[Federal Register Volume 76, Number 245 (Wednesday, December 21, 2011)]
[Notices]
[Pages 79254-79258]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-32586]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65964; File Nos. SR-EDGA-2011-29; SR-EDGX-2011-28]


Self-Regulatory Organizations; EDGA Exchange, Inc.; EDGX 
Exchange, Inc.; Order Approving Proposed Rule Changes, as Modified by 
Amendments No. 1, Relating to Amendments to EDGA and EDGX Rules 
Regarding the Registration and Obligations of Market Makers

December 15, 2011.

I. Introduction

    On August 30, 2011, EDGA Exchange, Inc. and EDGX Exchange, Inc. 
(``EDGA'' and ``EDGX,'' or ``Exchanges'') filed with the Securities and 
Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ proposed rule changes relating to amendments to EDGA and 
EDGX rules regarding the registration and obligations of market 
makers.\3\ The proposed rule changes were published for comment in the 
Federal Register on September 16, 2011.\4\ On December 14, 2011, the 
Exchanges each filed an Amendment No. 1 to their respective proposed 
rule changes (``Amendments No. 1'').\5\ The Commission received no 
comment letters regarding the proposals. This order approves the 
proposed rule changes, as modified by the Amendments No. 1.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The proposed rule changes, and the rules affected by them, 
in the EDGA and EDGX rulebooks are identical, so all proposed 
changes and references to any rule apply to both of the Exchanges.
    \4\ See Securities Exchange Act Release No. 65315 (September 12, 
2011), 76 FR 57772 (September 16, 2011) (SR-EDGX-2011-28); 
Securities Exchange Act Release No. 65316 (September 12, 2011), 76 
FR 57787 (September 16, 2011) (SR-EDGA-2011-29) (``Notices'').
    \5\ Amendments No. 1 amended the proposed rule changes to delete 
proposed Rule 11.21(e), which would have allowed the Exchanges, upon 
the request of a Market Maker, to enter, refresh, cancel and re-
enter, under specified circumstances, two-sided quotations on behalf 
of the market maker at prices within a Designated Percentage 
(defined below) away from the then-current NBBO. The filings were 
previously noticed by the Commission for public comment in their 
entirety. Amendments No. 1 removed an optional automated quotation 
functionality, a change that does not alter the substance of the 
remainder of the proposals. For these reasons, the amendments are 
not subject to notice and comment.
---------------------------------------------------------------------------

II. Description of the Proposals

    The Exchanges propose to amend Chapter XI of their rulebooks to add 
new rules regarding the registration and

[[Page 79255]]

obligations of market makers. The Exchanges also propose to amend Rule 
14.1, entitled ``Unlisted Trading Privileges,'' to restrict trading 
activities of Market Makers, and impose a series of reporting and 
record-keeping requirements on them. Lastly, the Exchanges propose to 
amend Rule 8.15, Interpretation .01, to expand the list of violations 
eligible for disposition under the Exchanges' Minor Rule Violation 
Plans (``MRVP'').

A. Registration of Market Makers

    The Exchanges propose to give Members the option to register as 
Market Makers, which would require them to submit applications in the 
form prescribed by the Exchanges. The Exchanges would review the 
applications by considering several factors, including the capital, 
operations, personnel, technical resources, and disciplinary history of 
the applicant. The Exchanges would require each Market Maker to have 
and maintain the minimum net capital of at least the amount required by 
Rule 15c3-1 under the Act.\6\ An applicant's registration as a Market 
Maker would become effective upon receipt by the Member of the notice 
of approval of registration from one of the Exchanges. The Exchanges 
would designate registered Market Makers as dealers for all purposes 
under the Act, and the rules and regulations thereunder.
---------------------------------------------------------------------------

    \6\ 17 CFR 240.15c3-1.
---------------------------------------------------------------------------

