Document ID: SEC-2014-1819-0001
Agency: sec
Document Type: Notice
Title: Order Instituting Proceedings: Automated Matching Systems Exchange, LLC
Posted Date: 2014-10-29T04:00Z

[Federal Register Volume 79, Number 209 (Wednesday, October 29, 2014)]
[Notices]
[Pages 64421-64423]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-25675]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73419; File No. 10-214]

Automated Matching Systems Exchange, LLC; Order Instituting 
Proceedings To Determine Whether To Grant or Deny an Application for an 
Exemption From Registration as a National Securities Exchange Under 
Section 5 of the Securities Exchange Act of 1934

October 23, 2014.

I. Introduction

    On July 7, 2014, Automated Matching Systems Exchange, LLC 
(``AMSE'') filed with the Securities and Exchange Commission 
(``Commission'') an application seeking a limited volume exemption 
under Section 5 of the Securities Exchange Act (``Exchange Act'') from 
registration as a national securities exchange under Section 6 of the 
Exchange Act.\1\ Notice of AMSE's exemption application was published 
for comment in the Federal Register on July 29, 2014.\2\ Although 
Section 5 of the Exchange Act does not require the Commission to 
institute proceedings on whether to grant or deny AMSE's exemption 
application, the Commission has determined, in its discretion, to 
institute such proceedings in order to solicit further the views of 
interested persons on AMSE's exemption application. This order 
institutes proceedings to determine whether to grant or deny the 
exemption application.
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    \1\ 15 U.S.C. 78e.
    \2\ See Securities Exchange Act Release No. 72661 (July 23, 
2014), 79 FR 44070 (``Notice). The Commission notes that Section 5 
of the Exchange Act did not require publication of AMSE's exemption 
application. The Commission determined, in its discretion, to 
publish the Notice in order to solicit the views of interested 
persons on AMSE's exemption application.
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II. Description of AMSE's System

    AMSE proposes to conduct business in reliance upon an exemption 
from registration as a national securities exchange pursuant to Section 
5 of the Exchange Act.\3\ In general, AMSE seeks to operate as an 
exchange for alternative trading systems.\4\ AMSE proposes to

[[Page 64422]]

operate solely on an ``off-order-book'' trading basis. AMSE does not 
intend to have a physical exchange trading floor, centralized order 
book, or specialists or market makers with affirmative and negative 
market making obligations. Each member of AMSE would maintain its own 
automated matching system or electronic order book. Each member of AMSE 
would adopt its own rules governing the execution and priority of 
orders on its system. Trades would occur when an order to buy and an 
order to sell match on a member's electronic order book. Each member 
would report its transactions to AMSE at such intervals as required by 
AMSE.
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    \3\ 15 U.S.C. 78e.
    \4\ For more detail on AMSE's proposed system, see AMSE's full 
exemption application and Exhibits, which are published with the 
Notice on the Commission's Web site at http://www.sec.gov/rules/other.shtml. The Commission notes that alternative trading systems 
are securities markets that meet the definition of exchange under 
the Exchange Act. Regulation ATS established an alternative 
regulatory regime for securities markets by giving them the choice 
to register as exchanges, or to register as broker-dealers and 
comply with Regulation ATS. See Securities Exchange Act Release No. 
40760 (December 8, 1998), 63 FR 70844, 70847 (December 22, 1998) 
(``Regulation ATS Adopting Release''). Rule 300 of Regulation ATS 
defines an alternative trading system to mean ``any organization, 
association, person, group of persons, or system: (1) That 
constitutes, maintains, or provides a market place or facilities for 
bringing together purchasers and sellers of securities or for 
otherwise performing with respect to securities the functions 
commonly performed by a stock exchange within the meaning of [Rule 
3b-16]; and (2) That does not: (i) Set rules governing the conduct 
of subscribers other than the conduct of such subscribers trading on 
such organization, association, person, group of persons, or system; 
or (ii) Discipline subscribers other than by exclusion from 
trading.'' See 17 CFR 242.300(a).
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III. Proceedings To Determine Whether To Grant or Deny the Exemption 
Application and Grounds for Denial Under Consideration

