[Federal Register Volume 78, Number 159 (Friday, August 16, 2013)]
[Notices]
[Pages 50128-50131]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-19909]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70162; File No. SR-EDGX-2013-31]


Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rule 2.5 To Outline the Continuing Education Requirements for Series 56 
Licensees and Its Fee Schedule To Include Fees for the Series 56 
Examination and Its Related Continuing Education Requirements

August 12, 2013.
    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 August 6, 2013, EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') 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

    The Exchange proposes to amend: (1) Exchange Rule 2.5 to: (i) 
outline the continuing education requirements for Authorized Traders 
\3\ of Members \4\ registered solely as Proprietary Traders \5\ by 
having successfully completed the Proprietary Trader Qualification 
Examination (``Series 56''); and (ii) make a clarifying change to the 
Interpretation and Policy .06; and (2) the fees and rebates applicable 
to Members of the Exchange pursuant to EDGX Rule 15.1(a) and (c) (``Fee 
Schedule'') to include fees for the Series 56 examination and its 
related continuing education requirements. All of the changes described 
herein are applicable to EDGX Members. The text of the proposed rule 
change is available on the Exchange's Internet Web site at 
www.directedge.com, at the Exchange's principal office, and at the 
Public Reference Room of the Commission.
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    \3\ ``Authorized Trader'' is defined as ``a person who may 
submit orders (or who supervises a routing engine that may 
automatically submit orders) to the Exchange's trading facilities on 
behalf of his or her Member or Sponsored Participant.'' See Exchange 
Rule 1.5(c).
    \4\ ``Member'' is defined as ``any registered broker or dealer, 
or any person associated with a registered broker or dealer, that 
has been admitted to membership in the Exchange. A Member will have 
the status of a ``Member'' of the Exchange as that term is defined 
in Section 3(a)(3) of the Act.'' See Exchange Rule 1.5(n).
    \5\ ``Proprietary Trader'' is defined under Interpretation and 
Policy .06(2) to Exchange Rule 2.5.
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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 self-regulatory organization 
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 self-regulatory organization 
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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend: (1) Rule 2.5 to: (i) outline the 
continuing

[[Page 50129]]

