[Federal Register Volume 81, Number 156 (Friday, August 12, 2016)]
[Notices]
[Pages 53509-53512]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-19171]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78502; File No. SR-IEX-2016-10]


Self-Regulatory Organizations: Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rule 9.218 To Specify the List of Violations Eligible for Disposition 
Under IEX's Minor Rule Violation Plan

August 8, 2016.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on August 4, 2016, the Investors Exchange LLC (``IEX'' or 
``Exchange'') 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) under the Securities 
Exchange Act of 1934 (``Act'') [sic],\4\ and Rule 19b-4 thereunder,\5\ 
Investors Exchange LLC (``IEX'' or ``Exchange'') [sic] is filing with 
the Securities and Exchange Commission (``Commission'') [sic] a 
proposed rule change to amend IEX Rule 9.218 (Violations Appropriate 
for Disposition Under Plan Pursuant to Exchange Act Rule 19d-1(c)(2)) 
to specify the list of violations eligible for disposition under IEX 
Rule 9.216(b), (Procedure for Violation Under Plan Pursuant to Exchange 
Act Rule 19d-1(c)(2)) pursuant to IEX's Minor Rule Violation Plan 
(``MRVP'').\6\ The Exchange has designated this proposal as non-
controversial and provided the Commission with the notice required by 
Rule 19b-4(f)(6)(iii) under the Act.\7\
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CRF 240.19b-4.
    \6\ IEX's MRVP was declared effective by the Commission on 
August 3, 2016. See, Securities Exchange Act Release No. 78474 
(August 3, 2016).
    \7\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    The text of the proposed rule change is available at the Exchange's 
Web site at www.iextrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and the 
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 statement [sic] 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.

[[Page 53510]]

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

1. Purpose
    IEX Rule 9.216(b) provides procedures for disposition of certain 
rule violations designated as minor rule violations pursuant to a plan 
declared effective by the Commission in accordance with Section 
19(d)(1) of the Act and Rule 19d-1(c)(2) thereunder. IEX's MRVP allows 
IEX, or FINRA on its behalf, to impose a fine of up to $2,500 on any 
Member or associated person of a Member for a minor violation of an 
eligible rule. As proposed, IEX Rule 9.218 sets forth the rules 
eligible for disposition pursuant to IEX's MRVP as well as the 
recommended fine schedule for such dispositions. While IEX considers 
compliance with all of its rules to be important, inclusion of more 
technical rule violations in the MRVP is designed to provide for a 
risk-based allocation of FINRA and IEX resources to more high-risk 
matters because MRVP settlements are typically handled more efficiently 
and expeditiously.
    The purpose of the MRVP is to provide reasonable but meaningful 
sanctions for minor or technical violations of rules when the conduct 
at issue does not warrant stronger, reportable disciplinary sanctions. 
The inclusion of a rule in IEX's MRVP does not minimize the importance 
of compliance with such rule, nor does it preclude IEX, or FINRA on its 
behalf, from choosing to pursue violations of eligible rules through an 
Acceptance, Waiver and Consent (``AWC'') or Complaint if the nature of 
the violations or prior disciplinary history warrants more significant 
sanctions. Rather, the option to impose an MRVP sanction gives IEX, and 
FINRA on its behalf, additional flexibility to administer its 
enforcement program in the most effective and efficient manner, while 
still fully meeting IEX's remedial objectives in addressing violative 
conduct. FINRA, on behalf of IEX, and subject to IEX oversight, will 
examine and surveil for compliance with MRVP eligible rules in a manner 
consistent with the IEX regulatory program and will determine on a 
case-by-case basis whether disposition pursuant to the MRVP is 
appropriate.
    In addition, Members and their associated persons may decline to 
accept a Minor Rule Violation, in which case FINRA, on behalf of IEX, 
may proceed in accordance with the Exchange's disciplinary rules, which 
include hearing rights for formal disciplinary proceedings.\8\
---------------------------------------------------------------------------

    \8\ See, Chapter 9 generally.
---------------------------------------------------------------------------

    IEX conducted a comprehensive review of its rules to determine the 
rules that are appropriate to add to the MRVP. As proposed, the rules 
included in the MRVP are as follows:
     Continuing education: Rule 2.160(p) specifies the 
continuing education requirements applicable to registered 
representatives of Members. Both FINRA and the Nasdaq Stock Market 
(``Nasdaq'') include comparable rules in each of their MRVPs.\9\
---------------------------------------------------------------------------

