Document ID: SEC-2010-1273-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGX Exchange, Inc.
Posted Date: 2010-08-18T04:00Z

[Federal Register: August 18, 2010 (Volume 75, Number 159)]
[Notices]               
[Page 51138-51140]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18au10-168]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62695; File No. SR-EDGX-2010-11]

 
Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
EDGX Rule 3.13

August 11, 2010.
    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 August 3, 2010, EDGX Exchange, Inc. (``EDGX'' 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

    The Exchange proposes to amend EDGX Rule 3.13 to conform it with 
FINRA Rule 5230 in order (i) for FINRA

[[Page 51139]]

to effectively examine for the rule pursuant to a Rule 17d-2 agreement 
that the Exchange has entered into with FINRA; and (ii) to modernize 
its terms and clarify its scope. The text of the proposed rule change 
is available on the Exchange's Web site at http://www.directedge.com, 
on the Commission's Web site at http://www.sec.gov, 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, 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 those 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 parts of such statements.

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

1. Purpose
    EDGX Exchange, Inc. has entered into a Rule 17d-2 \3\ agreement 
with FINRA pursuant to which FINRA surveils violations of rules in 
common between FINRA and EDGX. This agreement covers common members of 
EDGX and FINRA and allocates to FINRA regulatory responsibility, with 
respect to common members, for the following: (i) Examination of common 
members of EDGX and FINRA for compliance with Federal securities laws, 
rules and regulations and rules of the Exchange that the Exchange has 
certified as identical or substantially similar to FINRA rules; (ii) 
investigation of common members of EDGX and FINRA for violations of 
Federal securities laws, rules or regulations, or Exchange rules that 
the Exchange has certified as identical or substantially identical to a 
FINRA rule; and (iii) enforcement of compliance by common members with 
the Federal securities laws, rules and regulations, and the rules of 
EDGX that the Exchange has certified as identical or substantially 
similar to FINRA rules.\4\
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    \3\ 17 CFR 240.17d-2.
    \4\ See Securities and Exchange Release No. 61698 (March 12, 
2010), 75 FR 13151 (March 18, 2010) (approving File No. 10-196).
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    EDGX Rule 3.13 is identical to NASD Rule 3330, which was 
subsequently re-numbered and amended to be FINRA Rule 5230.\5\ FINRA, 
however, recently incorporated additional exceptions to this rule in 
order to ``modernize its terms and clarify its scope.'' \6\ After a 
consideration of the merits of such rule change, including the benefits 
of ensuring that Rule 3.13 would continue to be a common rule covered 
under the Exchange's Rule 17d-2 agreement with FINRA, EDGX is proposing 
to amend its Rule 3.13 to comport it with FINRA Rule 5230.
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    \5\ See Securities and Exchange Release No. 60648 (September 10, 
2009), 74 FR 47837 (September 17, 2009) (SR-FINRA-2009-048).
    \6\ See Securities and Exchange Release No. 60648 (September 10, 
2009), 74 FR 47837 (September 17, 2009) (SR-FINRA-2009-048).
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    EDGX Rule 3.13 currently provides that no member may, ``directly or 
indirectly, give, permit to be given, or offer to give, anything of 
value to any person for the purpose of influencing or rewarding the 
action of such person in connection with the publication or circulation 
in any newspaper, investment service, or similar publication, of any 
matter which has, or is intended to have, an effect upon the market 
price of any security. * * * '' The rule includes an exception for any 
matter that is ``clearly distinguishable as paid advertising.''
    EDGX agrees with FINRA's reasoning for proposing changes to its 
Rule 5230. Therefore, EDGX is proposing two changes to EDGX Rule 3.13 
to modernize its terms and clarify its scope.\7\ First, the proposed 
rule change updates the list of media to which the rule refers since 
Rule 3.13 refers only to matters published or circulated in any 
``newspaper, investment service, or similar publication.'' The proposed 
rule change updates this language to include electronic and other types 
of media, including magazines, Web sites, and television programs. 
Second, the proposed rule change expands the exceptions in the rule 
beyond paid advertising to also include compensation paid in connection 
with research reports and communications published in reliance on 
Section 17(b) of the Securities Act of 1933.\8\ EDGX is proposing these 
changes to clarify that the prohibitions in the rule are not intended 
to cover compensation paid for publications that are explicitly 
permitted pursuant to other rules. For example, Rule 3.13 could be read 
to prohibit a member from paying for a third-party research report if 
the report affected the market price of a security. However, EDGX does 
not believe that the rule should be read to prohibit compensation paid 
in connection with the publication of information that is specifically 
permitted pursuant to Section 17(b) of the Securities Act of 1933, 
provided the required disclosures are made.
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    \7\ The proposed rule changes also changes the title of the rule 
to ``Payments Involving Publications that Influence the Market Price 
of a Security.''
    \8\ Section 17(b) of the Securities Act of 1933 provides that no 
person may ``publish, give publicity to, or circulate any * * * 
communication which, though not purporting to offer a security for 
sale, describes such security for a consideration received or to be 
received, directly or indirectly, from an issuer, underwriter, or 
dealer, without fully disclosing the receipt, whether past or 
prospective, of such consideration and the amount thereof.'' 15 
U.S.C. 77q(b).
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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 with 
Section 6(b)(5) of the Act \10\ in particular, which requires, among 
other things, that Exchange rules must be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and, in general, to protect investors 
and the public interest. EDGX believes that the proposed rule change 
will clarify the scope of the rule as well as allow FINRA to be able to 
examine for it under a Rule 17d-2 agreement since it will be identical 
to FINRA Rule 5230, as proposed to be amended.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not 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 not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\ 
Because the foregoing proposed rule change: (i) Does not significantly 
affect the protection of investors or the public interest; (ii) does 
not impose any significant burden on

[[Page 51140]]

competition; and (iii) by its terms, does not 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, it has become effective pursuant to 
Section 19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6) 
thereunder.\14\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the self-regulatory organization to submit to 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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    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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-EDGX-2010-11 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-2010-11. This file 
number should be included on the subject line if e-mail 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 such 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-2010-11 and should be 
submitted on or before September 8, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-20474 Filed 8-17-10; 8:45 am]
BILLING CODE 8010-01-P