[Federal Register Volume 79, Number 214 (Wednesday, November 5, 2014)]
[Notices]
[Pages 65746-65749]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-26233]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73476; File No. SR-EDGX-2014-24]


Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 
11.12, Limitation of Liability

October 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 October 27, 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 and 
II below, which Items have been prepared by the Exchange. The Exchange 
has designated this proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6)(iii) thereunder,\4\ which renders it effective upon filing with 
the Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend Rule 11.12, Limitation of 
Liability, to harmonize its liability caps with those set forth under 
BATS Exchange, Inc. (``BATS'') Rule 11.16 and BATS Y-Exchange, Inc. 
(``BYX'') Rule 11.16.\5\
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    \5\ See BATS Rule 11.16(d)(1)-(3); BYX Rule 11.16(d)(1)-(3).
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    The text of the proposed rule change is available at the Exchange's 
Web site at http://www.directedge.com/, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

[[Page 65747]]

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 11.12, Limitation of Liability, 
to harmonize its liability caps with those set forth under BATS Rule 
11.16 and BYX Rule 11.16.\6\ Earlier this year, the Exchange and its 
affiliate EDGA Exchange, Inc. (``EDGA'') received approval to effect a 
merger (the ``Merger'') of the Exchange's parent company, Direct Edge 
Holdings LLC, with BATS Global Markets, Inc., the parent of BATS and 
BYX (together with BATS, BYX, EDGA and EDGX, the ``BGM Affiliated 
Exchanges'').\7\ In the context of the Merger, the BGM Affiliated 
Exchanges are working to align certain rules, retaining only intended 
differences between the BGM Affiliated Exchanges. As part of this 
effort, BATS and BYX recently filed proposed rule changes with the 
Commission to amend paragraph (f) of Rule 11.16 to align with EDGA Rule 
11.12(d)(3) and (e) as well as EDGX Rule 11.12(d)(3) and (e).\8\ Thus, 
the proposal set forth below harmonizes remaining sections of Exchange 
Rule 11.12 and BATS and BYX Rules 11.16 by aligning the liability caps 
in order to provide consistent member reimbursement requirements for 
users of the BGM Affiliated Exchanges.\9\
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    \6\ Id.
    \7\ See Securities Exchange Act Release No. 71449 (January 30, 
2014), 79 FR 6961 (February 5, 2014) (SR-EDGX-2013-43; SR-EDGA-2013-
34).
    \8\ See Securities Exchange Act Release Nos. 73356 (October 15, 
2014) (SR-BATS-2014-045); and 73357 (October 15, 2014) (SR-BYX-2014-
027). In sum, BATS and BYX amended Rule 11.16 to align with Exchange 
Rule 11.12 to provide members with additional time within which to 
submit a written claim for compensation for ``losses resulting 
directly from the malfunction of the Exchange's physical equipment, 
devices and/or programming or the negligent acts or omissions of its 
employees'' and add a new paragraph (g) to Rule 11.16 to permit the 
Exchange, subject to certain conditions and limitations, to 
compensate Members for certain losses incurred in connection with 
orders or portions of orders routed by the Exchange through its 
affiliated routing broker-dealer, BATS Trading, Inc., to Trading 
Centers where such losses are claimed by the Member to have resulted 
directly from a malfunction of the physical equipment, devices and/
or programming, or the negligent acts or omissions of the employees, 
of such Trading Centers.
    \9\ The Exchange understands that EDGA is to file a proposed 
rule change with the Commission to adopt similar requirements.
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    Rule 11.12 currently states that, except as provided in subsection 
(d) of the Rule, the Exchange and its affiliates shall not be liable 
for any losses, damages, or other claims arising out of the Exchange or 
its use. Exchange Rule 11.16(d) provides a limited exception to its 
general limitation of liability that allows for the payment of 
compensation to Members for ``losses resulting directly from the 
malfunction of the Exchange's physical equipment, devices and/or 
programming or the negligent acts or omissions of its employees'' 
(``Exchange Systems Issues''), subject to certain conditions. 
Subsection (d)(1) of Rule 11.12 limits the aggregate limits of all 
claims made by all Members during a single calendar month to the larger 
of $500,000, or the amount of any recovery obtained by the Exchange 
under any applicable insurance maintained by the Exchange.
    The Exchange now proposes to renumber subsection (d)(1) of the Rule 
11.12 and adopt new subsections (d)(1) and (2) under Rule 11.12 to 
harmonize its liability caps with those set forth under existing rules 
of BATS and BYX.\10\ Under the proposed rule change, the Exchange would 
cap its liability for Exchange Systems Issues under proposed Rule 
11.12(d)(1) and (2): (i) To a single Member at the greater of $100,000 
or the amount recovered under any applicable insurance policy on a 
single trading day; (ii) to all Members at the greater of $250,000 or 
the amount recovered under any applicable insurance policy on a single 
trading day. Current Rule 11.12(d)(1) would be re-numbered as 
subsection (d)(3) and continue to cap the Exchange's liability to all 
Members at the greater of $500,000 or the amount recovered under any 
applicable insurance policy in a single calendar month.\11\
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    \10\ See supra note 5.
    \11\ The Exchange notes that under renumbered Rule 11.12(g)(4) 
any compensation paid to Members from reimbursement recovered from a 
Trading Center for a routed order will not count against the 
Exchange's liability limits set forth in Rule 11.12(d), nor any 
applicable insurance maintained by the Exchange. Securities Exchange 
Act Release Nos. 71061 (December 12, 2013), 78 FR 76685 (December 
18, 2013) (SR-EDGA-2013-36) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change To Amend EDGX Rule 11.12, 
Limitations of Liability); and 71062 (December 12, 2013), 78 FR 
76693 (December 18, 2013) (SR-EDGX-2013-45) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change To Amend EDGX Rule 
11.12, Limitations of Liability).
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    The Exchange also proposes to amend Rule 11.12(d)(2) to align with 
the proposed liability caps for a single trading day. Specifically, 
proposed Rule 11.12(d)(2) would be amended to clarify that, to the 
extent that all claims resulting from Exchange Systems Issues cannot be 
fully satisfied because in the aggregate they exceed the applicable 
maximum amount of liability provided for, then the Exchange proposes to 
allocate the maximum amount among all such claims arising on a single 
trading day or during a single calendar month, as applicable, based on 
the proportion that each such claim bears to the sum of all such 
claims. Rule 11.12(d)(2) would also be renumbered as Rule 11.12(e).
    The Exchange also proposes to amend Rule 11.12(e)(4) to align with 
the amended liability caps as well as to renumber other sections within 
Rule 11.12 to mirror BATS Rule 11.16 and BYX Rule 11.16.
Implementation Date
    The Exchange intends to implement the proposed rule change on or 
about November 6, 2014, which is the anticipated operative date of 
recently filed BATS and BYX proposed rule changes to align BATS and BYX 
Rules 11.16 with EDGA and EDGX Rules 11.12(d)(3) and (e).\12\ The 
Exchange will announce the implementation of the proposed rule change 
via a trading notice to be posted on the Exchange's Web site.
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    \12\ See supra note 8.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \13\ and furthers the objectives of 
Section 6(b)(5) of the Act,\14\ in that it is designed 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. The proposal, in 
effect, would allow the Exchange to ensure that compensation for a 
single incident did not exceed the monthly cap of $500,000, thereby 
providing [sic] enabling the Exchange to possibly compensate Members 
for instances on multiple trading days per month subject to Rule 
11.12(d)(3). The Exchange believes that

