[Federal Register Volume 85, Number 149 (Monday, August 3, 2020)]
[Notices]
[Pages 46741-46743]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-16706]
[[Page 46741]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89410; File No. SR-NYSECHX-2020-21]
Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of
Filing and Order Granting Accelerated Approval of Proposed Rule Change
To Add the Consolidated Audit Trail Industry Member Compliance Rules to
the List of Minor Rule Violations in Article 12, Rule 8
July 28, 2020.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on July 21, 2020, the NYSE Chicago, Inc. (``NYSE Chicago''
or the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons and approving the proposal
on an accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 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 to add the Consolidated Audit Trail (``CAT'')
industry member compliance rules to the list of minor rule violations
in Article 12, Rule 8. The proposed change is available on the
Exchange's website 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to add NYSE Chicago's CAT industry member
compliance rules (the ``CAT Compliance Rules'') to the list of minor
rule violations in Article 12, Rule 8. This proposal is based upon the
Financial Industry Regulatory Authority, Inc. (``FINRA'') filing to
amend FINRA Rule 9217 in order to add FINRA's corresponding CAT
Compliance Rules to FINRA's list of rules that are eligible for minor
rule violation plan treatment and the filing of the Exchange's
affiliate the New York Stock Exchange LLC (``NYSE'') to add NYSE's
corresponding CAT Compliance Rules to the list of minor rule violations
in NYSE Rule 9217.\4\
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\4\ See Securities Exchange Act Release No. 88870 (May 14,
2020), 85 FR 30768 (May 20, 2020) (SR-FINRA-2020-013); Securities
Exchange Act Release No. 89123 (June 23, 2020), 85 FR 39016 (June
29, 2020) (SR-NYSE-2020-51).
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Proposed Rule Change
The Exchange recently adopted the CAT Compliance Rules in the Rule
6.6800 Series in order to implement the National Market System Plan
Governing the Consolidated Audit Trail (the ``CAT NMS Plan'' or
``Plan'').\5\ The CAT NMS Plan was filed by the Plan Participants to
comply with Rule 613 of Regulation NMS under the Exchange Act,\6\ and
each Plan Participant accordingly has adopted the same compliance rules
in the Exchange's Rule 6.6800 Series. The common compliance rules
adopted by each Plan Participant are designed to require industry
members to comply with the provisions of the CAT NMS Plan, which
broadly calls for industry members to record and report timely and
accurately customer, order, and trade information relating to activity
in NMS Securities and OTC Equity Securities.
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\5\ See Securities Exchange Act Release No. 80256 (March 15,
2017), 82 FR 14526 (March 21, 2017) (SR-CHX-2017-03).
\6\ 17 CFR 242.613.
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Article 12, Rule 8 sets forth the list of rules under which a
Participant, associated person, or registered or non-registered
employee of a Participant may be subject to a minor fine. Article 12,
Rule 8 permits the Exchange to impose a fine of up to $5,000 on any
Participant, associated person, or registered or non-registered
employee of a Participant for a minor violation of an eligible rule.
The Exchange proposes to amend Article 12, Rule 8 to add the CAT
Compliance Rules in the Rule 6.6800 Series to the list of rules
eligible for disposition pursuant to a minor fine.\7\
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\7\ FINRA's maximum fine for minor rule violations under FINRA
Rule 9216(b) is $2,500. Like the NYSE, the Exchange will apply an
identical maximum fine amount for eligible violations of the Rule
6.6800 Series to achieve consistency with FINRA and also to amend
its minor rule violation plan (``MRVP'') to include such fines. Like
FINRA and the NYSE, the Exchange would be able to pursue a fine
greater than $2,500 for violations of the Rule 6.6800 Series in a
regular disciplinary proceeding or a settlement agreement under
Article 12 as appropriate. As Article 12, Rule 8(a) provides, any
fine imposed in excess of $2,500 or not otherwise covered by Rule
19d-1(c)(2) of the Act would be subject to prompt notice to the
Commission pursuant to Rule 19d-1 under the Act. As noted below, in
assessing the appropriateness of a minor rule fine with respect to
CAT Compliance Rules, the Exchange will be guided by the same
factors that FINRA utilizes. See text accompanying notes 10-11,
infra.
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The Exchange is coordinating with FINRA and other Plan Participants
to promote harmonized and consistent enforcement of all the Plan
Participants' CAT Compliance Rules. The Commission recently approved a
Rule 17d-2 Plan under which the regulation of CAT Compliance Rules will
be allocated among Plan Participants to reduce regulatory duplication
for industry members that are members of more than one Participant
(``common members'').\8\ Under the Rule 17d-2 Plan, the regulation of
CAT Compliance Rules with respect to common members that are members of
FINRA is allocated to FINRA. Similarly, under the Rule 17d-2 Plan,
responsibility for common members of multiple other Plan Participants
and not a member of FINRA will be allocated among those other Plan
Participants, including to the Exchange. For those non-common members
who are allocated to NYSE Chicago pursuant to the Rule 17d-2 Plan, if
any, the Exchange and FINRA entered into a Regulatory Services
Agreement (``RSA'') pursuant to which FINRA will conduct surveillance,
investigation, examination, and enforcement activity in connection with
the CAT Compliance Rules on the Exchange's behalf (with the exception
of such matters once a complaint is filed which in such instance is no
longer administered through the MRVP). We expect that the other
exchanges would be entering into a similar RSA.
