Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by NASDAQ OMX PHLX, Inc., as Modified by Amendment No. 1 Thereto, Relating to Registration and Qualification Requirements for PSX, 42804-42809 [2010-17930]
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Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices
the fees it charges for options classes
that are subject to the Exchange’s
maker/taker fees remain competitive
with fees charged by other exchanges
and therefore continue to be reasonable
and equitably allocated to those
members that opt to direct orders to the
Exchange rather than to a competing
exchange. The Exchange further
believes that amending the qualification
standards for market makers to qualify
for a rebate will encourage these market
participants to post tighter markets in
the options classes that are subject to
the Exchange’s maker/taker fees and
thereby increase liquidity and attract
order flow to the Exchange.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
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.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
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.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3) of
the Act 10 and Rule 19b–4(f)(2) 11
thereunder. At any time within 60 days
of the filing of such proposed rule
change, the Commission may summarily
abrogate 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.
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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:
Number SR–ISE–2010–68 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
Station Place, 100 F Street, NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–ISE–2010–68. This file
number should be included on the
subject line if e-mail 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 Web site (https://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 Web site 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
a.m. and 3 p.m. Copies of such filing
also will be available for inspection and
copying at the principal office of the
Exchange. All comments received will
be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
publicly available. All submissions
should refer to File Number SR–ISE–
2010–68 and should be submitted on or
before August 12, 2010.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–17928 Filed 7–21–10; 8:45 am]
BILLING CODE 8010–01–P
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
10 15
11 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
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[Release No. 34–62509; File No. SR–Phlx–
2010–91]
Self-Regulatory Organizations; Notice
of Filing of Proposed Rule Change by
NASDAQ OMX PHLX, Inc., as Modified
by Amendment No. 1 Thereto, Relating
to Registration and Qualification
Requirements for PSX
July 15, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’), 1 and Rule 19b–4 2 thereunder,
notice is hereby given that on June 29,
2010, NASDAQ OMX PHLX, Inc.
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III, below, which Items have been
prepared by the Exchange. On July 13,
2010, Phlx filed Amendment No. 1 to
the proposed rule change. The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange, pursuant to Section
19(b)(1) of the Act 3 and Rule 19b–4
thereunder,4 proposes to amend Rule
604 to adopt several new provisions
governing the registration and
qualification of members and persons
associated with member organizations
that are registered with the Exchange for
the purpose of trading NMS Stocks 5
through the facilities of the Exchange.
Specifically, the Exchange proposes to
adopt Rule 604(h) to govern the
registration of representatives and
Supplementary Material .04 to Rule 604
regarding the category of such
registration. In addition, with respect to
principal registration, the Exchange
proposes to adopt Rule 604(g), Principal
Registration, and Supplementary
Material .01—.03 governing the specific
categories of principal registration, to
require that every member organization
covered by these rules has at least two
registered Principals as well as a
Financial/Operations Principal. The
Exchange also proposes to adopt Rule
604(i) to establish which persons are
exempt from registration.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(1).
4 17 CFR 240.19b–4.
5 See Rule 1(t).
2 17
12 17
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Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices
The text of the proposed rule change
is available on the Exchange’s Web site
at https://www.nasdaqtrader.com/
micro.aspx?id=PHLXRulefilings, on the
Commission’s Web site at https://
www.sec.gov, 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
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1. Purpose
The purpose of the proposed rule
change is to adopt new registration
provisions applicable to member
organizations that are registered with
the Exchange for the purpose of trading
NMS Stocks through the facilities of the
Exchange. Thus, these new provisions
would cover members that trade on the
Exchange’s proposed new equity trading
platform for NMS Stocks, NASDAQ
OMX PSX (‘‘PSX’’).6 The proposed rules
are substantially similar to the rules of
The NASDAQ Stock Market, FINRA and
NASDAQ OMX BX. As a result of the
change, PSX users will be required to
register representatives and principals
with the Exchange in accordance with
such rules. All such registered persons
will be required to pass an appropriate
qualification examination, as outlined
below, all of which will be recorded in
WebCRD. In sum, these new rules are
intended to strengthen the Exchange’s
requirements to help ensure an effective
supervisory structure for those
conducting business on PSX.7
6 See SR–Phlx–2010–79. PSX will not be used for
trading any securities other than NMS Stocks.
Existing rules would continue to govern registration
of associated persons of member organizations that
trade options but not cash equities through Phlx.
Phlx will, at a later date, amend these rules to
reflect consistent registration standards being
developed by Phlx and other self-regulatory
organizations in consultation with the Commission.
7 Currently, Rule 748, Supervision, establishes the
supervisory requirement for member organizations,
including that all locations and activities of a
member organization be supervised by a qualified
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Representative Registration
New Rule 604(h) will govern the
registration of representatives 8 with the
Exchange. Specifically, new Rule
604(h)(1) will require that all persons
engaged or to be engaged in the
investment banking or securities
business 9 of a member organization
who are to function as representatives
shall be registered as such with the
Exchange through WebCRD in the
category of registration appropriate to
the function to be performed as
specified in Supplementary Material
.04. Before their registration can become
effective, they shall pass the Series 7
examination.
The rule also provides that a member
organization shall not maintain a
representative registration with the
Exchange for any person (1) who is no
longer active in the member
organization’s investment banking or
securities business, (2) who is no longer
functioning as a representative, or (3)
where the sole purpose is to avoid the
examination requirement. A member
organization shall not make application
for the registration of any person as
representative where there is no intent
to employ such person in the member
organization’s investment banking or
securities business. A member may,
however, maintain or make application
for the registration as a representative of
a person who performs legal,
compliance, internal audit, back-office
operations, or similar responsibilities
for the member organization, or a person
who performs administrative support
functions for registered personnel, or a
person engaged in the investment
banking or securities business of a
foreign securities affiliate or subsidiary
supervisor. Accordingly, the new principal
registration requirement in proposed Rule 604(g)
supplements this rule.
8 The term ‘‘representative’’ will now be defined
in Rule 1 as a member or an associated person of
a registered broker or dealer, including assistant
officers other than principals, who is engaged in the
investment banking or securities business for the
member organization including the functions of
supervision, solicitation or conduct of business in
securities or who is engaged in the training of
persons associated with a broker or dealer for any
of these functions. To the extent provided in Rule
604, all representatives are required to be registered
with the Exchange, and representatives that are so
registered are referred to herein as ‘‘Registered
Representatives.’’ See proposed Rule 1(uu).
9 The term ‘‘investment banking or securities
business’’ means the business, carried on by a
broker or dealer, of underwriting or distributing
issues of securities, or of purchasing securities and
offering the same for sale as a dealer, or of
purchasing and selling securities upon the order
and for the account of others. See proposed Rule
1(ww). Of course, the federal securities laws may
require broker-dealers to become members of the
Financial Industry Regulatory Authority (‘‘FINRA’’)
in order to perform some of these functions. See
e.g., 15 U.S.C. 78o(b)(8).
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42805
of the member organization. This
provision is intended to ensure that
firms register only those persons to
whom the requirement is pertinent.
Pursuant to new paragraph (h)(2) of
Rule 604, any person whose registration
has been revoked by the Exchange as a
disciplinary sanction or whose most
recent registration as a Representative or
Principal has been terminated for a
period of two or more years
immediately preceding the date of
receipt by the Exchange of a new
application shall be required to pass the
Series 7 examination. This provision is
intended to ensure that, in these
situations, persons are subject to
retesting to assure proper qualification.
