[Federal Register Volume 80, Number 217 (Tuesday, November 10, 2015)]
[Notices]
[Pages 69734-69736]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-28514]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76351; File No. SR-CHX-2015-09]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Adopt Business and Disaster Recovery Plans Testing Requirements for
Certain Participants in Connection With Regulation Systems Compliance
and Integrity
November 4, 2015.
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 October 29, 2015, 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 adopt business continuity and disaster recovery
plans (``BC/DR plans'') testing requirements for certain Participants
\3\ in connection with Regulation Systems Compliance and Integrity
(``Regulation SCI'').\4\ CHX has designated this proposed rule change
as non-controversial pursuant to Section 19(b)(3)(A) \5\ of the Act and
Rule 19b-4(f)(6) \6\ thereunder and has provided the Commission with
the notice required by Rule 19b-4(f)(6)(iii).\7\
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\3\ Pursuant to CHX Article 1, Rule 1(s), a Participant is
considered a ``member'' of the Exchange for the purposes of the Act.
\4\ See Securities Exchange Act Release No. 73639 (November 19,
2014), 79 FR 72252 (December 5, 2014) (``SCI Adopting Release'').
\5\ 15 U.S.C. 78s(b)(3)(A).
\6\ 17 CFR 240.19b-4(f)(6).
\7\ 17 CFR 240.19b-4(f)(6)(iii).
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The text of this proposed rule change is available on the
Exchange's Web site at (www.chx.com) 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 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
As adopted by the Commission, Regulation SCI applies to certain
self-regulatory organizations (including the Exchange), alternative
trading systems (``ATSs''), plan processors, and exempt clearing
agencies (collectively, ``SCI entities''), and will require these SCI
entities to comply with requirements with respect to the automated
systems central to the performance of their regulated activities. Among
the requirements of Regulation SCI is Rule 1001(a)(2)(v), which
requires the Exchange and other SCI entities to maintain ``[b]usiness
continuity and disaster recovery plans that include maintaining backup
and recovery capabilities sufficiently resilient and geographically
diverse and that are reasonably designed to achieve next business day
resumption of trading and two-hour resumption of critical SCI systems
following a wide-scale disruption.'' \8\ The Exchange has put extensive
time and resources toward planning for system failures and already
maintains robust BC/DR plans consistent with the Rule.\9\ As set forth
below, in connection with Regulation SCI, the Exchange is proposing to
require certain Participants to participate in testing of the operation
of the Exchange's BC/DR plans.
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\8\ 17 CFR 242.1001(a)(2)(v).
\9\ The Exchange notes that it permits the trading of securities
at two separate data centers; one in Secaucus, New Jersey (NY4) and
the other in Chicago (CH2). Each location serves as the primary
matching location for a security traded on the Exchange and no
single security is simultaneously traded at both locations, as the
Exchange maintains only one book. In the event trading cannot occur
at one location, the Exchange may move trading in affected
securities to the other location, pursuant to its BC/DR plans.
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With respect to an SCI entity's BC/DR plans, including its backup
systems, paragraph (a) of Rule 1004 of Regulation SCI requires each SCI
entity to: ``[e]stablish standards for the designation of those members
or participants that the SCI entity reasonably determines are, taken as
a whole, the minimum necessary for the maintenance of fair and orderly
markets in the event of the activation of such plans.'' \10\ Paragraph
(b) of Rule 1004 further requires each SCI entity to ``[d]esignate
members or participants pursuant to the standards established in
paragraph (a) of [Rule 1004] and require participation by such
designated members or participants in scheduled functional and
performance testing of the operation of such plans, in the manner and
frequency specified by the SCI entity, provided that such frequency
shall not be less than once every 12 months.'' \11\ In order to comply
with Rule 1004 of Regulation SCI, the Exchange proposes to adopt
Article 3, Rule 21 (Mandatory Participation Testing of Backup Systems)
requiring mandatory participation in testing of Exchange backup
systems, as described below.
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\10\ 17 CFR 242.1004(a).
\11\ 17 CFR 242.1004(b).
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First, in paragraph (a) of Rule 21, the Exchange proposes to
include language from paragraph (a) of Rule 1004 of Regulation SCI to
summarize the Exchange's obligation pursuant to such rule.
Specifically, the Exchange proposes to state that ``[p]ursuant to
Regulation SCI and with respect to the Exchange's business continuity
and disaster recovery plans, including its backup systems, the Exchange
is required to establish standards for the designation of Participants
that the Exchange reasonably determines are, taken as a whole, the
minimum necessary for the maintenance of fair and orderly markets in
the event of the
[[Page 69735]]
activation of such plans.'' The Exchange further proposes that
paragraph (a) indicate that the ``Exchange has established standards
and will designate Participants according to those standards'' as set
forth in the proposed Rule. In addition, the Exchange proposes to make
clear that all Participants are permitted to connect to the Exchange's
backup systems as well as to participate in testing of such systems.
Proposed paragraph (a) is consistent with the Commission's adoption of
Regulation SCI, which encouraged ``SCI entities to permit non-
designated members or participants to participate in the testing of the
SCI entity's BC/DR plans if they request to do so.'' \12\
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\12\ See SCI Adopting Release, supra note 4 at 72350.