    The Commission is instituting proceedings to determine whether 
AMSE's exemption application should be granted or denied. Institution 
of such proceedings is appropriate at this time in view of the legal 
and policy issues raised by the exemption application. Institution of 
proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, as 
described in greater detail below, the Commission seeks and encourages 
interested persons to provide additional comment on the exemption 
application.
    The Commission is providing notice of the grounds for denial under 
consideration. Section 5 of the Exchange Act allows the Commission to 
exempt an exchange from the requirements of exchange registration if 
``in the opinion of the Commission, by reason of the limited volume of 
transactions effected on such exchange, it is not practicable and not 
necessary or appropriate in the public interest or for the protection 
of investors to require such registration.'' \5\ Section 3(a)(1) of the 
Exchange Act \6\ defines an ``exchange'' to be ``any organization, 
association, or group of persons, whether incorporated or incorporated, 
which constitutes, maintains, or provides a market place or facilities 
for bringing together purchasers and sellers of securities or for 
otherwise performing with respect to securities the functions commonly 
performed by a stock market as that term is generally understood, and 
includes the market place and facilities maintained by such exchange.'' 
Rule 3b-16 under the Exchange Act \7\ further provides that ``[a]n 
organization, association, or group of persons shall be considered to 
constitute, maintain, or provide `a market place or facilities for 
bringing together purchasers and sellers of securities or for otherwise 
performing with respect to securities the functions commonly performed 
by a stock exchange,' as those terms are used in Section 3(a)(1) of the 
Act, (15 U.S.C. 78c(a)(1)), if such organization, association, or group 
of persons: (1) Brings together the orders of securities of multiple 
buyers and sellers; and (2) Uses established, non-discretionary methods 
(whether by providing a trading facility or by setting rules) under 
which such orders interact with each other, and the buyers and sellers 
entering such orders agree to the terms of the trade.''
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    \5\ 15 U.S.C. 78e.
    \6\ 15 U.S.C. 78c(a)(1).
    \7\ 17 CFR 240.3b-16.
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    As noted above, trades would occur on the separate systems of the 
individual members of AMSE. As described in the AMSE exemption 
application, it does not appear that the orders of the individual 
members of AMSE would interact with one another on any AMSE system, but 
rather on each distinct and separate system of AMSE's members. That is, 
it does not appear that any AMSE system would operate as an exchange by 
bringing together purchasers and sellers of securities. As a result, 
the Commission is concerned that AMSE's exemption application does not 
meet a key threshold requirement for being granted an exemption from 
exchange registration--namely, that the applicant actually be an 
``exchange'' as defined under Section 3(a)(1) of the Exchange Act and 
Rule 3b-16 thereunder.\8\
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    \8\ See Regulation ATS Adopting Release, 63 FR at 70898-70901 
(discussing the Commission's revised interpretation of the 
``exchange'' definition). Among other things, the Commission stated 
that ``the first essential element of an exchange is the bringing 
together of orders of multiple buyers and sellers.'' Id. at 70900.
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    Accordingly, the Commission believes that it is appropriate at this 
time to issue this order to institute proceedings to determine whether 
to grant or deny the exemption application on the grounds that the 
applicant does not meet the definition of an ``exchange'' under Section 
3(a)(1) of the Exchange Act and Rule 3b-16 thereunder.

IV. Procedure: Request for Written Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above as well as other relevant 
concerns. Such comments should be submitted by November 19, 2014. 
Rebuttal comments should be submitted by December 3, 2014. Although 
there do not appear to be any issues relevant to a grant or denial of 
the exemption application which would be facilitated by an oral 
presentation of views, data, and arguments, the Commission will 
consider any request for an opportunity to make an oral presentation.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/other.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number 10-214 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 10-214. 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/other.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the exemptive application that are filed 
with the Commission, and all written communications relating to the 
exemptive application 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

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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. 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 publicly available. All 
submissions should refer to File Number 10-214 and should be submitted 
on or before November 19, 2014. Rebuttal comments should be submitted 
by December 3, 2014.

    By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-25675 Filed 10-28-14; 8:45 am]
BILLING CODE 8011-01-P