Furthermore, new Rule 604(h)(3),
Qualification Requirements, states that
no member organization shall permit
any member or person associated with
it 10 to engage in the investment banking
or securities business unless the
member organization determines that
such person satisfies the qualification
requirements established by the Board
and is not subject to statutory
disqualification as defined in Section
3(a)(39) of the Act. Thus, firms are
responsible for compliance with this
registration requirement for their
relevant employees.
New Supplementary Material .04 to
Rule 604 contains the basic
requirement 11 that each member and
each person associated with a member
organization who is included within the
definition of a representative in Rule
1(uu) shall be required to register with
the Exchange as a General Securities
Representative and shall pass the Series
7 examination before such registration
may become effective.12 The
appropriate registration category on
WebCRD is ‘‘GS.’’
This provision is intended to capture
traditional securities personnel in a rule
similar to that of several other SROs.13
10 The term ‘‘associated person’’ or ‘‘person
associated with’’ a member organization means any
partner, officer, director, or branch manager of an
Exchange member organization or applicant (or
person occupying a similar status or performing
similar functions), any person directly or indirectly
controlling, controlled by, or under common
control with such member organization or
applicant, or any employee of such member or
applicant, except that any person associated with a
member organization or applicant whose functions
are solely clerical or ministerial shall not be
included in the meaning of such term for purposes
of the Exchange Rules. See proposed Rule 1(vv).
11 This provision is the same as NASDAQ OMX
BX Rule 1032.
12 The Exchange is not currently adopting any
limited registration provisions, but may determine
to do so in the future.
13 See e.g., NASDQ [sic] OMX BX Rules 1031 and
1032, NASDAQ Rules 1031 and 1032, and NASD
Rules 1031 and 1032.
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The Exchange believes that the
requirement is broad and should not
generate gaps that permit a member
organization to operate differently than
under the registration rules of NASDAQ
OMX BX, The NASDAQ Stock Market
or FINRA.
Principal Registration
In summary, new Rule 604(g) 14 will
provide that every member organization
must register two Principals with the
Exchange,15 unless an exception
applies. As a result, each Principal must
successfully complete the General
Securities Principal Examination
(‘‘Series 24’’) and submit a Form U4 via
WebCRD reflecting registration as such,
using the category ‘‘GP,’’ unless a
different category of Principal
registration applies to such person.
Specifically, Rule 604(g)(1) provides
that all persons engaged or to be
engaged in the investment banking or
securities business of a member
organization who are to function as
Principals shall be registered as such
with the Exchange through WebCRD in
the category of registration appropriate
to the function to be performed as
specified in new Supplementary
Material .01–.03 of Rule 604. Before
their registration can become effective,
they shall pass a Qualification
Examination for Principals appropriate
to the category of registration as
specified by the Board, which is further
explained below, in proposed
Supplementary Material .01–.03 to Rule
604.
Rule 604(g)(1) further provides that a
member organization shall not maintain
a Principal registration with the
Exchange for any person (1) who is no
longer active in the member
organization’s investment banking or
securities business, (2) who is no longer
functioning as a Principal, or (3) where
the sole purpose is to avoid the
examination requirement of this rule. A
member organization shall not make
application for the registration of any
person as Principal where there is no
intent to employ such person in the
member organization’s investment
banking or securities business. A
member organization may, however,
maintain or make application for the
registration as a Principal of a person
who performs legal, compliance,
internal audit, back-office operations, or
similar responsibilities for the member
organization or a person engaged in the
14 This new rule is similar to NASDAQ Rule 1021,
NASDAQ OMX BX Rule 1021 and NASD Rule
1021.
15 All persons who engage in specified
supervisory functions will be registered as
Principals.
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investment banking or securities
business of a foreign securities affiliate
or subsidiary of the member
organization. Similar to a provision in
proposed Rule 604(h)(1) above
applicable to registered representatives,
this provision is intended to ensure that
firms register only those persons to
whom the requirement is pertinent.
New Rule 604(g)(2) states that persons
associated with a member organization
who are actively engaged in the
management of the member
organization’s investment banking or
securities business, including
supervision, solicitation, conduct of
business or the training of persons
associated with a member organization
for any of these functions are designated
as Principals. Such persons shall
include: Sole proprietors, officers,
partners, managers of offices of
supervisory jurisdiction,16 and directors
of corporations.
New Rule 604(g)(3), Requirements for
Examination on Lapse of Registration,
states that any person whose registration
has been revoked by the Exchange as a
disciplinary sanction or whose most
recent registration as a Principal has
been terminated for a period of two or
more years immediately preceding the
date of receipt by the Exchange of a new
application shall be required to pass a
Qualification Examination for Principals
appropriate to such person’s category of
registration. This is similar to the
provision applicable to registered
representatives and is intended to
ensure that persons’ qualifications are
properly tested.
Pursuant to new Rule 604(g)(4),
Application for Principal Status, any
person associated with a member
organization as a Registered
Representative whose duties are
changed by the member organization so
as to require registration in any
Principal classification shall be allowed
16 The Exchange is defining this term to mean any
office of a member organization at which any one
or more of the following functions take [sic] place:
Order execution and/or market making; structuring
of public offerings or private placements;
maintaining custody of customers’ funds and/or
securities; final acceptance (approval) of new
accounts on behalf of the member organization;
review and endorsement of customer orders; final
approval of advertising or sales literature for use by
persons associated with the member organization,
pursuant to Rule 605, except for an office that solely
conducts final approval of research reports; or
responsibility for supervising the activities of
persons associated with the member organization at
one or more other branch offices of the member
organization. This definition is drawn from NASD
Rule 3010. The Exchange is adopting the reference
to this term in order to cover these managers in the
new principal registration requirement. The
Exchange is not, at this time, adopting a
comprehensive program with regard to such offices,
such as that found in NASD Rule 3010.
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a period of 90 calendar days following
the change in his or her duties during
which to pass the appropriate
Qualification Examination for
Principals. Upon elevation, the member
organization shall submit to the
Exchange an amended ‘‘Uniform
Application for Securities Industry
Registration or Transfer’’ and any
applicable fees. In no event may a
person function as a Principal beyond
the initial 90 calendar day period
following the change in his or her duties
without having successfully passed the
appropriate Qualification Examination.
This provision shall apply to a person:
(i) Associated with a member
organization of another registered
national securities exchange or
association who is required to register in
a Principal classification under
Exchange Rules but who is not required
to be so registered under the rules of the
other exchange or association; and (ii)
associated with a member organization
who was not required to register with
the Exchange as a Principal prior to the
adoption of this Rule 604(g) by the
Exchange. This provision is intended to
be a catch-all to cover persons who
become subject to Principal registration
rules for different reasons, whether a job
change or a change in exchange rules.
Further, any person not presently
associated with a member organization
as a Registered Representative seeking
registration as a Principal shall submit
the appropriate application for
registration and any required
registration and examination fees,
pursuant to new Rule 604(g)(4)(B). Such
person shall be allowed a period of 90
days after all applicable prerequisites 17
are fulfilled to pass the appropriate
Qualification Examination for
Principals. In no event may a person
previously unregistered in any capacity
applying for Principal status function as
a Principal until fully qualified.
New Rule 604(g)(5) contains a
requirement of at least two Registered
Principals.18 Specifically, an Exchange
member organization, except a sole
proprietorship, shall have at least two
officers or partners who are registered as
Principals with respect to each aspect of
the member organization’s investment
banking and securities business
pursuant to the applicable provisions of
Rule 604(g); provided, however, that a
proprietary trading firm with 25 or
fewer registered representatives shall
only be required to have one officer or
17 Principals are subject to prerequisite
registration and qualification requirements
pursuant to proposed Rule 604(h).
