
[Federal Register Volume 80, Number 202 (Tuesday, October 20, 2015)]
[Notices]
[Pages 63601-63603]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-26580]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76159; File No. SR-EDGX-2015-44]


Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt 
Rule 3.20, Influencing or Rewarding Employees of Others, Concerning 
Gifts and Gratuities in Relation to the Business of the Employer of the 
Recipient

October 15, 2015.
    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 September 30, 2015, EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') 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 
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) thereunder,\4\ 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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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to adopt Rule 3.20 to conform to the 
rules of the Financial Industry Regulatory Authority, Inc. (``FINRA'') 
for purposes of an agreement between the Exchange and FINRA pursuant to 
Rule 17d-2 under the Act.\5\ The Exchange also proposes to adopt Rule 
3.20 to conform to the rules of BATS Exchange, Inc. (``BZX'') and BATS 
Y-Exchange, Inc. (``BYX'').\6\
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    \5\ 17 CFR 240.17d-2.
    \6\ See SR-BATS-2015-79 and SR-BYX-2015-43 (filed September 30, 
2015) (Notice of Filing and Immediate Effectiveness to Amend Rule 
3.22 to Conform to FINRA Rule 3220).
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    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.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 
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
    Pursuant to Rule 17d-2 under the Act,\7\ the Exchange and FINRA 
entered into an agreement to allocate regulatory responsibility for 
common rules (the ``17d-2 Agreement''). The 17d-2 Agreement covers 
common members of the Exchange and FINRA and allocates to FINRA 
regulatory responsibility, with respect to common members, for the 
following: (i) Examination of common members of the Exchange and FINRA 
for compliance with certain 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 the Exchange and FINRA for 
violations of certain 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 certain federal securities laws, 
rules and regulations, and the rules of the Exchange that the Exchange 
has certified as identical or substantially similar to FINRA rules.\8\
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    \7\ 17 CFR 240.17d-2.
    \8\ See Securities and Exchange Release No. 62079 (May11, 2010), 
75 FR 28080 (May 19, 2010) (approving File No. 4-598).
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    The 17d-2 Agreement included a certification by the Exchange that 
states that the requirements contained in certain Exchange rules are 
identical to, or substantially similar to, certain FINRA rules that 
have been identified as comparable. The Exchange does not currently 
maintain a rule similar to FINRA Rule 3220 governing a Member's giving 
of gifts. To conform to comparable FINRA rules for purposes of the 17d-
2 Agreement, the Exchange

[[Page 63602]]

