[Federal Register Volume 79, Number 24 (Wednesday, February 5, 2014)]
[Notices]
[Pages 6954-6956]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-02379]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71445; File No. SR-EDGX-2014-01]


Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Chapter IX of Its Rulebook

January 30, 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 January 16, 2014, EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which items have been substantially 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 Chapter IX of its rulebook to 
incorporate certain rules of the Financial Industry Regulatory 
Authority, Inc. (``FINRA'') and the NASDAQ Stock Market LLC 
(``NASDAQ'') relating to arbitration and mediation, in addition to 
making certain non-substantive changes. 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.

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 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
Background and General Description of Proposed Rule Change
    On July 30, 2007, the National Association of Securities Dealers, 
Inc. (``NASD''), the New York Stock Exchange LLC, and NYSE Regulation, 
Inc. (``NYSER'') consolidated their member firm regulation operations 
into a combined organization, FINRA, and entered into a plan to 
allocate to FINRA regulatory responsibility for common rules and common 
members (``17d-2 Agreement'').\3\ The 17d-2 Agreement was entered into 
in accordance with the requirements of Rule 17d-2 of the Commission,\4\ 
which permits self-regulatory organizations (``SROs'') to allocate 
regulatory responsibilities with respect to common members and common 
rules. On January 5, 2010, the Exchange and FINRA entered into a 
Regulatory Services Agreement (``RSA''), whereby FINRA was retained to 
perform certain regulatory services on behalf of the Exchange for non-
common rules. On May 13, 2013, the Exchange and FINRA amended the RSA 
and retained FINRA to perform market surveillance functions as of July 
2013. Accordingly, since Exchange launch in July 2010, FINRA has been 
performing all arbitration, mediation, and other dispute resolution 
services, as may be needed from time to time, on behalf of EDGX.
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    \3\ See Securities Exchange Act Release No. 56148 (July 26, 
2007), 72 FR 42146 (Aug. 1, 2007).
    \4\ 17 CFR 240.17d-2.
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    To facilitate FINRA's performance of these functions under the RSA 
and to further harmonize the rules of FINRA and the Exchange generally, 
the Exchange is proposing to conform the text of its rules governing 
arbitration and mediation (Chapter IX) to the FINRA Code of Arbitration 
Procedure for Customer Disputes (12000 Series), FINRA Code of 
Arbitration Procedure for Industry Disputes (13000 Series) and the 
FINRA Code of Mediation (14000 Series).
    The Exchange proposes to make the following changes to its current 
rules in Chapter IX of its rulebook.
Proposed Amendments to Current Rules
    The Exchange proposes to amend current Rule 9.1 (Code of 
Arbitration) to make the rule substantially similar to NASDAQ Rule 
10100.\5\ The Exchange proposes to replace the reference to NASD Code 
of Arbitration with FINRA Code of Arbitration,\6\ clarify the meaning 
of ``Exchange arbitrations,'' \7\ and add a sentence stating that 
Members must comply with FINRA arbitration rules as if they were rules 
of the Exchange.
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    \5\ See NASDAQ Rule 10100.
    \6\ See FINRA Rule 12000 Series (Code of Arbitration Procedure 
for Customer Disputes); FINRA Rule 13000 (Code of Arbitration 
Procedure for Industry Disputes.
    \7\ They would be defined as ``every claim, dispute or 
controversy arising out of or in connection with matters eligible 
for submission under Rule 9.2.''
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    The Exchange proposes to replace current Rule 9.2 (Jurisdiction) 
with amended Rule 9.2 (Matters Eligible for Submission), which is 
substantially similar to FINRA Rule 10101 and NASDAQ Rule 10101.\8\ 
Amended Rule 9.2 will state that the Exchange adopts the FINRA Code of 
Arbitration for any dispute, claim or controversy arising out of or in 
connection with the business of any Member, or arising out of the 
employment or termination of employment of associated person(s) with 
any Member: Between or among Members; between or among Members and 
associated persons; and between or among Members or associated persons 
and public customers, or others, except for any type of dispute, claim, 
or controversy that is not permitted to be arbitrated under the FINRA 
Code of Procedure.
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    \8\ See FINRA Rules 10101 and NASDAQ Rule 10101.
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    The Exchange proposes to amend current Rule 9.3 (Predispute 
Arbitration

[[Page 6955]]

