Self Regulatory Organizations; Chicago Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Registration, Qualification, Supervision, and Continuing Education of Individuals Associated with Participant Firms, 62728-62736 [2013-24551]
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from the compliance plan review fee is
not unfairly discriminatory because
these plans are generally simpler and
require fewer resources and less time to
review.
NASDAQ also believes that the
proposed fees are consistent with the
investor protection objectives of Section
6(b)(5) of the Act 11 in that they are
designed to promote just and equitable
principles of trade, to remove
impediments to a free and open market
and national market systems, and in
general to protect investors and the
public interest. Specifically, the fees are
designed to ensure that there are
adequate resources for NASDAQ’s
listing compliance program, which
helps to assure that listing standards are
properly enforced and investors are
protected.
investors, or otherwise in furtherance of
the purposes of the Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549.
NASDAQ does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as amended.
The market for listing services is
extremely competitive and listed
companies may freely choose alternative
venues based on the aggregate fees
assessed, and the value provided by
each listing. This rule proposal does not
burden competition with other listing
venues, which are similarly free to align
their fees on the costs incurred by the
process they offer. For these reasons,
NASDAQ does not believe that the
proposed rule change will result in any
burden on competition for listings.
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.
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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)(A)
of the Act 12 and paragraph (f) of Rule
19b-4 thereunder.13 At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
11 15
U.S.C. 78f(b)(5).
12 15 U.S.C. 78s(b)(3)(A).
13 17 CFR 240.19b–4(f).
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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:
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2013–130 on the subject line.
Paper Comments
All submissions should refer to File
Number SR–NASDAQ–2013–130. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet 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
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
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 Number SR–
NASDAQ–2013–130 and should be
submitted on or before November 12,
2013
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[FR Doc. 2013–24636 Filed 10–21–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70597; File No. SR–CHX–
2013–14]
Electronic Comments
PO 00000
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Kevin M. O’Neill,
Deputy Secretary.
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Self Regulatory Organizations;
Chicago Stock Exchange, Inc.; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change Relating to
Registration, Qualification,
Supervision, and Continuing
Education of Individuals Associated
with Participant Firms
October 2, 2013.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on
September 24, 2013, the Chicago Stock
Exchange, Inc. (‘‘CHX’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
CHX proposes to amend Exchange
Rules relating to the registration and
qualification and continuing education
of individuals associated with CHX
Participant Firms, and the supervision
of registered persons and firm activity.
The text of this proposed rule change is
available on the Exchange’s Web site at
https://www.chx.com/rules/proposed_
rules.htm, 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
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
14 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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and discussed any comments it received
on the proposed rule change. The text
of those 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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
rules in Article 6 regarding the
qualification, registration, supervision
and Continuing Education (‘‘CE’’) of
CHX Participant Firms and their
associated persons 4 to be virtually
consistent with the requirements of the
Financial Industry Regulatory Authority
(‘‘FINRA’’).5 The Exchange believes that
the proposed amendments are also
consistent with Exchange Act Rule
15b7–1, which provides: ‘‘[n]o
registered broker or dealer shall effect
any transaction in . . . any security
unless any natural person associated
with such broker or dealer who effects
or is involved in effecting such
transaction is registered or approved in
accordance with the standards of
training, experience, competence, and
other qualification standards . . .
established by the rules of any national
securities exchange.’’ 6
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i. Exchange Membership Overview
Exchange Participants are considered
‘‘members’’ of the Exchange for
purposes of the Exchange Act and are
defined as Firms that hold a valid
Trading Permit and any person
4 Under Article 1, Rule 1(d) of the Exchange’s
rules, the term ‘‘Associated Person’’ has the
meaning set forth in Section 3(a)(21) of the
Exchange Act. That section provides that ‘‘[t]he
term ‘persons associated with a member’ or
‘associated person of a member’ when used with
respect to a member of a national securities
exchange or registered securities association means
any partner, officer, director, or branch manager of
such member (or any person occupying a similar
status or performing similar functions), any person
directly or indirectly controlling, controlled by, or
under common control with such member, or any
employee of such member.’’ For purposes of these
provisions, a CHX Participant Firm is considered a
member of the Exchange.
5 Other self-regulatory organizations (‘‘SROs’’)
have made similar rule changes. See e.g., Securities
Exchange Act Release Nos. 63314 (November 12,
2010), 75 FR 70957 (November 19, 2010) (SR–
CBOE–2010–084); 63843 (February 4, 2011), 76 FR
7884 (February 11, 2011) (SR–ISE–2010–115);
64958 (July 25, 2011), 76 FR 45629 (July 29, 2011)
(SR–NASDAQ–2011–095); 66453 (February 23,
2012), 77 FR 12345 (February 29, 2012) (SR–
NYSEAMEX–2012–11); and 66452 (February 23,
2012), 77 FR 12347 (February 29, 2012) (SR–
NYSEARCA–2012–15).
6 17 CFR.240.15b7–1.
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associated with a Participant Firm who
is registered with the Exchange under
Articles 16 and 17 as a Market Maker
Trader or Institutional Broker
Representative, respectively.7 If a
Participant is not a natural person, the
Participant may also be referred to as a
‘‘Participant Firm,’’ but unless the
context requires otherwise, the term
Participant refers to an individual
Participant and/or a Participant Firm.8
The Exchange’s Participant Firms have
varying business models. For example,
some conduct solely proprietary trading;
others conduct solely agency
transactions, while still others conduct
a mixture of both.
Participants may also elect to register
under a Participant subcategory such as
the Institutional Broker category of
Participants. ‘‘Institutional Broker’’
means a member of the Exchange who
is registered as an Institutional Broker
pursuant to the provisions of Article 17
and has satisfied all Exchange
requirements to operate as an
Institutional Broker on the Exchange.9
Like those firms registered solely as an
Exchange Participant, firms that also
elect to register as Institutional Brokers
also have varying business models
ranging, for example, from proprietary
to agency trading or a mixture of both.
The rule changes proposed herein
will apply to all Participant Firms.
Individual associated persons registered
at Participant Firms, including
Participant Firms registered as
Institutional Brokers will be required to
pass the appropriate examinations as
defined in the proposed rules. The
appropriate examinations for associated
persons at all categories of Participant
Firms will depend on the Firm’s
business, size, and other factors as
described below. The only varying
requirement regarding examinations
between Participant Firms and
Institutional Broker firms is that
individuals registered as Institutional
Broker Representatives at Institutional
Broker firms are required to pass the
Exchange’s internal Institutional Broker
Examination.10 The proposed rules
clarify that Institutional Broker
Representatives will need to pass the
internal Institutional Broker
Examination as under current
requirements, and, like all Participant
Firms [sic], will be required to pass
either the Series 7 or Series 56
examinations depending on the firm’s
business model.11
7 Article
1, Rule 1(s).
8 Id.
9 Article
1, Rule 1(n).
Article 6, Rule 3(d).
10 Proposed
11 Id.
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ii. Current Rules
Exchange rules currently require that
persons associated with CHX
Participants meet the registration and
qualification requirements in Article 6,
Rules 2 and 3. According to Article 6,
Rule 2, all Representatives of a
Participant must be registered with the
Exchange. A Representative is defined
as a person, who is engaged or will be
engaged in the securities business of a
Participant.12 According to Article 6,
Rule 3, the Exchange may require the
successful completion of a training
course or an examination, or both, in
connection with the registration of
Participants and persons associated
with a Participant, and may charge fees
for such registration and examination.
CHX also requires that a Participant
shall not make application for the
registration of any person associated
with the Participant where there is no
intent to employ such person in the
securities business of the Participant.13
This requirement thereby prohibits
Participants from ‘‘parking’’
registrations. Notably, under the current
rule structure, the registration
requirements apply only to Participant
Firms for which the Exchange is the
Designated Examining Authority
(‘‘DEA’’) 14 and to associated persons of
other Participant Firms where the
associated persons act as Institutional
Broker Representatives or Market Maker
Traders on the Exchange.15
Current Exchange rules recognize four
qualification examinations for
registration with the Exchange.16 Those
examinations are (1) the Series 7
qualification examination administered
by FINRA to conduct a public business,
(2) the Series 7A examination
historically administered by NYSE to
conduct a public business limited to
accepting orders from professional
customers for execution on the
Exchange, (3) the Institutional Broker
Exam administered by CHX to conduct
business on behalf of an Institutional
Broker, and (4) the Market Maker Trader
Exam administered by CHX to qualify as
a Market Maker Trader.17
Current Exchange rules also require
that members that are Joint Back Office
12 Article
6, Rule 2(b).
6, Rule 2(d).
14 NYSE Arca, Inc. (‘‘NYSE Arca’’) historically
limited its Options registrations requirements to
traders of member organizations for which NYSE
Arca was the DEA but removed the limitation in a
2012 rule change. See SR–NYSEARCA–2012–15,
NYSE Arca Options Rule 2.
15 Article 6, Rule 2, Interpretations and Policies
.03.
16 Article 6, Rule 3, Interpretations and Policies
.01.
17 Id.
13 Article
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(‘‘JBO’’) Participants designate a
Financial Operations Principal
(‘‘FINOP’’) who must pass the Series 27
Exam administered by FINRA. The
Exchange also currently requires all
Participant Firms for which the
Exchange is the DEA to designate a
person or persons responsible for
supervision and compliance at the
firm.18
Through this filing, the Exchange
proposes to require that all persons that
function as Representatives of a
Participant under Article 6, Rule 2(b)
register, pass appropriate examinations
and participate in CE requirements. In
this regard, the Exchange proposes to
make a number of amendments to its
registration and qualification standards
including (1) expanding its registration
requirements to all Participant Firms
rather than solely Firms for which CHX
is the DEA, (2) recognizing the
Proprietary Traders Qualification
Examination (Series 56) as one of the
applicable qualification examinations,19
and (3) requiring each Participant Firm
to register at least two officers or
partners as principals with respect to
each aspect of the Participant’s
securities business.20 According to the
proposed rules, Principals are persons
associated with a Participant who are
actively engaged in the management of
the Participants’ securities business,
including supervision, solicitation,
conduct of business or the training of
persons associated with a member for
any of these functions are designated as
Principals.21
iii. Registration of Representatives
First, CHX proposes to amend Article
6, Rule 2 to require that all persons
associated with a Participant who are
engaged or will be engaged in the
securities business of a Participant
register as a [sic] Representative.22 This
will ensure that all associated persons
who conduct business at the Exchange
must be registered, including
proprietary traders and their
supervisors, and will ensure that all are
appropriately qualified and
supervised.23
18 Article
6, Rule 5.
to proposed Article 6, Rule 3(a)(ii),
a proprietary trader is a person who does not
handle or execute transactions for customers and
only enters or executes orders on behalf of the
Participant.
20 Proposed Article 6, Rule 2(c)(v).
21 Proposed Article 6, Rule 2(c)(i).
22 The Exchange is also proposing to change the
term ‘‘registered person(s)’’ as used throughout
Article 6 and in Article 7, Rule 3A to
‘‘Representative(s)’’ as part of this filing.
23 Notably, persons engaged in the supervision of
a Participant’s securities business will also be
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19 According
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iv. Registration of Principals
To strengthen the supervisory systems
of Participant Firms and thereby
enhance investor protection, the
Exchange proposes to require each
Participant Firm to have at least two
officers or partners who are registered as
Principals with respect to each aspect of
the Participant’s securities business.24
In addition to the two registered
Principals, Participants shall also have
at least one person registered as a
Limited Principal FINOP. Thus, each
individual supervising the securities
businesses and associated persons of
Participant Firms must qualify for
registration as a Principal by passing the
relevant Principal examination as listed
in Article 6, Rule 3.
Notably, the proposed rules allow the
Exchange to waive the two-principal
requirement and only require
Participant Firms to have one Principal
under certain enumerated
circumstances. Such circumstances
include when a Participant
demonstrates conclusively, upon
written application, that only one
individual should be required to
register. Also, a Participant that
conducts a proprietary trading business
only and has 25 or fewer
Representatives shall only be required
to have one officer or partner who is
registered as a Principal. According to
proposed Article 6 Rule 2(c)(vi), a
Participant shall be considered to
conduct only proprietary trading if the
Participant has the following
characteristics: (1) The Participant is not
required by Section 15(b)(8) of the
Exchange Act to become a FINRA
member; (2) All funds used or proposed
to be used by the Participant are the
Participant’s own capital, traded
through the Participant’s own accounts;
(3) The Participant does not, and will
not, have customers; and (4) All persons
registered on behalf of the Participant
acting or to be acting in the capacity of
a trader must be owners of, employees
of, or contractors to the Participant.
