Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, Amending Certain of Its Disciplinary Rules To Facilitate the Reintegration of Certain Regulatory Functions From Financial Industry Regulatory Authority, Inc., 51334-51340 [2015-20792]
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should be included on the subject line
if email is used. To help the
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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
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should refer to File No. SR–BYX–2015–
35 and should be submitted on or before
September 14, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–20793 Filed 8–21–15; 8:45 am]
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[Release No. 34–75721; File No. SR–NYSE–
2015–35]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Proposed Rule Change, as
Modified by Amendment No. 1,
Amending Certain of Its Disciplinary
Rules To Facilitate the Reintegration of
Certain Regulatory Functions From
Financial Industry Regulatory
Authority, Inc.
August 18, 2015.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on August
5, 2015, New York Stock Exchange LLC
(‘‘NYSE’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. On August 14, 2015, the
exchange filed Amendment No. 1 to the
proposed rule change, which amended
and replaced the proposed rule change
in its entirety. The Commission is
publishing this notice to solicit
comments on the proposed rule change,
as amended, from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
certain of its disciplinary rules to
facilitate the reintegration of certain
regulatory functions from Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’). This Amendment No. 1
supersedes the original filing in its
entirety. The text of the proposed rule
change is available on the Exchange’s
Web site at www.nyse.com, 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
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
certain of its disciplinary rules to permit
the reintegration of certain regulatory
functions from FINRA as of January 1,
2016.
17 17
2 15
1 15
3 17
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U.S.C. 78a.
CFR 240.19b–4.
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Background of Proposed Rule Change
On June 14, 2010, the NYSE, NYSE
Regulation, Inc. (‘‘NYSE Regulation’’),4
and FINRA entered into a Regulatory
Services Agreement (‘‘RSA’’), whereby
FINRA was retained to perform the
market surveillance and enforcement
functions that had previously been
performed by NYSE, through its whollyowned subsidiary NYSE Regulation.
Pursuant to the RSA, FINRA has been
performing Exchange enforcementrelated regulatory services, including
investigating and enforcing violations of
Exchange rules, and conducting
disciplinary proceedings arising out of
such enforcement actions, including
those relating to NYSE-only rules and
against dual members and non-FINRA
members. To facilitate FINRA’s
performance of these functions, the
Exchange amended its rules to provide
that Exchange rules that refer to NYSE
Regulation or its staff, Exchange staff,
and Exchange departments should be
understood to also refer to FINRA staff
and FINRA departments acting on
behalf of the Exchange pursuant to the
RSA.5
In 2013, the Exchange adopted new
disciplinary rules that are, with certain
exceptions, substantially the same as the
text of the FINRA Rule 8000 Series and
Rule 9000 Series, which set forth rules
for conducting investigations and
enforcement actions.6 Those rules were
implemented on July 1, 2013 7 and,
among other things: (1) Identify FINRA’s
Department of Enforcement and
Department of Market Regulation as the
departments permitted to commence
disciplinary proceedings, when
authorized by FINRA’s Office of
Disciplinary Affairs (‘‘ODA’’); (2)
4 NYSE Regulation, a not-for-profit subsidiary of
the Exchange, performs the Exchange’s regulatory
functions pursuant to a delegation agreement. See
note 7 [sic], infra. The Exchange recently filed to,
among other things, terminate the delegation
agreement, establish a regulatory oversight
committee (‘‘ROC’’) as a committee of the board of
directors of the Exchange, and reintegrate its
regulatory and market functions. See Release No.
75288 (June 24, 2015), 80 FR 37316 (June 30, 2015)
(SR–NYSE–2015–27) (the ‘‘NYSE ROC Filing’’). The
amendments proposed herein are consistent with,
and not dependent on approval of, the NYSE ROC
Filing.
5 See Rule 0. Notwithstanding the RSA, the
Exchange retains ultimate legal responsibility for,
and control of, the Exchange’s regulatory functions
performed by FINRA. See Securities Exchange Act
Release No. 62355 (June 22, 2010), 75 FR 36729
(June 28, 2010) (SR–NYSE–2010–46).
6 See Securities Exchange Act Release Nos. 68678
(January 16, 2013), 78 FR 5213 (January 24, 2013)
(SR–NYSE–2013–02), 69045 (March 5, 2013), 78 FR
15394 (March 11, 2013) (SR–NYSE–2013–02), and
69963 (July 10, 2013), 78 FR 42573 (July 16, 2013)
(SR–NYSE–2013–49).
7 See NYSE Information Memorandum 13–8 (May
24, 2013).
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identify ODA as the office permitted to
accept or reject a letter of acceptance,
waiver, and consent (‘‘AWC’’) or minor
rule violation plan letter on behalf of the
Board; and (3) identify ODA as the
office permitted to accept or reject an
offer of settlement if not opposed by
FINRA’s Department of Enforcement or
Department of Market Regulation. Those
rules do not, however, specify whether
Exchange staff or departments, or staff
of the Exchange’s wholly-owned
subsidiary NYSE Regulation, to which
the Exchange currently delegates certain
regulatory functions,8 may perform the
functions described in the rules.
In October 2014, the Exchange
announced that, upon expiration of the
current RSA on December 31, 2015,
certain market surveillance,
investigation and enforcement functions
performed on behalf of the Exchange
would be reintegrated.9 Accordingly,
effective January 1, 2016, the Exchange
will perform certain of the market
surveillance, investigation and
enforcement functions FINRA was
retained to perform in 2010. The
proposed changes to the disciplinary
rules in the present filing are necessary
to permit the Exchange to perform
certain regulatory functions currently
performed on the Exchange’s behalf by
FINRA.
The Exchange proposes the following
changes to facilitate the reintegration of
certain regulatory functions from FINRA
by providing that investigative and
8 The Exchange currently delegates to NYSE
Regulation certain responsibilities and functions of
the Exchange, including taking ‘‘action to assure
compliance with the rules, interpretations, policies
and procedures of [the Exchange], the federal
securities laws, or other laws, rules and regulations
that [the Exchange] has the authority to administer
or enforce, through examination, surveillance,
investigation, enforcement, disciplinary and other
programs.’’ Delegation Agreement by and among
New York Stock Exchange LLC, NYSE Regulation,
Inc. and NYSE Market, Inc. (the ‘‘Delegation
Agreement’’), Section II, A.2. The Exchange,
however, retains ultimate responsibility for such
delegated responsibilities and functions. See
Securities Exchange Act Release No. 53382, 71 FR
11251, 11264 (February 27, 2006) (SR–NYSE–2005–
77). Actions taken by NYSE Regulation pursuant to
delegated authority remain subject to review,
approval or rejection by the board of directors of the
Exchange. The one exception is that actions taken
by NYSE Regulation upon review of disciplinary
decisions by the NYSE Regulation board of
directors is not subject to review, approval or
rejection by the Exchange and constitutes a final
action of the Exchange. See Delegation Agreement,
Section I. The Exchange is not proposing in this
filing any changes to its rules that impact the
review of disciplinary decisions by the NYSE
Regulation board of directors.
9 It is anticipated that FINRA, under a new RSA
currently being negotiated, would continue to
conduct, inter alia, the registration, testing and
examination of broker-dealer members of the
Exchange, and certain cross-market surveillance
and related investigation and enforcement
activities.
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enforcement functions of the Exchange
under the Rule 8000 and 9000 Series
would be performed by personnel and
departments reporting to the Chief
Regulatory Officer of the Exchange 10 or
by FINRA personnel and departments:
(1) Amend Rule 9120 to include two new
defined terms: ‘‘Enforcement,’’ referring
to any department reporting to the CRO
of the Exchange with responsibility for
investigating or imposing sanctions on a
member organization or covered person,
in addition to FINRA’s departments of
Enforcement and Market Regulation; and
‘‘Regulatory Staff,’’ referring to any
officer or employee reporting directly or
indirectly to the CRO of the Exchange, in
addition to FINRA staff acting on behalf
of the Exchange in connection with the
Rule 8000 and 9000 Series;
(2) amend Rules 9120, 9131, 9146, 9211,
9212, 9213, 9215, 9216, 9251, 9253,
9264, 9269, 9270, 9551, 9552, 9554,
9556, 9810, 9820 and 9830 to replace
references to Exchange and FINRA
departments and personnel with
references to ‘‘Enforcement’’ and
‘‘Regulatory Staff’’;
(3) amend Rules 8210 and 9110 to provide
that in performing functions under the
disciplinary code, the CRO and
Regulatory Staff shall function
independently of the commercial
interests of the Exchange and of the
member organizations;
(4) amend Rules 9141 and 9242 to prohibit
former Regulatory Staff from appearing
in a proceeding under the Rule 9000
Series and from providing expert
testimony in a proceeding under the
Rule 9000 Series within one year of
termination, respectively;
(5) amend Rules 9211, 9216 and 9270 to
provide that the CRO would be
responsible for authorizing complaints;
approving letters of acceptance, waiver,
and consent; approving minor rule
violation plan letters; and approving
offers of settlement in place of FINRA’s
ODA; and
(6) amend Rules 476, 8120, 9001, 9110, 9217,
9232, 9310 and 9810 to make certain
technical changes and correct a
typographical error.
The Exchange proposes that the
changes described herein would be
operative on January 1, 2016, following
the reintegration of certain regulatory
functions from FINRA as described
below.
Replacement of References To Exchange
and FINRA Departments and Personnel
With References to Enforcement and
Regulatory Staff
The Exchange proposes to amend
Rules 9120, 9131, 9146, 9211, 9212,
9213, 9215, 9216, 9251, 9253, 9264,
10 NYSE Regulation staff report to the Chief
Executive Officer of NYSE Regulation, who is also
the Chief Regulatory Officer (‘‘CRO’’) of the
Exchange.
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51335
9269, 9270, 9551, 9552, 9554, 9556,
9810, 9820 and 9830 to replace
references to Exchange and FINRA
departments and personnel with
references to the defined terms
‘‘Enforcement’’ and ‘‘Regulatory Staff.’’
The proposed amendments would
allow disciplinary actions to be
investigated and prosecuted on the
Exchange’s behalf by officers or
employees reporting to the CRO
beginning on January 1, 2016, while still
enabling FINRA staff to continue to
perform investigative and disciplinary
activities that FINRA is authorized to
perform on the Exchange’s behalf.
