
[Federal Register Volume 82, Number 106 (Monday, June 5, 2017)]
[Notices]
[Pages 25856-25862]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-11502]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80807; File No. SR-NYSE-2017-21]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Adopt Rules 5220 and 9560 and Amend Rule 8313

May 30, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 17, 2017, New York Stock Exchange LLC (``NYSE'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes (1) a new Rule 5220 that defines and 
prohibits two types of disruptive quoting and trading activity on the 
Exchange; (2) a new Rule 9560 governing supplemental expedited 
suspension proceedings; and (3) amendments to Rule 8313 to permit 
release to the public of suspension notices and orders issued pursuant 
to proposed Rule 9560. The proposed rule change is available on the 
Exchange's Web site at www.nyse.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 self-regulatory organization 
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 those 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 proposes (1) a new Rule 5220 that defines and 
prohibits two types of disruptive quoting and trading activity on the 
Exchange; (2) a new Rule 9560 governing supplemental expedited 
suspension proceedings; and (3) amendments to Rule 8313 (Release of 
Disciplinary Complaints, Decisions and Other Information) to permit 
release to the public of suspension notices and orders issued pursuant 
to proposed Rule 9560.
    The proposed rule change is based on rules recently adopted by Bats 
BZX Exchange, Inc., formerly known as BATS Exchange, Inc. (``BATS''), 
and The Nasdaq Stock Market LLC (``NASDAQ'').\3\ The proposed rules are 
the same as those adopted by BATS and NASDAQ, with the following 
exceptions discussed below: (1) Conforming references to reflect the 
Exchange's membership; and (2) the call for review process in proposed 
Rule 9560(f). The Exchange believes that having consistent rules for 
issuing a cease and desist order on an expedited basis as other self-
regulatory organizations (``SROs'') to halt certain disruptive and 
manipulative quoting and trading activity would enhance the Exchange's 
ability to protect investors and market integrity.
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    \3\ On February 18, 2016, the SEC approved a proposed rule 
change filed by BATS to adopt new BATS Rule 12.15, which prohibits 
certain types of disruptive quoting and trading activities, and BATS 
Rule 8.17, which permits BATS to conduct a new expedited suspension 
proceeding when it believes BATS Rule 12.15 has been violated. See 
Securities Exchange Act Release No. 77171 (February 18, 2016), 81 FR 
9017 (February 23, 2016) (SR-BATS-2015-101) (``BATS Approval 
Order''); see also Securities Exchange Act Release No. 77606 (April 
13, 2016), 81 FR 23026 (April 19, 2016) (SR-BatsEDGA-2016-03) 
(adopting identical rules for Bats EDGA Exchange, Inc.); Securities 
Exchange Act Release No. 77602 (April 13, 2016), 81 FR 23046 (April 
19, 2016) (SR-BatsBYX-2016-03) (adopting identical rules for Bats 
BYX Exchange, Inc.); Securities Exchange Act Release No. 77589 
(April 12, 2016), 81 FR 22691 (April 18, 2016) (SR-BatsEDGX-2016-04) 
(adopting identical rules for Bats EDGX Exchange, Inc.). On May 19, 
2016, NASDAQ filed a substantially similar proposed rule change with 
the SEC for immediate effectiveness. See Securities Exchange Act 
Release No. 77913 (May 25, 2016), 81 FR 35081 (June 1, 2016) (SR-
NASDAQ-2016-074). NASDAQ has also extended the rule to other 
exchanges. See, e.g., Securities Exchange Act Release No. 78208 
(June 30, 2016), 81 FR 44366 (July 7, 2016) (SR-NASDAQ-2016-092). 
Similarly, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') also recently prohibited disruptive quoting and trading 
and amended its procedural rules. See Securities Exchange Act 
Release No. 76361 (November 21, 2016), 81 FR 85650 (November 28, 
2016) (SR-FINRA-2016-043).
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Background
    As a national securities exchange registered pursuant to Section 6 
of the Act, the Exchange is required to be organized and to have the 
capacity to enforce compliance by its member organizations and persons 
associated with its member organizations, with the Act, the rules and 
regulations thereunder, and the Exchange's Rules.\4\ Further, the 
Exchange's Rules are required to be ``designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade . . . and, in general, to protect investors and the 
public interest.'' \5\
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    \4\ 15 U.S.C. 78f(b)(1).
    \5\ 15 U.S.C. 78f(b)(1).
