[Federal Register Volume 81, Number 226 (Wednesday, November 23, 2016)]
[Notices]
[Pages 84625-84628]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-28186]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79342; File No. SR-BatsBZX-2016-73]


Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of an Amendment to Rule 8.11, 
Effective Date of Judgment and the Adoption of Rule 8.18, Release of 
Disciplinary Complaints, Decisions and Other Information

November 17, 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 November 3, 2016, Bats BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') 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 add proposed Rule 8.18 to require 
the publication of the Exchange's disciplinary complaints and 
disciplinary decisions issued and to remove the part of Interpretation 
and Policy .01 to Rule 8.11 that currently governs the publication of 
disciplinary complaints and information related to disciplinary 
complaints.
    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.

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
Proposed Rule Change
Reorganization of Exchange Rules Governing Release of Disciplinary 
Complaints, Decisions and Other Information Based on FINRA Rule 8313
    Interpretation and Policy .01 to Rule 8.11 currently provides, in 
part, that the Exchange shall cause details regarding all formal 
disciplinary actions where a final decision has been issued, except as 
provided in Rule 8.15(a), to be published on its Web site. 
Interpretation and Policy .01 also provides that the Exchange shall not 
issue any press release or other statement to the press concerning any 
formal or informal disciplinary matter unless the Chief Regulatory 
Officer recommends a press release to the Executive Committee or the 
Board of the Exchange and either body determines that such a press 
release is warranted. The Exchange proposes to remove parts of 
Interpretation and Policy .01 to Rule 8.11 described above and to add 
proposed Rule 8.18 modeled after FINRA Rule 8313,\5\ as described 
below, to govern the publication of disciplinary information. The scope 
of proposed Rule 8.18 would be limited to publication of materials 
relating to the disciplinary process set forth in Chapter VIII because 
the Exchange seeks to provide prompt access to more information 
regarding its disciplinary

[[Page 84626]]