    The Exchanges could suspend or terminate the registration of a 
Market Maker if the Exchange(s) determine(s) that the Market Maker: 
Substantially or continually fails to engage in dealings in accordance 
with Exchange Rules, fails to meet the minimum net capital conditions, 
fails to maintain fair and orderly markets, or does not have at least 
one registered Market Maker Authorized Trader (``MMAT'') qualified \7\ 
to perform market making activities.\8\ Any Market Maker could also 
withdraw its registration, subject to any minimum prior notice period 
or other conditions on withdrawal and re-registration the Exchange(s) 
deem(s) appropriate to maintain fair and orderly markets.
---------------------------------------------------------------------------

    \7\ A MMAT whose registration is suspended would not be deemed 
qualified.
    \8\ A Market Maker could appeal a suspension or termination 
pursuant to the procedures in Chapter X of the Exchanges' rules.
---------------------------------------------------------------------------

B. Registration of MMATs

    The Exchanges propose to require that each registered Market Maker 
have at least one registered MMAT, which would require Market Makers to 
submit applications in the form prescribed by the Exchanges. MMATs 
could be officers, partners, employees, or other associated persons of 
Market Makers. However, to be eligible for registration as a MMAT, a 
person must successfully complete the training and other programs 
required by the Exchanges and the General Securities Representative 
Examination (i.e., Series 7) or equivalent foreign examination module 
approved by the Exchanges. The Exchanges would require Market Makers to 
ensure that their MMATs are properly qualified to perform market making 
activities, and the Exchanges could grant a person conditional 
registration as a MMAT as appropriate in the interests of maintaining a 
fair and orderly market. Once registered, MMATs could enter orders only 
for the account of the Market Maker for which they are registered.
    In addition, the Exchanges could suspend or terminate the 
registration of a MMAT if the Exchange(s) determine(s) that the MMAT 
has caused the Market Maker to fail to comply with the federal 
securities laws, and the rules and regulations thereunder, or the rules 
of the Exchange(s), or if the MMAT fails to perform his or her 
responsibilities properly or fails to maintain fair and orderly 
markets.\9\ If a MMAT is suspended, the Market Maker could not allow 
the MMAT to submit orders. A Market Maker could also withdraw the 
registration of a MMAT by submitting to the Exchange(s) a written 
request on a form prescribed by the Exchange(s).
---------------------------------------------------------------------------

    \9\ A MMAT could appeal a suspension or termination pursuant to 
the procedures in Chapter X of the Exchanges' rules.
---------------------------------------------------------------------------

C. Registration of Market Makers in a Security

    The Exchanges propose to require Market Makers to register in the 
securities for which they would make markets. A Market Maker could 
register in a newly authorized security or in a security already 
admitted to dealings on the Exchange(s) by filing a security 
registration form with the Exchange(s). Registration in the security 
would become effective on the same day that the Exchange(s) approve(s) 
the registration, unless otherwise provided by the Exchange(s). In 
considering the approval of the registration of the Market Maker in a 
security, the Exchange(s) could consider the financial resources 
available to the Market Maker, the Market Maker's experience and past 
performance in making markets, the Market Maker's operational 
capability, the maintenance and enhancement of competition among Market 
Makers in each security in which they are registered, the existence of 
satisfactory clearing arrangements for the Market Maker's transactions, 
and the character of the market for the security. The Exchange(s) could 
suspend or terminate the registration of a Market Maker in any security 
whenever the Exchange(s) determine(s) that the Market Maker has not met 
one or more of its obligations, including a failure to maintain fair 
and orderly markets.\10\ A Market Maker also could voluntarily 
terminate its registration in a security by providing the Exchange(s) 
with a written notice of such termination, subject to any minimum prior 
notice period or other conditions on termination and re-registration 
the Exchange(s) deem(s) appropriate.\11\
---------------------------------------------------------------------------