[[Page 65748]]

the proposed rule change is not designed to permit unfair 
discrimination between customers, issuers, brokers or dealers. The 
proposed rule change is substantially similar to the existing rules of 
BATS and BYX.\15\ The proposed rule change is intended to align the 
liability caps for Member reimbursements with that currently provided 
by BATS and BYX in order to provide a consistent rules across the BGM 
Affiliated Exchanges. Consistent rules, in turn, will simplify the 
regulatory requirements for Members of the Exchange that are also 
participants on EDGA and EDGX. The proposed rule change would provide 
greater harmonization between EDGX and EDGA rules of similar purpose, 
resulting in greater uniformity and less burdensome and more efficient 
regulatory compliance. As such, the proposed rule change would foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities and would remove impediments to and perfect 
the mechanism of a free and open market and a national market system.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ See supra note 5.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change would not impose any burden on 
competition. The Exchange believes that the proposed rule changes will 
not burden intramarket competition because all Members would be subject 
to the same liability caps for claims resulting from Exchange Systems 
Issues. The proposed rule change is not designed to address any 
competitive issues but rather is designed to provide greater 
harmonization among Exchange and BATS and BYX rules of similar purpose, 
resulting in less burdensome and more efficient regulatory compliance 
for common members of the BGM Affiliated Exchanges.

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 Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \16\ and Rule 19b-4(f)(6) thereunder.\17\ 
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 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 and Rule 19b-4(f)(6) 
thereunder.\18\
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    \16\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to 
give the Commission written notice of the Exchange's intent to file 
the proposed rule change, along with a brief description and text of 
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) normally does 
not become operative prior to 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\19\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. Waiver of the 30-day 
operative delay would provide consistent rules across the BGM 
Affiliated Exchanges which will simplify the regulatory requirements 
for Members of the Exchange that are also participants on EDGA, BATS 
and BYX. In addition, the Commission notes that the proposed rule 
change is identical to the existing rules of BATS and BYX. Based on the 
foregoing, the Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest.\20\ The Commission hereby grants the Exchange's request and 
designates the proposal operative upon filing.
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    \19\ 17 CFR 240.19b-4(f)(6)(iii).
    \20\ 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule 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-2014-24 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-EDGX-2014-24. 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-2014-24 and should be 
submitted on or November 26, 2014.


[[Page 65749]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2014-26233 Filed 11-4-14; 8:45 am]
BILLING CODE 8011-01-P