According to proposed Article 6, Rule
3(a)(ii), a proprietary trader is a person
who only enters or executes orders on
behalf of the Participant and does not
handle or execute transactions for
customers. The Exchange notes that
these provisions are similar to the
registration requirements of other
required to register as Principals under the
provisions of Article 6, Rule 2(c).
24 Proposed Article 6, Rule 2(c)(i). These
categories include Sole Proprietors; Officers;
Partners; Branch office managers; and Directors.
This proposed requirement is also consistent with
the registration requirements set forth in other SRO
rules such as NASD Rule 1021(e) and BATS Rule
2.5 Interpretations and Policies .01(d).
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exchanges and believes that they are
appropriate given the limited size and
scope of activities of such firms.25
a. Financial and Operations Principals
The Exchange proposes that all CHX
Participant Firms designate at least one
individual as a FINOP who must
maintain the appropriate registration
status.26 The designated FINOP must
pass the Series 27.27 The Exchange
currently requires FINOPs associated
with Participant Firms that maintain a
JBO to maintain a Series 27 license.28
However, as the Exchange sees no
compelling reason to limit the
registration of FINOPs to JBO firms, the
Exchange is proposing to broaden the
registration requirement for FINOPs to
all Participant Firms. The Exchange also
proposes to add a basic description of
the responsibilities of a person
registered as a FINOP, as well as the
related notices which the Participant
Firm must make to the Exchange.29
25 See NASD Rule 1021(e) and Chicago Board
Options Exchange (‘‘CBOE’’) Rule 3.6A,
Interpretations and Policies .07.
26 Proposed Article 6, Rule 3(c). See also, CBOE
Rule 3.6A(b), NASD Rule 1021(e) for examples of
similar requirements.
27 The Exchange proposes to delete the existing
requirement that only FINOPs for JBO firms pass
the Series 27 examination.
28 Article 6, Rule 3, Interpretation and Policy
.01(e). JBO arrangements and the obligations related
thereto are described in Article 7, Rule 3A, which
provides that ‘‘[a]n arrangement may be established
between two or more registered broker-dealers
pursuant to Regulation T Section 220.7 to form a
JBO arrangement for carrying and clearing accounts
of participating broker-dealers.’’ Section 220.7(c) of
Regulation T authorizes the creation of JBO
arrangements which permit a creditor to effect or
finance transactions of any of its owners if the
creditor is a clearing and servicing broker or dealer
owned jointly or individually by other creditors (12
CFR 220.7(c)). Under CHX Article 7, Rule 3A(a),
each JBO Participant is required to (1) be registered
as a broker-dealer pursuant to Section 15 of the
Securities Exchange Act of 1934, (2) be subject to
the capital requirements prescribed by Rule 15c3–
1 therein, and shall not be eligible to operate under
the provisions of SEC Rule 15c3–1(b)(i), (3) meet
and maintain a minimum account equity
requirement of $1,000,000 with each clearing
broker-dealer where an account of the JBO
Participant is carried, (4) meet and maintain the
ownership standards established by the carrying
broker-dealer and (5) designate one registered
person associated with such Participant as a
financial and operations principal (Series 27).
29 Proposed Article 6, Rule 2(c)(iii). The duties of
a FINOP shall include taking appropriate actions to
assure that the Participant Firm complies with
applicable financial and operational requirements
under the Rules of the Exchange and the Exchange
Act, including but not limited to those requirements
relating to the submission of financial reports and
the maintenance of books and records. A FINOP
may be a full-time employee, a part-time employee
or independent contractor of the Participant Firm.
Participant Firms for which CHX is the Designated
Examining Authority (‘‘DEA’’) must provide prompt
written notice to the Exchange’s Member Regulation
Department for each person designated as a FINOP.
The Exchange utilizes such information as part of
its examination process.
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b. Chief Compliance Officers
In accordance with other SROs, the
Exchange proposes to require
Participant Firms to designate a Chief
Compliance Officer (‘‘CCO’’).30 The
CCO must pass the Series 24
examination unless the Participant Firm
with which the CCO is associated meets
the requirements to take, in the
alternative, the Compliance Officer
Exam (Series 14).31
A Compliance Officer at such
Participant Firm would qualify for the
alternate exam if the firm, (1) engages
solely in proprietary trading, (2)
otherwise meets the registration
requirements for Principals as defined
in Article 6, Rule 2(c), and (3) meets the
supervisory requirements in Rule 3(b).
The Compliance Officer Exam is
intended to ensure that the individuals
who have compliance responsibilities
for their respective firms or who
supervise ten or more people engaged in
compliance activities have the
knowledge necessary to carry out their
job responsibilities. Therefore, the
Series 14 measures the knowledge and
skills related to the position of a
compliance official. Accordingly,
compliance officials at Participant Firms
that meet the above requirements would
be permitted to take the compliancefocused Series 14 examination rather
than the broader Series 24 examination.
Notably, if the CCO passed the Series 24
examination, they [sic] would qualify as
one of the two registered Principals as
outlined in Article 6, Rule 2(v). A CCO
that does not also pass the Series 24
would not qualify as a Principal for
purposes of the two principal
requirement in Article 6, Rule 2(c)(v).
The Exchange believes that it is
important that CCOs demonstrate
heightened knowledge with respect to
compliance responsibilities for their
respective firms.
v. Exemption From Registration
The Exchange proposes to enumerate
in its rules the list of persons exempt
from any registration requirements to
include such persons not actively
engaged in the securities business or, in
some circumstances, individuals who
are already registered at other
exchanges.32 The proposed list includes
those individuals whose functions are
related solely and exclusively to the
30 See
FINRA Rule 3130 and ISE Rule 313(c).
Article 6, Rules 2(c)(iv) and 3(b).
Participant Firms that conduct solely proprietary
trading and otherwise meet the two-principal
requirement may allow their Compliance Officer to
take the less broad Series 14 examination rather
than the comprehensive Series 24 examination for
General Securities Principals.
32 Proposed Article 6, Rule 2(d).
31 Proposed
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Participant’s need for nominal corporate
officers or for capital participation, or
whose functions are related solely and
exclusively to transactions in
commodities, security futures; and/or
who effect transactions on the floor of
another national securities exchange. In
the latter case, such individuals would
already be registered as members with
the other national securities exchange.
The Exchange believes the registration
exemption for individuals registered on
another national securities exchange is
appropriate to avoid the burden of dual
registration. The Exchange also believes
that incorporating these exemptions into
the rule provides additional clarity for
individual Participants and associated
persons as to who will be required to
register under the proposed rule.33
vi. Other Registration Requirements
The Exchange also proposes to clarify
the circumstances under which a
Participant is prohibited from seeking
registration for an individual person. In
addition to the existing limitations
precluding a Participant from applying
for registration for an associated person
where there is no intent to employ the
individual in the Participant’s securities
business, the amendments would
preclude a Participant Firm from
maintaining a registration with the
Exchange of a person, (1) who is no
longer active in the Participant’s
securities business; (2) who is no longer
functioning in the registered capacity; or
(3) where the sole purpose is to avoid
an examination requirement. The
Exchange believes that these provisions
appropriately prohibit Participant Firms
from ‘‘warehousing’’ registrations for
persons who are not actively engaged in
the securities business.
A Participant may, however, maintain
or make application for registration of
an individual who performs legal,
compliance, internal audit, back-office
operations, or similar responsibilities
for the Participant. The rule will also
allow application for registration for a
person who performs administrative
support functions for registered
personnel, as well as a person engaged
in the securities business of a foreign
securities affiliate or subsidiary of the
Participant. The Exchange believes that
in allowing persons who perform legal,
compliance, audit or similar functions
to apply for registration, such persons
will receive additional training and
expertise to better perform their
functions.
33 The Exchange notes that its proposed changes
are similar to the rules of FINRA, NASD Rule 1060.
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62731
vii. Lapse and Waivers of Registration
After an individual’s registration
lapses, the amended rules will require
the individual to pass an appropriate
qualification examination. A lapse in
registration occurs when the registration
has been revoked by the Exchange or
when an individual’s registration has
been terminated for a period of two or
more years. The Exchange believes that
these provisions reasonably permit an
individual to transfer his or her
registrations when changing firms or
looking for employment if the
individual is also within the two-year
time period. Such individual will still
meet the requirement of active
involvement in the securities industry.
The proposed amendments provide
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
qualification 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 securities
business may constitute sufficient
grounds to waive a qualification
examination.34 The Exchange notes that
other exchanges and SROs have the
same waiver provisions in their
registration rules.35 The Exchange will
keep documentation related to all
waiver requests whether granted or not.
viii. Training and Examination of
Registrants
a. General Securities Representatives
and Proprietary Traders
Persons associated with a CHX
Participant who meet the definition of a
Representative must pass the Series 7
General Securities Representative
Qualification Examination unless such
individuals meet the definition of
Proprietary Trader.36 A Representative
will qualify for the Proprietary Trader
category if the Representative’s
activities are confined to making trading
decisions regarding, or otherwise
engaging in, proprietary trading for the
broker-dealer with which he or she is
associated. Proprietary Traders may
satisfy the qualification requirements by
passing either the Series 7 or the Series
56 Proprietary Traders Qualification
34 This rule is substantially similar to NASD Rule
1070 and CBOE Rule 3.6A(e) Interpretation and
Policies .05.
35 Id.
36 Proposed Article 6, Rule 3(a).
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Examination.37 The proposed rule
change is not intended to replace the
Series 7 requirement for all traders,38
but simply to offer an alternative to that
requirement for those qualified
individuals who solely conduct a
business in proprietary trading and have
shown their proficiency by passing the
Series 56.
The Exchange also proposes to delete
the references to the Series 7A
examination in the new exam
requirements of Rule 3. The Series 7A
examination is obsolete with the
retirement of the CHX trading ‘‘floor’’
and is therefore no longer appropriate
for Participants.
b. Supervisory Requirements
As part of this proposal, the Exchange
will require all supervisors at all
Participant Firms to pass the Series 24
examination for General Securities
Principals.39 The Exchange currently
requires only Participant Firms for
which the Exchange is the DEA to
designate a person or persons
responsible for supervision and
compliance at the firm.40 This current
limitation would be eliminated and the
requirement would be extended to all
Participant Firms. Extending the
requirement will provide for uniformity
among supervisors at Participant Firms
and, as all supervisors will be subject to
a heightened standard under the new
rules [sic]. The Exchange believes that
the new standard will benefit the
industry as a whole as well as the
public.
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c. Compliance Date
Proposed Article 6, Rule 3(e) provides
that all Participants shall be in
37 The Exchange’s current rules require that
associated persons of Participant Firms for which
CHX acts as the DEA and who enter orders or make
trading decisions, whether or not such orders are
in a principal or proprietary capacity, must
maintain a Series 7 registration. See, Interpretations
and Policies .02 of Article 6, Rule 3. This
requirement is being moved to Rule 3(a). Pursuant
to this proposal, a proprietary trader could satisfy
the testing and examination requirements by
successfully completing either the Series 7 or Series
56 exam to align with the requirements of other
exchanges. The limitation of this requirement to
Participant Firms for which the Exchange acts as
the DEA is being eliminated as part of this filing.
Given these changes, the Exchange is also deleting
as unnecessary the references to a ‘‘public business
examination’’ in Article 6, Rule 3(c), Interpretation
and Policy .01(c).
38 Currently, some associated persons of CHXregistered Institutional Broker firms may not have
to pass the Series 7 examination if they do not
engage in a customer business and would instead
pass the Series 56. The Exchange is proposing to
add a definition of the term ‘‘customer’’ to its rules.
Customer shall mean any person or entity other
than a broker or dealer registered with the
Commission. Proposed Article 1, Rule 1(hh).
