[Federal Register Volume 81, Number 153 (Tuesday, August 9, 2016)]
[Notices]
[Pages 52718-52721]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18792]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78472; File No. SR-BatsEDGX-2016-35]


Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 
11.21, Retail Orders, To Conform to the Rules of Bats BZX Exchange, 
Inc. and Bats BYX Exchange, Inc.

August 3, 2016.
    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 July 22, 2016, Bats 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 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 Rule11.21, Retail Orders, to 
conform to the rules of Bats BZX Exchange, Inc. (``BZX'') and Bats BYX 
Exchange, Inc. (``BYX'').\5\
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    \5\ See BYX Rule 11.24 and BZX Rule 11.25. See Securities 
Exchange Act Release Nos. 68303 (November 27, 2012), 77 FR 71652 
(December 3, 2012) (SR-BYX-2012-019); 72730 (July 31, 2014), 79 FR 
45857 (August 6, 2014) (SR-BYX-2014-013); 73236 (September 26, 2014) 
79 FR 59541 (October 2, 2014) (SR-BYX-2014-024); 76207 (October 21, 
2015), 80 FR 65824 (October 27, 2015) (SR-BYX-2015-45); 73237 
(September 26, 2014), 79 FR 59537 (October 2, 2014) (SR-BATS-2014-
043); 73677 (November 24, 2014), 79 FR 71150 (December 1, 2014) (SR-
BATS-2014-058); and 76205 (October 21, 2015), 80 FR 65828 (October 
27, 2015) (SR-BATS-2015-90). The Exchange does not proposes to adopt 
paragraphs (e), (f), (g) and (h) of BYX Rule 11.24 concerning the 
BYX Retail Price Improvement Program. These paragraph are also not 
included in BZX Rule 11.25.
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    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

[[Page 52719]]

