[Federal Register Volume 79, Number 237 (Wednesday, December 10, 2014)]
[Notices]
[Pages 73372-73375]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-28908]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73746; File No. SR-EDGA-2014-28]
Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change to Rule
14.1(c)(5) of EDGA Exchange, Inc. To Harmonize Its Restrictions on
Market Makers in UTP Derivative Securities With NYSE Arca, Inc. and
Nasdaq Stock Market LLC
December 4, 2014.
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 November 21, 2014, EDGA Exchange, Inc. (the ``Exchange'' or
``EDGA'') 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 Exchange
has designated this proposal as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A) of the
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Act \3\ and Rule 19b-4(f)(6)(iii) thereunder,\4\ which renders it
effective upon filing with the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to amend Rule 14.1(c)(5) to harmonize
its restrictions on Market Makers \5\ in UTP Derivative Securities \6\
with NYSE Arca, Inc. (``NYSE Arca'') Rule 5.1(a)(2)(v) \7\ and the
Nasdaq Stock Market LLC (``Nasdaq'') Rule 4630(e).\8\
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\5\ The term ``Market Maker'' is defined as ``a Member that acts
as a Market Maker pursuant to Chapter XI.'' See Exchange Rule
1.5(l).
\6\ The term ``UTP Derivative Security'' is defined as ``[a]ny
UTP Security that is a `new derivative securities product' as
defined in Rule 19b-4(e) under the Exchange Act . . . and traded
pursuant to Rule 19b-4(e) under the Exchange Act.'' See Exchange
Rule 14.1(c).
\7\ See Securities Exchange Act Release No. 67066 (May 29,
2012), 77 FR 33010 (June 4, 2012) (SR-NYSEArca-2012-46) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Regarding
the Extension of Unlisted Trading Privileges to New Derivative
Securities Products That Are Listed on Another Exchange and to Make
Other Conforming and Technical Amendments). The Commission also
waived the 30-day operative delay for SR-NYSEArca-2012-46 under Rule
19b-4(f)(6) of the Act. Id.
\8\ See Securities Exchange Act Release No. 69858 (June 25,
2013), 78 FR 39432 (July 1, 2013) (SR-Nasdaq-2013-085) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change [sic]
Rule 4630 to Remove a Restriction on a Member Acting as a Registered
Market Maker in a Commodity-Related Security).
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The text of the proposed rule change is available at the Exchange's
Web site at http://www.directedge.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 parts of such
statements.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 14.1(c)(5) to harmonize its
restrictions on Market Makers in UTP Derivative Securities with NYSE
Arca Rule 5.1(a)(2)(v) \9\ and Nasdaq Rule 4630(e).\10\ The purpose of
the proposed rule change is to permit a Member acting as a registered
Market Maker in a UTP Derivative Security on the Exchange the
flexibility to act or register as a market maker in any Reference Asset
\11\ that a UTP Derivative Security derives its value from consistent
with Commission and Exchange Rules.
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\9\ See supra note 7.
\10\ See supra note 8.
\11\ A ``Reference Asset'' is defined as one or more currencies,
or commodities, or derivatives based on one or more currencies, or
commodities, or is based on a basket or index comprised of
currencies or commodities that a UTP Derivative Security derives its
value from. See Exchange Rule 14.1(c)(5).
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Exchange Rule 14.1(c)(5) prohibits a Market Maker in a UTP
Derivative Security from acting or registering as a market maker on
another exchange in any Reference Asset of that UTP Derivative
Security, or any derivative instrument based on a Reference Asset of
that UTP Derivative Security. NYSE Arca Rule 5.1(a)(2)(v) and Nasdaq
Rule 4630(e) recently amended their respective rules to permit market
makers to trade in securities underlying the derivative security so
long as that market maker discloses to NYSE Arca or Nasdaq all accounts
within which it trades the underlying securities.\12\ As amended,
Exchange Rule 14.1(c)(5), would similarly remove this prohibition,
which states that a Market Maker in a UTP Derivative Security is
prohibited from acting or registering as a market maker on another
exchange in any Related Instruments.
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\12\ See supra notes 7 and 8.
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Similar to NYSE Arca Rule 5.1(a)(2)(v) and Nasdaq Rule 4630(e),
amended Rule 14.1(c)(5) would require a Member acting as a registered
Market Maker in a UTP Derivative Security to file with the Exchange, in
a manner prescribed by the Exchange, and to keep a current list
identifying all accounts for trading the underlying physical asset or
commodity, related futures or options on futures, or any other related
derivatives (collectively with Reference Assets, ``Related
Instruments''), which the Member acting as registered Market Maker may
have or over which it may exercise investment discretion. Rule
14.1(c)(5) would also prohibit a Member from acting as registered
Market Maker in the UTP Derivative Security from trading in the
underlying physical asset or commodity, related futures or options on
futures, or any other related derivatives, in an account in which a
Member acting as a registered Market Maker, directly or indirectly,
controls trading activities, or has a direct interest in the profits or
losses thereof, that has not been reported to the Exchange.
