[Federal Register Volume 78, Number 95 (Thursday, May 16, 2013)]
[Notices]
[Pages 28924-28926]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-11623]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69552; File No. SR-CHX-2013-09]
Self Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Amending Rule Governing the Anti-Money Laundering Compliance Program
May 10, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given
that on May 2, 2013, the Chicago Stock Exchange, Inc. (``CHX'' or the
``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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CHX proposes to amend its Anti-Money Laundering Compliance Program
(the ``AMLCP''), effective May 2, 2013. The proposed rule change would
clarify the frequency with which a Participant Firm must conduct
independent testing of its AMLCP and would establish the qualifications
of the person designated to perform AMLCP testing as well as provide
guidelines for establishing the independence of the person performing
the test. The text of this proposed rule change is available on the
Exchange's Web site at http://www.chx.com/rules/proposed_rules.htm, 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, CHX 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 Changes
1. Purpose
Financial institutions, including broker-dealers, must develop and
implement Anti-Money Laundering (``AML'') programs pursuant to the Bank
Secrecy Act (``BSA''),\3\ as amended by Section 352 of the Uniting and
Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001 (``PATRIOT Act'').\4\
Consistent with Department of Treasury regulation 31 CFR 103.120 under
the BSA, Exchange Article 6, Rule 12 requires that each Participant
Firm develop and implement a written AMLCP that specifies the minimum
requirement for these programs.
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\3\ 31 U.S.C. 5311 et seq.
\4\ Public Law 107-56, 115 Stat. 272 (2001).
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The AMLCP must include the development of internal policies,
procedures and controls; the designation of a person to implement and
monitor the day-to-day operations and internal controls of the program
[[Page 28925]]
(commonly referred to as an ``AML Officer''); ongoing training for
appropriate persons; and an independent testing function for overall
compliance.
The Exchange proposes to change CHX Article 6, Rule 12 to clarify
the language governing the frequency with which a Participant Firm must
conduct independent testing of its AMLCP. Additionally, the Exchange
proposes to add a new interpretation and policy to Article 6, Rule 12
that establishes qualifications of the person designated to perform
AMLCP testing and guidelines for establishing the independence of the
person performing the test.
Timeframes for Independent Testing
The proposed rule change would require that independent testing of
AMLCPs be conducted, at a minimum, on an annual (calendar-year) basis
by Participant Firms, unless the Participant Firm does not execute
transactions for customers or otherwise hold customer accounts or act
as an introducing broker with respect to customer accounts (e.g.,
engages solely in proprietary trading, or conducts business only with
other broker-dealers), in which case such independent testing is
required every two years (on a calendar-year basis). The Exchange
believes that these timeframes are reasonable in that they require more
frequent testing of AMLCPs designed to monitor a business with
customers from the general public, which may be more susceptible to
money laundering schemes than a strictly proprietary business involving
transactions with other broker-dealers. Furthermore, the one-year time
frame for testing is consistent with standard industry practice in that
it is similar to generally accepted guidelines for conducting tests in
the context of, for instance, general audits and branch office visits.
The proposed rule change establishes only a minimum requirement, and
makes clear that Participants should undertake more frequent testing
when circumstances warrant (e.g., should the business mix of the
Participant or Participant Firm materially change; in the event of a
merger or acquisition; in light of systemic weaknesses uncovered via
testing of the AMLCP; or in response to other ``red flags'').
Qualification and Independence Standards for Testing
Additionally, the Exchange proposes to add interpretations and
policies .01 to Article 6, Rule 12 in order to establish qualifications
for the person designated to perform AMLCP testing as well as
guidelines for establishing the independence of the person performing
the test. The proposed rule change would require the person conducting
the independent test to have a working knowledge of the applicable BSA
requirements and related regulations. Such person need not be an
employee of the Participant or Participant Firm since the
responsibility being delegated is essentially an auditing function and,
as such, it would not be unusual or ineffective for it to be performed
by an independent outside party.
The proposed rule change does not preclude an employee of the
Participant or Participant Firm from conducting the required
independent testing of the AMLCP; however the proposed ``independence''
standard would prohibit testing from being conducted by a person who
performs the functions being tested, or by the designated AML Officer,
or by a person that reports to either.
AML Officer
The proposed rule change would also clarify that the person
responsible for implementing and monitoring the day-to-day operations
and controls of the program must be an associated person of the
Participant. This would not prohibit a Participant that is part of a
diversified financial institution from designating an AML Officer that
is employed by the Participant's parent company, sister company, or
other affiliate. However, if such a person is designated as a
Participant's AML Officer, the Exchange will consider that person to be
an associated person of the Participant with respect to those
activities performed on behalf of the Participant.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \5\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \6\ in particular, in that it
is designed to prevent fraudulent and manipulative practices, to
promote just and equitable principles of trade, to remove impediments
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. The Exchange believes that the proposed rule change is
designed to accomplish these ends by requiring Participants to conduct
periodic tests of their AMLCPs and preserve the independence of their
testing personnel.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization 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. The rule change is designed
to implement the amended AML policy in an equitable and non-
discriminatory way, and in furtherance of the Bank Secrecy Act. The
rule change requires Participant Firms that execute trades for
customers or hold customer accounts conduct AML testing on an annual
basis while other Participant Firms that engage solely in proprietary
trading, or conduct business only with other broker-dealers may conduct
an AML test on a biennial basis. However, the Exchange believes that
the rule change does not impose a disparate burden on competition
either among or between classes of market participants. The Exchange
believes that these timeframes are reasonable in that they require more
frequent testing of AMLCP designed to monitor a business with customers
from the general public, which may be more susceptible to money
laundering schemes than a strictly proprietary business involving
transactions with other broker-dealers.
In addition, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues. In such an environment, the Exchange must continually
review its rules to remain competitive with other exchanges. For the
reasons described above, the Exchange believes that the proposed rule
change promotes a competitive environment by clearly outlining
Participant Firms' obligations for AML testing while protecting
investors with defined AML oversight in the specified scenarios.
C. Self-Regulatory Organization's Statement on Comments Regarding the
Proposed Rule Changes Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Changes and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A) \7\ of the Act and Rule 19b-4(f)(6) thereunder.\8\ Because
the
[[Page 28926]]
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, if consistent with the protection of investors and the
public interest, the proposed rule change has become effective pursuant
to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.
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\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to provide the Commission with written notice
of its intent to file the proposed rule change, along with a brief
description and text of 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.
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A proposed rule change filed under Rule 19b-4(f)(6) \9\ normally
does not become operative for 30 days after the date of filing.
However, pursuant to Rule 19b-4(f)(6)(iii) \10\ the Commission may
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.
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\9\ 17 CFR 240.19b-4(f)(6).
\10\ 17 CFR 240.19b-4(f)(6)(iii).
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The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest, as
it will allow the Exchange to immediately begin requiring Participants
to conduct periodic tests of their AMLCP and preserve the independence
of their testing personnel, and by making the Exchange's program
requirements generally consistent with those at other exchanges and
self-regulatory organizations.\11\ For these reasons, the Commission
designates the proposed rule change to be operative upon filing.\12\
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\11\ See e.g., NYSE Arca Equities Rule 6.17, CBOE Rule 4.20 and
FINRA Rule 3310.
\12\ For purposes 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).
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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.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposal 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 No. SR-CHX-2013-09 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-2013-09. 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 Section, 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 will also be available
for inspection and copying at the CHX's principal office and on its
Internet Web site at www.chx.com. 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-2013-09 and
should be submitted on or before June 6, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-11623 Filed 5-15-13; 8:45 am]
BILLING CODE 8011-01-P