Document ID: SEC-2016-1008-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2016-06-10T04:00Z

[Federal Register Volume 81, Number 112 (Friday, June 10, 2016)]
[Notices]
[Pages 37656-37659]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-13715]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77995; File No. SR-CHX-2016-07]

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Adopt Business Continuity Plan Requirements for Participants

June 6, 2016.
    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 24, 2016, 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, II 
and III 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    CHX proposes to amend the Rules of the Exchange (``CHX Rules'') to 
adopt Article 7, Rule 14, which corresponds to a similar rule of the 
Financial Industry Regulatory Authority, Inc. (``FINRA'') regarding 
Business Continuity Plans (``BCPs'').

[[Page 37657]]

    CHX has designated this proposed rule change as non-controversial 
pursuant to Section 19(b)(3)(A) \3\ of the Act and Rule 19b-4(f)(6) \4\ 
thereunder and has provided the Commission with the notice required by 
Rule 19b-4(f)(6)(iii).\5\
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    The text of this proposed rule change is available on the 
Exchange's Web site at (www.chx.com) and in 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 CHX included statements 
concerning the purpose of and basis for the proposed rule changes 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 CHX 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
    The Exchange proposes to adopt Article 7, Rule 14 to require 
Participants to maintain BCPs. The Exchange recognizes that BCPs serve 
a critical function in facilitating the operation of orderly markets in 
the event of a disruptive emergency. Given that the Exchange does not 
currently require Participants to maintain BCPs or emergency contact 
information, the Exchange now proposes to adopt such standards and 
believes that adopting BCP requirements that are similar to FINRA Rule 
4370 and the BCP rules of other national securities exchanges \6\ would 
better ensure that Participant BCPs meet minimum standards that are, 
when triggered, executed in a consistent and predictable manner, which 
furthers the purposes of Section 6(b)(5) of the Act by removing 
impediments to and perfecting the mechanism of a free and open market 
and a national market system, and, in general, protects investors and 
the public interest.\7\ Moreover, the Exchange believes that greater 
harmonization between CHX Rules and FINRA Rules will result in less 
burdensome and more efficient regulatory compliance for Participants 
that are also members of FINRA (``Dual Members''). To this end, the 
Exchange proposes to adopt Article 7, Rule 14, which is similar to 
FINRA Rule 4370, except that proposed Article 7, Rule 14 differs from 
FINRA Rule 4370 in the following ways:
---------------------------------------------------------------------------

    \6\ See e.g., NYSE MKT Equities Rule 4370.
    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

     Addresses the unique membership, organizational and rules 
structures of the Exchange;
     Clarifies throughout proposed Article 7, Rule 14 that 
Participant BCPs must address a Participant's existing obligations to 
other interested parties, in addition to its existing obligations to 
its Customers,\8\ and defines ``interested parties,'' as discussed 
below;
---------------------------------------------------------------------------

    \8\ Incidentally, the Exchange proposes to amend CHX Article 1, 
Rule 1(hh) defining ``Customer'' to correspond to FINRA Rule 
160(b)(4), so as to provide, `` `Customer' shall not include a 
broker or dealer registered with the Commission.'' Currently, CHX 
Article 1, Rule 1(hh) provides that `` `Customer' means any person 
or entity other than a broker or dealer registered with the 
Commission.'' The Exchange proposes to harmonize its definition of 
Customer with that of FINRA to clarify the scope of the term.
---------------------------------------------------------------------------

     Expands alternate communication requirements to include 
Associated Persons \9\ of the Participant, in addition to employees, 
and other interested parties, in addition to Customers; and
---------------------------------------------------------------------------

    \9\ See CHX Article 1, Rule 1(d) defining ``Associated Person.''
---------------------------------------------------------------------------

     Expands alternate physical location requirements to 
include Associated Persons of the Participant, in addition to 
employees.
    Specifically, proposed paragraph (a) provides as follows:
    Each Participant must create and maintain a written business 
continuity plan (``BCP'') identifying procedures relating to an 
emergency or significant business disruption. Such procedures must be 
reasonably designed to enable the Participant to meet its existing 
obligations to Customers and other interested parties. The BCP must be 
made available promptly upon request to the Exchange staff.

Unlike FINRA Rule 4370(a), which includes additional language that BCPs 
must address ``existing relationships with other broker-dealers and 
counter-parties,'' the Exchange proposes to clarify that requirement by 
omitting such language from proposed Article 7 Rule 14(a) and, rather, 
provide that BCPs must be reasonably designed to enable the Participant 
to meet it existing obligations to Customers and other interested 
parties. Moreover, the Exchange proposes to define ``other interested 
parties'' to be inclusive of other broker-dealers and counter-parties, 
under proposed paragraph (g)(3), which provides as follows:

    ``Interested parties'' means any person or entity to which 
Participant owes a fiduciary and/or legal responsibility, including, 
but not limited to, Customers, other brokers or dealers, vendors and 
banks.