More specifically, the Exchange
proposes to make the following
amendments:
• Rule 9120 (Definitions) sets forth
the definitions applicable to the
disciplinary code. The Exchange
proposes to add definitions of
‘‘Enforcement,’’ referring to any
department reporting to the CRO of the
Exchange with responsibility for
investigating or imposing sanctions on a
member organization or covered person,
in addition to FINRA’s departments of
Enforcement and Market Regulation;
and ‘‘Regulatory Staff,’’ referring to any
officer or employee reporting, directly
or indirectly, to the CRO of the
Exchange, in addition to FINRA staff
acting on behalf of the Exchange in
connection with the Rule 8000 and 9000
Series.11
The Exchange also proposes to delete
the definitions of ‘‘Head of
Enforcement’’ (Rule 9120(q)) and ‘‘Head
of Market Regulation’’ (Rule 9120(r)),
which refer to the FINRA department
heads.12
Similarly, the Exchange proposes to
replace the reference to the ‘‘Department
of Enforcement or the Department of
Market Regulation’’ in Rule 9120(y)
(definition of the term ‘‘Party’’) with
‘‘Enforcement.’’ The Exchange further
proposes to streamline the definition of
‘‘Interested Staff’’ (Rule 9120(u)) to
eliminate references to Exchange and
FINRA departments and staff, and
provide that ‘‘Interested Staff’’ under
any proceeding brought under the Code
11 Certain rules in the Rule 8000 and 9000 Series
currently refer to ‘‘Exchange staff,’’ a term which
includes NYSE employees, NYSE Regulation staff
that administers rules under the Delegation
Agreement, and authorized FINRA staff pursuant to
Rules 0 and 1. The proposed definition of
‘‘Regulatory Staff’’ provides that for purposes of the
Rule 8000 Series and Rule 9000 Series (except for
Rule 9557), the term ‘‘Exchange staff’’ shall have the
same meaning as ‘‘Regulatory Staff.’’
12 The Exchange also proposes to delete the
definition of ODA (Rule 9120(v)) and replace all
references to ODA in the Exchange’s rules with
‘‘CRO,’’ for the reasons discussed in ‘‘Substitution
of CRO for ODA in Rules 9211, 9216 and 9270,’’
infra.
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of Procedure means Regulatory Staff or
Exchange staff who (i) report, directly or
indirectly, to any Enforcement
employee, or to the head of any
department or office that issues a notice
or decision or is designated as a Party
under the Rule 9000 Series, (ii) directly
participated in the authorization or
initiation of a complaint or proceeding,
or (iii) directly participated in the
proceeding, or directly participated in
an examination, investigation,
prosecution, or litigation related to a
proceeding, as well as any person(s)
who supervise such staff. Thus, as in the
current definition, the new definition of
‘‘Interested Staff’’ in a particular matter
encompasses supervisory personnel up
to the most senior level, including the
CRO, when staff reporting to such
supervisory personnel directly
participated in the matter.
Finally, the Exchange proposes to
renumber the remaining definitions in
Rule 9120.
• Rule 9131 (Service of Complaint)
provides that the ‘‘Department of
Enforcement or the Department of
Market Regulation’’ shall serve a
complaint on both a party and counsel
for a party. The Exchange proposes to
replace these references with
‘‘Enforcement.’’ The proposed change
would enable Enforcement to serve
disciplinary complaints beginning
January 1, 2016.
• Rule 9146 (Motions) governs
motion practice under the disciplinary
rules. The Exchange proposes to amend
Rule 9146(k)(1) to replace a reference to
the ‘‘Department of Enforcement and the
Department of Market Regulation and
other Exchange staff’’ with ‘‘Regulatory
Staff.’’ The Exchange also proposes to
replace a reference to ‘‘Exchange staff’’
in subsection (k)(2) with ‘‘Regulatory
Staff.’’ The proposed changes would
identify the staff that may receive or use
documents subject to a protective order.
• Rule 9211 (Authorization of
Complaint) sets forth the process for
authorizing issuance of a complaint
against a member organization or
covered person. The Exchange proposes
to replace references to the ‘‘Department
of Enforcement or the Department of
Market Regulation’’ with ‘‘Enforcement’’
in Rules 9211(a)(1) and (a)(2). The
Exchange proposes to add the phrase
‘‘has reason to believe’’ in subsection
(a)(1) with reference to Enforcement to
make the construction consistent with
other disciplinary rules (e.g., Rule
9216). The proposed change would
enable the Exchange, in addition to
FINRA, to authorize and issue
disciplinary complaints beginning
January 1, 2016. As discussed below,
the Exchange also proposes to amend
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Rule 9211 to provide that the
Exchange’s CRO would authorize
issuance of a complaint.
• Rule 9212 (Complaint Issuance) sets
forth the requirements of the complaint.
In subsection (a)(1), the Exchange
proposes to delete the first sentence as
redundant, and to delete two references
to ‘‘Department of Enforcement or the
Department of Market Regulation.’’ The
proposed change would permit
‘‘authorized Enforcement staff’’ to sign a
complaint that would be served by
‘‘Enforcement.’’
The Exchange also proposes to
replace ‘‘Department of Enforcement or
the Department of Market Regulation’’
with ‘‘Enforcement’’ in Rule 9212(a)(2)
to permit, in addition to the relevant
FINRA departments, any department
reporting to the CRO that meets the
definition of ‘‘Enforcement’’ to propose
a hearing location or that the Chief
Hearing Officer select a Floor-Based
Panelist as provided for therein.
Similarly, the Exchange proposes to
replace ‘‘Department of Enforcement or
the Department of Market Regulation’’
with ‘‘Enforcement’’ in Rule 9212(b) and
Rule 9212(c)(1) and (2) to enable any
department reporting to the CRO that
meets the definition of ‘‘Enforcement,’’
in addition to the relevant FINRA
departments, to amend and withdraw
complaints.
• Rule 9213(a) (Assignment of
Hearing Officer) provides for the
appointment of a Hearing Officer and
Panelists by the Chief Hearing Officer as
soon as practicable after the filing of a
complaint by the ‘‘Department of
Enforcement or the Department of
Market Regulation.’’ The Exchange
proposes to replace this reference with
‘‘Enforcement’’ to include complaints
filed by any department reporting to the
CRO that meets the definition of
‘‘Enforcement,’’ in addition to the
relevant FINRA departments.
• Rule 9215(f) (Answer to Complaint)
sets forth the requirements for
answering a complaint. The Exchange
proposes to replace ‘‘Department of
Enforcement or the Department of
Market Regulation’’ with ‘‘Enforcement’’
in Rule 9215(f) to enable any
department reporting to the CRO that
meets the definition of ‘‘Enforcement,’’
in addition to the relevant FINRA
departments, to send a second notice if
a respondent does not file an answer or
timely respond to the complaint.
• Rule 9216(a) (Acceptance, Waiver,
and Consent Procedures) sets forth the
procedures by which a respondent can
execute an AWC letter prior to the
issuance of a complaint. Under the
current rule, FINRA’s Department of
Enforcement or Department of Market
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Regulation prepares and requests that a
member organization or covered person
execute an AWC letter, and ‘‘Exchange
staff’’ may determine the effective date
of sanctions unless the letter states
otherwise. The Exchange proposes to
replace ‘‘Department of Enforcement or
the Department of Market Regulation’’
in Rule 9216(a)(1) with ‘‘Enforcement’’
to permit any department reporting to
the CRO that meets the definition of
‘‘Enforcement,’’ in addition to the
relevant FINRA departments, to prepare
and request execution of AWC letters.
The Exchange also proposes to replace
‘‘Exchange staff’’ with ‘‘Regulatory
Staff’’ to identify the staff that may
determine the effective date of
sanctions.
Rule 9216(b) (Procedure for Violation
Under Plan Pursuant to SEA Rule 19d–
1(c)(2)) sets forth the procedures for
executing a minor rule violation plan
letter.13 Under the current rule, FINRA’s
Department of Enforcement or
Department of Market Regulation may
prepare and request that a member
organization or covered person execute
a minor rule violation plan letter, and
‘‘Exchange staff’’ may determine the
effective date of sanctions unless the
letter states otherwise. The Exchange
proposes to replace references to ‘‘the
Department of Enforcement or the
Department of Market Regulation’’ in
Rule 9216(b)(1) with ‘‘Enforcement’’ so
that any department reporting to the
CRO that meets the definition of
‘‘Enforcement,’’ in addition to FINRA,
may prepare and request such letters.
The Exchange also proposes to replace
‘‘Exchange staff’’ with ‘‘Regulatory
Staff’’ to identify the staff that may
determine the effective date of
sanctions.
• Rule 9251 (Inspection and Copying
of Documents in Possession of Staff)
requires that documents prepared or
obtained in connection with an
investigation be made available to a
respondent. The Exchange proposes to
amend subsections (a) (documents that
must be made available for inspection
and copying), (b) (documents withheld
from inspection and copying), (c) (list of
documents withheld), (d) (timing of
inspection and copying), and (g) (failure
to make documents available) to replace
references to ‘‘the Department of
Enforcement or the Department of
Market Regulation’’ with ‘‘Enforcement’’
to bring departments reporting to the
CRO that meet the definition of
13 A minor rule violation plan letter under the
Exchange’s rules permits a fine not to exceed $2,500
and/or a censure to be imposed with respect to
certain specifically enumerated rules. See Rules
9216(b)(1) and 9217.
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‘‘Enforcement’’ within the scope of this
rule.
• Rule 9253 (Production of Witness
Statements) sets forth the procedures for
filing motions to obtain witness
statements. The Exchange proposes to
amend Rule 9253(a) and (b) to replace
‘‘Department of Enforcement or the
Department of Market Regulation’’ with
‘‘Enforcement’’ to bring departments
reporting to the CRO that meet the
definition of ‘‘Enforcement’’ within the
scope of this Rule.
• Rule 9264 (Motion for Summary
Disposition) sets forth the procedures
for filing summary disposition motions.
The Exchange proposes to replace
‘‘Department of Enforcement or the
Department of Market Regulation’’ with
‘‘Enforcement’’ to bring departments
reporting to the CRO that meet the
definition of ‘‘Enforcement’’ within the
scope of this Rule.