    \10\ A Market Maker could appeal a suspension or termination 
pursuant to the procedures in Chapter X of the Exchanges' rulebooks.
    \11\ A Market Maker that fails to give advanced written notice 
of termination to the Exchange(s) may be subject to formal 
disciplinary action pursuant to Chapter VIII of the Exchanges' 
rules.
---------------------------------------------------------------------------

D. Market Maker Obligations

    The Exchanges propose to establish market maker obligations. In 
general, Market Makers would have to engage in a course of dealings for 
their own accounts to assist in the maintenance, insofar as reasonably 
practicable, of fair and orderly markets on the Exchanges. The 
responsibilities of a Market Maker would include, without limitation: 
Remaining in good standing with the Exchange(s) and in compliance with 
all applicable rules of the Exchange(s); informing the Exchange(s) of 
any material change in its financial or operational condition or 
personnel; \12\ maintaining a current list of MMATs and providing any 
updates to such list to the Exchange(s) upon any change in MMATs; and 
clearing and settling transactions through the facilities of a 
registered clearing agency.\13\ Market Makers would be responsible for 
the acts and omissions of their MMATs. If the Exchanges were to find 
any substantial or continued failure by a Market Maker to engage in a 
course of dealing as specified, such Market Maker

[[Page 79256]]

would be subject to disciplinary action, or suspension or revocation of 
its registration.
---------------------------------------------------------------------------

    \12\ The Exchanges propose to include an interpretation that 
would remind Market Makers that, in connection with the obligation 
to ``inform the Exchange of any material change in financial or 
operational condition,'' the Market Makers would also be obligated 
to submit to the Exchange(s) a copy of a notice sent to the 
Commission pursuant to Rule 17a-11 under the Act. 17 CFR 240.17a-11. 
The notice to the Exchanges would have to be sent concurrently with 
the notice sent to the Commission. See proposed Rule 11.21, 
Interpretation .01.
    \13\ Market Makers could satisfy the clearance and settlement 
requirement by direct participation, use of direct clearing 
services, or by entering into a correspondent clearing arrangement 
with another Member that clears trades through such agency.
---------------------------------------------------------------------------

    The Exchanges also propose to require that Market Makers maintain 
continuous, two-sided quotations within a designated percentage of the 
National Best Bid (``NBB'') and National Best Offer (``NBO'') 
(collectively, ``NBBO'') (or, if there is no NBB or NBO, the last 
reported sale). The Exchanges represent that these Market Maker 
quotation requirements would be intended to eliminate trade executions 
against Market Maker quotations priced far away from the inside market, 
commonly known as ``stub quotes.'' \14\ The Exchanges further represent 
that the quotation obligations also would be intended to augment and 
work in relation to the single stock circuit breakers already in place 
on a pilot basis for stocks in the S&P 500[reg] Index and 
the Russell 1000[reg] Index, as well as a pilot list of 
Exchange Traded Products (the ``Original Circuit Breaker 
Securities'').\15\ Permissible quotes would be determined by the 
individual character of the security, the time of day in which the 
quote is entered, and other factors.
---------------------------------------------------------------------------

    \14\ See Notices, supra note 4: 76 FR 57772 at 57774; 76 FR 
57787 at 57788.
    \15\ Id.
---------------------------------------------------------------------------

    For issues subject to an individual stock trading pause under the 
applicable rules of a primary listing market, a permissible quote (also 
known as ``Designated Percentage'') would be as follows: (i) A Market 
Maker's quotes in the Original Circuit Breaker Securities shall not be 
more than 8% away from the NBBO; (ii) a Market Maker's quotes in NMS 
securities (as defined in Rule 600 of Regulation NMS) \16\ that are not 
Original Circuit Breaker Securities with a price equal to or greater 
than $1 shall not be more than 28% away from the NBBO; and (iii) a 
Market Maker's quotes in NMS securities that are not Original Circuit 
Breaker Securities with a price less than $1 shall not be more than 30% 
away from the NBBO. For times during Regular Trading Hours \17\ when 
stock pause triggers are not in effect under the rules of the primary 
listing market (e.g., before 9:45 a.m. and after 3:35 p.m. Eastern 
Time), the Designated Percentage shall be 20% for Original Circuit 
Breaker Securities, 28% for all NMS securities that are not Original 
Circuit Breaker Securities with a price equal to or greater than $1, 
and 30% for all NMS securities that are not Original Circuit Breaker 
Securities with a price less than $1.
---------------------------------------------------------------------------