actions to Members and associated persons. By providing more 
information regarding the Exchange's disciplinary process, including 
publishing disciplinary complaints at the time they are filed, Members 
and associated persons will be able to sooner identify conduct that the 
Exchange views as problematic and have will [sic] the ability to take 
corrective steps sooner than they can under the current rules that 
provide only for the publication of disciplinary decisions after they 
become final. In that regard, the Exchange has determined not to adopt 
FINRA Rule 8313 in all respects at this time.\6\
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    \5\ New York Stock Exchange, LLC (``NYSE'') similarly adopted 
rules modeled after FINRA Rule 8313. See Securities Exchange Act 
Release No. 78664 (August 24, 2016), 81 FR 59678, 59679 (August 30, 
2016) (SR-NYSE-2016-40).
    \6\ NYSE similarly declined to adopt all provisions of FINRA 
Rule 8313 insofar as the FINRA rule related to information beyond 
the formal disciplinary process. See id. at 59679.
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General Standards
    The Exchange proposes Rule 8.18(a) to be entitled ``General 
Standards.'' The text would set forth general standards for the release 
to the public of disciplinary complaints, decisions, or information.
    Proposed Rule 8.18(a)(1) would, in part, essentially replace the 
part of Interpretation and Policy .01 to Rule 8.11 that addresses the 
publication of disciplinary decisions and conform [sic] to FINRA Rule 
8313. The proposed rule would provide that the Exchange shall release 
to the public a copy of and, at the Exchange's discretion, information 
with respect to, any disciplinary decision issued by the Exchange, as 
defined in proposed Rule 8.18(e). Additionally, the proposed rule would 
provide that the Exchange would release to the public copies of 
disciplinary complaints as defined in proposed Rule 8.18(e). Also, the 
decision to issue other related information, including a press release, 
under proposed Rule 8.18(a)(1) would be in the discretion of the 
Exchange generally instead of requiring Executive Committee or Exchange 
Board approval as currently required in Interpretation and Policy .01 
to Rule 8.11. Proposed Rule 8.18(a)(1) would also provide that, in 
response to a request, the Exchange shall also release to the 
requesting party a copy of any identified disciplinary complaint or 
disciplinary decision issued by the Exchange, as defined in proposed 
Rule 8.18(e). These proposed amendments are modeled after FINRA Rule 
8313(a)(1) and would be substantially similar to the FINRA rule.
    The Exchange does not propose to incorporate subsections (2), (3), 
(4) and (6) of FINRA Rule 8313(a) because the Exchange proposes to 
limit the scope of proposed Rule 8.18 to the publication of materials 
relating to the disciplinary process set forth in Chapter VIII at this 
time.\7\ The Exchange, however, notes that although Exchange Rules do 
not provide for temporary cease and desist orders as provided for in 
FINRA Rule 9800, the Exchange's Client Suspension Rule--Rule 8.17--is 
similar in its procedure and purpose. The Exchange proposes to include 
a client suspension order issued pursuant to Rule 8.17 in the 
definition of ``disciplinary decision'' under proposed Rule 8.18(e)(2) 
consistent with FINRA's inclusion of its temporary cease and desist 
orders for publication because the Exchange views client suspension 
proceedings as disciplinary in nature. For the same reason, the 
Exchange proposes to include a notice of the initiation of a client 
suspension proceeding in the definition of ``disciplinary complaint'' 
under proposed Rule 8.18(e)(1).
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    \7\ Subsection (2) of FINRA Rule 8313(a) provides for the 
publication of statutory disqualification decisions and temporary 
cease and desist orders.
     Subsection (3) provides for the publication of any suspension, 
cancellation, expulsion, or bar for: failing to keep information 
current; failing to pay dues; failing to comply with an arbitration 
award or related settlement or an order of restitution or settlement 
providing for restitution; failing to meet the eligibility or 
qualification standards or prerequisites for access to services; or 
experiencing financial or operational difficulties. Additionally, 
subsection (3) provides for the publication of any suspension, 
cancellation, expulsion, or bar imposed as the result of a summary 
proceeding for actions authorized by Section 15A(h)(3) of the Act.
     Subsection (4) addresses procedures for membership proceedings.
     The Exchange does not propose to adopt subsections (2), (3), 
and (4) because, as discussed above, the Exchange's proposal is 
intended to provide more information regarding the Exchange's 
disciplinary process to the public so that Members and associated 
persons will be able to identify conduct that the Exchange views as 
problematic and will have the ability to take corrective steps 
sooner. Subsections (2), (3), and (4) to the FINRA rule would not 
further that purpose because those subsections would require the 
publication of information generally relating to membership 
eligibility or failure to satisfy one's membership obligations 
rather than discipline. Subsection (2) additionally addresses 
temporary cease and desist proceedings, which the Exchange does not 
have, and Subsection (3) additionally addresses Section 15A(h)(3) of 
the Act, which applies only to registered securities associations.
     Subsection (6) permits discretionary release of a complaint, 
decision, order, notification, or notice issued under FINRA rules, 
where the release of such information is deemed by FINRA's Chief 
Executive Officer (or such other senior officer as the Chief 
Executive Officer may designate) to be in the public interest. The 
Exchange does not propose to adopt this open-ended subsection 
because [sic] Exchange intends for the proposed rule to instead be 
limited to disciplinary information for the reasons discussed above.
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    The Exchange does not propose to incorporate subsection (5) of 
FINRA Rule 8313(a) because the Exchange does not have at this time 
provisions analogous to FINRA Rule 6490 \8\ and the FINRA Rule 9700 
Series.\9\ Additionally, the Exchange does not propose to include its 
procedures for exemptive relief analogous to the FINRA Rule 9600 Series 
because the Exchange proposes to limit scope of proposed Rule 8.18 to 
the publication of disciplinary materials.
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    \8\ ``Processing of Company-Related Actions.''
    \9\ ``Procedure For Grievances Concerning the Automated 
Systems.''
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Release Specifications
    The Exchange proposes to include subsection (b) to proposed Rule 
8.18 entitled ``Release Specifications'' modeled after FINRA Rule 
8313(b). Proposed Rule 8.18(b)(1) provides that copies of, and 
information with respect to, any disciplinary complaint released to the 
public pursuant to paragraph (a) of the proposed rule shall indicate 
that a disciplinary complaint represents the initiation of a formal 
proceeding by the Exchange in which findings as to the allegations in 
the complaint have not been made and does not represent a decision as 
to any of the allegations contained in the complaint. The proposed rule 
would be the same as FINRA Rule 8313(b)(1) except that the proposed 
rule would substitute the term ``Exchange'' for ``FINRA.''
    Proposed Rule 8.18(b)(2) provides that copies of, and information 
with respect to, any disciplinary decision released to the public 
pursuant to paragraph (a) of the proposed rule prior to the expiration 
of the time period provided for an appeal or call for review as 
permitted under Exchange Rules or the Act, or while such an appeal or 
call for review is pending, shall indicate that the findings and 
sanctions imposed therein are subject to review and modification by the 
Exchange or the Commission. The proposed rule would be substantially 
similar to FINRA Rule 8313(b)(2). The proposed rule would substitute 
the term ``Exchange'' for ``FINRA'' and would not include a provision 
relating to the release specifications for an ``other decision, order, 
notification, or notice'' because, as noted above, the Exchange 
proposes to limit the rule only to disciplinary complaints and 
disciplinary decisions.
Discretion To Redact Certain Information or Waive Publication
    The Exchange has determined that, subject to limited exceptions, 
disciplinary information should be released to the public in unredacted 
form. To provide the standard for such limited exceptions, the Exchange 
proposes subsection (c) of proposed Rule 8.18 entitled ``Discretion to 
Redact Certain Information or Waive