• Rule 9269 (Default Decisions) sets
forth the process for issuance and
review of default decisions. The
Exchange proposes to replace
‘‘Department of Enforcement or the
Department of Market Regulation’’ in
subsection (a)(2) with ‘‘Enforcement’’ in
order to bring departments reporting to
the CRO that meet the definition of
‘‘Enforcement’’ within the scope of this
Rule. The Exchange also proposes to
replace ‘‘Exchange staff’’ with
‘‘Regulatory Staff’’ in subsection (d) to
identify the staff that may determine the
effective date of certain sanctions.
• Rule 9270 (Settlement Procedure)
governs offers of settlement. The
Exchange proposes to replace ‘‘the
Department of Enforcement or the
Department of Market Regulation’’ in
subsections (e) and (f) with
‘‘Enforcement’’ in order to permit a
department reporting to the CRO that
meets the definition of ‘‘Enforcement’’
to consider offers of settlement by
respondents. The Exchange also
proposes to replace ‘‘Exchange staff’’
with ‘‘Regulatory Staff’’ in subsection
(c)(5) to identify the staff that may
determine the effective date of sanctions
when provided in an offer of
settlement.14
• Rule 9551 (Failure to Comply with
Public Communication Standards)
governs expedited proceedings relating
to a member organization’s departure
from the public communication
standards of Rule 2210. The Exchange
proposes to replace ‘‘Exchange staff’’
with ‘‘Regulatory Staff’’ to identify the
staff that initiates and otherwise
participates in such proceedings.
14 As
discussed below, the Exchange further
proposes to amend Rule 9270 to have certain offers
of settlement submitted to the CRO and not ODA.
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• Rule 9552 (Failure to Provide
Information or Keep Information
Current) sets forth procedures for
expedited proceedings relating to a
member organization or covered
person’s failure to provide information
or keep information current. The
Exchange proposes to replace
‘‘Exchange staff’’ with ‘‘Regulatory
Staff’’ to identify the staff that initiates
and otherwise participates in such
proceedings.
• Rule 9554 (Failure to Comply with
an Arbitration Award or Related
Settlement or an Order of Restitution or
Settlement Providing for Restitution)
governs expedited proceedings relating
to noncompliance with an arbitration
award, settlement agreement, or
restitution order. The Exchange
proposes to replace ‘‘Exchange staff’’
with ‘‘Regulatory Staff’’ to identify the
staff that initiates and otherwise
participates in such proceedings.
• Rule 9556 (Failure to Comply with
Temporary and Permanent Cease and
Desist Orders) governs expedited
proceedings relating to noncompliance
with a temporary or permanent cease
and desist order. The Exchange
proposes to replace ‘‘Exchange staff’’
with ‘‘Regulatory Staff’’ to identify the
staff that initiates and otherwise
participates in such proceedings.
• Rule 9810 (Initiation of Proceeding)
sets forth procedures for initiating
temporary cease and desist proceedings.
The Exchange proposes to replace
‘‘Department of Enforcement or the
Department of Market Regulation’’ with
‘‘Enforcement’’ in the title and the text
of the rule to permit a department
reporting to the CRO that meets the
definition of ‘‘Enforcement’’ to initiate
such proceedings.
• The Exchange proposes to replace
references to ‘‘Department of
Enforcement or the Department of
Market Regulation’’ with ‘‘Enforcement’’
in Rule 9820 (Appointment of Hearing
Officer and Hearing Panel), which
governs the appointment of Hearing
Officers and Panelists for temporary
cease and desist proceedings, to bring
departments reporting to the CRO that
meet the definition of ‘‘Enforcement’’
within the scope of this Rule.
• Rule 9830 (Hearing) sets forth
hearing procedures for temporary cease
and desist proceedings. The Exchange
proposes to amend Rule 9830(b) and (h)
to replace ‘‘Department of Enforcement
or the Department of Market
Regulation’’ with ‘‘Enforcement’’ to
permit service of a notice in a temporary
cease and desist proceeding on a
department reporting to the CRO that
meets the definition of ‘‘Enforcement,’’
and to describe available remedies in
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51337
the event Enforcement fails to appear at
a hearing.
Independence of the CRO and Staff in
the Disciplinary Process
The Exchange proposes to amend
Rules 8210 and 9110 to add rule text
providing that in performing functions
under the disciplinary code, the CRO
and Regulatory Staff would function
independently of the commercial
interests of the Exchange and the
commercial interests of the member
organizations. This requirement is
already being met and is consistent with
longstanding policies and practices at
the Exchange. The proposed change
would also be consistent with rules
currently in effect for the equities and
options markets of the Exchange’s
affiliate NYSE Arca, Inc., and would
reflect the Exchange’s ongoing
commitment to performing its
regulatory functions under its
disciplinary rules in an independent
and impartial manner.15
One Year Revolving Door Restriction
and Prohibition on Serving as Expert
Witness
Rule 9141 governs appearances in a
proceeding. The Exchange proposes to
amend Rule 9141 by adding a new
section (c) that would prohibit former
Regulatory Staff from making an
appearance before an Adjudicator on
behalf of any other person in any
proceeding under the Rule 9000 Series
within one year immediately following
termination of employment with the
Exchange or FINRA. The rule text is
broader than FINRA’s counterpart rule
in that it covers not only former FINRA
staff but also former Regulatory Staff
that reported to the CRO, and covers
both officers and employees. The rule
text is otherwise substantially the same
as the text of FINRA Rule 9141(c),
which the Exchange declined to adopt
in 2013.16 At the time, the Exchange did
not believe it was necessary to bar
former employees from such
appearances because its employees were
not conducting disciplinary functions
and their appearance would not create
the same type of potential conflict of
interest. Once Regulatory Staff reporting
to the CRO again directly perform
market surveillance, investigation and
enforcement functions following
expiration of the current RSA, that
would no longer be the case and the
Exchange therefore believes that such a
prohibition would help prevent
15 See Arca Equities Rule 10.2(a); Arca Options
Rule 10.2(a).
16 See Securities Exchange Act Release No. 69045,
78 FR at 15395 n.14.
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Substitution of CRO for ODA in Rules
9211, 9216 and 9270
The Exchange proposes that the CRO
rather than FINRA’s ODA would be
responsible for: (1) Authorizing issuance
of a complaint; (2) accepting or rejecting
AWC letters and minor rule violation
plan letters; and (3) accepting or
rejecting uncontested offers of
settlement.
The Exchange believes that providing
for the CRO to authorize issuance of
complaints and approve settlements
would be consistent with the
Exchange’s reintegration of regulatory
functions and the rules of other SROs.17
The proposed change is also consistent
with certain powers the CRO currently
has under the disciplinary rules.18
Moreover, as noted above, by rule the
CRO would be required to operate
independently of the commercial
interests of the Exchange and of member
organizations.
To accomplish these changes, the
Exchange proposes to amend Rules
9211, 9216 and 9270 as follows:
• Rule 9211(a)(1) and (a)(2) would be
amended to replace ‘‘Office of
Disciplinary Affairs’’ with ‘‘CRO.’’ This
proposed change would identify the
CRO rather than ODA as being
responsible for authorizing Enforcement
to issue a complaint.
• Rule 9216(a)(3) and (a)(4) would be
amended to replace references to
‘‘Office of Disciplinary Affairs’’ with
‘‘CRO.’’ The proposed change would
permit the CRO to accept or reject an
AWC letter and, if accepted, to be
deemed final.
• Rule 9216(a)(4) would be amended
to provide that if the CRO rejects an
AWC letter, the Exchange may take
other appropriate disciplinary action
with respect to the alleged violation or
violations. This is consistent with the
current rule as it relates to an AWC
letter that is rejected by FINRA’s ODA.
• Rule 9216(b)(3) and (b)(4) would be
amended to replace ‘‘Office of
Disciplinary Affairs’’ with ‘‘CRO.’’ This
proposed change would allow an
executed minor rule violation plan letter
to be submitted to the CRO, which, on
behalf of the SRO Board, may accept or
reject it. If accepted, it would be deemed
final; if the CRO rejects the letter, the
Exchange may take other appropriate
disciplinary action with respect to the
alleged violation or violations. This is
consistent with the current rule as it
relates to a minor rule violation plan
letter that is accepted or rejected by
ODA.
• Finally, Rule 9270(e), (f), (h), and (j)
would also be amended to replace
‘‘Office of Disciplinary Affairs’’ with
‘‘CRO.’’ The proposed change to
subsection (f) would provide that
uncontested offers of settlement would
be transmitted to the CRO and, if
accepted under proposed Rule
17 See e.g., BATS Exchange Rules 8.4 and 8.8;
Chicago Stock Exchange Article 12, Rules 1(b) and
(d) (providing that the CRO shall direct written
charges and approve or reject offers of settlement).
The International Securities Exchange (‘‘ISE’’),
Miami International Securities Exchange (‘‘MIAX’’)
and BOX Options Exchange (‘‘BOX’’) also provide
that complaints are to be approved by the CRO.
Each also requires offers of settlement to be
authorized by the CRO if a hearing panel has not
yet been appointed, and requires letters of consent
to be authorized by the CRO and approved by a
business conduct committee. See ISE Rules 1603,
1604 and 1609; MIAX Rules 1003, 1004 and 1009;
BOX Rules 12030, 12040 and 12090.
18 In adopting FINRA’s disciplinary rules, the
Exchange provided that the CRO, rather than
FINRA’s CEO, would authorize the initiation of
temporary cease and desist proceedings and the
initiation of suspension or cancellation proceedings
for a violation of a temporary cease and desist
order. The Exchange also retained the ability of the
CRO to resolve certain procedural matters in
connection with settlements under Rule 9270(d).
See Securities Exchange Act Release No. 69045, 78
FR at 15394, 15398–15400 & n.24.
tkelley on DSK3SPTVN1PROD with NOTICES
potential conflicts or appearance of
conflicts of interest.
