Self-Regulatory Organizations; NASDAQ OMX Phlx LLC; Order Approving Proposed Rule Change To Amend Registration, Qualification, and Continuing Education Requirements for Associated Persons, 25003-25007 [2012-10027]
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Federal Register / Vol. 77, No. 81 / Thursday, April 26, 2012 / Notices
requirements of Section 17A(b)(3)(G) of
the Act, which requires that the rules of
a clearing agency provide that its
members be appropriately disciplined
for violation of any provision of the
rules of the clearing agency by
expulsion, suspension, limitation of
activities, functions, and operations,
fine, censure, or any other fitting
sanction,15 as well as Section
17A(b)(3)(H) which, among other things,
requires that the rules of a clearing
agency provide a fair procedure with
respect to the disciplining of
participants.16
In its filing, OCC requested that the
Commission approve this proposed rule
change on an accelerated basis for good
cause shown. OCC cites as the reason
for this request OCC’s operation as a
DCO, which is subject to regulation by
the CFTC under the CEA. This rule
change is being made according to
regulations promulgated by the CFTC,
which were previously subject to notice
and comment. Not approving this
request on an accelerated basis would
have a significant impact on OCC’s
operations as a DCO.
The Commission finds good cause for
approving the proposed rule change
prior to the 30th day after the date of
publication of notice in the Federal
Register because the proposed rule
change allows OCC to implement the
regulations of another federal regulatory
agency, the CFTC, in accordance with
those regulations’ effective date.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule change (SR–OCC–2012–
06) is approved on an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012–10028 Filed 4–25–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–66840; File No. SR–Phlx–
2012–23]
Self-Regulatory Organizations;
NASDAQ OMX Phlx LLC; Order
Approving Proposed Rule Change To
Amend Registration, Qualification, and
Continuing Education Requirements
for Associated Persons
April 20, 2012.
I. Introduction
On February 16, 2012, NASDAQ OMX
Phlx LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1, and Rule 19b–4 2 thereunder,
a proposed rule change to amend and
extend registration, qualification, and
continuing education requirements for
associated persons of members. The
proposed rule change was published for
comment in the Federal Register on
March 7, 2012.3 The Commission
received no comment letters on the
proposal. This order approves the
proposed rule change.
II. Description of the Proposal
Representative Registration
Exchange Rule 604 applies to all
member organizations and generally
requires the Series 7 examination for
Registered Representatives,4 Principals,5
off-floor traders 6 and persons
compensated directly or indirectly for
the solicitation or handling of business
in securities who are not otherwise
required to register with the Exchange
by Rule 604(a).7 Rule 604(f) provides
that members and persons associated
with member organizations who are
registered with the Exchange for the
purpose of trading NMS Stocks 8
through the facilities of the Exchange,
which is the PSX platform, are subject
to the provisions of Rule 604(g) and (h)
governing principal and representative
registration, respectively. Rule 604(h) is
applicable today only to PSX users
pursuant to Rule 604(f). The Exchange
proposes to move the requirements in
Rule 604, and expand on those
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1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 66497
(March 1, 2012) 77 FR 13668.
4 See Rule 604(a).
5 See Rule 604(g).
6 See Rule 604(e).
7 See Rule 604(d).
8 See Rule 1(t).
2 17
15 15
U.S.C. 78q–1(b)(3)(G).
U.S.C. 78q–1(b)(3)(H).
17 17 CFR 200.30–3(a)(12).
16 15
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requirements, in proposed Rules 611,
612 and 613.
Rule 604(h) governs the registration of
representatives with the Exchange.
Specifically, Rule 604(h)(1) requires 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
be registered through WebCRD 10 in the
category of registration appropriate to
the function they will perform.11 Before
their registration can become effective,
they must pass the Series 7
examination. The Exchange proposes to
delete Rule 604 and adopt broader
registration requirements in proposed
Rule 613. Provisions contained in Rule
604(h) would be moved to Rule 613,
Representative Registration, in
substantially the same form, except with
respect to trading floor personnel
subject to Rule 620.
Proposed Rule 613(a) would require
all persons engaged or to be engaged in
the investment banking or securities
business of a member organization who
are to function as representatives to be
registered through WebCRD as specified
in Rule 613(e).12 Trading floor
personnel whose activities 13 are limited
to the trading floor would continue to be
required to register pursuant to Rule 620
and qualify by passing the Exchange’s
Trading Floor Qualification
Examination.14 In addition, amended
Rule 620 would require all trading floor
personnel, including clerks, interns, and
any other associated persons of a
member organization who are not
required to register pursuant to Rule
620(a) to register on Form U4 through
WebCRD. Thus, the same registration
information would be available
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 Rule 1(m). Of
course, the federal securities laws may require
broker-dealers to become members of the FINRA in
order to perform some of these functions. See e.g.,
15 U.S.C. 78o(b)(8).
10 WebCRD is FINRA’s automated Central
Registration Depository.
11 Supplementary Material .04 of Rule 604.
12 The requirement does not cover members
whose activities are limited to the Exchange’s
options trading floor and who are registered
pursuant to Rule 620(a), as well as associated
persons whose activities are limited to the
Exchange’s options trading floor and are registered
pursuant to Rule 620(b).
13 These functions include handling and
executing electronic and phoned-in orders on the
trading floor, as well as providing markets, both
verbally and electronically.
14 Trading floor personnel, and members on the
trading floor, would, however, be subject to new
principal registration requirements, described
below.
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electronically in WebCRD for trading
floor members and associated persons as
is available for persons registered as
General Securities Representatives.
Currently, Supplementary Material
.04 to Rule 604, Categories of
Representative Registration—General
Securities Representative, contains the
basic requirement that each member and
each person associated with a member
organization who is included within the
definition of a representative in Rule
1(cc) register with the Exchange as a
General Securities Representative and
pass the Series 7 examination before his
registration may become effective. This
provision is not changing and is similar
to that of several other self-regulatory
organizations (‘‘SROs’’).15 The Exchange
proposes to move the provisions of Rule
604(h) into Rule 613 and
Supplementary Material .04 of Rule 604
into Rule 613(e) so that the ‘‘registered
representative’’ categories and
requirements would be located in one
rule.