39 Proposed Article 6, Rule 3(b).
40 Article 6, Rule 5.
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compliance with the examination
qualification language by no later than
four months after the Effective Date of
these provisions for associated persons
who only need to take one exam.41 For
associated persons who need to take
more than one exam, the Rule would
allow a period of six months to come
into compliance with the registration
requirements.42 The Exchange believes
that these periods should afford
Participants adequate time to ensure
that their designated Principals pass the
appropriate qualifications exams.
ix. Supervision of Representatives
The Exchange further proposes to
amend its existing supervision rule
(Article 6, Rule 5) to include a basic
declaration that CHX Participants are
responsible for adherence with the
federal securities laws and Exchange
rules, and that they must reasonably
supervise their operations and
associated persons to prevent violations
thereof. These obligations already exist
under Section 15 of the Exchange Act
and Article 8, Rule 1 of the CHX rules,
but the Exchange believes that the
inclusion of the proposed additions will
provide direction to Participant Firms
designing their supervisory systems and
reinforce the importance of having
adequate supervisory programs. Such
reinforcement will be beneficial to
Participants and the marketplace in
general.
The Exchange believes that the
imposition of the additional registration,
examination, training and CE
requirements implicit in Series 24 and
27 registrations will strengthen existing
supervisory and compliance structures
and help to assure that its Participants
are conducting their businesses in
compliance with all applicable rules
and regulations.
x. Continuing Education
The Exchange is also proposing to
amend Article 6, Rule 11 (‘‘Rule 11’’) to
specify the different CE requirements for
registered persons based upon their
registration with the Exchange. This
change will authorize the Exchange to
administer different CE programs to
41 These provisions are the requirements for
Representatives to pass and maintain the Series 7
or Series 56, or for Supervisors to pass the Series
24 examination or Series 14 and, finally, for FINOPs
to pass and maintain the Series 27 examination.
42 Some CHX Institutional Broker firms that
handle no public customer business have no
Representatives with a Series 7 Qualification. To
designate a Principal under proposed Article 6,
Rule 2(h), a Representative at those firms will have
to pass both the Series 7 and Series 24
examinations. The Exchange believes that six
months is necessary to afford those persons a
reasonable opportunity to pass both those
examinations.
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Frm 00150
Fmt 4703
Sfmt 4703
differently registered individuals while
bringing clarity to Exchange Participants
about what CE requirement they must
fulfill. More specifically, the Exchange
is proposing to: (1) enumerate the
required Regulatory Element programs,
(2) add language to Rule 11 that would
outline which program Exchange
registered persons engaging in
proprietary trading must take, and (3)
add language to Rule 11(b) specifying
that registered persons with a Series 56
registration must complete the Firm
Element of the CE requirement.
Background
Currently, Exchange Rule 11 states
that ‘‘[n]o member or member
organization shall permit any registered
person to continue to, and no registered
person shall continue to, perform duties
as a registered person, unless such
person has complied with the
continuing education requirements of
Section (a) of this Rule.’’ 43 Exchange
Rule 11(a) specifies the CE requirements
for registered persons subsequent to
their initial qualification and
registration with the Exchange. The
requirements consist of a Regulatory
Element and a Firm Element.44 The
Regulatory Element is a computer-based
education program administered by
FINRA to help ensure that registered
persons are kept up to date on
regulatory, compliance and sales
practice matters in the industry.
Currently, there are two Regulatory
Element programs: the S201 Supervisor
Program for registered principals and
supervisors and the S101 General
Program for Series 7 and all other
registered persons.45 The Exchange is
proposing to enumerate these programs
in the Exchange Rulebook along with
adding the S501 Series 56 Proprietary
Trader Continuing Education Program
for Series 56 registered persons.
43 Rule
11(a).
the Firm Element of the CE Program
applies to any person registered with a Participant
who has direct contact with customers in the
conduct of the Participant’s securities sales, trading
and investment banking activities, and to the
immediate supervisors of such persons (collectively
called ‘‘covered registered persons’’). The
requirement stipulates that each Participant must
maintain a continuing education program for its
covered registered persons to enhance their
securities knowledge, skill and professionalism.
Each Participant has the requirement to annually
conduct a training needs analysis, develop a written
training plan, and implement the plan.
45 FINRA also offers the S106 Series 6 Program for
Series 6 registered persons. However, as the
Exchange does not currently enumerate the Series
6 exam in its rules, the S106 is inapplicable.
44 Currently,
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Introduction of the Proprietary Trading
Continuing Education Program
The Exchange is proposing to
introduce a new CE Program for
proprietary traders registered with the
Exchange who have passed the Series 56
and who have no other registrations. As
discussed above, proposed Article 6,
Rule 3 outlines the registration and
qualification requirements (including
prerequisite examinations) for
Participants conducting proprietary
trading, market-making and/or effecting
transactions on behalf of other broker
dealers. According to proposed Article 6
Rule 3(a)(ii), if the activities of the
registered person are confined to
making trading decisions regarding, or
otherwise engaging in, proprietary
trading for the broker-dealer with which
he or she is associated, however, he or
she may register with the Exchange as
a Proprietary Trader and shall pass the
Series 56 Proprietary Trader exam
before such registration may become
effective. The Proprietary Trader
Continuing Education Program (S501) is
a computer-based education program
developed by many of the SROs 46 and
administered by FINRA to ensure that
registered persons are kept current on
regulatory, compliance and trading
practice matters in the industry. Unlike
the other offered CE Programs, the
Proprietary Trader Continuing
Education Program is not part of the
Uniform Continuing Education Program,
which is developed and maintained by
the Securities Industry Regulatory
Council on Continuing Education.
The Proprietary Trader Continuing
Education Program will logistically
operate as the currently offered CE
Programs do. Specifically, registered
persons will be required, through CRD,
to complete the Regulatory Element of
the CE on the second anniversary of the
base date and then every three years
thereafter. While creating the S501, the
Participating SROs 47 believe that the
current procedures of the other CE
programs work well. The Securities
Industry Regulatory Council on
Continuing Education has tailored the
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46 The
Participating SROs that have assisted with
the development of, and plan to administer, the
S501 are the Exchange, C2 Options Exchange,
Incorporated (‘‘C2’’), the Chicago Board Options
Exchange, Inc. (‘‘CBOE’’), the New York Stock
Exchange, LLC (‘‘NYSE’’), NYSE Arca, Inc.
(‘‘Arca’’), NYSE Amex, LLC (‘‘Amex’’), the
NASDAQ Stock Market LLC (‘‘NASDAQ’’), the
National Stock Exchange, Inc. (‘‘NSX’’), NASDAQ
OMX BX, Inc. (‘‘BX’’), NASDAQ OMX PHLX, LLC.
(‘‘PHLX’’), BATS YExchange, Inc.(‘‘BATS Y’’),
BATS Exchange, Inc. (‘‘BATS’’), EDGA Exchange,
Inc. (‘‘EDGA’’), EDGX Exchange, Inc. (‘‘EDGX’’),
International Securities Exchange, LLC (‘‘ISE’’), and
BOX Options Exchange, LLC (‘‘BOX’’).
47 Id.
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21:08 Oct 21, 2013
Jkt 232001
process of the other CE Programs since
its inception to a process that has been
successful. Thus, as proposed, the S501
will work in the same manner. In
addition, consistency between the
different programs will avoid creating
confusion amongst the registered
persons and FINRA.
The Proprietary Trader Continuing
Education Program (S501) is required
for those registrants who registered as
Proprietary Traders and do not maintain
any other registration through CRD.48
Individuals that are registered under
any other registration are required to
maintain the CE obligations associated
with those registrations. For example,
an individual that is registered as a
Proprietary Trader with the Exchange
and has a Series 7 registration will be
required to continue taking the Series 7
Continuing Education Program (S101).49
Though such individual may be
engaging in the same capacity as one
registered as a Proprietary Trader,
because the Series 7 examination is a
more comprehensive exam, the
Exchange believes that this individual
continuing to maintain a Series 7
registration should complete a CE that
covers all aspects of his or her
registration.
As part of the new Proprietary Trader
CE, registered persons will also be
required to complete the Firm Element
outlined in Exchange Rule 9.3A(c).
Though proprietary traders with a Series
56 registration do not interact with the
public, the Exchange believes this
requirement is appropriate as it ensures
these registered persons continue to
enhance their securities knowledge,
skill and professionalism. As stated in
Exchange Rule 11(b)(2)(ii), the program
should be tailored to fit the business of
the Participant. Thus, the Exchange
believes it is appropriate that these
individuals also complete the Firm
Element.
The introduction of the Proprietary
Trader Continuing Education Program
allows the Exchange to tailor its CE
48 Any registered person who receives a waiver of
the Series 56 under Exchange Article 6, Rule 3,
Interpretations and Policies .02 and does not
maintain any other registrations in CRD, will be
required to complete the Proprietary Trader
Continuing Education Program (S501). Such
individuals will also be required to complete the
Firm Element which is currently described in
Exchange Rule 9.3A(b).
49 If a registered person has received a Series 56
waiver under Exchange Article 6, Rule 3,
Interpretations and Policies .02 but continues to
maintain a Series 7 registration (that predates the
introduction of the Series 56 on the Exchange) that
registered individual will only be required to
continue taking the Series 7 CE Program (S101).
Through CRD, FINRA will recognize the Series 56
as waived while still requiring the Series 7 CE
completion.
PO 00000
Frm 00151
Fmt 4703
Sfmt 4703
62733
requirements more closely to those
registered individuals who are
registered as Series 56. More
specifically, the Exchange believes
allowing individuals engaging in
proprietary trading and registered under
the Series 56 to complete a separate CE
Program than those maintaining a Series
7 registration is appropriate as all
individuals have the option of taking
either test. In comparison to the Series
7, the Series 56 Examination is more
closely tailored to the practice of
proprietary trading while the Series 7 is
more comprehensive. As such, the
Exchange believes a Series 56 CE
Program should be tailored as well. At
the same time, if an individual would
like to remain registered as a Series 7,
the Exchange believes it is appropriate
they [sic] continue to be required to
complete the broader CE program. As
stated above, though an individual
maintaining a Series 7 registration may
be engaging in the same capacity as one
registered as a Proprietary Trader,
because the Series 7 examination is a
more comprehensive exam, the
Exchange believes that such individual
that continues to maintain a Series 7
registration should complete a CE that
covers all aspects of his or her
registration.
xi. Fee Changes
The Exchange proposes to amend
Section J.5 of the Fee Schedule to
include the registration fees for the
Series 14 and Series 56 exams.50
Specifically, the Exchange proposes to
insert the following information:
• $335 registration fee for the Series
14 Examination;51 and
• $195 registration fee for the Series
56 Examination.52
CHX also proposes to adopt a fee
applicable to Proprietary Trader
Regulatory Element. Currently, the
applicable fee for the Regulatory
Element (S101 and S201) is $100. CHX
proposes to adopt a $60 fee for the S501.
FINRA administers these programs on
behalf of the exchanges and therefore
the fees are payable directly to FINRA.53
50 See CHX Article 6, Rules 3(b)(i); See also CHX
Article 6, Rule 3(a)(ii); and CHX Article 6, Rule
11(a)(3).
51 See Section 4(c) of Schedule A to the FINRA
By-Laws.
52 See FINRA, FINRA Administered Qualification
Examinations, available at https://www.finra.org/
Industry/Compliance/Registration/
QualificationsExams/Qualifications/p011096.
53 The S501 was established for those registrants
who have passed the Series 56 Qualification Exam
as reflected in WebCRD. WebCRD is the central
licensing and registration system for the U.S.
securities industry. The CRD system enables
individuals and firms seeking registration with
multiple states and self-regulatory organizations to
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The $60 fee will only be used for the
administration of the S501 versus the
S101 which utilizes the $100 fee for
both development and administration.
The costs associated with the
development of the S501 are included
in the examination fee. The Exchange
notes that the proposed changes are not
otherwise intended to address any other
issues surrounding regulatory fees and
that the Exchange is not aware of any
problems that Participants would have
in complying with the proposed
changes.
sroberts on DSK5SPTVN1PROD with FRONT MATTER
2. Statutory Basis
The Exchange has proposed the above
rule changes for the purpose of
requiring certain persons associated
with CHX Participants to maintain
appropriate licenses and registrations.