Similarly, the Exchange proposes to
amend Rule 9242, which governs prehearing submissions, to add a new
section (b) prohibiting former
Regulatory Staff from providing expert
testimony on behalf of any other person
in any proceeding under the Rule 9000
Series within one year immediately
following termination of employment
with the Exchange or FINRA. The
Exchange also proposes that nothing in
proposed Rule 9242(b) would prohibit
former Regulatory Staff from testifying
as a witness on behalf of the Exchange
or FINRA. The rule text is broader than
FINRA’s counterpart rule in that it
covers not only former FINRA staff but
also former Regulatory Staff that
reported to the CRO, and covers both
officers and employees. The rule text is
otherwise substantially the same as the
text of FINRA Rule 9242(b), which the
Exchange declined to adopt in 2013 for
the same reasons it did not adopt the
one year prohibition of FINRA Rule
9141(c). Given the Exchange’s
anticipated resumption of certain
regulatory functions, the Exchange
believes that a prohibition on former
Regulatory Staff providing expert
testimony would help prevent potential
conflicts or appearance of conflicts of
interest. The Exchange also believes
that, consistent with FINRA Rule
9242(b), permitting a former Regulatory
Staff member to testify as a witness on
behalf of the Exchange does not pose
potential conflicts of interest.
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9270(f)(3), would be issued and become
final. Under proposed Rule 9270(h), if
the CRO does not accept an uncontested
offer of settlement, the respondent
would be notified in writing and the
offer of settlement and proposed order
of acceptance would be deemed
withdrawn.19 Under proposed Rule
9270(j), an offer of settlement rejected
by the CRO would not prejudice a
respondent and would not be
introduced into evidence in connection
with the determination of the issues
involved in the pending complaint or in
any other proceeding. This is consistent
with the current rule as it relates to an
offer of settlement that is not accepted
by ODA.
Miscellaneous Amendments to Rules
476, 8120, 9001, 9110, 9217, 9232, 9310
and 9810
The Exchange proposes several
miscellaneous amendments to make
certain technical changes and correct a
typographical error.
First, the Exchange proposes to insert
a reference to the Rule 8000 Series in
Rule 476 in order to clarify that both the
Rule 8000 Series and the Rule 9000
Series would apply to proceedings for
which no Charge Memorandum was
filed with the hearing board under Rule
476(d) prior to July 1, 2013 and for
which no written Stipulation and
Consent was submitted to a Hearing
Officer prior to July 1, 2013.20 The
Exchange proposes the same change to
Rule 9001, which specifies the effective
date of the Rule 9000 Series.
Second, the Exchange proposes to
delete the last sentence in Rule 476 as
obsolete. By its terms, that sentence
relates only to orders issued on or before
July 1, 2013.
Third, the Exchange proposes to add
a reference to the term ‘‘Regulatory
Staff’’ in Rule 8120, because, as set forth
above, that new defined term is
referenced in certain proposed changes
to the Rule 8000 Series.
Fourth, the Exchange proposes to
delete the last sentence in Rule 9110(c)
as obsolete.
19 Because the Exchange does not have sanction
guidelines, the CRO, Hearing Panel, or Extended
Hearing Panel, as applicable, would consider
Exchange precedent or such other precedent as it
deemed appropriate in determining whether or not
to accept a settlement offer under Rule 9270. See
Securities Exchange Act Release No. 68678 at 43
n.38 (January 16, 2013), 78 FR 5213 at 5229 n.39
(January 24, 2013) (SR–NYSE–2013–02).
20 Rule 476 is the Exchange’s legacy disciplinary
rule that applies to a Charge Memorandum filed
under Rule 476(d) prior to July 1, 2013 or for which
a written Stipulation and Consent was submitted
prior to July 1, 2013. See Securities Exchange Act
Release Nos. 68678, 78 FR at 5213 and 69045, 78
FR at 15394.
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Fifth, the Exchange proposes to
correct a typographical error in Rule
9217, which sets forth the rules eligible
for minor rule plan fines, by adding a
dash in the rule text describing Rule
123C.
Sixth, the Exchange proposes to
amend Rule 9232(b), which governs
appointment of panelists, to provide
that the Board shall from time to time
appoint a Hearing Board as set forth in
the rule. Under the current rule, the
Chairman of the Board, subject to Board
approval, has this responsibility. The
Exchange believes that because the
approval of the Board is required for
appointment of the Hearing Board, it is
not necessary to specify that the
Chairman of the Exchange Board would
appoint the Hearing Board subject to
such approval.
Seventh, the Exchange proposes two
[sic] technical, clarifying amendments
to Rule 9310. The Exchange proposes to
amend Rule 9310 to provide that none
of the persons referenced in the Rule,
i.e., Board directors, members of the
Committee for Review, and the parties,
may request Board review of a decision
concerning an Exchange member that is
an affiliate. Under the current Rule, only
the parties are prohibited from
requesting Board review of a decision in
such circumstances.21
Finally, the Exchange proposes to add
the phrase ‘‘Service and Filing of
Notice’’ to the title of Rule 9810(a) in
order to identify the subject matter
covered by the rule.
tkelley on DSK3SPTVN1PROD with NOTICES
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,22 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,23 in particular, in that it is
designed to promote just and equitable
principles of trade and to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system. In
addition, the Exchange believes that the
proposed rule change furthers the
objectives of Section 6(b)(7) of the Act,24
in particular, in that it provides fair
procedures for the disciplining of
members and persons associated with
members, the denial of membership to
any person seeking membership therein,
the barring of any person from becoming
associated with a member thereof, and
21 A decision with respect to an Exchange
member that is an affiliate of the Exchange
constitutes final Exchange disciplinary action
pursuant to SEC Rule 19d–1(c)(1) and may not be
reviewed by the Board. See Rule 9268(e)(2).
22 15 U.S.C. 78f(b).
23 15 U.S.C. 78f(b)(5).
24 15 U.S.C. 78f(b)(7).
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the prohibition or limitation by the
Exchange of any person with respect to
access to services offered by the
Exchange or a member thereof. In
addition, the Exchange believes that the
proposed rule change furthers the
objectives of Section 6(b)(3) of the Act,25
in particular, in that it supports the fair
representation of members in the
administration of the Exchange’s affairs.
The Exchange believes that
eliminating references to FINRA
departments and replacing them with
‘‘Enforcement,’’ a new defined term that
includes any department reporting to
the CRO of the Exchange with
responsibility for investigating or
imposing sanctions on a member
organization or covered person, in
addition to FINRA’s departments of
Enforcement and Market Regulation, in
Rules 9120, 9131, 9146, 9211, 9212,
9213, 9215, 9216, 9251, 9253, 9264,
9269, 9270, 9810, 9820 and 9830 would
facilitate the Exchange’s ability to
directly conduct investigations and
bring disciplinary actions for matters it
will be conducting after the
reintegration of certain functions next
year. The Exchange believes that
defining ‘‘Regulatory Staff’’ as including
any officer or employee reporting
directly or indirectly to the CRO of the
Exchange in addition to FINRA staff
acting on behalf of the Exchange in
connection with the Rule 8000 and 9000
Series, in Rules 9120, 9146, 9216, 9269,
9270, 9551, 9552, 9554, and 9556 would
similarly facilitate the Exchange’s
ability to directly conduct investigations
and bring disciplinary actions, as well
as FINRA.
Because the substance of the rules
would remain unchanged, the Exchange
believes that the proposed change
would provide fair procedures for the
disciplining of members and persons
associated with members, the denial of
membership to any person seeking
membership therein, the barring of any
person from becoming associated with a
member thereof, and the prohibition or
limitation by the Exchange of any
person with respect to access to services
offered by the Exchange or a member
thereof. Further, removing references to
Exchange and FINRA offices and
departments in the Exchange’s Rules
that are unnecessary in light of Rule 0
removes impediments to and perfects a
national market system because it
would reduce potential confusion that
may result from retaining different
designations in the Exchange’s
rulebook. Removing potentially
confusing conflicting designations
would also further the goal of
25 15
PO 00000
Fmt 4703
transparency and add consistency to the
Exchange’s Rules.
The Exchange believes that adding
rule text to Rules 8210 and 9110 stating
that the CRO and Regulatory Staff
would function independently of the
commercial interests of the Exchange
and the commercial interests of member
organizations in performing functions
under the disciplinary rules would
further ensure the integrity and
independence of the disciplinary
process and further provide fair
procedures for the disciplining of
members and persons associated with
members. For the same reasons,
addition of the proposed rule text would
protect investors and the public interest
and would therefore be consistent with
Section 6(b)(5) of the Exchange Act.
The Exchange believes that
prohibiting former Regulatory Staff from
representing respondents and providing
expert testimony in Exchange
disciplinary matters within one year
immediately following termination of
employment would provide greater
harmonization between Exchange and
FINRA rules of similar purpose. As
previously noted, the proposed rule text
is based on FINRA’s current rule text,
which already has been approved by the
Commission. As such, the proposed rule
change would foster cooperation and
coordination with persons engaged in
facilitating transactions in securities and
will remove impediments to and perfect
the mechanism of a free and open
market and a national market system.
The Exchange also believes that
making the CRO responsible for
authorizing complaints and approving
AWC letters, minor rule violation plan
letters and offers of settlement in place
of FINRA’s ODA is fair and reasonable,
and provides adequate procedural
protections. In particular, requiring
approval of complaints and settlements
by an independent CRO will serve as an
appropriate check on the authority of
the investigative and enforcement staff
at both the Exchange and FINRA to
bring and resolve such actions.
Further, the Exchange believes that by
having decisions regarding initiating
and resolving formal disciplinary
actions and resolving minor rule
violations made by an individual with
the most direct expertise relevant to the
NYSE’s markets,26 the proposal
promotes efficiency and consistency
and aligns the Exchange’s process with
other SROs. As noted above, the
proposed change is consistent with the
reintegration of regulatory functions by
the Exchange and the practices at other
26 See, e.g., Securities Exchange Act Release No.
69045, 78 FR at 15401.
U.S.C. 78f(b)(3).
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SROs where CROs authorize issuance of
complaints and approve settlements.