The Exchange also proposes Rule
613(f) which would adopt a limited
category of representative registration,
Proprietary Trader, and a qualifying
examination for that category, the Series
56.16 Members and associated persons
engaged solely in proprietary trading,
market making or effecting transactions
on behalf of a broker-dealer account and
who do not do business with the public
may register as Proprietary Traders and
pass the Series 56 examination, in lieu
of registering as General Securities
Representatives and passing the Series 7
examination. The Proprietary Trader
category would include both Floor
Brokers on the Exchange’s trading floor
and persons performing brokerage
functions off the trading floor
(‘‘upstairs’’).17
The Exchange proposes to replace
Rule 604 with Rule 613. Rule 613 would
cover every person subject to
registration as a representative, and
unlike Rule 604, it is not limited to
associated persons of member
organizations for which the Exchange is
15 See e.g., BX Rules 1031 and 1032, NASDAQ
Rules 1031 and 1032, and NASD Rules 1031 and
1032.
16 The Exchange filed the Series 56 content
outline with the Commission. See Securities
Exchange Act Release No. 66645 (March 22, 2012),
77 FR 19042 (March 29, 2012). The Series 56 would
also serve as a prerequisite for the Proprietary
Trader principal registration category. The Series 24
would be the appropriate examination for the new
principal registration category, as described below.
17 This provision is the same as the provision in
Chicago Board Options Exchange Incorporated
(‘‘CBOE’’) rules, which requires that an individual
Trading Permit Holder or associated person who
effects transactions on behalf of a broker-dealer
account register and pass the Series 56 examination.
See CBOE Rule 3.6A, Interpretation and Policy .06.
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the designated examining authority
(‘‘DEA’’). Furthermore, the proposed
rules would extend the requirements
currently set forth in Rule 604(h), which
apply only to member organizations
registered to use PSX,18 to all member
organizations. In addition, the language
of Rule 613 more closely aligns with the
rules of FINRA and NASDAQ, which
should facilitate compliance by brokerdealers.
Principal Registration
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 training persons associated
with a member organization for any of
these functions are principals. Such
persons include: Sole proprietors,
officers, partners, managers of offices of
supervisory jurisdiction,19 and directors
of corporations. Currently, principals of
PSX member firms must register via
Form U4 in Web CRD, and qualify by
passing an appropriate examination,
pursuant to Rule 604(g). The Exchange
proposes to extend these principal
requirements to cover all member
organizations, including those that trade
options. The more extensive principal
requirements would be embodied in
Rules 611 and 612, which would be
substantially similar to Rule 604(g) and
Supplementary Material .01–.03.
The Exchange also proposes to
recognize two new categories of limited
principal registration. First, the
Exchange proposes to adopt Rule
612(d), which recognizes Registered
Options Principals. Each member or
person associated with a member
organization who is included within the
definition of principal, including any
person designated as a Chief
18 See
Rule 604(f).
Exchange defined the term ‘‘office of
supervisory jurisdiction’’ to mean any office of a
member organization at which any one or more of
the following functions take 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. See proposed Rule 611(b).
19 The
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Compliance Officer on Schedule A of
Form BD of a member organization, may
register as a Registered Options
Principal and pass the Series 4
examination, instead of registering as a
General Securities Principal and passing
the Series 24 examination, if the
person’s activities are limited solely to
options. Specifically, a Registered
Options Principal can only supervise
the options activities of a member
organization and must be registered
pursuant to Exchange Rules as a General
Securities Representative.
Second, the Exchange proposes to
recognize the Proprietary Trader
Principal category as a limited principal
category in Rule 612(e). It would apply
to persons whose supervisory
responsibilities in the investment
banking and securities business are
limited to the activities of a member
organization that involve proprietary
trading, market making and effecting
transactions on behalf of broker-dealers.
It would require that the associated
person register pursuant to Exchange
Rules as a Proprietary Trader, qualify by
passing the Series 24 examination, and
not function in a principal capacity with
responsibility over any area of business
activity other than proprietary trading,
market making and effecting
transactions on behalf of broker-dealer
accounts.20 This category is in lieu of
registration as a General Securities
Principal, for which the prerequisite
qualification examination is the Series
7. The qualification examination for the
proposed new registration category of
Proprietary Trader Principal is the
Series 24, which is the same
qualification required for registration as
a General Securities Principal. However,
the prerequisite examination for the
Proprietary Trader Principal category is
the Series 56. Phlx expects the
Proprietary Trader Principal category to
be available to Phlx member
organizations in WebCRD shortly.
Both a Registered Options Principal
and a Proprietary Trader Principal
would count towards a firm’s twoprincipal requirement in Rule 611(e). If
the member organization is involved in
activity other than that permitted by
these categories, however, an additional
principal or principals would be
required.
Two additional limited principal
registration categories would also be
available to all member organizations.
Rule 604.02, titled Limited Principal—
20 The Exchange worked with other exchanges
and FINRA to develop this registration category.
The Proprietary Trader Principal registration
category is limited to those who supervise persons
engaged only in activities covered by the proposed
Proprietary Trader registration category.
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Financial and Operations, requires each
member organization of the Exchange
that is subject to Rule 604(g) and that is
operating pursuant to the provisions of
Rule 15c3–1(a)(1)(ii), (a)(2)(i) or (a)(8)
under the Act to 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
certain financial and operational duties,
as specified in the rule. Each FINOP
must register with the Exchange and
pass the Series 27 examination. The
Exchange proposes to move this
provision to Rule 612(b) and extend it
to cover trading floor members, in order
to ensure that persons handling the
financial affairs of a firm are properly
registered and qualified, given the
importance and complexity of the rules
governing financial responsibility for
broker-dealers.21 Although the FINOP is
a type of principal registration, because
its scope is limited to financial matters,
the FINOP does not count toward the
two-principal requirement of Rule
611(e).
The Limited Principal—General
Securities Sales Supervisor, currently in
Rule 604.03, would be moved to Rule
612(c) and would also be available to all
member organizations who have
associated persons meeting its specific,
limited requirements. Like the FINOP,
the General Securities Sales Supervisor
does not count toward satisfying the
two-principal requirement of Rule 611.
Other Rule Modifications
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In connection with strengthening its
registration rules, the Exchange is
proposing to reorganize and renumber
its registration rules to better align with
those of NASDAQ and FINRA.
In addition to the amendments
discussed above, the Exchange proposes
to renumber without change: Rule
604(i), Persons Exempt from
Registration, to Rule 614 (and Rule
604(i)(2) to Rule 614(b)); and Rule
604(j), Waiver of Requirements, to Rule
615; 22 and Rule 604(g)(5), the general
requirement to have a minimum of two
principals with respect to each aspect of
a member’s investment banking and
securities business (except a proprietary
trading firm with 25 or fewer
21 See
e.g., Phlx Rule 703.
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. The Commission
expects this waiver authority to be used sparingly,
and that where used, the Exchange would keep
records of waivers granted and reasons for so doing.
