Notice2021-13786
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend General 9, Section 18, Payments for Market Making
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 29, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 86 Issue 122 (Tuesday, June 29, 2021)</title>
</head>
<body><pre>
[Federal Register Volume 86, Number 122 (Tuesday, June 29, 2021)]
[Notices]
[Pages 34288-34290]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-13786]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92243; File No. SR-BX-2021-029]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend General 9,
Section 18, Payments for Market Making
June 23, 2021.
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 June 14, 2021, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed with
the Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change as described in Items I and II 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend General 9, Section 18, Payments for
Market Making. The text of the proposed rule change is available on the
Exchange's website at <a href="https://listingcenter.nasdaq.com/rulebook/bx/rules">https://listingcenter.nasdaq.com/rulebook/bx/rules</a>, 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 aspects 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 to amend General 9, Section 18, Payments for
Market Making to align General 9, Section 18 with FINRA Rule 5250,
Payments for Market Making. Specifically, the Exchange proposes to
replace General 9, Section 18 with rule text incorporating FINRA Rule
5250 by reference.\3\ The Exchange also proposes to incorporate by
reference the definition ``affiliate'' and the related definitions
within FINRA Rule 5121 for purposes of FINRA Rule 5250.
---------------------------------------------------------------------------
\3\ The Exchange will separately request an exemption from the
rule filing requirements of Section 19(b) of the Act in requesting
to incorporate FINRA Rule 5250 and the definition of ``affiliate''
and the related definitions within FINRA Rule 5121 to the extent
General 9, Section 18 is affected solely by virtue of a change to
FINRA Rule 5250 or to such definitions within FINRA Rule 5121. The
Exchange's proposed rule change will not become operative unless and
until the Commission grants this exemption request.
---------------------------------------------------------------------------
By way of background, General 9, Section 18 and FINRA Rule 5250
explicitly prohibit any payment by issuers or issuers' affiliates and
promoters, directly or indirectly, to a member or person associated
with a member for publishing a quotation, acting as a market maker, or
submitting an application in connection therewith. The respective rules
are intended, among other things, to prohibit members from receiving
compensation or other payments from an issuer for quoting or making a
market in the issuer's securities and to assure that members act in an
independent capacity when publishing a quotation or making a market in
an issuer's securities.
Today, there are several differences between current General 9,
Section 18 and FINRA Rule 5250. The Exchange's proposal to replace
General 9, Section 18 with an incorporation by reference to
[[Page 34289]]
FINRA Rule 5250 will align BX's rule to FINRA's rule. The Exchange
explains the differences below.
First, by incorporating FINRA Rule 5250, the Exchange would
incorporate FINRA's rule which states that members are not precluded
from accepting ``any payment expressly provided for under the rules of
a national securities exchange that are effective after being filed
with, or filed with and approved by, the SEC pursuant to the
requirements of the Exchange Act.'' General 9, Section 18 currently
does not include this exception. FINRA previously amended Rule 5250 \4\
to account for cases where a market maker payment is provided for under
the rules of an exchange that are effective after being filed with, or
filed with and approved by, the Commission pursuant to the requirements
of the Act. FINRA noted in its 2013 Rule Change that comity should be
afforded to such exchange rulemaking and the payment should not be
prohibited under Rule 5250.\5\ The 2013 Rule Change cited to Nasdaq's
Market Quality Program as an example of such exchange rulemaking.\6\
Incorporating this exception from FINRA's rule would ensure consistent
regulation of joint members of the Exchange and FINRA.
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 69398 (April 18,
2013), 78 FR 24261 (April 24, 2013) (SR-FINRA-2013-020) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change
Relating to FINRA Rule 5250 (Payments for Market Making) (``2013
Rule Change'').
\5\ Id.
\6\ See 2013 Rule Change (citing to Securities Exchange Act
Release No. 69195). See also Securities Exchange Act Release No.
69195 (March 20, 2013), 78 FR 18393 (March 26, 2013) (SR-NASDAQ-
2012-137) (Order Granting Approval of a Proposed Rule Change, as
Modified by Amendment Nos. 1 and 3 Thereto, To Establish the Market
Quality Program).
---------------------------------------------------------------------------
Second, by incorporating FINRA Rule 5250, the Exchange would also
incorporate the defined term ``affiliate,'' and the related definitions
within FINRA Rule 5121(f),\7\ which differ from the definition of
``affiliate'' under current General 9, Section 18(c)(1). FINRA Rule
5250 incorporates the definition of ``affiliate'' within FINRA Rule
5121(f)(1) which provides, ``The term ``affiliate'' means an entity
that controls, is controlled by or is under common control with a
member.'' The term affiliate refers to ``entity'' which is defined
within FINRA Rule 5121(f)(7) which provides,
---------------------------------------------------------------------------
\7\ FINRA Rule 5250 refers to FINRA Rule 5121 for the definition
of ``affiliate.'' FINRA defines the term ``affiliate'' and the terms
used with the definition ``affiliate''.