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    In fulfilling these requirements, the Exchange has developed a 
comprehensive regulatory program that includes automated surveillance 
of trading activity operated directly by Exchange staff. When 
disruptive and potentially manipulative or improper quoting and trading 
activity is identified, the Exchange conducts an investigation into the 
activity and requests documents and information. To the extent 
violations of the Act, the rules and regulations thereunder, or 
Exchange Rules are identified, the Exchange will commence disciplinary 
proceedings, which could result in, among other things, a censure, a 
requirement to take certain remedial actions, one or more restrictions 
on future business activities, a monetary fine, or a temporary or 
permanent ban from the securities industry.
    The process described above, from the identification of disruptive 
and

[[Page 25857]]

potentially manipulative or improper quoting and trading activity to a 
final resolution of the matter, can often take several years. The 
Exchange believes that this time period sometimes is necessary and 
appropriate to afford adequate due process, particularly in complex 
cases. However, as described below, the Exchange believes that there 
are certain obvious and uncomplicated cases of disruptive and 
manipulative behavior or cases where the potential harm to investors is 
so large that the Exchange should have the authority to initiate an 
expedited suspension proceeding in order to stop the behavior from 
continuing on the Exchange. In recent years, several cases have been 
brought and resolved by the Exchange and other SROs involving 
allegations of wide-spread market manipulation, much of which was 
ultimately being conducted by foreign persons and entities using 
relatively rudimentary technology to access the markets and over which 
the Exchange and other SROs had no direct jurisdiction. In each case, 
the conduct involved a pattern of disruptive quoting and trading 
activity indicative of manipulative layering \6\ or spoofing.\7\
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    \6\ ``Layering'' can include a form of market manipulation in 
which multiple, non-bona fide limit orders are entered on one side 
of the market at various price levels in order to create the 
appearance of a change in the levels of supply and demand, thereby 
artificially moving the price of the security. An order is then 
executed on the opposite side of the market at the artificially 
created price, and the non-bona fide orders are cancelled.
    \7\ ``Spoofing'' can include a form of market manipulation that 
involves the market manipulator placing non-bona fide orders that 
are intended to trigger some type of market movement and/or response 
from other market participants, from which the market manipulator 
might benefit by trading bona fide orders.
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    The Exchange and other SROs were able to identify the disruptive 
quoting and trading activity in real-time or near real-time; 
nonetheless, the parties responsible for such conduct or responsible 
for their customers' conduct continued the disruptive quoting and 
trading activity on the Exchange and other exchanges during the 
entirety of the subsequent lengthy investigation and enforcement 
process. To supplement other Exchange Rules on which it may already 
rely to stop such activity from continuing, the Exchange believes that 
it should have additional authority to initiate expedited suspension 
proceedings in order to stop behavior from continuing on the Exchange 
if a member organization or a person associated with its member 
organization is engaging in or facilitating disruptive quoting and 
trading activity and the member organization or associated person has 
received sufficient notice with an opportunity to respond, but such 
activity has not ceased. The following examples involving the Exchange 
and its affiliate NYSE Arca, Inc. (``NYSE Arca''), are instructive 
regarding the rationale for the proposed rule change.
    In July 2012, Biremis Corp. (formerly Swift Trade Securities USA, 
Inc.) (``Biremis'') and its CEO were barred from the securities 
industry for, among other things, supervisory violations related to a 
failure by Biremis to detect and prevent disruptive and allegedly 
manipulative trading activities, including layering, short sale 
violations, and anti-money laundering violations.\8\ Biremis' sole 
business was providing trade execution services via a proprietary day 
trading platform and order management system to day traders located in 
foreign jurisdictions. Thus, the disruptive and allegedly manipulative 
trading activity introduced by Biremis to U.S. markets originated 
directly or indirectly from its foreign clients. The pattern of 
disruptive and allegedly manipulative quoting and trading activity was 
widespread across multiple exchanges, and the Exchange, FINRA, and 
other SROs identified clear patterns of the behavior in 2007 and 2008. 
Although Biremis and its principals were on notice of the disruptive 
and allegedly manipulative quoting and trading activity that was 
occurring, Biremis took little to no action to attempt to supervise or 
prevent such quoting and trading activity until at least 2009. Even 
when it put some controls in place, they were deficient and the pattern 
of disruptive and allegedly manipulative trading activity continued to 
occur. As noted above, the final resolution of the enforcement action 
to bar the firm and its CEO from the industry was not concluded until 
2012, four years after the disruptive and allegedly manipulative 
trading activity was first identified.
