:00 a.m. and 3:00 p.m. Copies of the
of investors; or (iii) otherwise in
members, and is not intended to have furtherance of the purposes of the Act. filing also will be available for
any competitive effect. If the Commission takes such action, the inspection and copying at the principal
Commission shall institute proceedings office of the Exchange. All comments
C. Self-Regulatory Organization’s received will be posted without change.
Statement on Comments on the to determine whether the proposed rule
should be approved or disapproved. Persons submitting comments are
Proposed Rule Change Received From cautioned that we do not redact or edit
Members, Participants, or Others IV. Solicitation of Comments personal identifying information from
No written comments were either Interested persons are invited to comment submissions. You should
solicited or received. submit written data, views, and submit only information that you wish
III. Date of Effectiveness of the arguments concerning the foregoing, to make available publicly. All
Proposed Rule Change and Timing for including whether the proposed rule submissions should refer to File
Commission Action change is consistent with the Act. Number SR–ISE–2018–44 and should be
Comments may be submitted by any of submitted on or before June 11, 2018.
Because the foregoing proposed rule the following methods:
change does not: (i) Significantly affect For the Commission, by the Division of
the protection of investors or the public Electronic Comments Trading and Markets, pursuant to delegated
interest; (ii) impose any significant • Use the Commission’s internet authority.30
burden on competition; and (iii) become comment form (http://www.sec.gov/ Eduardo A. Aleman,
operative for 30 days from the date on rules/sro.shtml); or Assistant Secretary.
which it was filed, or such shorter time [FR Doc. 2018–10705 Filed 5–18–18; 8:45 am]
as the Commission may designate, it has prior to the date of filing of the proposed rule
change, or such shorter time as designated by the BILLING CODE 8011–01–P
become effective pursuant to Section
Commission. The Exchange has satisfied this
19(b)(3)(A)(iii) of the Act 24 and
sradovich on DSK3GMQ082PROD with NOTICES
requirement.
subparagraph (f)(6) of Rule 19b–4 26 17 CFR 240.19b–4(f)(6).
thereunder.25 27 17 CFR 240.19b–4(f)(6)(iii).
28 See supra note 3.
24 15 U.S.C. 78s(b)(3)(A)(iii). 29 For purposes only of waiving the 30-day
25 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– operative delay, the Commission has also
4(f)(6) requires a self-regulatory organization to give considered the proposed rule’s impact on
the Commission written notice of its intent to file efficiency, competition, and capital formation. See
the proposed rule change at least five business days 15 U.S.C. 78c(f). 30 17 CFR 200.30–3(a)(12).
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Document Created: 2018-11-02 11:07:39
Document Modified: 2018-11-02 11:07:39
| 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 23517 |
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