For purposes of the definitions of affiliate, conflict of
interest and control under this Rule, the term ``entity'': (A)
Includes a company, corporation, partnership, trust, sole
proprietorship, association or organized group of persons; and (B)
excludes the following: (i) An investment company registered under
the Investment Company Act; (ii) a ``separate account'' as defined
in Section 2(a)(37) of the Investment Company Act; (iii) a ``real
estate investment trust'' as defined in Section 856 of the Internal
Revenue Code; or (iv) a ``direct participation program'' as defined
---------------------------------------------------------------------------
in Rule 2310.
Finally, the term affiliate refers to ``control'' which is defined
within FINRA Rule 5121(f)(6) which provides,
The term control means: (i) Beneficial ownership of 10 percent
or more of the outstanding common equity of an entity, including any
right to receive such securities within 60 days of the member's
participation in the public offering; (ii) the right to 10 percent
or more of the distributable profits or losses of an entity that is
a partnership, including any right to receive an interest in such
distributable profits or losses within 60 days of the member's
participation in the public offering; (iii) beneficial ownership of
10 percent or more of the outstanding preferred equity of an entity,
including any right to receive such preferred equity within 60 days
of the member's participation in the public offering; or (iv) the
power to direct or cause the direction of the management or policies
of an entity. (B) The term ``common control'' means the same natural
person or entity controls two or more entities.
In contrast, General 9, Section 18(c)(1) defines affiliate as follows,
(A) The term ``affiliate'' shall mean a company which controls,
is controlled by, or is under common control with a member; (B) The
term affiliate is presumed to include, but is not limited to, the
following for purposes of subparagraph (A), above: (i) A company
will be presumed to control a member if the company beneficially
owns 10 percent or more of the outstanding voting securities of a
member which is a corporation, or beneficially owns a partnership
interest in 10 percent or more of the distributable profits or
losses of a member which is a partnership; (ii) a member will be
presumed to control a company if the member and persons associated
with the member beneficially own 10 percent or more of the
outstanding voting securities of a company which is a corporation,
or beneficially own a partnership interest in 10 percent or more of
the distributable profits or losses of a company which is a
partnership; (iii) a company will be presumed to be under common
control with a member if: a. The same natural person or company
controls both the member and company by beneficially owning 10
percent or more of the outstanding voting securities of a member or
company which is a corporation, or by beneficially owning a
partnership interest in 10 percent or more of the distributable
profits or losses of a member or company which is a partnership; or
b. A person having the power to direct or cause the direction of the
management or policies of the member or the company also has the
power to direct or cause the direction of the management or policies
of the other entity in question.
Incorporating FINRA's rule would ensure a consistent definition of
``affiliate'' and, therefore, consistent regulation of joint members of
the Exchange and FINRA.
Third, by incorporating FINRA Rule 5250, the Exchange would remove
General 9, Section 18(c)(1)(C). General 9, Section 18(c)(1)(C)
provides,
The provisions of subparagraphs (A) and (B) hereof
notwithstanding, none of the following shall be presumed to be an
affiliate of a member for purposes of this Rule: (i) An investment
company registered with the Commission pursuant to the Investment
Company Act of 1940, as amended; (ii) a ``separate account'' as
defined in Section 2(a)(37) of the Investment Company Act of 1940,
as amended; (iii) a ``real estate investment trust'' as defined in
Section 856 of the Internal Revenue Code; (iv) a ``direct
participation program'' as defined in Equity 10, Section 1; and (v)
a corporation, trust, partnership or other entity issuing financing
instrument-backed securities which are rated by a nationally
recognized statistical rating organization in one of its four
highest generic rating categories.
Unlike General 9, Section 18, FINRA Rule 5121(f)(7) does not by rule
exclude a corporation, trust, partnership or other entity issuing
financing instrument-backed securities which are rated by a nationally
recognized statistical rating organization in one of its four highest
generic rating categories from the definition of ``entity.''
Incorporating FINRA's rule, including the applicable definition in
FINRA Rule 5121, would ensure consistent definition of ``affiliate''
and consistent regulation of joint members of the Exchange and FINRA.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\8\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\9\ in particular, in that it is designed to promote
just and equitable principles of trade and to protect investors and the
public interest. The Exchange's proposal to replace General 9, Section
18 with rule text incorporating by reference FINRA Rule 5250, including
the applicable provisions of FINRA Rule 5121 as referenced in FINRA
Rule 5250, is consistent with the Act. The Exchange's proposal will
align BX's rule to FINRA's rule and remove differences as between the
two rules.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Aligning General 9, Section 18 to FINRA Rule 5250 would ensure
consistent regulation of joint members of the Exchange and FINRA.
[[Page 34290]]
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. The proposed amendments do not
impose an undue burden on competition as the proposal will align the
Exchange's General 9, Section 18 to FINRA Rule 5250 and ensure
consistent regulation of joint members of the Exchange and FINRA.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing 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, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-
4(f)(6) thereunder.\11\
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------
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 change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#0674736a632b65696b6b636872754675636528616970"><span class="__cf_email__" data-cfemail="87f5f2ebe2aae4e8eaeae2e9f3f4c7f4e2e4a9e0e8f1">[email protected]</span></a>. Please include
File Number SR-BX-2021-029 on the subject line.
Paper Comments
<bullet> 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-BX-2021-029. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>.)
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-BX-2021-029 and should be submitted on
or before July 20, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
---------------------------------------------------------------------------
\12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-13786 Filed 6-28-21; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on June 29, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.