Document ID: SEC-2016-2342-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Investors Exchange, LLC
Posted Date: 2016-12-29T05:00Z

[Federal Register Volume 81, Number 250 (Thursday, December 29, 2016)]
[Notices]
[Pages 96074-96076]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31492]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79670; File No. SR-IEX-2016-22]

Self-Regulatory Organizations: Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Related to 
Retention of Jurisdiction Over Members and Persons Associated with 
Members Upon Termination, Revocation, or Cancellation of Membership or 
Association Thereof

December 22, 2016.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on December 16, 2016, the Investors Exchange LLC (``IEX'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or 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\ 15 U.S.C. 78a.
    \3\ 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

    Pursuant to the provisions of Section 19(b)(1) under the Securities 
Exchange Act of 1934 (``Act''),\4\ and Rule 19b-4 thereunder,\5\ 
Investors Exchange LLC (``IEX'' or ``Exchange'') is filing with the 
Securities and Exchange Commission (``Commission'') a proposed rule 
change to amend Rule 2.230, which is currently reserved, to specify the 
circumstances under which the Exchange retains disciplinary 
jurisdiction over a Member or persons associated with a Member upon 
termination, revocation, or cancellation of membership or association 
thereof. The Exchange has designated this proposal as ``non-
controversial'' and provided the Commission with the notice required by 
Rule 19b-4(f)(6)(iii) under the Act.\6\
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CRF 240.19b-4.
    \6\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the proposed rule change is available at the Exchange's 
Web site at www.iextrading.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 the 
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 of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    IEX proposes to amend Rule 2.230, which is currently reserved, to 
specify the circumstances under which the Exchange retains disciplinary 
jurisdiction over a Member or persons associated with a Member upon 
termination, revocation or cancellation of membership or association 
thereof. As a national securities exchange and self-regulatory 
organization (``SRO''), IEX is subject to several provisions of the Act 
with respect to rule enforcement and discipline of Members and persons 
associated with Members. First, Section 6(b)(1) \7\ of the Act requires 
the Exchange to enforce compliance by its members and persons 
associated with its members with applicable provisions of the Act, the 
rules and regulations thereunder and Exchange rules. In addition, 
Section 6(b)(6) \8\ of the Act requires that IEX rules must provide 
that its members and persons associated with its members shall be 
appropriately disciplined for such violations of applicable provisions 
of the Act, the rules and regulations thereunder and Exchange rules 
(i.e., rule violations). And finally, Section 6(b)(7) \9\ of the Act 
provides that IEX rules must provide a fair procedure for the 
disciplining of

[[Page 96075]]

members and persons associated with members for rule violations.
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    \7\ 15 U.S.C. 78f(b)(1).
    \8\ 15 U.S.C. 78f(b)(6).
    \9\ 15 U.S.C. 78f(b)(7).
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    In furtherance of these obligations, IEX has retained FINRA, 
pursuant to a regulatory services agreement (``RSA'') and subject to 
IEX oversight, to perform certain regulatory functions on behalf of 
IEX, including surveillance and examination of trading activity on IEX 
to identify rule violations, and related investigations of and 
disciplinary actions against IEX members and persons associated with 
members for any such rule violations. Investigations and disciplinary 
actions are conducted in accordance with Chapters 8 and 9 of the IEX 
Rules. Chapter 8 contains provisions related to investigations and 
sanctions, that require, among other things, that a Member, person 
associated with a Member or any other person subject to IEX's 
jurisdiction provide information or testimony or permit an inspection 
and copying of books, records, or accounts to the Exchange upon 
request.\10\ Rule 8.310 provides for the imposition of sanctions,\11\ 
after compliance with Chapter 9 of IEX Rules, on a Member or person 
associated with a Member for rule violations, as well as for any 
neglect or refusal to comply with an order, direction, or decision 
issued under the IEX Rules. Chapter 9 of the IEX Rules contains the 
Code of Procedure and includes proceedings for, among other things, 
disciplining a Member or person associated with a Member.
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    \10\ See Rule 8.210.
    \11\ Specified sanctions include censure, fine, membership 
suspension or expulsion, cease and desist order, or other fitting 
sanction.
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    IEX Rule 2.190 governs a member's right to voluntarily terminate 
its IEX membership. The rule provides that a termination shall not take 
effect until 30 days after certain specified conditions have been 
satisfied, including: any Exchange investigation or disciplinary action 
brought against the Member has reached a final disposition and any 
examination by the Exchange of such Member is completed and all 
exceptions noted have been reasonably resolved.\12\ These provisions 
are designed to assure that FINRA, on IEX's behalf, can complete and 
resolve or finalize a pending regulatory matter involving a Member that 
is open at the time a Member seeks to terminate its membership and thus 
that a Member cannot terminate its membership to avoid a regulatory or 
disciplinary matter.
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    \12\ Rule 2.190 provides that the Exchange Board may declare a 
resignation effective at an earlier time.
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    However, IEX Rule 2.190 does not fully address the possibility that 
FINRA, on behalf of the Exchange, may need to conduct an investigation 
and/or initiate a disciplinary action with respect to a former Member 
or person associated with a Member for rule violations that occurred 
prior to termination of membership or association thereof, but were not 
known to FINRA at that time. Accordingly, IEX proposes to amend Rule 
2.230 to add a retention of jurisdiction provision. Specifically, Rule 
2.230(a) would provide that an IEX Member whose membership is revoked, 
terminated or cancelled shall continue to be subject to the filing of a 
complaint under IEX rules based upon conduct which commenced prior to 
the effective date of the revocation, termination or cancellation. Any 
such complaint, however, shall be filed within two years after the 
effective date of revocation, termination or cancellation. Proposed 
Rule 2.230(b) applies to persons associated with a Member and provides 
that a person whose association with a Member has been revoked, 
terminated or cancelled and who is no longer associated with any Member 
shall continue to be subject to the filing of a complaint under IEX 
rules based upon conduct that commenced prior to the termination, 
revocation or cancellation or upon such person's failure, while subject 
to IEX's jurisdiction to provide information requested by IEX pursuant 
to IEX rules. Any such complaint must be filed within: two years after 
the effective date of termination of registration with IEX pursuant to 
Rule 2.160(r)(1), provided however that any amendment to a notice of 
termination filed pursuant to Rule 2.160(r)(2) that is filed within two 
years of the original notice that discloses that such person may have 
engaged in conduct actionable under any applicable statute, rule, or 
regulation shall operate to recommence the running of the two-year 
period under this subsection; two years after the effective date of 
revocation or cancellation of registration pursuant to IEX rules; or in 
the case of an unregistered person, two years after the date upon which 
such person ceased to be associated with the member. This proposed rule 
change is substantially similar to Article IV, Section 6 of the FINRA 
By-Laws with respect to members and Article V, Section 4 with respect 
to persons associated with a member.\13\
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    \13\ There are minor differences related to terminology. In 
addition, provisions substantially similar to Article V, Section 
4(b) of the FINRA By-Laws related to failure to comply with an 
arbitration award are contained in IEX Rule 9.554(a).
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2. Statutory Basis

