Document ID: SEC-2012-0583-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGX Exchange, Inc.
Posted Date: 2012-04-12T04:00Z

[Federal Register Volume 77, Number 71 (Thursday, April 12, 2012)]
[Notices]
[Pages 22006-22008]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-8785]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66761; File No. SR-EDGX-2012-13]

 Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
New EDGX Rule 11.22 Requiring Members To Input Accurate Information 
Into the System

April 6, 2012.
    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 April 2, 2012, EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

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[[Page 22007]]

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

    The Exchange proposes to adopt new EDGX Rule 11.22 to require 
Members to input accurate information into the System,\3\ including, 
but not limited to, identifying each order accurately as a principal, 
agency, or riskless principal order. The text of the proposed rule 
change is available on the Exchange's Web site at www.directedge.com, 
at the Exchange's principal office, and at the Public Reference Room of 
the Commission.
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    \3\ The term ``System'' is defined in EDGX Rule 1.5(cc).
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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 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 of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to add new EDGX Rule 11.22 for the purpose of 
increasing transparency and to enhance the surveillance database and 
audit trail of transaction data used by the Exchange in surveillance of 
its market. The proposed rule change would require Members to input 
accurate information into the System, including, but not limited to, 
identifying the capacity of each order accurately as a principal, 
agency, or riskless principal order. For purposes of surveillance, the 
Exchange currently identifies the capacity of each order as principal, 
agency, or riskless principal; however, several other capacities are 
accepted upon order entry, including no response, which are thereafter 
mapped to one of the above-listed order capacities. By requiring 
Members to accurately submit an order capacity for each order and to 
otherwise input accurate information into the System, the Exchange will 
be able to more precisely identify the type of order received and more 
effectively surveil for abusive trading.
    EDGX does not currently have a rule that makes an explicit 
statement regarding a Member's obligation to input accurate information 
into the System. However, currently, in FIX tag 47,\4\ Members are 
asked to populate their capacity when entering orders into the 
Exchange's System; however, if the field is left blank by the Member, 
it is automatically populated with an ``A'' value (denoting agency).
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    \4\ Members utilize an industry standard Financial Information 
eXchange (``FIX'') protocol to electronically enter orders into the 
System. Members populate certain FIX fields (i.e., tags) to indicate 
certain terms of the order. FIX tag 47 is used to identify the 
Member's capacity.
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    Notwithstanding, EDGX believes that disciplinary cases against 
Members entering inaccurate or incomplete information may be brought 
appropriately under EDGX Rule 3.1, which requires Members to observe 
high standards of commercial honor and just and equitable principles of 
trade. Rule 3.1 protects the investing public and the securities 
industry from dishonest practices that are unfair to investors or 
hinder the functioning of a free and open market, even though those 
practices may not be illegal or violate a specific rule or regulation. 
Because of the regulatory importance of inputting accurate information 
into the System, EDGX believes a rule that directly addresses Members' 
obligation to provide accurate information is warranted. The proposed 
rule makes clear Members' obligation to input accurate information into 
the System and that failure to do so would be considered a violation of 
EDGX Rules. In addition, once the rule is effective, if Members do not 
input the capacity in which they are acting (principal, agent, or 
riskless principal) into the System, the order will be rejected back to 
the Member by the Exchange.
    EDGX notes that both BATS Exchange Inc. (``BATS'') and BATS-Y 
Exchange, Inc. (``BYX'') have adopted rules materially identical to 
proposed EDGX Rule 11.22.\5\ Similarly, the Commission has previously 
approved rules proposed by the NASDAQ Stock Market LLC (``NASDAQ'') 
requiring participants to ensure that accurate information is entered 
into NASDAQ's system, including, but not limited to, the capacity in 
which the participant is acting.\6\ Thus, the proposed rule change 
would bring EDGX Rules in line with those of other self-regulatory 
organizations.
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    \5\ See Securities Exchange Act Release No. 63969 (February 25, 
2011), 76 FR 12155 (March 4, 2011); and Securities Exchange Act 
Release No. 63970 (February 25, 2011), 76 FR 12204 (March 4, 2011).
    \6\ See Securities Exchange Act Release No. 59547 (March 10, 
2009), 74 FR 11386 (March 17, 2009).
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    In order to allow Members sufficient time to review and complete 
any systems changes necessitated by this filing, the Exchange will 
notify Members via information circular of an exact implementation date 
for the proposed rule change, which will be no later than August 31, 
2012.
2. Statutory Basis
    The rule change proposed in this submission is consistent with the 
requirements of Section 19(b)(1) of the Act \7\ 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.\8\ Specifically, for the reasons described above, the proposed 
change is consistent with Section 6(b)(5) of the Act,\9\ because it is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to 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 
to protect investors and the public interest. Specifically, the changes 
proposed herein will serve to promote the accuracy of information input 
into the Exchange. Accurate information is necessary for the efficient 
and fair operation of the Exchange, and will assist the Exchange in 
surveilling the markets for abusive or otherwise violative trading 
activity.
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    \7\ 15 U.S.C. 78s(b)(1).
    \8\ 15 U.S.C. 78f(b).
    \9\ 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.

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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

[[Page 22008]]

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

    The Exchange has designated this rule filing as non-controversial 
under Section 19(b)(3)(A) of the Act \10\ and paragraph (f)(6) of Rule 
19b-4 thereunder.\11\ The Exchange asserts that the proposed rule 
change: (1) Will not significantly affect the protection of investors 
or the public interest, (2) will not impose any significant burden on 
competition, and (3) will not become operative for 30 days from the 
date on which it was filed, or such shorter time as designated by the 
Commission. The Exchange provided the Commission with 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, or such shorter time as the 
Commission may designate.\12\ In addition, the Exchange believes that 
the proposal to require Members to identify the capacity of each order 
as either a principal, agency, or riskless principal order does not 
present any policy issues that have not previously been considered by 
the Commission, but rather, is a minor change to the Exchange's 
existing rules that is consistent with the rules of other national 
securities exchanges.\13\ For the foregoing reasons, this rule filing 
qualifies for immediate effectiveness as a ``non-controversial'' rule 
change under paragraph (f)(6) of Rule 19b-4.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4 (f)(6).
    \12\ 17 CFR 240.19b-4 (f)(6)(iii).
    \13\ See, e.g., NASDAQ Rule 4611(a)(6), BATS Rule 11.21 and BYX 
Rule 11.21.
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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 necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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 rule-comments@sec.gov. Please include File Number 
SR-EDGX-2012-13 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-EDGX-2012-13. 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 
a.m. and 3 p.m. Copies of the 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-EDGX-2012-13 and should be 
submitted on or before May 3, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-8785 Filed 4-11-12; 8:45 am]
BILLING CODE 8011-01-P