
[Federal Register Volume 81, Number 78 (Friday, April 22, 2016)]
[Notices]
[Pages 23793-23796]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-09317]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77636; File No. SR-BatsEDGX-2016-12]


Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Adopt Exchange Rule 14.10 Setting Forth Additional Requirements for the 
Listing of Securities That Are Issued by the Exchange or Any of Its 
Affiliates

April 18, 2016.
    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 April 13, 2016, Bats EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The Exchange 
has

[[Page 23794]]

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 Exchange Rule 14.10 setting 
forth additional requirements for the listing of securities that are 
issued by the Exchange or any of its affiliates as well as the 
monitoring of such securities' trading activity on the Exchange. 
Proposed Rule 14.10 is based on Bats BZX Exchange, Inc. (``BZX'') Rule 
14.3(e), which was recently amended and filed for immediate 
effectiveness with the Commission.\5\
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    \5\ See SR-BatsBZX-2016-08 (filed for immediate effectiveness on 
April 13, 2016). See also Securities Exchange Act Release No. 66580 
(March 13, 2012), 77 FR 16110 (March 19, 2012) (SR-BATS-2012-012).
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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
    The Exchange is proposing to adopt Rule 14.10 setting forth 
reporting requirements on the Exchange should the Exchange or EDGX 
Affiliate list a security on the Exchange (the ``Affiliate Security''). 
Proposed Rule 14.10(a)(1) would define ``EDGX Affiliate'' as ``the 
Exchange and any entity that directly or indirectly, through one or 
more intermediaries, controls, is controlled by, or is under common 
control with the Exchange, where `control' means that one entity 
possesses, directly or indirectly, voting control of the other entity 
either through ownership of capital stock or other equity securities or 
through majority representation on the board of directors or other 
management body of such entity.'' Proposed Rule 14.10(a)(2) would 
define ``Affiliate Security'' as ``any security issued by an EDGX 
Affiliate or any Exchange-listed option on any such security, with the 
exception of Portfolio Depositary Receipts as defined in Rule 14.8(d) 
and Investment Company Units as defined in Rule 14.2.'' \6\
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    \6\ The Exchange notes that BZX Rule 14.3(e)(1)(B) excludes 
Index Fund Shares as defined under BZX Rule 14.11(c). The Exchange 
rules do not currently define Index Fund Shares. Therefore, the 
Exchange proposes to exclude Investment Company Unit as defined 
under Exchange Rule 14.2 as it believes Investment Company Units to 
be synonymous with Index Fund Shares.
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    In the event that an EDGX Affiliate seeks to list an Affiliate 
Security, paragraph (b)(1) of proposed Rule 14.10 would require that 
prior to the initial listing of the Affiliate Security on the Exchange, 
Exchange personnel shall determine that such security satisfies the 
Exchange's rules for listing, and such finding must be approved by the 
Regulatory Oversight Committee of the Exchange's Board of Directors.
    Proposed paragraph (b)(2) of proposed Rule 14.10 would state that 
throughout the continued listing of the Affiliate Security on the 
Exchange, the Exchange will prepare a quarterly report for the 
Regulatory Oversight Committee of the Exchange's Board of Directors and 
that such report describe the Exchange's monitoring of the Affiliate 
Security's compliance with the Exchange's listing standards. Sub-
paragraph (A) of proposed Rule 14.10(b)(2) would require the report 
include a description of the Affiliate Security's compliance with the 
Exchange's minimum share price requirement, and, sub-paragraph (B) 
would require the report to describe the Affiliate Security's 
compliance with each of the quantitative continued listing 
requirements.
    Sub-paragraph (3) of proposed Rule 14.10(b) would require the 
Exchange to commission an annual review and report by an independent 
accounting firm of the compliance of the Affiliate Security with the 
Exchange's listing requirements. The Exchange would be required to 
promptly furnish a copy of this annual report to the Regulatory 
Oversight Committee of the Exchange's Board of Directors.
    Sub-paragraph (4) of proposed Rule 14.10(b) would state that in the 
event the Exchange determines that the EDGX Affiliate is not in 
compliance with any of the Exchange's listing standards, the Exchange 
is required to notify the issuer of such non-compliance promptly and 
request a plan of compliance. The Exchange would also be required to 
file a report with the Commission within five business days of 
providing such notice to the issuer of its non-compliance. The required 
report would identify the date of the non-compliance, type of non-
compliance, and any other material information conveyed to the issuer 
in the notice of non-compliance. Within five business days of receipt 
of a plan of compliance from the issuer, the Exchange would again be 
required to notify the Commission of such receipt, whether the plan of 
compliance was accepted by the Exchange or what other action was taken 
with respect to the plan and the time period provided to regain 
compliance with the Exchange's listing standards, if any.
    Sub-paragraph (c) of proposed Rule 14.10 would require that 
throughout the trading of an Affiliate Security on the Exchange, the 
Exchange prepare a quarterly report on the Affiliate Security for the 
Regulatory Oversight Committee of the Exchange's Board of Directors 
that describes the Exchange's monitoring of the trading of the 
Affiliate Security, including summaries of all related surveillance 
alerts, complaints, regulatory referrals, trades cancelled or adjusted 
pursuant to Exchange Rules, investigations, examinations, formal and 
informal disciplinary actions, exception reports and trading data used 
to ensure the Affiliate Security's compliance with the Exchange's 
listing and trading rules.
    Lastly, paragraph (d) of proposed Rule 14.10 would require the 
Exchange to promptly provide a copy of the reports required by sub-
paragraphs (b) and (c) described above to the Commission.
    The listing of an Affiliate Security or where an Affiliate Security 
is traded on the Exchange could potentially create a conflict of 
interest between the Exchange's self-regulatory responsibility to 
vigorously oversee the listing and trading of the stock on its market, 
and its own commercial or economic interests. Such ``self-listing'' may 
raise questions as to the Exchange's ability to independently and 
effectively enforce its rules against an affiliate or the operator/
owner of its facility. In addition, such listing has the potential to 
exacerbate possible conflicts that may arise when the Exchange oversees 
competitors that may also be listed or traded on the Exchange. The 
Exchange believes that the proposed rule change,