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    In early 2014, the Exchange and its affiliate, Bats 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 BZX and BYX (together with BZX, 
EDGA, and EDGX, the ``BGM Affiliated Exchanges'').\6\ In the context of 
the Merger, the BGM Affiliated Exchanges are working to align certain 
system and regulatory functionality, retaining only intended 
differences between the BGM Affiliated Exchanges. Thus, the proposal 
set forth below is intended to amend Exchange Rule 11.21, Retail 
Orders, to conform to the rules of BZX and BYX in order to provide a 
consistent rule set across each of the BGM Affiliated Exchanges.\7\
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    \6\ See Securities Exchange Act Release No. 71449 (January 30, 
2014), 79 FR 6961 (February 5, 2014) (SR-EDGX-2013-043; SR-EDGA-
2013-034).
    \7\ The Exchange notes that EDGA does not currently include a 
Retail Order rule.
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    First, the Exchange proposes to amend paragraph (a) of Rule 11.21 
to include definitions of ``Retail Member Organization'' and ``Retail 
Order''. Subparagraph (a)(1) would define a Retail Member Organization 
or RMO as ``a Member \8\ (or a division thereof) that has been approved 
by the Exchange under this Rule to submit Retail Orders.'' This 
definition is identical to the definition of Retail Member Organization 
under BYX Rule 11.24(a)(1) and BZX Rule 11.25(a)(1). The Exchange also 
proposes to slightly revise and relocate the definition of Retail Order 
under current Rule 11.21(a). Exchange Rule 11.21(a) currently defines a 
Retail Order as an agency order or riskless principal order that meets 
the criteria of the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') Rule 5320.03 that originates from a natural person; (ii) is 
submitted to EDGX by a Member, provided that no change is made to the 
terms of the order; and (iii) does not originate from a trading 
algorithm or any other computerized methodology. The Exchange proposes 
to renumber the definition of Retail Order as subparagraph (a)(2) and 
revise it to specify that the Retail Order is to be submitted by a 
Retail Member Organization. The amended definition of Retail Order 
under Exchange Rule 11.21(a)(2) would be identical to BYX Rule 
11.24(a)(2) and BZX Rule 11.25(a)(2).
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    \8\ See Exchange Rule 1.5(n).
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    Second the Exchange proposes to consolidate paragraphs (b) and (c) 
to Exchange Rule 11.21 into a single paragraph (b) entitled, Retail 
Member Organization Qualifications and Application. Proposed Exchange 
Rule 11.21(b) would be identical to BYX Rule 11.24(b) and BZX Rule 
11.25(b). Rule 11.21(b)(1) would state that to qualify as a Retail 
Member Organization, a Member must conduct a retail business or route 
retail orders on behalf of another broker-dealer. For purposes of 
Exchange Rule 11.21, conducting a retail business shall include 
carrying retail customer accounts on a fully disclosed basis.\9\
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    \9\ Exchange Rule 11.21 does not currently state that conducting 
a retail business shall include carrying retail customer accounts on 
a fully disclosed basis. The Exchange notes that this provision is 
currently included in BYX Rule 11.24(b)(1) and BZX Rule 11.25(b)(1) 
and the Exchange proposes to add it to Rule 11.21(b)(1) to ensure 
this provision of the Exchange, BZX, and BZX rules are fully 
harmonized.
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    Current Rule 11.21(b) requires Members to submit a signed written 
attestation, in a form prescribed by the Exchange, that they have 
implemented policies and procedures that are reasonably designed to 
ensure that substantially all orders designated by the Member as a 
Retail Order comply with the above requirements. The Exchange proposes 
to incorporate this requirement into proposed Rule 11.21(b)(2). 
Proposed subparagraph (b)(2) of Rule 11.21 would state that, to become 
a Retail Member Organization, a Member must submit: (A) An application 
form; (B) supporting documentation, which may include sample marketing 
literature, Web site screenshots, other publicly disclosed materials 
describing the Member's retail order flow, and any other documentation 
and information requested by the Exchange in order to confirm that the 
applicant's order flow would meet the requirements of the Retail Order 
definition; and (C) an attestation, in a form prescribed by the 
Exchange, that substantially all orders submitted as Retail Orders will 
qualify as such under this Rule. Proposed Rule 11.21(b)(2) is identical 
to BYX Rule 11.24(b)(2) and BZX Rule 11.25(b)(2).
    The Exchange also proposes to adopt subparagraphs (b)(3), (4), (5), 
and (6) to Rule 11.21, the content of which is identical to BYX Rule 
11.24(b)(3), (4), (5), and (6) and BZX Rule 11.25(b)(3), (4), (5), and 
(6). Subparagraph (b)(3) would state that after an applicant submits 
the application form, supporting documentation, and attestation, the 
Exchange shall notify the applicant of its decision in writing. 
Subparagraph (b)(4) would allow a disapproved applicant to: (A) Request 
an appeal of such disapproval by the Exchange as provided in proposed 
paragraph (d) discussed below; and/or (B) reapply for Retail Member 
Organization status 90 days after the disapproval notice is issued by 
the Exchange. Subparagraph (b)(5) permits a Retail Member Organization 
to voluntarily withdraw from such status at any time by giving written 
notice to the Exchange.
    Current Rule 11.21(c) states that if the Member represents Retail 
Orders from another broker-dealer customer, the Member's supervisory 
procedures must be reasonably designed to assure that the orders it 
receives from such broker-dealer customer that it designates as Retail 
Orders meet the definition of a Retail Order. The Member must: (i) 
Obtain an annual written representation from each broker-dealer 
customer that sends it orders to be designated as Retail Orders that 
entry of such orders as Retail Orders will be in compliance with the 
requirements specified by the Exchange; and (ii) monitor whether its 
broker-dealer customer's Retail Order flow continues to meet the 
applicable requirements. The Exchange proposes to incorporate this 
requirement into proposed Rule 11.21(b)(6). Proposed subparagraph 
(b)(6) of Rule 11.21 would state that a Retail Member Organization must 
have written policies and procedures reasonably designed to assure that 
it will only designate orders as Retail Orders if all requirements of a 
Retail Order are met. Such written policies and procedures must require 
the Member to: (i) Exercise due diligence before entering a Retail 
Order to assure that entry as a Retail Order is in compliance with the 
requirements of this Rule; and (ii) monitor whether orders entered as 
Retail Orders meet the applicable requirements. Subparagraph (b)(6) 
would also require that if a Retail Member Organization does not itself