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Second, in paragraph (b) of Rule 21, the Exchange proposes to
specify the criteria that will result in a Participant receiving a
designation requiring it to connect to the Exchange's backup systems
and to participate in functional and performance testing as announced
by the Exchange, which shall occur at least once every 12 months.
Specifically, proposed paragraph (b)(1) would require all Participants
that account for a meaningful percentage of the Exchange's overall
trades or volume to connect to the Exchange's backup systems and to
participate in functional and performance testing.
The Exchange notes that it encourages all Participants to connect
to the Exchange's backup systems and to participate in testing of such
systems. In fact, if a Participant executes an average daily volume of
1 million or more provide shares in the Matching System during the
month, CHX will impose a cap on logical port charges equal to the
greatest number of ports attributable to that Participant in either of
CHX's data centers which helps reduce the economic burden of
maintaining connectivity to Exchange's data centers.\13\ However, in
adopting the requirements of proposed Rule 21(b), including both the
requirement to maintain connectivity to Exchange backup systems and to
participate in mandatory testing of such systems, the Exchange intends
to subject to the Rule only those Participants that the Exchange
believes are necessary to maintain fair and orderly markets at the
Exchange. The Exchange believes that designating Participants to
participate in mandatory testing because they account for a meaningful
percentage of the Exchange's overall trades or volume is a reasonable
means to ensure the maintenance of a fair and orderly market on the
Exchange.
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\13\ See Section D.1 of the CHX Fee Schedule.
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In addition to paragraphs (a) and (b) described above, the Exchange
also proposes to adopt Interpretation and Policy .01, which would
provide additional detail regarding the notice that will be provided to
Participants that have been designated pursuant to subparagraph (b) of
the Rule as well as the Exchange's method for measuring the trades and
volume thresholds. As proposed, Interpretation and Policy .01 would
state that for purposes of identifying Participants that account for a
meaningful percentage of the Exchange's overall trades or volume, the
Exchange will measure trades and volume executed on the Exchange on a
quarterly basis. The percentage of trades and volume that the Exchange
considers to be meaningful for purposes of this Interpretation and
Policy .01 will be determined by the Exchange and will be published in
a circular distributed to Participants. The Exchange will publish the
first circular consistent with this proposal prior to the Regulation
SCI compliance date of November 3, 2015. The proposed Interpretation
and Policy would also require the Exchange to notify individual
Participants quarterly that are subject to proposed paragraph (b) based
on the prior calendar quarter's trades and volume. Finally, as
proposed, if a Participant has not previously been subject to the
requirements of proposed paragraph (b), then such Participant would
have until the next calendar quarter before such requirements are
applicable. The Exchange believes the proposed notice requirements are
necessary to provide Participants with proper advance notice in the
event they become subject to proposed Rule 21(b). The proposed
timeframes would also provide Participants with adequate time to become
compliant with such Rule due to the necessary infrastructure changes it
may take to connect to the Exchange's backup systems for a Participant
that is not already connected.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \14\ in general, and furthers the objectives of Section
6(b)(5) of the Act \15\ 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. The proposal will ensure that the Participants necessary to
ensure the maintenance of a fair an orderly market are properly
designated consistent with Rule 1004 of Regulation SCI. Specifically,
the proposal will adopt criteria with respect to the designation of
Participants that are required to participate in the testing of the
Exchange's BC/DR plans, as well as appropriate notification regarding
such designation. As set forth in the SCI Adopting Release, ``SROs have
the authority, and legal responsibility, under Section 6 of the
Exchange Act, to adopt and enforce rules (including rules to comply
with Regulation SCI's requirements relating to BC/DR testing)
applicable to their members or participants that are designed to, among
other things, foster cooperation and coordination with persons engaged
in regulating, clearing, settling, processing information with respect
to, and facilitating transactions in securities, 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.'' \16\ The Exchange believes that this proposal is consistent
with such authority and legal responsibility.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
\16\ See SCI Adopting Release, supra note 4 at 72350.
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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. To the contrary, the proposal
is not a competitive proposal but rather is necessary for the
Exchange's compliance with Regulation SCI.
C. Self-Regulatory Organization's Statement on Comments Regarding the
Proposed Rule Changes 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 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 after the date of the filing, or such shorter time as the
Commission may designate, it has become effective pursuant to
19(b)(3)(A)
[[Page 69736]]
of the Act \17\ and Rule 19b-4(f)(6) \18\ thereunder.
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 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.
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A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally
does not become operative for 30 days after the date of filing.
However, pursuant to Rule 19b-4(f)(6)(iii) \20\ the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest.
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\19\ 17 CFR 240.19b-4(f)(6).
\20\ 17 CFR 240.19b-4(f)(6)(iii).
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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 waiving the 30-day operative delay
is consistent with the protection of investors and the public interest
as it will allow the Exchange to incorporate changes required under
Regulation SCI, such as establishing standards for designating business
continuity and disaster recovery plan participants, prior to the
November 3, 2015 compliance date. Therefore, the Commission designates
the proposed rule change to be operative upon filing.\21\
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\21\ 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).
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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-2015-09 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549.
All submissions should refer to File No. SR-CHX-2015-09. 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 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 will also be available for inspection
and copying at the principal office of the CHX. 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-CHX-2015-09 and should be
submitted on or before December 1, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-28514 Filed 11-9-15; 8:45 am]
BILLING CODE 8011-01-P