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    \8\ See Biremis Corp. and Peter Beck, FINRA Letter of 
Acceptance, Waiver and Consent No. 2010021162202, July 30, 2012.
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    In September of 2012, Hold Brothers On-Line Investment Services, 
Inc. (``Hold Brothers'') settled a regulatory action in connection with 
its provision of a trading platform, trade software and trade 
execution, support and clearing services for day traders.\9\ Many 
traders using the firm's services were located in foreign 
jurisdictions. Hold Brothers ultimately settled the action with FINRA 
and several exchanges, including NYSE Arca, for a total monetary fine 
of $3.4 million. In a separate action, the Firm settled with the 
Commission for a monetary fine of $2.5 million.\10\ Among the alleged 
violations in the case were disruptive and allegedly manipulative 
quoting and trading activity, including spoofing, layering, wash 
trading, and pre-arranged trading. Through its conduct and insufficient 
procedures and controls, Hold Brothers also allegedly committed anti-
money laundering violations by failing to detect and report 
manipulative and suspicious trading activity. Hold Brothers was alleged 
to have not only provided foreign traders with access to the U.S. 
markets to engage in such activities, but that its principals also 
owned and funded foreign subsidiaries that engaged in the disruptive 
and allegedly manipulative quoting and trading activity. Although the 
pattern of disruptive and allegedly manipulative quoting and trading 
activity was identified in 2009, as noted above, the enforcement action 
was not concluded until 2012. Thus, although disruptive and allegedly 
manipulative quoting and trading was promptly detected, it continued 
for several years. The Exchange also notes that criminal proceedings 
were initiated against Navinder Singh Sarao for manipulative trading 
activity, including forms of layering and spoofing in the futures 
markets, that were identified as a contributing factor to the ``Flash 
Crash'' of 2010, and yet continued through 2015. In November 2016, Mr. 
Sarao pled guilty to one count each of wire fraud and spoofing.\11\
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    \9\ See Hold Brothers On-Line Investment Services, LLC, FINRA 
Letter of Acceptance, Waiver and Consent No. 20100237710001, 
September 25, 2012.
    \10\ In the Matter of Hold Brothers On-Line Investment Services, 
LLC, Exchange Act Release No. 67924, September 25, 2012.
    \11\ The plea agreement in United States v. Navinder Singh 
Sarao, Docket Number: 1:15-CR-00075-1 (N.D. Ill.), is available at 
https://www.justice.gov/criminal-fraud/file/910196/download.
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    The Exchange believes that the activities described in the cases 
above provide justification for the proposed rule change, which is 
described below.
Proposed Rule Change
Proposed Rule 5220
    The Exchange proposes to adopt new Rule 5220 of the Exchange's 
Conduct Rules to define and prohibit disruptive quoting and trading 
activity on the Exchange. Proposed Rule 5220(a) would prohibit member 
organizations and covered persons \12\ from engaging in or

[[Page 25858]]

facilitating disruptive quoting and trading activity on the Exchange, 
as described in proposed Rule 5220(b)(1) and (2), including acting in 
concert with other persons to effect such activity. The Exchange 
believes that it is necessary to extend the prohibition to situations 
when persons are acting in concert to avoid a potential loophole where 
disruptive quoting and trading activity is simply split between several 
brokers or customers. The Exchange also believes, that with respect to 
persons acting in concert perpetrating an abusive scheme, it is 
important that the Exchange have authority to act against the parties 
perpetrating the abusive scheme, whether it is one person or multiple 
persons. The Exchange proposes to adopt Rule 5220(b)(1) and (2) 
providing additional details regarding disruptive quoting and trading 
activity. Proposed Rule 5220(b)(1) would describe disruptive quoting 
and trading activity containing many of the elements indicative of 
layering. For purposes of the proposed Rule, disruptive quoting and 
trading activity would include a frequent pattern in which the 
following facts are present:
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    \12\ Rule 9120(g) defines ``covered person'' to include a 
member, principal executive, approved person, registered or 
nonregistered employee of a member organization, or other person 
(excluding a member organization) subject to the jurisdiction of the 
Exchange. Rule 2(b) defines ``member organization'' as a registered 
broker or dealer (unless exempt pursuant to the Act) that is a 
member of FINRA or another registered securities exchange.
