[Federal Register Volume 84, Number 42 (Monday, March 4, 2019)]
[Notices]
[Pages 7410-7411]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-03736]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85203]
Order Granting Applications by Nasdaq BX, Inc. and Nasdaq PHLX
LLC for Exemption Pursuant to Section 36(a) of the Exchange Act From
the Rule Filing Requirements of Section 19(b) of the Exchange Act With
Respect to Certain Order Audit Trail System Rules Incorporated by
Reference
February 26, 2019.
Nasdaq BX, Inc. (``BX'') and Nasdaq PHLX LLC (``Phlx'') (each the
``Exchange'' and collectively, the ``Exchanges'') have filed with the
Securities and Exchange Commission (``Commission'') an application for
an exemption from the rule filing requirements of Section 19(b) of the
Securities Exchange Act of 1934 (``Exchange Act'') \1\ with respect to
certain rules of Financial Industry Regulatory Authority (``FINRA'')
that the Exchanges seek to incorporate by reference. Section 36(a)(1)
of the Exchange Act,\2\ subject to certain limitations, authorizes the
Commission to conditionally or unconditionally exempt any person,
security, or transaction, or any class thereof, from any provision of
the Exchange Act or rule thereunder, if necessary or appropriate in the
public interest and consistent with the protection of investors.
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\1\ 15 U.S.C. 78s(b).
\2\ 15 U.S.C. 78mm(a)(1).
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The Exchanges each filed a proposed rule change \3\ under Section
19(b) of the Exchange Act to amend their respective Order Audit Trail
System (``OATS'') rules, some of which incorporate by reference the
rules contained in the FINRA Rule 7400 Series entitled ``Order Audit
Trail System,'' as such rules may be in effect from time to time, and
reference FINRA Rule 4590 entitled ``Synchronization of Member Business
Clocks.'' In the proposed rule changes, the Exchanges proposed to
incorporate by reference FINRA Rules 4590, 7440, and 7450, and thus
make these rules applicable to Exchange members in the case of BX, and
member organizations in the case of Phlx.\4\
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\3\ See Securities Exchange Act Release Nos. 84227 (September
20, 2018), 83 FR 48483 (September 25, 2018) (SR-BX-2018-045) and
84545 (November 6, 2018), 83 FR 56387 (November 13, 2018) (SR-Phlx-
2018-68).
\4\ The Exchanges stated in their proposed rule changes
specified in note 3 above that the changes would not be operative
until such time as the Commission granted their request for an
exemption from the rule filing requirements of Section 19(b) of the
Exchange Act.
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The Exchanges request, pursuant to Rule 0-12 under the Exchange
Act,\5\ that the Commission grant the Exchanges an exemption from the
rule filing requirements of Section 19(b) of the Exchange Act for
changes to each Exchange's rules that are effected solely by virtue of
a change to FINRA Rules 4590, 7440, and 7450 that are incorporated by
reference. Specifically, the Exchanges request that they be permitted
to incorporate by reference changes made to FINRA Rules 4590, 7440, and
7450 that are cross-referenced in the Exchanges' rules without the need
for each Exchange to separately file, pursuant to Section 19(b) of the
Exchange Act, the same proposed rule change as filed by FINRA.\6\
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\5\ 17 CFR 240.0-12.
\6\ See Letter from T. Sean Bennett, Principal Associate General
Counsel, Nasdaq Inc., to Brent J. Fields, Secretary, Commission,
dated November 29, 2018.
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The Exchanges represent that FINRA Rules 4590, 7440, and 7450 are
regulatory in nature and that they do not intend to incorporate by
reference any trading rules.\7\ Further, the Exchanges represent that
they will, as a condition of this exemption, provide written notice to
their members whenever FINRA proposes a change to FINRA Rules 4590,
7440, and 7450.\8\ Such notice will alert the members of each Exchange
to the proposed rule change and give them an opportunity to comment on
the proposal. The Exchanges state that they will also inform members in
writing when the Commission approves any such proposed rule change.\9\
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\7\ See id. at 2.
\8\ The Exchanges also state that they will provide such notice
on their websites in the same section they use to post their own
proposed rule changes pursuant to Rule 19b-4(l) of the Exchange Act.
In addition, the Exchanges state that their websites will include a
link to the FINRA website where the proposed rule change would be
located. Id.
\9\ Id.
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The Exchanges believe this exemption is appropriate because it will
result in the Exchanges' rules pertaining to OATS compliance remaining
consistent at all times, thus ensuring consistent regulation of joint
members of the Exchanges, as well as the Nasdaq Market.\10\
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\10\ Id.
