
[Federal Register Volume 77, Number 167 (Tuesday, August 28, 2012)]
[Notices]
[Pages 52096-52097]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-21108]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67711; File No. SR-EDGX-2012-24]


Self-Regulatory Organizations; EDGX Exchange, Inc.; Order 
Approving a Proposed Rule Change, as Modified by Amendment No. 1 
Thereto, To Amend EDGX Rules Regarding Market Access

August 22, 2012.

I. Introduction

    On June 22, 2012, EDGX Exchange, Inc. (``Exchange'' or ``EDGX'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
amend EDGX rules regarding market access for Sponsored Participants.\3\ 
The proposed rule change was published for comment in the Federal 
Register on July 9, 2012.\4\ The Commission received no comment letters 
regarding the proposed rule change. On July 31, 2012, the Exchange 
filed Amendment No. 1 to the proposed rule change.\5\ This order 
approves the proposed rule change, as modified by Amendment No. 1 
thereto.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ EDGX Rule 1.5(z) defines ``Sponsored Participant'' as ``a 
person which has entered into a sponsorship arrangement with a 
Sponsoring Member pursuant to Rule 11.3.'' As discussed below, the 
Exchange proposes to amend the definition of Sponsored Participant 
as part of the instant proposed rule change.
    \4\ See Securities Exchange Act Release No. 67331 (July 2, 
2012), 77 FR 40392 (``Notice'').
    \5\ In Amendment No. 1, the Exchange made a technical change to 
Rule 1.5(z) in Exhibit 5. Because Amendment No. 1 does not 
materially alter the substance of the proposed rule change, 
Amendment No. 1 is not subject to notice and comment.
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II. Description of the Proposal

