Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Adopting Investigation, Disciplinary, Sanction, and Other Procedural Rules Modeled on the Rules of the New York Stock Exchange LLC and Certain Conforming and Technical Changes, 11311-11335 [2016-04633]
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Federal Register / Vol. 81, No. 42 / Thursday, March 3, 2016 / Notices
treatment.21 As discussed above,
however, the Exchange now proposes to
amend ISE Gemini Rule 804(g) to
require Clearing Member approval
before a market maker can resume
trading after triggering a market-wide
speed bump.
The Exchange justifies the change as
appropriate because, ‘‘[w]hile in some
cases this may result in a minimal delay
for a market maker that wants to reenter
the market quickly following a marketwide speed bump, the Exchange
believes that Clearing Member approval
. . . ensure[s] that the market maker
does not prematurely enter the market
without adequate safeguards . . .’’ 22
The Exchange, however, does not
provide any basis for its statement that
the proposed rule would result in only
a ‘‘minimal delay’’ for a market maker
seeking to resume quoting. Moreover,
the Exchange does not address how the
proposal impacts the continuous
quoting obligations of market makers.
The Commission accordingly believes
the proposed rule change raises
questions regarding the ability of market
makers to meet their quoting obligations
and, therefore, whether the proposed
rule change is consistent with the
requirements of Section 6(b)(5) of the
Act.
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IV. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data and
arguments with respect to the concerns
identified above, as well as any other
concerns they may have with the
proposed rule change. In particular, the
Commission invites the written views of
interested persons concerning whether
the proposal is consistent with Sections
6(b)(5) 23 or any other provision of the
Act, or the rules and regulations
thereunder. Although there does not
appear to be any issue relevant to
approval or disapproval which would
be facilitated by an oral presentation of
views, data, and arguments, the
Commission will consider, pursuant to
Rule 19b–4 under the Act,24 any request
21 See, e.g., Securities Exchange Act Release No.
68341 (December 3, 2012), 77 FR 73065, 73076
(December 7, 2012) (approving the application of
Miami International Securities Exchange, LLC for
registration as a national securities exchange);
Securities Exchange Act Release No. 70050 (July 26,
2013), 78 FR 46622 (August 1, 2013) (approving the
application of Topaz Exchange, LLC for registration
as a national securities exchange); Securities
Exchange Act Release No. 76998 (January 29, 2016),
81 FR 6066 (February 4, 2016) (approving the
application of ISE Mercury, LLC for registration as
a national securities exchange).
22 See Notice, supra note 4, at 74825.
23 15 U.S.C. 78f(b)(5).
24 17 CFR 240.19b–4.
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for an opportunity to make an oral
presentation.25
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposal should be approved or
disapproved by March 24, 2016. Any
person who wishes to file a rebuttal to
any other person’s submission must file
that rebuttal by April 7, 2016. In light
of the concerns raised by the proposed
rule change, as discussed above, the
Commission invites additional comment
on the proposed rule change as the
Commission continues its analysis of
the proposed rule change’s consistency
with Sections 6(b)(5) and 6(b)(8),26 or
any other provision of the Act, or the
rules and regulations thereunder. The
Commission asks that commenters
address the sufficiency and merit of the
Exchange’s statements in support of the
proposed rule change, in addition to any
other comments they may wish to
submit about the proposed rule change.
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–
ISE Gemini–2015–17 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–ISE Gemini–2015–17. 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
25 Section 19(b)(2) of the Act, as amended by the
Securities Act Amendments of 1975, Pub. L. 94–29
(June 4, 1975), grants to the Commission flexibility
to determine what type of proceeding—either oral
or notice and opportunity for written comments—
is appropriate for consideration of a particular
proposal by a self-regulatory organization. See
Securities Act Amendments of 1975, Senate Comm.
on Banking, Housing & Urban Affairs, S. Rep. No.
75, 94th Cong., 1st Sess. 30 (1975).
26 15 U.S.C. 78f(b)(5), (b)(8).
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11311
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–ISE
Gemini–2015–17 and should be
submitted by March 24, 2016. Rebuttal
comments should be submitted by April
7, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–04638 Filed 3–2–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77241; File No. SR–
NYSEMKT–2016–30]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Adopting Investigation,
Disciplinary, Sanction, and Other
Procedural Rules Modeled on the
Rules of the New York Stock Exchange
LLC and Certain Conforming and
Technical Changes
February 26, 2016.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on February
19, 2016, NYSE MKT LLC (‘‘Exchange’’
or ‘‘NYSE MKT’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
27 17
CFR 200.30–3(a)(57).
U.S.C.78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 81, No. 42 / Thursday, March 3, 2016 / Notices
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to [sic] (1)
investigation, disciplinary, sanction,
and other procedural rules modeled on
the rules of the New York Stock
Exchange LLC (‘‘NYSE’’), and (2) certain
conforming and technical changes. 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
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes (1)
investigation, disciplinary, sanction,
and other procedural rules that are
modeled on the rules of its affiliate New
York Stock Exchange LLC (‘‘NYSE’’),
and (2) certain conforming and
technical changes.
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Background and Description of
Proposed Rule Change
On July 30, 2007, the National
Association of Securities Dealers, Inc.
(‘‘NASD’’), NYSE, and NYSE
Regulation, Inc. (‘‘NYSE Regulation’’), a
not-for-profit subsidiary of the NYSE,4
consolidated their member firm
regulation operations into a combined
organization, the Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’),
and entered into a plan to allocate to
FINRA regulatory responsibility for
common rules and common members
(‘‘17d–2 Agreement’’).5 In 2007, the
4 NYSE Regulation performs regulatory functions
for the Exchange pursuant to an intercompany
Regulatory Services Agreement (the ‘‘Intercompany
RSA’’).
5 See Securities Exchange Act Release No. 56148
(July 26, 2007), 72 FR 42146 (August 1, 2007) (File
No. 4–544) (Notice of Filing and Order Approving
and Declaring Effective a Plan for the Allocation of
Regulatory Responsibilities).
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parties entered into a Regulatory
Services Agreement (‘‘RSA’’), whereby
FINRA was retained to perform certain
regulatory services for non-common
rules. Following its acquisition by NYSE
Euronext in 2008, NYSE MKT amended
certain of its disciplinary rules to make
them substantially the same as NYSE’s
disciplinary rules, and NYSE MKT
became a party to the RSA.6
On June 14, 2010, the RSA was
amended to retain FINRA to perform the
market surveillance and enforcement
functions that had, up to that point,
been performed by NYSE Regulation.7
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.8
In 2013, the NYSE adopted
disciplinary rules that are, with certain
exceptions, substantially the same as the
text of the FINRA Rule 8000 Series and
Rule 9000 Series, and which set forth
rules for conducting investigations and
enforcement actions (the ‘‘2013 NYSE
Disciplinary Rule Filing’’).9 The new
NYSE disciplinary rules were
implemented on July 1, 2013.10
To achieve further rule harmonization
among exchanges and to facilitate the
reintegration of regulatory functions
from FINRA,11 the Exchange proposes
6 See Securities Exchange Act Release No. 58673
(September 29, 2008), 73 FR 57707 (October 3,
2008) (SR–Amex–2008–62 & SR–NYSE–2008–60).
Certain of these rules were transitional in nature,
and the Exchange later deleted them because they
were obsolete. See Securities Exchange Act Release
No. 70294 (August 30, 2013), 78 FR 54943
(September 6, 2013) (SR–NYSEMKT–2013–72).
7 See Securities Exchange Act Release No. 62355
(June 22, 2010), 75 FR 36729 (June 28, 2010) (SR–
NYSE–2010–46); Securities Exchange Act Release
No. 62354 (June 22, 2010), 75 FR 36730 (June 28,
2010) (SR–NYSEAmex–2010–57).
8 See Rule 0. Notwithstanding the RSA, the
Exchange retains ultimate legal responsibility for,
and control of, the Exchange’s regulatory functions
performed by FINRA. Securities Exchange Act
Release No. 62354 (June 22, 2010), 75 FR 36730
(June 28, 2010) (SR–NYSEAmex–2010–57).
9 See Securities Exchange Act Release Nos. 68678
(January 16, 2013), 78 FR 5213 (January 24, 2013)
(SR–NYSE–2013–02) (‘‘2013 Notice’’), 69045
(March 5, 2013), 78 FR 15394 (March 11, 2013) (SR–
NYSE–2013–02) (‘‘2013 Approval Order’’), and
69963 (July 10, 2013), 78 FR 42573 (July 16, 2013)
(SR–NYSE–2013–49).
10 See NYSE Information Memorandum 13–8
(May 24, 2013).
11 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. It is
anticipated that FINRA, under the new RSA, will
continue to conduct, inter alia, the registration,
testing and examination of broker-dealer members
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to adopt, with certain changes, the text
of the NYSE Rule 8000 and Rule 9000
Series, as modified to reflect
amendments recently proposed by the
NYSE and described in more detail
below.
The Exchange notes that some of its
member organizations, by virtue of their
membership in other self-regulatory
organizations (‘‘SRO’’), are already
subject to rules that are similar to the
proposed rules. All NYSE MKT member
organizations that have equity trading
licenses are also NYSE members
pursuant to Rule 2—Equities. Several
other NYSE MKT member organizations
and NYSE Amex Trading Permit
(‘‘ATP’’) Holders also are members of
FINRA (‘‘Dual Members’’). As such,
these Dual Members are already subject
to their respective Rule 8000 Series and
Rule 9000 Series. Certain member
organizations that are not members of
FINRA or NYSE are members of The
NASDAQ Stock Market (‘‘NASDAQ’’),
which has similar disciplinary rules to
FINRA and are therefore also already
subject to similar rules. The proposed
rule change would result in the
Exchange and NYSE having
substantially the same disciplinary
process, which would closely resemble
FINRA’s process.
Set forth below in this Purpose
section are:
• A description of the Exchange’s
current disciplinary rules, Rules 475–
477;
• a description of the proposed rule
change and transition generally;
• a more detailed description of the
proposed rules with a comparison to the
current rules;
• a description of technical and
conforming amendments; and
• a description of current rules that
will not be carried over into the
proposed rule set and the reasons
therefor.
Current Rules 475–477 12
This section summarizes NYSE
MKT’s current disciplinary rules, which
of the Exchange, and certain cross-market
surveillance and related investigation and
enforcement activities. On August 14, 2015, NYSE
filed a proposed rule change to amend certain of its
disciplinary rules to facilitate the reintegration of
these regulatory functions from FINRA as of January
1, 2016, which filing was approved on November
13, 2015 (the ‘‘NYSE Reintegration Facilitation
Filing’’). See Securities Exchange Act Release No.
75721 (Aug. 18, 2015), 80 FR 51334 (August 24,
2015) (‘‘Notice’’) and Exchange Act Release No.
76436 (November 13, 2015), 80 FR 72460
(November 19, 2015) (‘‘Approval Order’’) (SR–
NYSE–2015–35).
12 All references are to NYSE MKT rules unless
otherwise noted. Further, where current or
proposed NYSE MKT rules or NYSE rules use
capitalized terms, descriptions of such rules herein
follow those capitalization conventions.
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are set forth in Section 9A of the Office
Rules and apply to both the NYSE MKT
equities market and the NYSE Amex
options market.
Current Rule 475—Summary
Proceedings
Rule 475 sets forth summary
procedures under which the Exchange
may prohibit or limit access to services.
Under Rule 475(a), except as otherwise
provided in Rule 475(b), the Exchange
may not prohibit or limit any person
with respect to access to services offered
by the Exchange or any member or
member organization thereof unless the
Exchange has provided 15 days’ prior
written notice of, and an opportunity to
be heard upon, the specific grounds for
such prohibition or limitation. The
Exchange must keep a record of any
such proceeding. Any determination by
the Exchange to prohibit or limit access
to services must be supported by a
statement setting forth the specific
grounds for the prohibition or
limitation.
Under Rule 475(b), the Exchange may
summarily suspend persons subject to
its jurisdiction that have been expelled
or suspended by another SRO, or barred
or suspended from being associated
with a member or any such SRO, as long
as any such summary suspension
imposed by the Exchange does not
exceed the termination of the
suspension imposed by the other SRO.
The Exchange also may suspend a
member or member organization that is
in such financial or operating difficulty
that the Exchange determines, and so
notifies the SEC, that the member or
member organization cannot be
permitted to continue to do business
with safety to investors, creditors, other
members or member organizations, or
the Exchange. The Exchange also may
limit or prohibit any person with
respect to access to Exchange services if
such person has been summarily
suspended under this rule or, in the
case of a person who is not a member
or member organization, if the Exchange
determines that such person does not
meet the qualification requirements or
other prerequisites for such access and
such person cannot be permitted to
continue to have such access with safety
to investors, creditors, members,
member organizations, or the Exchange.
Any person subject to summary action
must receive written notice and an
opportunity to be heard by the Exchange
upon the specific grounds for the action,
and the Exchange must keep a record of
any summary proceeding. Any
determination by the Exchange with
respect to such summary action must be
supported by a statement setting forth
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the specific grounds on which the
summary action is based. The
Commission, by order, may stay any
such summary action in accordance
with the provisions of the Act.
Rule 475(c) governs hearings and
proceedings pursuant to Rule 475(a) and
(b). Hearings are conducted by a Hearing
Officer, appointed by the Exchange
Board of Directors, acting alone. The
Hearing Officer schedules and conducts
hearings promptly and, in doing so,
provides such discovery to the person
whose access or suspension is the
subject of such a hearing and to the
Exchange officers and employees. The
Hearing Officer renders determinations
based upon the record at such hearings.
The Hearing Officer may modify,
reverse, or terminate a summary action,
unless within 10 days of such
determination, a request for review is
filed with the Secretary of the Exchange.
Any member of the Exchange Board of
Directors, any member of the Committee
for Review (‘‘CFR’’),13 and either the
Exchange or the respondent may require
a review by the Exchange Board of
Directors of any determination by the
Hearing Officer. The Exchange Board of
Directors, with the advice of the CFR,
may affirm, modify, or reverse any such
determination, or remand the matter to
the Hearing Officer for further
proceedings. Unless the Exchange Board
of Directors otherwise specifically
directs, the determination and the
penalty, if any, of the Exchange Board
of Directors after review is final and
conclusive, subject to the provisions for
review under the Act.
Under Rule 475(d), whenever a
member or member organization fails to
perform its contracts, becomes
insolvent, or is in such financial or
operating difficulty that it cannot be
permitted to continue to do business as
a member or member organization with
safety to investors, creditors, other
members or member organizations, or
the Exchange, such member or member
organization must promptly give written
notice thereof to the Secretary of the
Exchange.
Under Rule 475(e), any person
suspended under the provisions of the
rule must, at the request of the
Exchange, submit to the Exchange its
books and records or the books and
records of any employee thereof and
furnish information to or appear or
testify before or cause any such
employee to appear or testify before the
Exchange.
13 The CFR is a subcommittee of the Exchange’s
Regulatory Oversight Committee (‘‘ROC’’). See
Securities Exchange Act Release No. 77008
(February 1, 2016) (NYSEMKT 2015–106).
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11313
Under Rule 475(f), any person
suspended under Rule 475 may, at any
time, be reinstated by the Exchange
Board of Directors.
Under Rule 475(g), any person
suspended under Rule 475 may be
disciplined in accordance with the
Exchange’s rules for any offense
committed before or after the
suspension.
Under Rule 475(h), a member
suspended under Rule 475 is deprived
during the term of the suspension of all
rights and privileges of membership,
and any suspension of a member or
principal executive creates a vacancy in
any office or position held by such
member or principal executive.
Under Rule 475(i), the limitations on
the Chief Executive Officer (‘‘CEO’’) of
the Exchange contained in Rule 476(l)
that prohibit the CEO from initiating a
call for review apply to all matters
under Rule 475.
Under Rule 475(j), any member of the
Exchange Board of Directors, any
member of the CFR, the Exchange, and
the respondent may require a review by
the Exchange Board of Directors of any
determination under Rule 475 by filing
with the Secretary of the Exchange a
written request therefor within 10 days
following such determination. The
Exchange Board of Directors, with the
advice of the CFR, shall have the power
to affirm, modify, or reverse any such
determination, or remand the matter for
further proceedings. Unless the
Exchange Board of Directors otherwise
specifically directs, the determination
and the penalty, if any, of the Exchange
Board of Directors after review is final
and conclusive, subject to the
provisions for review under the Act.
Current Rule 476—Disciplinary
Proceedings
Rule 476 governs disciplinary
proceedings involving charges against
members, member organizations,
principal executives, approved persons,
employees, or others subject to the
Exchange’s jurisdiction. Under Rule
476(a), if such a person is adjudged
guilty of certain offenses in a proceeding
under Rule 476, then a Hearing Panel or
Hearing Officer, in accordance with the
Sanctions Guidelines in Rule 476.10,14
14 The Sanctions Guidelines in Rule 476.10 apply
to certain options-related violations. See Securities
Exchange Act Release Nos. 45412 (February 7,
2002), 67 FR 6770 (February 13, 2002); 45566
(March 15, 2002), 67 FR 13379 (March 22, 2002)
(SR–Amex–2001–68). The Exchange filed this
proposed rule change pursuant to the provisions of
Section IV.B.i of the Commission’s September 11,
2000 Order Instituting Public Administrative
Proceedings Pursuant to Section 19(h)(1) of the Act,
which required the Exchange to adopt rules
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may impose disciplinary sanctions on
such person, including expulsion;
suspension; limitation as to activities,
functions, and operations, including the
suspension or cancellation of a
registration in, or assignment of, one or
more stocks; fine; censure; suspension
or bar from being associated with any
member or member organization; or any
other fitting sanction. The list of
offenses under Rule 476(a)(1)–(11)
includes, for example, violating an
Exchange rule or the Act, making a
material misstatement, or engaging in
manipulation.
Rule 476(b) describes the role of
Hearing Panels and Hearing Officers.
Under Rule 476(b), all proceedings
under Rule 476, except for matters
resolved by a Hearing Officer when
authorized by the rule, are conducted at
a hearing in accordance with the Rule
and held before a Hearing Panel
consisting of at least three persons of
integrity and judgment: A Hearing
Officer, who chairs the Hearing Panel,
and at least two members of the Hearing
Board, at least one of whom must be
engaged in securities activities differing
from that of the respondent or, if retired,
was so engaged in differing activities at
the time of retirement. In any
disciplinary proceeding involving
activities on the Floor of the Exchange,
no more than one of the persons serving
on the Hearing Panel may be, or if
retired, may have been, active on the
Floor of the Exchange. A Hearing Panel
may include only one retired person.
The Chairman of the Exchange Board
of Directors, subject to the approval of
the Exchange Board of Directors, from
time to time appoints a Hearing Board
to be composed of persons of integrity
and judgment who are members and
principal executives of the Exchange
who are not members of the Exchange
Board of Directors, registered and nonregistered employees of members and
member organizations, and such other
persons as the Chairman deems
necessary. Former members, principal
executives, or registered and nonregistered employees of members and
member organizations who have retired
establishing, or modifying existing, sanctioning
guidelines such that they are reasonably designed
to effectively enforce compliance with options
order handling rules. See Securities Exchange Act
Release No. 43268 (September 11, 2000),
Administrative Proceeding File No. 3–10282. The
Sanctions Guidelines, as under the current rules,
would not apply to equities-related violations. As
such, the CRO, Hearing Panel or Extended Hearing
Panel, as applicable, would consider relevant
Exchange precedent or such other precedent as it
deemed appropriate in determining sanctions that
should be imposed in connection with a decision
pursuant to proposed Rule 9268 or 9269, or in
connection with a settlement pursuant to proposed
Rule 9216 or 9270.
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from the securities industry may be
appointed to the Hearing Board within
five years of their retirement. The
members of the Hearing Board are
appointed annually and serve at the
pleasure of the Exchange Board of
Directors.
The Chairman, subject to the approval
of the Exchange Board of Directors,
annually designates a Chief Hearing
Officer and one or more other Hearing
Officers who have no Exchange duties
or functions relating to the investigation
or preparation of disciplinary matters.
Hearing Officers serve at the pleasure of
the Exchange Board of Directors. An
individual cannot be a Hearing Officer
(including the Chief Hearing Officer) if
he or she is, or within the last three
years was, a member, principal
executive, or registered or nonregistered employee of a member or
member organization.
Under the rule, the decision of a
majority of the Hearing Panel is the
decision of the Hearing Panel and is
final and conclusive, unless a request to
the Exchange Board of Directors for
review is filed.
Rule 476(c) governs procedural
matters and the conduct of the hearing.
Under Rule 476(c), upon application to
the Chief Hearing Officer by either party
to a proceeding, the Chief Hearing
Officer, or any Hearing Officer
designated by the Chief Hearing Officer,
resolves any and all procedural and
evidentiary matters and substantive
legal motions, and may require the
Exchange to permit the respondent to
inspect and copy documents or records
in the possession of the Exchange that
are material to the preparation of the
defense or are intended for use by the
Exchange as evidence in chief at the
hearing. The respondent may be
required to provide discovery of nonprivileged documents and records to the
Exchange. The rule does not authorize
the discovery or inspection of reports,
memoranda, or other internal Exchange
documents prepared by the Exchange in
connection with the proceeding. There
is no interlocutory appeal to the
Exchange Board of Directors of any
determination as to which this
provision applies.
Rule 476(d) governs Charge
Memorandums, Answers, and motions.
Under Rule 476(d), except as otherwise
provided in Rule 476(g), which governs
Stipulations and Consents, the specific
charges against the respondent must be
in the form of a written statement (a
‘‘Charge Memorandum’’) and signed by
an authorized officer or employee of the
Exchange, or an authorized employee of
another SRO with which the Exchange
has entered into an RSA pursuant to
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Rule 1B on behalf of the Exchange. A
copy of such Charge Memorandum must
be filed with the Hearing Board at the
same time it is served upon the
respondent. Service is deemed effective
by personal service of such Charge
Memorandum, or by leaving the same
either at the respondent’s last known
office address during business hours or
the respondent’s last place of residence
as reflected in Exchange records, or
upon mailing same to the respondent at
such office address or place of
residence. The Hearing Board assumes
jurisdiction upon receipt of the Charge
Memorandum.
A written Answer to the Charge
Memorandum must be filed not later
than 25 days from the date of service or
within such longer period of time as the
Hearing Officer may deem proper. The
Answer must be signed by or on behalf
of the respondent and filed with the
Hearing Board, with a copy served on
the Exchange. The Answer must
indicate specifically which assertions of
fact and charges in the Charge
Memorandum are denied and which are
admitted, and also contain any specific
facts in contradiction of the charges and
any affirmative defenses. A general
denial is insufficient. Any assertions of
fact not specifically denied in the
Answer may be deemed admitted and
failure to file an Answer may be deemed
an admission of any facts asserted in the
Charge Memorandum.
The Hearing Board sets a schedule for
the filing of motions and establishes
hearing dates. If the respondent fails to
file an Answer, the Exchange, by
motion, accompanied by proof of notice
to the respondent, may request a
determination of guilt by default and
may recommend a penalty to be
imposed. If the respondent opposes the
motion, the Hearing Officer, on a
determination that the respondent had
adequate reason to fail to file an
Answer, may adjourn the hearing date
and direct the respondent to promptly
file an Answer. If the default motion is
unopposed, or the respondent did not
have adequate reason to fail to file an
Answer, or the respondent failed to file
an Answer after being given an
opportunity to do so, the Hearing
Officer, on a determination that the
respondent has had notice of the
charges and that the Exchange has
jurisdiction in the matter, may find guilt
and determine a penalty.
Notice of the hearing is served upon
the Exchange and the respondent. The
respondent is entitled to be personally
present. The Hearing Officer determines
the specific facts at issue, and with
respect to those facts only, both the
Exchange and the respondent may
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produce witnesses and any other
evidence and they may examine and
cross-examine any witnesses so
produced. After hearing all the
witnesses and considering all the
evidence, the Hearing Panel determines
whether the respondent is guilty of the
charges, and if so, may impose a
penalty.
Rule 476(e) concerns the hearing
record and time for appeal. Under Rule
476(e), the Exchange must keep a record
of any hearing conducted and a written
notice of the result must be served upon
the respondent and the Exchange.
The determination of the Hearing
Panel, or of the Hearing Officer on a
determination of default, and any
penalty imposed, is final and conclusive
25 days after notice has been served
upon the respondent, unless a request to
the Exchange Board of Directors for
review of such determination and/or
penalty is filed, in which case any
penalty imposed is stayed pending the
outcome of such review.
Rule 476(f) concerns appeals to the
Exchange Board of Directors. Under
Rule 476(f), the Exchange, the
respondent, any member of the
Exchange Board of Directors, and any
member of the CFR may require a
review by the Exchange Board of
Directors of any determination or
penalty, or both, imposed by a Hearing
Panel or Hearing Officer. A written
request for review must be filed with the
Secretary of the Exchange within 25
days after notice of the determination
and/or penalty is served upon the
respondent. The Secretary of the
Exchange gives notice of any such
request for review to the Exchange and
any respondent affected thereby.