These changes will help to assure
competency of Representatives and
provide for more effective supervision
and oversight of the Participant’s
activities.
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act 54 in general, and
furthers the objectives of Sections
6(b)(5) of the Act in particular to aid in
preventing ‘‘fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, 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; and [to] not permit
unfair discrimination between
customers, issuers, brokers, or dealers’’
by ensuring individuals are properly
registered and supervised.55
The Exchange believes that the
proposed amendment requiring that all
persons associated with a Participant
and who are engaged or will be engaged
in the securities business register as a
Representative will continue to promote
the development and maintenance of
adequate training and supervisory
programs by CHX Participants.56 This
change in Representative registration
will ensure that such persons are
do so by submitting a single form, fingerprint card
and a combined payment of fees to FINRA. Through
the CRD system, FINRA maintains the qualification,
employment and disciplinary histories of registered
associated persons of broker-dealers.
54 15 U.S.C. 78f(b).
55 15 U.S.C. 78f(b)(5).
56 The Exchange is also proposing to change the
term ‘‘registered person(s)’’ as used throughout
Article 6 and in Article 7, Rule 3A to
‘‘Representative(s)’’ as part of this filing.
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appropriately qualified and supervised
to aid in preventing fraudulent and
manipulative practices, further just and
equitable principles of trade and protect
investors and the public interest in
general.57
The Exchange also believes that
adding the Proprietary Trader (Series
56) examination to its list of qualifying
exams will allow individuals who solely
conduct a business in proprietary
trading to demonstrate their proficiency
in that area. In offering an alternative to
the Series 7 examination, CHX will
permit proprietary traders who pass the
Series 56 to trade on a proprietary basis.
As stated above, Representatives will
qualify for the Proprietary Trader
category at CHX if the Representative is
a person who does not handle or
execute transactions for customers and
only enters or executes orders on behalf
of the Participant. Further, and as noted
above, other SROs have similarly
recognized the Proprietary Trader
registration category and the Series 56
exam.58
As the Exchange is continuing to
strengthen the supervisory systems of
Participant Firms and thereby
contribute to greater investor protection
through the proposed changes, the
Exchange has proposed to require each
Participant Firm to register as
representatives with the Exchange at
least two Principals in specified
categories as described above. In
addition to the requirement of two
registered Principals, each Participant
would also be required to register an
additional associated person as a
FINOP. Further, the Exchange proposes
to require Participant Firms to designate
a CCO.59 To qualify for registration, the
CCO must pass the Series 24
examination unless the Participant Firm
met the requirements to take, in the
alternative, the Compliance Officer
Exam (Series 14).60 A Compliance
57 Notably, persons engaged in the supervision of
a Participant’s securities business will also be
required to register as Principals under the
provisions of Article 6, Rule 2(c).
58 See e.g., Securities Exchange Act Release Nos.
63314 (November 12, 2010), 75 FR 70957
(November 19, 2010) (SR–CBOE–2010–084); 63843
(February 4, 2011), 76 FR 7884 (February 11, 2011)
(SR–ISE–2010–115); 66453 (February 23, 2012), 77
FR 12345 (February 29, 2012) (SR–NYSEAMEX–
2012–11); and 66452 (February 23, 2012), 77 FR
12347 (February 29, 2012) (SR–NYSEARCA–2012–
15).
59 See FINRA Rule 3130 and International Stock
Exchange (‘‘ISE’’) Rule 313(c) for similar
requirements.
60 Proposed Article 6, Rules 2(c)(iv) and 3(b).
Participant Firms that conduct solely proprietary
trading and otherwise meet the two-principal
requirement may allow their Compliance Officer to
take the less broad Series 14 examination rather
than the comprehensive Series 24 examination for
General Securities Principals.
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Frm 00152
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Sfmt 4703
Officer at such Participant Firm would
qualify for the alternative examination if
the firm engaged solely in proprietary
trading; and it otherwise meets the
applicable registration and supervisory
requirements for Principals. Thus, all
individuals supervising the securities
businesses and associated persons of
Participant Firms must qualify for
registration as Principals by passing the
relevant Principal examination as listed
in Article 6, Rule 3. The Exchange
believes that adding the proposed rules
related to firm supervision helps
prevent fraudulent and manipulative
acts and protect investors and the public
interest in general, and notes that CHX’s
proposed provisions are similar to those
of other SROs.61
In addition, the Exchange believes
that the proposed amendments are
consistent with Section 6(c) of the
Exchange Act,62 in general, and furthers
[sic] the objectives of Section 6(c)(3) of
the Exchange Act,63 which allows the
Exchange to stipulate qualification,
training, experience and competence
standards for persons associated with
Exchange Participants. This filing
proposes to amend and clarify the
registration and qualification
requirements to ensure that industry
standards are met.
The Exchange also believes that the
proposed changes are not unfairly
discriminatory as CHX is not only
conforming to the rules set forth by
other SROs, but the proposed changes
will be applied to all associated persons
of all CHX Participants.64 Under current
rules, only CHX Participants for which
CHX is the DEA are subject to the rules
regarding registration and qualification.
By applying the registration and
qualification rules to all CHX
Participants, the rules will not unfairly
discriminate against any Participant
class.
The proposed rule also introduces a
new CE program for the Series 56
registered persons as described above.
We believe the content of the 501
education is tailored to the job the
proprietary trader performs. The
Exchange believes the proposed changes
are reasonable and set forth the
appropriate CE requirements for an
individual Participant or individual
associated person who is required to
61 See, for example, NASD Rule 1021(e) and
BATS Rule 2.5 Interpretations and Policies .01(d).
62 15 U.S.C. 78f(c).
63 15 U.S.C. 78f(c)(3).
64 To comply with the proposed Exchange rules,
the number and types of examinations taken by
individuals at Participant Firms will likely vary
between Participant Firms depending on each
Participant Firm’s business model.
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sroberts on DSK5SPTVN1PROD with FRONT MATTER
register under Exchange Article 6, Rule
2.
The Exchange believes that the
proposed registration fees for the CE and
Series 14 and Series 56 exams are
consistent with Section 6(b) of the Act 65
in general, and, in particular, furthers
[sic] the objectives of Section 6(b)(4) of
the Act,66 in that it [sic] provides for the
equitable allocation of reasonable dues,
fees and other charges among its
members. As discussed above, the
Exchange believes that the fee changes
are reasonable because the proposed
fees are identical to those adopted by
FINRA for its members and that the
proposed fees are equitably allocated
because they apply to all similarly
situated Non-FINRA Participants. As
discussed above, the CE programs and
the Series 14 and 56 exams are used
across the industry. Further, the new
$60 fee is applicable to persons
registered as a Proprietary Trader,
which is a limited registration under
CHX rules. Accordingly, the proposed
S501 Regulatory Element specifically
correlates to the rules and obligations
applicable to Proprietary Traders, which
are fewer than those applicable to
persons registered in other categories.
Thus, the S501 is a more limited form
of continuing education. Further, as
discussed above, the $60 fee will only
be used for the administration of the
S501 versus the S101 which utilizes the
$100 fee for both development and
administration. The costs associated
with the development of the S501 are
included in the examination fee.
Therefore, CHX believes that the lower
fee ($60 rather than $100) is reasonable.
The proposed fee is equitable, because
it applies equally to all persons
registered solely as Proprietary Traders.
Finally, the Exchange notes that it
operates in a highly competitive market
in which market participants can
readily favor competing venues. In such
an environment, the Exchange must
continually review, and consider
adjusting, its rules to remain
competitive with other exchanges. The
Exchange notes that the rule change is
reasonable in comparison to similar rule
changes by certain other SROs. For the
reasons described above, the Exchange
believes that the proposed rule change
reflects this competitive environment.
B. Self-Regulatory Organization’s
Statement of Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
65 15
66 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4).
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21:08 Oct 21, 2013
of the purposes of the Act. The rule
change is designed to amend its current
registration and qualification rules to
require that persons associated with
CHX Participants maintain appropriate
licenses and registrations. These rule
changes will help to assure competency
and provide for more effective
supervision and oversight of a CHX
Participant’s activities and will not
impose any burden on competition.
The Exchange also does not believe
the administrative changes being made
nor the introduction of the Proprietary
Trader Continuing Education Program
(S501) will affect intermarket
competition as the Exchange believes all
Exchanges offering the same CE
requirements will file similar rules
addressing those CE Programs. In
addition, the Exchange does not believe
the proposed changes will affect
intramarket competition because all
similarly situated registered persons,
e.g. registered persons maintaining the
same registrations, are required to
complete the same CE requirements. For
example, all individuals maintaining a
Series 7 registration will be required to
complete the Series 7 CE while all
individuals maintaining a Series 56
registration (and no other registrations)
will be required to complete the new
Series 56 CE.
The Exchange believes that the fee
changes proposed herein will not
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
Specifically, the Exchange believes that
the proposed change will result in the
same Series 14 and Series 56
registration fees being charged to all
FINRA and Non-FINRA firms.
In addition, the Exchange notes that it
operates in a highly competitive market
in which market participants can
readily favor competing venues. In such
an environment, the Exchange must
continually review, and consider
adjusting, its rules to remain
competitive with other exchanges. As
noted above, many SROs have adopted
similar rules relating to the registrations
and qualifications of their members.67
Therefore, and for the reasons described
above, the Exchange believes that the
proposed rule change aligns CHX rules
with the rules of other SROs and
promotes a competitive environment.
Jkt 232001
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
does not affect a change that (A)
significantly affects the protection of
investors or the public interest; (B)
impose any significant burden on
competition; and (C) by its terms,
becomes operative for 30 days after the
date of the filing, or such shorter time
as the Commission may designate if
consistent with the protection of
investors and the public interest;
provided that the self-regulatory
organization has given the Commission
written notice of its intent to file the
proposed rule change, along with a brief
description and text of the proposed
rule change, at least five business days
prior to the date of filing of the
proposed rule change, or such shorter
time as designated by the Commission,
the proposed rule change will become
effective pursuant to Section 19(b)(3)(A)
of the Act 68 and Rule 19b–4(f)(6) 69
thereunder.
The Exchange has given the
Commission written notice of its intent
to file the proposed rule change, along
with a brief description and text of the
proposed rule change, at least five
business days prior to the date of filing
of the proposed rule change, or such
shorter time as designated by the
Commission. The Exchange respectfully
requests that the Commission waive the
30-day operative delay period after
which a proposed rule change under
Rule 19b–4(f)(6) becomes operative. The
Commission believes that the proposed
rule change described herein will
strengthen existing supervisory and
compliance structures and align CHX’s
registration, qualification, and CE rules
with those of other SROs. Waiving the
30-day operative delay will enable CHX
to implement the changes without
delay. Therefore, the Commission
designates the proposal operative upon
filing.70
At any time within 60 days of the
filing of this proposed rule change, the
Commission summarily may
68 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
70 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
69 17
67 See
PO 00000
supra footnote 6 [sic].
Frm 00153
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Sfmt 4703
62735
E:\FR\FM\22OCN1.SGM
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Federal Register / Vol. 78, No. 204 / Tuesday, October 22, 2013 / Notices
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
sroberts on DSK5SPTVN1PROD with FRONT MATTER
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml ); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CHX–2013–14 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
Number SR–CHX–2013–14. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet 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. Copies of the
filing will also be available for Web site
viewing and printing at the CHX’s
principal office and on its Internet Web
site at www.chx.com. 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
VerDate Mar<15>2010
21:08 Oct 21, 2013
Jkt 232001
available publicly. All submissions
should refer to File Number SR–CHX–
2013–14 and should be submitted on or
before November 12, 2013.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.71
Kevin M. O’Neill,
Deputy Secretary.
In its filing with the Commission, the
MSRB 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 MSRB has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
[FR Doc. 2013–24551 Filed 10–21–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70607; File No. SR–MSRB–
2013–08]
Self-Regulatory Organizations;
Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed
Rule Change Consisting of
Amendments to MSRB Rule G–11, on
Primary Offering Practices, Relating to
Changes in a Bond Authorizing
Document
October 3, 2013.