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\8\ See Securities Exchange Act Release No. 88366 (March 12,
2020), 85 FR 15238 (March 17, 2020) (File No. 4-618).
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In order to achieve consistency with FINRA and the other Plan
Participants, the Exchange proposes to adopt fines up to $2,500 in
connection with minor rule fines for violations of the CAT Compliance
Rules in the Rule 6.6800
[[Page 46742]]
Series under Article 12, Rule 8 and the Exchange's MRVP.\9\
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\9\ To effectuate this change and make the Exchange's rules more
like those of its affiliate the NYSE, the Exchange proposes to add
the following sentence to Article 12, Rule 8(a) based on language in
NYSE Rule 9217: ``For failures to comply with the Consolidated Audit
Trail Compliance Rule requirements of the Rule 6.6800 Series, the
Exchange may impose a minor rule violation fine of up to $2,500. For
more serious violations, other disciplinary action may be sought.''
In addition, Article 12, Rule 8(h)(1)(W) would provide that a
fine up to $2,500 could be sought for violations of the CAT
Compliance Rules in the Rule 6.6800 Series.
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FINRA, in connection with its proposed amendment to FINRA Rule 9217
to make FINRA's CAT Compliance Rules MRVP eligible, has represented
that it will apply the minor fines for CAT Compliance Rules in the same
manner that FINRA has for its similar existing audit trail-related
rules.\10\ Accordingly, in order to promote regulatory consistency, the
Exchange plans to do the same. Specifically, application of a minor
rule fine with respect to CAT Compliance Rules will be guided by the
same factors that FINRA referenced in its filing. However, more formal
disciplinary proceedings may be warranted instead of minor rule
dispositions in certain circumstances such as where violations prevent
regulatory users of the CAT from performing their regulatory functions.
Where minor rule dispositions are appropriate, the following factors
help guide the determination of fine amounts:
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\10\ See SR-FINRA-2020-013; see also FINRA Notice to Members 04-
19 (March 2004) (providing specific factors used to inform
dispositions for violations of OATS reporting rules).
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Total number of reports that are not submitted or
submitted late;
The timeframe over which the violations occur;
Whether violations are batched;
Whether the violations are the result of the actions of
one individual or the result of faulty systems or procedures;
Whether the firm has taken remedial measures to correct
the violations;
Prior minor rule violations within the past 24 months;
Collateral effects that the failure has on customers; and
Collateral effects that the failure has on the Exchange's
ability to perform its regulatory function.\11\
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\11\ See id.
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Upon effectiveness of this rule change, the Exchange will publish a
regulatory bulletin notifying its Participants of the rule change and
the specific factors that will be considered in connection with
assessing minor rule fines described above.
For the foregoing reasons, the Exchange believes that the proposed
rule change will result in a coordinated, harmonized approach to CAT
compliance rule enforcement across Plan Participants that will be
consistent with the approach FINRA has taken with the CAT rules.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\12\ in general, and furthers the objectives of Section
6(b)(5),\13\ in particular, 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, to
remove impediments to, and perfect the mechanism of, a free and open
market and a national market system and, in general, to protect
investors and the public interest.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
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Minor rule fines provide a meaningful sanction for minor or
technical violations of rules when the conduct at issue does not
warrant stronger, immediately reportable disciplinary sanctions. The
inclusion of a rule in the Exchange's MRVP does not minimize the
importance of compliance with the rule, nor does it preclude the
Exchange from choosing to pursue violations of eligible rules through a
settlement agreement if the nature of the violations or prior
disciplinary history warrants more significant sanctions. Rather, the
Exchange believes that the proposed rule change will strengthen the
Exchange's ability to carry out its oversight and enforcement
responsibilities in cases where full disciplinary proceedings are
unwarranted in view of the minor nature of the particular violation.
Rather, the option to impose a minor rule sanction gives the Exchange
additional flexibility to administer its enforcement program in the
most effective and efficient manner while still fully meeting the
Exchange's remedial objectives in addressing violative conduct.
Specifically, the proposed rule change is designed to prevent
fraudulent and manipulative acts and practices because it will provide
the Exchange the ability to issue a minor rule fine for violations of
the CAT Compliance Rules in the Rule 6.6800 Series where a more formal
disciplinary action may not be warranted or appropriate consistent with
the approach of other Plan Participants for the same conduct.
In connection with the fine level specified in the proposed rule
change, adding language that minor rule fines for violations of the CAT
Compliance Rules in the Rule 6.6800 Series shall not exceed $2,500
would further the goal of transparency and add clarity to the
Exchange's rules. Adopting the same cap as FINRA and the NYSE for minor
rule fines in connection with the CAT Compliance Rules would also
promote regulatory consistency across self-regulatory organizations.