Any review must be conducted by the
Exchange Board of Directors or the CFR,
in the sole discretion of the Exchange
Board of Directors, and is based on oral
arguments and written briefs and is
limited to consideration of the record
before the Hearing Panel or Hearing
Officer. The CFR in turn can appoint an
appeals panel to conduct the review and
make a recommendation to the CFR.15
Upon review, and with the advice of
the CFR, the Exchange Board of
Directors, by majority vote, may sustain
any determination or penalty imposed,
or both; may modify or reverse any such
determination; and may increase,
15 An appeals panel appointed by the CFR must
consist of at least three and no more than five
individuals. For equities matters, the panel must be
composed of at least one director and one member
or individual associated with an equities member
organization. For options matters, the appeals panel
must be composed of at least one director and one
member or individual associated with an options
member organization. See Rule 476(f).
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decrease or eliminate any such penalty,
or impose any penalty permitted under
the provisions of this rule. Unless the
Exchange Board of Directors otherwise
specifically directs, the determination
and penalty, if any, of the Exchange
Board of Directors after review is final
and conclusive, subject to the
provisions for review under the Act.
Notwithstanding the foregoing, if
either party upon review applies for
leave to adduce additional evidence,
and shows to the satisfaction of the
Exchange Board of Directors, with the
advice of the CFR, that the additional
evidence is material and that there was
reasonable ground for failure to adduce
it before the Hearing Panel or Hearing
Officer, the Exchange Board of
Directors, with the advice of the CFR,
may remand the case for further
proceedings, in whatever manner and
on whatever conditions the Exchange
Board of Directors considers
appropriate.
Rule 476(g) sets forth an alternative
Stipulation and Consent procedure that
may be used in lieu of the procedures
set forth in Rule 476(d). Under Rule
476(g), a Hearing Officer acting alone
may determine whether a person subject
to the Exchange’s jurisdiction has
committed an offense on the basis of a
written Stipulation and Consent entered
into between the respondent and any
authorized officer or employee of the
Exchange or an authorized employee of
another SRO with which the Exchange
has entered into an RSA pursuant to
Rule 1B on behalf of the Exchange. Any
such Stipulation and Consent must
contain a stipulation with respect to the
facts, or the basis for findings of fact by
the Hearing Officer; a consent to
findings of fact by the Hearing Officer,
including a finding that a specified
offense had been committed; and a
consent to the imposition of a specified
penalty.
A Hearing Officer must convene a
Hearing Panel if the Hearing Officer
requires clarification or further
information on the Stipulation and
Consent, or if either party requests a
hearing before a Hearing Panel. A
Hearing Officer, acting alone, may not
reject a Stipulation and Consent, but
must convene a Hearing Panel to
consider such action.
Notice of any hearing held for the
purpose of considering a Stipulation
and Consent is served upon the
respondent as provided in Rule 476(d).
In any such hearing, if the Hearing
Panel determines that the respondent
has committed an offense, it may
impose the penalty agreed to in such
Stipulation and Consent. In addition, a
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11315
Hearing Panel may reject such
Stipulation and Consent.
Such rejection does not preclude the
parties to the proceeding from entering
into a modified Stipulation and Consent
or preclude the Exchange from bringing
or presenting the same or different
charges to a Hearing Panel in
accordance with Rule 476(d). The
Exchange must keep a record of any
hearing conducted under this Rule and
a written notice of the result setting
forth the requirements contained in
Section 6(d)(1) of the Act must be
served on the parties to the proceeding.
The determination of the Hearing
Panel or Hearing Officer and any
penalty imposed are final and
conclusive 25 days after notice thereof
has been served upon the respondent,
unless a request to the Exchange Board
of Directors for review of such
determination and/or penalty is filed, in
which case any penalty imposed is
stayed pending the outcome of such
review.
Any member of the Exchange Board of
Directors and any member of the CFR
may require a review by the Exchange
Board of Directors of any determination
or penalty, or both, imposed by a
Hearing Panel or Hearing Officer in
connection with a Stipulation and
Consent. The respondent or the
Exchange Division that entered into the
Stipulation and Consent may require a
review by the Exchange Board of
Directors of any rejection of such
Stipulation and Consent by the Hearing
Panel. A written request for review must
be filed with the Secretary of the
Exchange within 25 days after notice of
the determination and/or penalty is
served on the respondent. The Secretary
of the Exchange gives notice of any such
request for review to the Exchange
Division involved in the proceeding and
any respondent affected thereby.
Any review must be conducted by the
Exchange Board of Directors, or the
CFR, in the sole discretion of the
Exchange Board of Directors, and
consists of oral arguments and written
briefs and is limited to consideration of
the record before the Hearing Panel or
Hearing Officer. Upon review, and with
the advice of the CFR, the Exchange
Board of Directors, by majority vote,
may fix and impose the penalty agreed
to in such Stipulation and Consent or
any penalty that is less severe than the
stipulated penalty, or may remand for
further proceedings. Unless the
Exchange Board of Directors otherwise
specifically directs, the determination
and penalty, if any, of the Exchange
Board of Directors after review is final
and conclusive, subject to the
provisions for review under the Act.
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Rule 476(h) concerns legal
representation. Under the rule, a person
subject to the Exchange’s jurisdiction
has the right to be represented by legal
counsel or other representative in any
hearing or review held under Rule 476
and in any investigation before any
committee, officer, or employee of the
Exchange. A Hearing Officer may
impose a fine or any other appropriate
sanction on any party or the party’s
representative for improper conduct in
connection with a matter before the
Hearing Board, and may, if appropriate,
exclude any participant, including any
party, witness, attorney or
representative from a hearing on the
basis of such conduct.
Under Rule 476(i), a member or
principal executive of the Exchange
who is associated with a member
organization is liable to the same
discipline and penalties for any act or
omission of such member organization
as for the member or principal
executive’s own personal act or
omission. The Hearing Panel that
considers the charges against such
member, or principal executive, or the
Exchange Board of Directors upon any
review thereof, may relieve him from
the penalty therefor or may remit or
reduce such penalty on such terms and
conditions as the Hearing Panel or the
Exchange Board of Directors, with the
advice of the CFR, deems fair and
equitable.
Rule 476(j) governs suspensions.
When a member is suspended under
Rule 476, such member is deprived
during the term of the member’s
suspension of all rights and privileges of
membership. The expulsion of a
member terminates all membership
rights and privileges.
Rule 476(k) addresses non-payment of
fines and other sums due to the
Exchange. Under this rule, if any
approved person or registered or nonregistered employee fails to pay any fine
within 45 days after the same is payable,
such individual may, after written
notice mailed to such individual at
either the member’s office or last place
of residence as reflected in Exchange
records, be summarily suspended from
association in any capacity with a
member organization or have the
member’s approval withdrawn until
such fine is paid. The rule further
provides that any member, member
organization or principal executive that
fails to pay a fine or any other sums due
to the Exchange within 45 days is
reported by the Exchange Treasurer to
the Chairman of the Exchange Board of
Directors and, after written notice
mailed to such member, member
organization or principal executive of
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such arrearages, may be suspended by
the Exchange Board of Directors until
payment is made.
An individual or organization may be
proceeded against for any offense other
than that for which such individual or
organization was suspended. In
addition, the suspension or expulsion of
a member or principal executive under
the provisions of this rule creates a
vacancy in any office or position held
by the member or principal executive.
Similarly, current Rule 309—Equities
provides that any member, member
organization or principal executive that
fails to pay a fee or any other sums due
to the Exchange (excluding a fine)
within 45 days after the same are
payable shall be reported to the Chief
Financial Officer of the Exchange or
designee who, after notice has been
given to such member, member
organization or principal executive of
such arrearages, may suspend access to
some or all of the facilities of the
Exchange until payment is made.
Written suspension notices under both
Rules 309—Equities and 476(k) are
immediately effective upon such notice
and the rules provide no further
process; upon payment of the fine or
amount due, the suspension is lifted.
Under Rule 476(l), the CEO may not
require a review by the Exchange Board
of Directors under Rule 476 and is
recused from deliberations and actions
of the Board with respect to such
matters.
Rule 476.10 sets forth the Exchange’s
Sanctions Guidelines with respect to
certain options-related violations.16
Current Rule 476A—Imposition of Fines
for Minor Violations of Rules
Under Rule 476A(a), in lieu of
commencing a disciplinary proceeding
under Rule 476, the Exchange may
impose a fine not to exceed $5,000 on
any member, member organization,
principal executive, approved person, or
registered or non-registered employee of
a member or member organization for
violation of the rules listed in Rule
476A. Any fine imposed pursuant to
this rule and not contested is not
publicly reported, except as may be
required by SEC Rule 19d–1 and as may
be required by any other regulatory
authority.
Under Rule 476A(b), the person
against whom a minor rule violation
fine is imposed is served with a written
statement, signed by an authorized
officer or employee of the Exchange on
behalf of the Division or Department of
the Exchange taking the action, setting
forth (i) the rule or rules alleged to have
16 See
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been violated; (ii) the act or omission
constituting each such violation; (iii) the
fine imposed for each such violation;
and (iv) the date by which such
determination becomes final and such
fine becomes due and payable to the
Exchange, or such determination must
be contested as provided in Rule
476A(d). Such date may not be less than
25 days after the date of service of the
written statement.
Under Rule 476A(c), if the person
against whom a minor rule violation
fine is imposed pays the fine, such
payment is deemed to be a waiver by
such person of such person’s right to a
disciplinary proceeding under Rule 476
and any review of the matter by a
Hearing Panel or the Exchange Board of
Directors.
Under Rule 476A(d), any person
against whom a minor rule violation is
imposed may contest the Exchange’s
determination by timely filing a written
response meeting the requirements of an
answer as provided in Rule 476(d), at
which point the matter becomes a
disciplinary proceeding subject to the
provisions of Rule 476. In any such
disciplinary proceeding, if the Hearing
Panel determines that the person is
guilty of the rule violation(s) charged,
the Hearing Panel is free to impose any
one or more of the disciplinary
sanctions provided in Rule 476 and
determine whether the rule violation(s)
is minor in nature. NYSE Regulation,
the person charged, any member of the
Exchange Board of Directors, any
member of the CFR, and any Executive
Floor Governor may require a review by
the Board of any determination by the
Hearing Panel by proceeding in the
manner described in Rule 476.
Under Rule 476A(e), the Exchange
must prepare and announce to its
members and member organizations
from time to time a listing of the
Exchange rules as to which the
Exchange may impose minor rule
violation fines. Such listing also
indicates the specific dollar amount that
may be imposed as a fine or may
indicate the minimum and maximum
dollar amounts that may be imposed by
the Exchange with respect to any such
violation. If the Exchange determines
that any violation is not minor in
nature, the Exchange can proceed under
Rule 476 rather than under Rule 476A.
The remainder of Rule 476A sets forth
the lists of rule violations that may be
treated as minor rule violations and
fines, which may not exceed $5,000.
Part 1A sets forth a list of equities rule
violations and fines applicable thereto,
and Part 1C sets forth a list of options
rule violations and fines applicable
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thereto. Part 1D addresses certain late
reports.
Current Rule 477—Retention of
Jurisdiction and Failure To Cooperate
Under Rule 477(a), if, prior to
termination, or during the period of one
year immediately following the receipt
by the Exchange of written notice of the
termination, of a person’s status as a
member, member organization,
principal executive, approved person, or
registered or non-registered employee of
a member or member organization, the
Exchange serves (as provided in Rule
476(d)) a written notice on such person
that it is making inquiry into, or serves
a Charge Memorandum on such person
with respect to, any matter or matters
occurring prior to the termination of
such person’s status, the Exchange may
thereafter require such person to comply
with any requests of the Exchange to
appear, testify, submit books, records,
papers, or tangible objects, respond to
written requests and attend hearings in
every respect in conformance with the
Rules of the Exchange in the same
manner and to the same extent as if
such person had remained a member,
member organization, principal
executive, approved person, or
registered or non-registered employee of
a member or member organization.
Under Rule 477(b), prior to
termination, or during the period of one
year immediately following the receipt
by the Exchange of written notice of the
termination, of a person’s status as a
member, member organization,
principal executive, approved person, or
registered or non-registered employee of
a member or member organization, the
Exchange may, through the exercise of
its jurisdiction, as described in Rule
477(a), require such person to comply
with any requests of an organization or
association included in Rule 476(a)(11)
to appear, testify, submit books, records,
papers, or tangible objects, respond to
written requests and attend hearings in
every respect in conformance with the
Exchange rules in the same manner and
to the same extent as if such person had
remained a member, member
organization, principal executive,
approved person, or registered or nonregistered employee of a member or
member organization with respect to
any matter or matters occurring prior to
the termination of such person’s status.
Under Rule 477(c), if a former
member, member organization,
principal executive, approved person, or
registered or non-registered employee of
a member or member organization,
provided such notice or Charge
Memorandum is or has been served, is
adjudged guilty in a proceeding under
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Rule 476 of having refused or failed to
comply with any such requirement,
such person may be barred
permanently, or for such period of time
as may be determined, or until such
time as the Exchange has completed its
investigation into the matter or matters
specified in such notice or Charge
Memorandum, has determined a
penalty, if any, to be imposed, and until
the penalty, if any, has been carried out.
Under Rule 477(d), following the
termination of a person’s status as a
member, member organization,
principal executive, approved person, or
registered or non-registered employee of
a member or member organization,
provided such notice or Charge
Memorandum is or has been served,
such person may also be charged with
having committed, prior to termination,
any other offense with which such
person might have been charged had
such status not been terminated. Any
such charges shall be brought and
determined in accordance with the
provisions set forth in Rule 476.
Proposed Rule Change
The Exchange proposes to adopt new
Rule 8000 and 9000 Series, under new
Section 9B of the Office Rules titled
‘‘Disciplinary Rules.’’ 17 These proposed
new rules would be identical to the
NYSE Rule 8000 and 9000 Series 18
except that the Exchange would:
• Retain its currently applicable list
of minor rule violations and
accompanying fine levels in proposed
Rules 9216(b) and 9217, rather than
adopt the text of NYSE’s minor rule
violation plan; 19
• retain its options-related Sanctions
Guidelines in Rule 476.10, with certain
updates, and continue to apply them in
sanctions imposed under the proposed
17 Section 9A would be renamed ‘‘Legacy
Disciplinary Rules’’ to distinguish the two sections.
18 The NYSE Rule 8000 and 9000 Series was
based on the FINRA Rule 8000 and 9000 Series. See
2013 Approval Order, 78 FR at 15394. Like the
NYSE Rule 8000 and 9000 Series, the proposed rule
change would provide for investigative and
enforcement functions to be performed by
personnel and departments reporting to the Chief
Regulatory Officer (‘‘CRO’’) and by FINRA
personnel and departments. See NYSE
Reintegration Facilitation Filing, 80 FR at 72462. As
discussed below, the proposed rule change also
reflects modifications proposed in the NYSE
Reintegration Facilitation Filing that the CRO rather
than FINRA’s Office of Disciplinary Affairs
(‘‘ODA’’) would be responsible for: (i) Authorizing
issuance of a complaint; (ii) accepting or rejecting
acceptance, waiver, and consent letters and minor
rule violation plan letters; and (iii) accepting or
rejecting offers of settlement that are determined to
be uncontested before a hearing on the merits has
begun.
19 As discussed below, the Exchange would also
make certain technical and conforming changes to
its rules relating to minor rule violations. See text
accompanying notes 50 and 51, infra.
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11317
Rule 9000 Series (NYSE does not have
sanctions guidelines); 20
• retain recently adopted provisions
in Rule 476(f) relating to appeals panels;
and
• make certain technical and
conforming changes, including changes
to reflect the Exchange’s equities and
options membership.21
The Exchange also proposes to
harmonize its rules for non-payment of
fees or other sums due to the Exchange,
other than fines or monetary sanctions,
with the NYSE’s rule by adopting new
Rule 41. In particular, the Exchange
proposes to amend current Rule 476(k)
to delete the phrase ‘‘or any other sums
due to the Exchange,’’ and thereby limit
Rule 476(k) to fines. The Exchange also
proposes to delete current Rule 309—
Equities, which authorizes the
Exchange’s Chief Financial Officer to
address non-payment of amounts due to
the Exchange other than fines and
monetary sanctions. The Exchange
proposes to adopt a new Rule 41 in the
General Rules that will mirror the text
of Rule 309—Equities, except that
proposed Rule 41 would reference
proposed Rule 8320 and would apply to
the Exchange’s options and equities
markets. Proposed Rule 41 would also
specifically state that failure to pay any
fine levied in connection with a
disciplinary action shall be governed by
Rule 476(k) or Rule 8320, as applicable.
By adopting this new rule text, the
Exchange would have a single rule
applicable to both its equities and
options markets that is consistent with
the counterpart rule of its NYSE
affiliate.
The new Rule 8000–9000 Series and
new Rule 41 would apply to the
Exchange’s equities and options
markets.22
Transition
The Exchange intends to announce
the operative date of the new rules at
least 30 days in advance in an
20 See
note 14, supra.
technical and conforming changes are to
reference the Exchange hearing board, rather than
the NYSE hearing board, in proposed Rule 9232;
substitute the correct cross-references in proposed
Rules 8130, 9120(n), 9610(a), and 9810(a); define
the term ‘‘Board of Directors’’ in proposed Rule
9120(b); and include the terms ‘‘member,’’ ‘‘member
organization,’’ ‘‘ATP Holder,’’ ‘‘covered person,’’
and ‘‘person’’ defined in the proposed rule change
or elsewhere in the NYSE MKT rules where
appropriate in the following proposed rules so as
to reflect the Exchange’s equities and options
membership: 8110, 8130, 8210, 8211, 8310, 8311,
8320, 9001, 9110, 9120, 9216, 9232, 9268, 9310,
9521, 9522, 9551, 9552, 9554, 9555, 9556, 9558,
9559, 9610, and 9810.
22 Rule references have been added to Rule 0—
Equities to make clear that these proposed rules
would apply to equities transactions on the
Exchange.
21 These
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Information Memorandum. To further
facilitate an orderly transition from the
current rules to the new rules, the
Exchange proposes that certain matters
already initiated under the current rules
would be completed under such rules.
The proposed transition is similar to the
transition proposed when the NYSE
adopted disciplinary rules based on the
FINRA Rule 8000 and 9000 Series in
2013.23
Specifically, the Exchange proposes
that current Rule 475 would continue to
apply to proceedings for which a
written notice had been issued prior to
the effective date of the new rules.
Current Rules 476 and 476A would
continue to apply with respect to a
proceeding for which a Charge
Memorandum had been filed with the
Hearing Board under Rule 476(d) prior
to the effective date of the new rules.
Current Rule 476 also would continue to
apply to a matter for which a written
Stipulation and Consent had been
submitted to a Hearing Officer prior to
the effective date of the new rules.
Current Rules 475, 476, or 476A would
continue to apply until any such
proceeding was final. In all other cases,
the proposed Rule 8000 and 9000
Series, as described below, would
apply.
Until the effective date, the Exchange
could issue a written notice of
suspension for non-payment of a fine or
other sum due to the Exchange under
current Rule 476(k), which would
remain in effect until payment was
made. Thereafter, the Exchange would
proceed against an individual or entity
subject to its jurisdiction that failed to
pay a fine or monetary sanction under
proposed Rule 8320.
As noted above, current Rule
476(a)(1)–(11) also contains substantive
elements in addition to procedural
elements. Specifically, Rule 476(a)(1)–
(11) contains a list of offenses for which
the Exchange can take disciplinary
action. The proposed rule change would
not alter this substantive aspect of Rule
476(a). The Exchange could continue to
take disciplinary action against a
member organization or other person
subject to its jurisdiction for committing
any of these substantive violations;
following the transition described
above, the Exchange would bring
disciplinary cases for such offenses
under the proposed Rule 9000 Series.
The Sanctions Guidelines in Rule
476.10 relating to options rule violations
would continue to apply to proceedings
under both Rule 476 and the Rule 9000
Series. The Exchange proposes to
23 See
2013 Approval Order, 78 FR at 15395.
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amend Rule 476.10 to update certain
cross-references to options rules.
Similarly, the retention of jurisdiction
provisions of Rule 477 would continue
to apply to any member or member
organization that resigned or had its
membership canceled or revoked and
any person whose status as a person
subject to the Exchange’s jurisdiction
was terminated or whose registration
was revoked or canceled if such member
organization or person had been served
with a Charge Memorandum or written
notice of inquiry pursuant to Rule 477
prior to the effective date of the new
rules. As described above, current Rule
477 generally provides that the
Exchange retains jurisdiction for one
year after such status is terminated and
such jurisdiction continues if during
that one-year period the Exchange has
provided written notice that it is making
inquiry into matters that arose prior to
termination. In all other cases, the
retention of jurisdiction provisions of
proposed Rule 8130 would apply,
which would be substantially the same
as the counterpart NYSE rule. Under the
proposed rule change, as described
below, the Exchange would retain
jurisdiction to file a complaint against
any entity or individual subject to its
jurisdiction for two years after such
status was terminated, and the proposed
Rule 8000 Series and Rule 9000 Series
generally would apply.24
The Exchange proposes to add
italicized language to Rules 475, 476,
476A and 477 describing the proposed
applicability and transition of each rule
as described herein.
When the transition is complete and
there are no longer any member
organizations or persons who would be
subject to Rules 475, 476, 476A, and
477, the Exchange intends to submit a
proposed rule change that would delete
24 In light of the proposed rule changes with
respect to retention of jurisdiction and nonpayment of monies due to the Exchange, the
Exchange proposes to delete Rule 353A(b) of the
Office Rules because it is no longer necessary. The
rule provides that every ATP Holder and any
successor-in-interest thereto, and each ATP Holder
whose ATP is terminated due to expulsion,
suspension without reinstatement, death,
declaration of incompetency, dissolution, winding
up, or other cessation of business, must be current
in all filings and payments of dues, fees and charges
relating to that ATP, including, without limitation,
filing fees and charges required by the Commission
and the Securities Investor Protection Corporation.
The rule further provides that if any ATP Holder,
or any successor-in-interest thereto, fails to make all
such filings, or to pay all such dues, fees and
charges, the Secretary of the Exchange retains such
jurisdiction over such former ATP Holder to require
such filings and collect such outstanding dues,
fines and charges until such time as they have been
filed and/or paid. The Exchange believes that it will
retain sufficient authority over ATP Holders under
the proposed rule change to address such
situations.
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any investigative and disciplinary
provisions that are no longer needed.
Other provisions would be retained and
moved to an appropriate place in the
Exchange’s rules.
Terms and Definitions Used Throughout
the Proposed Rule 8000 and 9000 Series
To continue the current coverage of
the NYSE MKT disciplinary rules and
conform to the NYSE rules’ terminology,
the proposed rule change would use the
terms ‘‘member,’’ ‘‘member
organization’’ and ‘‘covered person’’ to
describe the persons to which the
proposed Rule 8000 and 9000 Series
apply. The term ‘‘covered person,’’
referenced in proposed Rule 8120(b)
and defined in proposed Rule 9120(g),
would include a member, principal
executive, approved person, registered
or non-registered employee of a member
organization or an ATP Holder,25 or
other person (excluding a member
organization) subject to the jurisdiction
of the Exchange.26 By defining and
utilizing the term ‘‘covered person’’ in
this manner, the Exchange would effect
no substantive change in the scope of
persons subject to the Exchange’s
disciplinary rules.27
25 Current Rule 476(a) contains a reference to a
registered or non-registered employee of a member.
Under Rule 2(a)—Equities, however, a ‘‘member’’ is
a natural person associated with a member
organization; thus, equities members do not have
employees. Such persons would be employees of
the member organization and thus covered by the
proposed definition of ‘‘covered person.’’ An ‘‘ATP
Holder,’’ on the other hand, may be a natural person
and may have registered or non-registered
employees. See Rule 900.2NY(5). Therefore, to
reflect the fact that equities members do not have
employees but options members may, the Exchange
proposes to use the phrase ‘‘associated with a
member organization or ATP Holder’’ in the
proposed definition of ‘‘covered person.’’ In
addition, the Exchange proposes to use the term
‘‘ATP Holder,’’ which is defined in Rule
900.2NY(5), where appropriate in the proposed
rules. As discussed below in connection with the
proposed Rule 9520 Series, which governs
eligibility proceedings for persons subject to
statutory disqualifications, references to ATP
Holders in the context of proposed Rules 9520
through 9527 would apply to those options
members that have employees.
26 References to ‘‘member’’ and ‘‘member
organization’’ as those terms are used in the rules
of the Exchange include ATP Holders. See Rules 18,
24 & 900.2NY(5). As such, ATP Holders would be
covered by the proposed terminology.
27 The Exchange notes that the term ‘‘allied
member,’’ which historically referred to certain
general partners, principal executives, or control
persons of a member organization, has been
replaced in the Exchange’s rules with the term
‘‘principal executive.’’ See Securities Exchange Act
Release Nos. 59022 (November 26, 2008), 73 FR
73683 (December 3, 2008) (SR–NYSEALTR–2008–
10) and 69822 (June 21, 2013), 78 FR 38769 (June
27, 2013) (SR–NYSEMKT–2013–58). Former allied
members are referenced in proposed Rule 9232
because they are eligible to serve on the Exchange
hearing board.