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
September 19, 2013, the Municipal
Securities Rulemaking Board (the
‘‘MSRB’’ or ‘‘Board’’) filed with the
Securities and Exchange Commission
(the ‘‘SEC’’ or ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the MSRB. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The MSRB is filing with the
Commission a proposed rule change
consisting of amendments to MSRB
Rule G–11, on primary offering practices
(the ‘‘proposed rule change’’). The
MSRB requests an effective date for the
proposed rule change of 60 days
following the date of SEC approval.
The text of the proposed rule change
is available on the MSRB’s Web site at
www.msrb.org/Rules-andInterpretations/SEC-Filings/2013Filings.aspx, at the MSRB’s principal
office, and at the Commission’s Public
Reference Room.
71 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00154
Fmt 4703
Sfmt 4703
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The proposed rule change would
amend MSRB Rule G–11 to prohibit,
with carefully defined exceptions,
brokers, dealers and municipal
securities dealers (‘‘dealers’’) from
providing consents to changes in a bond
authorizing document, such as trust
indentures and bond resolutions
(‘‘authorizing document’’ or ‘‘bond
authorizing document’’). The proposed
rule change would enhance protections
for existing owners of bonds (‘‘owners’’
or ‘‘bond owners’’) from changes to
authorizing documents consented to by
a dealer in lieu of bond owners by
prescriptively prohibiting such consents
in certain circumstances.
Background
Amendments to authorizing
documents are often requested by
municipal entity issuers (‘‘issuers’’) or
bond owners to modernize outdated
provisions or to address operational or
other concerns that have arisen after the
initial issuance of bonds. Such
amendments are typically achieved by
the vote of owners of a specified
percentage of the aggregate principal
amount of bonds, as determined by the
authorizing document. The principal
amount necessary usually will vary,
depending upon the type of
amendments sought.
The process of obtaining consents
from bond owners and related costs can
be significant. Since many municipal
securities are issued in book-entry form
and registered as a single ‘‘global’’
certificate in the name of a depository,
the identity of beneficial owners of the
bonds is frequently unknown to issuers
and trustees. Identifying such owners
and obtaining consents requires an
extensive process of inquiry through
layers of nominee ownership and often
E:\FR\FM\22OCN1.SGM
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]]>Agencies
[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62728-62736]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24551]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70597; File No. SR-CHX-2013-14]
Self Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to Registration, Qualification, Supervision, and Continuing
Education of Individuals Associated with Participant Firms
October 2, 2013.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that on September 24, 2013, the Chicago Stock Exchange, Inc. (``CHX''
or ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CHX proposes to amend Exchange Rules relating to the registration
and qualification and continuing education of individuals associated
with CHX Participant Firms, and the supervision of registered persons
and firm activity. The text of this proposed rule change is available
on the Exchange's Web site at https://www.chx.com/rules/proposed_rules.htm, 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 self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change
[[Page 62729]]
and discussed any comments it received on the proposed rule change. The
text of those 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 parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the rules in Article 6 regarding the
qualification, registration, supervision and Continuing Education
(``CE'') of CHX Participant Firms and their associated persons \4\ to
be virtually consistent with the requirements of the Financial Industry
Regulatory Authority (``FINRA'').\5\ The Exchange believes that the
proposed amendments are also consistent with Exchange Act Rule 15b7-1,
which provides: ``[n]o registered broker or dealer shall effect any
transaction in . . . any security unless any natural person associated
with such broker or dealer who effects or is involved in effecting such
transaction is registered or approved in accordance with the standards
of training, experience, competence, and other qualification standards
. . . established by the rules of any national securities exchange.''
\6\
---------------------------------------------------------------------------
\4\ Under Article 1, Rule 1(d) of the Exchange's rules, the term
``Associated Person'' has the meaning set forth in Section 3(a)(21)
of the Exchange Act. That section provides that ``[t]he term
`persons associated with a member' or `associated person of a
member' when used with respect to a member of a national securities
exchange or registered securities association means any partner,
officer, director, or branch manager of such member (or any person
occupying a similar status or performing similar functions), any
person directly or indirectly controlling, controlled by, or under
common control with such member, or any employee of such member.''
For purposes of these provisions, a CHX Participant Firm is
considered a member of the Exchange.
\5\ Other self-regulatory organizations (``SROs'') have made
similar rule changes. See e.g., Securities Exchange Act Release Nos.
63314 (November 12, 2010), 75 FR 70957 (November 19, 2010) (SR-CBOE-
2010-084); 63843 (February 4, 2011), 76 FR 7884 (February 11, 2011)
(SR-ISE-2010-115); 64958 (July 25, 2011), 76 FR 45629 (July 29,
2011) (SR-NASDAQ-2011-095); 66453 (February 23, 2012), 77 FR 12345
(February 29, 2012) (SR-NYSEAMEX-2012-11); and 66452 (February 23,
2012), 77 FR 12347 (February 29, 2012) (SR-NYSEARCA-2012-15).
\6\ 17 CFR.240.15b7-1.
---------------------------------------------------------------------------
i. Exchange Membership Overview
Exchange Participants are considered ``members'' of the Exchange
for purposes of the Exchange Act and are defined as Firms that hold a
valid Trading Permit and any person associated with a Participant Firm
who is registered with the Exchange under Articles 16 and 17 as a
Market Maker Trader or Institutional Broker Representative,
respectively.\7\ If a Participant is not a natural person, the
Participant may also be referred to as a ``Participant Firm,'' but
unless the context requires otherwise, the term Participant refers to
an individual Participant and/or a Participant Firm.\8\ The Exchange's
Participant Firms have varying business models. For example, some
conduct solely proprietary trading; others conduct solely agency
transactions, while still others conduct a mixture of both.
---------------------------------------------------------------------------
\7\ Article 1, Rule 1(s).
\8\ Id.
---------------------------------------------------------------------------
Participants may also elect to register under a Participant
subcategory such as the Institutional Broker category of Participants.
``Institutional Broker'' means a member of the Exchange who is
registered as an Institutional Broker pursuant to the provisions of
Article 17 and has satisfied all Exchange requirements to operate as an
Institutional Broker on the Exchange.\9\ Like those firms registered
solely as an Exchange Participant, firms that also elect to register as
Institutional Brokers also have varying business models ranging, for
example, from proprietary to agency trading or a mixture of both.
---------------------------------------------------------------------------
\9\ Article 1, Rule 1(n).
---------------------------------------------------------------------------
The rule changes proposed herein will apply to all Participant
Firms. Individual associated persons registered at Participant Firms,
including Participant Firms registered as Institutional Brokers will be
required to pass the appropriate examinations as defined in the
proposed rules. The appropriate examinations for associated persons at
all categories of Participant Firms will depend on the Firm's business,
size, and other factors as described below. The only varying
requirement regarding examinations between Participant Firms and
Institutional Broker firms is that individuals registered as
Institutional Broker Representatives at Institutional Broker firms are
required to pass the Exchange's internal Institutional Broker
Examination.\10\ The proposed rules clarify that Institutional Broker
Representatives will need to pass the internal Institutional Broker
Examination as under current requirements, and, like all Participant
Firms [sic], will be required to pass either the Series 7 or Series 56
examinations depending on the firm's business model.\11\
---------------------------------------------------------------------------
\10\ Proposed Article 6, Rule 3(d).
\11\ Id.
---------------------------------------------------------------------------
ii. Current Rules
Exchange rules currently require that persons associated with CHX
Participants meet the registration and qualification requirements in
Article 6, Rules 2 and 3. According to Article 6, Rule 2, all
Representatives of a Participant must be registered with the Exchange.
A Representative is defined as a person, who is engaged or will be
engaged in the securities business of a Participant.\12\ According to
Article 6, Rule 3, the Exchange may require the successful completion
of a training course or an examination, or both, in connection with the
registration of Participants and persons associated with a Participant,
and may charge fees for such registration and examination. CHX also
requires that a Participant shall not make application for the
registration of any person associated with the Participant where there
is no intent to employ such person in the securities business of the
Participant.\13\ This requirement thereby prohibits Participants from
``parking'' registrations. Notably, under the current rule structure,
the registration requirements apply only to Participant Firms for which
the Exchange is the Designated Examining Authority (``DEA'') \14\ and
to associated persons of other Participant Firms where the associated
persons act as Institutional Broker Representatives or Market Maker
Traders on the Exchange.\15\
---------------------------------------------------------------------------
\12\ Article 6, Rule 2(b).
\13\ Article 6, Rule 2(d).
\14\ NYSE Arca, Inc. (``NYSE Arca'') historically limited its
Options registrations requirements to traders of member
organizations for which NYSE Arca was the DEA but removed the
limitation in a 2012 rule change. See SR-NYSEARCA-2012-15, NYSE Arca
Options Rule 2.
\15\ Article 6, Rule 2, Interpretations and Policies .03.
---------------------------------------------------------------------------
Current Exchange rules recognize four qualification examinations
for registration with the Exchange.\16\ Those examinations are (1) the
Series 7 qualification examination administered by FINRA to conduct a
public business, (2) the Series 7A examination historically
administered by NYSE to conduct a public business limited to accepting
orders from professional customers for execution on the Exchange, (3)
the Institutional Broker Exam administered by CHX to conduct business
on behalf of an Institutional Broker, and (4) the Market Maker Trader
Exam administered by CHX to qualify as a Market Maker Trader.\17\
---------------------------------------------------------------------------
\16\ Article 6, Rule 3, Interpretations and Policies .01.
\17\ Id.
---------------------------------------------------------------------------
Current Exchange rules also require that members that are Joint
Back Office
[[Page 62730]]
(``JBO'') Participants designate a Financial Operations Principal
(``FINOP'') who must pass the Series 27 Exam administered by FINRA. The
Exchange also currently requires all Participant Firms for which the
Exchange is the DEA to designate a person or persons responsible for
supervision and compliance at the firm.\18\
---------------------------------------------------------------------------
\18\ Article 6, Rule 5.
---------------------------------------------------------------------------
Through this filing, the Exchange proposes to require that all
persons that function as Representatives of a Participant under Article
6, Rule 2(b) register, pass appropriate examinations and participate in
CE requirements. In this regard, the Exchange proposes to make a number
of amendments to its registration and qualification standards including
(1) expanding its registration requirements to all Participant Firms
rather than solely Firms for which CHX is the DEA, (2) recognizing the
Proprietary Traders Qualification Examination (Series 56) as one of the
applicable qualification examinations,\19\ and (3) requiring each
Participant Firm to register at least two officers or partners as
principals with respect to each aspect of the Participant's securities
business.\20\ According to the proposed rules, Principals are persons
associated with a Participant who are actively engaged in the
management of the Participants' securities business, including
supervision, solicitation, conduct of business or the training of
persons associated with a member for any of these functions are
designated as Principals.\21\
---------------------------------------------------------------------------
\19\ According to proposed Article 6, Rule 3(a)(ii), a
proprietary trader is a person who does not handle or execute
transactions for customers and only enters or executes orders on
behalf of the Participant.
\20\ Proposed Article 6, Rule 2(c)(v).
\21\ Proposed Article 6, Rule 2(c)(i).
---------------------------------------------------------------------------
iii. Registration of Representatives
First, CHX proposes to amend Article 6, Rule 2 to require that all
persons associated with a Participant who are engaged or will be
engaged in the securities business of a Participant register as a [sic]
Representative.\22\ This will ensure that all associated persons who
conduct business at the Exchange must be registered, including
proprietary traders and their supervisors, and will ensure that all are
appropriately qualified and supervised.\23\
---------------------------------------------------------------------------
\22\ The Exchange is also proposing to change the term
``registered person(s)'' as used throughout Article 6 and in Article
7, Rule 3A to ``Representative(s)'' as part of this filing.
\23\ Notably, persons engaged in the supervision of a
Participant's securities business will also be required to register
as Principals under the provisions of Article 6, Rule 2(c).
---------------------------------------------------------------------------
iv. Registration of Principals
To strengthen the supervisory systems of Participant Firms and
thereby enhance investor protection, the Exchange proposes to require
each Participant Firm to have at least two officers or partners who are
registered as Principals with respect to each aspect of the
Participant's securities business.\24\ In addition to the two
registered Principals, Participants shall also have at least one person
registered as a Limited Principal FINOP. Thus, each individual
supervising the securities businesses and associated persons of
Participant Firms must qualify for registration as a Principal by
passing the relevant Principal examination as listed in Article 6, Rule
3.
