[Federal Register Volume 81, Number 226 (Wednesday, November 23, 2016)]
[Notices]
[Pages 84631-84634]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-28187]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79343; File No. SR-BatsEDGA-2016-27]
Self-Regulatory Organizations; Bats EDGA 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 EDGA Exchange, Inc. (the ``Exchange'' or
``EDGA'') 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
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
[[Page 84632]]
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 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
[[Page 84633]]
``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 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
[[Page 84634]]
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.
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
EDGA 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-BatsEDGA-2016-27 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-BatsEDGA-2016-27. 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-BatsEDGA-2016-27 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\
Brent J. Fields,
Secretary.
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\17\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-28187 Filed 11-22-16; 8:45 am]
BILLING CODE 8011-01-P