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Proposed Rule 8000 Series
Proposed Rule 8001 would include
the effective date of the proposed rule
change for the Rule 8000 Series, noting
the exception for the retention of
jurisdiction dates in proposed Rule 8130
and the transition from current Rule
476(k) to proposed Rule 8320, as
described above. The text of NYSE
Rules 8110 through 8330 would be
adopted as Rules 8110 through 8330.28
Proposed Rule 8110 would require an
NYSE MKT member or member
organization to provide access to the
Exchange’s rules to its customers.
Although there is no comparable
requirement in the current rules, the
Exchange currently makes available its
rules on the Exchange’s Web site.29
Proposed Rule 8110 is the same as
NYSE Rule 8110 except for the
inclusion of ‘‘member’’ to reflect the
Exchange’s membership.
Proposed Rule 8120 would provide
cross-references to definitions of the
terms ‘‘Adjudicator,’’ ‘‘covered person’’
and ‘‘Regulatory Staff’’ in proposed Rule
9120. Similarly, NYSE Rule 8120 crossreferences the same three definitions.
Proposed Rule 8120 is simply technical
in nature, and is the same as the NYSE
Rule.
Proposed Rule 8130 would set forth
retention of jurisdiction provisions that
are substantially the same as NYSE Rule
8130, except for the following
conforming changes: ‘‘Member’’ would
be added to paragraph (d); the crossreferences in paragraph (b)(1) would be
conformed to NYSE MKT’s rules; and
‘‘ATP Holder’’ 30 would be added to
paragraphs (a), (b) and (c). Under the
proposed rule change, the Exchange
would retain jurisdiction to file a
complaint against an entity or
individual for two years after such
person’s status as a member
organization or covered person is
terminated. This differs from current
Rule 477, which provides that the
Exchange retains jurisdiction after the
termination of status as long as a Charge
Memorandum or written notice of
inquiry is served within one year after
termination of such status. The
Exchange believes that the period under
the proposed rule is appropriate because
it would harmonize the Exchange’s rule
with NYSE’s rule and would provide a
fixed time period for a complaint to be
28 NYSE does not have a Rule 8212, 8213, or
8312. In order to maintain consistency with NYSE’s
rule numbering, the Exchange proposes to designate
proposed Rules 8212, 8213, and 8312 as
‘‘Reserved.’’
29 The Exchange’s rules are available at https://
wallstreet.cch.com/MKT/Rules/.
30 See notes 24–26, supra, and accompanying
text.
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brought, which provides repose to
respondents while still providing
Exchange staff with sufficient time to
determine if a complaint should be
brought.
Proposed Rule 8210 would set forth
procedures for the provision of
information and testimony and the
inspection and copying of books by the
Exchange, as amended by the NYSE in
2013.31 Proposed Rule 8210 is the same
as NYSE Rule 8210 except that
references to ‘‘member’’ and ‘‘ATP
Holder’’ would be added where
appropriate to reflect the Exchange’s
membership.
Proposed Rule 8210(a) would require
a member organization or covered
person to provide information and
testimony and permit the inspection of
books, records, and accounts that are in
such member organization’s or covered
person’s possession, custody or control
for the purpose of an investigation,
complaint, examination, or proceeding
authorized by the Exchange’s rules. As
noted above, under proposed Rule 8130,
the Exchange would retain jurisdiction
over a member organization or covered
person to file a complaint or otherwise
initiate a proceeding for two years after
such member organization’s or covered
person’s status is terminated 32 and as
such can continue to obtain information
and testimony during such period and
thereafter if a complaint or proceeding
is timely filed. Currently the Exchange
also requires persons subject to its
jurisdiction to provide books and
records and appear and testify upon
request under current Rules 475(e),
476(a)(11), and 477(a) and (b), and in
Rule 31 in the General Rules. In
addition, as noted above, the Exchange
retains jurisdiction after termination of
a registration as long as a Charge
Memorandum or written notice of
inquiry has been served within one year
following termination of such status.
The Exchange believes the proposed
rule is appropriate because it would
harmonize the Exchange’s rules with
respect to jurisdiction and obtaining
books and records from member
organizations and covered persons with
the NYSE’s rules.
The Exchange also proposes new rule
text in Rule 8210(a), recently proposed
by NYSE, providing that in performing
functions under the disciplinary code,
the CRO and Regulatory Staff would
function independently of the
commercial interests of the Exchange
31 See Securities Exchange Act Release No. 69963
(July 10, 2013), 78 FR 42573 (July 16, 2013) (SR–
NYSE–2013–49).
32 This would include individual members since
the definition of ‘‘covered person’’ in proposed Rule
9120 includes ‘‘members.’’
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11319
and the commercial interests of the
members and member organizations.33
This requirement is consistent with
longstanding policies and practices at
the Exchange. The proposed provision
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 commitment to
performing its regulatory functions
under its disciplinary rules in an
independent and impartial manner.34
Proposed Rule 8210(b) would
authorize Exchange staff to enter into
regulatory cooperation agreements with
a domestic federal agency or
subdivision thereof or a foreign
regulator. Current Rule 27—Equities
permits the Exchange to enter into
agreements with domestic or foreign
SROs or associations, contract markets
and registered futures associations, but
does not specify domestic federal
agencies or subdivisions thereof or
foreign regulators; because the scope of
current Rule 27—Equities is different,
the Exchange would retain it along with
proposed Rule 8210(b).35 Similarly,
current Commentary .02 of Rule 31 in
the General Rules provides that the
Exchange may enter into agreements
with domestic and foreign SROs
providing for the exchange of
information and other forms of mutual
assistance for market surveillance,
investigative, enforcement and other
regulatory purposes. Because current
Rule 31.02 differs in scope from
proposed Rule 8210(b), the Exchange
would retain it along with the proposed
rule.36
The remainder of proposed Rule 8210
would set forth certain procedures for
investigations. Proposed Rule 8210(c)
would require member organizations
and covered persons to comply with
information requests under the Rule.
33 See NYSE Reintegration Facilitation Filing, 80
FR at 51337. The inclusion of ‘‘members and
member organizations’’ would conform the
proposed rule to the Exchange’s membership.
34 See NYSE Arca Equities Rule 10.2(a); NYSE
Arca Options Rule 10.2(a).
35 Rule 27—Equities also cross-references Rule
476(a)(11), which enumerates certain violations,
including the violation of refusing or failing to
comply with a request of the Exchange, or a
domestic or foreign SRO or association, contract
market, or registered futures association with which
the Exchange has entered into an agreement or to
furnish information to or to appear or testify before
the Exchange or such other organization or
association. The proposed rule change would not
alter this substantive aspect of Rule 476(a)(11) and
as such the cross-reference in current Rule 27—
Equities would not be amended.
36 As discussed below, the rest of Rule 31, which
concerns requests for books and records and
testimony as well as extensions of time to comply,
would be deleted and Rule 31 would be re-named
‘‘Regulatory Cooperation.’’
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This requirement is substantially the
same as current Rules 475(e), 476(a)(11),
and 477(a) and (b), as noted above.
Proposed Rule 8210(d) would provide
that a notice under this Rule would be
deemed received by the member
organization or covered person
(including a currently or formerly
registered person) to whom it is directed
by mailing or otherwise transmitting the
notice to the last known business
address of the member organization or
the last known residential address of the
covered person as reflected in the
Central Registration Depository
(‘‘CRD’’). With respect to a person
currently associated with a member
organization or ATP Holder in an
unregistered capacity, a notice under
this Rule would be deemed received by
the person by mailing or otherwise
transmitting the notice to the last known
business address of the member
organization or ATP Holder as reflected
in the CRD. With respect to a person
subject to the Exchange’s jurisdiction
who was formerly associated with a
member organization or ATP Holder in
an unregistered capacity, a notice under
this Rule would be deemed received by
the person upon personal service, as set
forth in Rule 9134(a)(1).
If the Adjudicator or Exchange staff
responsible for mailing or otherwise
transmitting the notice to the member
organization or covered person had
actual knowledge that the address in the
CRD is out of date or inaccurate, then
a copy of the notice would be mailed or
otherwise transmitted to: (1) The last
known business address of the member
organization or the last known
residential address of the covered
person as reflected in the CRD; and (2)
any other more current address of the
member organization or covered person
known to the Adjudicator or Exchange
staff responsible for mailing or
otherwise transmitting the notice.
Current Rules 475(e), 476(a)(11), and
477(a) and (b), and Rule 31 in the
General Rules, which require persons
subject to the Exchange’s jurisdiction to
provide books and records and appear
and testify upon the Exchange’s request,
do not specify the address to which a
notice of such request must be directed.
The additional specificity in proposed
Rule 8210(d) would afford member
organizations and covered persons
additional procedural protections in
that respect.
If the Adjudicator or Exchange staff
responsible for mailing or otherwise
transmitting the notice to the member
organization or covered person knew
that the member organization or covered
person was represented by counsel
regarding the investigation, complaint,
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examination, or proceeding that was the
subject of the notice, then the notice
would be served upon counsel by
mailing or otherwise transmitting the
notice to the counsel in lieu of the
member organization or covered person,
and any notice served upon counsel
would be deemed received by the
member organization or covered person.
Proposed Rule 8210(e) would provide
that in carrying out its responsibilities
under this Rule, the Exchange may, as
appropriate, establish programs for the
submission of information to the
Exchange on a regular basis through a
direct or indirect electronic interface
between the Exchange and members or
member organizations. Proposed Rule
8210(f) would permit a witness to
inspect the official transcript of the
witness’s own testimony, and permit a
person who has submitted documentary
evidence or testimony in an Exchange
investigation to get a copy of the
person’s documentary evidence or the
transcript of the person’s testimony
under certain circumstances. Finally,
proposed Rule 8210(g) would require
any member organization or covered
person who in response to a request
pursuant to this Rule provided the
requested information on a portable
media device to ensure that such
information was encrypted. The
Exchange’s current rules do not contain
comparable provisions.
Proposed Supplementary Material
8210.01 would provide that the rule
requires member organizations and
covered persons to provide Exchange
staff and Adjudicators with requested
books, records and accounts. In
specifying the books, records and
accounts ‘‘of such member organization
or covered person,’’ paragraph (a) of the
rule would refer to books, records and
accounts that the broker-dealer or its
associated persons make [sic] or keep
[sic] relating to its operation as a brokerdealer or relating to the person’s
association with the member
organization or ATP Holder. This would
include but is not limited to records
relating to an Exchange investigation of
outside business activities, private
securities transactions or possible
violations of just and equitable
principles of trade, as well as other
Exchange rules and the federal
securities laws. It would not ordinarily
include books and records that were in
the possession, custody or control of a
member organization or covered person,
but whose bona fide ownership was
held by an independent third party and
the records were unrelated to the
business of the member organization or
covered person. The rule would require,
however, that a member organization or
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covered person must make available its
books, records or accounts when these
books, records or accounts are in the
possession of another person or entity,
such as a professional service provider,
but the member organization or covered
person controlled or had a right to
demand them. The Exchange’s current
rules do not have comparable
provisions.
Proposed Rule 8211 would set forth
the procedures for the automated
submission of trading data requested by
the Exchange (commonly referred to as
‘‘blue sheet’’ data) for transactions on
the Exchange. The proposed Rule is the
same as its NYSE counterpart except for
the inclusion of ‘‘ATP Holder.’’
The procedures set forth in proposed
Rule 8211 are substantially the same as
current Rule 956.1NY and Rule 410A—
Equities. Because FINRA performs
surveillance functions based on the
information gathered as a result of these
rules, the Exchange believes that the
procedures for the automated
submission of trading data should be
harmonized with the FINRA and NYSE
rules. Therefore, the Exchange proposes
to delete current Rule 956.1NY and Rule
410A—Equities and adopt proposed
Rule 8211 instead, which is identical to
NYSE Rule 8211.37
Proposed Rule 8310 would set forth
the range of sanctions that could be
imposed in connection with
disciplinary actions under the proposed
rule change. Such sanctions would
include censure, fine, suspension,
revocation, bar, expulsion, or any other
fitting sanction. The sanctions also are
substantially the same as the permitted
sanctions set forth in current Rule
476(a)(11), which are expulsion;
suspension; limitation as to activities,
functions, and operations, including the
suspension or cancellation of a
registration in, or assignment of, one or
more stocks; fine; censure; suspension
or bar from being associated with any
member or member organization; or any
other fitting sanction. Although there is
some difference between the text of the
current and proposed rules, the
Exchange believes that in practice the
37 The Exchange is not proposing to adopt FINRA
Rule 8213, which provides for the automated
submission of trading data for non-exchange listed
securities, and has marked it as ‘‘Reserved.’’
Because the Exchange does not have regulatory
responsibility for trading in non-Exchange listed
securities, it is not necessary for the Exchange to
incorporate FINRA Rule 8213 into its rules.
Moreover, the Exchange recently deleted Rule
410B—Equities, which required the reporting of offExchange transactions in Exchange-listed securities
that are not reported to the Consolidated Tape, as
duplicative of existing regulatory reporting
requirements. See Securities Exchange Act Release
No. 76982 (January 28, 2016) (SR–NYSEMKT–
2015–80).
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range of sanctions is the same due to the
inclusion in both rules of the general
category ‘‘any other fitting sanction.’’
Proposed Rule 8310 would also allow
the Exchange to impose a temporary or
permanent cease and desist order
against a member organization or
covered person. This new authority, not
currently available under the
Exchange’s rules, is described in further
detail below in the section concerning
the proposed Rule 9800 Series.
Proposed Rule 8310 is the same as
NYSE Rule 8310 except for the
inclusion of references to ‘‘member’’
and ‘‘ATP Holders.’’
Proposed Rule 8311 would provide
that if the Commission or the Exchange
imposed a suspension, revocation,
cancellation or bar on a covered person,
a member organization or ATP Holder
may not permit such person to remain
associated, and, in the case of a
suspension, may not pay any
remuneration that results from any
securities transaction. The proposed
rule is similar in result to current Rule
476(j), which provides that a member
will be deprived of all rights and
privileges of membership during a
suspension and that an expulsion of a
member terminates all rights and
privileges arising out of the
membership. However, the proposed
rule is broader because it applies to all
covered persons subject to a suspension,
revocation, cancellation or bar and more
explicitly prohibits the payment of
compensation in the case of a
suspension. Except for references to
ATP Holders where appropriate, the
proposed Rule is the same as NYSE Rule
8311.
Proposed Rule 8313 would provide
that the Exchange will publish all final
disciplinary decisions issued under the
proposed Rule 9000 Series, other than
minor rule violations, on its Web site.38
This is the Exchange’s longstanding
practice, although it does not have a
current rule with respect to it. The
Exchange believes that its current
practice is fair and non-discriminatory
and as such proposes to continue it. The
proposed Rule is identical to the NYSE
Rule.
Proposed Rule 8320(a) would provide
that all fines and other monetary
sanctions shall be paid to the Treasurer
of the Exchange. Such monies could not
be used for commercial purposes.39
38 Consistent with current practice, a
determination in a statutory disqualification
proceeding under the proposed Rule 9520 Series
would not be considered a disciplinary decision
and thus would not be subject to publication.
39 See Article IV, Section 4.05 of the Seventh
Amended and Restated Operating Agreement of
NYSE MKT LLC, available at https://
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Rather, the Exchange uses fine monies
for regulatory purposes.40
Proposed Rule 8320(b) and (c) would
permit the Exchange, after seven days’
notice in writing, to suspend or expel a
member or member organization from
membership or revoke the registration of
a covered person for failure to pay a
fine. The text of the proposed rule is the
same as the text of the NYSE’s rule
except for the inclusion of ‘‘member’’ in
subpart (b) to reflect the Exchange’s
membership.
As noted above, under current Rule
476(k), a person may be summarily
suspended for failing to pay a fine
within a 45-day notice period; a
membership cancellation or bar also
could be imposed in a regular
disciplinary proceeding for nonpayment of a fine. FINRA’s rules do not
set forth a notice period but, as a matter
of practice, FINRA typically provides a
respondent at least 30 days to pay a fine
after the conclusion of a proceeding. As
the NYSE explained in proposing its
Rule 8320, a 30-day period, along with
the seven days’ notice provided under
NYSE Rule 8320, provides respondents
with an adequate amount of time to pay
a fine and avoid any further sanction by
the Exchange.41 The Exchange proposes
to follow the same reasoning for its Rule
8320. For clarity regarding the
transition, proposed Rule 8001 would
provide that the Exchange may issue a
written notice of suspension for nonpayment of a fine under Rule 476(k)
until the effective date of the proposed
rule change, and thereafter proposed
Rule 8320 would apply. In addition,
Rule 8320(d) would provide that the
Exchange may exercise the authority set
forth in Rules 8320(b) and (c) with
respect to non-payment of a fine,
monetary sanction, or cost assessed in a
disciplinary action initiated under Rule
476 for which a decision was issued on
or after the transition date.
Proposed Rule 8330 would provide
that a disciplined member organization
or covered person may be assessed the
costs of a proceeding. There is no
comparable requirement in the current
rules, although the Exchange may assess
costs as a ‘‘fitting sanction’’ under
current Rule 476(a)(11). The proposed
Rule is the same as the text of the NYSE
Rule.
www.nyse.com/publicdocs/nyse/regulation/nysemkt/Seventh_Amended_and_Restated_Operating_
Agreement_of_NYSE_MKT_LLC.pdf.
40 See Securities Exchange Act Release No. 58673
(September 29, 2008), 73 FR 57707, 57717 (October
3, 2008) (SR–NYSE–2008–60 and SR–Amex–2008–
62) (approving merger whereby the Exchange’s
predecessor, the American Stock Exchange LLC, a
subsidiary of The Amex Membership Corporation,
became a subsidiary of NYSE Euronext).
41 See 2013 Notice, 78 FR at 5222.
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11321
Proposed Rule 9000 Series
As noted above, the text of the Rule
9000 Series would be based on the text
of the NYSE Rule 9000 Series, with
certain changes noted below.
Proposed Rules 9001 Through 9120
Proposed Rule 9001 would set forth
the effective date of the rule, noting the
transitional provisions described above.
The text of proposed Rule 9001 would
be based on the proposed introductory
text of Rule 476, except that the
transition with respect to proposed Rule
8320 would be reflected in proposed
Rule 8001 as described above.
Proposed Rule 9110 would state the
types of proceedings to which the
proposed Rule 9000 Series would apply
(each of which is described below) and
the rights, duties, and obligations of
member organizations and covered
persons, and would set forth the defined
terms and cross-references. The
Exchange also proposes to adopt rule
text in Rule 9110(a), 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 members
and member organizations. As
discussed above, this requirement is
already being met and is consistent with
longstanding policies and practices at
the Exchange, and the proposed
provision would also be consistent with
rules currently in effect for the equities
and options markets of the Exchange’s
affiliate.42 The Exchange does not have
a comparable rule. Except for the
inclusion of ‘‘member,’’ the proposed
Rule is the same as NYSE Rule 9110.
Proposed Rule 9120 would set forth
definitions. The definitions are identical
to those in NYSE Rule 9120, except that
the term ‘‘Board of Directors’’ would be
defined in paragraph (b), rather than
including a cross-reference to another
rule; the term ‘‘covered person’’ in
proposed paragraph (g) would include a
reference to ATP Holders; the crossreference in the definition of
‘‘Exchange’’ in proposed paragraph (n)
would be conformed to NYSE MKT’s
rules; and the definition of ‘‘Party’’ in
proposed paragraph (w) would include
a reference to ‘‘ATP Holder’’ to conform
to the proposed Rule 9520 Series. The
Exchange also proposes to include
definitions recently added to NYSE Rule
9120, including defined terms
‘‘Enforcement’’ and ‘‘Regulatory
42 See
notes 33 and 34, supra, and accompanying
text.
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Staff.’’ 43 More specifically, the
Exchange proposes the following:
• 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.44
• The Exchange proposes to include
definitions of ‘‘Interested Staff’’ and
‘‘Party’’ in proposed Rules 9120(t) and
9120(w), which include the terms
‘‘Regulatory Staff’’ and ‘‘Enforcement,’’
respectively, and are identical to the
definitions in the NYSE Rules.
• The Exchange proposes to number
the definitions in Rule 9120 to
correspond with the NYSE Rules.
Proposed Rules 9130 Through 9138
Proposed Rules 9130 through 9138
would govern the service of a complaint
or other procedural documents under
the rules. The proposed Rules are the
same as NYSE Rules 9130 through 9138.
Proposed Rule 9131 would set forth
the requirements for serving a complaint
or document initiating a proceeding.
Proposed Rule 9132 would cover the
service of orders, notices, and decisions
by an Adjudicator. Proposed Rule 9133
would govern the service of papers
other than complaints, orders, notices,
or decisions. Proposed Rule 9134 would
describe the methods of service and the
procedures for service. Proposed Rule
9135 would set forth the procedure for
filing papers with an Adjudicator.
Proposed Rule 9136 would govern the
form of papers filed in connection with
any proceeding under the proposed
Rule 9200 and 9300 Series. Proposed
Rule 9137 would state the requirements
for and the effect of a signature in
connection with the filing of papers.
Finally, proposed Rule 9138 would
establish the computation of time.
By comparison, current Rule 476(d),
which governs service of process, is
generally less detailed and, as noted
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43 See
NYSE Reintegration Facilitation Filing
Approval Order, 80 FR at 72461. The Exchange also
proposes to incorporate those defined terms in
proposed Rules 9131, 9146, 9211, 9212, 9213, 9215,
9216, 9251, 9253, 9264, 9269, 9270, 9551, 9552,
9554, 9556, 9810, 9820, and 9830.
44 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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above, provides that service is deemed
effective by personal service of the
Charge Memorandum, or by leaving the
same either at the respondent’s last
known office address during business
hours or the respondent’s last place of
residence as reflected in Exchange
records, or upon mailing same to the
respondent at such office address or
place of residence.
Under proposed Rule 9134, papers
served on a natural person could be
served at the natural person’s residential
address, as reflected in CRD, if
applicable. When a Party or other
person responsible for serving such
person had actual knowledge that the
natural person’s CRD address was out of
date, duplicate copies would be
required to be served on the natural
person at the natural person’s last
known residential address and the
business address in CRD of the entity
with which the natural person is
employed or affiliated. Papers could
also be served at the business address of
the entity with which the natural person
is employed or affiliated, as reflected in
CRD, or at a business address, such as
a branch office, at which the natural
person is employed or at which the
natural person is physically present
during a normal business day. The
Hearing Officer could waive the
requirement of serving documents
(other than complaints) at the addresses
listed in CRD if there were evidence that
these addresses were no longer valid
and there was a more current address
available. If a natural person were
represented by counsel or a
representative, papers served on the
natural person, excluding a complaint
or a document initiating a proceeding,
would be required to be served on the
counsel or representative.
Similarly, under proposed Rule 9134,
papers served on an entity would be
required to be made by service on an
officer, a partner of a partnership, a
managing or general agent, a contact
employee as set forth on Form BD, or
any other agent authorized by
appointment or by law to accept service.
Such papers would be required to be
served at the entity’s business address
as reflected in CRD, if applicable;
provided, however, that when the Party
or other person responsible for serving
such entity had actual knowledge that
an entity’s CRD address was out of date,
duplicate copies would be required to
be served at the entity’s last known
address. If an entity were represented by
counsel or a representative, papers
served on such entity, excluding a
complaint or document initiating a
proceeding, would be required to be
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served on such counsel or
representative.
The Exchange’s current rules do not
explicitly permit service of a Charge
Memorandum or other document on a
respondent’s counsel or other
authorized representative. The proposed
rule change would accommodate
respondents who have retained counsel
and have authorized them to accept
service. The proposed rule change also
would harmonize the Exchange’s rules
with many states’ Rules of Professional
Conduct for attorneys, which generally
require that, once a person retains an
attorney, unless the attorney specifically
provides otherwise, all communications
be directed to such attorney.45
The Exchange believes that these
more detailed procedures for service of
process would increase the likelihood of
successful service of process while
providing appropriate due process
protections to its member organizations
and covered persons.
Proposed Rules 9140 Through 9148
Proposed Rules 9140 through 9148
would contain various rules relating to
the conduct of disciplinary proceedings.
The proposed Rules are the same as
NYSE Rules 9140 through 9148.
Proposed Rule 9141 would govern
appearances in a proceeding, notices of
appearance, and representation.
Proposed Rule 9141 would permit a
respondent to represent himself or be
represented by an attorney, just as is
permitted under current Rule 476(h).
Current Rule 476(h) is more general, in
that it permits a respondent to be
represented by an attorney or other
representative, while proposed Rule
9141 is more specific in that it permits
a respondent to be represented by an
attorney admitted to practice in the
United States, permits a partnership to
be represented by a partner, and permits
a corporation, trust, or association to be
represented by an officer of such entity.
