[Federal Register Volume 77, Number 112 (Monday, June 11, 2012)]
[Notices]
[Pages 34422-34424]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-14078]
[[Page 34422]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67138; File No. SR-CHX-2012-10]
Self-Regulatory Organizations; Chicago Stock Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change to Temporarily Suspend the Requirements of CHX Article 3,
Rule 3 and Related CHX Rules in Order to Approve Apex Clearing
Corporation as a CHX Participant and Trading Permit Holder
June 5, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on June 5, 2012, the Chicago Stock Exchange, Incorporated
(``Exchange'' or ``CHX'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I and II below, which Items have been prepared by the
Exchange. The Exchange filed the proposal as a ``non-controversial''
proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act
\3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal
effective upon receipt of this filing by the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to temporarily suspend the requirements of
CHX Article 3, Rule 3 and related CHX rules concerning the approval of
new Participants and Trading Permit holders (``TPHs'') in order to
approve Apex Clearing Corporation, f/k/a Ridge Clearing and Outsourcing
Solutions, Inc. (``Apex Clearing''), as a CHX Participant and TPH. The
text of this proposed rule change is available on the Exchange's Web
site at (www.chx.com), at the Exchange's Office of the Secretary and in
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 CHX included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received regarding the proposal. The text of
these statements may be examined at the places specified in Item IV
below. The CHX 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
Through this rule filing, CHX proposes to temporarily suspend the
requirements of CHX Article 3, Rule 3 and related rules as it pertains
to the application approval process of a CHX Participant \5\ and TPH
\6\ in order to immediately approve Apex Clearing.\7\ The Exchange
proposes this temporary suspension on an emergency basis to ensure that
Apex Clearing can continue the clearing and execution operations of
Penson Financial Services Inc. (``PFSI'') without unnecessary
disruption and to limit any significant collateral impact to a number
of other CHX Participants. The proposed temporary suspension is
contingent upon Apex Clearing having complied with all Exchange rules
related to new Participant and TPH applicants within 30 calendar days
of the date Apex Clearing is provisionally approved as a Participant
and TPH pursuant to this filing.
---------------------------------------------------------------------------
\5\ A ``Participant'' means any Participant Firm that holds a
valid CHX Trading Permit and any person associated with a
Participant Firm who is registered with the Exchange under Articles
16 and 17 as a Market Maker Trader or Institutional Broker
Representative, respectively. A Participant shall be considered a
``member'' of the Exchange for purposes of the Exchange Act. If a
Participant is not a natural person, the Participant may also be
referred to as a ``Participant Firm,'' but unless the context
requires otherwise, the term Participant shall refer to an
individual Participant and/or a Participant Firm (See CHX Article 1,
Rule 1(s)).
\6\ A ``Trading Permit'' means a permit issued by the Exchange,
granting the holder a revocable license to execute approved
securities transactions through the Exchange's Trading Facilities,
or to have those transactions executed on its behalf (See CHX
Article 1, Rule 1(aa)).
\7\ Pursuant to CHX rules, each clearing firm must be a
Participant of the Exchange (See CHX Article 21, Rule 1(b)).
---------------------------------------------------------------------------
On May 31, 2012, Apex Clearing Holdings, LLC (``Apex Holdings''),
Apex Clearing Solutions, Broadridge Financial Solutions, Inc.
(``Broadridge''), PFSI and Penson Worldwide, Inc. (``PWI'') (together,
the ``Parties'') consummated a transaction resulting in a change in
ownership of Apex Clearing.\8\ Broadridge, Apex Holdings, PWI and PFSI
each made capital investments in Apex Holdings, the holding company
parent of Apex Clearing. PFSI also assigned all of its U.S. clearing
contracts and all customer and introducing broker proprietary accounts
along with key personnel to Apex Clearing (the ``Transferring
Accounts'').\9\
---------------------------------------------------------------------------
\8\ Prior to the Transaction, Apex Clearing's name was Ridge
Clearing & Outsourcing Solutions, Inc. Prior to the transaction,
Ridge Clearing & Outsourcing Solutions, Inc. contributed its
outsourcing operations and all associated personnel and systems to
its affiliated entity, Broadridge Securities Processing Solutions,
LLC (``BSPS'') where it will continue to provide operations support
and outsourcing services to a number of broker-dealers, including
Apex Clearing.