proposes [sic] adopt Rule 3.20, Influencing or Rewarding Employees of 
Others, that is identical to FINRA Rule 3220. The proposed rule text is 
also identical to New York Stock Exchange, Inc. (``NYSE'') Rule 3220, 
which has been approved by the Commission.\9\
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    \9\ See Securities Exchange Act Release No. 59965 (May 21, 
2009), 74 FR 25783 (May 29, 2009) (SR-NYSE-2009-25).
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    The Exchange believes that these changes will help to avoid 
confusion among Members of the Exchange that are also members of FINRA 
by further aligning the Exchange Rules with FINRA Rule 3220. The 
proposed adoption of Rule 3.20 is designed to enable the Exchange to 
incorporate Rule 3.20 into the 17d-2 Agreement, further harmonizing 
regulation of Members that are also members of FINRA. For the avoidance 
of doubt, Rule 3.20 would equally apply to Exchange-only Members as the 
Exchange believes it appropriately protects against improprieties that 
might arise when substantial gifts or monetary payments are given to 
certain persons. The Exchange will issue a Regulatory Notice to its 
Members, including Exchange-only Members that may not also be FINRA 
Members, and those Members registered with FINRA, clarifying that 
FINRA's interpretive guidance related to FINRA Rule 3220 is considered 
part of Exchange Rule 3.20, and that all Members are required to 
regulate their conduct according to Rule 3.20 and the interpretive 
guidance related to FINRA Rule 3220.\10\
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    \10\ See, e.g., FINRA's interpretative guidance concerning 
business entertainment expenses, including a June 24, 1999, Letter 
to Henry H. Hopkins and Sarah McCafferty, T. Rowe Price Investment 
Services, Inc. This interpretative letter and other interpretive 
guidance concerning gifts and gratuities expenses are currently 
available at FINRA's Web site.
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    As amended, like FINRA Rule 3220(a), proposed paragraph (a) of Rule 
3.20 would prevent gifts in excess of $100.00 per individual per year 
where the gift or gratuity is in relation to the business of the 
employee \11\ of the recipient. A gift of any kind would be considered 
a gratuity. The Rule would also contain an express exclusion for 
payments made pursuant to bona fide, written employment contracts. 
Specifically, like FINRA Rule 3220(b), proposed paragraph (b) of Rule 
3.20 would state that the rule would not apply to contracts of 
employment with or to compensation for services rendered by persons 
enumerated in paragraph (a) of the Rule, provided that there is in 
existence prior to the time of employment or before the services are 
rendered, a written agreement between the member and the person who is 
to be employed to perform such services. Proposed paragraph (c) would 
require such agreement to include the nature of the proposed 
employment, the amount of the proposed compensation, and the written 
consent of such person's employer or principal.
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    \11\ The Commission notes that both FINRA Rule 3220 and proposed 
EDGX Rule 3.20 limit gifts and gratuities in relation to the 
employer of the recipient, rather than those in relation to the 
``employee'' of the recipient as stated above.
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    The Rule would also require each Member to maintain a separate 
record of all gifts or gratuities. Like FINRA Rule 3220(c), proposed 
paragraph (c) of Rule 3.20 would require a separate record of all 
payments or gratuities in any amount known to the member, the 
employment agreement referred to in proposed paragraph (b) of Rule 3.20 
and any employment compensation paid as a result thereof shall be 
retained by the member for the period specified by Exchange Act Rule 
17a-4.\12\
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    \12\ 17 CFR 240.17a-4.
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    In early 2014, the Exchange and its affiliate, EDGA Exchange, Inc. 
(``EDGA'') received approval to effect a merger (the ``Merger'') of the 
Exchange's parent company, Direct Edge Holdings LLC, with BATS Global 
Markets, Inc., the parent of BZX and the BYX (together with BZX, EDGA 
and EDGX, the ``BGM Affiliated Exchanges'').\13\ In the context of the 
Merger, the BGM Affiliated Exchanges are working to align their rules, 
retaining only intended differences between the BGM Affiliated 
Exchanges. Thus, the proposed text of Rule 3.20 is also identical to 
recent rule changes filed with the Commission by BZX and BYX to adopt 
identical rule text to that proposed herein and FINRA Rule 3220. This 
proposed rule change would enable the Exchange to adopt rules that 
correspond to rules of BYX and BZX and provide a consistent rule set 
across each of the BGM Affiliated Exchanges.\14\
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    \13\ See Securities Exchange Act Release No. 71449 (January 30, 
2014), 79 FR 6961 (February 5, 2014) (SR-EDGX-2013-43; SR-EDGA-2013-
34).
    \14\ The Exchange notes that EDGA intends to file an identical 
proposal with the Commission to adopt Rule 3.20, Influencing or 
Rewarding Employees of Others.
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2. Statutory Basis
    The Exchange believes that proposed rule change is consistent with 
Section 6(b)(5) of the Act,\15\ which requires, among other things, 
that the Exchange's rules be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system. The Exchange believes that the 
proposed rule change will further these requirements by providing 
greater harmonization between Exchange and FINRA rules of similar 
purpose, resulting in greater uniformity and less burdensome and more 
efficient regulatory compliance. As such, the proposed rule change 
would foster cooperation and coordination with persons engaged in 
facilitating transactions in securities and would remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system.
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    \15\ 15 U.S.C. 78f(b)(5).
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    In addition, the proposed rule change would provide greater 
harmonization between rules of similar purpose on the BGM Affiliated 
Exchanges, resulting in greater uniformity and less burdensome and more 
efficient regulatory compliance and understanding of Exchange Rules. As 
such, the proposed rule change would foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities and would remove impediments to and perfect the mechanism of 
a free and open market and a national market system. Similarly, the 
Exchange also believes that, by harmonizing the rules across each BGM 
Affiliated Exchange, the proposal will enhance the Exchange's ability 
to fairly and efficiently regulate its Members, meaning that the 
proposed rule change would promote just and equitable principles of 
trade in accordance with Section 6(b)(5) of the Act.\16\
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    \16\ Id.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
not designed to address any competitive issues but rather to provide 
greater harmonization among Exchange and FINRA rules of similar 
purpose, resulting in less burdensome and more efficient regulatory 
compliance for common members and facilitating FINRA's performance of 
its regulatory functions under the 17d-2 Agreement. In addition, 
allowing the Exchange to implement substantively identical rules that 
apply to all members of the BGM Affiliated Exchanges across each of the 
BGM Affiliated Exchanges does not present any competitive issues, but 
rather is designed to provide greater

[[Page 63603]]

harmonization among Exchange, BZX, BYX, and EDGA rules of similar 
purpose.

(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.

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

    The Exchange has designated this rule filing as non-controversial 
under Section 19(b)(3)(A) of the Act \17\ and paragraph (f)(6) of Rule 
19b-4 thereunder.\18\ The proposed rule change effects a change that 
(A) does not significantly affect the protection of investors or the 
public interest; (B) does not impose any significant burden on 
competition; and (C) by its terms, does not become operative for 30 
days after the date of the filing, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest; provided that the self-regulatory organization 
has given 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.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily temporarily suspend such rule 
change if it appears to the Commission that such action is: (1) 
Necessary or appropriate in the public interest; (2) for the protection 
of investors; or (3) otherwise in furtherance of the purposes of the 
Act. If the Commission takes such action, the Commission shall 
institute proceedings 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 proposal 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 No. SR-EDGX-2015-44 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 No. SR-EDGX-2015-44. 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 No. SR-EDGX-2015-44 and should be 
submitted on or before November 10, 2015.
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    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-26580 Filed 10-19-15; 8:45 am]
 BILLING CODE 8011-01-P