Proposed Rule 9141 also requires an
attorney or representative to file a notice
of appearance, which is not required
under current Exchange rules.
In addition, proposed Rule 9141, in
conformance with a recent NYSE
amendment and based on FINRA’s
45 See, e.g., American Bar Association Model Rule
of Professional Conduct 4.2 (Communication with
Person Represented by Counsel) (‘‘ABA Rule 4.2’’).
ABA Rule 4.2 provides that ‘‘[i]n representing a
client, a lawyer shall not communicate about the
subject of the representation with a person the
lawyer knows to be represented by another lawyer
in the matter, unless the lawyer has the consent of
the other lawyer or is authorized to do so by law
or a court order.’’ Many states have rules regarding
communication with a person represented by
counsel that are based on ABA Rule 4.2.
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counterpart rule,46 would provide that
no former Regulatory Staff shall, within
a period of one year immediately
following termination of employment
with the Exchange or FINRA, make an
appearance before an Adjudicator on
behalf of any other person in any
proceeding under the Rule 9000 Series.
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 Exchange believes that
once Regulatory Staff reporting to the
CRO directly perform market
surveillance, investigation and
enforcement functions following
termination of the Intercompany RSA,
such a prohibition would help prevent
potential conflicts or appearance of
conflicts of interest. Current Rule 476
does not address appearances by former
staff.
Proposed Rule 9142 would require an
attorney or representative to file a
motion to withdraw. There is no current
comparable Exchange rule.
Proposed Rule 9143(a) would prohibit
certain ex parte communications. Under
proposed Rule 9143(b), an Adjudicator
participating in a decision with respect
to a proceeding, or an Exchange
employee participating or advising in
the decision of an Adjudicator, who
received, made, or knowingly caused to
be made a communication prohibited by
the Rule would be required to place in
the record of the proceeding (1) all such
written communications; (2)
memoranda stating the substance of all
such oral communications; and (3) all
written responses and memoranda
stating the substance of all oral
responses to all such communications.
Under proposed Rule 9143(c), upon
receipt of a prohibited communication
made or knowingly caused to be made
by any Party, any counsel to or
representative of a Party, or any
Interested Staff, the Exchange or an
Adjudicator may order the Party
responsible for the communication, or
the Party who may benefit from the ex
parte communication made, to show
cause why the Party’s claim or interest
in the proceeding should not be
dismissed, denied, disregarded, or
otherwise adversely affected by reason
of such ex parte communication. All
participants in a proceeding could
respond to any allegations or
contentions contained in a prohibited ex
parte communication placed in the
46 See NYSE Reintegration Facilitation Filing
Notice, 80 FR at 51337; Approval Order, 80 FR at
72462.
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record, and such responses would be
placed in the record.
Under proposed Rule 9143(d), in a
disciplinary proceeding governed by the
Rule 9200 Series and the Rule 9300
Series, the prohibitions of the Rule
would apply beginning with the
authorization of a complaint as
provided in Rule 9211, unless the
person responsible for the
communication had knowledge that the
complaint would be authorized, in
which case the prohibitions would
apply beginning at the time of his or her
acquisition of such knowledge. Under
proposed Rule 9143(e), there would be
a waiver of the ex parte prohibition in
the case of an offer of settlement, letter
of acceptance, waiver and consent, or
minor rule violation plan letter. There is
no current comparable rule.
Proposed Rule 9144 would establish
the separation of functions for Interested
Staff and Adjudicators and provide for
waivers. There is no current comparable
rule.
Proposed Rule 9145 would provide
that formal rules of evidence would not
apply in any proceeding brought under
the proposed Rule 9000 Series. NYSE
MKT does not have a current
comparable rule that explicitly makes
such a statement, although in practice
the result is the same—formal rules of
evidence do not apply to current NYSE
MKT disciplinary proceedings.
Proposed Rule 9146 would govern
motions a Party may make and
requirements for responses and
formatting. A Party would be permitted
to make written and oral motions,
although an Adjudicator could require
that a motion be in writing. An
opposition to a written motion would
have to be filed within 14 days, but the
moving Party would have no right to
reply, unless an Adjudicator so permits,
in which case such reply generally
would be due within five days.
Proposed Rule 9146 also would permit
a Party to move for a protective order.
There is no current comparable rule that
contains such detail. Current Rule
476(c) simply provides that the Chief
Hearing Officer or a Hearing Officer may
resolve any substantive legal motions.
The Exchange believes that the more
detailed provisions of the proposed rule
would provide additional clarity to all
Parties to a proceeding.
Proposed Rule 9147 would provide
that Adjudicators may rule on
procedural matters. The proposed rule
is similar to current Rule 476(c), which
provides that the Chief Hearing Officer
or a Hearing Officer may resolve any
procedural matters. However, the
Exchange’s current rules do not
explicitly provide for the Exchange
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11323
Board of Directors (who are included in
the proposed definition of
‘‘Adjudicator’’) ruling on procedural
matters.
Finally, proposed Rule 9148 would
generally prohibit interlocutory review,
except as provided in proposed Rule
9280 for contemptuous conduct.
Similarly, current Rule 476(c) provides
that there is no interlocutory appeal to
the Exchange Board of Directors.
Proposed Rule 9150
Proposed Rule 9150 would provide
that a representative can be excluded by
an Adjudicator for improper or
unethical conduct. The proposed rule
also is substantially the same as current
Rule 476(h), which provides that the
Hearing Board can exclude a
representative for improper conduct in
a proceeding, and is the same as NYSE
Rule 9150.
Proposed Rule 9160
Proposed Rule 9160 would provide
that no person may act as an
Adjudicator if he or she has a conflict
of interest or bias, or circumstances
exist where his or her fairness could
reasonably be questioned. In such case,
the person must recuse himself or
herself, or may be disqualified. The
proposed rule would cover the recusal
or disqualification of an Adjudicator,
the Chair of the Exchange Board of
Directors, or a Director. Current Rule
22—Equities similarly prohibits a
person from participating in an
adjudication or consideration of a
matter if he or she has a personal
interest, and would apply during the
transition period to proceedings under
the current rules. The Exchange believes
that the broader text of the proposed
rule could help to increase the fairness
of its proceedings and also cover matters
involving the Exchange’s options
market. Proposed Rules 9160(b), (c), and
(d) are designated as ‘‘Reserved’’ to
maintain consistency with NYSE’s rule
numbering. The proposed Rule is the
same as the NYSE Rule.
Proposed Rules 9200 Through 9212
Proposed Rule 9200 would cover
disciplinary proceedings. Proposed Rule
9211 would permit Enforcement to
request the authorization of the CRO to
issue a complaint against a member
organization or covered person, thereby
commencing a disciplinary proceeding.
The proposed Rule is the same as NYSE
Rule 9211. The complaint would
replace the Charge Memorandum
currently used under Rule 476(d), as
described above, which requires that the
specific charges against the respondent
in the form of a written statement be
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signed by an authorized officer or
employee of the Exchange, or an
authorized employee of another selfregulatory organization.
Proposed Rule 9212 would set forth
the requirements of the complaint,
amendments to the complaint,
withdrawal of the complaint, and
service of the complaint. The proposed
rule would also permit the Chief
Hearing Officer to select one FloorBased Panelist, who would be a person
who is, or, if retired, was, active on the
Floor of the Exchange, to serve on a
Hearing Panel if the complaint alleges at
least one cause of action involving
activities on the Floor of the Exchange.
The proposed rule change would be
consistent with the Exchange’s practice
under current Rule 476(b), which
provides that in any disciplinary
proceeding involving activities on the
Floor of the Exchange, no more than one
of the persons serving on the threeperson Hearing Panel may be, or, if
retired, may have been, active on the
Floor of the Exchange. Proposed Rule
9212 is the same as the counterpart
NYSE Rule.
Under the proposed rule change, the
form of the complaint also would be
more prescribed than under current
Rule 476. Current Rule 476 also does
not address the amendment or
withdrawal of complaints.
Proposed Rules 9213 Through 9215
Proposed Rule 9213 would provide
for the appointment of a Hearing Officer
and Panelists by the Chief Hearing
Officer. Current Rule 476(b) is similar in
that it provides for the appointment of
a Chief Hearing Officer by the Exchange
Board of Directors and the utilization of
three-person Hearing Panels led by a
Hearing Officer.
Proposed Rule 9214 would permit the
Chief Hearing Officer to sever or
consolidate two or more disciplinary
proceedings under certain
circumstances and permit a Party to
move for such action under certain
circumstances. There is no rule
comparable to proposed Rule 9214 for
severing or consolidating proceedings.
Under current Rule 476(c), the Chief
Hearing Officer or a Hearing Officer
resolves all procedural matters and
substantive legal motions.
Proposed Rule 9215 would set forth
requirements for answering a complaint,
including form, service, notice, content,
defenses, amendments, default, and
timing. An answer to a Charge
Memorandum under current Rule
476(d) and an answer to a complaint
under the proposed rule change have
the same 25-day response deadline;
however, proposed Rule 9215 would
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explicitly allow for an extension of time
to answer an amended complaint.
Proposed Rules 9213 through 9215 are
the same as NYSE Rules 9213 through
9215.
Proposed Rules 9216 and 9217
Proposed Rule 9216 would establish
the acceptance, waiver, and consent
(‘‘AWC’’) procedures by which a
respondent, prior to the issuance of a
complaint, may execute a letter
accepting a finding of violation,
consenting to the imposition of
sanctions, and agreeing to waive such
respondent’s right to a hearing, appeal,
and certain other procedures.47 The
proposed rule also would establish
procedures for executing a minor rule
violation plan letter.48
Enforcement could prepare and
request that a member organization or
covered person execute an AWC letter if
Enforcement had reason to believe a
violation had occurred and the member
organization or covered person did not
dispute the violation. The CRO would
be authorized to accept or reject an
AWC letter that has been executed by a
member organization or covered person.
If the AWC letter were accepted by the
CRO, it would be deemed final and
would constitute the complaint, answer,
and decision in the matter 25 days after
it is sent to each Director and each
member of the Committee for Review,
unless review by the Exchange Board of
Directors is requested pursuant to
proposed Rule 9310(a)(1)(B). Such
review is consistent with the call for
review process in connection with a
Stipulation and Consent under current
Rule 476(g) and the process set forth in
the NYSE Rules.49 The Exchange also
believes that allowing AWC letters to be
called for review by the Exchange Board
of Directors provides an additional,
appropriate check and balance to the
settlement process. If the AWC letter
were rejected by the CRO, the member
organization or covered person who
executed the letter would be notified in
writing and the letter would be deemed
withdrawn.
While the AWC process has some
similarity to the Exchange’s current
Stipulation and Consent procedure in
47 Proposed Rule 9270 would address settlement
procedures after the issuance of a complaint.
48 As described in proposed Rules 9216(b) and
9217, a minor rule violation plan letter is a means
by which a fine (not to exceed $5,000) and/or a
censure may be imposed on a member organization
or covered person with respect to certain
specifically enumerated rules, provided that there
is reason to believe a violation has occurred and the
member organization or covered person does not
dispute the violation.
49 See NYSE Reintegration Facilitation Filing
Approval Order, 80 FR at 72460.
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Rule 476(g) in that it provides a
settlement mechanism, there are certain
key differences. Under current Rule
476(g), a Hearing Officer must act on a
Stipulation and Consent submitted by
the parties and may choose to convene
a Hearing Panel. No Hearing Officer
would be involved in the process under
the proposed rule.
The Exchange also proposes to adopt
the NYSE’s process for minor rule
violations while retaining the specific
fine levels and list of rules included in
the Exchange’s current minor rule
violation plan, with certain technical
and conforming amendments. Under the
proposed rule, the CRO, on behalf of the
SRO Board, would be authorized to
accept or reject a minor rule violation
plan letter. If the minor rule violation
plan letter were accepted by the CRO, it
would be deemed final. Proposed Rule
9216(b)(4) would further provide that
any fine imposed pursuant to proposed
Rule 9216(b) and not contested would
not be publicly reported, except as may
be required by Rule 19d–1 under the
Exchange Act, and as may be required
by any other regulatory authority. If the
letter were rejected by the CRO, the
Exchange would be permitted to take
any other appropriate disciplinary
action with respect to the alleged
violation or violations. If the letter were
rejected, the member organization or
covered person would not be prejudiced
by the execution of the minor rule
violation plan letter, and such
document could not be introduced into
evidence in connection with the
determination of the issues set forth in
any complaint or in any other
proceeding.
Unlike current Rule 476A, which is
described above, the proposed rule
would not permit a respondent to
contest a minor rule violation letter by
filing an answer and converting it into
a regular disciplinary proceeding, nor
would the proposed rule permit any
person to require a review by the Board
of any Hearing Panel determination in
such a proceeding. Rather, under the
proposed rule, if the respondent rejects
the minor rule violation letter, then a
complaint must be served and filed
under proposed Rule 9211 in order to
begin a disciplinary proceeding, and the
minor rule violation letter may not be
introduced into evidence. The Exchange
believes that the proposed rule provides
similar and sufficient procedural
protections to respondents.
Proposed Rule 9217 would set forth
the list of rules under which a member
organization or covered person may be
subject to a fine under a minor rule
violation plan as described in proposed
Rule 9216(b). The Exchange would
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retain the list of rules currently set forth
in its own minor rule violation plan
(found in Parts 1A, 1C, and 1D of
current Rule 476A), and also insert
them, with certain technical and
conforming changes, into proposed Rule
9217, rather than adopt the list of rules
in NYSE’s plan.50
The technical and conforming
changes relating to minor rule violations
are as follows. The list of equities rules
violations would be supplemented with
references to proposed Rules 8210 and
8211. In particular, references to the
failure to submit books and records or
to furnish information on the date or
within the time period that the
Exchange requires under Rule 476(a)(11)
would be supplemented with a
reference to proposed Rule 8210.
References to the submission of trading
data under Rule 410A—Equities would
be supplemented with a reference to
proposed Rule 8211.
The list of options rules violations
and accompanying fine levels chart
would be similarly updated. Failure to
submit trade data to the Exchange in a
timely manner (item (ii)(1)) would be
supplemented by references to proposed
Rule 8211 in both places. Failure to
furnish in a timely manner books,
records or other requested information
or testimony in connection with an
examination of financial responsibility
and/or operational conditions under
Rule 31 (item (ii)(2)) would be
supplemented in both places with a
reference to proposed Rule 8210.
Delaying, impeding or failing to
cooperate in an Exchange investigation
under Rule Section 9A (item (ii)(5))
would be supplemented in both places
with references to proposed Rule 8210.
Finally, the Exchange proposes to
replace the reference to Rule 476A in
the first paragraph under the heading
‘‘List of Reports Required to be Filed
with the Exchange by ATP Holders and
Filing Deadlines’’ relating to the
Exchange’s ability to impose a $100 per
day fine on any ATP Holder failing to
file an enumerated report with a
reference to Rule 9216(b).
The current list of minor rules
includes a reference to Rule 504(b)(6)—
Equities, which was deleted in August
2012; 51 as such, the Exchange proposes
to delete the rule from the list in Rule
476A and not include it in proposed
Rule 9217. The current list of NYSE
50 The
proposed rule also would retain the
Exchange’s maximum fine for minor rule violations
which, under current Rule 476A, is $5,000. NYSE’s
maximum fine for minor rule violations is $2,500.
See NYSE Rule 9216(b).
51 See Securities Exchange Act Release No. 67740
(August 28, 2012), 77 FR 53952 (September 4, 2012)
(SR–NYSEMKT–2012–37).
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MKT minor rules also includes
references to certain rules that have
been removed from the rules as part of
the FINRA rule harmonization process,
including previous Rules 312(h)—
Equities, 382(a)—Equities, 352(b) and
(c)—Equities, 392—Equities, and
445(4)—Equities, as well as rules the
Exchange is proposing to delete in the
current rule filing, such as Rule 410A—
Equities. The Exchange proposes to
maintain the references to these former
rules in its current list of minor rules in
proposed Rule 9217. By doing so, the
Exchange could continue to resolve
violations of them that occurred prior to
the harmonization via a minor rule
violation letter.52 For example,
guarantees against loss were covered by
Rule 352—Equities until December
2009, when Rule 2150—Equities was
adopted.53 The Exchange could resolve
a guarantee against loss violation that
occurred in November 2009 when Rule
352—Equities was effective, and Rule
2150—Equities was not effective, via a
minor rule violation plan letter under
proposed Rule 9217. The Exchange will
determine at a later time when it is
appropriate to remove these previous
rule references from the list of minor
rules.
Proposed Rules 9220 Through 9222
Proposed Rules 9220 and 9222 would
describe how a respondent can request
a hearing, the notice of a hearing, and
timing considerations. The proposed
rules are the same as NYSE Rules 9220
through 9222. Proposed Rule 9221
provides that a Hearing Officer generally
must provide at least 28 days’ notice of
the hearing. Current Rule 476 does not
have comparable provisions relating to
how a hearing can be ordered and time
for notices; rather, current Rule 476(b)
states that all proceedings under the
Rule, except as to matters that are
resolved by a Hearing Officer when so
authorized, are conducted at a Hearing
in accordance with the provisions of
Rule 476.
Proposed Rules 9230 Through 9235
Proposed Rules 9231 and 9232 would
govern how a Hearing Panel, Extended
Hearing Panel, Replacement Hearing
Officer, Panelists, Replacement
Panelists, and Floor-Based Panelists are
appointed and their composition and
criteria for selection. Proposed Rules
52 This
rationale for maintaining references to
former rules in the list of minor rule violations was
noted in Securities Exchange Act Release No. 62940
(September 20, 2010), 75 FR 58452 (September 24,
2010) (SR–NYSE–2010–66).
53 See Securities Exchange Act Release No. 61157
(December 11, 2009), 74 FR 67939 (December 21,
2009) (SR–NYSEAmex–2009–88).
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11325
9231 and 9232 are the same as the
counterpart NYSE rules, except for the
substitution of ‘‘Exchange’’ for ‘‘NYSE’’
before ‘‘hearing board’’ and the use of
‘‘ATP Holders’’ in proposed Rule 9232
to reflect the Exchange’s membership.
Under the proposed rule change, the
Exchange would use FINRA’s Chief
Hearing Officer and Hearing Officers
from FINRA’s Office of Hearing Officers,
rather than have the Exchange Board of
Directors appoint such persons as it
does under current Rule 476(b). To
harmonize the Exchange’s rules with the
hearing process under NYSE rules, the
Exchange believes that it is reasonable
to utilize FINRA’s Office of Hearing
Officers as described in the proposed
rule change.
The Exchange would continue to
draw Panelists appointed from an
Exchange hearing board. The hearing
board would be composed of members
of the Exchange who are not members
of the Exchange Board of Directors and
registered employees and non-registered
employees of member organizations or
ATP Holders, as well as former
members, allied members, or registered
and non-registered employees of
member organizations or ATP Holders
who have retired from the securities
industry.54 As is the case under current
Rule 476(b), Panelists would be required
to be persons of integrity and judgment.
The proposed rule would provide that
the hearing board would be appointed
by the Exchange Board of Directors.
Under current Rule 476(b), the Hearing
Board is selected by the Chairman of the
Exchange Board of Directors, subject to
the approval of the Board of Directors.
The Exchange believes that because the
approval of the Exchange Board of
Directors is required for appointment of
the hearing board, it is not necessary to
specify that the Chairman of the
Exchange Board shall appoint the
hearing board subject to such
approval.55
There would be one change in hearing
board eligibility in the proposed rule as
compared to the current rule. Currently,
the Exchange requires that a Panelist
cannot have been retired from the
securities industry for more than five
years. In order to have the largest
number of potential retired Panelists
available following the proposed rule
change, the Exchange proposes to drop
54 As noted above, the Exchange no longer has
allied members, but former allied members would
continue to be eligible to be appointed to the
Hearing Board, and the text of proposed Rule 9232
reflects this. See note 27, supra.
55 The proposed rule is based on NYSE’s recent
amendment to NYSE Rule 9232. See NYSE
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FR at 72464.
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the five-year restriction. The Exchange
believes that there are well-qualified
persons, in particular retirees, who
continue to stay abreast of industry
developments and rules after more than
five years of retirement and that such
persons would be valuable additions to
the hearing board.
In addition, as noted above, the
Exchange proposes to permit the Chief
Hearing Officer to select one FloorBased Panelist to serve on a Hearing
Panel if the complaint alleges at least
one cause of action involving activities
on the Floor of the Exchange, consistent
with the Exchange’s practice under
current Rule 476(b).
Proposed Rule 9232 would include
Panelist selection criteria, which are
expertise, absence of any conflict of
interest or bias or any appearance
thereof, availability, and the frequency
with which a person has served as a
Panelist in the last two years, favoring
the selection of a person as a Panelist
who has never served or who has served
infrequently as a Panelist during the
period. Rule 476(b) currently does not
include these criteria.
Proposed Rules 9233 and 9234 would
establish the processes for recusal and
disqualification of Hearing Officers,
Hearing Panels, or Extended Hearing
Panels. Current Rule 22—Equities
similarly prohibits a person from
participating in an adjudication if he or
she has a personal interest but does not
specifically provide for recusals and
disqualifications in the manner in
which the comparable NYSE rule does.
The options market does not have a
comparable rule. Proposed Rules 9233
and 9234 are the same as the NYSE
rules.
Proposed Rule 9235 would set forth
the Hearing Officer’s duties and
authority in detail. The proposed rule
change is similar to current Rule 476(c),
which gives the Hearing Officer general
authority in procedural and evidentiary
matters. The proposed rule is the same
as NYSE Rule 9235.
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Proposed Rules 9240 Through 9242
Proposed Rules 9241 and 9242 would
govern the substantive and procedural
requirements for pre-hearing
conferences and pre-hearing
submissions. In addition, proposed Rule
9242, in conformance with the current
NYSE rule based on FINRA’s
counterpart rule, would provide that no
former Regulatory Staff shall, within a
period of one year immediately
following termination of employment
with the Exchange or FINRA, provide
expert testimony on behalf of any other
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person under the Rule 9000 Series.56
Nothing in this Rule would prohibit
former Regulatory Staff from testifying
as a witness on behalf of the Exchange
or FINRA. The rule text in proposed
Rule 9242(b) 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. Given the Exchange’s
resumption of certain regulatory
functions earlier this year, 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.
As stated above, current Rule 476(c)
gives Hearing Officers general authority
in procedural matters, but there are no
specific provisions in the current rules
relating to pre-hearing conferences and
submissions, nor do the current rules
address expert testimony by former
staff.
Proposed Rules 9250 Through 9253
Proposed Rules 9250 through 9253
would address discovery, including the
requirements and limitations relating to
the inspection and copying of
documents in the possession of
Exchange staff, requests for information
and limitations on such requests, and
the production of witness statements
and any harmless error relating to the
production of such witness statements.
The proposed rules are the same as
NYSE Rules 9250 through 9253.
Proposed Rule 9251 would generally
require Enforcement to make available
to a respondent any documents
prepared or obtained in connection with
the investigation that led to the
proceedings, except that certain
privileged or other internal documents,
such as examination or inspection
reports or documents that would reveal
an examination, investigation, or
enforcement technique or confidential
source, or documents that are prohibited
from disclosure under federal law, are
not required to be made available. A
Hearing Officer may require that a
withheld document list be prepared.
Proposed Rule 9251 also sets forth
procedures for inspection and copying
of produced documents. In addition, if
a Document required to be made
available to a respondent pursuant to
the proposed Rule was not made
56 See
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available by Enforcement, no rehearing
or amended decision of a proceeding
already heard or decided would be
required unless the respondent
establishes that the failure to make the
Document available was not harmless
error. The Hearing Officer, or, upon
review under proposed Rule 9310, the
Exchange Board of Directors, would
determine whether the failure to make
the document available was not
harmless error, applying applicable
Exchange, FINRA, SEC, and federal
judicial precedent. The proposed Rule
would not establish any preference for
Exchange versus other precedent in this
respect; rather, the Adjudicators could
determine in their discretion what
precedent to apply.
Current Rule 476(c) contains
provisions that address the same
subject. As described above, under that
rule the Chief Hearing Officer, or any
Hearing Officer designated by the Chief
Hearing Officer, may require the
Exchange to permit a respondent to
inspect and copy documents or records
in the possession of the Exchange that
are material to the preparation of the
defense or are intended for use by the
Exchange as evidence in chief at the
hearing; however, the rule does not
authorize the discovery or inspection of
reports, memoranda, or other internal
Exchange documents prepared by the
Exchange in connection with the
proceeding. Under the proposed rule,
there would be no materiality standard.
The Exchange believes that eliminating
the materiality standard will ease
administration of the rule while still
providing appropriate protections for
internal Exchange documents.
In addition, under current Rule
476(c), the respondent may be required
to provide discovery of non-privileged
documents and records to the Exchange.
There is no explicit counterpart in the
proposed NYSE MKT or current NYSE
rules, but the Exchange notes that
proposed Rule 8210 may always be used
to obtain non-privileged documents
from a respondent. Thus, in that respect,
there is no substantive difference in the
result under the current or proposed
rules.