---------------------------------------------------------------------------
\24\ Proposed Article 6, Rule 2(c)(i). These categories include
Sole Proprietors; Officers; Partners; Branch office managers; and
Directors. This proposed requirement is also consistent with the
registration requirements set forth in other SRO rules such as NASD
Rule 1021(e) and BATS Rule 2.5 Interpretations and Policies .01(d).
---------------------------------------------------------------------------
Notably, the proposed rules allow the Exchange to waive the two-
principal requirement and only require Participant Firms to have one
Principal under certain enumerated circumstances. Such circumstances
include when a Participant demonstrates conclusively, upon written
application, that only one individual should be required to register.
Also, a Participant that conducts a proprietary trading business only
and has 25 or fewer Representatives shall only be required to have one
officer or partner who is registered as a Principal. According to
proposed Article 6 Rule 2(c)(vi), a Participant shall be considered to
conduct only proprietary trading if the Participant has the following
characteristics: (1) The Participant is not required by Section
15(b)(8) of the Exchange Act to become a FINRA member; (2) All funds
used or proposed to be used by the Participant are the Participant's
own capital, traded through the Participant's own accounts; (3) The
Participant does not, and will not, have customers; and (4) All persons
registered on behalf of the Participant acting or to be acting in the
capacity of a trader must be owners of, employees of, or contractors to
the Participant. According to proposed Article 6, Rule 3(a)(ii), a
proprietary trader is a person who only enters or executes orders on
behalf of the Participant and does not handle or execute transactions
for customers. The Exchange notes that these provisions are similar to
the registration requirements of other exchanges and believes that they
are appropriate given the limited size and scope of activities of such
firms.\25\
---------------------------------------------------------------------------
\25\ See NASD Rule 1021(e) and Chicago Board Options Exchange
(``CBOE'') Rule 3.6A, Interpretations and Policies .07.
---------------------------------------------------------------------------
a. Financial and Operations Principals
The Exchange proposes that all CHX Participant Firms designate at
least one individual as a FINOP who must maintain the appropriate
registration status.\26\ The designated FINOP must pass the Series
27.\27\ The Exchange currently requires FINOPs associated with
Participant Firms that maintain a JBO to maintain a Series 27
license.\28\ However, as the Exchange sees no compelling reason to
limit the registration of FINOPs to JBO firms, the Exchange is
proposing to broaden the registration requirement for FINOPs to all
Participant Firms. The Exchange also proposes to add a basic
description of the responsibilities of a person registered as a FINOP,
as well as the related notices which the Participant Firm must make to
the Exchange.\29\
---------------------------------------------------------------------------
\26\ Proposed Article 6, Rule 3(c). See also, CBOE Rule 3.6A(b),
NASD Rule 1021(e) for examples of similar requirements.
\27\ The Exchange proposes to delete the existing requirement
that only FINOPs for JBO firms pass the Series 27 examination.
\28\ Article 6, Rule 3, Interpretation and Policy .01(e). JBO
arrangements and the obligations related thereto are described in
Article 7, Rule 3A, which provides that ``[a]n arrangement may be
established between two or more registered broker-dealers pursuant
to Regulation T Section 220.7 to form a JBO arrangement for carrying
and clearing accounts of participating broker-dealers.'' Section
220.7(c) of Regulation T authorizes the creation of JBO arrangements
which permit a creditor to effect or finance transactions of any of
its owners if the creditor is a clearing and servicing broker or
dealer owned jointly or individually by other creditors (12 CFR
220.7(c)). Under CHX Article 7, Rule 3A(a), each JBO Participant is
required to (1) be registered as a broker-dealer pursuant to Section
15 of the Securities Exchange Act of 1934, (2) be subject to the
capital requirements prescribed by Rule 15c3-1 therein, and shall
not be eligible to operate under the provisions of SEC Rule 15c3-
1(b)(i), (3) meet and maintain a minimum account equity requirement
of $1,000,000 with each clearing broker-dealer where an account of
the JBO Participant is carried, (4) meet and maintain the ownership
standards established by the carrying broker-dealer and (5)
designate one registered person associated with such Participant as
a financial and operations principal (Series 27).
\29\ Proposed Article 6, Rule 2(c)(iii). The duties of a FINOP
shall include taking appropriate actions to assure that the
Participant Firm complies with applicable financial and operational
requirements under the Rules of the Exchange and the Exchange Act,
including but not limited to those requirements relating to the
submission of financial reports and the maintenance of books and
records. A FINOP may be a full-time employee, a part-time employee
or independent contractor of the Participant Firm. Participant Firms
for which CHX is the Designated Examining Authority (``DEA'') must
provide prompt written notice to the Exchange's Member Regulation
Department for each person designated as a FINOP. The Exchange
utilizes such information as part of its examination process.
---------------------------------------------------------------------------
[[Page 62731]]
b. Chief Compliance Officers
In accordance with other SROs, the Exchange proposes to require
Participant Firms to designate a Chief Compliance Officer
(``CCO'').\30\ The CCO must pass the Series 24 examination unless the
Participant Firm with which the CCO is associated meets the
requirements to take, in the alternative, the Compliance Officer Exam
(Series 14).\31\
---------------------------------------------------------------------------
\30\ See FINRA Rule 3130 and ISE Rule 313(c).
\31\ Proposed Article 6, Rules 2(c)(iv) and 3(b). Participant
Firms that conduct solely proprietary trading and otherwise meet the
two-principal requirement may allow their Compliance Officer to take
the less broad Series 14 examination rather than the comprehensive
Series 24 examination for General Securities Principals.
---------------------------------------------------------------------------
A Compliance Officer at such Participant Firm would qualify for the
alternate exam if the firm, (1) engages solely in proprietary trading,
(2) otherwise meets the registration requirements for Principals as
defined in Article 6, Rule 2(c), and (3) meets the supervisory
requirements in Rule 3(b). The Compliance Officer Exam is intended to
ensure that the individuals who have compliance responsibilities for
their respective firms or who supervise ten or more people engaged in
compliance activities have the knowledge necessary to carry out their
job responsibilities. Therefore, the Series 14 measures the knowledge
and skills related to the position of a compliance official.
Accordingly, compliance officials at Participant Firms that meet the
above requirements would be permitted to take the compliance-focused
Series 14 examination rather than the broader Series 24 examination.
Notably, if the CCO passed the Series 24 examination, they [sic] would
qualify as one of the two registered Principals as outlined in Article
6, Rule 2(v). A CCO that does not also pass the Series 24 would not
qualify as a Principal for purposes of the two principal requirement in
Article 6, Rule 2(c)(v). The Exchange believes that it is important
that CCOs demonstrate heightened knowledge with respect to compliance
responsibilities for their respective firms.
v. Exemption From Registration
The Exchange proposes to enumerate in its rules the list of persons
exempt from any registration requirements to include such persons not
actively engaged in the securities business or, in some circumstances,
individuals who are already registered at other exchanges.\32\ The
proposed list includes those individuals whose functions are related
solely and exclusively to the Participant's need for nominal corporate
officers or for capital participation, or whose functions are related
solely and exclusively to transactions in commodities, security
futures; and/or who effect transactions on the floor of another
national securities exchange. In the latter case, such individuals
would already be registered as members with the other national
securities exchange. The Exchange believes the registration exemption
for individuals registered on another national securities exchange is
appropriate to avoid the burden of dual registration. The Exchange also
believes that incorporating these exemptions into the rule provides
additional clarity for individual Participants and associated persons
as to who will be required to register under the proposed rule.\33\
---------------------------------------------------------------------------
\32\ Proposed Article 6, Rule 2(d).
\33\ The Exchange notes that its proposed changes are similar to
the rules of FINRA, NASD Rule 1060.
---------------------------------------------------------------------------
vi. Other Registration Requirements
The Exchange also proposes to clarify the circumstances under which
a Participant is prohibited from seeking registration for an individual
person. In addition to the existing limitations precluding a
Participant from applying for registration for an associated person
where there is no intent to employ the individual in the Participant's
securities business, the amendments would preclude a Participant Firm
from maintaining a registration with the Exchange of a person, (1) who
is no longer active in the Participant's securities business; (2) who
is no longer functioning in the registered capacity; or (3) where the
sole purpose is to avoid an examination requirement. The Exchange
believes that these provisions appropriately prohibit Participant Firms
from ``warehousing'' registrations for persons who are not actively
engaged in the securities business.
A Participant may, however, maintain or make application for
registration of an individual who performs legal, compliance, internal
audit, back-office operations, or similar responsibilities for the
Participant. The rule will also allow application for registration for
a person who performs administrative support functions for registered
personnel, as well as a person engaged in the securities business of a
foreign securities affiliate or subsidiary of the Participant. The
Exchange believes that in allowing persons who perform legal,
compliance, audit or similar functions to apply for registration, such
persons will receive additional training and expertise to better
perform their functions.
vii. Lapse and Waivers of Registration
After an individual's registration lapses, the amended rules will
require the individual to pass an appropriate qualification
examination. A lapse in registration occurs when the registration has
been revoked by the Exchange or when an individual's registration has
been terminated for a period of two or more years. The Exchange
believes that these provisions reasonably permit an individual to
transfer his or her registrations when changing firms or looking for
employment if the individual is also within the two-year time period.
Such individual will still meet the requirement of active involvement
in the securities industry.
The proposed amendments provide 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 qualification 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 securities business may constitute sufficient grounds
to waive a qualification examination.\34\ The Exchange notes that other
exchanges and SROs have the same waiver provisions in their
registration rules.\35\ The Exchange will keep documentation related to
all waiver requests whether granted or not.
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\34\ This rule is substantially similar to NASD Rule 1070 and
CBOE Rule 3.6A(e) Interpretation and Policies .05.
\35\ Id.
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viii. Training and Examination of Registrants
a. General Securities Representatives and Proprietary Traders
Persons associated with a CHX Participant who meet the definition
of a Representative must pass the Series 7 General Securities
Representative Qualification Examination unless such individuals meet
the definition of Proprietary Trader.\36\ A Representative will qualify
for the Proprietary Trader category if the Representative's activities
are confined to making trading decisions regarding, or otherwise
engaging in, proprietary trading for the broker-dealer with which he or
she is associated. Proprietary Traders may satisfy the qualification
requirements by passing either the Series 7 or the Series 56
Proprietary Traders Qualification
[[Page 62732]]
Examination.\37\ The proposed rule change is not intended to replace
the Series 7 requirement for all traders,\38\ but simply to offer an
alternative to that requirement for those qualified individuals who
solely conduct a business in proprietary trading and have shown their
proficiency by passing the Series 56.
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\36\ Proposed Article 6, Rule 3(a).
\37\ The Exchange's current rules require that associated
persons of Participant Firms for which CHX acts as the DEA and who
enter orders or make trading decisions, whether or not such orders
are in a principal or proprietary capacity, must maintain a Series 7
registration. See, Interpretations and Policies .02 of Article 6,
Rule 3. This requirement is being moved to Rule 3(a). Pursuant to
this proposal, a proprietary trader could satisfy the testing and
examination requirements by successfully completing either the
Series 7 or Series 56 exam to align with the requirements of other
exchanges. The limitation of this requirement to Participant Firms
for which the Exchange acts as the DEA is being eliminated as part
of this filing. Given these changes, the Exchange is also deleting
as unnecessary the references to a ``public business examination''
in Article 6, Rule 3(c), Interpretation and Policy .01(c).
\38\ Currently, some associated persons of CHX-registered
Institutional Broker firms may not have to pass the Series 7
examination if they do not engage in a customer business and would
instead pass the Series 56. The Exchange is proposing to add a
definition of the term ``customer'' to its rules. Customer shall
mean any person or entity other than a broker or dealer registered
with the Commission. Proposed Article 1, Rule 1(hh).