\9\ See Penson Worldwide, Inc. Form 8-K dated May 31, 2012.
---------------------------------------------------------------------------
As a result of the transaction, Apex Clearing, which is not a CHX
Participant and TPH, will provide the clearing and execution services
currently provided to the Transferring Accounts by PFSI. On May 31,
2012, Apex Clearing submitted an application for approval as a CHX
Participant and TPH. However, because of the expedited nature of the
transaction, Apex Clearing was unable to fully comply with CHX Article
3, Rule 3 and related new Participant/TPH rules. Because of the need
for seamless continuity with respect to the Transferring Accounts, Apex
Clearing has requested that the Exchange temporarily suspend its new
Participant/TPH rules in order to enable Apex Clearing's approval as a
Participant Firm and TPH on an expedited basis. Pursuant to its
request, Apex Clearing will fully comply with the Exchange's new
Participant/TPH requirements within 30 calendar days after provisional
approval.
CHX Article 3, Rule 3 requires that an application for a new
Participant and TPH be made in writing and filed with the Exchange. As
part of the process, applications must be made in accordance with
Article 3, Rule 3, and the applicant must provide, among other things,
the following:
Written Application for Registration
Cover Letter: Indicating how and what the TPH will be used
for, signed by a principal officer, general partner, or managing member
of the firm.
For Partnerships: Executed or certified copy of
Partnership Agreement and all amendments thereto.
For Corporations: Copy of Articles of Incorporation, and
all amendments thereto, certified by the corporation's secretary; copy
of By-Laws, and all amendments thereto, certified by the corporation's
secretary; and certified copy of resolution authorizing registration of
the corporation as a Participant.
[[Page 34423]]
For Limited Liability Companies: Operation Agreement and
Articles of Organization or Certificate of Formation.
For all Applicants: Current executed Statement of
Financial Condition and attached balance sheet pursuant to SEC Exchange
Act Rule 15b1-2; Copies of FOCUS Part II or Part IIA Reports for the
most recent 6 month period; Copy of most recent Confidential Annual CPA
Audit prepared by firm's independent accountant; Executed copy of 15b1-
2 Information Sheet, Designation of Recipient For Service of Notice,
Executed and notarized copy of Form BD (SEC registration statement),
and amendments; names of subordinated lenders, if any; complete Forms
U-4 for all general partners, members of principal officers of
designated members (only page 2 of form U-4 for members designated to
other SRO's).
If CHX is not the DEA for the Applicant: A copy of letter
from the Applicant to their DEA, granting the DEA permission to provide
information to the CHX, pursuant to their application for a trading
permit.
If Applicant is a FINRA Member: A copy of the FINRA
Membership Agreement.
In addition, the Exchange reviews whether the applicant meets
federal and CHX capital requirements and whether it has adopted
controls and procedures to comply with Exchange rules.
Due to the amount of information an applicant is generally required
to provide and have completed prior to being approved as a Participant
and TPH, the application approval process generally takes a few weeks
to complete. The length of time varies based on the timing of the
applicant's response to requests for information and documentation.
As proposed, Apex Clearing will continue the clearing and execution
operations of PFSI as of the open of trading on June 6, 2012. In order
to avoid interruption of these services PFSI currently provides, CHX
believes that Apex Clearing should be approved immediately as a CHX
Participant and TPH. The Exchange therefore proposes providing Apex
Clearing with a temporary suspension of CHX Article 3, Rule 3 and other
relevant rules as they relate to approval to operate as a CHX
Participant and TPH and immediately approve Apex Clearing as a
Participant and TPH. As proposed this temporary suspension is
contingent upon:
Apex Clearing providing the Exchange with sufficient
information to confirm that Apex Clearing will meet its capital
requirements as a CHX Participant and TPH; and
Within 30 calendar days of Apex Clearing's approval as a
Participant and TPH under this proposed filing, Apex Clearing and its
approved persons will have complied with the Exchange's new
Participant/TPH application rules and policies.
