[Federal Register Volume 85, Number 132 (Thursday, July 9, 2020)]
[Notices]
[Pages 41259-41262]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14741]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89216; File No. SR-LTSE-2020-10]
Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to the Designation of Members for Mandatory Disaster Recovery
Testing Pursuant to Regulation SCI for Calendar Year 2020
July 2, 2020.
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 June 22, 2020, Long-Term Stock Exchange, Inc.
[[Page 41260]]
(``LTSE'' or the ``Exchange'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I and II below, which Items have been prepared by the self-
regulatory organization. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
LTSE proposes a rule change to amend how the Exchange will
designate certain Members to participate in mandatory disaster recovery
testing pursuant to Regulation SCI and LTSE Rule 2.250 for calendar
year 2020.
The text of the proposed rule change is available at the Exchange's
website at https://longtermstockexchange.com/, at the principal office
of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement on the Purpose of, and
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 statements 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.
A. Self-Regulatory Organization's Statement on the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend LTSE Rule 2.250 to revise how it
will designate certain Members to participate in mandatory disaster
recovery testing pursuant to Regulation SCI and Rule 2.250 for calendar
year 2020.
Regulation SCI requires LTSE, as an SCI entity, to maintain
business continuity and disaster recovery plans that provide for
resilient and geographically diverse backup and recovery capabilities
that are reasonably designed to achieve two-hour resumption of critical
SCI systems and next business day resumption of other SCI systems
following a wide-scale disruption.\3\
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\3\ See Securities Exchange Act Release No. 73639 (November 19,
2014), 79 FR 72252 (December 5, 2014).
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Regulation SCI and LTSE Rule 2.250 also require LTSE to designate
certain Members \4\ to participate in business continuity and disaster
recovery testing in a manner specified by LTSE and at a frequency of
not less than once every 12 months.\5\ Such testing ordinarily is part
of an annual industry-wide test, which is next scheduled for October
24, 2020.
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\4\ The term ``Member'' refers to any registered broker or
dealer that has been admitted to membership in the Exchange. A
Member will have the status of a Member of the Exchange as that term
is defined in Section 3(a)(3) of the Act. Membership may be granted
to a sole proprietor, partnership, corporation, limited liability
company, or other organization that is a registered broker or dealer
pursuant to Section 15 of the Act, and which has been approved by
the Exchange. See LTSE Rule 1.160(w).
\5\ See LTSE Rule 2.250(a), (b).
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LTSE Rule 2.250 governs mandatory participation in testing of
LTSE's backup systems, and states that LTSE will designate Members that
account for a specified percentage of executed volume on LTSE, measured
on quarterly basis, as required to connect to LTSE's backup systems and
participate in functional and performance testing of such system.\6\
Rule 2.250 further provides that if a Member has not previously been
designated as meeting the volume criteria, such Member will have until
the next calendar quarter before such requirements are applicable.\7\
LTSE currently is not operational and is not expecting to have two
quarters of trading data on which to base its Member designation prior
to the October 24, 2020 test. Thus, as currently written, Rule 2.250
would not permit the Exchange to designate any Members to participate
in the industry-wide test for 2020 because no Members will have the
requisite trading volume on LTSE upon which a designation can be made.
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\6\ See LTSE Rule 2.250(a), (c).
\7\ See LTSE Rule 2.250(c).
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To address the unique circumstances for disaster recovery testing
in 2020, the year in which LTSE will become operational, the Exchange
proposes to add new paragraph (d), which would provide that for
calendar year 2020, notwithstanding paragraphs (b) and (c), which
assign the Exchange responsibility of ``identifying Members that
account for a meaningful percentage of the Exchange's overall volume,''
the Exchange will instead designate at least three Members who have a
meaningful percentage of trading volumes in NMS Stocks across the other
equity exchanges. This would allow the Exchange to identify Members for
industry-wide disaster recovery testing in the absence of the metrics
that will be used in the ordinary course to designate such firms.
LTSE believes that designating at least three Members who are
likely already to be participating in the industry-wide test by virtue
of their trading activities on other exchanges is likely to reduce the
burdens associated with being designated for disaster recovery testing
by LTSE in absence of significant trading volumes on the Exchange.