    \16\ 17 CFR 242.600.
    \17\ See Rule 1.5(y) (as proposed to be re-lettered) (defining 
Regular Trading Hours as 9:30 a.m. to 4 p.m. Eastern Time).
---------------------------------------------------------------------------

    Once a compliant quote is entered, it could rest without adjustment 
until such time as it moves to within 9.5% away from the NBBO for 
Original Circuit Breaker Securities, 29.5% away from the NBBO for NMS 
securities that are not Original Circuit Breaker Securities with a 
price equal to or greater than $1, and 31.5% away from the NBBO for all 
NMS securities that are not Original Circuit Breaker Securities with a 
price less than $1 (``Defined Limit''), whereupon the Market Maker 
would have to immediately adjust its quote to at least the permissible 
default level of 8%, 28%, or 30%, respectively, away from the then-
current NBBO (or last reported sale, as applicable).
    The Exchanges note that scenarios may occur in which pricing at the 
commencement of a trading day, or at the re-opening of trading in a 
security that has been halted, suspended, or paused, is significantly 
different from pricing for the security at the close of the previous 
trading day or immediately prior to the halt, suspension, or pause, 
respectively.\18\ The Exchanges represent that these pricing 
differentials could be the result of corporate actions that occur after 
the close of the previous trading day or the market's absorption of 
material information during the halt, suspension, or pause.\19\ Based 
on this concern, the Exchanges believe that Market Makers should not be 
subject to the pricing obligations proposed herein when the last sale 
of the previous trading day, or immediately prior to a halt, is the 
only available reference price.\20\ The Exchanges therefore propose 
that, for NMS stocks, a Market Maker would have to adhere to the 
pricing obligations established by this Rule during Regular Trading 
Hours, provided, however, that such pricing obligations: (i) Would not 
commence during any trading day until after the first regular way 
transaction on the primary listing market in the security, as reported 
by the responsible single plan processor, and (ii) would be suspended 
during a trading halt, suspension, or pause, and would not re-commence 
until after the first regular way transaction on the primary listing 
market in the security following such halt, suspension, or pause, as 
reported by the responsible single plan processor. Nothing would 
preclude a Market Maker from voluntarily quoting at price levels that 
are closer to the NBBO than required under the proposal.
---------------------------------------------------------------------------

    \18\ See Notices, supra note 4: 76 FR 57772 at 57774; 76 FR 
57787 at 57789.
    \19\ Id.
    \20\ Id.
---------------------------------------------------------------------------

E. Unlisted Trading Privileges

    The Exchanges propose to impose restrictions on each Market Maker 
on the Exchange(s) (``Restricted Market Maker'') in a derivative 
securities product (``UTP Derivative Security'') that derives its value 
from one or more currencies or commodities, or from a derivative 
overlying one or more currencies or commodities, or is based on a 
basket or index comprised of currencies or commodities (collectively, 
``Reference Assets''). Specifically, the Exchanges would prohibit a 
Restricted Market Maker in a UTP Derivative Security on the Exchange(s) 
from acting or registering as a market maker on any other exchange in 
any Reference Asset of that UTP Derivative Security, or any derivative 
instrument based on a Reference Asset of that UTP Derivative Security 
(collectively, with Reference Assets, ``Related Instruments''). 
Further, the Exchanges would require a Restricted Market Maker to file 
and keep current with the Exchange(s) (in a manner prescribed by the 
Exchange(s)) a list identifying any accounts (``Related Instrument 
Trading Accounts'') for which Related Instruments are traded: (1) In 
which the Restricted Market Maker holds an interest; (2) over which it 
has investment discretion; or (3) in which it shares in the profits 
and/or losses. In addition, the Exchanges would prohibit a Restricted 
Market Maker from having an interest in, exercising investment 
discretion over, or sharing in the profits and/or losses of a Related 
Instrument Trading Account which has not been reported to the 
Exchanges. In addition to the existing obligations under the Exchanges' 
rules regarding the production of books and records, the Exchanges 
would require a Restricted Market Maker, upon request by the 
Exchange(s), to make available 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 
Restricted Market Maker in which Related Instruments are traded. 
Lastly, the Exchanges would require that a Restricted Market Maker not 
use any material, non-public information in connection with trading a 
Related Instrument.\21\
---------------------------------------------------------------------------