    \9\ See FINRA Rules 9217 and 1250, Nasdaq Rules 1120 and IM-
9216.
---------------------------------------------------------------------------

     Books and records: Rule 4.511 requires IEX Members to 
comply with FINRA Rule 4511 as if such rule were part of the Exchange's 
rules, and specifies applicable books and records requirements. FINRA 
Rule 4511 is included in FINRA's MRVP.
     Furnishing of records: Rule 4.540 requires IEX Members to 
furnish specified records to the Exchange, upon request and in a time 
and manner required by the Exchange. The rule also provides that the 
Exchange shall be allowed access, at any time, to the books and records 
of the Member in order to obtain or verify information related to 
transactions executed on or through the Exchange or activities relating 
to the Exchange. This rule is comparable to BATS BZX Exchange, Inc. 
(``BZX'') Rule 4.2, which is included in the BZX MRVP.\10\
---------------------------------------------------------------------------

    \10\ See BZX Rule 8.15.
---------------------------------------------------------------------------

     Supervision: Rule 5.110 requires that each Member 
establish and maintain a system to supervise the activities of each 
associated person that is reasonably designed to achieve compliance 
with applicable securities laws and regulations, and with applicable 
IEX rules; including, as specified, written procedures, internal 
inspections, transaction review and investigation, and investigation of 
applicants for registration. Violations of Rule 5.110 would be included 
in the MRVP where the underlying violative conduct is also included in 
the MRVP.\11\ FINRA treats its comparable Rule 3110 in the same manner.
---------------------------------------------------------------------------

    \11\ For example, if FINRA (on behalf of IEX) identified that a 
short sale order marking violation (Rule 11.290) was attributable to 
a supervision deficiency, the supervision deficiency could be 
included in a disposition under the MRVP.
---------------------------------------------------------------------------

     Automated submission of trading data requested: Rule 8.220 
requires Members to submit trade data in the specified automated format 
upon request by IEX. This rule is comparable to FINRA Rule 8211 which 
is included in FINRA's MRVP.
     Market Maker two-sided quotation requirement: Rule 
11.151(a)(1) requires that a Member registered as a Market Maker comply 
with the specified continuous two-sided quotations requirements. This 
rule is comparable to BZX Rule 11.8(a)(1) which is included in BZX 
MRVP.
     Short sales: Rule 11.290 requires, among other things, 
that all sell orders be marked long, short, or short exempt. FINRA 
includes Rule 200(g) of SEC Regulation SHO (Failure to accurately mark 
sell orders of equity securities) in its MRV. Similarly, BZX includes 
its Rule 11.19 requirement to identify short sale orders as such in its 
MRV plan.
     Locking or crossing quotations in NMS stocks: Rule 11.310 
provides in relevant part that Users of IEX shall reasonably avoid 
displaying, and shall not engage in a pattern or practice of 
displaying, any quotations that lock or cross a protected quotation 
previously disseminated pursuant to an effective national market system 
plan. This rule is comparable to BZX Rule 11.20, which is included in 
BZX MRVP.
     Order audit trail system requirements: Rule 11.420 
specifies the order audit trail system requirements applicable to 
Members and persons associated with a Member, and in relevant part also 
requires compliance with FINRA Rules 7440 and 7550 as if such rule were 
part of IEX's rules. This rule is comparable to Nasdaq Rules 6954 and 
6955,\12\ as well as FINRA Rules 7440 and 7450, each of which are 
included in the Nasdaq and FINRA MRVP.
---------------------------------------------------------------------------

    \12\ Nasdaq Rules 6954 and 6955 were renumbered as Rules 7440A 
and 7450A respectively.
---------------------------------------------------------------------------

    In addition, as proposed, Rule 9.218 includes the following 
recommended fine schedule for minor rule violation dispositions of the 
rules included therein:

[[Page 53511]]



------------------------------------------------------------------------
              Occurrence *                  Individual        Member
------------------------------------------------------------------------
First time fined........................            $100            $500
Second time fined.......................             300           1,000
Third time fined........................             500           2,500
------------------------------------------------------------------------
* Within a ``rolling'' 12-month period.