    IEX believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\14\ in general and furthers the 
objectives of Section 6(b)(1) \15\ of the Act in that it is designed to 
enable the Exchange to enforce compliance by its members and persons 
associated with its members with applicable provisions of the Act, the 
rules and regulations thereunder and Exchange rules. In addition, the 
Exchange believes that the proposed rule change is consistent with 
Section 6(b)(6) \16\ of the Act in that it is designed to provide 
authority to the Exchange to appropriately discipline former members 
and persons associated with its members for such rule violations that 
occurred during membership or association with a member. Further, the 
Exchange believes that the proposed rule change is consistent with 
Section 6(b)(7) \17\ of the Act because it would support a fair 
procedure for the disciplining of members and persons associated with 
members for rule violations. Specifically, IEX believes that it is 
appropriate to retain jurisdiction over members and persons associated 
with members for a reasonable period of time for rule violations that 
occurred while the firm was a Member or an individual was associated 
with a member. IEX believes that two years is reasonable in that it 
provides adequate time for FINRA, on its behalf, to file a complaint 
without subjecting former members and persons formerly associated with 
members to an excessively long period of time to learn of a 
disciplinary matter. The Exchange notes that FINRA, New York Stock 
Exchange (``NYSE'') and the Nasdaq Stock Market LLC (``Nasdaq'') also 
provide a two-year retention of jurisdiction period.\18\
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    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(1).
    \16\ 15 U.S.C. 78f(b)(6).
    \17\ 15 U.S.C. 78f(b)(7).
    \18\ See Article IV, Section 6 of the FINRA By-Laws, NYSE Rule 
8130, and Nasdaq Rule 1031(f).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    IEX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. The proposed rule 
change is not designed to address any competitive issues but rather to 
provide for appropriate retention of jurisdiction of former members and 
persons associated with a member.

[[Page 96076]]

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

    The Exchange has designated this rule filing as non-controversial 
under Section 19(b)(3)(A) \19\ of the Act and Rule 19b-4(f)(6) \20\ 
thereunder. Because the 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 and Rule 19b-
4(f)(6) thereunder.
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \21\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\22\ 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 as the proposed 
implementation of the two-year retention of jurisdiction is consistent 
with the rules of other SROs and will enable the Exchange to 
immediately retain jurisdiction over a register representative who may 
have been engaged in unlawful activity. Based on the foregoing, the 
Commission believes that it is consistent with the protection of 
investors and the public interest to waive the 30-day operative date so 
that the proposal may take effect upon filing.\23\
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    \21\ 17 CFR 240.19b-4(f)(6).
    \22\ 17 CFR 240.19b-4(f)(6)(iii).
    \23\ 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 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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \24\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \24\ 15 U.S.C. 78s(b)(2)(B).
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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-IEX-2016-22 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-IEX-2016-22. This file 
number should be included in 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 Section, 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 will also be available 
for inspection and copying at the IEX's principal office and on its 
Internet Web site at www.iextrading.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-IEX-2016-22 and should be submitted on 
or before January 19, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
Robert W. Errett,
Deputy Secretary.
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    \25\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-31492 Filed 12-28-16; 8:45 am]
 BILLING CODE 8011-01-P