[[Page 84627]]

Publication,'' modeled after FINRA Rule 8313(c).
    Proposed Rule 8.18(c)(1) would provide that the Exchange reserves 
the right to redact, on a case-by-case basis, information that contains 
confidential customer information, including customer identities, or 
information that raises significant identity theft, personal safety, or 
privacy concerns that are not outweighed by investor protection 
concerns. The proposed rule would be the same as FINRA Rule 8313(c)(1) 
except that the proposed rule would substitute the term ``Exchange'' 
for ``FINRA.''
    Similarly, proposed Rule 8.18(c)(2) provides that, notwithstanding 
paragraph (a) of the proposed rule, the Exchange may determine, in its 
discretion, to waive the requirement to release a copy of, or 
information with respect to, any disciplinary complaint or disciplinary 
decision under those extraordinary circumstances where the release of 
such information would violate fundamental notions of fairness or work 
an injustice. The proposed rule would be the same as FINRA Rule 
8313(c)(2) except that the proposed rule would substitute the term 
``Exchange'' for ``FINRA'' and would not include a provision relating 
to the waiver of the release of an ``other decision, order, 
notification, or notice'' because, as noted above, the Exchange 
proposes to limit the rule only to disciplinary complaints and 
disciplinary decisions.
Notice of Appeals of Exchange Decisions
    The Exchange proposes to include subsection (d) to proposed Rule 
8.18 entitled ``Notice of Appeals of Exchange Decisions to the SEC'' 
modeled on FINRA Rule 8313(d). Proposed Rule 8.18(d) provides that the 
Exchange must provide notice to the public when a disciplinary decision 
of the Exchange is appealed to the Commission and the notice shall 
state whether the effectiveness of the decision has been stayed pending 
the outcome of proceedings before the Commission. The proposed rule 
would be the same as FINRA Rule 8313(d) except that the proposed Rule 
would substitute the term ``Exchange'' for ``FINRA.''
Definitions
    Finally, the Exchange proposes subsection (e) of proposed Rule 8.18 
entitled ``Definitions.'' Proposed Rule 8.18(e) would set forth 
definitions of the terms ``disciplinary complaint'' and ``disciplinary 
decision'' as used in the rule, modeled after the definitions contained 
in FINRA Rule 8313(e).
    First, proposed Rule 8.18(e)(1) would define the term 
``disciplinary complaint'' to mean any statement of charges issued 
pursuant to Rule 8.4 or any notice served pursuant to Rule 8.17. This 
proposed rule is based on FINRA Rule 8313(e)(1) except that it replaces 
the term ``complaint pursuant to the Rule 9200 Series'' with 
``statement of charges pursuant to Rule 8.4'' and it includes a notice 
of the initiation of a client suspension proceeding issued pursuant to 
Rule 8.17 in the definition of ``disciplinary complaint.''
    Second, proposed Rule 8.18(e)(2) would define the term 
``disciplinary decision'' to mean any decision issued pursuant to the 
Chapter VIII, including, decisions issued by a Hearing Panel or the 
Appeals Committee and accepted offers of settlement. The Exchange 
additionally proposes to include suspension orders issued pursuant to 
Rule 8.17 in the definition of ``disciplinary decision.'' The Exchange 
does not propose to adopt the part of FINRA Rule 8313(e)(2) that 
discusses decisions issued pursuant to the FINRA Rule 9550 Series, 
FINRA Rule 9600 Series, FINRA Rule 9700 Series, or FINRA Rule 9800 
Series, or decisions, notifications, or notices issued pursuant to the 
FINRA Rule 9520 Series because, as explained above, the Exchange does 
not propose to adopt the provisions of the FINRA Rule providing for the 
publication of such information. Finally, proposed Rule 8.18(e)(2) 
would provide that minor rule violation plan letters issued pursuant to 
Rules 8.15 and 25.3 are not subject to the proposed rule.
2. Statutory Basis
    The Exchange believes that its proposal 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\ In particular, 
the proposal is consistent with Section 6(b)(1) \11\ in that it enables 
the Exchange to be so organized as to have the capacity to be able to 
carry out the purposes of the Act and to comply, and to enforce 
compliance by its exchange members and persons associated with its 
exchange members, with the provisions of the Act, the rules and 
regulations thereunder, and the rules of the Exchange. In particular, 
the Exchange believes that the proposed addition of Rule 8.18 regarding 
release of disciplinary complaints, decisions and other information are 
[sic] consistent with Section 6(b)(1) of the Act because it would 
establish general standards for the release of disciplinary information 
to the public to provide greater access to information regarding the 
Exchange's disciplinary actions.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(1).
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    For the same reasons, the Exchange believes that proposed Rule 8.18 
furthers the objectives of Section 6(b)(5) of the Act \12\ because the 
proposed rule is designed 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. In particular, proposed Rule 8.18 furthers the 
objectives of Section 6(b)(5) of the Act by providing greater clarity, 
consistency, and transparency regarding the release of disciplinary 
complaints, decisions and other information to the public. By adopting 
the proposed Rule 8.18 modeled after FINRA Rule 8313, the Exchange 
would establish standards for the release of disciplinary information 
to the public in line with those in effect at FINRA that provide 
greater access to information regarding the Exchange's disciplinary 
actions and describe the scope of information subject to proposed Rule 
8.18. The Exchange believes that this proposed rule change promotes 
greater transparency to the Exchange's disciplinary process, and that 
the proposed rule change provides greater access to information 
regarding its disciplinary actions, and also provides valuable guidance 
and information to Members, associated persons, other regulators, and 
the investing public.
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    \12\ 15 U.S.C. 78f(b)(5).
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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 intended to address competitive issues, but rather it is designed 
to enhance the Exchange's rules governing the release of disciplinary 
complaints, decisions and other information to the public, thereby 
providing greater clarity and consistency and resulting in less 
burdensome and more efficient regulatory compliance and facilitating 
performance of regulatory functions.