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The Exchange also proposes to delete the references to the Series
7A examination in the new exam requirements of Rule 3. The Series 7A
examination is obsolete with the retirement of the CHX trading
``floor'' and is therefore no longer appropriate for Participants.
b. Supervisory Requirements
As part of this proposal, the Exchange will require all supervisors
at all Participant Firms to pass the Series 24 examination for General
Securities Principals.\39\ The Exchange currently requires only
Participant Firms for which the Exchange is the DEA to designate a
person or persons responsible for supervision and compliance at the
firm.\40\ This current limitation would be eliminated and the
requirement would be extended to all Participant Firms. Extending the
requirement will provide for uniformity among supervisors at
Participant Firms and, as all supervisors will be subject to a
heightened standard under the new rules [sic]. The Exchange believes
that the new standard will benefit the industry as a whole as well as
the public.
---------------------------------------------------------------------------
\39\ Proposed Article 6, Rule 3(b).
\40\ Article 6, Rule 5.
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c. Compliance Date
Proposed Article 6, Rule 3(e) provides that all Participants shall
be in compliance with the examination qualification language by no
later than four months after the Effective Date of these provisions for
associated persons who only need to take one exam.\41\ For associated
persons who need to take more than one exam, the Rule would allow a
period of six months to come into compliance with the registration
requirements.\42\ The Exchange believes that these periods should
afford Participants adequate time to ensure that their designated
Principals pass the appropriate qualifications exams.
---------------------------------------------------------------------------
\41\ These provisions are the requirements for Representatives
to pass and maintain the Series 7 or Series 56, or for Supervisors
to pass the Series 24 examination or Series 14 and, finally, for
FINOPs to pass and maintain the Series 27 examination.
\42\ Some CHX Institutional Broker firms that handle no public
customer business have no Representatives with a Series 7
Qualification. To designate a Principal under proposed Article 6,
Rule 2(h), a Representative at those firms will have to pass both
the Series 7 and Series 24 examinations. The Exchange believes that
six months is necessary to afford those persons a reasonable
opportunity to pass both those examinations.
---------------------------------------------------------------------------
ix. Supervision of Representatives
The Exchange further proposes to amend its existing supervision
rule (Article 6, Rule 5) to include a basic declaration that CHX
Participants are responsible for adherence with the federal securities
laws and Exchange rules, and that they must reasonably supervise their
operations and associated persons to prevent violations thereof. These
obligations already exist under Section 15 of the Exchange Act and
Article 8, Rule 1 of the CHX rules, but the Exchange believes that the
inclusion of the proposed additions will provide direction to
Participant Firms designing their supervisory systems and reinforce the
importance of having adequate supervisory programs. Such reinforcement
will be beneficial to Participants and the marketplace in general.
The Exchange believes that the imposition of the additional
registration, examination, training and CE requirements implicit in
Series 24 and 27 registrations will strengthen existing supervisory and
compliance structures and help to assure that its Participants are
conducting their businesses in compliance with all applicable rules and
regulations.
x. Continuing Education
The Exchange is also proposing to amend Article 6, Rule 11 (``Rule
11'') to specify the different CE requirements for registered persons
based upon their registration with the Exchange. This change will
authorize the Exchange to administer different CE programs to
differently registered individuals while bringing clarity to Exchange
Participants about what CE requirement they must fulfill. More
specifically, the Exchange is proposing to: (1) enumerate the required
Regulatory Element programs, (2) add language to Rule 11 that would
outline which program Exchange registered persons engaging in
proprietary trading must take, and (3) add language to Rule 11(b)
specifying that registered persons with a Series 56 registration must
complete the Firm Element of the CE requirement.
Background
Currently, Exchange Rule 11 states that ``[n]o member or member
organization shall permit any registered person to continue to, and no
registered person shall continue to, perform duties as a registered
person, unless such person has complied with the continuing education
requirements of Section (a) of this Rule.'' \43\ Exchange Rule 11(a)
specifies the CE requirements for registered persons subsequent to
their initial qualification and registration with the Exchange. The
requirements consist of a Regulatory Element and a Firm Element.\44\
The Regulatory Element is a computer-based education program
administered by FINRA to help ensure that registered persons are kept
up to date on regulatory, compliance and sales practice matters in the
industry. Currently, there are two Regulatory Element programs: the
S201 Supervisor Program for registered principals and supervisors and
the S101 General Program for Series 7 and all other registered
persons.\45\ The Exchange is proposing to enumerate these programs in
the Exchange Rulebook along with adding the S501 Series 56 Proprietary
Trader Continuing Education Program for Series 56 registered persons.
---------------------------------------------------------------------------
\43\ Rule 11(a).
\44\ Currently, the Firm Element of the CE Program applies to
any person registered with a Participant who has direct contact with
customers in the conduct of the Participant's securities sales,
trading and investment banking activities, and to the immediate
supervisors of such persons (collectively called ``covered
registered persons''). The requirement stipulates that each
Participant must maintain a continuing education program for its
covered registered persons to enhance their securities knowledge,
skill and professionalism. Each Participant has the requirement to
annually conduct a training needs analysis, develop a written
training plan, and implement the plan.
\45\ FINRA also offers the S106 Series 6 Program for Series 6
registered persons. However, as the Exchange does not currently
enumerate the Series 6 exam in its rules, the S106 is inapplicable.
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[[Page 62733]]
Introduction of the Proprietary Trading Continuing Education Program
The Exchange is proposing to introduce a new CE Program for
proprietary traders registered with the Exchange who have passed the
Series 56 and who have no other registrations. As discussed above,
proposed Article 6, Rule 3 outlines the registration and qualification
requirements (including prerequisite examinations) for Participants
conducting proprietary trading, market-making and/or effecting
transactions on behalf of other broker dealers. According to proposed
Article 6 Rule 3(a)(ii), if the activities of the registered person are
confined to making trading decisions regarding, or otherwise engaging
in, proprietary trading for the broker-dealer with which he or she is
associated, however, he or she may register with the Exchange as a
Proprietary Trader and shall pass the Series 56 Proprietary Trader exam
before such registration may become effective. The Proprietary Trader
Continuing Education Program (S501) is a computer-based education
program developed by many of the SROs \46\ and administered by FINRA to
ensure that registered persons are kept current on regulatory,
compliance and trading practice matters in the industry. Unlike the
other offered CE Programs, the Proprietary Trader Continuing Education
Program is not part of the Uniform Continuing Education Program, which
is developed and maintained by the Securities Industry Regulatory
Council on Continuing Education.
---------------------------------------------------------------------------
\46\ The Participating SROs that have assisted with the
development of, and plan to administer, the S501 are the Exchange,
C2 Options Exchange, Incorporated (``C2''), the Chicago Board
Options Exchange, Inc. (``CBOE''), the New York Stock Exchange, LLC
(``NYSE''), NYSE Arca, Inc. (``Arca''), NYSE Amex, LLC (``Amex''),
the NASDAQ Stock Market LLC (``NASDAQ''), the National Stock
Exchange, Inc. (``NSX''), NASDAQ OMX BX, Inc. (``BX''), NASDAQ OMX
PHLX, LLC. (``PHLX''), BATS YExchange, Inc.(``BATS Y''), BATS
Exchange, Inc. (``BATS''), EDGA Exchange, Inc. (``EDGA''), EDGX
Exchange, Inc. (``EDGX''), International Securities Exchange, LLC
(``ISE''), and BOX Options Exchange, LLC (``BOX'').
---------------------------------------------------------------------------
The Proprietary Trader Continuing Education Program will
logistically operate as the currently offered CE Programs do.
Specifically, registered persons will be required, through CRD, to
complete the Regulatory Element of the CE on the second anniversary of
the base date and then every three years thereafter. While creating the
S501, the Participating SROs \47\ believe that the current procedures
of the other CE programs work well. The Securities Industry Regulatory
Council on Continuing Education has tailored the process of the other
CE Programs since its inception to a process that has been successful.
Thus, as proposed, the S501 will work in the same manner. In addition,
consistency between the different programs will avoid creating
confusion amongst the registered persons and FINRA.
---------------------------------------------------------------------------
\47\ Id.
---------------------------------------------------------------------------
The Proprietary Trader Continuing Education Program (S501) is
required for those registrants who registered as Proprietary Traders
and do not maintain any other registration through CRD.\48\ Individuals
that are registered under any other registration are required to
maintain the CE obligations associated with those registrations. For
example, an individual that is registered as a Proprietary Trader with
the Exchange and has a Series 7 registration will be required to
continue taking the Series 7 Continuing Education Program (S101).\49\
Though such individual may be engaging in the same capacity as one
registered as a Proprietary Trader, because the Series 7 examination is
a more comprehensive exam, the Exchange believes that this individual
continuing to maintain a Series 7 registration should complete a CE
that covers all aspects of his or her registration.
---------------------------------------------------------------------------
\48\ Any registered person who receives a waiver of the Series
56 under Exchange Article 6, Rule 3, Interpretations and Policies
.02 and does not maintain any other registrations in CRD, will be
required to complete the Proprietary Trader Continuing Education
Program (S501). Such individuals will also be required to complete
the Firm Element which is currently described in Exchange Rule
9.3A(b).
\49\ If a registered person has received a Series 56 waiver
under Exchange Article 6, Rule 3, Interpretations and Policies .02
but continues to maintain a Series 7 registration (that predates the
introduction of the Series 56 on the Exchange) that registered
individual will only be required to continue taking the Series 7 CE
Program (S101). Through CRD, FINRA will recognize the Series 56 as
waived while still requiring the Series 7 CE completion.
---------------------------------------------------------------------------
As part of the new Proprietary Trader CE, registered persons will
also be required to complete the Firm Element outlined in Exchange Rule
9.3A(c). Though proprietary traders with a Series 56 registration do
not interact with the public, the Exchange believes this requirement is
appropriate as it ensures these registered persons continue to enhance
their securities knowledge, skill and professionalism. As stated in
Exchange Rule 11(b)(2)(ii), the program should be tailored to fit the
business of the Participant. Thus, the Exchange believes it is
appropriate that these individuals also complete the Firm Element.
The introduction of the Proprietary Trader Continuing Education
Program allows the Exchange to tailor its CE requirements more closely
to those registered individuals who are registered as Series 56. More
specifically, the Exchange believes allowing individuals engaging in
proprietary trading and registered under the Series 56 to complete a
separate CE Program than those maintaining a Series 7 registration is
appropriate as all individuals have the option of taking either test.
In comparison to the Series 7, the Series 56 Examination is more
closely tailored to the practice of proprietary trading while the
Series 7 is more comprehensive. As such, the Exchange believes a Series
56 CE Program should be tailored as well. At the same time, if an
individual would like to remain registered as a Series 7, the Exchange
believes it is appropriate they [sic] continue to be required to
complete the broader CE program. As stated above, though an individual
maintaining a Series 7 registration may be engaging in the same
capacity as one registered as a Proprietary Trader, because the Series
7 examination is a more comprehensive exam, the Exchange believes that
such individual that continues to maintain a Series 7 registration
should complete a CE that covers all aspects of his or her
registration.
xi. Fee Changes
The Exchange proposes to amend Section J.5 of the Fee Schedule to
include the registration fees for the Series 14 and Series 56
exams.\50\ Specifically, the Exchange proposes to insert the following
information:
---------------------------------------------------------------------------
\50\ See CHX Article 6, Rules 3(b)(i); See also CHX Article 6,
Rule 3(a)(ii); and CHX Article 6, Rule 11(a)(3).
---------------------------------------------------------------------------
$335 registration fee for the Series 14 Examination;\51\
and
---------------------------------------------------------------------------
\51\ See Section 4(c) of Schedule A to the FINRA By-Laws.
---------------------------------------------------------------------------
$195 registration fee for the Series 56 Examination.\52\
---------------------------------------------------------------------------
\52\ See FINRA, FINRA Administered Qualification Examinations,
available at https://www.finra.org/Industry/Compliance/Registration/QualificationsExams/Qualifications/p011096.