Finally, making technical
amendments and correcting a
typographical error in Rules 476, 8120,
9001, 9110, 9217, 9232, 9310 and 9810
removes impediments to and perfects
the mechanism of a free and open
market by removing confusion that may
result from having incorrect or
redundant material in the Exchange’s
rulebook. The Exchange believes that
eliminating incorrect or redundant
material would not be inconsistent with
the public interest and the protection of
investors because investors will not be
harmed and in fact would benefit from
increased transparency, thereby
reducing potential confusion. Removing
such references will also remove
impediments to and perfects the
mechanism of a free and open market by
ensuring that persons subject to the
Exchange’s jurisdiction, regulators, and
the investing public can more easily
navigate and understand the Exchange’s
rulebook. The Exchange believes that
eliminating incorrect or redundant
material would not be inconsistent with
the public interest and the protection of
investors because investors will not be
harmed and in fact would benefit from
increased transparency, thereby
reducing potential confusion. Removing
such references will also further the goal
of transparency and add clarity to the
Exchange’s rules.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change is not intended to
address competitive issues but rather to
enable the Exchange to directly
investigate and initiate disciplinary
actions following and facilitate the
reintegration of certain regulatory
functions from FINRA.
tkelley on DSK3SPTVN1PROD with NOTICES
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
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
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Jkt 235001
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) by order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSE–2015–35 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSE–2015–35. 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 such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–NYSE–
PO 00000
Frm 00145
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2015–35, and should be submitted on or
before September 14, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–20792 Filed 8–21–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–75723; File No. SR–BATS–
2015–60]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Related to Fees for Use
of BATS Exchange, Inc.
August 18, 2015.
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 August 7,
2015, BATS Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BATS’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by the Exchange. The Exchange has
designated the proposed rule change as
one establishing or changing a member
due, fee, or other charge imposed by the
Exchange under section 19(b)(3)(A)(ii)
of the Act 3 and Rule 19b–4(f)(2)
thereunder,4 which renders the
proposed rule change effective upon
filing with the Commission. 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 Exchange filed a proposal to
amend the fee schedule applicable to
Members 5 and non-members of the
Exchange pursuant to BATS Rules
15.1(a) and (c) (‘‘Fee Schedule’’) to
remove fees for BATS Investor Pro and
BATS Investor RT, as the Exchange will
no longer make these products available
as of August 29, 2015.
The text of the proposed rule change
is available at the Exchange’s Web site
27 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
5 The term ‘‘Member’’ is defined as ‘‘any
registered broker or dealer that has been admitted
to membership in the Exchange.’’ See Exchange
Rule 1.5(n).
1 15
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]]>Agencies
[Federal Register Volume 80, Number 163 (Monday, August 24, 2015)]
[Notices]
[Pages 51334-51340]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-20792]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75721; File No. SR-NYSE-2015-35]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change, as Modified by Amendment No.
1, Amending Certain of Its Disciplinary Rules To Facilitate the
Reintegration of Certain Regulatory Functions From Financial Industry
Regulatory Authority, Inc.
August 18, 2015.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on August 5, 2015, New York Stock Exchange LLC (``NYSE'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been prepared by the self-regulatory
organization. On August 14, 2015, the exchange filed Amendment No. 1 to
the proposed rule change, which amended and replaced the proposed rule
change in its entirety. The Commission is publishing this notice to
solicit comments on the proposed rule change, as amended, from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 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
The Exchange proposes to amend certain of its disciplinary rules to
facilitate the reintegration of certain regulatory functions from
Financial Industry Regulatory Authority, Inc. (``FINRA''). This
Amendment No. 1 supersedes the original filing in its entirety. The
text of the proposed rule change is available on the Exchange's Web
site at www.nyse.com, 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 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 certain of its disciplinary rules to
permit the reintegration of certain regulatory functions from FINRA as
of January 1, 2016.
Background of Proposed Rule Change
On June 14, 2010, the NYSE, NYSE Regulation, Inc. (``NYSE
Regulation''),\4\ and FINRA entered into a Regulatory Services
Agreement (``RSA''), whereby FINRA was retained to perform the market
surveillance and enforcement functions that had previously been
performed by NYSE, through its wholly-owned subsidiary NYSE Regulation.
Pursuant to the RSA, FINRA has been performing Exchange enforcement-
related regulatory services, including investigating and enforcing
violations of Exchange rules, and conducting disciplinary proceedings
arising out of such enforcement actions, including those relating to
NYSE-only rules and against dual members and non-FINRA members. To
facilitate FINRA's performance of these functions, the Exchange amended
its rules to provide that Exchange rules that refer to NYSE Regulation
or its staff, Exchange staff, and Exchange departments should be
understood to also refer to FINRA staff and FINRA departments acting on
behalf of the Exchange pursuant to the RSA.\5\
---------------------------------------------------------------------------
\4\ NYSE Regulation, a not-for-profit subsidiary of the
Exchange, performs the Exchange's regulatory functions pursuant to a
delegation agreement. See note 7 [sic], infra. The Exchange recently
filed to, among other things, terminate the delegation agreement,
establish a regulatory oversight committee (``ROC'') as a committee
of the board of directors of the Exchange, and reintegrate its
regulatory and market functions. See Release No. 75288 (June 24,
2015), 80 FR 37316 (June 30, 2015) (SR-NYSE-2015-27) (the ``NYSE ROC
Filing''). The amendments proposed herein are consistent with, and
not dependent on approval of, the NYSE ROC Filing.
\5\ See Rule 0. Notwithstanding the RSA, the Exchange retains
ultimate legal responsibility for, and control of, the Exchange's
regulatory functions performed by FINRA. See Securities Exchange Act
Release No. 62355 (June 22, 2010), 75 FR 36729 (June 28, 2010) (SR-
NYSE-2010-46).
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In 2013, the Exchange adopted new disciplinary rules that are, with
certain exceptions, substantially the same as the text of the FINRA
Rule 8000 Series and Rule 9000 Series, which set forth rules for
conducting investigations and enforcement actions.\6\ Those rules were
implemented on July 1, 2013 \7\ and, among other things: (1) Identify
FINRA's Department of Enforcement and Department of Market Regulation
as the departments permitted to commence disciplinary proceedings, when
authorized by FINRA's Office of Disciplinary Affairs (``ODA''); (2)
[[Page 51335]]
identify ODA as the office permitted to accept or reject a letter of
acceptance, waiver, and consent (``AWC'') or minor rule violation plan
letter on behalf of the Board; and (3) identify ODA as the office
permitted to accept or reject an offer of settlement if not opposed by
FINRA's Department of Enforcement or Department of Market Regulation.
Those rules do not, however, specify whether Exchange staff or
departments, or staff of the Exchange's wholly-owned subsidiary NYSE
Regulation, to which the Exchange currently delegates certain
regulatory functions,\8\ may perform the functions described in the
rules.
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\6\ See Securities Exchange Act Release Nos. 68678 (January 16,
2013), 78 FR 5213 (January 24, 2013) (SR-NYSE-2013-02), 69045 (March
5, 2013), 78 FR 15394 (March 11, 2013) (SR-NYSE-2013-02), and 69963
(July 10, 2013), 78 FR 42573 (July 16, 2013) (SR-NYSE-2013-49).
\7\ See NYSE Information Memorandum 13-8 (May 24, 2013).
\8\ The Exchange currently delegates to NYSE Regulation certain
responsibilities and functions of the Exchange, including taking
``action to assure compliance with the rules, interpretations,
policies and procedures of [the Exchange], the federal securities
laws, or other laws, rules and regulations that [the Exchange] has
the authority to administer or enforce, through examination,
surveillance, investigation, enforcement, disciplinary and other
programs.'' Delegation Agreement by and among New York Stock
Exchange LLC, NYSE Regulation, Inc. and NYSE Market, Inc. (the
``Delegation Agreement''), Section II, A.2. The Exchange, however,
retains ultimate responsibility for such delegated responsibilities
and functions. See Securities Exchange Act Release No. 53382, 71 FR
11251, 11264 (February 27, 2006) (SR-NYSE-2005-77). Actions taken by
NYSE Regulation pursuant to delegated authority remain subject to
review, approval or rejection by the board of directors of the
Exchange. The one exception is that actions taken by NYSE Regulation
upon review of disciplinary decisions by the NYSE Regulation board
of directors is not subject to review, approval or rejection by the
Exchange and constitutes a final action of the Exchange. See
Delegation Agreement, Section I. The Exchange is not proposing in
this filing any changes to its rules that impact the review of
disciplinary decisions by the NYSE Regulation board of directors.
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In October 2014, the Exchange announced that, upon expiration of
the current RSA on December 31, 2015, certain market surveillance,
investigation and enforcement functions performed on behalf of the
Exchange would be reintegrated.\9\ Accordingly, effective January 1,
2016, the Exchange will perform certain of the market surveillance,
investigation and enforcement functions FINRA was retained to perform
in 2010. The proposed changes to the disciplinary rules in the present
filing are necessary to permit the Exchange to perform certain
regulatory functions currently performed on the Exchange's behalf by
FINRA.
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\9\ It is anticipated that FINRA, under a new RSA currently
being negotiated, would continue to conduct, inter alia, the
registration, testing and examination of broker-dealer members of
the Exchange, and certain cross-market surveillance and related
investigation and enforcement activities.
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The Exchange proposes the following changes to facilitate the
reintegration of certain regulatory functions from FINRA by providing
that investigative and enforcement functions of the Exchange under the
Rule 8000 and 9000 Series would be performed by personnel and
departments reporting to the Chief Regulatory Officer of the Exchange
\10\ or by FINRA personnel and departments:
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\10\ NYSE Regulation staff report to the Chief Executive Officer
of NYSE Regulation, who is also the Chief Regulatory Officer
(``CRO'') of the Exchange.
(1) Amend Rule 9120 to include two new defined terms:
``Enforcement,'' referring to any department reporting to the CRO of
the Exchange with responsibility for investigating or imposing
sanctions on a member organization or covered person, in addition to
FINRA's departments of Enforcement and Market Regulation; and
``Regulatory Staff,'' referring to any officer or employee reporting
directly or indirectly to the CRO of the Exchange, in addition to
FINRA staff acting on behalf of the Exchange in connection with the
Rule 8000 and 9000 Series;
(2) amend Rules 9120, 9131, 9146, 9211, 9212, 9213, 9215, 9216,
9251, 9253, 9264, 9269, 9270, 9551, 9552, 9554, 9556, 9810, 9820 and
9830 to replace references to Exchange and FINRA departments and
personnel with references to ``Enforcement'' and ``Regulatory
Staff'';
(3) amend Rules 8210 and 9110 to provide that in performing
functions under the disciplinary code, the CRO and Regulatory Staff
shall function independently of the commercial interests of the
Exchange and of the member organizations;
(4) amend Rules 9141 and 9242 to prohibit former Regulatory Staff
from appearing in a proceeding under the Rule 9000 Series and from
providing expert testimony in a proceeding under the Rule 9000
Series within one year of termination, respectively;
(5) amend Rules 9211, 9216 and 9270 to provide that the CRO would be
responsible for authorizing complaints; approving letters of
acceptance, waiver, and consent; approving minor rule violation plan
letters; and approving offers of settlement in place of FINRA's ODA;
and
(6) amend Rules 476, 8120, 9001, 9110, 9217, 9232, 9310 and 9810 to
make certain technical changes and correct a typographical error.