22 Rule
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representatives, which is only required
to have one) to Rule 611(e)(i).23
The Exchange proposes to consolidate
electronic filing requirements in
proposed Rule 616, Electronic Filing
Requirements for Uniform Forms. Rule
616(a), WebCRD Filing, would require
that forms filed pursuant to the Rule 600
Series be filed electronically through
WebCRD. Similarly, Rule 616(b), Form
U4 and U5 Filing Requirements, would
require that initial filings and
amendments of Forms U4 and U5 be
submitted electronically.24 In addition,
every application for registration filed
with the Exchange shall be kept current
at all times by supplementary
amendments via electronic filing or
such other process as the Exchange may
prescribe. The amendments shall be
filed not later than 30 days after the
applicant learns of the facts or
circumstances giving rise to the need for
the amendment.25
The Exchange also proposes to amend
OFPA F–34 and EFPA A–7, both titled
Failure to Timely Submit Amendments
to Form U4, Form U5 and Form BD.
These are the corollary minor rule plan
provisions for Rule 623, which are being
amended only to delete the reference to
Rule 604 and add rule numbers 611–613
and 616.
The Exchange proposes to amend
Rule 620, Trading Floor Registration, to
specifically state the registration
categories governed by the rule, to
require all trading floor associated
persons of member organizations to
register via Form U4, to delete
unnecessary language and to strengthen
the time requirement. Specifically, the
Exchange proposes to add to Rule
620(a), which requires Floor Brokers,
Specialists and Registered Options
Traders on an Exchange trading floor to
register under ‘‘Member Exchange’’
(‘‘ME’’) via Form U4. The Exchange
notes that this provision covers
members operating on the trading floor
and that such members are required to
successfully complete the Exchange’s
Trading Floor Qualification
Examination. The Exchange also
proposes to delete the reference in Rule
620(a) regarding updating Form U4
23 Although there must be a minimum of two
Principals, all persons who engage in specified
supervisory functions must be registered as
Principals.
24 As part of the member organization’s
recordkeeping requirements, it must retain such
records for a period of not less than three years, the
first two years in an easily accessible place, and
make such records available promptly upon request
in accordance with Rule 17a–4 under the Act
(17 CFR 240.17a–4).
25 This rule is similar to NASDAQ Rule
1031(d)(3).
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within a certain time period and include
this requirement in Rule 616.
Rule 620(b) covers all trading floor
personnel, such as clerks, interns, and
other associated persons of member
organizations who are not required to
register under Rule 620(a) and requires
them to register with the Exchange on
a form supplied by the Exchange. The
Exchange proposes to require these
individuals to be registered on Form U4
in WebCRD. Accordingly, these
associated persons will be subject to the
comprehensive disclosure obligations of
Form U4, which the Exchange believes
is an important enhancement. The
specific registration category will be
‘‘Floor Employee (‘‘FE’’)’’ under ‘‘Phlx,’’
which will be stated in the rule. The
Exchange does not intend to require a
qualification examination for nonmember trading floor personnel at this
time.26
The Exchange also proposes to amend
Rule 620(b) to provide that following
the termination of, or the initiation of a
change in the status of any such
personnel of a member organization
who has been issued an Exchange
access card and a trading floor badge,
the appropriate Exchange form must be
completed, approved and dated by a
member organization principal, officer,
or member of the member organization
with authority to do so, and submitted
to the appropriate Exchange department
no later than 9:30 a.m. the next business
day by the member organization
employer. The Exchange proposes to
strengthen this requirement by adding
that such submission should occur as
soon as possible but no later than 9:30
a.m. the next business day.
The Exchange proposes to codify an
existing fingerprinting requirement into
new paragraph (b) of Rule 623,
Fingerprinting. This paragraph specifies
that a member organization must
promptly submit fingerprints on behalf
of any person filing Form U4 pursuant
to Rule 616, and the Exchange may
make registration effective pending
receipt of fingerprint information.
Finally, as a result of the expanded
and amended registration requirements,
additional persons will become subject
to Continuing Education requirements
in Rule 640.
26 The Exchange does not believe that the Series
7, Series 56 or its Trading Floor Qualification
Examination is appropriate for the limited functions
of a trading floor clerk because these persons are
not members trading on the floor, and they are
supervised by members. These persons do not
execute transactions on the Exchange, but rather
enter orders and report trades, for example, and
perform related clerical functions. See Rule 1090.
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III. Discussion and Commission
Findings
The Commission believes that this
proposed rule change is an important
step towards harmonizing the
registration, qualification and
continuing education requirements
across the SROs. In order to meet its
obligations under Section 6(b)(1) of the
Act 27 to enforce compliance by member
firms 28 and their associated persons
with the Act, the rules thereunder, and
the Exchange’s own rules, an exchange
must have baseline registration and
examination requirements for all
persons conducting business on an
exchange, as well as for those
supervising the activity. In addition, an
exchange should have continuing
education requirements for registered
persons to help ensure that members
and persons associated with their
members are up to date on the industry,
including but not limited to
amendments to the Exchange’s rules
and the securities laws, rules, and
regulations that govern their activities.
The Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange.29 Specifically, the
Commission finds that the proposal is
consistent with Section 6(b)(5) of the
Act,30 which requires, among other
things, that the rules of a national
securities exchange be designed 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. The Commission
believes that the proposed rule change
is also consistent with Section 6(c)(3)(B)
of the Act,31 which authorizes
exchanges to prescribe standards of
training, experience and competence for
persons associated with exchange
members, and gives exchanges the
authority to bar a natural person from
becoming a member or a person
associated with a member, if the person
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27 Section
6 requires exchanges to have the ability
to enforce compliance by their members and
associated persons with the federal securities laws
and with their own rules. 15 U.S.C. 78f(b)(1).
28 Broker and dealers are required to supervise the
activities of their associated persons. See Section
15(b)(4)(E) of the Act, 15 U.S.C. 78o(b)(4)(E).
29 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
30 15 U.S.C. 78f(b)(5).
31 15 U.S.C. 78f(c)(3)(B).
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does not meet the standards of training,
experience and competence prescribed
in the rules of the exchange.
Phlx’s proposed rule change requires
all associated persons of member
organizations engaged in a securities
business on Phlx, as well as those who
supervise, train or otherwise oversee
those who do, to register with the
Exchange via the Form U4, qualify by
passing an appropriate examination,
and comply with continuing education
requirements. Phlx’s requirements
should help ensure that all associated
persons who transact business on Phlx,
including those engaged in proprietary
trading, are subject to appropriate
registration, qualification, and
continuing education requirements.