    \21\ The Exchanges propose to re-number current Rule 14.1(c)(5) 
and to replace the term ``components of the index or portfolio on 
which the UTP Derivative Security is based'' in Rule 14.6(c)(6) with 
``Related Instruments.''

---------------------------------------------------------------------------

[[Page 79257]]

F. MRVPs

    The Exchanges propose to add the continuous, two-sided quotation 
obligation to the list of rules which would be appropriate for 
disposition under the Exchanges' MRVPs, which would allow the Exchanges 
to impose a $100 fine for each violation. The Exchanges have 
represented that, by promptly imposing a meaningful financial penalty 
for such violations, the MRVPs focus on correcting conduct before it 
gives rise to more serious enforcement action, provide a reasonable 
means of addressing rule violations that do not necessarily rise to the 
level of requiring formal disciplinary proceedings, and offer greater 
flexibility in handling certain violations.\22\ The Exchanges further 
stated that a provision that would allow the Exchanges to sanction 
violators under the MRVPs would not minimize the importance of 
compliance with the continuous, two-sided quotation obligation, and 
that the violation of any rule is a serious matter; the addition of a 
sanction under the MRVPs would be an additional method for disciplining 
violators.\23\ The Exchanges represented that they would continue to 
conduct surveillance with due diligence and make determinations, on a 
case-by-case basis, whether a violation of the continuous, two-sided 
quotation obligation should be subject to formal disciplinary 
proceedings.
---------------------------------------------------------------------------

    \22\ See Notices, supra note 4: 76 FR 57772 at 57775; 76 FR 
57787 at 57790.
    \23\ Id.
---------------------------------------------------------------------------

III. Discussion

    After careful review of the proposals, the Commission finds that 
the proposed rule changes are consistent with the requirements of the 
Act, and the rules and regulations thereunder applicable to a national 
securities exchange.\24\ In particular, the Commission finds that the 
proposals are consistent with Section 6(b)(5) of the Act,\25\ which 
requires, among other things, that the rules of an exchange be 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.
---------------------------------------------------------------------------

    \24\ In approving these proposed rule changes, the Commission 
has considered the proposed rules' impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \25\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission finds that the Exchanges' proposals to establish 
procedures for the registration, withdrawal, suspension, and 
termination of Market Makers and MMATs; the registration of Market 
Makers in a security; and Market Maker obligations are consistent with 
Section 6(b)(5) of the Act.\26\ The proposed rules would benefit all 
Exchange participants because Market Makers would assist in the 
maintenance of fair and orderly markets, provide additional liquidity 
to the Exchanges, and assist in preventing excess volatility. The 
Commission finds that the Exchanges' rules provide objective processes 
by which a Member could become a Market Maker, an individual could 
become an MMAT, and a Market Maker could register in a security. The 
proposed rules also provide for appropriate oversight by the Exchanges 
to monitor for continued compliance by Market Makers and MMATs with the 
terms of those provisions. The Commission also notes that these 
proposals, including the Market Maker obligations, are similar to rules 
of other exchanges.\27\ As a result, the Commission believes that these 
aspects of the proposals are consistent with the Act.
---------------------------------------------------------------------------