The Exchange proposes that the changes described herein would be
operative on January 1, 2016, following the reintegration of certain
regulatory functions from FINRA as described below.
Replacement of References To Exchange and FINRA Departments and
Personnel With References to Enforcement and Regulatory Staff
The Exchange proposes to amend Rules 9120, 9131, 9146, 9211, 9212,
9213, 9215, 9216, 9251, 9253, 9264, 9269, 9270, 9551, 9552, 9554, 9556,
9810, 9820 and 9830 to replace references to Exchange and FINRA
departments and personnel with references to the defined terms
``Enforcement'' and ``Regulatory Staff.''
The proposed amendments would allow disciplinary actions to be
investigated and prosecuted on the Exchange's behalf by officers or
employees reporting to the CRO beginning on January 1, 2016, while
still enabling FINRA staff to continue to perform investigative and
disciplinary activities that FINRA is authorized to perform on the
Exchange's behalf.
More specifically, the Exchange proposes to make the following
amendments:
Rule 9120 (Definitions) sets forth the definitions
applicable to the disciplinary code. The Exchange proposes to add
definitions of ``Enforcement,'' referring to any department reporting
to the CRO of the Exchange with responsibility for investigating or
imposing sanctions on a member organization or covered person, in
addition to FINRA's departments of Enforcement and Market Regulation;
and ``Regulatory Staff,'' referring to any officer or employee
reporting, directly or indirectly, to the CRO of the Exchange, in
addition to FINRA staff acting on behalf of the Exchange in connection
with the Rule 8000 and 9000 Series.\11\
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\11\ Certain rules in the Rule 8000 and 9000 Series currently
refer to ``Exchange staff,'' a term which includes NYSE employees,
NYSE Regulation staff that administers rules under the Delegation
Agreement, and authorized FINRA staff pursuant to Rules 0 and 1. The
proposed definition of ``Regulatory Staff'' provides that for
purposes of the Rule 8000 Series and Rule 9000 Series (except for
Rule 9557), the term ``Exchange staff'' shall have the same meaning
as ``Regulatory Staff.''
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The Exchange also proposes to delete the definitions of ``Head of
Enforcement'' (Rule 9120(q)) and ``Head of Market Regulation'' (Rule
9120(r)), which refer to the FINRA department heads.\12\
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\12\ The Exchange also proposes to delete the definition of ODA
(Rule 9120(v)) and replace all references to ODA in the Exchange's
rules with ``CRO,'' for the reasons discussed in ``Substitution of
CRO for ODA in Rules 9211, 9216 and 9270,'' infra.
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Similarly, the Exchange proposes to replace the reference to the
``Department of Enforcement or the Department of Market Regulation'' in
Rule 9120(y) (definition of the term ``Party'') with ``Enforcement.''
The Exchange further proposes to streamline the definition of
``Interested Staff'' (Rule 9120(u)) to eliminate references to Exchange
and FINRA departments and staff, and provide that ``Interested Staff''
under any proceeding brought under the Code
[[Page 51336]]
of Procedure means Regulatory Staff or Exchange staff who (i) report,
directly or indirectly, to any Enforcement employee, or to the head of
any department or office that issues a notice or decision or is
designated as a Party under the Rule 9000 Series, (ii) directly
participated in the authorization or initiation of a complaint or
proceeding, or (iii) directly participated in the proceeding, or
directly participated in an examination, investigation, prosecution, or
litigation related to a proceeding, as well as any person(s) who
supervise such staff. Thus, as in the current definition, the new
definition of ``Interested Staff'' in a particular matter encompasses
supervisory personnel up to the most senior level, including the CRO,
when staff reporting to such supervisory personnel directly
participated in the matter.
Finally, the Exchange proposes to renumber the remaining
definitions in Rule 9120.
Rule 9131 (Service of Complaint) provides that the
``Department of Enforcement or the Department of Market Regulation''
shall serve a complaint on both a party and counsel for a party. The
Exchange proposes to replace these references with ``Enforcement.'' The
proposed change would enable Enforcement to serve disciplinary
complaints beginning January 1, 2016.
Rule 9146 (Motions) governs motion practice under the
disciplinary rules. The Exchange proposes to amend Rule 9146(k)(1) to
replace a reference to the ``Department of Enforcement and the
Department of Market Regulation and other Exchange staff'' with
``Regulatory Staff.'' The Exchange also proposes to replace a reference
to ``Exchange staff'' in subsection (k)(2) with ``Regulatory Staff.''
The proposed changes would identify the staff that may receive or use
documents subject to a protective order.
Rule 9211 (Authorization of Complaint) sets forth the
process for authorizing issuance of a complaint against a member
organization or covered person. The Exchange proposes to replace
references to the ``Department of Enforcement or the Department of
Market Regulation'' with ``Enforcement'' in Rules 9211(a)(1) and
(a)(2). The Exchange proposes to add the phrase ``has reason to
believe'' in subsection (a)(1) with reference to Enforcement to make
the construction consistent with other disciplinary rules (e.g., Rule
9216). The proposed change would enable the Exchange, in addition to
FINRA, to authorize and issue disciplinary complaints beginning January
1, 2016. As discussed below, the Exchange also proposes to amend Rule
9211 to provide that the Exchange's CRO would authorize issuance of a
complaint.
Rule 9212 (Complaint Issuance) sets forth the requirements
of the complaint. In subsection (a)(1), the Exchange proposes to delete
the first sentence as redundant, and to delete two references to
``Department of Enforcement or the Department of Market Regulation.''
The proposed change would permit ``authorized Enforcement staff'' to
sign a complaint that would be served by ``Enforcement.''
The Exchange also proposes to replace ``Department of Enforcement
or the Department of Market Regulation'' with ``Enforcement'' in Rule
9212(a)(2) to permit, in addition to the relevant FINRA departments,
any department reporting to the CRO that meets the definition of
``Enforcement'' to propose a hearing location or that the Chief Hearing
Officer select a Floor-Based Panelist as provided for therein.
Similarly, the Exchange proposes to replace ``Department of
Enforcement or the Department of Market Regulation'' with
``Enforcement'' in Rule 9212(b) and Rule 9212(c)(1) and (2) to enable
any department reporting to the CRO that meets the definition of
``Enforcement,'' in addition to the relevant FINRA departments, to
amend and withdraw complaints.
Rule 9213(a) (Assignment of Hearing Officer) provides for
the appointment of a Hearing Officer and Panelists by the Chief Hearing
Officer as soon as practicable after the filing of a complaint by the
``Department of Enforcement or the Department of Market Regulation.''
The Exchange proposes to replace this reference with ``Enforcement'' to
include complaints filed by any department reporting to the CRO that
meets the definition of ``Enforcement,'' in addition to the relevant
FINRA departments.
Rule 9215(f) (Answer to Complaint) sets forth the
requirements for answering a complaint. The Exchange proposes to
replace ``Department of Enforcement or the Department of Market
Regulation'' with ``Enforcement'' in Rule 9215(f) to enable any
department reporting to the CRO that meets the definition of
``Enforcement,'' in addition to the relevant FINRA departments, to send
a second notice if a respondent does not file an answer or timely
respond to the complaint.
Rule 9216(a) (Acceptance, Waiver, and Consent Procedures)
sets forth the procedures by which a respondent can execute an AWC
letter prior to the issuance of a complaint. Under the current rule,
FINRA's Department of Enforcement or Department of Market Regulation
prepares and requests that a member organization or covered person
execute an AWC letter, and ``Exchange staff'' may determine the
effective date of sanctions unless the letter states otherwise. The
Exchange proposes to replace ``Department of Enforcement or the
Department of Market Regulation'' in Rule 9216(a)(1) with
``Enforcement'' to permit any department reporting to the CRO that
meets the definition of ``Enforcement,'' in addition to the relevant
FINRA departments, to prepare and request execution of AWC letters. The
Exchange also proposes to replace ``Exchange staff'' with ``Regulatory
Staff'' to identify the staff that may determine the effective date of
sanctions.
Rule 9216(b) (Procedure for Violation Under Plan Pursuant to SEA
Rule 19d-1(c)(2)) sets forth the procedures for executing a minor rule
violation plan letter.\13\ Under the current rule, FINRA's Department
of Enforcement or Department of Market Regulation may prepare and
request that a member organization or covered person execute a minor
rule violation plan letter, and ``Exchange staff'' may determine the
effective date of sanctions unless the letter states otherwise. The
Exchange proposes to replace references to ``the Department of
Enforcement or the Department of Market Regulation'' in Rule 9216(b)(1)
with ``Enforcement'' so that any department reporting to the CRO that
meets the definition of ``Enforcement,'' in addition to FINRA, may
prepare and request such letters. The Exchange also proposes to replace
``Exchange staff'' with ``Regulatory Staff'' to identify the staff that
may determine the effective date of sanctions.
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\13\ A minor rule violation plan letter under the Exchange's
rules permits a fine not to exceed $2,500 and/or a censure to be
imposed with respect to certain specifically enumerated rules. See
Rules 9216(b)(1) and 9217.
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Rule 9251 (Inspection and Copying of Documents in
Possession of Staff) requires that documents prepared or obtained in
connection with an investigation be made available to a respondent. The
Exchange proposes to amend subsections (a) (documents that must be made
available for inspection and copying), (b) (documents withheld from
inspection and copying), (c) (list of documents withheld), (d) (timing
of inspection and copying), and (g) (failure to make documents
available) to replace references to ``the Department of Enforcement or
the Department of Market Regulation'' with ``Enforcement'' to bring
departments reporting to the CRO that meet the definition of
[[Page 51337]]
``Enforcement'' within the scope of this rule.
Rule 9253 (Production of Witness Statements) sets forth
the procedures for filing motions to obtain witness statements. The
Exchange proposes to amend Rule 9253(a) and (b) to replace ``Department
of Enforcement or the Department of Market Regulation'' with
``Enforcement'' to bring departments reporting to the CRO that meet the
definition of ``Enforcement'' within the scope of this Rule.