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     A party enters multiple limit orders on one side of the 
market at various price levels (the ``Displayed Orders'') (proposed 
Rule 5220(b)(1)(A)); and
     following the entry of the Displayed Orders, the level of 
supply and demand for the security changes (proposed Rule 
5220(b)(1)(B)); and
     the party enters one or more orders on the opposite side 
of the market of the Displayed Orders (the ``Contra-Side Orders'') that 
are subsequently executed (proposed Rule 5220(b)(1)(C)); and
     following the execution of the Contra-Side Orders, the 
party cancels the Displayed Orders (proposed Rule 5220(b)(1)(D)).
    Proposed Rule 5220(b)(2) would describe disruptive quoting and 
trading activity containing many of the elements indicative of spoofing 
and would describe disruptive quoting and trading activity as a 
frequent pattern in which the following facts are present:
     A party narrows the spread for a security by placing an 
order inside the national best bid or offer (proposed Rule 
5220(b)(2)(A)); and
     the party then submits an order on the opposite side of 
the market that executes against another market participant that joined 
the new inside market established by the order described in proposed 
(b)(2)(A) that narrowed the spread (proposed Rule 5220(b)(2)(B)).
    The Exchange believes that the proposed descriptions of disruptive 
quoting and trading activity articulated in the rule are consistent 
with the activities that have been identified and described in the 
client access cases described above and with the rules of other 
SROs.\13\
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    \13\ See, e.g., BATS Rule 12.15; NASDAQ Rule 2170. See generally 
note 4, supra.
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    Proposed Rule 5220(c) would provide that, unless otherwise 
indicated, the descriptions of disruptive quoting and trading activity 
do not require the facts to occur in a specific order in order for the 
Rule to apply. For instance, with respect to the pattern defined in 
proposed Rule 5220(b)(1)(A)-(D), it is of no consequence whether a 
party first enters Displayed Orders and then Contra-side Orders or 
vice-versa. However, as proposed, it is required for supply and demand 
to change following the entry of the Displayed Orders.
    The Exchange also proposes to make clear that disruptive quoting 
and trading activity includes a pattern or practice in which some 
portion of the disruptive quoting and trading activity is conducted on 
the Exchange and the other portions of the disruptive quoting and 
trading activity are conducted on one or more other exchanges. The 
Exchange believes that this authority is necessary to address market 
participants who would otherwise seek to avoid the prohibitions of the 
proposed Rule by spreading their activity amongst various execution 
venues.
Proposed Rule 9560
    Proposed Rule 9560 would set forth procedures for issuing 
suspension orders, immediately prohibiting a member organization or 
covered person from conducting continued disruptive quoting and trading 
activity on the Exchange. Importantly, these procedures would also 
provide the Exchange the authority to order a member organization or 
covered person to cease and desist from providing access to the 
Exchange to a client that is conducting disruptive quoting and trading 
activity.
    Under proposed paragraph (a)(1) of Rule 9560, with the prior 
written authorization of the Chief Regulatory Officer (``CRO'') or such 
other senior officers as the CRO may designate, the Exchange's 
Enforcement department may initiate an expedited suspension proceeding 
with respect to alleged violations of proposed Rule 5220. Proposed 
paragraph (a) would also set forth the requirements for notice ((a)(2)) 
and service of such notice ((a)(3)) pursuant to the Rule, including the 
required method of service and the content of notice.
    Proposed paragraph (b) of Rule 9560 would govern the appointment of 
a Hearing Panel as well as potential disqualification or recusal of 
Hearing Officers. The proposed provision is consistent with current 
Rule 9231(b), which governs the appointment of a hearing panel or 
extended hearing panel to conduct disciplinary proceedings. The 
Exchange's Rules provide for a Hearing Officer to be recused in the 
event he or she has a conflict of interest or bias or other 
circumstances exist where his or her fairness might reasonably be 
questioned in accordance with Rules [sic] 9233(a). In addition to 
recusal initiated by such a Hearing Officer, a party to the proceeding 
will be permitted to file a motion to disqualify a Hearing Officer. 
However, due to the compressed schedule pursuant to which the process 
would operate under Rule 9560, the proposed rule would require such 
motion to be filed no later than 5 days after the announcement of the 
Hearing Panel and the Exchange's brief in opposition to such motion 
would be required to be filed no later than 5 days after service 
thereof. Pursuant to existing Rule 9233(c), a motion for 
disqualification of a Hearing Officer shall be decided by the Chief 
Hearing Officer based on a prompt investigation. The applicable Hearing 
Officer shall remove himself or herself and request the Chief Executive 
Officer to reassign the hearing to another Hearing Officer such that 
the Hearing Panel still meets the compositional requirements described 
in Rule 9231(b). If the Chief Hearing Officer determines that the 
Respondent's grounds for disqualification are insufficient, it shall 
deny the Respondent's motion for disqualification by setting forth the 
reasons for the denial in writing and the Hearing Panel will proceed 
with the hearing.