Under proposed Rule 9252, a
respondent could request that the
Exchange invoke proposed Rule 8210 to
compel the production of Documents or
testimony at the hearing if the
respondent can show that certain
standards are met, e.g., that the
information sought is relevant, material,
and non-cumulative. Current Rule 476
provides that a respondent may be
required to provide discovery of nonprivileged documents to the Exchange.
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Under proposed Rule 9253, a
respondent could file a motion to obtain
certain witness statements. The
Exchange’s current rules do not contain
such a provision.
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Proposed Rules 9260 Through 9269
Proposed Rules 9260 through 9269
would govern hearings and decisions.
The proposed rules are the same as the
counterpart NYSE rules except for the
inclusion of ‘‘ATP Holder’’ and
‘‘member’’ in Rule 9268.
Proposed Rule 9261 would generally
require the Parties to submit a list of
documentary evidence and witnesses no
later than 10 days before the hearing.
The Exchange’s current rules do not
contain such a provision.
Proposed Rule 9262 would require
persons subject to the Exchange’s
jurisdiction to testify under oath or
affirmation at a hearing. The Exchange’s
current rules do not contain such a
provision.
Proposed Rule 9263 would authorize
the Hearing Officer to exclude
irrelevant, immaterial, or unduly
repetitious or prejudicial evidence and
a Party to object; excluded evidence
would be attached to the record as a
supplemental document. Under current
Rule 476(c), the Chief Hearing Officer or
a Hearing Officer resolves all
evidentiary issues. There is no explicit
provision in the Exchange’s current
rules for excluded evidence to be
attached to the record.
Proposed Rule 9264 would allow
Parties to file a motion for summary
disposition under certain circumstances
and would describe the procedures for
filing and ruling on such a motion.
Under current Rule 476(c), the Chief
Hearing Officer or a Hearing Officer
resolves all procedural matters, but the
Rule does not specifically address
motions for summary disposition. In
practice, however, Hearing Panels
accept and rule on motions for summary
disposition.
Proposed Rule 9265 would require
that the hearing be recorded by a court
reporter, that a transcript be prepared
and made available for purchase, and
that a Party be permitted to seek a
correction of the transcript from the
Hearing Officer. Current Rule 476(e)
provides generally that the Exchange
must keep a record of hearings.
Proposed Rule 9266 would authorize
the Hearing Officer to require a posthearing brief or proposed findings of
fact and conclusions of law and would
outline the form and timing for such
submissions. Under current Rule 476(c),
the Chief Hearing Officer or a Hearing
Officer resolves all procedural matters,
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but the rule does not specifically
address such post-hearing activities.
Proposed Rule 9267(a) would detail
the required contents of the hearing
record and Rule 9267(b) would describe
treatment of supplemental documents
attached to the record. The Exchange’s
current rules do not contain such a
provision.
Proposed Rule 9268 would set forth
the timing and the contents of a
decision of the Hearing Panel or
Extended Hearing Panel and the
procedures for a dissenting opinion,
service of the decision, and any requests
for review. Other than a reference to
‘‘ATP Holder’’ in subparagraph (d), the
proposed Rule is the same as NYSE Rule
9268.
The Exchange notes that it has a
member organization affiliate.57 As
such, in proposed Rule 9268(e)(2), the
Exchange proposes to include text
providing that a disciplinary decision
concerning an Exchange member or
member organization that is an affiliate
of the Exchange would not be subject to
review under proposed Rule 9310 but
instead would be treated as a final
disciplinary action subject to SEC
review. The Exchange does not believe
that an appeal by an affiliate to the
Exchange Board of Directors is
appropriate, but rather such affiliate
should be permitted to appeal directly
to the SEC. The Exchange notes that
NASDAQ, which also has an affiliate,
has a rule that is substantially the same
as the Exchange’s proposed rule and
NYSE’s current rule.58 Because the
Exchange’s affiliates will still have a
right to appeal to the SEC, the Exchange
believes that the proposed rule is not
unfairly discriminatory.
Finally, proposed Rule 9269 would
establish the process for the issuance
and review of default decisions by a
Hearing Officer when a respondent fails
to timely answer a complaint or fails to
appear at a pre-hearing conference or
hearing where due notice has been
provided. A Party may, for good cause
shown, file a motion to set aside a
default decision. A default decision
would become the final disciplinary
action of the Exchange if a request for
review by the Exchange Board of
Directors is not filed within 25 days
after the date the decision is served on
the Parties. The proposed rule is the
same as NYSE Rule 9269.
57 The Exchange has one member organization,
Archipelago Securities LLC, that is an affiliate of
the Exchange and that is used for inbound and
outbound routing of certain orders. See Rule 1, Rule
17(c)—Equities & Rule 993NY.
58 See NASDAQ Rule 9268(e)(2); NYSE Rule
9268(e)(2).
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Current Rule 476(d) provides a similar
mechanism for default decisions as the
proposed rule change. As described
above, under the current rule, if the
respondent has failed to file an Answer,
the Exchange, by motion, accompanied
by proof of notice to the respondent,
may request a determination of guilt by
default, and may recommend a penalty
to be imposed. If the respondent
opposes the motion, the Hearing Officer,
on a determination that the respondent
had adequate reason to fail to file an
Answer, may adjourn the hearing date
and direct the respondent to promptly
file an Answer. If the default motion is
unopposed, or the respondent did not
have adequate reason to fail to file an
Answer, or the respondent failed to file
an Answer after being given an
opportunity to do so, the Hearing
Officer, on a determination that the
respondent has had notice of the
charges and that the Exchange has
jurisdiction in the matter, may find guilt
and determine a penalty. Unlike the
proposed rule, the current rule does not
contain a provision for setting aside a
default decision that has been rendered.
Proposed Rule 9270
Proposed Rule 9270 would provide
for a settlement procedure for a
respondent who has been notified that
a proceeding has been instituted against
him or her. The proposed settlement
procedure would be different from the
Stipulation and Consent procedure
under current Rule 476(g), which is
described above. The proposed rule
would be the same as NYSE Rule 9270,
except as described below.
Under proposed Rule 9270(a), a
respondent notified of the institution of
a disciplinary proceeding could make a
written offer of settlement at any time,
but the proposal would not stay the
proceeding unless the Hearing Officer
determined otherwise. The proposed
rule differs from current Rule 476(g),
which requires that a Stipulation and
Consent be agreed to by both the
respondent and Exchange staff.
Under proposed Rule 9270(b), a
respondent would be prohibited from
making a frivolous settlement offer or
one that was inconsistent with the
seriousness of the violations. Current
Rule 476(g) does not contain a similar
provision.
Proposed Rule 9270(c) would set forth
the required content of the proposal,
which would include a statement
consenting to findings of fact and
violations and a proposed sanction. The
proposed rule would be the same as
NYSE’s rule, except that, like FINRA
Rule 9270(c)(5), the proposed rule
would also require that the proposed
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sanction be consistent with the
Exchange’s sanctions guidelines, if
applicable, or, if inconsistent with the
sanction guidelines, include a detailed
statement supporting the proposed
sanction. The NYSE does not have
sanctions guidelines, so this
requirement was not included in
NYSE’s rules.59 As noted above, the
Exchange’s Sanctions Guidelines apply
only to matters involving violations of
the options rules. In connection with
matters not covered by the Sanctions
Guidelines, the CRO, Hearing Panel or
Extended Hearing Panel, as applicable,
would consider relevant Exchange
precedent or such other precedent as it
deemed appropriate in determining
whether to accept a settlement offer.
Current Rule 476(g) similarly requires
that a Stipulation and Consent contain
proposed findings of fact, violations,
and a specified penalty.
Proposed Rule 9270(d) would provide
that submission of a settlement offer
waives a respondent’s right to a hearing,
the right to claim bias or ex parte
communication violations, and the right
to review by the Exchange Board of
Directors, the Commission, or the
courts. This differs from current Rule
476(g), which allows either party to
request a hearing on a Stipulation and
Consent or a Hearing Officer to convene
a hearing on a Stipulation and Consent
in certain circumstances.
Proposed Rule 9270(e) would address
contested settlement offers. Under the
proposed rule, if a respondent made an
offer of settlement and Enforcement
opposed it, the offer of settlement would
be contested and thereby deemed
rejected, and thus the proceeding would
continue to completion under the
proposed Rule 9200 Series. The
contested offer of settlement would not
be transmitted to the Office of Hearing
Officers, the CRO, or Hearing Panel or
Extended Hearing Panel, and would not
constitute a part of the record in any
proceeding against the respondent
making the offer. The Exchange has
determined that if the Parties cannot
reach agreement on the offer of
settlement, then the matter should
proceed under the proposed Rule 9200
Series. The Exchange believes that its
proposed rule would encourage
respondents to make reasonable offers of
settlement that will be acceptable to
Enforcement and is consistent with the
Exchange’s current process under Rule
476(g), which does not contemplate
contested settlement offers but rather
requires that both the respondent and
Exchange staff agree on the Stipulation
and Consent.
59 See
2013 Notice, 78 FR at 5229.
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Proposed Rule 9270(f) and (h) would
address uncontested offers of
settlement. Under the proposed rule, an
offer of settlement would be
uncontested if Enforcement does not
oppose it. If a hearing on the merits had
not begun, the CRO could accept the
settlement offer; if a hearing on the
merits had begun, the Hearing Panel or
Extended Hearing Panel could accept
the settlement offer.60 If they did not,
the offer would be deemed withdrawn
and the matter would proceed under the
proposed Rule 9200 Series and the
settlement offer would not be part of the
record. As described below, if the offer
of settlement were accepted by the CRO,
Hearing Panel or Extended Hearing
Panel, it would become final 25 days
after being sent, together with an order
of acceptance, to each Director and each
member of the Committee for Review,
unless review by the Exchange Board of
Directors is required pursuant to
proposed Rule 9310(a)(1)(A) or (B).
The Exchange anticipates that the
required acceptance by the CRO,
Hearing Panel, or Extended Hearing
Panel would help ensure objectivity and
consistency among offers of settlement
that are issued. The proposed rule
change would also allow an offer of
settlement to be called for review by the
Exchange Board of Directors. The
Exchange believes that this review
mechanism provides an additional,
appropriate check and balance to the
proposed settlement process.
While the offer of settlement process
has some similarity to the Exchange’s
current Stipulation and Consent
procedure in Rule 476(g) in that it
provides a settlement mechanism, there
are certain key differences. Under
current Rule 476(g), a Hearing Officer
must act on a Stipulation and Consent
submitted by the parties and may
choose to convene a Hearing Panel.
Under the proposed rule change, as
under NYSE Rule 9270, a Hearing
Officer would be required to act on an
offer of settlement only if a hearing on
the merits had already begun. In
addition, under Rule 476(g), all
determinations and penalties imposed
in connection with a Stipulation and
Consent are final and conclusive 25
days after notice has been served upon
the respondent. As discussed below in
connection with proposed Rule
9310(a)(1)(B), an offer of settlement
issued before a hearing on the merits
has begun would become final 25 days
60 In determining whether to accept a settlement
offer, the CRO, Hearing Panel or Extended Hearing
Panel, as applicable, would consider Exchange
precedent or such other precedent as it deemed
appropriate, in addition to considering the
Sanctions Guidelines, if applicable.
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after being sent to each Director and
member of the Committee for Review, if
not called for review by the Exchange
Board of Directors.
Proposed Rule 9270(i) would address
disciplinary proceedings with multiple
respondents and permit settlement
offers to be accepted or rejected as to
any one or all of such respondents.
Current Rule 476(g) does not have a
similar provision.
Proposed Rule 9270(j) would provide
that a respondent may not be prejudiced
by a rejected offer of settlement nor may
such an offer of settlement be
introduced into evidence. The current
rules do not have a similar provision.
Proposed Rule 9280
Proposed Rule 9280 would set forth
sanctions for contemptuous conduct by
a Party or attorney or other
representative, which may include
exclusion from a hearing or conference,
and sets forth a process for reviewing
such exclusions. The Exchange
proposes to have the Chief Hearing
Officer review exclusions. The
Exchange believes that respondents and
their attorneys and representatives will
have adequate procedural protections
with a review by the Chief Hearing
Officer. Current Rule 476 does not have
similar procedures for contemptuous
conduct generally, but Rule 476(h) does
allow for a fine or sanction for improper
conduct before a Hearing Board. The
proposed Rule is the same as NYSE Rule
9280.
Proposed Rule 9290
Under proposed Rule 9290, for any
disciplinary proceeding the subject
matter of which also is subject to a
temporary cease and desist proceeding
initiated pursuant to proposed Rule
9810 or a temporary cease and desist
order, hearings would be required to be
held and decisions rendered at the
earliest possible time. The Exchange
currently does not have a similar rule.
The proposed rule is the same as NYSE
Rule 9290.
Proposed Rules 9300 and 9310
The Exchange’s appellate and call for
review processes would be set forth in
the Rule 9300 Series, specifically
proposed Rule 9310. The text is
substantially similar to current Rule
476(f), (g) and (l), with certain
differences that are described below.
The text of proposed Rule 9310 is the
same as NYSE Rule 9310, except as
described below.
Under proposed Rule 9310(a)(1)(A),
any Party, any Director, and any
member of the Committee for Review
could require a review by the Exchange
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Board of Directors of any determination
or penalty, or both, imposed by a
Hearing Panel or Extended Hearing
Panel under the proposed Rule 9200
Series, except that none of the
aforementioned persons could request a
review by the Exchange Board of
Directors of a decision concerning an
Exchange member or member
organization that is an affiliate. Under
the proposed rule, a request for review
would be made by filing with the
Secretary of the Exchange a written
request therefor, which states the basis
and reasons for such review, within 25
days after notice of the determination
and/or penalty was served upon the
respondent. The Secretary of the
Exchange would give notice of any such
request for review to the Parties.
Proposed Rule 9310(a)(1)(B) would
govern the call for review process in
connection with AWC letters and offers
of settlement determined to be
uncontested before a hearing on the
merits has begun. Under the proposed
rule, any Director and any member of
the Committee for Review could require
a review by the Exchange Board of
Directors of any determination or
penalty, or both, imposed in connection
with an AWC letter under Rule 9216 or
an offer of settlement determined to be
uncontested before a hearing on the
merits has begun under Rule 9270(f),
except that none of those persons could
request a review by the Exchange Board
of Directors of a determination or
penalty concerning an Exchange
member or member organization that is
an affiliate of the Exchange. A request
for review pursuant to proposed
paragraph (a)(1)(B)(i) would be made by
filing with the Secretary of the Exchange
a written request stating the basis and
reasons for such review, within 25 days
after the AWC letter or offer of
settlement has been sent to each
Director and each member of the CFR.
The Secretary of the Exchange would
give notice of any such request for
review to the Parties.
In addition, the Exchange proposes
that any party could require a review by
the Exchange Board of Directors of any
rejection by the CRO of an AWC letter
under Rule 9216 or an offer of
settlement determined to be
uncontested before a hearing on the
merits has begun under Rule 9270(f),
except that no party could request Board
review of a rejection of an AWC letter
or offer of settlement concerning an
Exchange member or member
organization that is an affiliate of the
Exchange. Under subparagraph (B)(ii) of
proposed Rule 9310(a)(1), such a request
for review would be made by filing with
the Secretary of the Exchange a written
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request therefor, which states the basis
and reasons for such review, within 25
days after notification pursuant to Rule
9216(a)(3) or Rule 9270(h) that an AWC
letter or uncontested offer of settlement
or order of acceptance is not accepted
by the CRO. The Exchange proposes that
the Secretary of the Exchange would
give notice of any such request for
review to the parties.
The text of proposed Rule 9310(a)(1)
differs from Rule 476 in order to align
it with terms used in the remainder of
the proposed Rule 9000 Series. The call
for review process described in
proposed Rule 9310(a)(1)(A) is
consistent with the process described in
Rule 476(f) and (g) regarding review of
a determination or penalty imposed by
a Hearing Panel. The call for review
process described in Rule 9310(a)(1)(B)
for AWC letters and offers of settlement
before a hearing on the merits has begun
differs from Rule 476 because it
describes a process for reviewing
determinations and penalties imposed
without involvement of a Hearing
Officer or Hearing Panel. No such
process exists under the Exchange’s
current rules because Rule 476(g)
provides that a Hearing Officer must act
on a Stipulation and Consent submitted
by the parties and may choose to
convene a Hearing Panel.
The Exchange believes that allowing
AWC letters and offers of settlement
accepted by the CRO to be called for
review by the Exchange Board of
Directors, together with the proposed
rule permitting parties to request Board
review of a determination to reject an
uncontested offer of settlement,
provides an additional, appropriate
check and balance to the settlement
process. Allowing for such review
would provide an additional layer of
review for determinations made by the
CRO. It would also permit all AWC
letters and offers of settlement to be
subject to review if requested by a
Director or a member of the Committee
for Review. The Exchange believes that
the 25-day period in proposed Rule
9310(a)(1)(B) is reasonable and
sufficient. The proposed 25-day period
is consistent with the 25-day period for
Board review of a Stipulation and
Consent (or rejection thereof) set forth in
current Rule 476(g). The proposed rule
change is also consistent with the
period applicable to review of a
determination or penalty imposed by a
Hearing Panel or Extended Hearing
Panel in NYSE Rule 9310(a)(1).
Similarly, the proposed rule change is
consistent with the 25-day period for
requesting review of a default decision
under proposed Rule 9269(d).
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11329
Under proposed Rule 9310(a)(2), the
Secretary of the Exchange would direct
the Office of Hearing Officers, in
connection with any review under
paragraph (a)(1)(A), to complete and
transmit a record of the disciplinary
proceeding in accordance with Rule
9267. Within 21 days after the Secretary
of the Exchange gives notice of a request
for review to the Parties, or at such later
time as the Secretary of the Exchange
could designate, the Office of Hearing
Officers would assemble and prepare an
index to the record, transmit the record
and the index to the Secretary of the
Exchange, and serve copies of the index
upon all Parties. The Hearing Officer
who participated in the disciplinary
proceeding, or the Chief Hearing Officer,
would certify that the record
transmitted to the Secretary of the
Exchange was complete. Current Rule
476(f) does not contain such
requirements.
Under proposed Rule 9310(b), any
review by the Exchange Board of
Directors would be based on oral
arguments and written briefs and
limited to consideration of the record
before the Hearing Panel or Extended
Hearing Panel. Proposed Rule 9310(b)
also incorporates Rule 476(f)’s provision
relating to appeals panels.61
Specifically, under proposed Rule
9310(b), the CFR may, but is not
required to, appoint an appeals panel to
conduct a review under this subsection
and make a recommendation to the CFR.
An appeals panel appointed by the CFR
would consist of at least three and no
more than five individuals. An appeals
panel appointed by the CFR for equities
matters would be composed of at least
one director and one member or
individual associated with an equities
member organization. An appeals panel
appointed by the CFR for options
matters would be composed of at least
one director and one member or
individual associated with an options
member organization. NYSE Rule
9310(b) does not contain a similar
provision relating to appeals panels.
Upon review, and with the advice of
the CFR, the Exchange Board of
Directors, by the affirmative vote of a
majority of the Exchange Board of
Directors then in office, could sustain
any determination or penalty imposed,
or both; could modify or reverse any
such determination; and could increase,
decrease or eliminate any such penalty,
or impose any penalty permitted under
the Exchange’s rules, as it deems
appropriate. Unless the Exchange Board
of Directors otherwise specifically
directed, the determination and penalty,
61 See
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if any, of the Exchange Board of
Directors after review would be final
and conclusive, subject to the
provisions for review under the Act.
The proposed rule is substantially the
same as provided in current Rule 476(f),
other than conforming and technical
changes to align it with terms used in
the remainder of the proposed Rule
9000 Series.
Under proposed Rule 9310(c),
notwithstanding the foregoing, if either
Party upon review applied to the
Exchange Board of Directors for leave to
adduce additional evidence, and
showed to the satisfaction of the
Exchange Board of Directors that the
additional evidence was material and
that there were reasonable grounds for
failure to adduce it before the Hearing
Panel or Extended Hearing Panel, the
Exchange Board of Directors could
remand the case for further proceedings,
in whatever manner and on whatever
conditions the Exchange Board of
Directors considered appropriate. The
proposed rule is substantially the same
as provided in current Rule 476(f), other
than conforming and technical changes
to align it with terms used in the
remainder of the proposed Rule 9000
Series.
Under proposed Rule 9310(d),
notwithstanding any other provisions of
the proposed Rule 9000 Series, the CEO
could not require a review by the
Exchange Board of Directors under this
Rule and would be recused from
deliberations and actions of the
Exchange Board of Directors with
respect to such matters. The proposed
rule is substantially the same as
provided in current Rule 476(l), other
than conforming and technical changes
to align it with terms used in the
remainder of the proposed Rule 9000
Series.
Proposed Rules 9500 Through 9527
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The proposed Rule 9520 Series would
govern eligibility proceedings for
persons subject to statutory
disqualifications that are not FINRA
members. The Exchange does not
currently have any rules governing this
subject matter and proposes to adopt the
NYSE Rule 9520 Series.62 The Exchange
intends for the scope of the proposed
Rule 9520 Series to be the same as the
62 The NYSE Rule 9520 Series was based on the
FINRA Rule 9520 Series, and the scope of the NYSE
Rule 9520 Series was intended to be the same as
FINRA Rule 9520 Series. See 2013 Approval Order,
78 FR at 15399. FINRA has been processing
statutory disqualification applications on behalf of
the Exchange since 2009. See Securities Exchange
Act Release No. 60409 (July 30, 2009), 74 FR 39353
(August 6, 2009) (File No. 4–587).
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NYSE Rule 9520 Series, and as such,
intends to issue a notice to that effect.
Proposed Rule 9521 would add
certain definitions relating to eligibility
proceedings that are not currently part
of the Exchange’s rules, including
definitions of ‘‘Application,’’
‘‘disqualified member organization,’’
‘‘disqualified person,’’ and ‘‘sponsoring
member organization.’’ Proposed Rule
9521 is the same as NYSE Rule 9521
except that it includes ‘‘ATP Holder’’ in
subparagraph (a) describing the rule’s
purpose and in the definition of
‘‘disqualified member organization’’ in
subparagraph (b)(2). As noted
previously, the references to ATP
Holders in the proposed Rule 9520
Series relate solely to options members
that have employees and not ATP
Holders without employees or those
associated with an options member
organization.
Proposed Rule 9522 would govern the
initiation of an eligibility proceeding by
the Exchange and the obligation for a
member organization or covered person
to file an application to initiate an
eligibility proceeding if it has been
subject to certain disqualifications.
Further, under the proposed rule,
FINRA’s Department of Member
Regulation could approve a written
request for relief from the eligibility
requirements under certain
circumstances. Once again, the
proposed Rule is the same as its NYSE
counterpart except for references to
‘‘ATP Holder’’ to reflect the Exchange’s
membership.
Proposed Rule 9523 would allow the
Department of Member Regulation to
recommend a supervisory plan to which
the disqualified member organization,
sponsoring member organization, and/or
disqualified person, as the case may be,
may consent and by doing so, waive the
right to hearing or appeal if the plan is
accepted and the right to claim bias or
prejudgment, or prohibited ex parte
communications. If such a supervisory
plan were rejected, proposed Rule 9524
would allow a request for review by the
applicant to the Exchange Board of
Directors. Proposed Rule 9524 is the
same as the NYSE Rule. Proposed Rule
9527 would provide that a filing of an
application for review would not stay
the effectiveness of final action by the
Exchange unless the Commission
otherwise ordered. Proposed Rule 9527
is the same as the NYSE Rule. To
maintain consistency with NYSE’s rule
numbering, proposed Rules 9525 and
9526 would be designated ‘‘Reserved.’’
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Proposed Rules 9550 Through 9559
Proposed Rules 9551 through 9559
would govern expedited proceedings.63
Under proposed Rule 9551,
Regulatory Staff could issue a written
notice requiring a member or member
organization 64 to file communications
with the Exchange’s Advertising
Regulation Department at least 10 days
prior to use if the staff determined that
the member or member organization had
departed from the standards of Rule
2210—Equities or Rule 991.65 The
notice would state the specific grounds
and include the factual basis for the
action as well as the effective date. The
member or member organization could
file a written request for a hearing with
the Office of Hearing Officers pursuant
to proposed Rule 9559. A member or
member organization would be required
to set forth with specificity any and all
defenses to the action in its request for
a hearing. Pursuant to proposed Rules
8310(a) and 9559(n), a Hearing Officer
or, if applicable, Hearing Panel, could
approve, modify or withdraw any and
all sanctions or limitations imposed by
the staff’s notice, and impose any other
fitting sanction. A member or member
organization subject to a pre-use filing
requirement also could file a written
request for modification or termination
of the requirement. The Exchange
currently uses FINRA Rule 9551 and
9559, which are the same, to carry out
these procedures.