18 All persons who engage in specified
supervisory functions must be registered as
Principals.
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partner who is registered as a Principal.
This exception to the two Principal
requirement is similar to that of several
other exchanges and reflects that such
firms do not necessitate the same level
of supervisory structure as firms who
have customers or larger firms.
The term ‘‘proprietary trading firm’’
means a member organization or
applicant with the following
characteristics: (A) The applicant is not
required by Section 15(b)(8) of the
Exchange Act to become a FINRA
member but is a member of another
registered securities exchange not
registered solely under Section 6(g) of
the Exchange Act; (B) all funds used or
proposed to be used by the applicant for
trading are the applicant’s own capital,
traded through the applicant’s own
accounts; (C) the applicant does not,
and will not have customers; and (D) all
Principals and Representatives of the
applicant acting or to be acting in the
capacity of a trader must be owners of,
employees of, or contractors to the
applicant.
The rule also provides that the
Exchange may waive the two Principal
requirement in situations that indicate
conclusively that only one person
should be required to register as a
Principal. This provision is identical to
that of several other exchanges, and the
Exchange believes that such waiver is
appropriate in certain situations, but
should be carefully applied; for
example, the Exchange may determine
to apply this provision to a very small
firm, with only a few employees in one
location.
In addition, the Exchange proposes to
adopt a requirement that certain
member organizations register a Limited
Principal—Financial and Operations, or
FINOP, as described below. Specifically,
pursuant to new Rule 604(g)(5)(C), an
applicant for membership shall have at
least one person qualified for
registration as a FINOP, which is
described in detail below.
To help determine how specifically a
person should register as a Principal,
the Exchange is proposing to adopt
Supplementary Material .01–.03 to Rule
604 to enumerate the three categories of
Principal registration. First, Rule 604.01
provides that each member or person
associated with a member organization
to which Rule 604(g) applies and who
is included within the definition of
Principal in Rule 604(g), and each
person designated as a Chief
Compliance Officer on Schedule A of
Form BD of a member organization to
which Rule 604(g) applies shall be
required to register with the Exchange
as a General Securities Principal and
shall pass the Series 24 examination
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before such registration may become
effective unless such person’s activities
are so limited as to qualify such person
for one or more of the limited categories
of Principal registration specified
hereafter.19 A person whose activities in
the investment banking or securities
business are so limited is not, however,
precluded from attempting to become
qualified for registration as a General
Securities Principal, and if qualified,
may become so registered. The
Exchange believes that offering these
categories of Principal registration,
including limited Principal registration,
should help ensure that Principals are
properly qualified.
Each person seeking to register and
qualify as a General Securities Principal
must, prior to or concurrent with such
registration, become registered either as
a General Securities Representative or as
a Limited Representative—Corporate
Securities. A person who has been
designated as a Chief Compliance
Officer on Schedule A of Form BD for
at least two years immediately prior to
January 1, 2002, and who has not been
subject within the last ten years to any
statutory disqualification as defined in
Section 3(a)(39) of the Act; a
suspension; or the imposition of a fine
of $5,000 or more for violation of any
provision of any securities law or
regulation, or any agreement with or
rule or standard of conduct of any
securities governmental agency,
securities self-regulatory organization,
or as imposed by any such regulatory or
self-regulatory organization in
connection with a disciplinary
proceeding, shall be required to register
as a General Securities Principal, but
shall be exempt from the requirement to
pass the Series 24 examination.20
Secondly, in addition to the basic
Principal requirement, the Exchange
also proposes to adopt as new Rule
604.02 a requirement that each member
organization of the Exchange that is
subject to Rule 604(g) and that is
operating pursuant to the provisions of
SEC Rule 15c3–1(a)(1)(ii), (a)(2)(i) or
(a)(8), designate as Limited Principal—
Financial and Operations (‘‘FINOP’’)
those persons associated with it, at least
one of whom shall be its chief financial
officer, who perform the following
19 However, pursuant to proposed Rule 604.01(c),
a person registered solely as a General Securities
Principal shall not be qualified to function as a
FINOP or a Limited Principal—General Securities
Sales Supervisor unless that person is also qualified
and registered as such.
20 In addition, except as provided in Rule
604(g)(3), a person who was registered with FINRA
as a Principal, shall not be required to pass the
Series 24 examination and shall be qualified as a
General Securities Principal. See proposed Rule
604.01(b).
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duties: Final approval and
responsibility for the accuracy of
financial reports submitted to any duly
established securities industry
regulatory body; final preparation of
such reports; supervision of individuals
who assist in the preparation of such
reports; supervision of and
responsibility for individuals who are
involved in the actual maintenance of
the member organization’s books and
records from which such reports are
derived; supervision and/or
performance of the member
organization’s responsibilities under all
financial responsibility rules
promulgated pursuant to the provisions
of the Act; overall supervision of and
responsibility for the individuals who
are involved in the administration and
maintenance of the member
organization’s back office operations; or
any other matter involving the financial
and operational management of the
member organization. Each FINOP must
register with the Exchange and pass the
Series 27 examination. This provision is
intended to ensure that persons
handling the financial affairs of a firm
are properly registered and qualified.
Third, the Exchange also proposes to
adopt a limited Principal requirement in
new Rule 604.03, Limited Principal—
General Securities Sales Supervisor, to
provide that each person associated
with a member organization who is
included in the definition of Principal
in Rule 604(g) may register with the
Exchange as a Limited Principal—
General Securities Sales Supervisor, or
‘‘SU,’’ if: (A) His or her supervisory
responsibilities in the investment
banking and securities business are
limited to the securities sales activities
of a member organization, including the
training of sales and sales supervisory
personnel and the maintenance of
records of original entry and/or ledger
accounts of the member organization
required to be maintained in branch
offices by SEC recordkeeping rules; (B)
he or she is registered pursuant to
Exchange Rules as a General Securities
Representative; and (C) he or she is
qualified to be so registered by passing
an appropriate examination, which is
the Series 9 or 10. Nevertheless, Rule
604.03(b) provides that a person
registered in this category solely on the
basis of having passed the Series 9 or 10
examination shall not be qualified to:
Function in a Principal capacity with
responsibility over any area of business
activity not described above; be
included for purposes of the Principal
numerical requirements of Rule
604(g)(5); or perform for a member
organization any or all of the following
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Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices
sroberts on DSKD5P82C1PROD with NOTICES
activities: (i) Supervision of the
origination and structuring of
underwritings; (ii) supervision of market
making commitments; (iii) final
approval of advertisements as these are
defined in Rule 605; (iv) supervision of
the custody of firm or customer funds
and/or securities for purposes of SEC
Rule 15c3–3; or (v) supervision of
overall compliance with financial
responsibility rules for broker/dealers
promulgated pursuant to the provisions
of the Act.
In order to make clear how this
category of limited Principal registration
operates, the Exchange proposes to
adopt an explanation in subparagraph
(c) to Supplementary Material .03 to
state that the Limited Principal—
General Securities Sales Supervisor is
an alternate category of registration
designed to lessen the qualification
burdens on principals of general
securities firms who supervise sales.
Without this category of limited
registration, such principals could be
required to separately qualify pursuant
to the rules of multiple exchanges.
While persons may continue to
separately qualify with all relevant
SROs, the Limited Principal—General
Securities Sales Supervisor Examination
permits qualification as a supervisor of
sales of all securities by one
examination. Persons registered as
Limited Principals—General Securities
Sales Supervisor may also qualify in any
other category of principal registration.