[[Page 84628]]

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

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any written comments from members or other interested parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing 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, 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\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
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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 filing. 
However, Rule 19b-4(f)(6)(iii) \15\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. In its filing with the Commission, 
the Exchange requests that the Commission waive the 30-day operative 
delay. The Exchange states that FINRA performs services for it under a 
Regulatory Services Agreement (``RSA''), including the filing and 
prosecution of disciplinary complaints on the Exchange's behalf. FINRA 
also files and prosecutes disciplinary complaints on its own behalf, 
sometimes on cases involving identical or similar conduct to the cases 
it brings on the Exchange's behalf. Without the waiver, the Exchange is 
concerned that FINRA might publish a complaint during the 30-day 
operative delay, and that the Exchange would not be permitted to 
publish its own complaint, prepared by FINRA, regarding the same 
conduct. According to the Exchange, this would supply the public with 
an incomplete picture of the disciplinary proceedings, the full nature 
of which could not be disclosed until much later when a final 
disciplinary decision is issued. The Exchange, therefore, believes that 
waiver of the operative delay is consistent with the protection of 
investors and the public interest, as it will allow the Exchange to 
immediately publish any disciplinary complaints or decisions that are 
filed or issued after the proposal is filed. The Commission believes 
that waiver of the 30-day operative delay is consistent with the 
protection of investors and the public interest because it will allow 
BZX to publish disciplinary complaints or decisions that have been 
filed or issued without delay. Therefore, the Commission designates the 
proposed rule change to be operative upon filing.\16\
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    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission also 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 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-BatsBZX-2016-73 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-BatsBZX-2016-73. 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 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-BatsBZX-2016-73 and should 
be submitted on or before December 14, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-28186 Filed 11-22-16; 8:45 am]
 BILLING CODE 8011-01-P