education requirements for Authorized Traders of Members registered 
solely as Proprietary Traders by having successfully completed the 
Series 56 examination; and (ii) make a clarifying change to the 
Interpretation and Policy .06; and (2) its Fee Schedule to include fees 
for the Series 56 examination and its related continuing education 
requirements.
    On February 1, 2012, the Exchange amended its rules to recognize a 
new category of limited representative registration for Proprietary 
Traders \6\ by expanding its registration requirements to include the 
Series 56 examination as one of the applicable qualification 
examinations accepted by the Exchange.\7\ The Series 56 examination 
program is administered by the Financial Industry Regulatory Authority 
(``FINRA'') on behalf of the Exchange.
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    \6\ Interpretation and Policy .06(2) of Exchange Rule 2.5 
defines a Proprietary Trader as an Authorized Trader whose 
activities in the investment banking or securities business are 
limited solely to proprietary trading; passes an appropriate 
qualification examination; and is an associated person of a 
proprietary trading firm as defined in Interpretation and Policy 
.06(1) of Exchange Rule 2.5.
    \7\ See Securities Exchange Act Release No. 66383 (February 10, 
2012), 77 FR 9714 (February 17, 2012) (SR-EDGX-2012-04) (Notice of 
Filing and Immediate Effectiveness).
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    The Exchange permits the Series 56 examination for Proprietary 
Traders that engage solely in proprietary trading on the Exchange so 
long as certain conditions are met. First, the Member must be a 
proprietary trading firm.\8\ Second, the Authorized Trader of a Member 
must be considered a Proprietary Trader. Interpretation and Policy .03 
of Exchange Rule 2.5 identifies the Series 56 as an appropriate 
qualification examination for Proprietary Traders' limited 
representative registration.\9\
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    \8\ If amended as proposed, Interpretation and Policy .06(1) of 
Exchange Rule 2.5 would define a proprietary trading firm as a firm 
that embodies the following characteristics: The Member is not 
required by Section 15(b)(8) of the Act to become a FINRA member; 
all funds used or proposed to be used by the Member for trading are 
the Member's own capital, traded through the Member's own accounts; 
the Member does not, and will not have ``customers''; and all 
Principals and Authorized Traders of the Member acting or to be 
acting in the capacity of a trader must be owners of, employees of, 
or contractors to the Member.
    \9\ For Authorized Traders of Members who do not engage solely 
in proprietary trading, the Exchange requires the General Securities 
Representative Examination (``Series 7'') or equivalent foreign 
examination module approved by the Exchange as defined in 
Interpretation and Policy .05 of Exchange Rule 2.5. See 
Interpretation and Policy .03 of Exchange Rule 2.5.
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Series 56 Continuing Education Requirements
    The Exchange now proposes to amend Interpretation and Policy .04 to 
Rule 2.5 to outline the continuing education requirements for 
Authorized Traders of Members registered solely as Proprietary Traders 
by having successfully completed the Series 56 examination. Like the 
Series 56 exam, FINRA is to administer the continuing education program 
on behalf of the Exchange. Proprietary Traders who hold the Series 56 
registration pursuant to Interpretation and Policy .04 to Rule 2.5 
would be required to complete the related continuing education 
administered by FINRA on behalf of the Exchange known as the S501. 
Authorized Traders of Members who hold the Series 7 registration would 
continue to complete the Regulatory Element for Continuing Education 
Requirement (``Regulatory Element'') known as the S101.
    The Exchange also proposes to amend Interpretation and Policy .04 
to Rule 2.5 to apply the same criteria to the S501 as it currently 
requires for the S101 as part of the Regulatory Element. First, like 
the Regulatory Element, the S501 must be completed within 120 days 
after the respective registration anniversary date. A person's initial 
registration date, also known as the ``base date,'' shall establish the 
cycle of anniversary dates. Second, Series 56 registrants who have not 
completed the S501 within the prescribed time frames will have their 
registrations deemed inactive until such time as such requirements have 
been satisfied. Any person whose registration has been deemed inactive 
shall cease all activities as a Proprietary Trader and will be 
prohibited from performing any duties and functioning in any capacity 
requiring registration. A registration that is inactive for a period of 
two years will be administratively terminated. A person whose 
registration is terminated may reactivate the registration only by 
reapplying for registration under the Exchange rules.
    Similar to the requirements for the Regulatory Element,\10\ a 
Proprietary Trader--Series 56 license holder will be required to re-
satisfy the S501 where that person: (1) Is subject to any statutory 
disqualification as defined in Section 3(a)(39) of the Act; (2) is 
subject to suspension or to the imposition of a fine of $5,000 or more 
for violation of any provision of any securities law or regulation, or 
any agreement with or rule or standard of conduct of any securities 
governmental agency, securities self-regulatory organization, or as 
imposed by any such regulatory or self-regulatory organization in 
connection with a disciplinary proceeding; or (3) is ordered as a 
sanction in a disciplinary action to retake the S501 by any securities 
governmental agency or self-regulatory organization.
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    \10\ See Interpretation and Policy .04 of Exchange Rule 2.5.
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    Like the Regulatory Element, the retaking of the S501 must commence 
within 120 days of the Proprietary Trader--Series 56 license holder 
becoming subject to the statutory disqualification, in the case of (1) 
above, or the disciplinary action becoming final, in the case of (2) 
and (3) above. The date of the disciplinary action shall be treated as 
such person's new base date with the Exchange.
    Any Proprietary Trader--Series 56 license holder who has terminated 
association with a Member and who has, within two years of the date of 
termination, become reassociated in a registered capacity with a Member 
shall satisfy the S501 at such intervals that may apply (second 
anniversary and every three years thereafter) based on the initial 
registration anniversary date rather than based on the date of 
reassociation in a registered capacity.
    The Exchange proposes to include the Series 56 continuing education 
requirement in its rules to ensure Authorized Traders of Members 
maintain specified levels of competence and knowledge generally 
applicable to proprietary trading, thereby enhancing the quality of 
Authorized Traders on the Exchange. Thus, the codification of these 
requirements in the proposed amendments to Rule 2.5 makes clear to 
Members their requirements related to the Series 56 exam, including 
applicable continuing education requirements.
    The Exchange proposes to implement the Series 56 continuing 
education program upon availability in WebCRD[supreg], the central 
licensing and registration system operated by FINRA (``WebCRD'').
Clarification to Interpretation and Policy .06 to Rule 2.5
    The Exchange proposes to delete unnecessary language from 
Interpretation and Policy .06 to Rule 2.5. Currently, Interpretation 
and Policy .06(1) of Rule 2.5 defines a proprietary trading firm. As 
part of the definition, the Member must not be required by Section 
15(b)(8) of the Act \11\ to become a FINRA member but is a member of 
another registered securities exchange not registered solely under 
Section 6(g) of the Act.\12\ The Exchange proposes to delete the 
requirement that the Member must also be a member of another registered 
securities exchange. The