    The recommended fine schedule is based on BZX Rule 8.15, 
Interpretations and Policies .01. The recommended fine schedule is 
intended to provide transparency to IEX Members and associated persons 
with respect to administration of the Exchange's MRVP.
2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\13\ in general, and furthers the 
objectives of Sections 6(b)(5),\14\ (6) \15\ and (7) \16\ of the Act, 
in particular.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ 15 U.S.C. 78f(b)(6).
    \16\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

    The Exchange believes that the proposal is consistent with Section 
6(b)(5) of the Act \17\ because 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. Specifically, 
the proposed rule change will provide the Exchange with the ability to 
impose reasonable but meaningful sanctions for minor or technical 
violations of rules when the conduct at issue does not warrant 
stronger, reportable disciplinary sanctions, which is consistent with 
the protection of investors and the public interest. Further, the 
Exchange believes that inclusion of the specified rules in the 
Exchange's MRVP, as well as the recommended fine schedule, would 
provide FINRA, on behalf of the Exchange, with the ability to 
administer its enforcement program in the most effective and efficient 
manner, while still fully meeting IEX's remedial objectives in 
addressing violative conduct, which is also consistent with the 
protection of investors and the public interest.
---------------------------------------------------------------------------

    \17\ See supra note 14 [sic].
---------------------------------------------------------------------------

    In addition, the Exchange believes that the proposal is consistent 
with Section 6(b)(7) of the Act \18\ because it would provide a fair 
procedure for the disciplining of IEX Members and associated persons. 
As discussed above, under the Exchange's disciplinary rules a Member or 
associated person may decline to accept a Minor Rule Violation, in 
which case FINRA, on behalf of IEX, may proceed in accordance with the 
Exchange's disciplinary rules, which include hearing rights for formal 
disciplinary proceedings. The Exchange's rules governing formal 
disciplinary rules have already been approved by the Commission, which 
included a finding that IEX's rules concerning its disciplinary and 
oversight programs are consistent with the requirements of Sections 
6(b)(6) and 6(b)(7) of the Act \19\ in that they provide fair 
procedures for the disciplining of members and persons associated with 
members.\20\
---------------------------------------------------------------------------

    \18\ See supra note 16 [sic].
    \19\ See supra, notes 15 [sic] and 16 [sic].
    \20\ See Securities Exchange Act Release No. 34-78101 (June 17, 
2016), 81 FR 41141 (June 23, 2016) (File No. 10-222).
---------------------------------------------------------------------------

    The Exchange also believes that the proposed rule change does not 
unfairly discriminate between customers, issuers, brokers and dealers 
in that it will be applicable to all Members.

B. Self-Regulatory Organization's Statement on Burden on Competition

    IEX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change will 
allow for a quicker, more efficient means to resolve minor violations 
of eligible rules, potentially lessening the burden on firms in those 
circumstances where, absent the rule's inclusion in the MRVP, a more 
resource-intense formal process might ensue.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

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) of the Act \21\ and Rule 19b-4(f)(6) thereunder.\22\ 
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, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \23\ and Rule 19b-
4(f)(6) thereunder.\24\
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f)(6).
    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 17 CFR 240.19b-4(f)(6). 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.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \25\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\26\ 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 proposed 
rule change may become operative at the time of the launch of its 
operation as a national securities exchange.
---------------------------------------------------------------------------

    \25\ 17 CFR 240.19b-4(f)(6).
    \26\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. As 
noted above, the IEX MRVP, including the proposed violations, was 
declared effective by the Commission on August 3, 2016.\27\ The 
proposed rule change merely incorporates the list of violations 
included in the MRVP into IEX Rule 9.218. For this reason, the 
Commission hereby waives the 30-day operative delay and designates the 
proposal operative upon filing.\28\
---------------------------------------------------------------------------

    \27\ See supra note 6.
    \28\ 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).
---------------------------------------------------------------------------

    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

[[Page 53512]]

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 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-IEX-2016-10 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-IEX-2016-10. 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 such filing also will be available 
for inspection and copying at the principal offices 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-IEX-2016-10, 
and should be submitted on or before September 2, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
---------------------------------------------------------------------------

    \29\ 17 CFR 200.30-3(a)(12), (59).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-19171 Filed 8-11-16; 8:45 am]
BILLING CODE 8011-01-P