Persons who are already qualified in
one or more categories of principal
registration may supervise sales
activities of all securities by also
qualifying as Limited Principals—
General Securities Sales Supervisor.21
The explanation in subparagraph (c)
further spells out the functions that may
be performed by Limited Principals—
General Securities Sales Supervisors, as
well as the functions that may not,22
emphasizing that such Principal may
supervise only sales activities. The
commentary also states that
qualification as a General Securities
Representative is a prerequisite for
registration as a Limited Principal—
General Securities Sales Supervisor, and
21 As stated above, a person registered solely as
a General Securities Principal shall not be qualified
to function as a Limited Principal—Financial and
Operations or Limited Principal—General
Securities Sales Supervisor unless that person is
also qualified and registered as such. See proposed
Rule 604.01(c).
22 These include supervisory responsibility for
the origination and structuring of underwritings,
market-making, final approval of advertising,
custody of firm or customer funds and/or securities
for purposes of SEC Rule 15c3–3 and overall
compliance with financial responsibility rules for
broker/dealers.
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18:46 Jul 21, 2010
Jkt 220001
that persons qualified only as Limited
Principals—General Securities Sales
Supervisor are not included for
purposes of the two principals
requirements of Rule 604(g)(5). The
Exchange believes that this category of
principal registration should be useful
to persons whose supervisory functions
are limited in this way and should help
ensure that such persons are properly
qualified for those functions.
In total, these principal registration
requirements are new to the Exchange,
although various other supervisory rules
currently operate, such as Phlx Rule
748. The Exchange believes that the
proposed new principal registration
requirement, particularly the General
Securities Principal category, should
strengthen the framework of supervisory
rules that will apply to Exchange
member organizations doing business
on PSX.
Other Rules
The Exchange proposes to adopt new
Rule 604(i), Persons Exempt from
Registration, to state that the following
persons associated with a member
organization are not required to be
registered with the Exchange: (1)
Persons associated with a member
organization whose functions are solely
and exclusively clerical or ministerial;
(2) persons associated with a member
organization who are not actively
engaged in the investment banking or
securities business; (3) persons
associated with a member organization
whose functions are related solely and
exclusively to the member
organization’s need for nominal
corporate officers or for capital
participation; and (4) persons associated
with a member organization whose
functions are related solely and
exclusively to: (A) Effecting transactions
on the floor of another national
securities exchange and who are
registered as floor members with such
exchange; (B) transactions in municipal
securities; (C) transactions in
commodities; (D) transactions in
security futures, provided that any such
person is registered with FINRA or a
registered futures association; (E)
transactions in variable contracts and
insurance premium funding programs
and other contracts issued by an
insurance company; (F) transactions in
direct participation programs; (G)
transactions in government securities; or
(H) effecting sales as part of a primary
offering of securities not involving a
public offering pursuant to Section 3(b),
4(2), or 4(6) of the Securities Act of 1933
and the rules and regulations
thereunder. These registration
exemptions are intended to make clear
PO 00000
Frm 00131
Fmt 4703
Sfmt 4703
that registration of certain, specific
persons is not necessary and is based on
exemptions contained in, for example,
NASDAQ Rule 1060 and NASDAQ
OMX BX Rule 1060. Furthermore, the
persons described in (E) through (H)
immediately above 23 are covered within
the proposed new definitions in Rule
1(uu)–(ww) thereby triggering the Series
7/Registered Representative requirement
in proposed new Rule 604(h); the
registration of such persons would
inadvertently result in a Series
7/Registered Representative requirement
on the Phlx for persons who, under
FINRA rules, rather than the Series
7/Registered Representative category,
register in that specific, limited capacity
in categories not available in WebCRD
for Phlx registrants.24 Of course, the
federal securities laws may require
broker-dealers to become members of
FINRA in order to perform these
functions.25 Thus, the Exchange
believes that these registration
exemptions are appropriate and any
applicable FINRA registration
requirements would continue to apply
to firms that are members/member
organizations of both Phlx and FINRA.
Rule 604(i)(2) provides that member
organizations, and persons associated
with a member organization, may pay to
nonregistered foreign persons
transaction-related compensation based
upon the business of customers they
direct to member organizations under
certain conditions detailed in the rule.
This provision is intended to cover the
payment of fees to finders.26
Rule 604(j) provides that the
Exchange may, in exceptional cases and
where good cause is shown, waive the
applicable Qualification Examination
and accept other standards as evidence
of an applicant’s qualifications for
registration. Advanced age or physical
infirmity will not individually of
themselves constitute sufficient grounds
to waive a Qualification Examination.
Experience in fields ancillary to the
investment banking or securities
business may constitute sufficient
grounds to waive a Qualification
Examination. The rule is based on
corresponding rules of FINRA,
NASDAQ and NASDAQ OMX BX.
Lastly, the Exchange proposes to
amend Rule 640, Continuing Education
For Registered Persons, to delete
23 This correlates to proposed Rule 604(i)(D)(v)–
(viii).
24 Specifically, the IR/Series 6, DR/Series 22, RG/
Series 72 and PR/Series 82 categories are not
available to Phlx, as well as many other exchanges,
through WebCRD.
25 See e.g., 15 U.S.C. 78o(b)(8).
26 This provision is identical to NASDAQ Rule
1060(b) and NASDAQ OMX BX Rule 1060(b).
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Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Notices
reference to ‘‘XLE’’ from Commentary
.01. Currently, Commentary .01
provides that, for purposes of this Rule,
the term ‘‘registered person’’ means any
member, registered representative or
other person registered or required to be
registered under Exchange rules, but
does not include such person whose
activities are limited solely to the
transaction of business on the floor or
XLE, with members or registered brokerdealers. XLE was the Exchange’s old
trading system for NMS Stocks, which
ceased operations in 2008.27
Accordingly, the Exchange is removing
reference to that system; any new
trading system for NMS Stocks, such as
the Exchange’s proposed PSX System,
would not be exempt, such that
registered persons would be subject to
the continuing education requirements
of Rule 640.
Conclusion
The Exchange believes that these
proposed new rules should form a solid
framework for registration with respect
to PSX.28 As a result of the new
registration requirements, additional
persons will become subject to the
Exchange’s continuing education
requirement in Rule 640. The Exchange
believes that the new requirements will
cover the scope of persons who do
business on PSX and should provide a
solid framework for Representative and
Principal registration and qualification.
The proposal specifies which
qualification examinations are required
for each category of registration.
sroberts on DSKD5P82C1PROD with NOTICES
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 29 in general, and furthers the
objectives of: (1) Section 6(c)(3)(B) of the
Act,30 pursuant to which a national
securities exchange prescribes standards
of training, experience and competence
for members and their associated
persons; and (2) Section 6(b)(5) of the
Act,31 in that it is designed, among other
things, to prevent fraudulent and
manipulative acts and practices, to
27 See Securities Exchange Act Release No. 58613
(September 22, 2008), 73 FR 57181 (October 1,
2008) (SR–Phlx–2008–65).
28 The Exchange intends to separately revise its
registration and qualification rules related to
activity other than business conducted on PSX,
including its options business. The Exchange
understands that other self-regulatory organizations
are expected to adopt a framework that requires
more fulsome registration and qualification
requirements clearly spelled out in rules. The
Exchange supports the Commission’s commitment
to ensure that such rules are adopted by all selfregulatory organizations on a consistent basis.
29 15 U.S.C. 78f(b).
30 15 U.S.C. 78f(c)(3)(B).
