Document ID: SEC-2015-1992-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Stock Exchange, Inc.
Posted Date: 2015-11-27T05:00Z

[Federal Register Volume 80, Number 228 (Friday, November 27, 2015)]
[Notices]
[Pages 74155-74158]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-30086]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76497; File No. SR-NSX-2015-06]

Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Adopt Rule 2.13, Mandatory Participation in Testing of Backup Systems

November 20, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that on November 10, 2015, National Stock 
Exchange, Inc. (``NSX'' 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 
substantially prepared by the Exchange. The Exchange has designated 
this proposal as a ``non-controversial'' proposed rule change pursuant 
to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6)(iii) \4\ 
thereunder, which renders it effective upon filing with the Commission. 
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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6)(iii).

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[[Page 74156]]

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

    The Exchange is proposing to adopt Rule 2.13, Mandatory 
Participation in Testing of Backup Systems, establishing business 
continuity and disaster recovery plans (``BC/DR plans'') testing 
requirements for certain ETP Holders in connection with Regulation 
Systems Compliance and Integrity (''Regulation SCI''), as further 
described below.\5\
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    \5\ See Securities Exchange Act Release No. 73639 (November 19, 
2014), 79 FR 72252 (December 5, 2014) (``SCI Adopting Release'').
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    The text of the proposed rule change is available at the Exchange's 
Web site at www.nsx.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 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 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
    As adopted by the Commission, Regulation SCI applies to certain 
self-regulatory organizations (including the Exchange), alternative 
trading systems (``ATSs''), plan processors, and exempt clearing 
agencies (collectively, ``SCI entities''), and will require these SCI 
entities to comply with requirements with respect to the automated 
systems central to the performance of their regulated activities.\6\ 
Among the requirements of Regulation SCI is Rule 1001(a)(2)(v), which 
requires the Exchange and other SCI entities to maintain ``[b]usiness 
continuity and disaster recovery plans that include maintaining backup 
and recovery capabilities sufficiently resilient and geographically 
diverse and that are reasonably designed to achieve next business day 
resumption of trading and two-hour resumption of critical SCI systems 
following a wide-scale disruption.'' \7\
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    \6\ The Exchange ceased trading operations as of the close of 
business on May 30, 2014. See Securities Exchange Act Release No. 
72107 (May 6, 2014), 79 FR 27017 (May 12, 2014) (SR-NSX-2014-14). 
However, the Exchange has retained its status as a registered 
national securities exchange under Section 6 of the Act, 15 U.S.C. 
78f and a self-regulatory organization as defined in Section 
3(a)(26) of the Act, 15 U.S.C. 78c(a)(26). NSX is planning to resume 
trading operations, subject to receiving Commission approval to do 
so.
    \7\ 17 CFR 242.1001(a)(2)(v).
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    Pursuant to Regulation SCI, the Exchange is proposing to require 
certain ETP Holders to participate in testing of the operation of the 
Exchange's BC/DR plans. Paragraph (a) of Rule 1004 of Regulation SCI 
requires each SCI entity to: ``[e]stablish standards for the 
designation of those members or participants that the SCI entity 
reasonably determines are, taken as a whole, the minimum necessary for 
the maintenance of fair and orderly markets in the event of the 
activation of such plans.'' \8\ Paragraph (b) of Rule 1004 further 
requires each SCI entity to ``[d]esignate members or participants 
pursuant to the standards established in paragraph (a) of [Rule 1004] 
and require participation by such designated members or participants in 
scheduled functional and performance testing of the operation of such 
plans, in the manner and frequency specified by the SCI entity, 
provided that such frequency shall not be less than once every 12 
months.'' \9\
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    \8\ 17 CFR 242.1004(a).
    \9\ 17 CFR 242.1004(b).
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    To comply with the provisions of Rule 1004 of Regulation SCI, the 
Exchange is proposing to adopt new Rule 2.13 governing mandatory 
testing of the Exchange's backup systems. First, in paragraph (a) of 
Rule 2.13, the Exchange proposes to include language from paragraph (a) 
of Rule 1004 of Regulation SCI to summarize the Exchange's obligation 
pursuant to such rule. Specifically, the Exchange proposes to state 
that ``[p]ursuant to Regulation SCI and with respect to the Exchange's 
business continuity and disaster recovery plans, including its backup 
systems, the Exchange is required to establish standards for the 
designation of ETP Holders that the Exchange reasonably determines are, 
taken as a whole, the minimum necessary for the maintenance of fair and 
orderly markets in the event of the activation of such plans.'' The 
Exchange further proposes that paragraph (a) state that the ``Exchange 
has established standards and will designate ETP Holders according to 
those standards'' as set forth in the proposed Rule. In addition, the 
Exchange proposes to make clear that all ETP Holders are permitted to 
connect to the Exchange's backup systems as well as to participate in 
testing of such systems. Proposed paragraph (a) is consistent with the 
Commission's adoption of Regulation SCI, which encouraged ``SCI 
entities to permit non-designated members or participants to 
participate in the testing of the SCI entity's BC/DR plans if they 
request to do so.'' \10\
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    \10\ See SCI Adopting Release, supra note 5 at 72350.
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    Second, in paragraph (b) of Rule 2.13, the Exchange proposes to 
specify the criteria that the Exchange will employ to determine whether 
an ETP Holder will be required to connect to the Exchange's backup 
systems and to participate in scheduled functional and performance 
testing as announced by the Exchange, which shall occur at least once 
every 12 months. Specifically, proposed paragraph (b) would require all 
ETP Holders that account for a meaningful percentage of the Exchange's 
volume to connect to the Exchange's backup systems and to participate 
in functional and performance testing.
    In adopting the requirements of Rule 2.13(b) to participate in 
mandatory testing of such systems, the Exchange intends to subject to 
the Rule only those ETP Holders that the Exchange believes are 
necessary to maintain fair and orderly markets at the Exchange. 
Designating ETP Holders to participate in mandatory testing because 
they account for a meaningful percentage of the Exchange's overall 
volume is a reasonable means to ensure the maintenance of a fair and 
orderly market on the Exchange.
    In addition to paragraphs (a) and (b) described above, the Exchange 
also proposes to adopt Interpretation and Policy .01, which would 
provide additional detail regarding the notice that will be provided to 
ETP Holders that have been designated pursuant to subparagraph (b) of 
the Rule as well as the Exchange's method for measuring the volume 
threshold. As proposed, Interpretation and Policy .01 would state that 
for purposes of identifying ETP Holders that account for a meaningful 
percentage of the Exchange's overall volume, the Exchange will measure 
volume executed on the Exchange on a quarterly basis. The percentage of 
volume that the Exchange considers to be meaningful for purposes of 
this Interpretation and Policy .01 will be determined by the Exchange 
and will be published in a circular distributed to ETP Holders. The 
Exchange will publish its first Information Circular consistent with