    \26\ Id.
    \27\ See, e.g., BATS Exchange, Inc. (``BATS'') Rules 11.5-.8; 
National Stock Exchange, Inc. (``NSX'') Rules 11.5-.8; see also 
Securities Exchange Act Release Nos. 54391 (August 31, 2006), 71 FR 
52836 (September 7, 2006) (SR-NSX-2006-08) (approving proposed rules 
for the registration of market makers, obligations of market maker 
authorized traders, the registration of market makers in a security, 
and obligations of market makers), 58644 (September 25, 2008), 73 FR 
57172 (October 1, 2008) (SR-BATS-2008-005) (noticing the immediate 
effectiveness of proposed rules for the registration and obligations 
of market makers based on NSX's rules).
---------------------------------------------------------------------------

    The Commission also finds that the provisions of the proposed rule 
changes that implement the continuous, two-sided quotation obligation 
are consistent with Section 6(b)(5) of the Act.\28\ The proposed rules 
promote uniformity across markets concerning minimum market maker 
quotation requirements as this aspect of the proposals is similar to 
rules of other self-regulatory organizations.\29\ In addition to 
Section 6(b)(5) of the Act,\30\ the Commission finds that the 
continuous, two-sided quoting obligations are consistent with Section 
11A(a)(1) of the Act \31\ in that they seek to assure fair competition 
among brokers and dealers and among exchange markets. By requiring 
Market Makers to maintain quotes that are priced within a specified 
percentage of the NBBO, the proposed rules should help assure that 
quotations submitted by Market Makers to the Exchanges, and displayed 
to market participants, bear some relationship to the prevailing market 
price. This may reduce the risk that trades will occur at irrational 
prices and should promote fair and orderly markets and the protection 
of investors.\32\
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78f(b)(5).
    \29\ See, e.g., BATS Rule 11.8(d); NSX Rule 11.8(a)(1); see also 
Securities Exchange Act Release No. 63255 (November 5, 2010), 75 FR 
69484 (November 12, 2010) (approving proposed rule changes, 
implementing enhanced market maker quotation standards, by BATS, 
NASDAQ OMX BX, Inc., Chicago Board Options Exchange, Incorporated, 
The Chicago Stock Exchange, Inc., Financial Industry Regulatory 
Authority, Inc., The NASDAQ Stock Market LLC, NSX, New York Stock 
Exchange LLC, NYSE Amex LLC, and NYSE Arca, Inc.).
    \30\ 15 U.S.C. 78f(b)(5).
    \31\ 15 U.S.C. 78k-1(a)(1).
    \32\ The Commission notes, consistent with prior guidance under 
Regulation SHO (See Securities Exchange Act Release No. 50103 (July 
28, 2004), 69 FR 48008, 48015 (Aug. 6, 2004) and Release No. 58775 
(Oct. 14, 2008), 73 FR 61690, 61698-99 (Oct. 17, 2008)), that a 
market maker's compliance with the percentage quoting requirements 
contained in these proposals, i.e., maintaining a quote that is 8% 
away from the NBBO for stocks in the S&P 500, Russell 1000, and for 
select ETPs, would not constitute bona fide market making for 
purposes of claiming the applicable exceptions to the requirements 
of Regulation SHO.
---------------------------------------------------------------------------