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The Commission has issued exemptions similar to the Exchanges'
request.\11\ In granting one such exemption in 2010, the Commission
repeated a prior, 2004 Commission statement that it would consider
similar future exemption requests from other self-regulatory
organizations (``SROs''), provided that:
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\11\ See, e.g., Securities Exchange Act Release Nos. 80338
(March 29, 2017), 82 FR 16464 (April 4, 2017) (order granting
exemptive request from MIAX PEARL, LLC relating to rules of Miami
International Securities Exchange, LLC incorporated by reference);
72650 (July 22, 2014), 79 FR 44075 (July 29, 2014) (order granting
exemptive requests from NASDAQ OMX BX, Inc. and the NASDAQ Stock
Market LLC relating to rules of NASDAQ OMX PHLX LLC incorporated by
reference); 67256 (June 26, 2012), 77 FR 39277, 39286 (July 2, 2012)
(order approving SR-BX-2012-030 and granting exemptive request
relating to rules incorporated by reference by the BX Options
rules); 61534 (February 18, 2010), 75 FR 8760 (February 25, 2010)
(order granting BATS Exchange, Inc.'s exemptive request relating to
rules incorporated by reference by the BATS Exchange Options Market
rules) (``BATS Options Market Order''); and 57478 (March 12, 2008),
73 FR 14521, 14539-40 (March 18, 2008) (order approving SR-NASDAQ-
2007-004 and SR-NASDAQ-2007-080, and granting exemptive request
relating to rules incorporated by reference by The NASDAQ Options
Market).
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An SRO wishing to incorporate rules of another SRO by
reference has submitted a written request for an order exempting it
from the requirement in Section 19(b) of the Exchange Act to file
proposed rule changes relating to the rules incorporated by reference,
has identified the applicable originating SRO(s), together with the
rules it wants to incorporate by reference, and otherwise has complied
with the procedural requirements set forth in the Commission's release
governing procedures for requesting exemptive orders pursuant to Rule
0-12 under the Exchange Act; \12\
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\12\ See 17 CFR 240.0-12 and Securities Exchange Act Release No.
39624 (February 5, 1998), 63 FR 8101 (February 18, 1998)
(``Commission Procedures for Filing Applications for Orders for
Exemptive Relief Pursuant to Section 36 of the Exchange Act; Final
Rule'').
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The incorporating SRO has requested incorporation of
categories of rules (rather than individual rules within a category)
that are not trading rules (e.g., the SRO has requested incorporation
of rules such as margin, suitability, or arbitration); and
The incorporating SRO has reasonable procedures in place
to provide written notice to its members each time a change is proposed
to the incorporated rules of another SRO.\13\
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\13\ See BATS Options Market Order, supra note 11 (citing
Securities Exchange Act Release No. 49260 (February 17, 2004), 69 FR
8500 (February 24, 2004) (order granting exemptive request relating
to rules incorporated by reference by several SROs) (``2004
Order'')).
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The Commission believes that the Exchanges have satisfied each of
these
[[Page 7411]]
conditions. Further, the Commission also believes that granting the
Exchanges an exemption from the rule filing requirements under Section
19(b) of the Exchange Act will promote efficient use of the
Commission's and the Exchanges' resources by avoiding duplicative rule
filings based on simultaneous changes to identical rule text sought by
more than one SRO.\14\ The Commission therefore finds it appropriate in
the public interest and consistent with the protection of investors to
exempt the Exchanges from the rule filing requirements under Section
19(b) of the Exchange Act with respect to the above-described rules
they incorporate by reference. This exemption is conditioned upon the
Exchanges promptly providing written notice to their members whenever
FINRA changes a rule that the Exchanges have incorporated by reference.
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\14\ See BATS Options Market Order, supra note 11, 75 FR at
8761; see also 2004 Order, supra note 13, 69 FR at 8502.
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Accordingly, it is ordered, pursuant to Section 36 of the Exchange
Act,\15\ that the Exchanges are exempt from the rule filing
requirements of Section 19(b) of the Exchange Act solely with respect
to changes to the rules identified in their request that incorporate by
reference certain FINRA rules that are the result of changes to such
FINRA rules, provided that the Exchanges promptly provide written
notice to their members whenever FINRA proposes to change a rule that
the Exchanges have incorporated by reference.
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\15\ 15 U.S.C. 78mm.
\16\ 17 CFR 200.30-3(a)(76).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-03736 Filed 3-1-19; 8:45 am]
BILLING CODE 8011-01-P