    Under paragraph (c)(1) of the proposed Rule, the hearing would be 
held not later than 15 days after service of the notice initiating the 
suspension proceeding, unless otherwise extended by the Chairman of the 
Hearing Panel with the consent of the Parties for good cause shown. In 
the event of a recusal or disqualification of a Hearing Officer, the 
hearing shall be held not later than five days after a replacement 
Hearing Officer is appointed.
    Under paragraph (c)(2) of the proposed Rule, a notice of date, 
time, and place of the hearing shall be served on the Parties not later 
than seven days before the hearing, unless otherwise ordered by the 
Chairman of the Hearing Panel. Under the proposed Rule, service

[[Page 25859]]

shall be made by personal service or overnight commercial courier and 
shall be effective upon service.
    Proposed paragraph (c) would also govern how the hearing is 
conducted, including the authority of Hearing Officers ((c)(3), 
witnesses ((c)(4)), additional information that may be required by the 
Hearing Panel ((c)(5)), the requirement that a transcript of the 
proceeding be created and details related to such transcript ((c)(6)), 
and details regarding the creation and maintenance of the record of the 
proceeding ((c)(7)). Proposed paragraph (c)(8) would also provide that 
if a Respondent fails to appear at a hearing for which it has notice, 
the allegations in the notice and accompanying declaration may be 
deemed admitted, and the Hearing Panel may issue a suspension order 
without further proceedings. Finally, as proposed, if the Exchange 
fails to appear at a hearing for which it has notice, the Hearing Panel 
may order that the suspension proceeding be dismissed.
    Under paragraph (d)(1) of the proposed Rule, the Hearing Panel 
would be required to issue a written decision stating whether a 
suspension order would be imposed. The Hearing Panel would be required 
to issue the decision not later than 10 days after receipt of the 
hearing transcript, unless otherwise extended by the Chairman of the 
Hearing Panel with the consent of the Parties for good cause shown. The 
proposed Rule would state that a suspension order shall be imposed if 
the Hearing Panel finds by a preponderance of the evidence that the 
alleged violation specified in the notice has occurred and that the 
violative conduct or continuation thereof is likely to result in 
significant market disruption or other significant harm to investors.
    Proposed paragraph (d)(2) would also describe the content, scope 
and form of a suspension order. As proposed, a suspension order shall 
be limited to ordering a Respondent to cease and desist from violating 
proposed Rule 5220, and/or to ordering a Respondent to cease and desist 
from providing access to the Exchange to a client of Respondent that is 
causing violations of proposed Rule 5220 ((d)(2)(A)). Under the 
proposed rule, a suspension order shall also set forth the alleged 
violation and the significant market disruption or other significant 
harm to investors that is likely to result without the issuance of an 
order ((d)(2)(B)). The order shall describe in reasonable detail the 
act or acts the Respondent is to take or refrain from taking, and 
suspend such Respondent unless and until such action is taken or 
refrained from ((d)(2)(C)). Finally, the order shall include the date 
and hour of its issuance ((d)(2)(D)).
    As proposed, under proposed paragraph (d)(3), a suspension order 
would remain effective and enforceable unless modified, set aside, 
limited, or revoked pursuant to proposed paragraph (e), as described 
below.
    Finally, paragraph (d)(4) would require service of the Hearing 
Panel's decision and any suspension order consistent with other 
portions of the proposed rule related to service.
    Proposed paragraph (e) of Rule 9560 would provide that at any time 
after the Hearing Officers served the Respondent with a suspension 
order, a Party could apply to the Hearing Panel to have the order 
modified, set aside, limited, or revoked. If any part of a suspension 
order is modified, set aside, limited, or revoked, proposed paragraph 
(e) of Rule 9560 provides the Hearing Panel discretion to leave the 
cease and desist part of the order in place. For example, if a 
suspension order suspends Respondent unless and until Respondent ceases 
and desists providing access to the Exchange to a client of Respondent, 
and after the order is entered the Respondent complies, the Hearing 
Panel is permitted to modify the order to lift the suspension portion 
of the order while keeping in place the cease and desist portion of the 
order. With its broad modification powers, the Hearing Panel also 
maintains the discretion to impose conditions upon the removal of a 
suspension--for example, the Hearing Panel could modify an order to 
lift the suspension portion of the order in the event a Respondent 
complies with the cease and desist portion of the order but 
additionally order that the suspension will be re-imposed if Respondent 
violates the cease and desist provisions modified order in the future. 