Rule 9264 (Motion for Summary Disposition) sets forth the
procedures for filing summary disposition motions. The Exchange
proposes to replace ``Department of Enforcement or the Department of
Market Regulation'' with ``Enforcement'' to bring departments reporting
to the CRO that meet the definition of ``Enforcement'' within the scope
of this Rule.
Rule 9269 (Default Decisions) sets forth the process for
issuance and review of default decisions. The Exchange proposes to
replace ``Department of Enforcement or the Department of Market
Regulation'' in subsection (a)(2) with ``Enforcement'' in order to
bring departments reporting to the CRO that meet the definition of
``Enforcement'' within the scope of this Rule. The Exchange also
proposes to replace ``Exchange staff'' with ``Regulatory Staff'' in
subsection (d) to identify the staff that may determine the effective
date of certain sanctions.
Rule 9270 (Settlement Procedure) governs offers of
settlement. The Exchange proposes to replace ``the Department of
Enforcement or the Department of Market Regulation'' in subsections (e)
and (f) with ``Enforcement'' in order to permit a department reporting
to the CRO that meets the definition of ``Enforcement'' to consider
offers of settlement by respondents. The Exchange also proposes to
replace ``Exchange staff'' with ``Regulatory Staff'' in subsection
(c)(5) to identify the staff that may determine the effective date of
sanctions when provided in an offer of settlement.\14\
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\14\ As discussed below, the Exchange further proposes to amend
Rule 9270 to have certain offers of settlement submitted to the CRO
and not ODA.
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Rule 9551 (Failure to Comply with Public Communication
Standards) governs expedited proceedings relating to a member
organization's departure from the public communication standards of
Rule 2210. The Exchange proposes to replace ``Exchange staff'' with
``Regulatory Staff'' to identify the staff that initiates and otherwise
participates in such proceedings.
Rule 9552 (Failure to Provide Information or Keep
Information Current) sets forth procedures for expedited proceedings
relating to a member organization or covered person's failure to
provide information or keep information current. The Exchange proposes
to replace ``Exchange staff'' with ``Regulatory Staff'' to identify the
staff that initiates and otherwise participates in such proceedings.
Rule 9554 (Failure to Comply with an Arbitration Award or
Related Settlement or an Order of Restitution or Settlement Providing
for Restitution) governs expedited proceedings relating to
noncompliance with an arbitration award, settlement agreement, or
restitution order. The Exchange proposes to replace ``Exchange staff''
with ``Regulatory Staff'' to identify the staff that initiates and
otherwise participates in such proceedings.
Rule 9556 (Failure to Comply with Temporary and Permanent
Cease and Desist Orders) governs expedited proceedings relating to
noncompliance with a temporary or permanent cease and desist order. The
Exchange proposes to replace ``Exchange staff'' with ``Regulatory
Staff'' to identify the staff that initiates and otherwise participates
in such proceedings.
Rule 9810 (Initiation of Proceeding) sets forth procedures
for initiating temporary cease and desist proceedings. The Exchange
proposes to replace ``Department of Enforcement or the Department of
Market Regulation'' with ``Enforcement'' in the title and the text of
the rule to permit a department reporting to the CRO that meets the
definition of ``Enforcement'' to initiate such proceedings.
The Exchange proposes to replace references to
``Department of Enforcement or the Department of Market Regulation''
with ``Enforcement'' in Rule 9820 (Appointment of Hearing Officer and
Hearing Panel), which governs the appointment of Hearing Officers and
Panelists for temporary cease and desist proceedings, to bring
departments reporting to the CRO that meet the definition of
``Enforcement'' within the scope of this Rule.
Rule 9830 (Hearing) sets forth hearing procedures for
temporary cease and desist proceedings. The Exchange proposes to amend
Rule 9830(b) and (h) to replace ``Department of Enforcement or the
Department of Market Regulation'' with ``Enforcement'' to permit
service of a notice in a temporary cease and desist proceeding on a
department reporting to the CRO that meets the definition of
``Enforcement,'' and to describe available remedies in the event
Enforcement fails to appear at a hearing.
Independence of the CRO and Staff in the Disciplinary Process
The Exchange proposes to amend Rules 8210 and 9110 to add rule text
providing that in performing functions under the disciplinary code, the
CRO and Regulatory Staff would function independently of the commercial
interests of the Exchange and the commercial interests of the member
organizations. This requirement is already being met and is consistent
with longstanding policies and practices at the Exchange. The proposed
change would also be consistent with rules currently in effect for the
equities and options markets of the Exchange's affiliate NYSE Arca,
Inc., and would reflect the Exchange's ongoing commitment to performing
its regulatory functions under its disciplinary rules in an independent
and impartial manner.\15\
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\15\ See Arca Equities Rule 10.2(a); Arca Options Rule 10.2(a).
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One Year Revolving Door Restriction and Prohibition on Serving as
Expert Witness
Rule 9141 governs appearances in a proceeding. The Exchange
proposes to amend Rule 9141 by adding a new section (c) that would
prohibit former Regulatory Staff from making an appearance before an
Adjudicator on behalf of any other person in any proceeding under the
Rule 9000 Series within one year immediately following termination of
employment with the Exchange or FINRA. The rule text is broader than
FINRA's counterpart rule in that it covers not only former FINRA staff
but also former Regulatory Staff that reported to the CRO, and covers
both officers and employees. The rule text is otherwise substantially
the same as the text of FINRA Rule 9141(c), which the Exchange declined
to adopt in 2013.\16\ At the time, the Exchange did not believe it was
necessary to bar former employees from such appearances because its
employees were not conducting disciplinary functions and their
appearance would not create the same type of potential conflict of
interest. Once Regulatory Staff reporting to the CRO again directly
perform market surveillance, investigation and enforcement functions
following expiration of the current RSA, that would no longer be the
case and the Exchange therefore believes that such a prohibition would
help prevent
[[Page 51338]]
potential conflicts or appearance of conflicts of interest.
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\16\ See Securities Exchange Act Release No. 69045, 78 FR at
15395 n.14.
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Similarly, the Exchange proposes to amend Rule 9242, which governs
pre-hearing submissions, to add a new section (b) prohibiting former
Regulatory Staff from providing expert testimony on behalf of any other
person in any proceeding under the Rule 9000 Series within one year
immediately following termination of employment with the Exchange or
FINRA. The Exchange also proposes that nothing in proposed Rule 9242(b)
would prohibit former Regulatory Staff from testifying as a witness on
behalf of the Exchange or FINRA. The rule text is broader than FINRA's
counterpart rule in that it covers not only former FINRA staff but also
former Regulatory Staff that reported to the CRO, and covers both
officers and employees. The rule text is otherwise substantially the
same as the text of FINRA Rule 9242(b), which the Exchange declined to
adopt in 2013 for the same reasons it did not adopt the one year
prohibition of FINRA Rule 9141(c). Given the Exchange's anticipated
resumption of certain regulatory functions, the Exchange believes that
a prohibition on former Regulatory Staff providing expert testimony
would help prevent potential conflicts or appearance of conflicts of
interest. The Exchange also believes that, consistent with FINRA Rule
9242(b), permitting a former Regulatory Staff member to testify as a
witness on behalf of the Exchange does not pose potential conflicts of
interest.
Substitution of CRO for ODA in Rules 9211, 9216 and 9270
The Exchange proposes that the CRO rather than FINRA's ODA would be
responsible for: (1) Authorizing issuance of a complaint; (2) accepting
or rejecting AWC letters and minor rule violation plan letters; and (3)
accepting or rejecting uncontested offers of settlement.
The Exchange believes that providing for the CRO to authorize
issuance of complaints and approve settlements would be consistent with
the Exchange's reintegration of regulatory functions and the rules of
other SROs.\17\ The proposed change is also consistent with certain
powers the CRO currently has under the disciplinary rules.\18\
Moreover, as noted above, by rule the CRO would be required to operate
independently of the commercial interests of the Exchange and of member
organizations.
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\17\ See e.g., BATS Exchange Rules 8.4 and 8.8; Chicago Stock
Exchange Article 12, Rules 1(b) and (d) (providing that the CRO
shall direct written charges and approve or reject offers of
settlement). The International Securities Exchange (``ISE''), Miami
International Securities Exchange (``MIAX'') and BOX Options
Exchange (``BOX'') also provide that complaints are to be approved
by the CRO. Each also requires offers of settlement to be authorized
by the CRO if a hearing panel has not yet been appointed, and
requires letters of consent to be authorized by the CRO and approved
by a business conduct committee. See ISE Rules 1603, 1604 and 1609;
MIAX Rules 1003, 1004 and 1009; BOX Rules 12030, 12040 and 12090.
\18\ In adopting FINRA's disciplinary rules, the Exchange
provided that the CRO, rather than FINRA's CEO, would authorize the
initiation of temporary cease and desist proceedings and the
initiation of suspension or cancellation proceedings for a violation
of a temporary cease and desist order. The Exchange also retained
the ability of the CRO to resolve certain procedural matters in
connection with settlements under Rule 9270(d). See Securities
Exchange Act Release No. 69045, 78 FR at 15394, 15398-15400 & n.24.
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To accomplish these changes, the Exchange proposes to amend Rules
9211, 9216 and 9270 as follows:
Rule 9211(a)(1) and (a)(2) would be amended to replace
``Office of Disciplinary Affairs'' with ``CRO.'' This proposed change
would identify the CRO rather than ODA as being responsible for
authorizing Enforcement to issue a complaint.
Rule 9216(a)(3) and (a)(4) would be amended to replace
references to ``Office of Disciplinary Affairs'' with ``CRO.'' The
proposed change would permit the CRO to accept or reject an AWC letter
and, if accepted, to be deemed final.
Rule 9216(a)(4) would be amended to provide that if the
CRO rejects an AWC letter, the Exchange may take other appropriate
disciplinary action with respect to the alleged violation or
violations. This is consistent with the current rule as it relates to
an AWC letter that is rejected by FINRA's ODA.
Rule 9216(b)(3) and (b)(4) would be amended to replace
``Office of Disciplinary Affairs'' with ``CRO.'' This proposed change
would allow an executed minor rule violation plan letter to be
submitted to the CRO, which, on behalf of the SRO Board, may accept or
reject it. If accepted, it would be deemed final; if the CRO rejects
the letter, the Exchange may take other appropriate disciplinary action
with respect to the alleged violation or violations. This is consistent
with the current rule as it relates to a minor rule violation plan
letter that is accepted or rejected by ODA.