31 15 U.S.C. 78f(b)(5).
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18:46 Jul 21, 2010
Jkt 220001
promote just and equitable principles of
trade, 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, by
adopting provisions requiring principals
to register and pass qualification
examinations and by enhancing the
registration requirements covering
persons trading NMS Stocks through the
facilities of the Exchange.
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.
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
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission shall: (a) By order
approve such proposed rule change, or
(b) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
No. SR–Phlx–2010–91 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
Frm 00132
Fmt 4703
Sfmt 4703
All submissions should refer to File No.
SR–Phlx–2010–91. This file number
should be included on the subject line
if e-mail 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 Web site (https://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 Web site 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
a.m. and 3 p.m. Copies of such filing
also will be available for inspection and
copying at the principal office of Phlx.
All comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File No.
SR–Phlx-2010–91 and should be
submitted on or before August 12, 2010.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–17930 Filed 7–21–10; 8:45 am]
BILLING CODE 8010–01–P
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:
PO 00000
42809
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–62508; File No. SR–ISE–
2010–65]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change Relating to Fees and Rebates
for Adding and Removing Liquidity
July 15, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 28,
2010, the International Securities
32 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\22JYN1.SGM
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]]>Agencies
[Federal Register Volume 75, Number 140 (Thursday, July 22, 2010)]
[Notices]
[Pages 42804-42809]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-17930]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62509; File No. SR-Phlx-2010-91]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by NASDAQ OMX PHLX, Inc., as Modified by Amendment No. 1
Thereto, Relating to Registration and Qualification Requirements for
PSX
July 15, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on June 29, 2010, NASDAQ OMX PHLX, Inc. (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, II,
and III, below, which Items have been prepared by the Exchange. On July
13, 2010, Phlx filed Amendment No. 1 to the proposed rule change. The
Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, 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, pursuant to Section 19(b)(1) of the Act \3\ and Rule
19b-4 thereunder,\4\ proposes to amend Rule 604 to adopt several new
provisions governing the registration and qualification of members and
persons associated with member organizations that are registered with
the Exchange for the purpose of trading NMS Stocks \5\ through the
facilities of the Exchange. Specifically, the Exchange proposes to
adopt Rule 604(h) to govern the registration of representatives and
Supplementary Material .04 to Rule 604 regarding the category of such
registration. In addition, with respect to principal registration, the
Exchange proposes to adopt Rule 604(g), Principal Registration, and
Supplementary Material .01--.03 governing the specific categories of
principal registration, to require that every member organization
covered by these rules has at least two registered Principals as well
as a Financial/Operations Principal. The Exchange also proposes to
adopt Rule 604(i) to establish which persons are exempt from
registration.
---------------------------------------------------------------------------
\3\ 15 U.S.C. 78s(b)(1).
\4\ 17 CFR 240.19b-4.
\5\ See Rule 1(t).
---------------------------------------------------------------------------
[[Page 42805]]
The text of the proposed rule change is available on the Exchange's
Web site at https://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings,
on the Commission's Web site at https://www.sec.gov, 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 purpose of the proposed rule change is to adopt new
registration provisions applicable to member organizations that are
registered with the Exchange for the purpose of trading NMS Stocks
through the facilities of the Exchange. Thus, these new provisions
would cover members that trade on the Exchange's proposed new equity
trading platform for NMS Stocks, NASDAQ OMX PSX (``PSX'').\6\ The
proposed rules are substantially similar to the rules of The NASDAQ
Stock Market, FINRA and NASDAQ OMX BX. As a result of the change, PSX
users will be required to register representatives and principals with
the Exchange in accordance with such rules. All such registered persons
will be required to pass an appropriate qualification examination, as
outlined below, all of which will be recorded in WebCRD. In sum, these
new rules are intended to strengthen the Exchange's requirements to
help ensure an effective supervisory structure for those conducting
business on PSX.\7\
---------------------------------------------------------------------------
\6\ See SR-Phlx-2010-79. PSX will not be used for trading any
securities other than NMS Stocks. Existing rules would continue to
govern registration of associated persons of member organizations
that trade options but not cash equities through Phlx. Phlx will, at
a later date, amend these rules to reflect consistent registration
standards being developed by Phlx and other self-regulatory
organizations in consultation with the Commission.
\7\ Currently, Rule 748, Supervision, establishes the
supervisory requirement for member organizations, including that all
locations and activities of a member organization be supervised by a
qualified supervisor. Accordingly, the new principal registration
requirement in proposed Rule 604(g) supplements this rule.
---------------------------------------------------------------------------
Representative Registration
New Rule 604(h) will govern the registration of representatives \8\
with the Exchange. Specifically, new Rule 604(h)(1) will require that
all persons engaged or to be engaged in the investment banking or
securities business \9\ of a member organization who are to function as
representatives shall be registered as such with the Exchange through
WebCRD in the category of registration appropriate to the function to
be performed as specified in Supplementary Material .04. Before their
registration can become effective, they shall pass the Series 7
examination.
---------------------------------------------------------------------------
\8\ The term ``representative'' will now be defined in Rule 1 as
a member or an associated person of a registered broker or dealer,
including assistant officers other than principals, who is engaged
in the investment banking or securities business for the member
organization including the functions of supervision, solicitation or
conduct of business in securities or who is engaged in the training
of persons associated with a broker or dealer for any of these
functions. To the extent provided in Rule 604, all representatives
are required to be registered with the Exchange, and representatives
that are so registered are referred to herein as ``Registered
Representatives.'' See proposed Rule 1(uu).
\9\ The term ``investment banking or securities business'' means
the business, carried on by a broker or dealer, of underwriting or
distributing issues of securities, or of purchasing securities and
offering the same for sale as a dealer, or of purchasing and selling
securities upon the order and for the account of others. See
proposed Rule 1(ww). Of course, the federal securities laws may
require broker-dealers to become members of the Financial Industry
Regulatory Authority (``FINRA'') in order to perform some of these
functions. See e.g., 15 U.S.C. 78o(b)(8).
---------------------------------------------------------------------------
The rule also provides that a member organization shall not
maintain a representative registration with the Exchange for any person
(1) who is no longer active in the member organization's investment
banking or securities business, (2) who is no longer functioning as a
representative, or (3) where the sole purpose is to avoid the
examination requirement. A member organization shall not make
application for the registration of any person as representative where
there is no intent to employ such person in the member organization's
investment banking or securities business. A member may, however,
maintain or make application for the registration as a representative
of a person who performs legal, compliance, internal audit, back-office
operations, or similar responsibilities for the member organization, or
a person who performs administrative support functions for registered
personnel, or a person engaged in the investment banking or securities
business of a foreign securities affiliate or subsidiary of the member
organization. This provision is intended to ensure that firms register
only those persons to whom the requirement is pertinent.
Pursuant to new paragraph (h)(2) of Rule 604, any person whose
registration has been revoked by the Exchange as a disciplinary
sanction or whose most recent registration as a Representative or
Principal has been terminated for a period of two or more years
immediately preceding the date of receipt by the Exchange of a new
application shall be required to pass the Series 7 examination. This
provision is intended to ensure that, in these situations, persons are
subject to retesting to assure proper qualification.
Furthermore, new Rule 604(h)(3), Qualification Requirements, states
that no member organization shall permit any member or person
associated with it \10\ to engage in the investment banking or
securities business unless the member organization determines that such
person satisfies the qualification requirements established by the
Board and is not subject to statutory disqualification as defined in
Section 3(a)(39) of the Act. Thus, firms are responsible for compliance
with this registration requirement for their relevant employees.
