[Federal Register Volume 85, Number 185 (Wednesday, September 23, 2020)]
[Notices]
[Pages 59843-59844]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-20936]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89902]


Order Granting Applications by Nasdaq BX, Inc., Nasdaq GEMX, LLC, 
Nasdaq ISE, LLC, Nasdaq MRX, LLC, and Nasdaq PHLX LLC for Exemption 
Pursuant to Section 36(a) of the Exchange Act From the Rule Filing 
Requirements of Section 19(b) of the Exchange Act With Respect to 
Certain Rules Incorporated by Reference

September 17, 2020.
    Nasdaq BX, Inc. (``BX''), Nasdaq GEMX, LLC (``GEMX''), Nasdaq ISE, 
LLC (``ISE''), Nasdaq MRX, LLC (``MRX''), and Nasdaq PHLX LLC 
(``Phlx'') (collectively, the ``Nasdaq Affiliated Exchanges'') have 
filed with the Securities and Exchange Commission (``Commission'') an 
application for an exemption under Section 36(a)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'') \1\ from the rule filing 
requirements of Section 19(b) of the Exchange Act \2\ with respect to 
certain rules of The Nasdaq Stock Market LLC (``Nasdaq''), an affiliate 
of the Nasdaq Affiliated Exchanges, that the Nasdaq Affiliated 
Exchanges seek to incorporate by reference.\3\ Section 36 of the 
Exchange Act authorizes the Commission to conditionally or 
unconditionally exempt any person, security, or transaction, or any 
class thereof, from any provision of the Exchange Act or rule 
thereunder, if necessary or appropriate in the public interest and 
consistent with the protection of investors.
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    \1\ 15 U.S.C. 78mm(a)(1).
    \2\ 15 U.S.C. 78s(b).
    \3\ See Letter from Angela S. Dunn, Principal Associate General 
Counsel, Nasdaq, Inc., to Vanessa Countryman, Secretary, Commission, 
dated June 15, 2020 (``Exemption Request'').
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    Recently, the Nasdaq Affiliated Exchanges each filed a proposed 
rule change \4\ under Section 19(b) of the Exchange Act to replace 
their existing investigatory, disciplinary, and adjudicatory rules with 
those contained in the Nasdaq Rule 8000 and 9000 Series, as such rules 
may be in effect from time to time, with certain specified exceptions. 
In the proposed rule changes, BX proposed to incorporate by reference 
the Nasdaq Rule 8000 and 9000 Series into General 5, Sections 1 and 2 
of the BX rulebook, and GEMX, ISE, MRX, and Phlx each proposed to 
incorporate by reference the Nasdaq Rule 8000 and 9000 Series into 
General 5, Sections 2 and 3 of their respective rulebooks, thus making 
these Nasdaq rules applicable to the Nasdaq Affiliated Exchanges' 
respective members, member organizations,\5\ associated persons, and 
other persons subject to their jurisdiction. When the proposed rule 
changes become operative, the Nasdaq Affiliated Exchanges' members, 
member organizations, associated persons, and other persons subject to 
the jurisdiction of the Nasdaq Affiliated Exchanges will be required to 
comply with the Nasdaq Rule 8000 and 9000 Series as though such rules 
are fully set forth within each of the Nasdaq Affiliated Exchanges' 
rulebooks.
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    \4\ See Securities Exchange Act Release Nos. 88938 (May 26, 
2020), 85 FR 33235 (June 1, 2020) (SR-BX-2020-009); 89071 (June 15, 
2020), 85 FR 37129 (June 19, 2020) (SR-GEMX-2020-15); 89069 (June 
15, 2020), 85 FR 37120 (June 19, 2020) (SR-ISE-2020-22); 89070 (June 
15, 2020), 85 FR 37142 (June 19, 2020) (SR-MRX-2020-12); and 88519 
(March 31, 2020), 85 FR 19203 (April 6, 2020) (SR-Phlx-2020-09).
    \5\ The Commission notes that the term ``member organization,'' 
as defined under Phlx General 1, Section 1(17), applies only to 
legal entities that are members of the Phlx exchange, and is not 
utilized by any other of the Nasdaq Affiliated Exchanges. See 
Exemption Request, supra note 3, at 2 n.5. See also Securities 
Exchange Act Release No. 82143 (November 22, 2017), 82 FR 56672, 
56672 n.3 (November 29, 2017) (SR-Phlx-2017-92) (describing that, on 
the Phlx exchange, the term ``member'' refers to a natural person, 
whereas the term ``member organization'' refers to an entity, which 
must have at least one ``member,'' as that term is defined by the 
Phlx exchange).
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    The Nasdaq Affiliated Exchanges have requested, pursuant to Rule 0-
12 under the Exchange Act,\6\ that the Commission grant the Nasdaq 
Affiliated Exchanges an exemption from the rule filing requirements of 
Section 19(b) of the Exchange Act for changes to each of the Nasdaq 
Affiliated Exchanges' rules that are effected solely by virtue of a 
change to the Nasdaq Rule 8000 and 9000 Series that are incorporated by 
reference. Specifically, the Nasdaq Affiliated Exchanges request that 
they be permitted to incorporate by reference changes made to the 
Nasdaq Rule 8000 and 9000 Series that are cross-referenced in each of 
the Nasdaq Affiliated Exchanges' rules, without the need for each of 
the Nasdaq Affiliated Exchanges to file separately the same proposed 
rule changes pursuant to Section 19(b) of the Exchange Act.\7\
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    \6\ 17 CFR 240.0-12.
    \7\ See Exemptive Request, supra note 3, at 2.
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    The Nasdaq Affiliated Exchanges represent that the Nasdaq Rule 8000 
and