The Hearing Panel generally would be required to respond to the request 
in writing within 10 days after receipt of the request. An application 
to modify, set aside, limit or revoke a suspension order would not stay 
the effectiveness of the suspension order.
    Proposed paragraph (f) would describe the call for review process 
by the Exchange Board of Directors. Specifically, the proposed Rule 
would provide that if there is no pending application to the Hearing 
Panel to have a suspension order modified, set aside, limited, or 
revoked, the Exchange Board of Directors, in accordance with Rule 9310 
(Review by Exchange Board of Directors), may call for review the 
Hearing Panel decision on whether to issue a suspension order. Further, 
the proposed Rule would provide that a call for review by the Exchange 
Board of Directors shall not stay the effectiveness of a suspension 
order.
    Finally, proposed paragraph (g) would provide that sanctions issued 
under the proposed Rule 9560 would constitute final and immediately 
effective disciplinary sanctions imposed by the Exchange, and that the 
right to have any action under the Rule reviewed by the Commission 
would be governed by Section 19 of the Act. The filing of an 
application for review would not stay the effectiveness of a suspension 
order unless the Commission otherwise ordered.
Proposed Amendments to Rule 8313
    Finally, the Exchange proposes amendments to Rule 8313 to permit 
release to the public of suspension notices and orders issued pursuant 
to proposed Rule 9560. Specifically, the Exchange proposes to amend 
Rule 8313(a)(3), which provides that the Exchange shall release to the 
public information with respect to any suspension, cancellation, 
expulsion, or bar that constitutes final Exchange action imposed 
pursuant various Exchange Rules, to include a reference to proposed 
Rule 9560. The Exchange also proposes to include a notice of the 
initiation of a suspension proceeding served pursuant to proposed Rule 
9560 in the definition of ``disciplinary complaint'' under Rule 
8313(e)(1). Similarly, the Exchange would include suspension orders 
issued pursuant to proposed Rule 9560 in the definition of 
``disciplinary decision'' under Rule 8313(e)(2). The proposed 
amendments to Rule 8313 are consistent with the FINRA Rule 8313 and the 
rules of the other SROs modeled on FINRA Rule 8313.\14\
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    \14\ See FINRA Rule 8313; BATS Rule 8.18.
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* * * * *
    In summary, proposed Rule 5220, coupled with proposed Rule 9560, 
would provide the Exchange with another form and means of authority to 
promptly act to prevent disruptive quoting and trading activity from 
continuing on the Exchange. The following example illustrates how the 
proposed rule would operate.
    Assume that through its surveillance program, Exchange staff 
identifies a pattern of potentially disruptive quoting and trading 
activity. After an initial investigation, the Exchange would contact 
the member organization or covered person responsible for the orders 
that caused the activity to request an explanation of the activity as 
well as any additional relevant information,

[[Page 25860]]

including the source of the activity. If the Exchange were to continue 
to see the same pattern from the same member organization or covered 
person and the source of the activity is the same or has been 
previously identified as a frequent source of disruptive quoting and 
trading activity then the Exchange could initiate an expedited 
suspension proceeding by serving notice on the member organization or 
covered person that would include details regarding the alleged 
violations as well as the proposed sanction.
    In such a case the proposed sanction would likely be to order the 
member organization or covered person to cease and desist providing 
access to the Exchange to the client that is responsible for the 
disruptive quoting and trading activity and to suspend such member 
organization or covered person unless and until such action is taken. 
The member organization or covered person would have the opportunity to 
be heard in front of a Hearing Panel at a hearing to be conducted 
within 15 days of the notice. If the Hearing Panel determined that the 
violation alleged in the notice did not occur or that the conduct or 
its continuation would not have the potential to result in significant 
market disruption or other significant harm to investors, then the 
Hearing Panel would dismiss the suspension order proceeding. If the 
Hearing Panel determined that the violation alleged in the notice did 
occur and that the conduct or its continuation is likely to result in 
significant market disruption or other significant harm to investors, 
then the Hearing Panel would issue the order including the proposed 
sanction, ordering the member organization or covered person to cease 
providing access to the client at issue and suspending such Member 
unless and until such action is taken.