To further clarify the requirement, the Exchange proposes to add the 
term ``other interested parties'' after all subsequent references to 
``Customers'' under proposed paragraphs (c)(4), (c)(10) and (e).

    Proposed paragraph (b) provides as follows:
    Each Participant must update its BCP in the event of any material 
change to the Participant's operations, structure, business or 
location. Each Participant must also conduct an annual review of its 
BCP to determine whether any modifications are necessary in light of 
changes to the Participant's operations, structure, business or 
location.
    Proposed paragraph (c) provides as follows:
    The elements that comprise a BCP are flexible and may be tailored 
to the size and needs of a Participant. Each plan, however, must at a 
minimum, address:
    (1) Data back-up and recovery (hard copy and electronic);
    (2) All mission critical systems;
    (3) Financial and operational assessments;
    (4) Alternate communications between Customers and the Participant 
and between other interested parties and the Participant;
    (5) Alternate communications between the Participant and its 
employees and between the Participant and its Associated Persons;
    (6) Alternate physical location of employees and the Participant's 
Associated Persons;
    (7) Critical business constituent, bank, and counter-party impact;
    (8) Regulatory reporting;
    (9) Communications with all regulators; and
    (10) How the Participant will assure Customers and other interested 
parties have prompt access to their funds and securities in the event 
that the Participant determines that it is unable to continue its 
business.
    Each Participant must address the above-listed categories to the 
extent applicable and necessary. If any of the above-listed categories 
is not applicable, the Participant's BCP need not address the category. 
The Participant's BCP, however, must document the rationale for not 
including such category in its plan. If a Participant relies on another 
entity for any one of the above-listed categories or any mission 
critical system, the Participant's BCP must address this relationship.

[[Page 37658]]

    Notably, the Exchange proposes to expand the alternate 
communications and physical location requirements to include Associated 
Persons under proposed paragraphs (c)(5) and (c)(6).

    Proposed paragraph (d) provides as follows:
    Each Participant must designate a member of senior management to 
approve the plan and he or she shall be responsible for conducting the 
required annual review. The member of senior management must also be a 
registered principal.
    Proposed paragraph (e) provides as follows:
    Each Participant must disclose to its Customers and other 
interested parties how its BCP addresses the possibility of a future 
significant business disruption and how the Participant plans to 
respond to events of varying scope. At a minimum, such disclosure must 
be made in writing to Customers and other interested parties at account 
opening, posted on the Participant's Web site (if the Participant 
maintains a Web site), and mailed to Customers or other interested 
parties upon request.
    Proposed paragraph (f)(1) provides as follows:
    Each Participant shall report to the Exchange, via such electronic 
or other means as the Exchange may specify, prescribed emergency 
contact information for the Participant. The emergency contact 
information for the Participant includes designation of two Associated 
Persons as emergency contact persons. At least one emergency contact 
person shall be a member of senior management and a registered 
principal of the Participant. If a Participant designates a second 
emergency contact person who is not a registered principal, such person 
shall be a member of senior management who has knowledge of the 
Participant's business operations. A Participant with only one 
Associated Person shall designate as a second emergency contact person 
an individual, either registered with another firm or nonregistered, 
who has knowledge of the Participant's business operations (e.g., the 
Participant's attorney, accountant, or clearing firm contact).
    Proposed paragraph (f)(2) provides as follows:
    Each Participant must promptly update its emergency contact 
information, via such electronic or other means as the Exchange may 
specify, in the event of any material change, but in any event not 
later than 30 days following any change in such information. In 
addition, each Participant shall review and, if necessary, update its 
required contact information within 17 business days after the end of 
each calendar year.

Proposed paragraph (f)(2) is similar to FINRA Rule 4370(f)(2), except 
that proposed paragraph (f)(2) includes the explicit timing 
requirements of FINRA Rule 4517(c)(1). Since CHX Rules do not include a 
rule or provision similar to FINRA Rule 4517, the Exchange believes it 
is appropriate to incorporate such timing requirements into proposed 
paragraph (f)(2).