[[Page 52720]]

conduct a retail business but routes Retail Orders on behalf of another 
broker-dealer, the Retail Member Organization's supervisory procedures 
must be reasonably designed to assure that the orders it receives from 
such other broker-dealer that are designated as Retail Orders meet the 
definition of a Retail Order. The Retail Member Organization must: (i) 
Obtain an annual written representation, in a form acceptable to the 
Exchange, from each other broker-dealer that sends the Retail Member 
Organization orders to be designated as Retail Orders that entry of 
such orders as Retail Orders will be in compliance with the 
requirements of this Rule; and (ii) monitor whether Retail Order flow 
routed on behalf of such other broker-dealers meets the applicable 
requirements. Proposed subparagraph (b)(6) of Rule 11.21 is identical 
to BYX Rule 11.24(b)(6) and BZX Rule 11.25(b)(6).
    Proposed paragraph (c) to Rule 11.21 would set forth the process 
for disqualifying a Member as a Retail Member Organization and is 
identical to BYX Rule 11.24(c) and BZX Rule 11.25(c). Subparagraph 
(c)(1) would state that if a Retail Member Organization designates 
orders submitted to the Exchange as Retail Orders and the Exchange 
determines, in its sole discretion, that such orders fail to meet any 
of the requirements set forth in paragraph (a) of Rule 11.21 above, the 
Exchange may disqualify a Member from its status as a Retail Member 
Organization. Subparagraph (c)(2) would state that the Exchange shall 
determine if and when a Member is disqualified from its status as a 
Retail Member Organization. When disqualification determinations are 
made, the Exchange shall provide a written disqualification notice to 
the Member. Subparagraph (c)(3) would state that a Retail Member 
Organization that is disqualified may: (A) Appeal such disqualification 
as provided in paragraph (d) discussed below; and/or (B) reapply for 
Retail Member Organization status 90 days after the date of the 
disqualification notice from the Exchange.
    Paragraph (d) of Rule 11.21 would mirror BYX Rule 11.24(d) and BZX 
Rule 11.25(d) by setting forth the processes for Retail Member 
Organization to appeal a disqualification determination. Subparagraph 
(d)(1) would state that if a Member disputes the Exchange's decision to 
disapprove it under paragraph (b) of Rule 11.21 or disqualify it under 
paragraph (c) of Rule 11.21, the Member (``appellant'') may request, 
within five business days after notice of the decision is issued by the 
Exchange, that the Retail Attribution Panel (the ``Panel'') review the 
decision to determine if it was correct. Pursuant to subparagraph 
(d)(2), the Panel will consist of the Exchange's Chief Regulatory 
Officer (``CRO''), or a designee of the CRO, and two officers of the 
Exchange designated by the Chief Information Officer (``CIO''). 
Subparagraph (d)(3) states that the Panel shall review the facts and 
render a decision within the time frame prescribed by the Exchange. 
Subparagraph (d)(4) would allow the Panel to overturn or modify an 
action taken by the Exchange under Rule 11.21 and state that a 
determination by the Panel shall constitute final action by the 
Exchange.
    Lastly, the Exchange proposes to renumber current paragraph (d) to 
Rule 11.21 as paragraph (e) and current paragraph (e) to Rule 11.21 as 
paragraph (f) and to replace references to Member with the term Retail 
Member Organization in both of these paragraphs. Under Rule 11.21(e), 
Retail Member Organizations will only be able to designate their orders 
as Retail Orders on either an order-by-order basis using FIX ports or 
by designating certain of their FIX ports at the Exchange as ``Retail 
Order Ports.'' Unless otherwise instructed by the Retail Member 
Organization, a Retail Order will be identified as Retail when routed 
to an away Trading Center. Under Rule 11.21(f), Retail Member 
Organizations will continue to be permitted to designate a Retail Order 
to be identified as Retail on the EDGX Book Feed on an order-by-order 
basis or to identify all its Retail Orders as Retail on a port-by-port 
basis where that port is also designated as a Retail Order Port. A 
Retail Member Organization that instructs the Exchange to identify all 
its Retail Orders as Retail on a Retail Order Port will continue to be 
able to override such setting and designate any individual Retail Order 
from that port as Attributable or as Non-Attributable, as set forth in 
Rule 11.6(a).