[[Page 59844]]

9000 Series are not trading rules. Moreover, the Nasdaq Affiliated 
Exchanges state that in each instance, the Nasdaq Affiliated Exchanges 
propose to incorporate by reference categories of rules (rather than 
individual rules within a category) that are regulatory in nature. The 
Nasdaq Affiliated Exchanges will, as a condition of this exemption, 
provide written notice to their respective members (or member 
organizations) whenever Nasdaq proposes a change to its Rule 8000 and 
9000 Series.\8\ Such notice will alert the members (or member 
organizations) of each of the Nasdaq Affiliated Exchanges to the 
proposed rule change and give them an opportunity to comment on the 
proposal. The Nasdaq Affiliated Exchanges state that they will also 
inform their respective members (or member organizations) in writing 
when the Commission approves any such proposed rule changes.\9\
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    \8\ The Nasdaq Affiliated Exchanges state that they will provide 
such notice on their websites in the same section they use to post 
their own proposed rule change filings pursuant to Rule 19b-4(l) 
within the timeframe required by such Rule. In addition, the Nasdaq 
Affiliated Exchanges state that their websites will also include a 
link to the Nasdaq website where the proposed rule change filings 
are located. Id. at 3 n.8.
    \9\ Id. at 3.
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    The Nasdaq Affiliated Exchanges believe this exemption is necessary 
and appropriate because it will result in the Nasdaq Affiliated 
Exchanges' rules being consistent with the relevant cross-referenced 
Nasdaq rules at all times, thus ensuring that the Nasdaq Affiliated 
Exchanges and Nasdaq maintain a harmonious system of investigating, 
disciplining, and adjudicating the rights of their respective members, 
member organizations, associated persons, and other persons subject to 
their jurisdiction. Without such an exemption, the Nasdaq Affiliated 
Exchanges and Nasdaq could subject their respective members, member 
organizations, associated persons, and other persons subject to their 
jurisdiction to different standards for investigations and disciplinary 
actions.\10\
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    \10\ Id. at 2.
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    The Commission has issued exemptions similar to the Nasdaq 
Affiliated Exchanges' request.\11\ In granting one such exemption in 
2010, the Commission repeated a prior, 2004 Commission statement that 
it would consider similar future exemption requests from other self-
regulatory organizations (``SROs''), provided that:
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    \11\ See, e.g., Securities Exchange Act Release Nos. 83887 
(August 20, 2018), 83 FR 42722 (August 23, 2018) (order granting 
exemptive request from Nasdaq ISE, LLC, Nasdaq GEMX, LLC, and Nasdaq 
MRX, LLC relating to rules of Nasdaq BX, Inc. incorporated by 
reference); 80338 (March 29, 2017), 82 FR 16464 (April 4, 2017) 
(order granting exemptive request from MIAX PEARL, LLC relating to 
rules of Miami International Securities Exchange, LLC incorporated 
by reference); 72650 (July 22, 2014), 79 FR 44075 (July 29, 2014) 
(order granting exemptive requests from NASDAQ OMX BX, Inc. and the 
NASDAQ Stock Market LLC relating to rules of NASDAQ OMX PHLX LLC 
incorporated by reference); 67256 (June 26, 2012), 77 FR 39277, 
39286 (July 2, 2012) (order approving SR-BX-2012-030 and granting 
exemptive request relating to rules incorporated by reference by the 
BX Options rules); 61534 (February 18, 2010), 75 FR 8760 (February 
25, 2010) (order granting BATS Exchange, Inc.'s exemptive request 
relating to rules incorporated by reference by the BATS Exchange 
Options Market rules) (``BATS Options Market Order''); and 57478 
(March 12, 2008), 73 FR 14521, 14539-40 (March 18, 2008) (order 
approving SR-NASDAQ-2007-004 and SR-NASDAQ-2007-080, and granting 