These requirements bolster the integrity
of the Exchange by helping to ensure
that all associated persons engaged in a
securities business are, and will
continue to be, properly trained and
qualified to perform their functions, will
be supervised, and can be identified by
regulators.
Phlx is adding new limited principal
registration categories which are
recognized by other exchanges.32 The
Registered Option Principal will be
restricted to supervising those persons
exclusively involved in options
activities, and the required examination,
the Series 4, is focused on practices in
and rules governing the options
industry. The Proprietary Trader
Principal category is corollary to the
new Proprietary Trader Representative
category discussed above and is
recognized by many of the other
exchanges.33 Proprietary Trader
Principals may supervise persons
engaged in proprietary trading, market
making and effecting transactions on
behalf of broker-dealer accounts and
must pass the Series 24 (General
Securities Principal) examination.
In sum, under the proposed rule
change, all Principals must register
through WebCRD and pass appropriate
prerequisite examinations, as well as
principal examinations that reflect the
enhanced responsibility entrusted to
principals. In addition, Principals
would be subject to the Exchange’s
continuing education requirements.
Phlx’s proposed exceptions from the
above-discussed general requirements
are appropriate. Any member seeking an
exception from the two principal
requirement must provide evidence that
conclusively indicates to the Exchange
that only one principal is necessary. The
Commission expects this authority to be
32 See,
33 See,
e.g., CBOE Rule 9.2 and ISE Rule 601.
e.g., CBOE Rule 3.6A and NASDAQ Rule
1032(c).
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used sparingly, because such persons
oversee the operations of member firms
and provide the first line of defense in
ensuring that member firms are
complying with the rules of the
exchange as well as the federal
securities laws. In addition, Phlx may
waive the qualification examination
requirement in exceptional cases where
the applicant has demonstrated that
good cause exists to grant the waiver.
The Commission also expects this
authority to be used sparingly. The
Commission notes that these exceptions
are substantively the same as exceptions
provided in similar rules at other
SROs,34 and it expects Phlx to keep
records detailing the reasons for
exceptions granted and waivers given.35
Phlx’s proposed rule change will help
ensure that all associated persons of
members transacting business on the
Exchange, as well as those who
supervise, train or otherwise oversee
those who do, will be registered with,
and qualified by, the Exchange and will
be subject to continuing education
requirements. The Commission believes
the proposal should enhance the
Exchange’s ability to ensure an effective
supervisory structure for those
conducting business on its facilities.
The requirements apply broadly and
should enhance the ability of Exchange
members to comply with the Exchange’s
rules as well as with the federal
securities laws.
Additionally, the Commission
believes that the proposed rule change
is consistent with the principles of
Section 11A(a)(1)(22) of the Act in that
it seeks to assure fair competition
among brokers and dealers and among
exchange markets. The Commission
believes that the proposed rule change
will promote uniformity of regulation
across markets, thus reducing
opportunities for regulatory arbitrage.
Phlx’s proposed rule change helps
ensure that all persons conducting a
securities business through Phlx are
appropriately registered, qualified, and
supervised, as is required under the Act.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,36 that the
proposed rule change (SR–Phlx–2012–
023), be, and hereby is, approved.
34 See, e.g., FINRA Rule 1070(d) and NASDAQ
Rule 1070(d).
35 See Rule 17a–1(a) under the Act, 17 CFR
240.17a–1(a).
36 15 U.S.C. 78s(b)(2).
37 17 CFR 200.30–3(a)(12).
E:\FR\FM\26APN1.SGM
26APN1
Federal Register / Vol. 77, No. 81 / Thursday, April 26, 2012 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.37
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012–10027 Filed 4–25–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–66839]
Order Temporarily Exempting BrokerDealers From the Recordkeeping,
Reporting, and Monitoring
Requirements of Rule 13h–1 Under the
Securities Exchange Act of 1934 and
Granting an Exemption for Certain
Securities Transactions
tkelley on DSK3SPTVN1PROD with NOTICES
April 20, 2012.
I. Introduction
On July 27, 2011, the Securities and
Exchange Commission (‘‘Commission’’)
adopted Rule 13h–1 under the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) concerning large
trader reporting to assist the
Commission in both identifying, and
obtaining trading information on,
market participants that conduct a
substantial amount of trading activity,
as measured by volume or market value,
in U.S. securities (such persons are
referred to as ‘‘large traders’’).1
Pursuant to Exchange Act Section
13(h)(6) and Rule 13h–1(g) thereunder,2
the Commission, by order, may exempt
from the provisions of Rule 13h–1, upon
specified terms and conditions or for
stated periods, any person or class of
persons or any transaction or class of
transactions from the provisions of Rule
13h–1 to the extent that such exemption
is consistent with the purposes of the
Exchange Act.
Currently, the compliance date for the
broker-dealer recordkeeping and
reporting requirements of Rule 13h–1(d)
and (e), respectively, as well as the
requirement under Rule 13h–1(f) for
broker-dealers to monitor their
customers’ accounts for activity that
may trigger the large trader
identification requirements of Rule 13h–
1, is April 30, 2012. As discussed below,
the Commission is temporarily
exempting registered broker-dealers
from the requirements of new Rule
13h–1 by extending the April 30, 2012
compliance date to provide them with
1 See Securities Exchange Act Release No. 64976
(July 27, 2011), 76 FR 46960 (Aug. 3, 2011) (‘‘Rule
13h–1 Adopting Release’’). The effective date of
Rule 13h–1 was October 3, 2011.
2 See 15 U.S.C. 78m and 17 CFR 240.13h–1(g),
respectively.
VerDate Mar<15>2010
17:51 Apr 25, 2012
Jkt 226001
additional time to comply with the
recordkeeping, reporting, and
monitoring requirements of the Rule.
Specifically, and as discussed more
fully below, the Commission is
extending the April 30, 2012
compliance date for registered brokerdealers to May 1, 2013, except for
certain broker-dealers that: (1) Are large
traders or (2) have large trader
customers that are either broker-dealers
or that trade through a ‘‘sponsored
access’’ arrangement, for which the
Commission is extending the
compliance date to November 30, 2012.3
The extension of the compliance date
will allow broker-dealers additional
time to develop, test, and implement
enhancements to their recordkeeping
and reporting systems as required under
Rule 13h–1 and, for those broker-dealer
requirements for which the compliance
date has been extended to May 1, 2013,
for the Commission to consider requests
for relief from certain provisions of the
Rule.