Proposed Rule 9552 would establish
procedures in the event that a member
organization or covered person failed to
provide any information, report,
material, data, or testimony requested or
required to be filed under the
Exchange’s rules, or failed to keep its
membership application or supporting
documents current. In the event of the
foregoing, under proposed Rule 9552,
the member organization or covered
person could be suspended if corrective
action were not taken within 21 days
after service of notice. A member
organization or covered person served
with a notice could request a hearing
within the 21-day period. A member
organization or covered person subject
to a suspension could file a written
request for termination of the
suspension on the ground of full
compliance. A member organization or
covered person suspended under the
63 Proposed Rule 9553 would be designated
‘‘Reserved’’ to maintain consistency with NYSE’s
rule numbering.
64 See notes 25 and 26, supra.
65 Proposed Rule 9551 is the same as NYSE Rule
9551 except for the inclusion of references to
Exchange rules, and the inclusion of ‘‘member’’
before ‘‘member organization’’ to reflect the
Exchange’s membership.
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proposed rule change that failed to
request termination of the suspension
within three months of issuance of the
original notice of suspension would
automatically be expelled or barred.66
There is no provision for such an
expedited proceeding under the
Exchange’s current rules. Under current
Rule 476(a)(11), a member organization
or covered person is subject to a regular,
as opposed to expedited, disciplinary
proceeding for failure to submit books
and records or provide testimony upon
request of the Exchange and for failure
to update a Form BD. Proposed Rule
9552 is the same as its NYSE
counterpart except for references to
‘‘ATP Holder’’ to reflect the Exchange’s
membership.
Proposed Rule 9554, relating to
failures to comply with an arbitration
award or related settlement or an
Exchange order of restitution or
Exchange settlement agreement
providing for restitution, would contain
similar procedures and consequences as
proposed Rule 9552. Under proposed
Rule 9554, if a member organization or
covered person failed to comply with an
arbitration award or a settlement
agreement related to an arbitration or
mediation under the Exchange’s rules,
or an Exchange order of restitution or
Exchange settlement agreement
providing for restitution, Regulatory
Staff could provide written notice to
such member organization or covered
person stating that the failure to comply
within 21 days of service of the notice
will result in a suspension or
cancellation of membership or a
suspension from associating with any
member organization or ATP Holder.
Under current Rule 600(c)—Equities
and Rule 624 of the Exchange’s
Arbitration Rules applicable to options
members, the failure to honor an
arbitration award subjects a member
organization, member, or registered
person to a regular disciplinary
proceeding under Rule 476. Proposed
Rule 9554 is also the same as its NYSE
counterpart except for references to
‘‘ATP Holder.’’
Proposed Rule 9555 would govern the
failure to meet the eligibility or
66 The Exchange believes that the provision for
automatic expulsion or bar after three months is
consistent with Section 6 of the Act because the
respondent would have ample notice and
opportunity to be heard under proposed Rule 9552,
the proposed rule is substantially the same as
FINRA’s counterpart rule, and the Commission has
upheld at least one bar under a prior version of
FINRA’s rule. See, e.g., Dennis A. Pearson, Jr.,
Securities Exchange Act Rel. Nos. 54913 (December
11, 2006) (dismissing application for review by
associated person barred under NASD Rule 9552(h))
& 55597A (April 6, 2007) (denying motion for
reconsideration).
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qualification standards or prerequisites
for access to services offered by the
Exchange. Under proposed Rule 9555, if
a member organization or covered
person did not meet the eligibility or
qualification standards set forth in the
Exchange’s rules, Exchange staff could
provide written notice to such member
organization or covered person stating
that the failure to become eligible or
qualified will result in a suspension or
cancellation of membership or a
suspension or bar from associating with
any member organization or ATP
Holder.
Similarly, if a member organization or
covered person did not meet the
prerequisites for access to services
offered by the Exchange or a member or
member organization thereof or could
not be permitted to continue to have
access to services offered by the
Exchange or a member or member
organization thereof with safety to
investors, creditors, members or
member organizations, or the Exchange,
Exchange staff could provide written
notice to such member organization or
covered person limiting or prohibiting
access to services offered by the
Exchange or a member or member
organization thereof. The limitation,
prohibition, suspension, cancellation, or
bar referenced in the notice would
become effective 14 days after service of
the notice unless the member
organization or covered person
requested a hearing during that time,
except that the effective date for a notice
of a limitation or prohibition on access
to services would be upon service of the
notice. As described above, under Rule
475(a), the Exchange currently may
prohibit or limit access to services
offered by the Exchange or any member
or member organization thereof if the
Exchange has provided 15 days’ prior
written notice of, and an opportunity to
be heard upon, the specific grounds for
such prohibition or limitation, and
provides a written decision. Proposed
Rule 9555 is the same as its NYSE
counterpart except for references to
‘‘member’’ and ‘‘ATP Holder’’ as
appropriate to reflect the Exchange’s
membership.
Proposed Rule 9556 would provide
procedures and consequences for a
failure to comply with temporary and
permanent cease and desist orders,
which would be authorized by proposed
Rule 9810. The Exchange currently does
not issue temporary or permanent cease
and desist orders and, as such, there is
no counterpart in the Exchange’s
current rules. The proposed rule is the
same as its NYSE counterpart except for
references to ‘‘ATP Holder.’’
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Proposed Rule 9557 would allow the
Exchange to issue a notice directing a
member or member organization to
comply with the provisions of Rule 470
(Capital Requirements for Members and
Member Organizations), Rule 471
(Business Expansion Restrictions and
Business Reduction Requirements), Rule
4110—Equities (Capital Compliance),
4120—Equities (Regulatory Notification
and Business Curtailment), or 4130—
Equities (Regulation of Activities of
Section 15C Member Organizations
Experiencing Financial and/or
Operational Difficulties) or otherwise
directing it to restrict its business
activities. The notice would be
immediately effective, except that a
timely request for a hearing would stay
the effective date for 10 business days
(unless the Exchange’s CRO determined
otherwise) or until an order was issued
by the Office of Hearing Officers,
whichever was earlier. The notice could
be withdrawn upon a showing that all
the requirements were met. Currently, if
a member organization fails to comply
with Rule 4110—Equities, 4120—
Equities, or 4130—Equities (which are
substantially the same as FINRA Rules
4110, 4120, and 4130), the Exchange
issues a notice pursuant to FINRA Rule
9557. Summary suspensions are also
authorized pursuant to Rule 475(b), as
described above, for any equities or
options member or member organization
that is in such financial or operating
difficulty that the member or member
organization cannot be permitted to
continue to do business with safety to
investors, creditors, other members or
member organizations, or the Exchange.
The proposed rule is the same as its
NYSE counterpart except for the
inclusion of references to ‘‘member’’ to
reflect the Exchange’s membership.
Proposed Rule 9558 would allow the
Exchange’s CRO to provide written
authorization to Exchange staff to issue
a written notice for a summary
proceeding for an action authorized by
Section 6(d)(3) of the Act. Such notice
would be immediately effective. Such
summary proceedings are currently
authorized under Rule 475(b), under
which the Exchange has authority to
summarily suspend a member
organization that is expelled or
suspended by another SRO or a covered
person that is barred or suspended by an
SRO or limit or prohibit any person
with respect to access to Exchange
services in certain circumstances; while
this rule also provides for notice and an
opportunity for a hearing, it does not set
forth a specific time limit for requesting
a hearing. The proposed rule is the same
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as its NYSE counterpart except for
references to ‘‘ATP Holder.’’
Proposed Rule 9559 would set forth
uniform hearing procedures for all
expedited proceedings under the
proposed Rule 9550 Series. Currently,
the Exchange does not have a rule
comparable to FINRA Rule 9559. The
proposed rule is the same as its NYSE
counterpart except for references to
‘‘ATP Holder.’’
Proposed Rule 9600 Series
The Exchange proposes to adopt a
new Rule 9600 Series, which would set
forth procedures by which a member or
member organization could seek
exemptive relief from current Rule
341.05 of Section 4 of the Office Rules
and Rule 345.15—Equities (examination
requirements); Rule 2210—Equities
(communications with the public prefiling requirements); Rule 3170—
Equities (tape recording of registered
persons by certain firms); Rule 4311—
Equities (carrying agreements); Rule
4360—Equities (fidelity bonds); and
proposed Rule 8211 (submission of
electronic trading data). Under proposed
Rule 9610, a member or member
organization seeking exemptive relief
would be required to file a written
application with the appropriate
department or staff of the Exchange and
provide a copy of the application to the
CRO. Under proposed Rule 9620, after
considering the application, Exchange
staff would be required to issue a
written decision setting forth its
findings and conclusions. The decision
would be served on the Applicant
pursuant to proposed Rules 9132 and
9134. Under proposed Rule 9630, an
Applicant that wished to appeal the
decision would be required to file a
written notice of appeal with the
Exchange’s CRO within 15 calendar
days after service of the decision. Under
proposed Rule 9630(e), the CRO would
affirm, modify, or reverse the decision
issued under proposed Rule 9620 and
issue a written decision setting forth his
or her findings and conclusions and
serve the decision on the Applicant. The
decision would be served pursuant to
proposed Rules 9132 and 9134, would
be effective upon service, and would
constitute final action of the Exchange.
Currently, Rule 410A(d)—Equities
permits a member or member
organization to seek an exception from
the data format elements for submitting
electronic trading data for transactions
effected on the Exchange, but the Rule
does not set forth specific procedures
for doing so. Similarly, current Rule
345.15—Equities and Rule 341.05 of
Section 4 of the Office Rules and Rule
4311—Equities permit exemptions but
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do not set forth specific procedures.
Current Rules 2210—Equities and
4360—Equities reference FINRA’s
exemptive process; these rules would be
amended to delete the reference to the
FINRA Rule 9600 Series as the
Exchange would now have its own such
provisions.
The proposed Rule 9600 Series is the
same as the NYSE Rule 9600 Series,
except for the list of rules providing
exemptive relief and references to
‘‘member’’ and ‘‘ATP Holder’’ to reflect
the Exchange’s membership.
Proposed Rule 9700 Series
The Rule 9700 Series would be
marked ‘‘Reserved’’ to maintain
consistency with NYSE’s rule
numbering conventions. In adopting
FINRA’s Rule 9000 Series in 2013, the
NYSE did not adopt FINRA’s Rule 9700
Series, which provides redress for
persons aggrieved by the operations of
any automated quotation, execution, or
communication system owned or
operated by FINRA, as inapplicable to
the NYSE. For the same reasons, the
Exchange does not propose to adopt the
FINRA Rule 9700 Series. The Exchange
notes that under current Rule 18—
Equities, if a member organization
suffers a loss related to an Exchange
system failure, it can submit a claim
pursuant to the procedures of that
rule.67 ATP Holders can submit similar
claims for damages arising out of the use
of the NYSE Amex Options trading
platform under Rule 905NY, subject to
the limitations set forth in that rule.
Proposed Rule 9800 Series
The Exchange proposes to adopt a
new Rule 9800 Series to set forth
procedures for issuing temporary cease
and desist orders. The Exchange does
not currently have a comparable rule.
Under proposed Rule 9810, with the
prior written authorization of the
Exchange’s CRO or such other senior
officers as the CRO may designate,
Enforcement could initiate a temporary
cease and desist proceeding with
respect to alleged violations of Section
10(b) of the Act, SEC Rules 10b–5 and
15g–1 through 15g–9, Rule 476(a)(6) or
Rule 2010—Equities (if the alleged
violation is unauthorized trading, or
misuse or conversion of customer assets,
or is based on violations of Section 17(a)
of the Securities Act of 1933) or Rule
476(a)(5) or Rule 2020—Equities.
Proposed Rule 9820 would govern the
appointment of a Hearing Officer and
Panelists.
67 The NYSE referenced its counterpart rule,
NYSE Rule 18, in the 2013 NYSE Disciplinary Rule
Filing. See 2013 Approval Order, 78 FR at 15400.
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Under proposed Rule 9830, the
hearing would be held not later than 15
days after service of the notice and filing
initiating the temporary cease and desist
proceeding, unless otherwise extended
by the Hearing Officer with the consent
of the Parties for good cause shown.
Proposed Rule 9830 would govern how
the hearing was conducted.
Under proposed Rule 9840, the
Hearing Panel would be authorized to
issue a written decision stating whether
a temporary cease and desist order
would be imposed. The Hearing Panel
would be required to issue the decision
not later than 10 days after receipt of the
hearing transcript, unless otherwise
extended by the Hearing Officer with
the consent of the Parties for good cause
shown. Under proposed Rule 9850, at
any time after the Office of Hearing
Officers served the respondent with a
temporary cease and desist order, a
Party could apply to the Hearing Panel
to have the order modified, set aside,
limited, or suspended. The Hearing
Panel generally would be required to
respond to the request in writing within
10 days after receipt of the request.
Proposed Rule 9860 would authorize
the initiation of a suspension or
cancellation of a respondent’s
association or membership under
proposed Rule 9556 if the respondent
violated a temporary cease and desist
order.
Finally, proposed Rule 9870 would
provide that temporary cease and desist
orders issued under the proposed Rule
9800 Series would constitute final and
immediately effective disciplinary
sanctions imposed by the Exchange, and
that the right to have any action under
this rule series reviewed by the
Commission would be governed by
Section 19 of the Act. The filing of an
application for review would not stay
the effectiveness of the temporary cease
and desist order, unless the Commission
otherwise ordered.68
The proposed Rule 9800 Series is the
same as the NYSE Rule 9800 Series,
68 FINRA recently amended its Rule 9800 Series
to lower the evidentiary standard for finding a
violation to ‘‘a showing of likelihood of success on
the merits.’’ FINRA also amended Rule Series 9100,
9200, 9300, and 9550 to adopt a new expedited
proceeding for failure to comply with a temporary
cease and desist order or a permanent cease and
desist order; to harmonize the provisions governing
how documents are served in temporary cease and
desist proceedings and related expedited
proceedings; to clarify the process for issuing
permanent cease and desist orders; to ease FINRA’s
administrative burden in temporary cease and
desist proceedings; and to make conforming
changes. See Securities Exchange Act Release No.
75629 (Aug. 6, 2015), 80 FR 48379 (August 12,
2015) (SR–FINRA–2015–019). The Exchange is not
proposing to incorporate similar amendments into
its proposed Rule Series 9100, 9200, 9300, 9550,
and 9800 at this time.
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except that proposed Rule 9810(a)
references violations of Exchange rules
rather than violations of similar NYSE
rules.
Technical and Conforming Changes
The Exchange proposes the following
technical and conforming changes.
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General Rules
Rule 0 in the Definitions under the
General and Floor Rules would be
amended so that it correctly crossreferences the current and proposed
disciplinary rule sets.
Rule 31 of the General Rules and
Supplementary Material .01 would be
deleted. This rule contains text that
concerns requests for books and records
and testimony that is duplicative of
current Rule 476(a)(11) and proposed
Rule 8210. Supplementary Material .02
relating to regulatory cooperation is not
duplicative of proposed Rule 8210(b)
and would be retained. Rule 31 would
be renamed ‘‘Regulatory Cooperation.’’
Rule 40 of the General Rules, which
concerns denial of an ATP, would be
deleted. It is a legacy rule that is
duplicative of current Rule 475 and
would be covered by proposed Rule
9558.
Contracts in Securities Rules
Rule 781, which concerns insolvency,
cross-references current Rule 475, so a
cross-reference to proposed Rule 9558
would be added.
Equities Rules Rule 0—Equities and
Rule 500—Equities would be amended
so that they correctly cross-reference the
current and proposed disciplinary rule
sets.
Rule 2A—Equities would be amended
to specify that the list of disciplinary
sanctions currently set forth in that rule
would apply to proceedings under
current Rules 475 and 476, and the list
of disciplinary sanctions set forth in
proposed Rule 8310(a) would apply to
proceedings initiated under the
proposed Rule 9000 Series.
Rule 36—Equities would be amended
to include a reference to proposed Rule
9558, which relates to summary
proceedings for actions authorized by
Section 6(d)(3) of the Act.
Rule 103B—Equities, which sets forth
certain security allocation and
reallocation procedures when a
Designated Market Maker unit loses its
registration in a specialty stock due to
disciplinary proceedings, would be
amended to include references to the
proposed Rule 8000 Series and Rule
9000 Series.
Rule 308—Equities, which sets forth
procedures for member and member
organization acceptability proceedings,
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would be amended to reference the
Chief Hearing Officer as defined in
proposed Rule 9120, and delete the
reference to a Chief Hearing Officer
designated under legacy Rule 476(b).
The text of Rule 309—Equities would
be deleted and the rule marked
‘‘Reserved’’ because new Rule 41 would
replace it, as described above.
Rule 345A—Equities would be
amended to delete a reference to
recently deleted Rule 346(f)—Equities
and replace it with a reference to Rule
342(e) of the Office Rules.69
Rule 410A—Equities, concerning
electronic trading data, would be
deleted as described above.
Rule 600—Equities would be
amended to include references to the
disciplinary proceedings of the
proposed Rule 8000 Series and Rule
9000 Series for failure to honor an
arbitration award.
As the Exchange proposes to adopt
Rules 9551 and 9559 and the Rule 9600
69 Rule 346(f)—Equities provided that unless
otherwise permitted by the Exchange, no member,
member organization, approved person, employee
or any person directly or indirectly controlling,
controlled by or under common control with a
member or member organization shall have
associated with him or it any person who is known,
or in the exercise of reasonable care should be
known, to be subject to any ‘‘statutory
disqualification’’ defined in Section 3(a)(39) of the
Exchange Act. See 15 U.S.C. 78c(a)(39). Rule 346—
Equities was based on NYSE Rule 346
(Limitations—Employment and Association with
Members and Member Organizations). FINRA
deleted Incorporated NYSE Rule 346 in 2010 after
adopting NASD Rule 3030 (Outside Business
Activities of an Associated Person) as FINRA Rule
3270 (Outside Business Activities of Registered
Persons). See Securities Exchange Act Release No.
62762 (August 23, 2010), 75 FR 53362 (August 31,
2010) (order approving SR–FINRA–2009–042).
FINRA deleted NYSE Rule 346(f) as redundant
given that FINRA had amended its definition of
disqualification in its By-Laws to align with the
Exchange Act definition, thereby incorporating
additional categories of statutory disqualification,
including certain affiliated relationships. See id., 75
FR at 53363.
The Exchange deleted Rule 346(f)—Equities in its
entirety and adopted a new Rule 3270—Equities
(Outside Business Activities of Registered Persons),
to correspond with rule changes filed by FINRA.
See Securities Exchange Act Release No. 64130
(March 28, 2011), 76 FR 18283 (April 1, 2011) (SR–
NYSEAmex–2011–17). Rule 3270—Equities,
however, does not contain a provision comparable
to Rule 346(f)—Equities and in fact makes no
mention of statutory disqualification. The
comparable provision to Rule 346(f)—Equities in
the Exchange’s rules can be found in Rule 342(e)
of the Office Rules, which provides that no member,
member organization, allied member, approved
person, employee, or any person directly or
indirectly controlling, controlled by or under
common control with a member or member
organization shall have associated with him or it
any person who is known, or in the exercise of
reasonable care should be known, to be subject to
any ‘‘statutory disqualification’’ defined in Section
3(a)(39) of the Exchange Act. The Exchange
accordingly proposes to replace the reference to
Rule 346(f)—Equities in Rule 345A—Equities with
a reference to Rule 342(e).
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11333
Series, Rule 2210—Equities would be
amended to revise the cross-references
to ‘‘FINRA,’’ ‘‘FINRA Rules 9551 and
9559,’’ and the ‘‘FINRA Rule 9600
Series.’’ These cross-references were
adopted as part of a prior harmonization
of Rule 2210—Equities with FINRA’s
rules and would be obsolete.70
Rule 3170—Equities, concerning tape
recording of registered persons by
certain firms, would be amended to add
a reference to the proposed Rule 9600
Series, pursuant to which exemptive
relief may be sought.
Rules 4110—Equities, 4120—Equities,
and 4130—Equities would be amended
to revise a cross-reference to FINRA
Rule 9557 as the Exchange proposes to
adopt Rule 9557. Rule 4110—Equities
would also be corrected to add the
missing paragraph designation for
paragraph (e) of the rule.
Rule 4360—Equities would be
amended to provide that any request for
an exemption would be processed under
the proposed Rule 9600 Series rather
than FINRA rules.
Options Rules
Rules 972, 902NY, 921NY, 923NY,
927.1NY, 927.2NY, 931NY, 955NY and
957NY contain cross-references to the
current disciplinary rules.
Corresponding references to the
proposed disciplinary rules would be
added.
Rule 991 would be amended to revise
cross-references to FINRA Rules 9551
and 9559 as the Exchange proposes to
adopt Rules 9551 and 9559.71
Finally, as noted above, Rule
956.1NY, which concerns electronic
trading data, would be deleted and
marked ‘‘Reserved.’’
Certain Current Exchange Rules Not
Included in Proposed Rule Text
Certain aspects of current Exchange
rules described above would not be
included in the proposed Rule 8000–
9000 Series, because either the
Exchange does not believe they are
necessary or the authority is implicit in
the proposed rule change.
First, under current Rule 475(f), any
person suspended under Rule 475 may,
at any time, be reinstated by the
Exchange Board of Directors. The
Exchange does not believe that it would
continue to be appropriate for the
Exchange Board of Directors to have the
authority to overturn a suspension
imposed by another Adjudicator in light
of the detailed procedural rules,
70 See Securities Exchange Act Release No. 70963
(November 29, 2013), 78 FR 73223 (December 5,
2013) (SR–NYSEMKT–2013–95).
71 See id.
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comprehensive protections to
respondents, and continued availability
of the Exchange’s appeals process under
the proposed rule change.
Second, under current Rules 475(g)
and 476(k), any person suspended
under such rules may be disciplined in
accordance with the Exchange’s rules
for any offense committed before or after
the suspension. The Exchange believes
that such authority is implicit in
proposed Rule 9211 and need not be
expressed in the proposed rule change.
Under current Rules 475(h) and 476(j)
and (k), a suspended person is deprived
during the term of the suspension of all
rights and privileges of membership,
and any suspension of a member or
principal executive creates a vacancy in
any office or position held by such
member or principal executive. The
Exchange believes that this is implicit in
the concept of a suspension and need
not be expressed in the proposed rule
change.
Under current Rule 476(i), a member
or principal executive of the Exchange
who is associated with a member
organization is liable to the same
discipline and penalties for any act or
omission of such member organization
as for the member or principal
executive’s own personal act or
omission. The Hearing Panel that
considers the charges may relieve him
from the penalty therefor or may adjust
the penalty on such terms and
conditions as the Hearing Panel or the
Exchange Board of Directors deems fair
and equitable. The Exchange believes
that this authority is contained in the
proposed rule change because
complaints may be brought against both
member organizations and covered
persons and are subject to review by the
Hearing Panel and the Exchange Board
of Directors.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,72 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,73 in particular, because it is
designed to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in facilitating transactions in securities,
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,74 in particular, in that it
75 Under the Exchange’s equities rules, the
equivalent to the term ‘‘member’’ in this context is
‘‘member organization.’’ See notes 25–26, supra,
and accompanying text.
72 15
U.S.C. 78f(b).
73 15 U.S.C. 78f(b)(5).
74 15 U.S.C. 78f(b)(7).
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19:17 Mar 02, 2016
provides fair procedures for the
disciplining of members and persons
associated with members,75 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.
The proposed changes will provide
greater harmonization between
Exchange, NYSE, and FINRA rules of
similar purpose, resulting in less
burdensome and more efficient
regulatory compliance for common
members. As previously noted, the
proposed rule text is substantially the
same as the NYSE’s rule text. The
proposed rule change will enhance the
Exchange’s ability to have a direct and
meaningful impact on the end-to-end
quality of its regulatory program, from
detection and investigation of potential
violations through the efficient
initiation and completion of
disciplinary measures where
appropriate. As such, the proposed rule
change would foster cooperation and
coordination with persons engaged in
facilitating transactions in securities and
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system.
Certain key aspects of the Exchange’s
disciplinary proceedings would be
retained. In particular, the Exchange
would retain its current selection
process for Hearing Panelists. The
Exchange believes that it is necessary to
do so in order to provide a fair
procedure to its member organizations
and covered persons, some of which are
not subject to NYSE or FINRA
jurisdiction. As such, the Exchange’s
Hearing Panelists cannot be drawn
solely from a pool of NYSE or FINRA
members and associated persons but
rather must include NYSE MKT-only
member organizations and persons with
experience in NYSE MKT Floor matters
in order for the Exchange’s members to
have a fair representation in its affairs.
For the same reasons, the Exchange also
believes that its Board of Directors
remains the appropriate body for
appeals or reviews of initial disciplinary
decisions because its Board of Directors
includes fair representation candidates
from its membership.
The Exchange further believes that the
proposed processes for settling
Jkt 238001
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Frm 00162
Fmt 4703
Sfmt 4703
disciplinary matters both before and
after the issuance of a complaint are fair
and reasonable. While such proposed
rules differ both from certain aspects of
the Exchange’s current Stipulation and
Consent process and FINRA’s current
settlement processes, the Exchange
believes that the proposed rule change
nonetheless provides adequate
procedural protections to all parties and
promotes efficiency.