[[Page 74157]]

Rule 2.13 upon a resumption of trading on the System.
    The proposed Interpretation and Policy would also require the 
Exchange to notify, on a quarterly basis, individual ETP Holders that 
are subject to proposed paragraph (b) based on the prior calendar 
quarter's volume. Finally, as proposed, if an ETP Holder has not 
previously been subject to the requirements of proposed paragraph (b), 
then such ETP Holder would have until the next calendar quarter before 
such requirements are applicable. The Exchange believes the proposed 
notice requirements are necessary to provide ETP Holders with proper 
advance notice in the event they become subject to proposed Rule 
2.13(b). The proposed timeframes would also provide ETP Holders with 
adequate time to become compliant with such Rule due to the necessary 
infrastructure changes that may be needed to connect to the Exchange's 
backup systems for an ETP Holder that is not already connected.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \11\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \12\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to 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 proposal will ensure that the minimum number of ETP 
Holders necessary for the maintenance of a fair an orderly market are 
properly designated consistent with Rule 1004 of Regulation SCI.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    Specifically, the proposal will adopt criteria with respect to the 
designation of ETP Holders that are required to participate in the 
testing of the Exchange's BC/DR plans, as well as appropriate 
notification regarding such designation. As set forth in the SCI 
Adopting Release, ``SROs have the authority, and legal responsibility, 
under Section 6 of the Exchange Act, to adopt and enforce rules 
(including rules to comply with Regulation SCI's requirements relating 
to BC/DR testing) applicable to their members or participants that are 
designed to, among other things, 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, in general, to 
protect investors and the public interest.'' \13\ The proposal is 
consistent with such authority and legal responsibility.
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    \13\ See SCI Adopting Release, supra note 5 at 72350.
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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 not necessary or appropriate in 
furtherance of the purposes of the Act. To the contrary, the proposal 
is not a competitive proposal but rather is necessary for the 
Exchange's compliance with Regulation SCI.

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 from market participants or others.

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) of the Act \14\ and Rule 19b-4(f)(6)(iii) thereunder.\15\ 
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 prior to 
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)(iii) thereunder.\16\ A proposed rule change filed under Rule 
19b-4(f)(6)(iii) \17\ normally does not become operative prior to 30 
days after the date of the filing. However, pursuant to Rule 
19b4(f)(6)(iii),\18\ the Commission may designate a shorter time if 
such action is consistent with the protection of investors and the 
public interest.
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    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ In addition, Rule 19b-4(f)(6) requires a self-regulatory 
organization to give the Commission written notice of its intent to 
file 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.
    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. 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 incorporate changes 
required under Regulation SCI, such as establishing standards for 
designating BC/DR participants, and help ensure that the Exchange will 
be able to satisfy the requirements of Regulation SCI once the Exchange 
commences operations. Accordingly, the Commission designates the 
proposed rule change to be operative upon filing.\19\
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    \19\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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 such 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) \20\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \20\ 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-NSX-2015-06 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 No. SR-NSX-2015-06. This file 
number should be included in the subject line if email is used. To help 
the

[[Page 74158]]

Commission process and review 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 20549-1090. Copies of the filing will also 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. Interested 
persons should submit only information that they wish to make available 
publicly. All submissions should refer to file number SR-NSX-2015-06 
and should be submitted on or before December 18, 2015.

    For the Commission by the Division of Trading and Markets, 
pursuant to the delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-30086 Filed 11-25-15; 8:45 am]
BILLING CODE 8011-01-P