The Exchange further believes that the proposed amendments to
Article 12, Rule 8 are consistent with Section 6(b)(6) of the Act,\14\
which provides that members and persons associated with members shall
be appropriately disciplined for violation of the provisions of the
rules of the exchange, by expulsion, suspension, limitation of
activities, functions, and operations, fine, censure, being suspended
or barred from being associated with a member, or any other fitting
sanction. As noted, the proposed rule change would provide the Exchange
ability to sanction minor or technical violations of the Rule 6.6800
Series pursuant to the Exchange's rules.
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\14\ 15 U.S.C. 78f(b)(6).
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Finally, the Exchange also believes that the proposed changes are
designed to provide a fair procedure for the disciplining of members
and persons associated with members consistent with Sections 6(b)(7)
and 6(d) of the Act.\15\ Article 12, Rule 8 does not preclude a
Participant, associated person, or registered or non-registered
employee of a Participant from contesting an alleged violation and
receiving a hearing on the matter with the same procedural rights
through a litigated disciplinary proceeding.
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\15\ 15 U.S.C. 78f(b)(7) and 78f(d).
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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 intended to address competitive issues but rather is concerned
solely with making the CAT Compliance Rules in the Rule 6.6800 Series
eligible for a minor rule fine disposition, thereby strengthening the
Exchange's ability to carry out its oversight and enforcement functions
and deter potential violative conduct.
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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. 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 [email protected]. Please include
File Number SR-NYSECHX-2020-21 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-NYSECHX-2020-21. 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 website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSECHX-2020-21 and should be submitted
on or before August 24, 2020.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\16\ In
particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\17\ which requires that the
rules of an exchange be designed to promote just and equitable
principles of trade, to remove impediments and to perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest. The Commission
also believes that the proposal is consistent with Sections 6(b)(1) and
6(b)(6) of the Act \18\ which require that the rules of an exchange
enforce compliance with, and provide appropriate discipline for,
violations of Commission and Exchange rules. Finally, the Commission
finds that the proposal is consistent with the public interest, the
protection of investors, or otherwise in furtherance of the purposes of
the Act, as required by Rule 19d-1(c)(2) under the Act,\19\ which
governs minor rule violation plans.
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\16\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\17\ 15 U.S.C. 78f(b)(5).
\18\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
\19\ 17 CFR 240.19d-1(c)(2).
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As stated above, the Exchange proposes to add the CAT Compliance
Rules to the list of minor rule violations in Article 12, Rule 8 to be
consistent with the approach FINRA has taken for minor violations of
its corresponding CAT Compliance Rules.\20\ The Commission has already
approved FINRA's treatment of CAT Compliance Rules violations when it
approved the addition of CAT Compliance Rules to FINRA's MRVP.\21\ As
noted in that order, and similarly herein, the Commission believes that
Exchange's treatment of CAT Compliance Rules violations as part of its
MRVP provides a reasonable means of addressing violations that do not
rise to the level of requiring formal disciplinary proceedings, while
providing greater flexibility in handling certain violations. However,
the Commission expects that, as with FINRA, the Exchange will continue
to conduct surveillance with due diligence and make determinations
based on its findings, on a case-by-case basis, regarding whether a
sanction under the rule is appropriate, or whether a violation requires
formal disciplinary action. Accordingly, the Commission believes the
proposal raises no novel or significant issues.
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\20\ As discussed above, the Exchange has entered into a Rule
17d-2 Plan and an RSA with FINRA with respect to the CAT Compliance
Rules. The Commission notes that, unless relieved by the Commission
of its responsibility, as may be the case under the Rule 17d-2 Plan,
the Exchange continues to bear the responsibility for self-
regulatory conduct and liability for self-regulatory failures, not
the self-regulatory organization retained to perform regulatory
functions on the Exchange's behalf pursuant to an RSA. See
Securities Exchange Release No. 61419 (January 26, 2010), 75 FR 5157
(February 1, 2010) (SR-BATS-2009-031), note 93 and accompanying
text.
\21\ See supra note 4.
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For the same reasons discussed above, the Commission finds good
cause, pursuant to Section 19(b)(2) of the Act,\22\ for approving the
proposed rule change prior to the thirtieth day after the date of
publication of the notice of the filing thereof in the Federal
Register. The proposal merely adds the CAT Compliance Rules to the
Exchange's MRVP and harmonizes its application with FINRA's application
of CAT Compliance Rules under its own MRVP. Accordingly, the Commission
believes that a full notice-and-comment period is not necessary before
approving the proposal.
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\22\ 15 U.S.C. 78s(b)(2).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\23\ and Rule 19d-1(c)(2) thereunder,\24\ that the proposed rule change
(SR-NYSECHX-2020-21) be, and hereby is, approved on an accelerated
basis.
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\23\ 15 U.S.C. 78s(b)(2).
\24\ 17 CFR 240.19d-1(c)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-16706 Filed 7-31-20; 8:45 am]
BILLING CODE 8011-01-P