The Exchange would retain its list of
minor rule violations, which have
already been approved by the
Commission,76 with certain technical
and conforming amendments, while
adopting NYSE’s and FINRA’s process
for imposing minor rule violation fines,
which also have already been approved
by the Commission.77
Finally, the Exchange believes that its
proposed transition plan would allow
for a more orderly and less burdensome
transition for the Exchange’s members
and member organizations. The
proposed delayed implementation of the
new rule set would provide a clear
demarcation between matters that
would proceed under the new rules and
those that would be completed under
the legacy 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 it
is designed to (i) provide greater
harmonization among Exchange, NYSE,
and FINRA rules of similar purpose for
investigations and disciplinary matters;
and (ii) enhance the quality of the
Exchange’s regulatory program, from
detection of violations through
disciplinary actions, resulting in less
burdensome and more efficient
regulatory compliance and facilitating
performance of regulatory functions.
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.
76 The most recent amendments to the Exchange’s
minor rule violation plan were approved in
Securities Exchange Act Release No. 66809 (April
13, 2012), 77 FR 23532 (April 19, 2012) (SR–
NYSEAmex–2012–10).
77 See NYSE Rule 9216(b) and FINRA Rule
9216(b).
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Federal Register / Vol. 81, No. 42 / Thursday, March 3, 2016 / Notices
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change
does not (i) significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 78 and Rule 19b–
4(f)(6) thereunder.79
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File No. SR–
NYSEMKT–2016–30 on the subject line.
mstockstill on DSK4VPTVN1PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File No.
SR–NYSEMKT–2016–30. 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/
78 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). As required under Rule
19b–4(f)(6)(iii), the Exchange provided the
Commission with written notice of its intent to file
the proposed rule change, along with a brief
description and the text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission.
79 17
VerDate Sep<11>2014
19:17 Mar 02, 2016
Jkt 238001
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 No. SR–NYSEMKT–
2016–30, and should be submitted on or
before March 24, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.80
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–04633 Filed 3–2–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77242; File No. SR–EDGX–
2016–12]
Self-Regulatory Organizations; EDGX
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Related to Fees as They
Apply to the Equity Options Platform
February 26, 2016.
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 February
18, 2016, EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) 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
80 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00163
Fmt 4703
Sfmt 4703
11335
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 EDGX Rules
15.1(a) and (c) (‘‘Fee Schedule’’).
The text of the proposed rule change
is available at the Exchange’s Web site
at www.batstrading.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
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant parts of such
statements.
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange’s current approach to
routing fees is to set forth in a simple
manner certain sub-categories of fees
that approximate the cost of routing to
other options exchanges based on the
cost of transaction fees assessed by each
venue as well as costs to the Exchange
for routing (i.e., clearing fees,
connectivity and other infrastructure
costs, membership fees, etc.)
(collectively, ‘‘Routing Costs’’). The
Exchange then monitors the fees
charged as compared to the costs of its
routing services and adjusts its routing
fees and/or sub-categories to ensure that
the Exchange’s fees do indeed result in
3 15
U.S.C. 78s(b)(3)(A)(ii).
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).
4 17
E:\FR\FM\03MRN1.SGM
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]]>Agencies
[Federal Register Volume 81, Number 42 (Thursday, March 3, 2016)]
[Notices]
[Pages 11311-11335]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-04633]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77241; File No. SR-NYSEMKT-2016-30]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Adopting Investigation,
Disciplinary, Sanction, and Other Procedural Rules Modeled on the Rules
of the New York Stock Exchange LLC and Certain Conforming and Technical
Changes
February 26, 2016.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on February 19, 2016, NYSE MKT LLC (``Exchange'' or ``NYSE MKT'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the self-regulatory organization. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C.78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
[[Page 11312]]
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to [sic] (1) investigation, disciplinary,
sanction, and other procedural rules modeled on the rules of the New
York Stock Exchange LLC (``NYSE''), and (2) certain conforming and
technical changes. 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes (1) investigation, disciplinary, sanction,
and other procedural rules that are modeled on the rules of its
affiliate New York Stock Exchange LLC (``NYSE''), and (2) certain
conforming and technical changes.
Background and Description of Proposed Rule Change
On July 30, 2007, the National Association of Securities Dealers,
Inc. (``NASD''), NYSE, and NYSE Regulation, Inc. (``NYSE Regulation''),
a not-for-profit subsidiary of the NYSE,\4\ consolidated their member
firm regulation operations into a combined organization, the Financial
Industry Regulatory Authority, Inc. (``FINRA''), and entered into a
plan to allocate to FINRA regulatory responsibility for common rules
and common members (``17d-2 Agreement'').\5\ In 2007, the parties
entered into a Regulatory Services Agreement (``RSA''), whereby FINRA
was retained to perform certain regulatory services for non-common
rules. Following its acquisition by NYSE Euronext in 2008, NYSE MKT
amended certain of its disciplinary rules to make them substantially
the same as NYSE's disciplinary rules, and NYSE MKT became a party to
the RSA.\6\
---------------------------------------------------------------------------
\4\ NYSE Regulation performs regulatory functions for the
Exchange pursuant to an intercompany Regulatory Services Agreement
(the ``Intercompany RSA'').
\5\ See Securities Exchange Act Release No. 56148 (July 26,
2007), 72 FR 42146 (August 1, 2007) (File No. 4-544) (Notice of
Filing and Order Approving and Declaring Effective a Plan for the
Allocation of Regulatory Responsibilities).
\6\ See Securities Exchange Act Release No. 58673 (September 29,
2008), 73 FR 57707 (October 3, 2008) (SR-Amex-2008-62 & SR-NYSE-
2008-60). Certain of these rules were transitional in nature, and
the Exchange later deleted them because they were obsolete. See
Securities Exchange Act Release No. 70294 (August 30, 2013), 78 FR
54943 (September 6, 2013) (SR-NYSEMKT-2013-72).
---------------------------------------------------------------------------
On June 14, 2010, the RSA was amended to retain FINRA to perform
the market surveillance and enforcement functions that had, up to that
point, been performed by NYSE Regulation.\7\ 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.\8\
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\7\ See Securities Exchange Act Release No. 62355 (June 22,
2010), 75 FR 36729 (June 28, 2010) (SR-NYSE-2010-46); Securities
Exchange Act Release No. 62354 (June 22, 2010), 75 FR 36730 (June
28, 2010) (SR-NYSEAmex-2010-57).
\8\ See Rule 0. Notwithstanding the RSA, the Exchange retains
ultimate legal responsibility for, and control of, the Exchange's
regulatory functions performed by FINRA. Securities Exchange Act
Release No. 62354 (June 22, 2010), 75 FR 36730 (June 28, 2010) (SR-
NYSEAmex-2010-57).
---------------------------------------------------------------------------
In 2013, the NYSE adopted disciplinary rules that are, with certain
exceptions, substantially the same as the text of the FINRA Rule 8000
Series and Rule 9000 Series, and which set forth rules for conducting
investigations and enforcement actions (the ``2013 NYSE Disciplinary
Rule Filing'').\9\ The new NYSE disciplinary rules were implemented on
July 1, 2013.\10\
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\9\ See Securities Exchange Act Release Nos. 68678 (January 16,
2013), 78 FR 5213 (January 24, 2013) (SR-NYSE-2013-02) (``2013
Notice''), 69045 (March 5, 2013), 78 FR 15394 (March 11, 2013) (SR-
NYSE-2013-02) (``2013 Approval Order''), and 69963 (July 10, 2013),
78 FR 42573 (July 16, 2013) (SR-NYSE-2013-49).
\10\ See NYSE Information Memorandum 13-8 (May 24, 2013).
---------------------------------------------------------------------------
To achieve further rule harmonization among exchanges and to
facilitate the reintegration of regulatory functions from FINRA,\11\
the Exchange proposes to adopt, with certain changes, the text of the
NYSE Rule 8000 and Rule 9000 Series, as modified to reflect amendments
recently proposed by the NYSE and described in more detail below.
---------------------------------------------------------------------------
\11\ 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. It is anticipated that
FINRA, under the new RSA, will 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. On August 14, 2015, NYSE
filed a proposed rule change to amend certain of its disciplinary
rules to facilitate the reintegration of these regulatory functions
from FINRA as of January 1, 2016, which filing was approved on
November 13, 2015 (the ``NYSE Reintegration Facilitation Filing'').
See Securities Exchange Act Release No. 75721 (Aug. 18, 2015), 80 FR
51334 (August 24, 2015) (``Notice'') and Exchange Act Release No.
76436 (November 13, 2015), 80 FR 72460 (November 19, 2015)
(``Approval Order'') (SR-NYSE-2015-35).
---------------------------------------------------------------------------
The Exchange notes that some of its member organizations, by virtue
of their membership in other self-regulatory organizations (``SRO''),
are already subject to rules that are similar to the proposed rules.
All NYSE MKT member organizations that have equity trading licenses are
also NYSE members pursuant to Rule 2--Equities. Several other NYSE MKT
member organizations and NYSE Amex Trading Permit (``ATP'') Holders
also are members of FINRA (``Dual Members''). As such, these Dual
Members are already subject to their respective Rule 8000 Series and
Rule 9000 Series. Certain member organizations that are not members of
FINRA or NYSE are members of The NASDAQ Stock Market (``NASDAQ''),
which has similar disciplinary rules to FINRA and are therefore also
already subject to similar rules. The proposed rule change would result
in the Exchange and NYSE having substantially the same disciplinary
process, which would closely resemble FINRA's process.
Set forth below in this Purpose section are:
A description of the Exchange's current disciplinary
rules, Rules 475-477;
a description of the proposed rule change and transition
generally;
a more detailed description of the proposed rules with a
comparison to the current rules;
a description of technical and conforming amendments; and
a description of current rules that will not be carried
over into the proposed rule set and the reasons therefor.
Current Rules 475-477 \12\
---------------------------------------------------------------------------
\12\ All references are to NYSE MKT rules unless otherwise
noted. Further, where current or proposed NYSE MKT rules or NYSE
rules use capitalized terms, descriptions of such rules herein
follow those capitalization conventions.
---------------------------------------------------------------------------
This section summarizes NYSE MKT's current disciplinary rules,
which
[[Page 11313]]
are set forth in Section 9A of the Office Rules and apply to both the
NYSE MKT equities market and the NYSE Amex options market.
Current Rule 475--Summary Proceedings
Rule 475 sets forth summary procedures under which the Exchange may
prohibit or limit access to services. Under Rule 475(a), except as
otherwise provided in Rule 475(b), the Exchange may not prohibit or
limit any person with respect to access to services offered by the
Exchange or any member or member organization thereof unless the
Exchange has provided 15 days' prior written notice of, and an
opportunity to be heard upon, the specific grounds for such prohibition
or limitation. The Exchange must keep a record of any such proceeding.
Any determination by the Exchange to prohibit or limit access to
services must be supported by a statement setting forth the specific
grounds for the prohibition or limitation.
Under Rule 475(b), the Exchange may summarily suspend persons
subject to its jurisdiction that have been expelled or suspended by
another SRO, or barred or suspended from being associated with a member
or any such SRO, as long as any such summary suspension imposed by the
Exchange does not exceed the termination of the suspension imposed by
the other SRO. The Exchange also may suspend a member or member
organization that is in such financial or operating difficulty that the
Exchange determines, and so notifies the SEC, that the member or member
organization cannot be permitted to continue to do business with safety
to investors, creditors, other members or member organizations, or the
Exchange. The Exchange also may limit or prohibit any person with
respect to access to Exchange services if such person has been
summarily suspended under this rule or, in the case of a person who is
not a member or member organization, if the Exchange determines that
such person does not meet the qualification requirements or other
prerequisites for such access and such person cannot be permitted to
continue to have such access with safety to investors, creditors,
members, member organizations, or the Exchange.
Any person subject to summary action must receive written notice
and an opportunity to be heard by the Exchange upon the specific
grounds for the action, and the Exchange must keep a record of any
summary proceeding. Any determination by the Exchange with respect to
such summary action must be supported by a statement setting forth the
specific grounds on which the summary action is based. The Commission,
by order, may stay any such summary action in accordance with the
provisions of the Act.
Rule 475(c) governs hearings and proceedings pursuant to Rule
475(a) and (b). Hearings are conducted by a Hearing Officer, appointed
by the Exchange Board of Directors, acting alone. The Hearing Officer
schedules and conducts hearings promptly and, in doing so, provides
such discovery to the person whose access or suspension is the subject
of such a hearing and to the Exchange officers and employees. The
Hearing Officer renders determinations based upon the record at such
hearings. The Hearing Officer may modify, reverse, or terminate a
summary action, unless within 10 days of such determination, a request
for review is filed with the Secretary of the Exchange. Any member of
the Exchange Board of Directors, any member of the Committee for Review
(``CFR''),\13\ and either the Exchange or the respondent may require a
review by the Exchange Board of Directors of any determination by the
Hearing Officer. The Exchange Board of Directors, with the advice of
the CFR, may affirm, modify, or reverse any such determination, or
remand the matter to the Hearing Officer for further proceedings.
Unless the Exchange Board of Directors otherwise specifically directs,
the determination and the penalty, if any, of the Exchange Board of
Directors after review is final and conclusive, subject to the
provisions for review under the Act.
---------------------------------------------------------------------------
\13\ The CFR is a subcommittee of the Exchange's Regulatory
Oversight Committee (``ROC''). See Securities Exchange Act Release
No. 77008 (February 1, 2016) (NYSEMKT 2015-106).
---------------------------------------------------------------------------
Under Rule 475(d), whenever a member or member organization fails
to perform its contracts, becomes insolvent, or is in such financial or
operating difficulty that it cannot be permitted to continue to do
business as a member or member organization with safety to investors,
creditors, other members or member organizations, or the Exchange, such
member or member organization must promptly give written notice thereof
to the Secretary of the Exchange.
Under Rule 475(e), any person suspended under the provisions of the
rule must, at the request of the Exchange, submit to the Exchange its
books and records or the books and records of any employee thereof and
furnish information to or appear or testify before or cause any such
employee to appear or testify before the Exchange.
Under Rule 475(f), any person suspended under Rule 475 may, at any
time, be reinstated by the Exchange Board of Directors.
Under Rule 475(g), any person suspended under Rule 475 may be
disciplined in accordance with the Exchange's rules for any offense
committed before or after the suspension.
Under Rule 475(h), a member suspended under Rule 475 is deprived
during the term of the suspension of all rights and privileges of
membership, and any suspension of a member or principal executive
creates a vacancy in any office or position held by such member or
principal executive.
Under Rule 475(i), the limitations on the Chief Executive Officer
(``CEO'') of the Exchange contained in Rule 476(l) that prohibit the
CEO from initiating a call for review apply to all matters under Rule
475.
Under Rule 475(j), any member of the Exchange Board of Directors,
any member of the CFR, the Exchange, and the respondent may require a
review by the Exchange Board of Directors of any determination under
Rule 475 by filing with the Secretary of the Exchange a written request
therefor within 10 days following such determination. The Exchange
Board of Directors, with the advice of the CFR, shall have the power to
affirm, modify, or reverse any such determination, or remand the matter
for further proceedings. Unless the Exchange Board of Directors
otherwise specifically directs, the determination and the penalty, if
any, of the Exchange Board of Directors after review is final and
conclusive, subject to the provisions for review under the Act.
Current Rule 476--Disciplinary Proceedings
Rule 476 governs disciplinary proceedings involving charges against
members, member organizations, principal executives, approved persons,
employees, or others subject to the Exchange's jurisdiction. Under Rule
476(a), if such a person is adjudged guilty of certain offenses in a
proceeding under Rule 476, then a Hearing Panel or Hearing Officer, in
accordance with the Sanctions Guidelines in Rule 476.10,\14\
[[Page 11314]]
may impose disciplinary sanctions on such person, including expulsion;
suspension; limitation as to activities, functions, and operations,
including the suspension or cancellation of a registration in, or
assignment of, one or more stocks; fine; censure; suspension or bar
from being associated with any member or member organization; or any
other fitting sanction. The list of offenses under Rule 476(a)(1)-(11)
includes, for example, violating an Exchange rule or the Act, making a
material misstatement, or engaging in manipulation.
---------------------------------------------------------------------------
\14\ The Sanctions Guidelines in Rule 476.10 apply to certain
options-related violations. See Securities Exchange Act Release Nos.
45412 (February 7, 2002), 67 FR 6770 (February 13, 2002); 45566
(March 15, 2002), 67 FR 13379 (March 22, 2002) (SR-Amex-2001-68).
The Exchange filed this proposed rule change pursuant to the
provisions of Section IV.B.i of the Commission's September 11, 2000
Order Instituting Public Administrative Proceedings Pursuant to
Section 19(h)(1) of the Act, which required the Exchange to adopt
rules establishing, or modifying existing, sanctioning guidelines
such that they are reasonably designed to effectively enforce
compliance with options order handling rules. See Securities
Exchange Act Release No. 43268 (September 11, 2000), Administrative
Proceeding File No. 3-10282. The Sanctions Guidelines, as under the
current rules, would not apply to equities-related violations. As
such, the CRO, Hearing Panel or Extended Hearing Panel, as
applicable, would consider relevant Exchange precedent or such other
precedent as it deemed appropriate in determining sanctions that
should be imposed in connection with a decision pursuant to proposed
Rule 9268 or 9269, or in connection with a settlement pursuant to
proposed Rule 9216 or 9270.
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Rule 476(b) describes the role of Hearing Panels and Hearing
Officers. Under Rule 476(b), all proceedings under Rule 476, except for
matters resolved by a Hearing Officer when authorized by the rule, are
conducted at a hearing in accordance with the Rule and held before a
Hearing Panel consisting of at least three persons of integrity and
judgment: A Hearing Officer, who chairs the Hearing Panel, and at least
two members of the Hearing Board, at least one of whom must be engaged
in securities activities differing from that of the respondent or, if
retired, was so engaged in differing activities at the time of
retirement. In any disciplinary proceeding involving activities on the
Floor of the Exchange, no more than one of the persons serving on the
Hearing Panel may be, or if retired, may have been, active on the Floor
of the Exchange. A Hearing Panel may include only one retired person.
The Chairman of the Exchange Board of Directors, subject to the
approval of the Exchange Board of Directors, from time to time appoints
a Hearing Board to be composed of persons of integrity and judgment who
are members and principal executives of the Exchange who are not
members of the Exchange Board of Directors, registered and non-
registered employees of members and member organizations, and such
other persons as the Chairman deems necessary. Former members,
principal executives, or registered and non-registered employees of
members and member organizations who have retired from the securities
industry may be appointed to the Hearing Board within five years of
their retirement. The members of the Hearing Board are appointed
annually and serve at the pleasure of the Exchange Board of Directors.
The Chairman, subject to the approval of the Exchange Board of
Directors, annually designates a Chief Hearing Officer and one or more
other Hearing Officers who have no Exchange duties or functions
relating to the investigation or preparation of disciplinary matters.
Hearing Officers serve at the pleasure of the Exchange Board of
Directors. An individual cannot be a Hearing Officer (including the
Chief Hearing Officer) if he or she is, or within the last three years
was, a member, principal executive, or registered or non-registered
employee of a member or member organization.
Under the rule, the decision of a majority of the Hearing Panel is
the decision of the Hearing Panel and is final and conclusive, unless a
request to the Exchange Board of Directors for review is filed.
Rule 476(c) governs procedural matters and the conduct of the
hearing. Under Rule 476(c), upon application to the Chief Hearing
Officer by either party to a proceeding, the Chief Hearing Officer, or
any Hearing Officer designated by the Chief Hearing Officer, resolves
any and all procedural and evidentiary matters and substantive legal
motions, and may require the Exchange to permit the respondent to
inspect and copy documents or records in the possession of the Exchange
that are material to the preparation of the defense or are intended for
use by the Exchange as evidence in chief at the hearing. The respondent
may be required to provide discovery of non-privileged documents and
records to the Exchange. The rule does not authorize the discovery or
inspection of reports, memoranda, or other internal Exchange documents
prepared by the Exchange in connection with the proceeding. There is no
interlocutory appeal to the Exchange Board of Directors of any
determination as to which this provision applies.
Rule 476(d) governs Charge Memorandums, Answers, and motions. Under
Rule 476(d), except as otherwise provided in Rule 476(g), which governs
Stipulations and Consents, the specific charges against the respondent
must be in the form of a written statement (a ``Charge Memorandum'')
and signed by an authorized officer or employee of the Exchange, or an
authorized employee of another SRO with which the Exchange has entered
into an RSA pursuant to Rule 1B on behalf of the Exchange. A copy of
such Charge Memorandum must be filed with the Hearing Board at the same
time it is served upon the respondent. Service is deemed effective by
personal service of such Charge Memorandum, or by leaving the same
either at the respondent's last known office address during business
hours or the respondent's last place of residence as reflected in
Exchange records, or upon mailing same to the respondent at such office
address or place of residence. The Hearing Board assumes jurisdiction
upon receipt of the Charge Memorandum.
A written Answer to the Charge Memorandum must be filed not later
than 25 days from the date of service or within such longer period of
time as the Hearing Officer may deem proper. The Answer must be signed
by or on behalf of the respondent and filed with the Hearing Board,
with a copy served on the Exchange. The Answer must indicate
specifically which assertions of fact and charges in the Charge
Memorandum are denied and which are admitted, and also contain any
specific facts in contradiction of the charges and any affirmative
defenses. A general denial is insufficient. Any assertions of fact not
specifically denied in the Answer may be deemed admitted and failure to
file an Answer may be deemed an admission of any facts asserted in the
Charge Memorandum.
The Hearing Board sets a schedule for the filing of motions and
establishes hearing dates. If the respondent fails to file an Answer,
the Exchange, by motion, accompanied by proof of notice to the
respondent, may request a determination of guilt by default and may
recommend a penalty to be imposed. If the respondent opposes the
motion, the Hearing Officer, on a determination that the respondent had
adequate reason to fail to file an Answer, may adjourn the hearing date
and direct the respondent to promptly file an Answer. If the default
motion is unopposed, or the respondent did not have adequate reason to
fail to file an Answer, or the respondent failed to file an Answer
after being given an opportunity to do so, the Hearing Officer, on a
determination that the respondent has had notice of the charges and
that the Exchange has jurisdiction in the matter, may find guilt and
determine a penalty.
Notice of the hearing is served upon the Exchange and the
respondent. The respondent is entitled to be personally present. The
Hearing Officer determines the specific facts at issue, and with
respect to those facts only, both the Exchange and the respondent may
[[Page 11315]]
produce witnesses and any other evidence and they may examine and
cross-examine any witnesses so produced. After hearing all the
witnesses and considering all the evidence, the Hearing Panel
determines whether the respondent is guilty of the charges, and if so,
may impose a penalty.
Rule 476(e) concerns the hearing record and time for appeal. Under
Rule 476(e), the Exchange must keep a record of any hearing conducted
and a written notice of the result must be served upon the respondent
and the Exchange.
The determination of the Hearing Panel, or of the Hearing Officer
on a determination of default, and any penalty imposed, is final and
conclusive 25 days after notice has been served upon the respondent,
unless a request to the Exchange Board of Directors for review of such
determination and/or penalty is filed, in which case any penalty
imposed is stayed pending the outcome of such review.
Rule 476(f) concerns appeals to the Exchange Board of Directors.
Under Rule 476(f), the Exchange, the respondent, any member of the
Exchange Board of Directors, and any member of the CFR may require a
review by the Exchange Board of Directors of any determination or
penalty, or both, imposed by a Hearing Panel or Hearing Officer. A
written request for review must be filed with the Secretary of the
Exchange within 25 days after notice of the determination and/or
penalty is served upon the respondent. The Secretary of the Exchange
gives notice of any such request for review to the Exchange and any
respondent affected thereby.
Any review must be conducted by the Exchange Board of Directors or
the CFR, in the sole discretion of the Exchange Board of Directors, and
is based on oral arguments and written briefs and is limited to
consideration of the record before the Hearing Panel or Hearing
Officer. The CFR in turn can appoint an appeals panel to conduct the
review and make a recommendation to the CFR.\15\
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\15\ An appeals panel appointed by the CFR must consist of at
least three and no more than five individuals. For equities matters,
the panel must be composed of at least one director and one member
or individual associated with an equities member organization. For
options matters, the appeals panel must be composed of at least one
director and one member or individual associated with an options
member organization. See Rule 476(f).
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Upon review, and with the advice of the CFR, the Exchange Board of
Directors, by majority vote, may sustain any determination or penalty
imposed, or both; may modify or reverse any such determination; and may
increase, decrease or eliminate any such penalty, or impose any penalty
permitted under the provisions of this rule. Unless the Exchange Board
of Directors otherwise specifically directs, the determination and
penalty, if any, of the Exchange Board of Directors after review is
final and conclusive, subject to the provisions for review under the
Act.