In addition, the Commission is
exempting certain transactions from the
definition of the term ‘‘transaction’’
provided in Rule 13h–1(a)(6), but for the
sole purpose of determining whether a
person is a large trader.
II. Broker-Dealer Recordkeeping and
Reporting
A. Introduction
Recordkeeping. In addition to
requiring large traders to register with
the Commission by filing and
periodically updating Form 13H, Rule
13h–1 requires certain broker-dealers to,
among other things, maintain specified
records of transactions that they effect,
directly or indirectly, for large traders,
and to report to the Commission, upon
request of the Commission, such records
in electronic format. Specifically, Rule
13h–1(d) requires broker-dealers to
maintain records of the information
specified in Rule 13h–1(d) for all
transactions effected directly or
indirectly by or through:
(i) An account such broker-dealer
carries for a large trader or an
Unidentified Large Trader,4 or
3 The effective date for Rule 13h–1 remains
October 3, 2011. The compliance date for the
requirement on large traders to identify to the
Commission pursuant to Rule 13h–1(b) was
December 1, 2011.
4 The term ‘‘Unidentified Large Trader’’ means
each person who has not complied with the
identification requirements of paragraphs (b)(1) and
(b)(2) of Rule 13h–1 that a registered broker-dealer
knows or has reason to know is a large trader. See
17 CFR 240.13h–1(a)(9). For purposes of
determining whether a registered broker-dealer has
reason to know that a person is a large trader, a
registered broker-dealer need take into account only
PO 00000
Frm 00083
Fmt 4703
Sfmt 4703
25007
(ii) If the broker-dealer is a large
trader, any proprietary or other account
over which such broker-dealer exercises
investment discretion.
(iii) Additionally, where a non-brokerdealer carries an account for a large
trader or an Unidentified Large Trader,
the broker-dealer effecting transactions
directly or indirectly for such large
trader or Unidentified Large Trader
shall maintain records of all of the
information required under the Rule for
those transactions.
The information required to be
maintained for large trader accounts
includes the standard information
currently captured pursuant to Rule
17a–25 and the Electronic Blue Sheets
(‘‘EBS’’) system, plus two new fields
that are unique to Rule 13h–1: (1) The
time that the transaction was executed
(‘‘execution time’’) 5 and (2) the large
trader identification (‘‘LTID’’) number(s)
associated with the account.6
Reporting. Rule 13h–1(e) requires
every registered broker-dealer who is
itself a large trader or carries an account
for a large trader or an Unidentified
Large Trader to report electronically to
the Commission, at the Commission’s
request, the required transaction
information on such persons whose
activity is equal to or greater than the
reporting activity level.7 In addition, the
Rule provides that where a non-brokerdealer carries an account for a large
trader or an Unidentified Large Trader,
the broker-dealer effecting such
transactions directly or indirectly for a
large trader must electronically report
such information, at the Commission’s
request.
Broker-dealers are required to report
information to the Commission upon
request of the Commission.8 Information
must be reported to the Commission no
later than the day and time specified in
the Commission’s request for
transaction information, which shall be
no earlier than the open of business of
transactions in NMS securities effected by or
through such broker-dealer. See id.
5 See 17 CFR 240.13h–1(d)(2)(xii).
6 See 17 CFR 240.13h–1(d)(2)(xiii).
7 The reporting activity level is 100 shares. See 17
CFR 240.13h–1(a)(8). Accordingly, in response to a
Commission request for EBS information, brokerdealers are required to report information for each
account in which any large trader’s or Unidentified
Large Trader’s activity amounts to at least 100
shares in the aggregate.
In response to a Commission request for
transaction records, in addition to reporting
information for any identified large trader (i.e., a
person for whom the broker-dealer has received an
LTID number), the broker-dealer also should report
records for each Unidentified Large Trader, as
applicable, including any unique identifying
number that the broker-dealer has assigned to such
person.
8 See 17 CFR 240.13h–1(e).
E:\FR\FM\26APN1.SGM
26APN1
]]>Agencies
[Federal Register Volume 77, Number 81 (Thursday, April 26, 2012)]
[Notices]
[Pages 25003-25007]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-10027]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66840; File No. SR-Phlx-2012-23]
Self-Regulatory Organizations; NASDAQ OMX Phlx LLC; Order
Approving Proposed Rule Change To Amend Registration, Qualification,
and Continuing Education Requirements for Associated Persons
April 20, 2012.
I. Introduction
On February 16, 2012, NASDAQ OMX Phlx LLC (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\, and Rule 19b-4 \2\
thereunder, a proposed rule change to amend and extend registration,
qualification, and continuing education requirements for associated
persons of members. The proposed rule change was published for comment
in the Federal Register on March 7, 2012.\3\ The Commission received no
comment letters on the proposal. This order approves the proposed rule
change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 66497 (March 1,
2012) 77 FR 13668.
---------------------------------------------------------------------------
II. Description of the Proposal
Representative Registration
Exchange Rule 604 applies to all member organizations and generally
requires the Series 7 examination for Registered Representatives,\4\
Principals,\5\ off-floor traders \6\ and persons compensated directly
or indirectly for the solicitation or handling of business in
securities who are not otherwise required to register with the Exchange
by Rule 604(a).\7\ Rule 604(f) provides that members and persons
associated with member organizations who are registered with the
Exchange for the purpose of trading NMS Stocks \8\ through the
facilities of the Exchange, which is the PSX platform, are subject to
the provisions of Rule 604(g) and (h) governing principal and
representative registration, respectively. Rule 604(h) is applicable
today only to PSX users pursuant to Rule 604(f). The Exchange proposes
to move the requirements in Rule 604, and expand on those requirements,
in proposed Rules 611, 612 and 613.
---------------------------------------------------------------------------
\4\ See Rule 604(a).
\5\ See Rule 604(g).
\6\ See Rule 604(e).
\7\ See Rule 604(d).
\8\ See Rule 1(t).
---------------------------------------------------------------------------
Rule 604(h) governs the registration of representatives with the
Exchange. Specifically, Rule 604(h)(1) requires 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 be registered through WebCRD \10\ in the category of
registration appropriate to the function they will perform.\11\ Before
their registration can become effective, they must pass the Series 7
examination. The Exchange proposes to delete Rule 604 and adopt broader
registration requirements in proposed Rule 613. Provisions contained in
Rule 604(h) would be moved to Rule 613, Representative Registration, in
substantially the same form, except with respect to trading floor
personnel subject to Rule 620.