exemptive request relating to rules incorporated by reference by The 
NASDAQ Options Market).
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     An SRO wishing to incorporate rules of another SRO by 
reference has submitted a written request for an order exempting it 
from the requirement in Section 19(b) of the Exchange Act to file 
proposed rule changes relating to the rules incorporated by reference, 
has identified the applicable originating SRO(s), together with the 
rules it wants to incorporate by reference, and otherwise has complied 
with the procedural requirements set forth in the Commission's release 
governing procedures for requesting exemptive orders pursuant to Rule 
0-12 under the Exchange Act; \12\
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    \12\ See 17 CFR 240.0-12 and Securities Exchange Act Release No. 
39624 (February 5, 1998), 63 FR 8101 (February 18, 1998) 
(``Commission Procedures for Filing Applications for Orders for 
Exemptive Relief Pursuant to Section 36 of the Exchange Act; Final 
Rule'').
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     The incorporating SRO has requested incorporation of 
categories of rules (rather than individual rules within a category) 
that are not trading rules (e.g., the SRO has requested incorporation 
of rules such as margin, suitability, or arbitration); and
     The incorporating SRO has reasonable procedures in place 
to provide written notice to its members each time a change is proposed 
to the incorporated rules of another SRO.\13\
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    \13\ See BATS Options Market Order, supra note 11 (citing 
Securities Exchange Act Release No. 49260 (February 17, 2004), 69 FR 
8500 (February 24, 2004) (order granting exemptive request relating 
to rules incorporated by reference by several SROs) (``2004 
Order'')).
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    The Commission believes that the Nasdaq Affiliated Exchanges have 
satisfied each of these conditions. The Commission also believes that 
granting the Nasdaq Affiliated Exchanges an exemption from the rule 
filing requirements under Section 19(b) of the Exchange Act will 
promote efficient use of the Commission's and Nasdaq Affiliated 
Exchanges' resources by avoiding duplicative rule filings based on 
simultaneous changes to identical rule text sought by more than one 
SRO.\14\ The Commission therefore finds it appropriate in the public 
interest and consistent with the protection of investors to exempt the 
Nasdaq Affiliated Exchanges from the rule filing requirements under 
Section 19(b) of the Exchange Act with respect to the above-described 
rules they have incorporated by reference. This exemption is 
conditioned upon the Nasdaq Affiliated Exchanges promptly providing 
written notice to their members (or member organizations) whenever 
Nasdaq changes a rule that the Nasdaq Affiliated Exchanges have 
incorporated by reference.
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    \14\ See BATS Options Market Order, supra note 11, 75 FR at 
8761; see also 2004 Order, supra note 13, 69 FR at 8502.
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    Accordingly, it is ordered, pursuant to Section 36 of the Exchange 
Act,\15\ that the Nasdaq Affiliated Exchanges are exempt from the rule 
filing requirements of Section 19(b) of the Exchange Act solely with 
respect to changes to the rules identified in their request that 
incorporate by reference certain Nasdaq rules that are the result of 
changes to such Nasdaq rules, provided that the Nasdaq Affiliated 
Exchanges promptly provide written notice to their members (or member 
organizations) whenever Nasdaq proposes to change a rule that the 
Nasdaq Affiliated Exchanges have incorporated by reference.
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    \15\ 15 U.S.C. 78mm.

    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)(76).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-20936 Filed 9-22-20; 8:45 am]
BILLING CODE 8011-01-P