    If such member organization or covered person wished for the 
suspension to be lifted because the client ultimately responsible for 
the activity no longer would be provided access to the Exchange, then 
such member organization or covered person could apply to the Hearing 
Panel to have the order modified, set aside, limited or revoked. The 
Exchange notes that the issuance of a suspension order would not alter 
the Exchange's ability to further investigate the matter and/or later 
sanction the member or member organization pursuant to the Exchange's 
standard disciplinary process for supervisory violations or other 
violations of Exchange rules or the Act.
    The Exchange reiterates that it already has broad authority to take 
action against a member organization or covered person in the event 
that such member organization or covered person is engaging in or 
facilitating disruptive or manipulative trading activity on the 
Exchange. For the reasons described above, and in light of recent 
matters such as the client access cases described above, as well as 
other cases currently under investigation, the Exchange believes that 
it is equally important for the Exchange to have this supplemental 
authority to promptly initiate expedited suspension proceedings against 
any member organization or covered person who has demonstrated a clear 
pattern or practice of disruptive quoting and trading activity, as 
described above, and to take action including ordering such member 
organization or covered person to terminate access to the Exchange to 
one or more clients that are [sic] responsible for the violative 
activity.
    The Exchange recognizes that its proposed authority to issue a 
suspension order is a powerful measure that should be used very 
cautiously. Consequently, the proposed rules have been designed to 
ensure that the proceedings are used to address only the most clear and 
serious types of disruptive quoting and trading activity and that the 
interests of respondents are protected. For example, to ensure that 
proceedings are used appropriately and that the decision to initiate a 
proceeding is made only at the highest staff levels, the proposed rules 
require the CRO or another senior officer of the Exchange to issue 
written authorization before the Exchange can institute an expedited 
suspension proceeding. In addition, the rule by its terms is limited to 
violations of proposed Rules [sic] 5220, when necessary to protect 
investors, other member organizations or covered persons, and the 
Exchange.
    Further, the Exchange believes that the proposed expedited 
suspension provisions described above that provide the opportunity to 
respond as well as a Hearing Panel determination prior to taking action 
will ensure that the Exchange would not utilize its authority in the 
absence of a clear pattern or practice of disruptive quoting and 
trading activity. Notwithstanding the adoption of the proposed rules 
along with existing disciplinary rules in the 9000 series, the Exchange 
also notes that that pursuant to Rule 9555(a)(2) (Failure to Meet the 
Eligibility or Qualification Standards or Prerequisites for Access to 
Services), if a member organization or covered person cannot continue 
to have access to services offered by the Exchange or a member thereof 
with safety to investors, creditors, members, or the Exchange, the 
Exchange may provide written notice to such member or person limiting 
or prohibiting access to services offered by the Exchange or a member 
thereof. This ability to impose a temporary restriction upon Members 
assists the Exchange in maintaining the integrity of the market and 
protecting investors and the public interest.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\15\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\16\ in particular, in that 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, 
and, in general to protect investors and the public interest. Pursuant 
to the proposal, the Exchange will have a mechanism to promptly 
initiate expedited suspension proceedings in the event the Exchange 
believes that it has sufficient proof that a violation of proposed Rule 
5220 has occurred and is ongoing.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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    Further, the Exchange believes that the proposal is consistent with 
Sections 6(b)(1) and 6(b)(6) of the Act,\17\ which require that the 
rules of an exchange enforce compliance with, and provide appropriate 
discipline for, violations of the Commission and Exchange rules. The 
Exchange believes that the proposal is consistent with the public 
interest, the protection of investors, or otherwise in furtherance of 
the purposes of the Act because the proposal helps to strengthen the 
Exchange's ability to carry out its oversight and enforcement 
responsibilities as a self-regulatory organization in cases where 
awaiting the conclusion of a full disciplinary proceeding is unsuitable 
in view of the potential harm to other member organization and their 
customers. The Exchange notes that if this type of conduct is allowed 
to continue on the Exchange, the Exchange's reputation could be harmed 
because it may appear to the public that the Exchange is not acting to 
address the behavior. The proposed expedited process would enable the 
Exchange to address the behavior with greater speed.
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    \17\ 15 U.S.C. 78f(b)(5).