Agreements) to incorporate FINRA Rule 2268 \9\ by reference, instead of 
restating the predispute arbitration agreement rules in full.
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    \9\ See FINRA Rule 2268.
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    The Exchange proposes to amend current Rule 9.5 (Payment of 
Awards), to re-name its title as ``Failure to Act under Provisions of 
FINRA Code of Arbitration,'' to expand the rule to include additional 
conduct deemed inconsistent with just and equitable principles of trade 
and a violation of Rule 3.1 (Business Conduct of Members), using the 
language of FINRA/NASDAQ IM-10100, and FINRA IM-12000 and IM-13000.\10\ 
These prohibited acts include: Failure to submit a dispute for 
arbitration under the FINRA Code of Arbitration as required by the 
FINRA Code of Arbitration; failure to comply with any injunctive order 
issued pursuant to the FINRA Code of Arbitration; failure to appear or 
to produce any document in his or her or its possession or control as 
directed pursuant to provisions of the FINRA Code of Arbitration; 
failure to honor an award, or comply with a written and executed 
settlement agreement, obtained in connection with an arbitration 
submitted for disposition under the FINRA Code of Arbitration where 
timely motion has not been made to vacate or modify such award pursuant 
to applicable law; or, failure to comply with a written and executed 
agreement obtained in connection with a mediation submitted for 
disposition pursuant to the FINRA Code of Mediation.\11\ Rule 9.5(b) is 
proposed to be amended to provide that action by Members requiring 
associated persons to waive the arbitration of disputes contrary to the 
provisions of the FINRA Code of Arbitration is a violation of Exchange 
Rule 3.1.
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    \10\ See FINRA Rules IM-10100, IM-12000, and IM-13000. See also 
NASDAQ Rule IM-10100.
    \11\ See FINRA Rule 14000 Series (Code of Mediation Procedure).
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    The Exchange proposes to amend current Rule 9.6 to extend the 
application of the rule (currently applicable to arbitration) to 
mediation.
    The Exchange proposes to add proposed Rule 9.7 (Mediation) to state 
that FINRA's mediation services, as governed by the 14000 Series of 
FINRA's Rules (the Code of Mediation Procedure), are also available to 
Members who voluntarily agree to submit matters for mediation. The 
Exchange also proposes to incorporate by reference the FINRA Code of 
Mediation into its rules so that Members have the same obligations to 
comply as if such rules and interpretations were part of the Exchange's 
rules.
    The Exchange proposes to add Rule 9.8 (Regulatory Services 
Agreement) to state that FINRA staff will perform arbitrations and 
mediations on behalf of the Exchange pursuant to a regulatory services 
agreement (``RSA'') with FINRA in accordance with the FINRA Codes of 
Arbitration and Mediation.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\12\ in general, and furthers the objectives of Section 6(b)(5) of 
the Act,\13\ in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and 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.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The proposed changes will provide greater harmonization between 
Exchange and FINRA rules of similar purpose, resulting in less 
burdensome and more efficient regulatory compliance for dual members. 
As previously noted, the proposed rule text is substantially similar to 
FINRA's/NASDAQ's current rule text, which has already been approved by 
the Commission. As such, the proposed rule change will foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities and will remove impediments to and perfect 
the mechanism of a free and open market and a national market system.

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
not designed to address any competitive issues but rather is designed 
to provide greater harmonization between Exchange and FINRA rules of 
similar purpose for arbitration and mediation matters, resulting in 
less burdensome and more efficient regulatory compliance for dual 
members and facilitating FINRA's performance of its regulatory 
functions under the RSA.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) \14\ of the Act and Rule 19b-4(f)(6) \15\ thereunder. The 
proposed rule change effects a change that (A) does not significantly 
affect the protection of investors or the public interest; (B) does not 
impose any significant burden on competition; and (C) by its terms, 
does not become operative for thirty (30) days after the date of the 
filing, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest; 
provided that the self-regulatory organization has given the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at least 
five (5) business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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    The Exchange provided the Commission with written notice of its 
intent to file the proposed rule change, along with a brief description 
and text of the proposed rule change, at least five (5) business days 
prior to the date of filing.\16\ The proposed rule change is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, and, in general, to protect 
investors and the public interest.
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    \16\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Exchange believes that the proposed rule change meets the 
criteria of subparagraph (f)(6) of Rule 19b-4 \17\ because the proposed 
rule change would not significantly affect investors or the public 
interest; rather, the proposed rule change will promote greater 
harmonization between the Exchange and FINRA rules of similar purpose, 
resulting in greater uniformity and less burdensome and more efficient 
regulatory compliance. Additionally, the proposed rule change does not 
raise any new policy issues not previously considered by the Commission 
nor impose any significant burden on competition because it would 
result in

[[Page 6956]]

less burdensome and more efficient regulatory compliance for common 
members and facilitating FINRA's performance of its regulatory 
functions under the 17d-2 Agreement. Accordingly, the Exchange has 
designated this rule filing as non-controversial under Section 
19(b)(3)(A) of the Act \18\ and paragraph (f)(6) of Rule 19b-4 
thereunder.\19\ In addition, in its guidance on the proposed rules of 
SROs,\20\ the Commission concluded that filings based on the rules of 
another SRO already approved by the Commission are eligible for 
immediate effectiveness under Rule 19b-4(f)(6). The Commission noted 
that ``a proposed rule change appropriately may be filed as an 
immediately effective rule so long as it is based on and similar to 
another SRO's rule and each policy issue raised by the proposed rule 
(i) has been considered previously by the Commission when the 
Commission approved another exchange's rule (that was subject to notice 
and comment), and (ii) the rule change resolved such policy issue in a 
manner consistent with such prior approval.'' \21\ As discussed herein, 
the rule changes proposed herein are based on parallel NASDAQ and FINRA 
rules on arbitration and mediation. The proposed rule change would 
allow greater consistency between EDGX and FINRA rules, which should 
benefit EDGX and FINRA members, regulators, and the investing public. 
In addition, the Exchange requests the Commission waive the 30-day 
operative delay to provide greater harmonization between Exchange and 
FINRA rules, resulting in less burdensome and more efficient regulatory 
compliance for common members and facilitating FINRA's performance of 
its regulatory functions.
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    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ See Securities and Exchange Act Release No. 58092 (July 3, 
2008), 73 FR 40144 (July 11, 2008).
    \21\ Id. at 40149.
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    Based on the foregoing, the Commission believes that the proposed 
rule change should become immediately effective and waives the 30-day 
pre-operative waiting period contained in Rule 19b-4(f)(6)(iii) under 
the Act so that the Exchange may immediately implement this rule 
change.\22\
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    \22\ 17 CFR 240.19b-4(f)(6)(iii).
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    At any time within sixty (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.

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-2014-01 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-2014-01. 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 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-2014-01 and should be 
submitted on or before February 26, 2014.
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    \23\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-02379 Filed 2-4-14; 8:45 am]
BILLING CODE 8011-01-P