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July 27 — Members of national securities exchange Investors' Exchange LLC won't risk enforcement action under 1934 Securities Exchange Act disclosure requirements if they don't provide the identity of the party they sold to or bought from to fill the customer's order ( IEX Exch. Grp., SEC No-Action Letter, 7/26/2016).
Instead, IEX members may state on customer confirmations that they acted as an “agent” and the order is executed in a trade with an anonymous party, the staff of the Securities and Exchange Commission's Division of Trading and Markets said July 26.
Rule 10b-10 requires a broker-dealer to provide customers with certain written disclosures before completing a transaction. One disclosure is the identity of the party the broker-dealer sold to or bought from to fill the customer's order. Broker-dealers have the option of providing the information on the customer confirmation or after receiving a written request from the customer.
IEX chief regulatory officer Claudia Crowley explained that trades are executed with total anonymity at IEX, therefore members won't know the identity of the party they sold securities to or purchased securities from. Without that information, members can't comply with Rule 10b-10's identity requirement, Crowley said. As such, IEX requested an exemption for its members from the identity requirement when they execute transactions through the exchange's electronic trading facilities.
Crowley assured the staff that the requested relief would only be applied in situations where both:
In granting relief, the staff noted that members must still comply with all other Rule 10b-10 requirements when confirming customer orders.
The staff also said IEX won't risk enforcement action under the '34 Act's record retention rules if broker-dealers rely on the exchange's retention of the identities of members that execute anonymous trades on IEX instead of making their own separate records.
The staff's response was signed by deputy chief counsel Paula Jenson.
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To view the no-action correspondence, visit: https://www.sec.gov/divisions/marketreg/mr-noaction/2016/investors-exchange-072616-10b10.pdf.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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