    The Commission finds that the Exchanges' proposed restrictions on 
the trading activities of Market Makers in UTP Derivative Securities, 
and the imposition of reporting and record-keeping requirements on 
Market Makers who trade UTP Derivative Securities are consistent with 
Section 6(b)(5) of the Act.\33\ These proposals are closely modeled on 
similar rules of other exchanges, which the Commission has previously 
approved, and do not raise any novel issues.\34\
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78f(b)(5).
    \34\ See, e.g., BATS Rule 14.1; NASDAQ OMX Phlx LLC (``Phlx'') 
Rule 803(o); NSX Rule 15.9; see also Securities Exchange Act Release 
Nos. 57806 (May 9, 2008), 73 FR 28541 (May 16, 2008) (SR-Phlx-2008-
34) (approving consolidation into a single rule of certain 
requirements for products traded on the Philadelphia Stock Exchange, 
Inc. (n/k/a Phlx) pursuant to unlisted trading privileges); 58623 
(September 23, 2008), 73 FR 57169 (October 1, 2008) (SR-BATS-2008-
004) (noticing immediate effectiveness of consolidation into a 
single rule of certain requirements for products traded on BATS 
pursuant to unlisted trading privileges consolidation).
---------------------------------------------------------------------------

    The Commission also finds that the Exchanges' proposals to include 
a Market Maker's obligation to maintain a continuous, two-sided 
quotation in any security in which it is registered in their MRVPs is 
consistent with Section 6(b)(5) of the Act,\35\ and Sections 6(b)(1) 
and 6(b)(6) of the Act,\36\ which require that the rules of an exchange 
enforce compliance with, and provide appropriate discipline for, 
violations of Commission and exchange rules. The Commission believes 
that the proposed changes to the MRVPs should strengthen the Exchanges' 
abilities to carry out their oversight and

[[Page 79258]]

enforcement responsibilities as SROs by promptly imposing a financial 
penalty in cases where full disciplinary proceedings are unsuitable in 
view of the minor nature of the particular violation. The Commission 
also notes that these proposed changes are closely modeled on the rules 
of other exchanges, which have been previously approved by the 
Commission.\37\ Furthermore, the Commission believes that, because Rule 
8.15 provides procedural rights to a person fined under the MRVP to 
contest the fine and permits a hearing on the matter, the proposed 
changes provide a fair procedure for the disciplining of Members and 
persons associated with Members, consistent with Sections 6(b)(7) and 
6(d)(1) of the Act.\38\ Therefore, the Commission finds that the 
proposals are consistent with the public interest, the protection of 
investors, or otherwise in furtherance of the purposes of the Act, as 
required by Rule 19d-1(c)(2) under the Act,\39\ which governs minor 
rule violation plans.
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78f(b)(5).
    \36\ 15 U.S.C. 78f(b)(1), (6).
    \37\ See BATS Rule 8.15, Interpretation .01; NSX Rule 8.15, 
Interpretation .01.
    \38\ 15 U.S.C. 78f(b)(7), (d)(1).
    \39\ 17 CFR 240.19d-1(c)(2).
---------------------------------------------------------------------------

    In approving these proposals, the Commission in no way minimizes 
the importance of compliance with the Exchanges' rules and all other 
rules subject to the imposition of fines under the MRVPs. The 
Commission believes that the violation of any SRO's rules, as well as 
Commission rules, is a serious matter. However, the MRVPs provide a 
reasonable means of addressing rule violations that do not rise to the 
level of requiring formal disciplinary proceedings, while providing 
greater flexibility in handling certain violations. The Commission 
expects that the Exchanges will continue to conduct surveillance with 
due diligence and make determinations based on their findings, on a 
case-by-case basis, whether a fine of more or less than the recommended 
amount is appropriate for a violation under the MRVPs or whether a 
violation requires formal disciplinary action under the Exchanges' 
rules.
    Finally, the Commission finds that the Exchanges' addition of 
definitions, re-lettering and re-numbering of rules, and replacement of 
certain text in Rule 14.1(c)(6) are technical in nature and consistent 
with the Act accordingly.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\40\ that the proposed rule changes (SR-EDGA-2011-29 and SR-EDGX-
2011-28), as amended by Amendments No. 1, be, and hereby are, approved.
---------------------------------------------------------------------------

    \40\ 15 U.S.C. 78s(b)(2).
    \41\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-32586 Filed 12-20-11; 8:45 am]
BILLING CODE 8011-01-P