---------------------------------------------------------------------------
CHX also proposes to adopt a fee applicable to Proprietary Trader
Regulatory Element. Currently, the applicable fee for the Regulatory
Element (S101 and S201) is $100. CHX proposes to adopt a $60 fee for
the S501. FINRA administers these programs on behalf of the exchanges
and therefore the fees are payable directly to FINRA.\53\
[[Page 62734]]
The $60 fee will only be used for the administration of the S501 versus
the S101 which utilizes the $100 fee for both development and
administration. The costs associated with the development of the S501
are included in the examination fee. The Exchange notes that the
proposed changes are not otherwise intended to address any other issues
surrounding regulatory fees and that the Exchange is not aware of any
problems that Participants would have in complying with the proposed
changes.
---------------------------------------------------------------------------
\53\ The S501 was established for those registrants who have
passed the Series 56 Qualification Exam as reflected in WebCRD.
WebCRD is the central licensing and registration system for the U.S.
securities industry. The CRD system enables individuals and firms
seeking registration with multiple states and self-regulatory
organizations to do so by submitting a single form, fingerprint card
and a combined payment of fees to FINRA. Through the CRD system,
FINRA maintains the qualification, employment and disciplinary
histories of registered associated persons of broker-dealers.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange has proposed the above rule changes for the purpose of
requiring certain persons associated with CHX Participants to maintain
appropriate licenses and registrations. These changes will help to
assure competency of Representatives and provide for more effective
supervision and oversight of the Participant's activities.
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \54\ in general, and furthers the
objectives of Sections 6(b)(5) of the Act in particular to aid in
preventing ``fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, 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; and [to] not permit unfair
discrimination between customers, issuers, brokers, or dealers'' by
ensuring individuals are properly registered and supervised.\55\
---------------------------------------------------------------------------
\54\ 15 U.S.C. 78f(b).
\55\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed amendment requiring that
all persons associated with a Participant and who are engaged or will
be engaged in the securities business register as a Representative will
continue to promote the development and maintenance of adequate
training and supervisory programs by CHX Participants.\56\ This change
in Representative registration will ensure that such persons are
appropriately qualified and supervised to aid in preventing fraudulent
and manipulative practices, further just and equitable principles of
trade and protect investors and the public interest in general.\57\
---------------------------------------------------------------------------
\56\ The Exchange is also proposing to change the term
``registered person(s)'' as used throughout Article 6 and in Article
7, Rule 3A to ``Representative(s)'' as part of this filing.
\57\ Notably, persons engaged in the supervision of a
Participant's securities business will also be required to register
as Principals under the provisions of Article 6, Rule 2(c).
---------------------------------------------------------------------------
The Exchange also believes that adding the Proprietary Trader
(Series 56) examination to its list of qualifying exams will allow
individuals who solely conduct a business in proprietary trading to
demonstrate their proficiency in that area. In offering an alternative
to the Series 7 examination, CHX will permit proprietary traders who
pass the Series 56 to trade on a proprietary basis. As stated above,
Representatives will qualify for the Proprietary Trader category at CHX
if the Representative is a person who does not handle or execute
transactions for customers and only enters or executes orders on behalf
of the Participant. Further, and as noted above, other SROs have
similarly recognized the Proprietary Trader registration category and
the Series 56 exam.\58\
---------------------------------------------------------------------------
\58\ See e.g., Securities Exchange Act Release Nos. 63314
(November 12, 2010), 75 FR 70957 (November 19, 2010) (SR-CBOE-2010-
084); 63843 (February 4, 2011), 76 FR 7884 (February 11, 2011) (SR-
ISE-2010-115); 66453 (February 23, 2012), 77 FR 12345 (February 29,
2012) (SR-NYSEAMEX-2012-11); and 66452 (February 23, 2012), 77 FR
12347 (February 29, 2012) (SR-NYSEARCA-2012-15).
---------------------------------------------------------------------------
As the Exchange is continuing to strengthen the supervisory systems
of Participant Firms and thereby contribute to greater investor
protection through the proposed changes, the Exchange has proposed to
require each Participant Firm to register as representatives with the
Exchange at least two Principals in specified categories as described
above. In addition to the requirement of two registered Principals,
each Participant would also be required to register an additional
associated person as a FINOP. Further, the Exchange proposes to require
Participant Firms to designate a CCO.\59\ To qualify for registration,
the CCO must pass the Series 24 examination unless the Participant Firm
met the requirements to take, in the alternative, the Compliance
Officer Exam (Series 14).\60\ A Compliance Officer at such Participant
Firm would qualify for the alternative examination if the firm engaged
solely in proprietary trading; and it otherwise meets the applicable
registration and supervisory requirements for Principals. Thus, all
individuals supervising the securities businesses and associated
persons of Participant Firms must qualify for registration as
Principals by passing the relevant Principal examination as listed in
Article 6, Rule 3. The Exchange believes that adding the proposed rules
related to firm supervision helps prevent fraudulent and manipulative
acts and protect investors and the public interest in general, and
notes that CHX's proposed provisions are similar to those of other
SROs.\61\
---------------------------------------------------------------------------
\59\ See FINRA Rule 3130 and International Stock Exchange
(``ISE'') Rule 313(c) for similar requirements.
\60\ Proposed Article 6, Rules 2(c)(iv) and 3(b). Participant
Firms that conduct solely proprietary trading and otherwise meet the
two-principal requirement may allow their Compliance Officer to take
the less broad Series 14 examination rather than the comprehensive
Series 24 examination for General Securities Principals.
\61\ See, for example, NASD Rule 1021(e) and BATS Rule 2.5
Interpretations and Policies .01(d).
---------------------------------------------------------------------------
In addition, the Exchange believes that the proposed amendments are
consistent with Section 6(c) of the Exchange Act,\62\ in general, and
furthers [sic] the objectives of Section 6(c)(3) of the Exchange
Act,\63\ which allows the Exchange to stipulate qualification,
training, experience and competence standards for persons associated
with Exchange Participants. This filing proposes to amend and clarify
the registration and qualification requirements to ensure that industry
standards are met.
---------------------------------------------------------------------------
\62\ 15 U.S.C. 78f(c).
\63\ 15 U.S.C. 78f(c)(3).
---------------------------------------------------------------------------
The Exchange also believes that the proposed changes are not
unfairly discriminatory as CHX is not only conforming to the rules set
forth by other SROs, but the proposed changes will be applied to all
associated persons of all CHX Participants.\64\ Under current rules,
only CHX Participants for which CHX is the DEA are subject to the rules
regarding registration and qualification. By applying the registration
and qualification rules to all CHX Participants, the rules will not
unfairly discriminate against any Participant class.
---------------------------------------------------------------------------
\64\ To comply with the proposed Exchange rules, the number and
types of examinations taken by individuals at Participant Firms will
likely vary between Participant Firms depending on each Participant
Firm's business model.
---------------------------------------------------------------------------
The proposed rule also introduces a new CE program for the Series
56 registered persons as described above. We believe the content of the
501 education is tailored to the job the proprietary trader performs.
The Exchange believes the proposed changes are reasonable and set forth
the appropriate CE requirements for an individual Participant or
individual associated person who is required to
[[Page 62735]]
register under Exchange Article 6, Rule 2.
The Exchange believes that the proposed registration fees for the
CE and Series 14 and Series 56 exams are consistent with Section 6(b)
of the Act \65\ in general, and, in particular, furthers [sic] the
objectives of Section 6(b)(4) of the Act,\66\ in that it [sic] provides
for the equitable allocation of reasonable dues, fees and other charges
among its members. As discussed above, the Exchange believes that the
fee changes are reasonable because the proposed fees are identical to
those adopted by FINRA for its members and that the proposed fees are
equitably allocated because they apply to all similarly situated Non-
FINRA Participants. As discussed above, the CE programs and the Series
14 and 56 exams are used across the industry. Further, the new $60 fee
is applicable to persons registered as a Proprietary Trader, which is a
limited registration under CHX rules. Accordingly, the proposed S501
Regulatory Element specifically correlates to the rules and obligations
applicable to Proprietary Traders, which are fewer than those
applicable to persons registered in other categories. Thus, the S501 is
a more limited form of continuing education. Further, as discussed
above, the $60 fee will only be used for the administration of the S501
versus the S101 which utilizes the $100 fee for both development and
administration. The costs associated with the development of the S501
are included in the examination fee. Therefore, CHX believes that the
lower fee ($60 rather than $100) is reasonable. The proposed fee is
equitable, because it applies equally to all persons registered solely
as Proprietary Traders.
---------------------------------------------------------------------------
\65\ 15 U.S.C. 78f(b).
\66\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
Finally, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues. In such an environment, the Exchange must continually
review, and consider adjusting, its rules to remain competitive with
other exchanges. The Exchange notes that the rule change is reasonable
in comparison to similar rule changes by certain other SROs. For the
reasons described above, the Exchange believes that the proposed rule
change reflects this competitive environment.
B. Self-Regulatory Organization's Statement of Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The rule change is designed
to amend its current registration and qualification rules to require
that persons associated with CHX Participants maintain appropriate
licenses and registrations. These rule changes will help to assure
competency and provide for more effective supervision and oversight of
a CHX Participant's activities and will not impose any burden on
competition.
The Exchange also does not believe the administrative changes being
made nor the introduction of the Proprietary Trader Continuing
Education Program (S501) will affect intermarket competition as the
Exchange believes all Exchanges offering the same CE requirements will
file similar rules addressing those CE Programs. In addition, the
Exchange does not believe the proposed changes will affect intramarket
competition because all similarly situated registered persons, e.g.
registered persons maintaining the same registrations, are required to
complete the same CE requirements. For example, all individuals
maintaining a Series 7 registration will be required to complete the
Series 7 CE while all individuals maintaining a Series 56 registration
(and no other registrations) will be required to complete the new
Series 56 CE.
The Exchange believes that the fee changes proposed herein will not
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Specifically, the Exchange
believes that the proposed change will result in the same Series 14 and
Series 56 registration fees being charged to all FINRA and Non-FINRA
firms.
In addition, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues. In such an environment, the Exchange must continually
review, and consider adjusting, its rules to remain competitive with
other exchanges. As noted above, many SROs have adopted similar rules
relating to the registrations and qualifications of their members.\67\
Therefore, and for the reasons described above, the Exchange believes
that the proposed rule change aligns CHX rules with the rules of other
SROs and promotes a competitive environment.
---------------------------------------------------------------------------
\67\ See supra footnote 6 [sic].
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule does not affect a change that
(A) significantly affects the protection of investors or the public
interest; (B) impose any significant burden on competition; and (C) by
its terms, becomes operative for 30 days after the date of the filing,
or such shorter time as the Commission may designate if consistent with
the protection of investors and the public interest; provided that the
self-regulatory organization has given the Commission written notice of
its intent to file the proposed rule change, along with a brief
description and text of the proposed rule change, at least five
business days prior to the date of filing of the proposed rule change,
or such shorter time as designated by the Commission, the proposed rule
change will become effective pursuant to Section 19(b)(3)(A) of the Act
\68\ and Rule 19b-4(f)(6) \69\ thereunder.
---------------------------------------------------------------------------
\68\ 15 U.S.C. 78s(b)(3)(A).
\69\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
The Exchange has given the Commission written notice of its intent
to file the proposed rule change, along with a brief description and
text of the proposed rule change, at least five business days prior to
the date of filing of the proposed rule change, or such shorter time as
designated by the Commission. The Exchange respectfully requests that
the Commission waive the 30-day operative delay period after which a
proposed rule change under Rule 19b-4(f)(6) becomes operative. The
Commission believes that the proposed rule change described herein will
strengthen existing supervisory and compliance structures and align
CHX's registration, qualification, and CE rules with those of other
SROs. Waiving the 30-day operative delay will enable CHX to implement
the changes without delay. Therefore, the Commission designates the
proposal operative upon filing.\70\
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\70\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
At any time within 60 days of the filing of this proposed rule
change, the Commission summarily may
[[Page 62736]]
temporarily suspend such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission will institute proceedings to determine whether the proposed
rule change should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml ); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-CHX-2013-14 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 Number SR-CHX-2013-14. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet 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. Copies of the filing will also be available for Web site
viewing and printing at the CHX's principal office and on its Internet
Web site at www.chx.com. 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 Number
SR-CHX-2013-14 and should be submitted on or before November 12, 2013.
For the Commission, by the Division of Trading and Markets, pursuant
to delegated authority.\71\
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\71\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24551 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P