    EDGX Rule 11.3(b) sets forth the requirements for Sponsored 
Participants to obtain authorized access to the Exchange's System.\6\ A 
Sponsored Participant may obtain authorized access by entering into and 
maintaining customer agreements with one or more Sponsoring Members \7\ 
through which the Sponsored Participant may trade on the Exchange's 
System.\8\ The customer agreements must incorporate the provisions of 
Rule 11.3(b)(2).\9\ In addition, the Sponsoring Member must provide 
EDGX with a written statement identifying each Sponsored Participant by 
name and acknowledging its responsibility for the orders, executions, 
and actions of the Sponsored Participants.\10\
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    \6\ EDGX Rule 1.5(cc) defines ``System'' as ``the electronic 
communications and trading facility designated by the Board through 
which securities orders of Users are consolidated for ranking, 
execution and, when applicable, routing away.''
    \7\ EDGX Rule 1.5(aa) defines ``Sponsoring Member'' as ``a 
Member that is a registered broker-dealer and that has been 
designated by a Sponsored Participant to execute, clear and settle 
transactions resulting from the System.''
    \8\ See EDGX Rule 11.3(b).
    \9\ See Notice, supra note 4, at 40393.
    \10\ See EDGX Rule 11.3(b)(3).
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    EDGX proposes to amend Rule 1.5(z), defining Sponsored Participant, 
and Rule 11.3(b), related to access by Sponsored Participants, to 
clarify the obligations of Sponsoring Members and Sponsored 
Participants. EDGX proposes to define Sponsored Participant as ``a 
person which has entered into an arrangement with one or more 
Sponsoring Members whereby such person obtains authorized access to the 
System in accordance with Rule 11.3.'' \11\ In addition, EDGX proposes 
to delete certain contractual provisions under Rule 11.3(b) that EDGX 
believes are no longer necessary given the obligations applicable to 
Sponsoring Members under Rule 15c3-5 under the Act (``Market Access 
Rule'').\12\ The Exchange also proposes to amend Rule 11.3(a) to 
require that only Members,\13\ and not Users \14\ (which includes 
Members as well as their Sponsored Participants), enter into agreements 
with the Exchange to obtain authorized access to EDGX's System.\15\ 
Sponsored Participants, in turn, must enter into and maintain sponsored 
or direct access arrangements with one or more Sponsoring Members 
establishing the proper relationship(s) and account(s) through which 
the Sponsored Participants may trade on the Exchange's System.\16\
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    \11\ See EDGX Rule 1.5(z); Amendment No. 1 at 4.
    \12\ 17 CFR 240.15c3-5. See Notice, supra note 4, at 40393. EDGX 
proposes to delete the provisions in Rule 11.3(b)(2)(A)-(I), the 
second sentence of Rule 11.3(b)(1), and Rule 11.3(b)(3).
    \13\ EDGX Rule 1.5(n) defines ``Member'' as ``any registered 
broker or dealer, or any person associated with a registered broker 
or dealer, that has been admitted to membership in the Exchange.''
    \14\ EDGX Rule 1.5(ee) defines ``User'' as ``any Member or 
Sponsored Participant who is authorized to obtain access to the 
System pursuant to Rule 11.3.''
    \15\ See EDGX Rule 11.3(a).
    \16\ See EDGX Rule 11.3(b)(1).
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    EDGX also proposes amendments to maintain transparency into who is 
accessing the Exchange's System.\17\ Sponsoring Members will need to 
maintain a list of Sponsored Participants authorized to access the 
Exchange's System pursuant to Rule 11.3, update that list as necessary, 
and provide the list to the Exchange upon request.\18\ In addition, the 
Exchange proposes to require that Sponsoring Members shall comply with 
all requirements of Rule 15c3-5 under the Act \19\ with regard to 
market access arrangements with Sponsored Participants.\20\
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    \17\ See Notice, supra note 4, at 40394.
    \18\ See EDGX Rule 11.3(b)(2). EDGX is retaining the requirement 
in Rule 11.4(a) that all Members maintain a list of Authorized 
Traders who may obtain access to the System on behalf of the Member 
or the Member's Sponsored Participants, and provide that list to the 
Exchange upon request. See Notice, supra note 4, at 40393.
    \19\ See 17 CFR 240.15c3-5. Rule 15c3-5 is designed to ensure 
that broker-dealers appropriately control the risks associated with 
market access, so as not to jeopardize their own financial 
condition, that of other market participants, the integrity of 
trading on the securities markets, or the stability of the financial 
system. See Risk Management Controls for Brokers or Dealers with 
Market Access, Securities Exchange Act Release No. 63241 (November 
3, 2010), 75 FR 69792 (November 15, 2010) (``Market Access Rule 
Adopting Release'').
    \20\ See EDGX Rule 11.3(b)(3).
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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1 thereto, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\21\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\22\ which requires, among other things, 
that the rules of a national securities exchange be 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.
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    \21\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \22\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the instant proposed rule change is 
consistent with the Act. The Commission notes that the Exchange 
believes the proposal should serve to eliminate potential confusion 
regarding the obligations of Sponsoring Members and Sponsored 
Participants under Exchange rules. In addition, the Commission notes 
that the Exchange proposes to require Sponsoring Members to comply with 
Rule 15c3-5 under the Act \23\ with regard to market access 
arrangements with Sponsored Participants.\24\ In this regard, the 
Commission notes that although the proposal relates to obligations of

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Sponsoring Members and Sponsored Participants under the Exchange's 
rules, the financial and regulatory risk management controls and 
supervisory procedures required by Rule 15c3-5 under the Act \25\ apply 
broadly to all forms of market access by broker-dealers that are 
exchange members or alternative trading system (``ATS'') subscribers, 
including sponsored access, direct market access, and more traditional 
agency brokerage arrangements with customers, as well as proprietary 
trading.\26\ The application of appropriate risk management controls 
and supervisory procedures required by Rule 15c3-5 under the Act \27\ 
is critically important to maintaining a robust market infrastructure 
supporting the protection of investors, investor confidence, and fair, 
orderly, and efficient markets for all participants.
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    \23\ 17 CFR 240.15c3-5.
    \24\ See EDGX Rule 11.3(b)(3).
    \25\ 17 CFR 240.15c3-5.
    \26\ See Market Access Rule Adopting Release, supra note 19, 75 
FR at 69798.
    \27\ 17 CFR 240.15c3-5.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\28\ that the proposed rule change (SR-EDGX-2012-24), as modified 
by Amendment No. 1 thereto, is approved.
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    \28\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-21108 Filed 8-27-12; 8:45 am]
BILLING CODE 8011-01-P