Exchange Rules \13\ ensure that Market Makers in UTP Derivative
Securities would continue to have in place reasonably designed policies
and procedures to prevent the misuse of material non-public information
with regard to also acting as a Market Maker in any Related
Instruments.\14\ In the context of approving a more flexible,
principled-based approach to information barriers by NYSE Arca, the
Commission stated that, ``while information barriers are not
specifically required under the proposal, a [firm's] business model or
business activities may dictate that an information barrier or a
functional separation be part of the appropriate set of policies and
procedures that would be reasonably designed to achieve compliance with
applicable securities law and regulations, and with applicable Exchange
rules.'' \15\ Rule 14.1(c)(5)(D) will continue to prohibit Market
Makers from using material non-public information in connection with
trading a Related Instrument. Rule 14.1(c)(5)(C) will also continue to
require that, in addition to the existing obligations under Exchange
rules regarding the production of books and records, a Market Maker
shall, upon request by the Exchange, make available to the Exchange any
books, records or other information pertaining to any Related
Instrument trading account or to the account of any registered or non-
registered employee affiliated with the Market Maker for which Related
Instruments are traded. Lastly, under Exchange Rule 14.1(c)(6) the
Exchange will enter into comprehensive surveillance sharing agreement
with other markets that offer trading in Related Instruments to the
same extent as the listing exchange's rules require the listing
exchange to enter into a comprehensive surveillance sharing agreement
with such markets. This amendment does not lessen the protection of
Members from the risks associated with integrated market
[[Page 73374]]
making and any possible misuse of non-public information.
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\13\ See Exchange Rules 5.5 and 14.1(c)(5)(D).
\14\ 15 U.S.C. 78o(g).
\15\ See Securities Exchange Act Release No. 60604 (September 1,
2009), 74 FR 46272 (September 8, 2009) (SR-NYSEArca-2009-78).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \16\ and furthers the objectives of
Section 6(b)(5) of the Act,\17\ in that it is designed to promote just
and equitable principles of trade, remove impediments to, and perfect
the mechanism of, a free and open market and a national market system,
and, in general, protect investors and the public interest. In
addition, the Exchange believes that the proposed rule change is not
designed to permit unfair discrimination between customers, issuers,
brokers or dealers. The proposed rule change is substantially similar
to the existing NYSE Arca Rule 5.1(a)(2)(v) and Nasdaq Rule
4630(e).\18\ In addition, the Exchange believes that amending Exchange
Rule 14.1(c)(5) to permit a Member acting as a registered Market Maker
in a UTP Derivative Security on the Exchange the flexibility to act or
register as a market maker in any Reference Asset \19\ that a UTP
Derivative Security derives its value from consistent with Commission
and Exchange Rules will remove impediments to and perfect the mechanism
of a free and open market by providing the same flexibility to the
Exchange that is already available to NYSE Arca and Nasdaq regarding
the market maker activities for derivative-related Securities.
Additionally, Exchange Rule 14.1(c)(5), as amended, would continue to
serve to prevent fraudulent and manipulative acts and practices, as
well as to protect investors and the public interest from concerns that
may be associated with integrated market making and any possible misuse
of non-public information.
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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
\18\ See supra notes 7 and 8.
\19\ A ``Reference Asset'' is defined as one or more currencies,
or commodities, or derivatives based on one or more currencies, or
commodities, or is based on a basket or index comprised of
currencies or commodities that a UTP Derivative Security derives its
value from. See Exchange Rule 14.1(c)(5).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change would not impose any burden on
competition. On the contrary, the Exchange believes that the proposal
will promote competition because it is a competitive response to
recently amended NYSE Arca and Nasdaq rules which permit market makers
to trade in the reference assets or components underlying the
derivative security on the same terms as that proposed by the
Exchange.\20\ Thus, the Exchange believes this proposed rule change is
necessary to permit fair competition among national securities
exchanges.
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\20\ See supra notes 7 and 8.
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(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
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 \21\ and Rule 19b-
4(f)(6)(iii) thereunder.\22\
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\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change.
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The Exchange has asked the Commission to waive the 30-day operative
delay so that the proposal may become operative immediately upon
filing. The Commission believes that waiver of the 30-day operative
delay period is consistent with the protection of investors and the
public interest. The Commission notes that the proposal would allow
Market Makers in a UTP Derivative Security on the Exchange to act or
register as a Market Maker in any Related Instruments. The Commission
believes that proposal could allow the Exchange to attract more Market
Makers to the Exchange, thereby potentially increasing liquidity in UTP
Derivative Securities, provide more price competition, and enhance the
markets for those securities. The Commission further notes that the
proposal is similar to the rules of other national securities
exchanges.\23\ Therefore, the Commission designates the proposed rule
change to be operative upon filing.\24\
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\23\ See NYSE Arca Equities Rule 5.1(a)(2)(v) and Nasdaq Rule
4630(e).
\24\ 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).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \25\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\25\ 15 U.S.C. 78s(b)(2)(B).
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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-EDGA-2014-28 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 No. SR-EDGA-2014-28. 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 such
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filing will also 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 No. SR-EDGA-2014-28 and should be submitted on or before December
31, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-28908 Filed 12-9-14; 8:45 am]
BILLING CODE 8011-01-P