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6(b) of the Act.\10\ 
Specifically, the proposed change is consistent with Section 6(b)(5) of 
the Act,\11\ because it is designed to promote just and equitable 
principles of trade, to remove impediments to, and perfect the 
mechanism of, a free and open market and a national market system, and, 
in general, to protect investors and the public interest. As mentioned 
above, the proposed rule change would allow the Exchange, BYX, and BZX 
to provide a consistent set of rules as it relates to Retail Orders and 
Retail Member Organizations. Consistent rules, in turn, will simplify 
the regulatory requirements for Members of the Exchange that are also 
participants on BYX and BZX. The proposed rule change would provide 
greater harmonization between rules of similar purpose on the Exchange, 
BYX, and BZX, resulting in greater uniformity and less burdensome and 
more efficient regulatory compliance and understanding of Exchange 
Rules. 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. Similarly, the 
Exchange believes harmonizing these rules across the Exchange, BYX, and 
BZX promotes just and equitable principles of trade by providing 
consistent rules regarding Retail Member Organizations and Retail 
Orders.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    Lastly, the Exchange also believes the proposed qualification 
standards and review process under Rule 11.21 promote just and 
equitable principles and are not unfairly discriminatory because they 
are designed to ensure that Members are properly qualified as a Retail 
Member Organization and only attribute as Retail those orders that meet 
the definition of Retail Orders. The qualification process proposed 
herein by the Exchange is not designed to permit unfair discrimination, 
but rather ensure that order that are designated to be attributed are 
Retail are, in fact, order submitted by a retail customer that satisfy 
the proposed definition of Retail Order. Lastly, the Exchange notes 
that these qualification and review provisions are substantially 
similar to those included in the rules of the BYX, BZX, New York Stock 
Exchange, Inc.'s (``NYSE''), and NYSE MKT LLC (``NYSE MKT'') that have 
been previously approved by the Commission.\12\
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    \12\ See BYX Rule 11.24, BZX Rule 11.25, NYSE Rule 107C, NYSE 
MKT LLC NYSE MKT Rule 107C, and NYSE Arca, Inc. (``NYSE Arca'') Rule 
7.44. The Exchange notes that the NYSE, NYSE Arca, and NYSE MKT 
programs do not allow members to elect that their retail orders be 
identified as Retail on the exchange's proprietary data feeds.

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[[Page 52721]]

B. Self-Regulatory Organization's Statement on Burden on Competition
    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the act. To the contrary, allowing the 
Exchange to implement substantively identical rules across the 
Exchange, BYX, and BZX regarding Retail Orders and Retail Member 
Organizations does not present any competitive issues, but rather is 
designed to provide greater harmonization among the Exchange, BYX, and 
BZX rules of similar purpose.
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 change does not: (A) 
Significantly affect the protection of investors or the public 
interest; (B) impose any significant burden on competition; and (C) by 
its terms, become operative for 30 days from the date on which it was 
filed or such shorter time as the Commission may designate it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \13\ and 
paragraph (f)(6) of Rule 19b-4 thereunder,\14\ the Exchange has 
designated this rule filing as non-controversial. The Exchange 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 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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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4.
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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: (1) 
Necessary or appropriate in the public interest; (2) for the protection 
of investors; or (3) 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-BatsEDGX-2016-35 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-BatsEDGX-2016-35. 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-BatsEDGX-2016-35, and should 
be submitted on or before August 30, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-18792 Filed 8-8-16; 8:45 am]
 BILLING CODE 8011-01-P