Finally, Rule 9270(e), (f), (h), and (j) would also be
amended to replace ``Office of Disciplinary Affairs'' with ``CRO.'' The
proposed change to subsection (f) would provide that uncontested offers
of settlement would be transmitted to the CRO and, if accepted under
proposed Rule 9270(f)(3), would be issued and become final. Under
proposed Rule 9270(h), if the CRO does not accept an uncontested offer
of settlement, the respondent would be notified in writing and the
offer of settlement and proposed order of acceptance would be deemed
withdrawn.\19\ Under proposed Rule 9270(j), an offer of settlement
rejected by the CRO would not prejudice a respondent and would not be
introduced into evidence in connection with the determination of the
issues involved in the pending complaint or in any other proceeding.
This is consistent with the current rule as it relates to an offer of
settlement that is not accepted by ODA.
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\19\ Because the Exchange does not have sanction guidelines, the
CRO, Hearing Panel, or Extended Hearing Panel, as applicable, would
consider Exchange precedent or such other precedent as it deemed
appropriate in determining whether or not to accept a settlement
offer under Rule 9270. See Securities Exchange Act Release No. 68678
at 43 n.38 (January 16, 2013), 78 FR 5213 at 5229 n.39 (January 24,
2013) (SR-NYSE-2013-02).
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Miscellaneous Amendments to Rules 476, 8120, 9001, 9110, 9217, 9232,
9310 and 9810
The Exchange proposes several miscellaneous amendments to make
certain technical changes and correct a typographical error.
First, the Exchange proposes to insert a reference to the Rule 8000
Series in Rule 476 in order to clarify that both the Rule 8000 Series
and the Rule 9000 Series would apply to proceedings for which no Charge
Memorandum was filed with the hearing board under Rule 476(d) prior to
July 1, 2013 and for which no written Stipulation and Consent was
submitted to a Hearing Officer prior to July 1, 2013.\20\ The Exchange
proposes the same change to Rule 9001, which specifies the effective
date of the Rule 9000 Series.
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\20\ Rule 476 is the Exchange's legacy disciplinary rule that
applies to a Charge Memorandum filed under Rule 476(d) prior to July
1, 2013 or for which a written Stipulation and Consent was submitted
prior to July 1, 2013. See Securities Exchange Act Release Nos.
68678, 78 FR at 5213 and 69045, 78 FR at 15394.
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Second, the Exchange proposes to delete the last sentence in Rule
476 as obsolete. By its terms, that sentence relates only to orders
issued on or before July 1, 2013.
Third, the Exchange proposes to add a reference to the term
``Regulatory Staff'' in Rule 8120, because, as set forth above, that
new defined term is referenced in certain proposed changes to the Rule
8000 Series.
Fourth, the Exchange proposes to delete the last sentence in Rule
9110(c) as obsolete.
[[Page 51339]]
Fifth, the Exchange proposes to correct a typographical error in
Rule 9217, which sets forth the rules eligible for minor rule plan
fines, by adding a dash in the rule text describing Rule 123C.
Sixth, the Exchange proposes to amend Rule 9232(b), which governs
appointment of panelists, to provide that the Board shall from time to
time appoint a Hearing Board as set forth in the rule. Under the
current rule, the Chairman of the Board, subject to Board approval, has
this responsibility. The Exchange believes that because the approval of
the Board is required for appointment of the Hearing Board, it is not
necessary to specify that the Chairman of the Exchange Board would
appoint the Hearing Board subject to such approval.
Seventh, the Exchange proposes two [sic] technical, clarifying
amendments to Rule 9310. The Exchange proposes to amend Rule 9310 to
provide that none of the persons referenced in the Rule, i.e., Board
directors, members of the Committee for Review, and the parties, may
request Board review of a decision concerning an Exchange member that
is an affiliate. Under the current Rule, only the parties are
prohibited from requesting Board review of a decision in such
circumstances.\21\
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\21\ A decision with respect to an Exchange member that is an
affiliate of the Exchange constitutes final Exchange disciplinary
action pursuant to SEC Rule 19d-1(c)(1) and may not be reviewed by
the Board. See Rule 9268(e)(2).
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Finally, the Exchange proposes to add the phrase ``Service and
Filing of Notice'' to the title of Rule 9810(a) in order to identify
the subject matter covered by the rule.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\22\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\23\ in particular, in that it
is designed to promote just and equitable principles of trade and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system. In addition, the Exchange believes
that the proposed rule change furthers the objectives of Section
6(b)(7) of the Act,\24\ in particular, in that it provides fair
procedures for the disciplining of members and persons associated with
members, the denial of membership to any person seeking membership
therein, the barring of any person from becoming associated with a
member thereof, and the prohibition or limitation by the Exchange of
any person with respect to access to services offered by the Exchange
or a member thereof. In addition, the Exchange believes that the
proposed rule change furthers the objectives of Section 6(b)(3) of the
Act,\25\ in particular, in that it supports the fair representation of
members in the administration of the Exchange's affairs.
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\22\ 15 U.S.C. 78f(b).
\23\ 15 U.S.C. 78f(b)(5).
\24\ 15 U.S.C. 78f(b)(7).
\25\ 15 U.S.C. 78f(b)(3).
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The Exchange believes that eliminating references to FINRA
departments and replacing them with ``Enforcement,'' a new defined term
that includes any department reporting to the CRO of the Exchange with
responsibility for investigating or imposing sanctions on a member
organization or covered person, in addition to FINRA's departments of
Enforcement and Market Regulation, in Rules 9120, 9131, 9146, 9211,
9212, 9213, 9215, 9216, 9251, 9253, 9264, 9269, 9270, 9810, 9820 and
9830 would facilitate the Exchange's ability to directly conduct
investigations and bring disciplinary actions for matters it will be
conducting after the reintegration of certain functions next year. The
Exchange believes that defining ``Regulatory Staff'' as including any
officer or employee reporting directly or indirectly to the CRO of the
Exchange in addition to FINRA staff acting on behalf of the Exchange in
connection with the Rule 8000 and 9000 Series, in Rules 9120, 9146,
9216, 9269, 9270, 9551, 9552, 9554, and 9556 would similarly facilitate
the Exchange's ability to directly conduct investigations and bring
disciplinary actions, as well as FINRA.
Because the substance of the rules would remain unchanged, the
Exchange believes that the proposed change would provide fair
procedures for the disciplining of members and persons associated with
members, the denial of membership to any person seeking membership
therein, the barring of any person from becoming associated with a
member thereof, and the prohibition or limitation by the Exchange of
any person with respect to access to services offered by the Exchange
or a member thereof. Further, removing references to Exchange and FINRA
offices and departments in the Exchange's Rules that are unnecessary in
light of Rule 0 removes impediments to and perfects a national market
system because it would reduce potential confusion that may result from
retaining different designations in the Exchange's rulebook. Removing
potentially confusing conflicting designations would also further the
goal of transparency and add consistency to the Exchange's Rules.
The Exchange believes that adding rule text to Rules 8210 and 9110
stating that the CRO and Regulatory Staff would function independently
of the commercial interests of the Exchange and the commercial
interests of member organizations in performing functions under the
disciplinary rules would further ensure the integrity and independence
of the disciplinary process and further provide fair procedures for the
disciplining of members and persons associated with members. For the
same reasons, addition of the proposed rule text would protect
investors and the public interest and would therefore be consistent
with Section 6(b)(5) of the Exchange Act.
The Exchange believes that prohibiting former Regulatory Staff from
representing respondents and providing expert testimony in Exchange
disciplinary matters within one year immediately following termination
of employment would provide greater harmonization between Exchange and
FINRA rules of similar purpose. As previously noted, the proposed rule
text is based on FINRA's current rule text, which already has been
approved by the Commission. As such, the proposed rule change would
foster cooperation and coordination with persons engaged in
facilitating transactions in securities and will remove impediments to
and perfect the mechanism of a free and open market and a national
market system.
The Exchange also believes that making the CRO responsible for
authorizing complaints and approving AWC letters, minor rule violation
plan letters and offers of settlement in place of FINRA's ODA is fair
and reasonable, and provides adequate procedural protections. In
particular, requiring approval of complaints and settlements by an
independent CRO will serve as an appropriate check on the authority of
the investigative and enforcement staff at both the Exchange and FINRA
to bring and resolve such actions.
Further, the Exchange believes that by having decisions regarding
initiating and resolving formal disciplinary actions and resolving
minor rule violations made by an individual with the most direct
expertise relevant to the NYSE's markets,\26\ the proposal promotes
efficiency and consistency and aligns the Exchange's process with other
SROs. As noted above, the proposed change is consistent with the
reintegration of regulatory functions by the Exchange and the practices
at other
[[Page 51340]]
SROs where CROs authorize issuance of complaints and approve
settlements.
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\26\ See, e.g., Securities Exchange Act Release No. 69045, 78 FR
at 15401.
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Finally, making technical amendments and correcting a typographical
error in Rules 476, 8120, 9001, 9110, 9217, 9232, 9310 and 9810 removes
impediments to and perfects the mechanism of a free and open market by
removing confusion that may result from having incorrect or redundant
material in the Exchange's rulebook. The Exchange believes that
eliminating incorrect or redundant material would not be inconsistent
with the public interest and the protection of investors because
investors will not be harmed and in fact would benefit from increased
transparency, thereby reducing potential confusion. Removing such
references will also remove impediments to and perfects the mechanism
of a free and open market by ensuring that persons subject to the
Exchange's jurisdiction, regulators, and the investing public can more
easily navigate and understand the Exchange's rulebook. The Exchange
believes that eliminating incorrect or redundant material would not be
inconsistent with the public interest and the protection of investors
because investors will not be harmed and in fact would benefit from
increased transparency, thereby reducing potential confusion. Removing
such references will also further the goal of transparency and add
clarity to the Exchange's rules.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed rule change is
not intended to address competitive issues but rather to enable the
Exchange to directly investigate and initiate disciplinary actions
following and facilitate the reintegration of certain regulatory
functions from FINRA.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSE-2015-35 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2015-35. 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 such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSE-2015-35, and should be
submitted on or before September 14, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-20792 Filed 8-21-15; 8:45 am]
BILLING CODE 8011-01-P
