Daily Rules, Proposed Rules, and Notices of the Federal Government
EDGX Exchange, Inc. (the "Exchange" or "EDGX") proposes to amend Rule 2.11(a)(7) to describe the circumstances under which the Exchange's routing broker-dealer, Direct Edge ECN LLC d/b/a DE Route ("DE Route"),
In its filing with the Commission, the Exchange included statements concerningthe 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 self-regulatory organization has prepared summaries, set forth in Sections A, B and C below, of the most significant aspects of such statements.
DE Route is the approved Outbound Router
In addition to the foregoing, DE Route, as well as the Exchange, is authorized under Rule 2.11(a)(6) to cancel orders when a Systems Issue occurs, and is authorized under Rule 2.11(a)(7), in connection with its role as an Outbound Router of EDGX, to maintain an error account for the purpose of liquidating an error position acquired as a result of a Systems Issue experienced either by DE Route, the Exchange or a Trading Center to which DE Route directed an outbound order.
The Exchange is now proposing to amend Rule 2.11(a)(7) to describe the circumstances under which DE Route would be authorized to use the error account to liquidate an error position resulting from an erroneous execution on the Exchange that was attributable to a Systems Issue, and not just an error position acquired in connection with its role as Outbound Router. In this regard, the proposed rule change would specify that an error position would not include any position that resulted from an order submitted by a Member to EDGX that was executed on EDGX and automatically processed for clearance and settlement on a locked-in basis. DE Route would not be permitted to: (i) accept a position in the error account from a Member's account; or (ii) permit any Member to transfer any position from the Member's account to the error account. In other words, DE Route would not be permitted to accept from a Member a position that was delivered to the Member through the clearance and settlement process, even if such position may have been related to a Systems Issue on EDGX. If a Member received a locked-in position in connection with a Systems Issue and experienced a loss in unwinding such position, that Member would be able to seek reimbursement from the Exchange in accordance with, and subject to the limitations of, Exchange Rule 11.12(d), which provides Members with the ability to file claims against the Exchange "for losses resulting directly from the malfunction of the Exchange's physical equipment, devices and/or programming or the negligent acts or omissions of its employees." If, however, a Systems Issue resulted in the Exchange not having valid clearing instructions for a Member to a trade, DE Route would be permitted to assume that Member's side of the trade so that the trade could be automatically processed for clearance and settlement on a locked-in basis.
In the addition to the foregoing, the Exchange proposes to amend Rule 2.11(a)(7) to clarify that either the Exchange or DE Route, or both, are authorized to make a determination as to whether an error position can be fairly and practicably assigned to one or more Members, or alternatively, to make a determination as to whether an error position shall be acquired in DE Route's error account to be liquidated, in either case in accordance with the provisions of Rule 2.11(a)(7).
An error position may result from a Systems Issue at the Exchange that does not involve routing of orders through DE Route. For example, a situation may arise in which a posted quote/order validly cancelled by the System
An error position may also result from a Systems Issue whereby the Exchange does not receive sufficient notice that a Member that has executed trades on the Exchange has lost the ability to clear trades through The Depository Trust Clearing Corporation. In such a situation, the Exchange would not have valid clearing information, which would prevent the trade from being automatically processed for clearance and settlement on a locked-in basis. Accordingly, DE Route would assume that Member's side of the trade so that the counterparty could the settle the trade. DE Route would post such an error position into its error account and resolve the position in the manner described in Rule 2.11(a)(7).
The Exchange notes that this discussion of potential scenarios that could lead to an error position is for illustrative purposes only and is not intended to be an exhaustive list of all scenarios.
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act
Similar to the Exchange's previous proposal to authorize DE Route to maintain an error account for the purpose of addressing and resolving an error position acquired in connection with its role as an Outbound Router,
The proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members or other interested parties.
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 after the date of the filing, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
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:
* Use the Commission's Internet comment form (
* Send an email to
* Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.