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    As noted throughout this filing, the Exchange believes that these 
rule proposals are necessary for the

[[Page 25861]]

protection of investors rather than allowing disruptive quoting and 
trading activity to occur for several years. The Exchange believes that 
the pattern of disruptive and allegedly manipulative quoting and 
trading activity was widespread across multiple exchanges, and the 
Exchange, FINRA, and other SROs identified clear patterns of the 
behavior in 2007 and 2008 in the equities markets.\18\ The Exchange 
believes that this proposal will provide the Exchange with additional 
means to enforce against such behavior in an expedited manner while 
providing member organizations or covered person with the necessary due 
process. The Exchange believes that its proposal is consistent with the 
Act because it provides the Exchange with the ability 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 from such ongoing behavior.
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    \18\ See Section 3 herein, the Purpose section, for examples of 
conduct referred to herein.
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    The Exchange believes that the proposal is also consistent with 
Section 6(b)(7) of the Act,\19\ which requires that the rules of an 
exchange ``provide a fair procedure for the disciplining of members and 
persons associated with members . . . and the prohibition or limitation 
by the exchange of any person with respect to access to services 
offered by the exchange or a member thereof.'' Finally, the Exchange 
also believes the proposal is consistent with Sections 6(d)(1) and 
6(d)(2) of the Act,\20\ which require that the rules of an exchange 
with respect to a disciplinary proceeding or proceeding that would 
limit or prohibit access to or membership in the exchange require the 
exchange to: Provide adequate and specific notice of the charges 
brought against a member or person associated with a member, provide an 
opportunity to defend against such charges, keep a record, and provide 
details regarding the findings and applicable sanctions in the event a 
determination to impose a disciplinary sanction is made. The Exchange 
believes that each of these requirements is addressed by the notice and 
due process provisions included within proposed Rule 9560. Importantly, 
as noted above, the Exchange will use the authority proposed in this 
filing only in clear and egregious cases when necessary to protect 
investors, other member organizations or covered persons and the 
Exchange, and even in such cases, respondents will be afforded due 
process in connection with the suspension proceedings.
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    \19\ 15 U.S.C. 78f(b)(7).
    \20\ 15 U.S.C. 78f(d)(1).
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    Finally, the Exchange believes that amending Rule 8313 to permit 
release to the public of suspension notices and orders issued pursuant 
to proposed Rule 9560 furthers the objectives of Section 6(b)(5) of the 
Act \21\ by providing greater clarity, consistency, and transparency 
regarding the release of disciplinary complaints, decisions and other 
information to the public. The Exchange also believes that the proposed 
rule change promotes greater transparency to the Exchange's 
disciplinary process by providing greater access to information 
regarding its disciplinary actions and valuable guidance and 
information to persons subject to the Exchange's jurisdiction, 
regulators, and the investing public.
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    \21\ 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 not necessary or appropriate in 
furtherance of the purposes of the Act. To the contrary, the Exchange 
believes that each self-regulatory organization should be empowered to 
regulate trading occurring on their [sic] market consistent with the 
Act and without regard to competitive issues. The Exchange is 
requesting authority to take appropriate action if necessary for the 
protection of investors, other member organizations or covered persons, 
and the Exchange. The Exchange also believes that it is important for 
all exchanges to be able to take similar action to enforce its [sic] 
rules against manipulative conduct thereby leaving no exchange prey to 
such conduct. The Exchange does not believe that the proposed rule 
change imposes an undue burden on competition, rather this process will 
provide the Exchange with necessary means to enforce against violations 
of manipulative quoting and trading activity in an expedited manner, 
while providing member organizations or covered persons with the 
necessary due process. Finally, the proposed rule change is designed to 
enhance the Exchange's rules governing the release of disciplinary 
complaints, decisions and other information to the public, thereby 
providing greater clarity and consistency and resulting in less 
burdensome and more efficient regulatory compliance and facilitating 
performance of regulatory functions.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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 \22\ and Rule 19b-4(f)(6) thereunder.\23\ 
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.
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    \22\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \23\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \24\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\25\ 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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    \24\ 17 CFR 240.19b-4(f)(6).
    \25\ 17 CFR 240.19b-4(f)(6)(iii).
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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) \26\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \26\ 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:

[[Page 25862]]

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-NYSE-2017-21 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-NYSE-2017-21. 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-NYSE-2017-21 and should be 
submitted on or before June 26, 2017.
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    \27\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-11502 Filed 6-2-17; 8:45 am]
 BILLING CODE 8011-01-P