[[Page 50130]]

proprietary trading firm need only be a current Exchange Member and not 
required to be a FINRA Member by Section 15(b)(8) of the Act.\13\ 
Therefore, the Exchange proposes to delete this requirement from its 
rules.
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    \11\ 15 U.S.C. 78o(b)(8).
    \12\ 15 U.S.C. 78f(g).
    \13\ 15 U.S.C. 78o(b)(8).
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Series 56 Exam and Continuing Education Fees
    The Exchange proposes to add to its Fee Schedule a $195 fee per 
person, per Series 56 examination and a $60 per person, per session fee 
for the related continuing education. The Exchange's Fee Schedule does 
not currently set forth the fees applicable for the Series 7 and 
Regulatory Element as these programs are within FINRA's jurisdiction 
and collected by FINRA from its members. On the contrary, the Series 56 
and its continuing education requirements apply to Members that are not 
required by Section 15(b)(8) of the Act \14\ to become a FINRA member. 
Therefore, the Exchange proposes to include these fees in its Fee 
Schedule to make clear to Members the costs of the Series 56 exam and 
its related continuing education. However, Members would continue to 
submit the exam fee to FINRA, as well as the fee for continuing 
education.\15\ The Exchange will not invoice or collect these fees.
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    \14\ 15 U.S.C. 78o(b)(8).
    \15\ The Exchange notes that FINRA has historically collected 
the $195 Series 56 examination fee on behalf of the Exchange to 
cover its cost of administering the Series 56 exam program.
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    The fees are designed to reflect the costs incurred in maintaining 
and developing the examination and continuing education program to 
ensure their content is and continues to be adequate in testing the 
competence and knowledge generally applicable to proprietary trading.
2. Statutory Basis
Series 56 Continuing Education Requirements
    The Exchange believes that its proposal to require continuing 
education for Authorized Traders of Members that hold the Proprietary 
Trader--Series 56 license is consistent with Section 6(b) of the 
Act,\16\ in general, and furthers the objectives of Section 6(c)(3)(B) 
of the Act.\17\ Under that section, it is the Exchange's responsibility 
to prescribe standards of training, experience, and competence for 
Exchange Members and their associated persons, in particular, by 
offering an alternative continuing education program for Proprietary 
Traders that more closely reflects the practical knowledge that is a 
pre-requisite for proprietary trading. Pursuant to this statutory 
obligation, the Exchange proposes to require Authorized Traders of 
Members that hold the Series 56 license to complete the related 
continuing education. The Exchange believes the Series 56 continuing 
education requirement would enable Authorized Traders of Members to 
maintain specified levels of competence and knowledge generally 
applicable to proprietary trading. Thus, the codification of these 
requirements in the proposed amendments to Rule 2.5 makes clear to 
Members their requirements related to the Series 56 exam, including 
applicable continuing education requirements, by codifying such 
requirements in the Exchange's rules.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(c)(3)(B).
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    In addition, the Exchange believes that the proposed rule change is 
consistent with the principles of Section 11A(a)(1)(C)(ii) of the Act 
\18\ in that it seeks to assure fair competition among brokers and 
dealers and among exchange markets. The Exchange believes that the 
proposed rule will promote uniformity of regulation across markets, 
thus reducing opportunities for regulatory arbitrage.\19\ The proposed 
rule change helps ensure that all persons conducting a securities 
business through the Exchange are appropriately registered and maintain 
specified levels of competence, as the Commission expects of all self-
regulatory organizations.
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    \18\ 15 U.S.C. 78k-1(a)(1)(C)(ii).
    \19\ See infra note 24.
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    Clarification to Interpretation and Policy .06 to Rule 2.5
    The Exchange believes that the proposal to delete unnecessary 
language from Interpretation and Policy .06 to Rule 2.5 is consistent 
with Section 6(b) of the Act \20\ and furthers the objectives of 
Section 6(b)(5) of the Act,\21\ 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 by 
eliminating unnecessary confusion with respect to the Exchange's rules. 
The Exchange proposes to delete the requirement that the Member must 
also be a member of another registered securities exchange because it 
is superfluous.
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    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(5).
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Series 56 Exam and Continuing Education Fees
    The Exchange also believes that the proposed examination and 
continuing education fees are consistent with the objectives of Section 
6 of the Act,\22\ in general, and furthers the objectives of Section 
6(b)(4),\23\ in particular, in that they are designed to provide for 
the equitable allocation of reasonable dues, fees and other charges 
among its Members. The Series 56 examination and continuing education 
fees are reasonably designed to allow FINRA to cover its cost of 
administering the Series 56 exam program on behalf of the Exchange. The 
fee for the Series 56 exam is greater than the fee for continuing 
education because the exam fee is also designed to cover the costs 
associated with developing not just the Series 56 exam, but also the 
related S501 continuing education program. The S501 continuing 
education fee is set to only cover the costs of administering the 
continuing education sessions. The Exchange notes that it will not 
invoice or collect funds from Members that are subject to these fees 
because these fees will be paid directly to FINRA. FINRA incurs costs 
in maintaining and developing the examination and continuing education 
program to ensure their content is and continues to be adequate in 
testing the competence and knowledge generally applicable to 
proprietary trading. Therefore, the Exchange believes it is reasonable 
and equitable to include these fees in its Fee Schedule to make clear 
to Members the costs of the Series 56 exam and its related continuing 
education requirement. The Exchange also believes these fees are 
reasonable because it understands that other exchanges will be 
assessing identical fees to be collected by FINRA for the Series 56 
exam and continuing education program.\24\ In addition, the Exchange 
believes these fees are not