---------------------------------------------------------------------------
\10\ The term ``associated person'' or ``person associated
with'' a member organization means any partner, officer, director,
or branch manager of an Exchange member organization or applicant
(or person occupying a similar status or performing similar
functions), any person directly or indirectly controlling,
controlled by, or under common control with such member organization
or applicant, or any employee of such member or applicant, except
that any person associated with a member organization or applicant
whose functions are solely clerical or ministerial shall not be
included in the meaning of such term for purposes of the Exchange
Rules. See proposed Rule 1(vv).
---------------------------------------------------------------------------
New Supplementary Material .04 to Rule 604 contains the basic
requirement \11\ that each member and each person associated with a
member organization who is included within the definition of a
representative in Rule 1(uu) shall be required to register with the
Exchange as a General Securities Representative and shall pass the
Series 7 examination before such registration may become effective.\12\
The appropriate registration category on WebCRD is ``GS.''
---------------------------------------------------------------------------
\11\ This provision is the same as NASDAQ OMX BX Rule 1032.
\12\ The Exchange is not currently adopting any limited
registration provisions, but may determine to do so in the future.
---------------------------------------------------------------------------
This provision is intended to capture traditional securities
personnel in a rule similar to that of several other SROs.\13\
[[Page 42806]]
The Exchange believes that the requirement is broad and should not
generate gaps that permit a member organization to operate differently
than under the registration rules of NASDAQ OMX BX, The NASDAQ Stock
Market or FINRA.
---------------------------------------------------------------------------
\13\ See e.g., NASDQ [sic] OMX BX Rules 1031 and 1032, NASDAQ
Rules 1031 and 1032, and NASD Rules 1031 and 1032.
---------------------------------------------------------------------------
Principal Registration
In summary, new Rule 604(g) \14\ will provide that every member
organization must register two Principals with the Exchange,\15\ unless
an exception applies. As a result, each Principal must successfully
complete the General Securities Principal Examination (``Series 24'')
and submit a Form U4 via WebCRD reflecting registration as such, using
the category ``GP,'' unless a different category of Principal
registration applies to such person.
---------------------------------------------------------------------------
\14\ This new rule is similar to NASDAQ Rule 1021, NASDAQ OMX BX
Rule 1021 and NASD Rule 1021.
\15\ All persons who engage in specified supervisory functions
will be registered as Principals.
---------------------------------------------------------------------------
Specifically, Rule 604(g)(1) provides that all persons engaged or
to be engaged in the investment banking or securities business of a
member organization who are to function as Principals shall be
registered as such with the Exchange through WebCRD in the category of
registration appropriate to the function to be performed as specified
in new Supplementary Material .01-.03 of Rule 604. Before their
registration can become effective, they shall pass a Qualification
Examination for Principals appropriate to the category of registration
as specified by the Board, which is further explained below, in
proposed Supplementary Material .01-.03 to Rule 604.
Rule 604(g)(1) further provides that a member organization shall
not maintain a Principal registration with the Exchange for any person
(1) who is no longer active in the member organization's investment
banking or securities business, (2) who is no longer functioning as a
Principal, or (3) where the sole purpose is to avoid the examination
requirement of this rule. A member organization shall not make
application for the registration of any person as Principal where there
is no intent to employ such person in the member organization's
investment banking or securities business. A member organization may,
however, maintain or make application for the registration as a
Principal of a person who performs legal, compliance, internal audit,
back-office operations, or similar responsibilities for the member
organization or a person engaged in the investment banking or
securities business of a foreign securities affiliate or subsidiary of
the member organization. Similar to a provision in proposed Rule
604(h)(1) above applicable to registered representatives, this
provision is intended to ensure that firms register only those persons
to whom the requirement is pertinent.
New Rule 604(g)(2) states that persons associated with a member
organization who are actively engaged in the management of the member
organization's investment banking or securities business, including
supervision, solicitation, conduct of business or the training of
persons associated with a member organization for any of these
functions are designated as Principals. Such persons shall include:
Sole proprietors, officers, partners, managers of offices of
supervisory jurisdiction,\16\ and directors of corporations.
---------------------------------------------------------------------------
\16\ The Exchange is defining this term to mean any office of a
member organization at which any one or more of the following
functions take [sic] place: Order execution and/or market making;
structuring of public offerings or private placements; maintaining
custody of customers' funds and/or securities; final acceptance
(approval) of new accounts on behalf of the member organization;
review and endorsement of customer orders; final approval of
advertising or sales literature for use by persons associated with
the member organization, pursuant to Rule 605, except for an office
that solely conducts final approval of research reports; or
responsibility for supervising the activities of persons associated
with the member organization at one or more other branch offices of
the member organization. This definition is drawn from NASD Rule
3010. The Exchange is adopting the reference to this term in order
to cover these managers in the new principal registration
requirement. The Exchange is not, at this time, adopting a
comprehensive program with regard to such offices, such as that
found in NASD Rule 3010.
---------------------------------------------------------------------------
New Rule 604(g)(3), Requirements for Examination on Lapse of
Registration, states that any person whose registration has been
revoked by the Exchange as a disciplinary sanction or whose most recent
registration as a Principal has been terminated for a period of two or
more years immediately preceding the date of receipt by the Exchange of
a new application shall be required to pass a Qualification Examination
for Principals appropriate to such person's category of registration.
This is similar to the provision applicable to registered
representatives and is intended to ensure that persons' qualifications
are properly tested.
Pursuant to new Rule 604(g)(4), Application for Principal Status,
any person associated with a member organization as a Registered
Representative whose duties are changed by the member organization so
as to require registration in any Principal classification shall be
allowed a period of 90 calendar days following the change in his or her
duties during which to pass the appropriate Qualification Examination
for Principals. Upon elevation, the member organization shall submit to
the Exchange an amended ``Uniform Application for Securities Industry
Registration or Transfer'' and any applicable fees. In no event may a
person function as a Principal beyond the initial 90 calendar day
period following the change in his or her duties without having
successfully passed the appropriate Qualification Examination. This
provision shall apply to a person: (i) Associated with a member
organization of another registered national securities exchange or
association who is required to register in a Principal classification
under Exchange Rules but who is not required to be so registered under
the rules of the other exchange or association; and (ii) associated
with a member organization who was not required to register with the
Exchange as a Principal prior to the adoption of this Rule 604(g) by
the Exchange. This provision is intended to be a catch-all to cover
persons who become subject to Principal registration rules for
different reasons, whether a job change or a change in exchange rules.
Further, any person not presently associated with a member
organization as a Registered Representative seeking registration as a
Principal shall submit the appropriate application for registration and
any required registration and examination fees, pursuant to new Rule
604(g)(4)(B). Such person shall be allowed a period of 90 days after
all applicable prerequisites \17\ are fulfilled to pass the appropriate
Qualification Examination for Principals. In no event may a person
previously unregistered in any capacity applying for Principal status
function as a Principal until fully qualified.
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\17\ Principals are subject to prerequisite registration and
qualification requirements pursuant to proposed Rule 604(h).
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New Rule 604(g)(5) contains a requirement of at least two
Registered Principals.\18\ Specifically, an Exchange member
organization, except a sole proprietorship, shall have at least two
officers or partners who are registered as Principals with respect to
each aspect of the member organization's investment banking and
securities business pursuant to the applicable provisions of Rule
604(g); provided, however, that a proprietary trading firm with 25 or
fewer registered representatives shall only be required to have one
officer or
[[Page 42807]]
partner who is registered as a Principal. This exception to the two
Principal requirement is similar to that of several other exchanges and
reflects that such firms do not necessitate the same level of
supervisory structure as firms who have customers or larger firms.