---------------------------------------------------------------------------
\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 Rule
1(m). Of course, the federal securities laws may require broker-
dealers to become members of the FINRA in order to perform some of
these functions. See e.g., 15 U.S.C. 78o(b)(8).
\10\ WebCRD is FINRA's automated Central Registration
Depository.
\11\ Supplementary Material .04 of Rule 604.
---------------------------------------------------------------------------
Proposed Rule 613(a) would require all persons engaged or to be
engaged in the investment banking or securities business of a member
organization who are to function as representatives to be registered
through WebCRD as specified in Rule 613(e).\12\ Trading floor personnel
whose activities \13\ are limited to the trading floor would continue
to be required to register pursuant to Rule 620 and qualify by passing
the Exchange's Trading Floor Qualification Examination.\14\ In
addition, amended Rule 620 would require all trading floor personnel,
including clerks, interns, and any other associated persons of a member
organization who are not required to register pursuant to Rule 620(a)
to register on Form U4 through WebCRD. Thus, the same registration
information would be available
[[Page 25004]]
electronically in WebCRD for trading floor members and associated
persons as is available for persons registered as General Securities
Representatives.
---------------------------------------------------------------------------
\12\ The requirement does not cover members whose activities are
limited to the Exchange's options trading floor and who are
registered pursuant to Rule 620(a), as well as associated persons
whose activities are limited to the Exchange's options trading floor
and are registered pursuant to Rule 620(b).
\13\ These functions include handling and executing electronic
and phoned-in orders on the trading floor, as well as providing
markets, both verbally and electronically.
\14\ Trading floor personnel, and members on the trading floor,
would, however, be subject to new principal registration
requirements, described below.
---------------------------------------------------------------------------
Currently, Supplementary Material .04 to Rule 604, Categories of
Representative Registration--General Securities Representative,
contains the basic requirement that each member and each person
associated with a member organization who is included within the
definition of a representative in Rule 1(cc) register with the Exchange
as a General Securities Representative and pass the Series 7
examination before his registration may become effective. This
provision is not changing and is similar to that of several other self-
regulatory organizations (``SROs'').\15\ The Exchange proposes to move
the provisions of Rule 604(h) into Rule 613 and Supplementary Material
.04 of Rule 604 into Rule 613(e) so that the ``registered
representative'' categories and requirements would be located in one
rule.
---------------------------------------------------------------------------
\15\ See e.g., BX Rules 1031 and 1032, NASDAQ Rules 1031 and
1032, and NASD Rules 1031 and 1032.
---------------------------------------------------------------------------
The Exchange also proposes Rule 613(f) which would adopt a limited
category of representative registration, Proprietary Trader, and a
qualifying examination for that category, the Series 56.\16\ Members
and associated persons engaged solely in proprietary trading, market
making or effecting transactions on behalf of a broker-dealer account
and who do not do business with the public may register as Proprietary
Traders and pass the Series 56 examination, in lieu of registering as
General Securities Representatives and passing the Series 7
examination. The Proprietary Trader category would include both Floor
Brokers on the Exchange's trading floor and persons performing
brokerage functions off the trading floor (``upstairs'').\17\
---------------------------------------------------------------------------
\16\ The Exchange filed the Series 56 content outline with the
Commission. See Securities Exchange Act Release No. 66645 (March 22,
2012), 77 FR 19042 (March 29, 2012). The Series 56 would also serve
as a prerequisite for the Proprietary Trader principal registration
category. The Series 24 would be the appropriate examination for the
new principal registration category, as described below.
\17\ This provision is the same as the provision in Chicago
Board Options Exchange Incorporated (``CBOE'') rules, which requires
that an individual Trading Permit Holder or associated person who
effects transactions on behalf of a broker-dealer account register
and pass the Series 56 examination. See CBOE Rule 3.6A,
Interpretation and Policy .06.
---------------------------------------------------------------------------
The Exchange proposes to replace Rule 604 with Rule 613. Rule 613
would cover every person subject to registration as a representative,
and unlike Rule 604, it is not limited to associated persons of member
organizations for which the Exchange is the designated examining
authority (``DEA''). Furthermore, the proposed rules would extend the
requirements currently set forth in Rule 604(h), which apply only to
member organizations registered to use PSX,\18\ to all member
organizations. In addition, the language of Rule 613 more closely
aligns with the rules of FINRA and NASDAQ, which should facilitate
compliance by broker-dealers.
---------------------------------------------------------------------------
\18\ See Rule 604(f).
---------------------------------------------------------------------------
Principal Registration
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 training persons associated with a member
organization for any of these functions are principals. Such persons
include: Sole proprietors, officers, partners, managers of offices of
supervisory jurisdiction,\19\ and directors of corporations. Currently,
principals of PSX member firms must register via Form U4 in Web CRD,
and qualify by passing an appropriate examination, pursuant to Rule
604(g). The Exchange proposes to extend these principal requirements to
cover all member organizations, including those that trade options. The
more extensive principal requirements would be embodied in Rules 611
and 612, which would be substantially similar to Rule 604(g) and
Supplementary Material .01-.03.
---------------------------------------------------------------------------
\19\ The Exchange defined the term ``office of supervisory
jurisdiction'' to mean any office of a member organization at which
any one or more of the following functions take 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. See proposed Rule 611(b).
---------------------------------------------------------------------------
The Exchange also proposes to recognize two new categories of
limited principal registration. First, the Exchange proposes to adopt
Rule 612(d), which recognizes Registered Options Principals. Each
member or person associated with a member organization who is included
within the definition of principal, including any person designated as
a Chief Compliance Officer on Schedule A of Form BD of a member
organization, may register as a Registered Options Principal and pass
the Series 4 examination, instead of registering as a General
Securities Principal and passing the Series 24 examination, if the
person's activities are limited solely to options. Specifically, a
Registered Options Principal can only supervise the options activities
of a member organization and must be registered pursuant to Exchange
Rules as a General Securities Representative.
Second, the Exchange proposes to recognize the Proprietary Trader
Principal category as a limited principal category in Rule 612(e). It
would apply to persons whose supervisory responsibilities in the
investment banking and securities business are limited to the
activities of a member organization that involve proprietary trading,
market making and effecting transactions on behalf of broker-dealers.
It would require that the associated person register pursuant to
Exchange Rules as a Proprietary Trader, qualify by passing the Series
24 examination, and not function in a principal capacity with
responsibility over any area of business activity other than
proprietary trading, market making and effecting transactions on behalf
of broker-dealer accounts.\20\ This category is in lieu of registration
as a General Securities Principal, for which the prerequisite
qualification examination is the Series 7. The qualification
examination for the proposed new registration category of Proprietary
Trader Principal is the Series 24, which is the same qualification
required for registration as a General Securities Principal. However,
the prerequisite examination for the Proprietary Trader Principal
category is the Series 56. Phlx expects the Proprietary Trader
Principal category to be available to Phlx member organizations in
WebCRD shortly.