    Proposed paragraph (g) provides as follows:
    For purposes of this Rule, the following terms shall have the 
meanings specified below:
    (1) ``Mission critical system'' means any system that is necessary, 
depending on the nature of a Participant's business, to ensure prompt 
and accurate processing of securities transactions, including, but not 
limited to, order taking, order entry, execution, comparison, 
allocation, clearance and settlement of securities transactions, the 
maintenance of Customer or other interested party accounts, access to 
Customer or other interested party accounts and the delivery of funds 
and securities.
    (2) ``Financial and operational assessment'' means a set of written 
procedures that allow a Participant to identify changes in its 
operational, financial, and credit risk exposures.
    (3) ``Interested parties'' means any person or entity to which 
Participant owes a fiduciary and/or legal responsibility, including, 
but not limited to, Customers, other brokers or dealers, counter-
parties, vendors and banks.
Operative Date
    The Exchange proposes to make the proposed rule change operative 
pursuant to two weeks' notice by the Exchange to its Participants via 
Information Memorandum, but not on a date prior to the expiration of 
the thirty (30) days pre-operative waiting period contained in Rule 
19b-4(f)(6)(iii) under the Act.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \11\ in general, and furthers the 
objectives of Sections 6(b)(5) of the Act \12\ in particular, in that 
they are designed to prevent fraudulent and manipulative acts and 
practices, 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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Specifically, the Exchange believes that adopting standardized BCP 
requirements that are similar to FINRA Rule 4370 and the BCP rules of 
other national securities exchanges \13\ would better ensure that 
Participant BCPs meet minimum standards that are, when triggered, 
executed in a consistent and predictable manner, which furthers the 
purposes of Section 6(b)(5) of the Act by removing impediments to and 
perfecting the mechanism of a free and open market and a national 
market system, and, in general, protects investors and the public 
interest.\14\
---------------------------------------------------------------------------

    \13\ See supra note 6.
    \14\ See supra note 12.
---------------------------------------------------------------------------

    The Exchange also believes that the proposed rule change supports 
the objectives of the Act by providing greater harmonization between 
CHX Rules and FINRA Rules, which would result in less burdensome and 
more efficient regulatory compliance for Dual Members. To the extent 
that proposed Article 7, Rule 14 differs from FINRA Rules 4370 and 
4517(c)(1), such differences are non-substantive in nature, merely 
clarify the scope of the rule, expands certain alternative 
communication and location requirements to apply to Associated Persons 
of a Participant or, in the case of the proposed term ``interested 
parties,'' better defines the type of contra-parties that must be 
contemplated in the BCP.

B. Self-Regulatory Organization's Statement of 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. To the contrary, the 
proposed rule change will harmonize CHX Rules with FINRA Rules 
regarding BCPs and, thus, has no impact on competition.

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

    No written comments were either solicited or received.

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

    The Exchange believes that the proposal qualifies for immediate 
effectiveness upon filing as non-

[[Page 37659]]

controversial under Section 19(b)(3)(A) of the Act \15\ and paragraph 
(f)(6) of Rule 19b-4 thereunder.\16\
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    The Exchange asserts that the proposed rule change: (1) Will not 
significantly affect the protection of investors or the public 
interest, (2) will not impose any significant burden on competition, 
and (3) and will not become operative for 30 days from the date on 
which it was filed, or such shorter time as the Commission may 
designate. In addition, the Exchange provided 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, or such shorter time as 
designated by the Commission.\17\ While the Exchange does not currently 
have a rule that requires Participants maintain BCPs, the Exchange 
believes that the proposed rule change raises no novel issues, as it is 
substantively consistent with FINRA Rules 4370 and 4517(c)(1). 
Moreover, although proposed Article 7, Rule 14 differs from FINRA Rule 
4370 in that the proposed rule expands alternative communication and 
location requirements to Associated Persons of Participants and 
explicitly requires BCPs contemplate a broader range of contra-parties 
(i.e., interested parties), the Exchange believes that such differences 
are non-controversial as they merely expand FINRA Rule 4370 
requirements to additional parties that rely on the orderly operation 
of the Participant in the event of an emergency. The Exchange also 
notes that the proposed rule change would apply to all Participants and 
not only Dual Members. As such, the Exchange has designated this rule 
filing as non-controversial under Section 19(b)(3)(A) of the Act \18\ 
and paragraph (f)(6) of Rule 19b-4 thereunder.\19\
---------------------------------------------------------------------------

    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    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) of the Act to determine whether the proposed rule 
should be approved or disapproved.

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-CHX-2016-07 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 SR-CHX-2016-07. 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 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. Copies of such 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. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CHX-2016-07 and should be 
submitted on or before July 1, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
---------------------------------------------------------------------------

    \20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-13715 Filed 6-9-16; 8:45 am]
 BILLING CODE 8011-01-P