As proposed, if Apex Clearing does not comply with all applicable
CHX Participant/TPH requirements within the aforementioned 30-day
timeframe, its status as an approved CHX Participant and TPH will no
longer be effective.
In addition, the Exchange proposes to permit Apex Clearing to
assume all existing clearing agreements and arrangements currently in
effect with other CHX Participants by execution of global agreements
thereto. Notice of such assumption will be provided to the impacted
Participants through the issuance of CHX Information Memorandums prior
to the effective date thereof.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) \10\ of the Securities Exchange Act of 1934 (the ``Act''),
in general, and furthers the objectives of Section 6(b)(5) \11\ in
particular in that it is designed to promote just and equitable
principles of trade, to prevent fraudulent and manipulative acts, to
remove impediments to and to perfect the mechanism for a free and open
market and a national market system and, in general, to protect
investors and the public interest. The Exchange believes that
permitting the expeditious approval of Apex Clearing as a CHX
Participant and TPH will, among other things, avoid interruption of the
services PFSI currently provides to other Exchange Participants. Based
on information and representations provided by Apex Clearing, a
temporary suspension of certain CHX Participant/TPH application rules
is necessary based on the expedited nature of the transaction to ensure
a seamless continuity with respect to the transferring accounts.
Consequently, CHX believes a temporary suspension of its Participant/
TPH application rule requirements so that Apex Clearing can be approved
immediately as CHX Participant and TPH will help foster cooperation and
coordination with persons engaged in facilitating transactions in
securities and is consistent with the Act.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f(b).
\11\ 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 that is not necessary or appropriate
in furtherance of the purposes of the Act.
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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \12\ and Rule 19b-4(f)(6) thereunder.\13\
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 \14\ and Rule 19b-
4(f)(6)(iii) thereunder.\15\
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78s(b)(3)(A)(iii).
\13\ 17 CFR 240.19b-4(f)(6).
\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) 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 Commission is waiving this five-day pre-filing
requirement.
---------------------------------------------------------------------------
A proposed rule change filed under Rule 19b-4(f)(6) \16\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\17\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest.
---------------------------------------------------------------------------
\16\ 17 CFR 240.19b-4(f)(6).
\17\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------
The Exchange has asked the Commission to waive the five-day pre-
filing requirement and the 30-day operative delay so that the proposed
rule change may become operative immediately upon filing. The
Commission notes that the Exchange is proposing that certain of its
rules relating to membership requirements be temporarily suspended so
that Apex Clearing can be provisionally approved
[[Page 34424]]
as a CHX Participant and TPH. The proposed relief does not exempt Apex
Clearing from Exchange rule requirements governing Participants and
TPHs. Apex Clearing would have a 30 calendar day grace period within
which to apply for and be approved under relevant Exchange rules.
Moreover, the Commission believes that waiver of the 30-day operative
delay is appropriate to ensure a smooth transition of PFSI operations
to Apex Clearing. In particular, given the rapidity with which events
have developed, waiver of the 30-day operative delay is necessary to
avoid significant disruption to PFSI's existing customers and the
market generally. Therefore, the Commission believes that waiving the
30-day operative delay is consistent with the protection of investors
and the public interest and designates the proposed rule change as
operative upon filing.\18\
---------------------------------------------------------------------------
\18\ For purposes only of waiving the 30-day operative delay,
the Commission has 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 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 to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CHX-2012-10 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-CHX-2012-10. 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-CHX-2012-10 and should be
submitted on or before July 2, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
---------------------------------------------------------------------------
\19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-14078 Filed 6-8-12; 8:45 am]
BILLING CODE 8011-01-P