---------------------------------------------------------------------------
\20\ The Exchange worked with other exchanges and FINRA to
develop this registration category. The Proprietary Trader Principal
registration category is limited to those who supervise persons
engaged only in activities covered by the proposed Proprietary
Trader registration category.
---------------------------------------------------------------------------
Both a Registered Options Principal and a Proprietary Trader
Principal would count towards a firm's two-principal requirement in
Rule 611(e). If the member organization is involved in activity other
than that permitted by these categories, however, an additional
principal or principals would be required.
Two additional limited principal registration categories would also
be available to all member organizations. Rule 604.02, titled Limited
Principal--
[[Page 25005]]
Financial and Operations, requires each member organization of the
Exchange that is subject to Rule 604(g) and that is operating pursuant
to the provisions of Rule 15c3-1(a)(1)(ii), (a)(2)(i) or (a)(8) under
the Act to 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 certain financial and
operational duties, as specified in the rule. Each FINOP must register
with the Exchange and pass the Series 27 examination. The Exchange
proposes to move this provision to Rule 612(b) and extend it to cover
trading floor members, in order to ensure that persons handling the
financial affairs of a firm are properly registered and qualified,
given the importance and complexity of the rules governing financial
responsibility for broker-dealers.\21\ Although the FINOP is a type of
principal registration, because its scope is limited to financial
matters, the FINOP does not count toward the two-principal requirement
of Rule 611(e).
---------------------------------------------------------------------------
\21\ See e.g., Phlx Rule 703.
---------------------------------------------------------------------------
The Limited Principal--General Securities Sales Supervisor,
currently in Rule 604.03, would be moved to Rule 612(c) and would also
be available to all member organizations who have associated persons
meeting its specific, limited requirements. Like the FINOP, the General
Securities Sales Supervisor does not count toward satisfying the two-
principal requirement of Rule 611.
Other Rule Modifications
In connection with strengthening its registration rules, the
Exchange is proposing to reorganize and renumber its registration rules
to better align with those of NASDAQ and FINRA.
In addition to the amendments discussed above, the Exchange
proposes to renumber without change: Rule 604(i), Persons Exempt from
Registration, to Rule 614 (and Rule 604(i)(2) to Rule 614(b)); and Rule
604(j), Waiver of Requirements, to Rule 615; \22\ and Rule 604(g)(5),
the general requirement to have a minimum of two principals with
respect to each aspect of a member's investment banking and securities
business (except a proprietary trading firm with 25 or fewer
representatives, which is only required to have one) to Rule
611(e)(i).\23\
---------------------------------------------------------------------------
\22\ 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. The Commission
expects this waiver authority to be used sparingly, and that where
used, the Exchange would keep records of waivers granted and reasons
for so doing.
\23\ Although there must be a minimum of two Principals, all
persons who engage in specified supervisory functions must be
registered as Principals.
---------------------------------------------------------------------------
The Exchange proposes to consolidate electronic filing requirements
in proposed Rule 616, Electronic Filing Requirements for Uniform Forms.
Rule 616(a), WebCRD Filing, would require that forms filed pursuant to
the Rule 600 Series be filed electronically through WebCRD. Similarly,
Rule 616(b), Form U4 and U5 Filing Requirements, would require that
initial filings and amendments of Forms U4 and U5 be submitted
electronically.\24\ In addition, every application for registration
filed with the Exchange shall be kept current at all times by
supplementary amendments via electronic filing or such other process as
the Exchange may prescribe. The amendments shall be filed not later
than 30 days after the applicant learns of the facts or circumstances
giving rise to the need for the amendment.\25\
---------------------------------------------------------------------------
\24\ As part of the member organization's recordkeeping
requirements, it must retain such records for a period of not less
than three years, the first two years in an easily accessible place,
and make such records available promptly upon request in accordance
with Rule 17a-4 under the Act (17 CFR 240.17a-4).
\25\ This rule is similar to NASDAQ Rule 1031(d)(3).
---------------------------------------------------------------------------
The Exchange also proposes to amend OFPA F-34 and EFPA A-7, both
titled Failure to Timely Submit Amendments to Form U4, Form U5 and Form
BD. These are the corollary minor rule plan provisions for Rule 623,
which are being amended only to delete the reference to Rule 604 and
add rule numbers 611-613 and 616.
The Exchange proposes to amend Rule 620, Trading Floor
Registration, to specifically state the registration categories
governed by the rule, to require all trading floor associated persons
of member organizations to register via Form U4, to delete unnecessary
language and to strengthen the time requirement. Specifically, the
Exchange proposes to add to Rule 620(a), which requires Floor Brokers,
Specialists and Registered Options Traders on an Exchange trading floor
to register under ``Member Exchange'' (``ME'') via Form U4. The
Exchange notes that this provision covers members operating on the
trading floor and that such members are required to successfully
complete the Exchange's Trading Floor Qualification Examination. The
Exchange also proposes to delete the reference in Rule 620(a) regarding
updating Form U4 within a certain time period and include this
requirement in Rule 616.
Rule 620(b) covers all trading floor personnel, such as clerks,
interns, and other associated persons of member organizations who are
not required to register under Rule 620(a) and requires them to
register with the Exchange on a form supplied by the Exchange. The
Exchange proposes to require these individuals to be registered on Form
U4 in WebCRD. Accordingly, these associated persons will be subject to
the comprehensive disclosure obligations of Form U4, which the Exchange
believes is an important enhancement. The specific registration
category will be ``Floor Employee (``FE'')'' under ``Phlx,'' which will
be stated in the rule. The Exchange does not intend to require a
qualification examination for non-member trading floor personnel at
this time.\26\
---------------------------------------------------------------------------
\26\ The Exchange does not believe that the Series 7, Series 56
or its Trading Floor Qualification Examination is appropriate for
the limited functions of a trading floor clerk because these persons
are not members trading on the floor, and they are supervised by
members. These persons do not execute transactions on the Exchange,
but rather enter orders and report trades, for example, and perform
related clerical functions. See Rule 1090.