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\18\ All persons who engage in specified supervisory functions
must be registered as Principals.
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The term ``proprietary trading firm'' means a member organization
or applicant with the following characteristics: (A) The applicant is
not required by Section 15(b)(8) of the Exchange Act to become a FINRA
member but is a member of another registered securities exchange not
registered solely under Section 6(g) of the Exchange Act; (B) all funds
used or proposed to be used by the applicant for trading are the
applicant's own capital, traded through the applicant's own accounts;
(C) the applicant does not, and will not have customers; and (D) all
Principals and Representatives of the applicant acting or to be acting
in the capacity of a trader must be owners of, employees of, or
contractors to the applicant.
The rule also provides that the Exchange may waive the two
Principal requirement in situations that indicate conclusively that
only one person should be required to register as a Principal. This
provision is identical to that of several other exchanges, and the
Exchange believes that such waiver is appropriate in certain
situations, but should be carefully applied; for example, the Exchange
may determine to apply this provision to a very small firm, with only a
few employees in one location.
In addition, the Exchange proposes to adopt a requirement that
certain member organizations register a Limited Principal--Financial
and Operations, or FINOP, as described below. Specifically, pursuant to
new Rule 604(g)(5)(C), an applicant for membership shall have at least
one person qualified for registration as a FINOP, which is described in
detail below.
To help determine how specifically a person should register as a
Principal, the Exchange is proposing to adopt Supplementary Material
.01-.03 to Rule 604 to enumerate the three categories of Principal
registration. First, Rule 604.01 provides that each member or person
associated with a member organization to which Rule 604(g) applies and
who is included within the definition of Principal in Rule 604(g), and
each person designated as a Chief Compliance Officer on Schedule A of
Form BD of a member organization to which Rule 604(g) applies shall be
required to register with the Exchange as a General Securities
Principal and shall pass the Series 24 examination before such
registration may become effective unless such person's activities are
so limited as to qualify such person for one or more of the limited
categories of Principal registration specified hereafter.\19\ A person
whose activities in the investment banking or securities business are
so limited is not, however, precluded from attempting to become
qualified for registration as a General Securities Principal, and if
qualified, may become so registered. The Exchange believes that
offering these categories of Principal registration, including limited
Principal registration, should help ensure that Principals are properly
qualified.
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\19\ However, pursuant to proposed Rule 604.01(c), a person
registered solely as a General Securities Principal shall not be
qualified to function as a FINOP or a Limited Principal--General
Securities Sales Supervisor unless that person is also qualified and
registered as such.
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Each person seeking to register and qualify as a General Securities
Principal must, prior to or concurrent with such registration, become
registered either as a General Securities Representative or as a
Limited Representative--Corporate Securities. A person who has been
designated as a Chief Compliance Officer on Schedule A of Form BD for
at least two years immediately prior to January 1, 2002, and who has
not been subject within the last ten years to any statutory
disqualification as defined in Section 3(a)(39) of the Act; a
suspension; or the imposition of a fine of $5,000 or more for violation
of any provision of any securities law or regulation, or any agreement
with or rule or standard of conduct of any securities governmental
agency, securities self-regulatory organization, or as imposed by any
such regulatory or self-regulatory organization in connection with a
disciplinary proceeding, shall be required to register as a General
Securities Principal, but shall be exempt from the requirement to pass
the Series 24 examination.\20\
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\20\ In addition, except as provided in Rule 604(g)(3), a person
who was registered with FINRA as a Principal, shall not be required
to pass the Series 24 examination and shall be qualified as a
General Securities Principal. See proposed Rule 604.01(b).
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Secondly, in addition to the basic Principal requirement, the
Exchange also proposes to adopt as new Rule 604.02 a requirement that
each member organization of the Exchange that is subject to Rule 604(g)
and that is operating pursuant to the provisions of SEC Rule 15c3-
1(a)(1)(ii), (a)(2)(i) or (a)(8), designate as Limited Principal--
Financial and Operations (``FINOP'') those persons associated with it,
at least one of whom shall be its chief financial officer, who perform
the following duties: Final approval and responsibility for the
accuracy of financial reports submitted to any duly established
securities industry regulatory body; final preparation of such reports;
supervision of individuals who assist in the preparation of such
reports; supervision of and responsibility for individuals who are
involved in the actual maintenance of the member organization's books
and records from which such reports are derived; supervision and/or
performance of the member organization's responsibilities under all
financial responsibility rules promulgated pursuant to the provisions
of the Act; overall supervision of and responsibility for the
individuals who are involved in the administration and maintenance of
the member organization's back office operations; or any other matter
involving the financial and operational management of the member
organization. Each FINOP must register with the Exchange and pass the
Series 27 examination. This provision is intended to ensure that
persons handling the financial affairs of a firm are properly
registered and qualified.
Third, the Exchange also proposes to adopt a limited Principal
requirement in new Rule 604.03, Limited Principal--General Securities
Sales Supervisor, to provide that each person associated with a member
organization who is included in the definition of Principal in Rule
604(g) may register with the Exchange as a Limited Principal--General
Securities Sales Supervisor, or ``SU,'' if: (A) His or her supervisory
responsibilities in the investment banking and securities business are
limited to the securities sales activities of a member organization,
including the training of sales and sales supervisory personnel and the
maintenance of records of original entry and/or ledger accounts of the
member organization required to be maintained in branch offices by SEC
recordkeeping rules; (B) he or she is registered pursuant to Exchange
Rules as a General Securities Representative; and (C) he or she is
qualified to be so registered by passing an appropriate examination,
which is the Series 9 or 10. Nevertheless, Rule 604.03(b) provides that
a person registered in this category solely on the basis of having
passed the Series 9 or 10 examination shall not be qualified to:
Function in a Principal capacity with responsibility over any area of
business activity not described above; be included for purposes of the
Principal numerical requirements of Rule 604(g)(5); or perform for a
member organization any or all of the following
[[Page 42808]]
activities: (i) Supervision of the origination and structuring of
underwritings; (ii) supervision of market making commitments; (iii)
final approval of advertisements as these are defined in Rule 605; (iv)
supervision of the custody of firm or customer funds and/or securities
for purposes of SEC Rule 15c3-3; or (v) supervision of overall
compliance with financial responsibility rules for broker/dealers
promulgated pursuant to the provisions of the Act.
In order to make clear how this category of limited Principal
registration operates, the Exchange proposes to adopt an explanation in
subparagraph (c) to Supplementary Material .03 to state that the
Limited Principal--General Securities Sales Supervisor is an alternate
category of registration designed to lessen the qualification burdens
on principals of general securities firms who supervise sales. Without
this category of limited registration, such principals could be
required to separately qualify pursuant to the rules of multiple
exchanges. While persons may continue to separately qualify with all
relevant SROs, the Limited Principal--General Securities Sales
Supervisor Examination permits qualification as a supervisor of sales
of all securities by one examination. Persons registered as Limited
Principals--General Securities Sales Supervisor may also qualify in any
other category of principal registration. Persons who are already
qualified in one or more categories of principal registration may
supervise sales activities of all securities by also qualifying as
Limited Principals--General Securities Sales Supervisor.\21\
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\21\ As stated above, a person registered solely as a General
Securities Principal shall not be qualified to function as a Limited
Principal--Financial and Operations or Limited Principal--General
Securities Sales Supervisor unless that person is also qualified and
registered as such. See proposed Rule 604.01(c).
