Document ID: SEC-2013-0914-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2013-05-16T04:00Z

[Federal Register Volume 78, Number 95 (Thursday, May 16, 2013)]
[Notices]
[Pages 28924-28926]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-11623]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69552; File No. SR-CHX-2013-09]

Self Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending Rule Governing the Anti-Money Laundering Compliance Program

May 10, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on May 2, 2013, the Chicago Stock Exchange, Inc. (``CHX'' or the 
``Exchange'') 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 
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

    CHX proposes to amend its Anti-Money Laundering Compliance Program 
(the ``AMLCP''), effective May 2, 2013. The proposed rule change would 
clarify the frequency with which a Participant Firm must conduct 
independent testing of its AMLCP and would establish the qualifications 
of the person designated to perform AMLCP testing as well as provide 
guidelines for establishing the independence of the person performing 
the test. The text of this proposed rule change is available on the 
Exchange's Web site at http://www.chx.com/rules/proposed_rules.htm, 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, CHX 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 aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

1. Purpose
    Financial institutions, including broker-dealers, must develop and 
implement Anti-Money Laundering (``AML'') programs pursuant to the Bank 
Secrecy Act (``BSA''),\3\ as amended by Section 352 of the Uniting and 
Strengthening America by Providing Appropriate Tools Required to 
Intercept and Obstruct Terrorism Act of 2001 (``PATRIOT Act'').\4\ 
Consistent with Department of Treasury regulation 31 CFR 103.120 under 
the BSA, Exchange Article 6, Rule 12 requires that each Participant 
Firm develop and implement a written AMLCP that specifies the minimum 
requirement for these programs.
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    \3\ 31 U.S.C. 5311 et seq.
    \4\ Public Law 107-56, 115 Stat. 272 (2001).
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    The AMLCP must include the development of internal policies, 
procedures and controls; the designation of a person to implement and 
monitor the day-to-day operations and internal controls of the program

[[Page 28925]]

(commonly referred to as an ``AML Officer''); ongoing training for 
appropriate persons; and an independent testing function for overall 
compliance.
    The Exchange proposes to change CHX Article 6, Rule 12 to clarify 
the language governing the frequency with which a Participant Firm must 
conduct independent testing of its AMLCP. Additionally, the Exchange 
proposes to add a new interpretation and policy to Article 6, Rule 12 
that establishes qualifications of the person designated to perform 
AMLCP testing and guidelines for establishing the independence of the 
person performing the test.

Timeframes for Independent Testing

    The proposed rule change would require that independent testing of 
AMLCPs be conducted, at a minimum, on an annual (calendar-year) basis 
by Participant Firms, unless the Participant Firm does not execute 
transactions for customers or otherwise hold customer accounts or act 
as an introducing broker with respect to customer accounts (e.g., 
engages solely in proprietary trading, or conducts business only with 
other broker-dealers), in which case such independent testing is 
required every two years (on a calendar-year basis). The Exchange 
believes that these timeframes are reasonable in that they require more 
frequent testing of AMLCPs designed to monitor a business with 
customers from the general public, which may be more susceptible to 
money laundering schemes than a strictly proprietary business involving 
transactions with other broker-dealers. Furthermore, the one-year time 
frame for testing is consistent with standard industry practice in that 
it is similar to generally accepted guidelines for conducting tests in 
the context of, for instance, general audits and branch office visits. 
The proposed rule change establishes only a minimum requirement, and 
makes clear that Participants should undertake more frequent testing 
when circumstances warrant (e.g., should the business mix of the 
Participant or Participant Firm materially change; in the event of a 
merger or acquisition; in light of systemic weaknesses uncovered via 
testing of the AMLCP; or in response to other ``red flags'').

Qualification and Independence Standards for Testing

    Additionally, the Exchange proposes to add interpretations and 
policies .01 to Article 6, Rule 12 in order to establish qualifications 
for the person designated to perform AMLCP testing as well as 
guidelines for establishing the independence of the person performing 
the test. The proposed rule change would require the person conducting 
the independent test to have a working knowledge of the applicable BSA 
requirements and related regulations. Such person need not be an 
employee of the Participant or Participant Firm since the 
responsibility being delegated is essentially an auditing function and, 
as such, it would not be unusual or ineffective for it to be performed 
by an independent outside party.
    The proposed rule change does not preclude an employee of the 
Participant or Participant Firm from conducting the required 
independent testing of the AMLCP; however the proposed ``independence'' 
standard would prohibit testing from being conducted by a person who 
performs the functions being tested, or by the designated AML Officer, 
or by a person that reports to either.

AML Officer

    The proposed rule change would also clarify that the person 
responsible for implementing and monitoring the day-to-day operations 
and controls of the program must be an associated person of the 
Participant. This would not prohibit a Participant that is part of a 
diversified financial institution from designating an AML Officer that 
is employed by the Participant's parent company, sister company, or 
other affiliate. However, if such a person is designated as a 
Participant's AML Officer, the Exchange will consider that person to be 
an associated person of the Participant with respect to those 
activities performed on behalf of the Participant.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \5\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \6\ in particular, in that it 
is designed to prevent fraudulent and manipulative practices, to 
promote just and equitable principles of trade, to remove impediments 
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. The Exchange believes that the proposed rule change is 
designed to accomplish these ends by requiring Participants to conduct 
periodic tests of their AMLCPs and preserve the independence of their 
testing personnel.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization 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 rule change is designed 
to implement the amended AML policy in an equitable and non-
discriminatory way, and in furtherance of the Bank Secrecy Act. The 
rule change requires Participant Firms that execute trades for 
customers or hold customer accounts conduct AML testing on an annual 
basis while other Participant Firms that engage solely in proprietary 
trading, or conduct business only with other broker-dealers may conduct 
an AML test on a biennial basis. However, the Exchange believes that 
the rule change does not impose a disparate burden on competition 
either among or between classes of market participants. The Exchange 
believes that these timeframes are reasonable in that they require more 
frequent testing of AMLCP designed to monitor a business with customers 
from the general public, which may be more susceptible to money 
laundering schemes than a strictly proprietary business involving 
transactions with other broker-dealers.
    In addition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues. In such an environment, the Exchange must continually 
review its rules to remain competitive with other exchanges. For the 
reasons described above, the Exchange believes that the proposed rule 
change promotes a competitive environment by clearly outlining 
Participant Firms' obligations for AML testing while protecting 
investors with defined AML oversight in the specified scenarios.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) \7\ of the Act and Rule 19b-4(f)(6) thereunder.\8\ Because 
the

[[Page 28926]]

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, if consistent with the protection of investors and the 
public interest, the proposed rule change has become effective pursuant 
to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to provide 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 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) \9\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii) \10\ 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 so that the proposal 
may become operative immediately upon filing.
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    \9\ 17 CFR 240.19b-4(f)(6). 
    \10\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, as 
it will allow the Exchange to immediately begin requiring Participants 
to conduct periodic tests of their AMLCP and preserve the independence 
of their testing personnel, and by making the Exchange's program 
requirements generally consistent with those at other exchanges and 
self-regulatory organizations.\11\ For these reasons, the Commission 
designates the proposed rule change to be operative upon filing.\12\
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    \11\ See e.g., NYSE Arca Equities Rule 6.17, CBOE Rule 4.20 and 
FINRA Rule 3310.
    \12\ For purposes 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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal 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 No. SR-CHX-2013-09 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-CHX-2013-09. 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 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 CHX's principal office and on its 
Internet Web site at www.chx.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-CHX-2013-09 and 
should be submitted on or before June 6, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-11623 Filed 5-15-13; 8:45 am]
BILLING CODE 8011-01-P