---------------------------------------------------------------------------
The Exchange also proposes to amend Rule 620(b) to provide that
following the termination of, or the initiation of a change in the
status of any such personnel of a member organization who has been
issued an Exchange access card and a trading floor badge, the
appropriate Exchange form must be completed, approved and dated by a
member organization principal, officer, or member of the member
organization with authority to do so, and submitted to the appropriate
Exchange department no later than 9:30 a.m. the next business day by
the member organization employer. The Exchange proposes to strengthen
this requirement by adding that such submission should occur as soon as
possible but no later than 9:30 a.m. the next business day.
The Exchange proposes to codify an existing fingerprinting
requirement into new paragraph (b) of Rule 623, Fingerprinting. This
paragraph specifies that a member organization must promptly submit
fingerprints on behalf of any person filing Form U4 pursuant to Rule
616, and the Exchange may make registration effective pending receipt
of fingerprint information.
Finally, as a result of the expanded and amended registration
requirements, additional persons will become subject to Continuing
Education requirements in Rule 640.
[[Page 25006]]
III. Discussion and Commission Findings
The Commission believes that this proposed rule change is an
important step towards harmonizing the registration, qualification and
continuing education requirements across the SROs. In order to meet its
obligations under Section 6(b)(1) of the Act \27\ to enforce compliance
by member firms \28\ and their associated persons with the Act, the
rules thereunder, and the Exchange's own rules, an exchange must have
baseline registration and examination requirements for all persons
conducting business on an exchange, as well as for those supervising
the activity. In addition, an exchange should have continuing education
requirements for registered persons to help ensure that members and
persons associated with their members are up to date on the industry,
including but not limited to amendments to the Exchange's rules and the
securities laws, rules, and regulations that govern their activities.
---------------------------------------------------------------------------
\27\ Section 6 requires exchanges to have the ability to enforce
compliance by their members and associated persons with the federal
securities laws and with their own rules. 15 U.S.C. 78f(b)(1).
\28\ Broker and dealers are required to supervise the activities
of their associated persons. See Section 15(b)(4)(E) of the Act, 15
U.S.C. 78o(b)(4)(E).
---------------------------------------------------------------------------
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\29\
Specifically, the Commission finds that the proposal is consistent with
Section 6(b)(5) of the Act,\30\ which requires, among other things,
that the rules of a national securities exchange be designed 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. The
Commission believes that the proposed rule change is also consistent
with Section 6(c)(3)(B) of the Act,\31\ which authorizes exchanges to
prescribe standards of training, experience and competence for persons
associated with exchange members, and gives exchanges the authority to
bar a natural person from becoming a member or a person associated with
a member, if the person does not meet the standards of training,
experience and competence prescribed in the rules of the exchange.
---------------------------------------------------------------------------
\29\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\30\ 15 U.S.C. 78f(b)(5).
\31\ 15 U.S.C. 78f(c)(3)(B).
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Phlx's proposed rule change requires all associated persons of
member organizations engaged in a securities business on Phlx, as well
as those who supervise, train or otherwise oversee those who do, to
register with the Exchange via the Form U4, qualify by passing an
appropriate examination, and comply with continuing education
requirements. Phlx's requirements should help ensure that all
associated persons who transact business on Phlx, including those
engaged in proprietary trading, are subject to appropriate
registration, qualification, and continuing education requirements.
These requirements bolster the integrity of the Exchange by helping to
ensure that all associated persons engaged in a securities business
are, and will continue to be, properly trained and qualified to perform
their functions, will be supervised, and can be identified by
regulators.
Phlx is adding new limited principal registration categories which
are recognized by other exchanges.\32\ The Registered Option Principal
will be restricted to supervising those persons exclusively involved in
options activities, and the required examination, the Series 4, is
focused on practices in and rules governing the options industry. The
Proprietary Trader Principal category is corollary to the new
Proprietary Trader Representative category discussed above and is
recognized by many of the other exchanges.\33\ Proprietary Trader
Principals may supervise persons engaged in proprietary trading, market
making and effecting transactions on behalf of broker-dealer accounts
and must pass the Series 24 (General Securities Principal) examination.
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\32\ See, e.g., CBOE Rule 9.2 and ISE Rule 601.
\33\ See, e.g., CBOE Rule 3.6A and NASDAQ Rule 1032(c).
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In sum, under the proposed rule change, all Principals must
register through WebCRD and pass appropriate prerequisite examinations,
as well as principal examinations that reflect the enhanced
responsibility entrusted to principals. In addition, Principals would
be subject to the Exchange's continuing education requirements.
Phlx's proposed exceptions from the above-discussed general
requirements are appropriate. Any member seeking an exception from the
two principal requirement must provide evidence that conclusively
indicates to the Exchange that only one principal is necessary. The
Commission expects this authority to be used sparingly, because such
persons oversee the operations of member firms and provide the first
line of defense in ensuring that member firms are complying with the
rules of the exchange as well as the federal securities laws. In
addition, Phlx may waive the qualification examination requirement in
exceptional cases where the applicant has demonstrated that good cause
exists to grant the waiver. The Commission also expects this authority
to be used sparingly. The Commission notes that these exceptions are
substantively the same as exceptions provided in similar rules at other
SROs,\34\ and it expects Phlx to keep records detailing the reasons for
exceptions granted and waivers given.\35\
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\34\ See, e.g., FINRA Rule 1070(d) and NASDAQ Rule 1070(d).
\35\ See Rule 17a-1(a) under the Act, 17 CFR 240.17a-1(a).
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Phlx's proposed rule change will help ensure that all associated
persons of members transacting business on the Exchange, as well as
those who supervise, train or otherwise oversee those who do, will be
registered with, and qualified by, the Exchange and will be subject to
continuing education requirements. The Commission believes the proposal
should enhance the Exchange's ability to ensure an effective
supervisory structure for those conducting business on its facilities.
The requirements apply broadly and should enhance the ability of
Exchange members to comply with the Exchange's rules as well as with
the federal securities laws.
Additionally, the Commission believes that the proposed rule change
is consistent with the principles of Section 11A(a)(1)(22) of the Act
in that it seeks to assure fair competition among brokers and dealers
and among exchange markets. The Commission believes that the proposed
rule change will promote uniformity of regulation across markets, thus
reducing opportunities for regulatory arbitrage. Phlx's proposed rule
change helps ensure that all persons conducting a securities business
through Phlx are appropriately registered, qualified, and supervised,
as is required under the Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\36\ that the proposed rule change (SR-Phlx-2012-023), be, and
hereby is, approved.
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\36\ 15 U.S.C. 78s(b)(2).
\37\ 17 CFR 200.30-3(a)(12).
[[Page 25007]]
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-10027 Filed 4-25-12; 8:45 am]
BILLING CODE 8011-01-P