[[Page 50131]]

unfairly discriminatory in that they apply to all Members uniformly.
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    \22\ 15 U.S.C. 78f.
    \23\ 15 U.S.C. 78f(b)(4).
    \24\ The Exchange participates in the ``Proprietary Traders 
Examination Committee'' for the Series 56 exam and continuing 
education requirements with the other exchanges. Through this 
Committee, the Exchange believes that other exchanges will be 
submitting proposed rule changes with the Commission to adopt the 
same fees for the Series 56 exam and continuing education. The 
exchanges that participate on the Committee include: Chicago Board 
Options Exchange, Incorporated; C2 Options Exchange, Incorporated; 
Chicago Stock Exchange, Inc.; New York Stock Exchange LLC; NYSE 
Arca, Inc.; NYSE MKT, LLC; The NASDAQ Stock Market LLC; National 
Stock Exchange, Inc.; Nasdaq OMX BX, Inc.; Nasdaq OMX PHLX, LLC; 
BATS Y-Exchange, Inc.; BATS Exchange, Inc.; EDGA Exchange, Inc.; and 
the International Securities Exchange, LLC.
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B. Self-Regulatory Organization's Statement on Burden on Competition

Series 56 Continuing Education Requirements
    The Exchange does not believe that its proposal to require 
continuing education for Authorized Traders of Members that hold the 
Series 56 license will impose any burden on intermarket competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act, as amended, because Proprietary Traders must hold a Series 56 
license and complete the required continuing education regardless of 
the exchange with which they are registered. The proposed rule change 
will not impose any burden on intramarket competition as all Authorized 
Traders of Members that are Proprietary Traders are required to pass 
the Series 56 exam and complete the related continuing education as 
outlined in Exchange Rule 2.5.
Clarification to Interpretation and Policy .06 to Rule 2.5
    The proposal to delete unnecessary language from Interpretation and 
Policy .06(1) to Rule 2.5 does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. This language is superfluous as the Exchange does not, in 
practice, require a proprietary trading firm to also be a member of 
another exchange.
Series 56 Exam and Continuing Education Fees
    The Exchange also does not believe that the proposed examination 
and continuing education fees will impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. The Exchange believes that its proposal would neither increase 
nor decrease intramarket competition because the fees would apply 
uniformly to all Members. In addition, the Exchange believes that its 
proposal would neither increase nor decrease intermarket competition 
because other exchanges will be assessing identical fees to be 
collected by FINRA for the Series 56 exam and continuing education 
program.

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 foregoing proposed rule 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, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \25\ and Rule 19b-
4(f)(6) thereunder.
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    \25\ 15 U.S.C. 78s(b)(3)(A).
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The proposed rule change specifies the continuing 
education requirements for Authorized Traders of Members registered 
solely as proprietary traders by having passed the Series 56 
examination; deletes unnecessary language from Interpretation and 
Policy .06 of Exchange Rule 2.5; and adds to the Exchange's Fee 
Schedule the fees for the Series 56 examination and the S501. Waiver of 
the operative delay would allow the Exchange to clarify its rules and 
implement the proposed rule change without delay once the Series 56 
examination fee, S501 continuing education program and the related fee 
are available in WebCRD, enabling its Members to comply with their 
examination and continuing education requirements in a timely manner, 
and thus is consistent with the protection of investors and the public 
interest. Therefore, the Commission designates the proposal operative 
upon filing.\26\
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    \26\ 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 this 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 will institute proceedings to 
determine whether the proposed rule change 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-EDGX-2013-31 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-EDGX-2013-31. 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, on official business days 
between the hours of 10:00 a.m. and 3:00 p.m. Copies of such 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-EDGX-2013-31 and should be submitted on or before September 6, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-19909 Filed 8-15-13; 8:45 am]
BILLING CODE 8011-01-P