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The explanation in subparagraph (c) further spells out the
functions that may be performed by Limited Principals--General
Securities Sales Supervisors, as well as the functions that may
not,\22\ emphasizing that such Principal may supervise only sales
activities. The commentary also states that qualification as a General
Securities Representative is a prerequisite for registration as a
Limited Principal--General Securities Sales Supervisor, and that
persons qualified only as Limited Principals--General Securities Sales
Supervisor are not included for purposes of the two principals
requirements of Rule 604(g)(5). The Exchange believes that this
category of principal registration should be useful to persons whose
supervisory functions are limited in this way and should help ensure
that such persons are properly qualified for those functions.
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\22\ These include supervisory responsibility for the
origination and structuring of underwritings, market-making, final
approval of advertising, custody of firm or customer funds and/or
securities for purposes of SEC Rule 15c3-3 and overall compliance
with financial responsibility rules for broker/dealers.
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In total, these principal registration requirements are new to the
Exchange, although various other supervisory rules currently operate,
such as Phlx Rule 748. The Exchange believes that the proposed new
principal registration requirement, particularly the General Securities
Principal category, should strengthen the framework of supervisory
rules that will apply to Exchange member organizations doing business
on PSX.
Other Rules
The Exchange proposes to adopt new Rule 604(i), Persons Exempt from
Registration, to state that the following persons associated with a
member organization are not required to be registered with the
Exchange: (1) Persons associated with a member organization whose
functions are solely and exclusively clerical or ministerial; (2)
persons associated with a member organization who are not actively
engaged in the investment banking or securities business; (3) persons
associated with a member organization whose functions are related
solely and exclusively to the member organization's need for nominal
corporate officers or for capital participation; and (4) persons
associated with a member organization whose functions are related
solely and exclusively to: (A) Effecting transactions on the floor of
another national securities exchange and who are registered as floor
members with such exchange; (B) transactions in municipal securities;
(C) transactions in commodities; (D) transactions in security futures,
provided that any such person is registered with FINRA or a registered
futures association; (E) transactions in variable contracts and
insurance premium funding programs and other contracts issued by an
insurance company; (F) transactions in direct participation programs;
(G) transactions in government securities; or (H) effecting sales as
part of a primary offering of securities not involving a public
offering pursuant to Section 3(b), 4(2), or 4(6) of the Securities Act
of 1933 and the rules and regulations thereunder. These registration
exemptions are intended to make clear that registration of certain,
specific persons is not necessary and is based on exemptions contained
in, for example, NASDAQ Rule 1060 and NASDAQ OMX BX Rule 1060.
Furthermore, the persons described in (E) through (H) immediately above
\23\ are covered within the proposed new definitions in Rule 1(uu)-(ww)
thereby triggering the Series 7/Registered Representative requirement
in proposed new Rule 604(h); the registration of such persons would
inadvertently result in a Series 7/Registered Representative
requirement on the Phlx for persons who, under FINRA rules, rather than
the Series 7/Registered Representative category, register in that
specific, limited capacity in categories not available in WebCRD for
Phlx registrants.\24\ Of course, the federal securities laws may
require broker-dealers to become members of FINRA in order to perform
these functions.\25\ Thus, the Exchange believes that these
registration exemptions are appropriate and any applicable FINRA
registration requirements would continue to apply to firms that are
members/member organizations of both Phlx and FINRA.
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\23\ This correlates to proposed Rule 604(i)(D)(v)-(viii).
\24\ Specifically, the IR/Series 6, DR/Series 22, RG/Series 72
and PR/Series 82 categories are not available to Phlx, as well as
many other exchanges, through WebCRD.
\25\ See e.g., 15 U.S.C. 78o(b)(8).
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Rule 604(i)(2) provides that member organizations, and persons
associated with a member organization, may pay to nonregistered foreign
persons transaction-related compensation based upon the business of
customers they direct to member organizations under certain conditions
detailed in the rule. This provision is intended to cover the payment
of fees to finders.\26\
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\26\ This provision is identical to NASDAQ Rule 1060(b) and
NASDAQ OMX BX Rule 1060(b).
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Rule 604(j) provides that the Exchange may, in exceptional cases
and where good cause is shown, waive the applicable Qualification
Examination and accept other standards as evidence of an applicant's
qualifications for registration. Advanced age or physical infirmity
will not individually of themselves constitute sufficient grounds to
waive a Qualification Examination. Experience in fields ancillary to
the investment banking or securities business may constitute sufficient
grounds to waive a Qualification Examination. The rule is based on
corresponding rules of FINRA, NASDAQ and NASDAQ OMX BX.
Lastly, the Exchange proposes to amend Rule 640, Continuing
Education For Registered Persons, to delete
[[Page 42809]]
reference to ``XLE'' from Commentary .01. Currently, Commentary .01
provides that, for purposes of this Rule, the term ``registered
person'' means any member, registered representative or other person
registered or required to be registered under Exchange rules, but does
not include such person whose activities are limited solely to the
transaction of business on the floor or XLE, with members or registered
broker-dealers. XLE was the Exchange's old trading system for NMS
Stocks, which ceased operations in 2008.\27\ Accordingly, the Exchange
is removing reference to that system; any new trading system for NMS
Stocks, such as the Exchange's proposed PSX System, would not be
exempt, such that registered persons would be subject to the continuing
education requirements of Rule 640.
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\27\ See Securities Exchange Act Release No. 58613 (September
22, 2008), 73 FR 57181 (October 1, 2008) (SR-Phlx-2008-65).
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Conclusion
The Exchange believes that these proposed new rules should form a
solid framework for registration with respect to PSX.\28\ As a result
of the new registration requirements, additional persons will become
subject to the Exchange's continuing education requirement in Rule 640.
The Exchange believes that the new requirements will cover the scope of
persons who do business on PSX and should provide a solid framework for
Representative and Principal registration and qualification. The
proposal specifies which qualification examinations are required for
each category of registration.
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\28\ The Exchange intends to separately revise its registration
and qualification rules related to activity other than business
conducted on PSX, including its options business. The Exchange
understands that other self-regulatory organizations are expected to
adopt a framework that requires more fulsome registration and
qualification requirements clearly spelled out in rules. The
Exchange supports the Commission's commitment to ensure that such
rules are adopted by all self-regulatory organizations on a
consistent basis.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \29\ in general, and furthers the objectives of: (1)
Section 6(c)(3)(B) of the Act,\30\ pursuant to which a national
securities exchange prescribes standards of training, experience and
competence for members and their associated persons; and (2) Section
6(b)(5) of the Act,\31\ in that it is designed, among other things, to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, 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, by
adopting provisions requiring principals to register and pass
qualification examinations and by enhancing the registration
requirements covering persons trading NMS Stocks through the facilities
of the Exchange.
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\29\ 15 U.S.C. 78f(b).
\30\ 15 U.S.C. 78f(c)(3)(B).
\31\ 15 U.S.C. 78f(b)(5).
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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 not necessary or appropriate in
furtherance of the purposes of the Act.
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
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
such proposed rule change, or (b) institute proceedings to determine
whether the proposed rule change should be 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
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File No. SR-Phlx-2010-91 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File No. SR-Phlx-2010-91. This file
number should be included on the subject line if e-mail 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 Web site (https://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 Web site 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
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of Phlx. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File No. SR-Phlx-2010-91 and should be
submitted on or before August 12, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-17930 Filed 7-21-10; 8:45 am]
BILLING CODE 8010-01-P