[[Page 23795]]

by requiring heightened reporting by the Exchange to the Regulatory 
Oversight Committee of the Exchange's Board of Directors and the 
Commission with respect to the Exchange's oversight of the listing and 
trading on the Exchange of any EDGX Affiliate Security, will help 
protect against any concern that the Exchange will not effectively 
enforce its rules with respect to the listing and trading of these 
securities. In addition, the requirements that an independent 
accounting firm review such issuer's compliance with the Exchange's 
listing standards adds a degree of independent oversight to the 
Exchange's regulation of the listing of these securities and should 
help mitigate against any potential or actual conflicts of interest. 
The Exchange also believes that these additional requirements contained 
in the proposed rule change would provide additional assurance that any 
Affiliate Securities listed and traded on the Exchange by an EDGX 
Affiliate comply with the Exchange's listing standards and trading 
rules on an on-going basis. Finally, the Exchange believes that the 
proposed rule change would eliminate any perception of a potential 
conflict of interest if an EDGX Affiliate seeks to list a security on 
the Exchange or if an Affiliate Security is traded on the Exchange.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange, and, in particular, 
with the requirements of Section 6(b) of the Act.\7\ Specifically, the 
proposed change is consistent with Section 6(b)(5) of the Act,\8\ 
because it is 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. 
Specifically, the Exchange believes that the proposed rule change, by 
requiring heightened reporting by the Exchange to the Regulatory 
Oversight Committee of the Exchange's Board of Directors and the 
Commission with respect to oversight of the listing and trading on the 
Exchange of Affiliate Securities, will help protect against concerns 
that the Exchange will not effectively enforce its rules with respect 
to the listing and trading of these securities. In addition, the 
requirement that an independent accounting firm review such issuer's 
compliance with the Exchange's listing standards adds a degree of 
independent oversight to the Exchange's regulation of the listing of 
these securities, which may mitigate any potential or actual conflicts 
of interest. Further, the additional requirements contained in the 
proposed rule change would help to provide additional assurance: (i) 
That any Affiliate Securities listed on the Exchange by an EDGX 
Affiliate comply with the Exchange's listing standards both upon the 
initial listing of the EDGX Affiliate and on an on-going basis; and 
(ii) regarding the Exchange's monitoring of the trading of the 
Affiliate Security traded on the Exchange. The Exchange believes that 
the proposed rule change would eliminate any perception of a potential 
conflict of interest if an EDGX Affiliate seeks to list a security on 
the Exchange and where an Affiliate Security is traded on the Exchange.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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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 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 set forth 
the Exchange's controls that are in place to address the potential 
conflicts of interest that may arise in the listing of Affiliate 
Securities on the Exchange.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    Written comments were neither solicited nor received.

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 \9\ and Rule 19b-4(f)(6) thereunder.\10\ 
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 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, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) thereunder.\12\
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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to 
give the Commission written notice of the Exchange's 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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    A proposed rule change filed under Rule 19b-4(f)(6) under the Act 
\13\ normally does not become operative for 30 days after the date of 
filing. However, Rule 19b-4(f)(6)(iii) \14\ permits the Commission to 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange states that 
waiver of the operative delay will allow the Exchange to implement the 
proposed rule change immediately in the event an Affiliate seeks to 
list on the Exchange or an Affiliate Security is traded on the 
Exchange. The Exchange further states that providing the reports 
required by the rule is in the best interest of investors and the 
public interest because it would provide greater transparency to market 
participants regarding the controls in place to address the potential 
conflicts of interest that may arise in the listing and trading of 
Affiliate Securities on the Exchange. Based on the foregoing, the 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public 
interest.\15\ The Commission hereby grants the Exchange's request and 
designates the proposal operative upon filing.
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    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ 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 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 to 
determine whether the proposed rule should be approved or disapproved.

[[Page 23796]]

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-BatsEDGX-2016-12 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-BatsEDGX-2016-12. 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 the 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-BatsEDGX-2016-12 and should 
be submitted on or before May 13, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-09317 Filed 4-21-16; 8:45 am]
 BILLING CODE 8011-01-P