Moreover, to reduce the burdens on such Members, the Exchange proposes,
where possible, to designate firms that have already established
connections to its backup systems. This is intended to address the
``notice'' requirements in the existing Rule 2.250.\8\ The Exchange
believes that designating three or more such firms is reasonably
designed to provide the minimum necessary for the maintenance of fair
and orderly markets in the event of the activation of such plans.
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\8\ See id.
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LTSE intends to notify Members of their designation for disaster
recovery testing no later than July 10, 2020. With respect to industry-
wide disaster recovery testing in 2021 and beyond, the Exchange will
issue one or more regulatory circulars establishing the standards to be
used for determining which Members contribute a meaningful percentage
of the Exchange's overall volume and thus are required to participate
in functional and performance testing. Such standards will be informed
by the Exchange's actual market and trading data, in accordance with
LTSE Rule 2.250(a)-(c).
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\9\ in general, and
furthers the objectives of Section 6(b)(5) of the Act,\10\ in
particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, promote just and equitable principles
of trade, to foster cooperation and coordination with persons engaged
in facilitating transactions in securities, 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.
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\9\ 15 U.S.C. 78f.
\10\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that its proposed methodology of designating
Members who have meaningful levels of trading activity on other
exchanges and
[[Page 41261]]
who have established connectivity to LTSE's backup systems is
consistent with the protection of investors and the public interest.
The Exchange believes that the proposed rule change will ensure that
the Members necessary to ensure the maintenance of fair and orderly
markets in the event of the activation of LTSE's disaster recovery
plans have been designated consistent with LTSE Rule 2.250 and Rule
1004 of Regulation SCI. Specifically, the proposal will address the
unique circumstances of industry-wide testing taking place within a
short time of when the Exchange commences operations. The Exchange
believes that the proposed rule change balances the objectives of
having Members participate in industry-wide disaster recovery testing,
including LTSE's backup systems, and the burdens on such Members who,
at the time of designation, will not have traded on LTSE.
As set forth in the SCI Adopting Release, ``SROs have the
authority, and legal responsibility, under Section 6 of the Exchange
Act, to adopt and enforce rules (including rules to comply with
Regulation SCI's requirements relating to BC/DR testing) applicable to
their members or participants that are designed to, among other things,
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, 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.'' \11\ The Exchange believes that this proposal is consistent
with such authority and legal responsibility.
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\11\ See supra note 3, at 72350.
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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 Exchange believes that
the proposed rule change is designed to promote fair competition among
brokers and dealers and exchanges by ensuring the Exchange can
designate Members to participate in mandatory disaster recovery testing
pursuant to Regulation SCI for calendar year 2020. The Exchange
believes that designating three or more such firms is reasonably
designed to provide the minimum necessary for the maintenance of fair
and orderly markets in the event of the activation of such plans,
thereby promoting intermarket competition between exchanges in
furtherance of the principles of Section 11A(a)(1) of the Act.\12\
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\12\ 15 U.S.C. 78k-1(a)(1).
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With respect to intramarket competition, the proposed rule change
seeks to reduce the burdens on Members by only designating Members who
are likely already participating in the industry-wide test by virtue of
their trading activities on other exchanges. Under the proposed rule
change, the Exchange will designate firms that have already established
connections to the Exchange's backup systems. Consequently, LTSE does
not believe that the proposed rule change would impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
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
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)(iii) of the Act \13\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\14\
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\13\ 15 U.S.C. 78s(b)(3)(A)(iii).
\14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires the Exchange to give 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. The
Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \15\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\16\ 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 to permit the
Exchange to notify Members of their designation earlier than would be
possible without a waiver of the operative delay. The Commission
believes that waiver of the 30-day operative delay is consistent with
the protection of investors and the public interest because it would
provide designated members additional time to receive notice of their
designation, and thus prepare for disaster recovery testing with the
Exchange's backup systems. Accordingly, the Commission waives the 30-
day operative delay and designates the proposal operative upon
filing.\17\
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\15\ 17 CFR 240.19b-4(f)(6).
\16\ 17 CFR 240.19b-4(f)(6)(iii).
\17\ 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).
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At any time within 60 days of the filing of such 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 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 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-LTSE-2020-10 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-LTSE-2020-10. 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 website (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
[[Page 41262]]
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 website 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 LTSE and on its internet website
at https://longtermstockexchange.com/.
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-LTSE-2020-10
and should be submitted on or before July 30, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14741 Filed 7-8-20; 8:45 am]
BILLING CODE 8011-01-P