Notwithstanding the foregoing, if either party upon review applies
for leave to adduce additional evidence, and shows to the satisfaction
of the Exchange Board of Directors, with the advice of the CFR, that
the additional evidence is material and that there was reasonable
ground for failure to adduce it before the Hearing Panel or Hearing
Officer, the Exchange Board of Directors, with the advice of the CFR,
may remand the case for further proceedings, in whatever manner and on
whatever conditions the Exchange Board of Directors considers
appropriate.
Rule 476(g) sets forth an alternative Stipulation and Consent
procedure that may be used in lieu of the procedures set forth in Rule
476(d). Under Rule 476(g), a Hearing Officer acting alone may determine
whether a person subject to the Exchange's jurisdiction has committed
an offense on the basis of a written Stipulation and Consent entered
into between the respondent and any authorized officer or employee of
the Exchange or an authorized employee of another SRO with which the
Exchange has entered into an RSA pursuant to Rule 1B on behalf of the
Exchange. Any such Stipulation and Consent must contain a stipulation
with respect to the facts, or the basis for findings of fact by the
Hearing Officer; a consent to findings of fact by the Hearing Officer,
including a finding that a specified offense had been committed; and a
consent to the imposition of a specified penalty.
A Hearing Officer must convene a Hearing Panel if the Hearing
Officer requires clarification or further information on the
Stipulation and Consent, or if either party requests a hearing before a
Hearing Panel. A Hearing Officer, acting alone, may not reject a
Stipulation and Consent, but must convene a Hearing Panel to consider
such action.
Notice of any hearing held for the purpose of considering a
Stipulation and Consent is served upon the respondent as provided in
Rule 476(d). In any such hearing, if the Hearing Panel determines that
the respondent has committed an offense, it may impose the penalty
agreed to in such Stipulation and Consent. In addition, a Hearing Panel
may reject such Stipulation and Consent.
Such rejection does not preclude the parties to the proceeding from
entering into a modified Stipulation and Consent or preclude the
Exchange from bringing or presenting the same or different charges to a
Hearing Panel in accordance with Rule 476(d). The Exchange must keep a
record of any hearing conducted under this Rule and a written notice of
the result setting forth the requirements contained in Section 6(d)(1)
of the Act must be served on the parties to the proceeding.
The determination of the Hearing Panel or Hearing Officer and any
penalty imposed are final and conclusive 25 days after notice thereof
has been served upon the respondent, unless a request to the Exchange
Board of Directors for review of such determination and/or penalty is
filed, in which case any penalty imposed is stayed pending the outcome
of such review.
Any member of the Exchange Board of Directors and any member of the
CFR may require a review by the Exchange Board of Directors of any
determination or penalty, or both, imposed by a Hearing Panel or
Hearing Officer in connection with a Stipulation and Consent. The
respondent or the Exchange Division that entered into the Stipulation
and Consent may require a review by the Exchange Board of Directors of
any rejection of such Stipulation and Consent by the Hearing Panel. A
written request for review must be filed with the Secretary of the
Exchange within 25 days after notice of the determination and/or
penalty is served on the respondent. The Secretary of the Exchange
gives notice of any such request for review to the Exchange Division
involved in the proceeding and any respondent affected thereby.
Any review must be conducted by the Exchange Board of Directors, or
the CFR, in the sole discretion of the Exchange Board of Directors, and
consists of oral arguments and written briefs and is limited to
consideration of the record before the Hearing Panel or Hearing
Officer. Upon review, and with the advice of the CFR, the Exchange
Board of Directors, by majority vote, may fix and impose the penalty
agreed to in such Stipulation and Consent or any penalty that is less
severe than the stipulated penalty, or may remand for further
proceedings. Unless the Exchange Board of Directors otherwise
specifically directs, the determination and penalty, if any, of the
Exchange Board of Directors after review is final and conclusive,
subject to the provisions for review under the Act.
[[Page 11316]]
Rule 476(h) concerns legal representation. Under the rule, a person
subject to the Exchange's jurisdiction has the right to be represented
by legal counsel or other representative in any hearing or review held
under Rule 476 and in any investigation before any committee, officer,
or employee of the Exchange. A Hearing Officer may impose a fine or any
other appropriate sanction on any party or the party's representative
for improper conduct in connection with a matter before the Hearing
Board, and may, if appropriate, exclude any participant, including any
party, witness, attorney or representative from a hearing on the basis
of such conduct.
Under Rule 476(i), a member or principal executive of the Exchange
who is associated with a member organization is liable to the same
discipline and penalties for any act or omission of such member
organization as for the member or principal executive's own personal
act or omission. The Hearing Panel that considers the charges against
such member, or principal executive, or the Exchange Board of Directors
upon any review thereof, may relieve him from the penalty therefor or
may remit or reduce such penalty on such terms and conditions as the
Hearing Panel or the Exchange Board of Directors, with the advice of
the CFR, deems fair and equitable.
Rule 476(j) governs suspensions. When a member is suspended under
Rule 476, such member is deprived during the term of the member's
suspension of all rights and privileges of membership. The expulsion of
a member terminates all membership rights and privileges.
Rule 476(k) addresses non-payment of fines and other sums due to
the Exchange. Under this rule, if any approved person or registered or
non-registered employee fails to pay any fine within 45 days after the
same is payable, such individual may, after written notice mailed to
such individual at either the member's office or last place of
residence as reflected in Exchange records, be summarily suspended from
association in any capacity with a member organization or have the
member's approval withdrawn until such fine is paid. The rule further
provides that any member, member organization or principal executive
that fails to pay a fine or any other sums due to the Exchange within
45 days is reported by the Exchange Treasurer to the Chairman of the
Exchange Board of Directors and, after written notice mailed to such
member, member organization or principal executive of such arrearages,
may be suspended by the Exchange Board of Directors until payment is
made.
An individual or organization may be proceeded against for any
offense other than that for which such individual or organization was
suspended. In addition, the suspension or expulsion of a member or
principal executive under the provisions of this rule creates a vacancy
in any office or position held by the member or principal executive.
Similarly, current Rule 309--Equities provides that any member, member
organization or principal executive that fails to pay a fee or any
other sums due to the Exchange (excluding a fine) within 45 days after
the same are payable shall be reported to the Chief Financial Officer
of the Exchange or designee who, after notice has been given to such
member, member organization or principal executive of such arrearages,
may suspend access to some or all of the facilities of the Exchange
until payment is made. Written suspension notices under both Rules
309--Equities and 476(k) are immediately effective upon such notice and
the rules provide no further process; upon payment of the fine or
amount due, the suspension is lifted.
Under Rule 476(l), the CEO may not require a review by the Exchange
Board of Directors under Rule 476 and is recused from deliberations and
actions of the Board with respect to such matters.
Rule 476.10 sets forth the Exchange's Sanctions Guidelines with
respect to certain options-related violations.\16\
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\16\ See note 14, supra.
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Current Rule 476A--Imposition of Fines for Minor Violations of Rules
Under Rule 476A(a), in lieu of commencing a disciplinary proceeding
under Rule 476, the Exchange may impose a fine not to exceed $5,000 on
any member, member organization, principal executive, approved person,
or registered or non-registered employee of a member or member
organization for violation of the rules listed in Rule 476A. Any fine
imposed pursuant to this rule and not contested is not publicly
reported, except as may be required by SEC Rule 19d-1 and as may be
required by any other regulatory authority.
Under Rule 476A(b), the person against whom a minor rule violation
fine is imposed is served with a written statement, signed by an
authorized officer or employee of the Exchange on behalf of the
Division or Department of the Exchange taking the action, setting forth
(i) the rule or rules alleged to have been violated; (ii) the act or
omission constituting each such violation; (iii) the fine imposed for
each such violation; and (iv) the date by which such determination
becomes final and such fine becomes due and payable to the Exchange, or
such determination must be contested as provided in Rule 476A(d). Such
date may not be less than 25 days after the date of service of the
written statement.
Under Rule 476A(c), if the person against whom a minor rule
violation fine is imposed pays the fine, such payment is deemed to be a
waiver by such person of such person's right to a disciplinary
proceeding under Rule 476 and any review of the matter by a Hearing
Panel or the Exchange Board of Directors.
Under Rule 476A(d), any person against whom a minor rule violation
is imposed may contest the Exchange's determination by timely filing a
written response meeting the requirements of an answer as provided in
Rule 476(d), at which point the matter becomes a disciplinary
proceeding subject to the provisions of Rule 476. In any such
disciplinary proceeding, if the Hearing Panel determines that the
person is guilty of the rule violation(s) charged, the Hearing Panel is
free to impose any one or more of the disciplinary sanctions provided
in Rule 476 and determine whether the rule violation(s) is minor in
nature. NYSE Regulation, the person charged, any member of the Exchange
Board of Directors, any member of the CFR, and any Executive Floor
Governor may require a review by the Board of any determination by the
Hearing Panel by proceeding in the manner described in Rule 476.
Under Rule 476A(e), the Exchange must prepare and announce to its
members and member organizations from time to time a listing of the
Exchange rules as to which the Exchange may impose minor rule violation
fines. Such listing also indicates the specific dollar amount that may
be imposed as a fine or may indicate the minimum and maximum dollar
amounts that may be imposed by the Exchange with respect to any such
violation. If the Exchange determines that any violation is not minor
in nature, the Exchange can proceed under Rule 476 rather than under
Rule 476A.
The remainder of Rule 476A sets forth the lists of rule violations
that may be treated as minor rule violations and fines, which may not
exceed $5,000. Part 1A sets forth a list of equities rule violations
and fines applicable thereto, and Part 1C sets forth a list of options
rule violations and fines applicable
[[Page 11317]]
thereto. Part 1D addresses certain late reports.
Current Rule 477--Retention of Jurisdiction and Failure To Cooperate
Under Rule 477(a), if, prior to termination, or during the period
of one year immediately following the receipt by the Exchange of
written notice of the termination, of a person's status as a member,
member organization, principal executive, approved person, or
registered or non-registered employee of a member or member
organization, the Exchange serves (as provided in Rule 476(d)) a
written notice on such person that it is making inquiry into, or serves
a Charge Memorandum on such person with respect to, any matter or
matters occurring prior to the termination of such person's status, the
Exchange may thereafter require such person to comply with any requests
of the Exchange to appear, testify, submit books, records, papers, or
tangible objects, respond to written requests and attend hearings in
every respect in conformance with the Rules of the Exchange in the same
manner and to the same extent as if such person had remained a member,
member organization, principal executive, approved person, or
registered or non-registered employee of a member or member
organization.
Under Rule 477(b), prior to termination, or during the period of
one year immediately following the receipt by the Exchange of written
notice of the termination, of a person's status as a member, member
organization, principal executive, approved person, or registered or
non-registered employee of a member or member organization, the
Exchange may, through the exercise of its jurisdiction, as described in
Rule 477(a), require such person to comply with any requests of an
organization or association included in Rule 476(a)(11) to appear,
testify, submit books, records, papers, or tangible objects, respond to
written requests and attend hearings in every respect in conformance
with the Exchange rules in the same manner and to the same extent as if
such person had remained a member, member organization, principal
executive, approved person, or registered or non-registered employee of
a member or member organization with respect to any matter or matters
occurring prior to the termination of such person's status.
Under Rule 477(c), if a former member, member organization,
principal executive, approved person, or registered or non-registered
employee of a member or member organization, provided such notice or
Charge Memorandum is or has been served, is adjudged guilty in a
proceeding under Rule 476 of having refused or failed to comply with
any such requirement, such person may be barred permanently, or for
such period of time as may be determined, or until such time as the
Exchange has completed its investigation into the matter or matters
specified in such notice or Charge Memorandum, has determined a
penalty, if any, to be imposed, and until the penalty, if any, has been
carried out.
Under Rule 477(d), following the termination of a person's status
as a member, member organization, principal executive, approved person,
or registered or non-registered employee of a member or member
organization, provided such notice or Charge Memorandum is or has been
served, such person may also be charged with having committed, prior to
termination, any other offense with which such person might have been
charged had such status not been terminated. Any such charges shall be
brought and determined in accordance with the provisions set forth in
Rule 476.
Proposed Rule Change
The Exchange proposes to adopt new Rule 8000 and 9000 Series, under
new Section 9B of the Office Rules titled ``Disciplinary Rules.'' \17\
These proposed new rules would be identical to the NYSE Rule 8000 and
9000 Series \18\ except that the Exchange would:
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\17\ Section 9A would be renamed ``Legacy Disciplinary Rules''
to distinguish the two sections.
\18\ The NYSE Rule 8000 and 9000 Series was based on the FINRA
Rule 8000 and 9000 Series. See 2013 Approval Order, 78 FR at 15394.
Like the NYSE Rule 8000 and 9000 Series, the proposed rule change
would provide for investigative and enforcement functions to be
performed by personnel and departments reporting to the Chief
Regulatory Officer (``CRO'') and by FINRA personnel and departments.
See NYSE Reintegration Facilitation Filing, 80 FR at 72462. As
discussed below, the proposed rule change also reflects
modifications proposed in the NYSE Reintegration Facilitation Filing
that the CRO rather than FINRA's Office of Disciplinary Affairs
(``ODA'') would be responsible for: (i) Authorizing issuance of a
complaint; (ii) accepting or rejecting acceptance, waiver, and
consent letters and minor rule violation plan letters; and (iii)
accepting or rejecting offers of settlement that are determined to
be uncontested before a hearing on the merits has begun.
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Retain its currently applicable list of minor rule
violations and accompanying fine levels in proposed Rules 9216(b) and
9217, rather than adopt the text of NYSE's minor rule violation plan;
\19\
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\19\ As discussed below, the Exchange would also make certain
technical and conforming changes to its rules relating to minor rule
violations. See text accompanying notes 50 and 51, infra.
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retain its options-related Sanctions Guidelines in Rule
476.10, with certain updates, and continue to apply them in sanctions
imposed under the proposed Rule 9000 Series (NYSE does not have
sanctions guidelines); \20\
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\20\ See note 14, supra.
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retain recently adopted provisions in Rule 476(f) relating
to appeals panels; and
make certain technical and conforming changes, including
changes to reflect the Exchange's equities and options membership.\21\
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\21\ These technical and conforming changes are to reference the
Exchange hearing board, rather than the NYSE hearing board, in
proposed Rule 9232; substitute the correct cross-references in
proposed Rules 8130, 9120(n), 9610(a), and 9810(a); define the term
``Board of Directors'' in proposed Rule 9120(b); and include the
terms ``member,'' ``member organization,'' ``ATP Holder,'' ``covered
person,'' and ``person'' defined in the proposed rule change or
elsewhere in the NYSE MKT rules where appropriate in the following
proposed rules so as to reflect the Exchange's equities and options
membership: 8110, 8130, 8210, 8211, 8310, 8311, 8320, 9001, 9110,
9120, 9216, 9232, 9268, 9310, 9521, 9522, 9551, 9552, 9554, 9555,
9556, 9558, 9559, 9610, and 9810.
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The Exchange also proposes to harmonize its rules for non-payment
of fees or other sums due to the Exchange, other than fines or monetary
sanctions, with the NYSE's rule by adopting new Rule 41. In particular,
the Exchange proposes to amend current Rule 476(k) to delete the phrase
``or any other sums due to the Exchange,'' and thereby limit Rule
476(k) to fines. The Exchange also proposes to delete current Rule
309--Equities, which authorizes the Exchange's Chief Financial Officer
to address non-payment of amounts due to the Exchange other than fines
and monetary sanctions. The Exchange proposes to adopt a new Rule 41 in
the General Rules that will mirror the text of Rule 309--Equities,
except that proposed Rule 41 would reference proposed Rule 8320 and
would apply to the Exchange's options and equities markets. Proposed
Rule 41 would also specifically state that failure to pay any fine
levied in connection with a disciplinary action shall be governed by
Rule 476(k) or Rule 8320, as applicable. By adopting this new rule
text, the Exchange would have a single rule applicable to both its
equities and options markets that is consistent with the counterpart
rule of its NYSE affiliate.
The new Rule 8000-9000 Series and new Rule 41 would apply to the
Exchange's equities and options markets.\22\
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\22\ Rule references have been added to Rule 0--Equities to make
clear that these proposed rules would apply to equities transactions
on the Exchange.
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Transition
The Exchange intends to announce the operative date of the new
rules at least 30 days in advance in an
[[Page 11318]]
Information Memorandum. To further facilitate an orderly transition
from the current rules to the new rules, the Exchange proposes that
certain matters already initiated under the current rules would be
completed under such rules. The proposed transition is similar to the
transition proposed when the NYSE adopted disciplinary rules based on
the FINRA Rule 8000 and 9000 Series in 2013.\23\
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\23\ See 2013 Approval Order, 78 FR at 15395.
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Specifically, the Exchange proposes that current Rule 475 would
continue to apply to proceedings for which a written notice had been
issued prior to the effective date of the new rules. Current Rules 476
and 476A would continue to apply with respect to a proceeding for which
a Charge Memorandum had been filed with the Hearing Board under Rule
476(d) prior to the effective date of the new rules. Current Rule 476
also would continue to apply to a matter for which a written
Stipulation and Consent had been submitted to a Hearing Officer prior
to the effective date of the new rules. Current Rules 475, 476, or 476A
would continue to apply until any such proceeding was final. In all
other cases, the proposed Rule 8000 and 9000 Series, as described
below, would apply.
Until the effective date, the Exchange could issue a written notice
of suspension for non-payment of a fine or other sum due to the
Exchange under current Rule 476(k), which would remain in effect until
payment was made. Thereafter, the Exchange would proceed against an
individual or entity subject to its jurisdiction that failed to pay a
fine or monetary sanction under proposed Rule 8320.
As noted above, current Rule 476(a)(1)-(11) also contains
substantive elements in addition to procedural elements. Specifically,
Rule 476(a)(1)-(11) contains a list of offenses for which the Exchange
can take disciplinary action. The proposed rule change would not alter
this substantive aspect of Rule 476(a). The Exchange could continue to
take disciplinary action against a member organization or other person
subject to its jurisdiction for committing any of these substantive
violations; following the transition described above, the Exchange
would bring disciplinary cases for such offenses under the proposed
Rule 9000 Series.
The Sanctions Guidelines in Rule 476.10 relating to options rule
violations would continue to apply to proceedings under both Rule 476
and the Rule 9000 Series. The Exchange proposes to amend Rule 476.10 to
update certain cross-references to options rules.
Similarly, the retention of jurisdiction provisions of Rule 477
would continue to apply to any member or member organization that
resigned or had its membership canceled or revoked and any person whose
status as a person subject to the Exchange's jurisdiction was
terminated or whose registration was revoked or canceled if such member
organization or person had been served with a Charge Memorandum or
written notice of inquiry pursuant to Rule 477 prior to the effective
date of the new rules. As described above, current Rule 477 generally
provides that the Exchange retains jurisdiction for one year after such
status is terminated and such jurisdiction continues if during that
one-year period the Exchange has provided written notice that it is
making inquiry into matters that arose prior to termination. In all
other cases, the retention of jurisdiction provisions of proposed Rule
8130 would apply, which would be substantially the same as the
counterpart NYSE rule. Under the proposed rule change, as described
below, the Exchange would retain jurisdiction to file a complaint
against any entity or individual subject to its jurisdiction for two
years after such status was terminated, and the proposed Rule 8000
Series and Rule 9000 Series generally would apply.\24\
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\24\ In light of the proposed rule changes with respect to
retention of jurisdiction and non-payment of monies due to the
Exchange, the Exchange proposes to delete Rule 353A(b) of the Office
Rules because it is no longer necessary. The rule provides that
every ATP Holder and any successor-in-interest thereto, and each ATP
Holder whose ATP is terminated due to expulsion, suspension without
reinstatement, death, declaration of incompetency, dissolution,
winding up, or other cessation of business, must be current in all
filings and payments of dues, fees and charges relating to that ATP,
including, without limitation, filing fees and charges required by
the Commission and the Securities Investor Protection Corporation.
The rule further provides that if any ATP Holder, or any successor-
in-interest thereto, fails to make all such filings, or to pay all
such dues, fees and charges, the Secretary of the Exchange retains
such jurisdiction over such former ATP Holder to require such
filings and collect such outstanding dues, fines and charges until
such time as they have been filed and/or paid. The Exchange believes
that it will retain sufficient authority over ATP Holders under the
proposed rule change to address such situations.
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The Exchange proposes to add italicized language to Rules 475, 476,
476A and 477 describing the proposed applicability and transition of
each rule as described herein.
When the transition is complete and there are no longer any member
organizations or persons who would be subject to Rules 475, 476, 476A,
and 477, the Exchange intends to submit a proposed rule change that
would delete any investigative and disciplinary provisions that are no
longer needed. Other provisions would be retained and moved to an
appropriate place in the Exchange's rules.
Terms and Definitions Used Throughout the Proposed Rule 8000 and 9000
Series
To continue the current coverage of the NYSE MKT disciplinary rules
and conform to the NYSE rules' terminology, the proposed rule change
would use the terms ``member,'' ``member organization'' and ``covered
person'' to describe the persons to which the proposed Rule 8000 and
9000 Series apply. The term ``covered person,'' referenced in proposed
Rule 8120(b) and defined in proposed Rule 9120(g), would include a
member, principal executive, approved person, registered or non-
registered employee of a member organization or an ATP Holder,\25\ or
other person (excluding a member organization) subject to the
jurisdiction of the Exchange.\26\ By defining and utilizing the term
``covered person'' in this manner, the Exchange would effect no
substantive change in the scope of persons subject to the Exchange's
disciplinary rules.\27\
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\25\ Current Rule 476(a) contains a reference to a registered or
non-registered employee of a member. Under Rule 2(a)--Equities,
however, a ``member'' is a natural person associated with a member
organization; thus, equities members do not have employees. Such
persons would be employees of the member organization and thus
covered by the proposed definition of ``covered person.'' An ``ATP
Holder,'' on the other hand, may be a natural person and may have
registered or non-registered employees. See Rule 900.2NY(5).
Therefore, to reflect the fact that equities members do not have
employees but options members may, the Exchange proposes to use the
phrase ``associated with a member organization or ATP Holder'' in
the proposed definition of ``covered person.'' In addition, the
Exchange proposes to use the term ``ATP Holder,'' which is defined
in Rule 900.2NY(5), where appropriate in the proposed rules. As
discussed below in connection with the proposed Rule 9520 Series,
which governs eligibility proceedings for persons subject to
statutory disqualifications, references to ATP Holders in the
context of proposed Rules 9520 through 9527 would apply to those
options members that have employees.
\26\ References to ``member'' and ``member organization'' as
those terms are used in the rules of the Exchange include ATP
Holders. See Rules 18, 24 & 900.2NY(5). As such, ATP Holders would
be covered by the proposed terminology.
\27\ The Exchange notes that the term ``allied member,'' which
historically referred to certain general partners, principal
executives, or control persons of a member organization, has been
replaced in the Exchange's rules with the term ``principal
executive.'' See Securities Exchange Act Release Nos. 59022
(November 26, 2008), 73 FR 73683 (December 3, 2008) (SR-NYSEALTR-
2008-10) and 69822 (June 21, 2013), 78 FR 38769 (June 27, 2013) (SR-
NYSEMKT-2013-58). Former allied members are referenced in proposed
Rule 9232 because they are eligible to serve on the Exchange hearing
board.
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[[Page 11319]]
Proposed Rule 8000 Series
Proposed Rule 8001 would include the effective date of the proposed
rule change for the Rule 8000 Series, noting the exception for the
retention of jurisdiction dates in proposed Rule 8130 and the
transition from current Rule 476(k) to proposed Rule 8320, as described
above. The text of NYSE Rules 8110 through 8330 would be adopted as
Rules 8110 through 8330.\28\
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\28\ NYSE does not have a Rule 8212, 8213, or 8312. In order to
maintain consistency with NYSE's rule numbering, the Exchange
proposes to designate proposed Rules 8212, 8213, and 8312 as
``Reserved.''
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Proposed Rule 8110 would require an NYSE MKT member or member
organization to provide access to the Exchange's rules to its
customers. Although there is no comparable requirement in the current
rules, the Exchange currently makes available its rules on the
Exchange's Web site.\29\ Proposed Rule 8110 is the same as NYSE Rule
8110 except for the inclusion of ``member'' to reflect the Exchange's
membership.
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\29\ The Exchange's rules are available at https://wallstreet.cch.com/MKT/Rules/.
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Proposed Rule 8120 would provide cross-references to definitions of
the terms ``Adjudicator,'' ``covered person'' and ``Regulatory Staff''
in proposed Rule 9120. Similarly, NYSE Rule 8120 cross-references the
same three definitions. Proposed Rule 8120 is simply technical in
nature, and is the same as the NYSE Rule.
Proposed Rule 8130 would set forth retention of jurisdiction
provisions that are substantially the same as NYSE Rule 8130, except
for the following conforming changes: ``Member'' would be added to
paragraph (d); the cross-references in paragraph (b)(1) would be
conformed to NYSE MKT's rules; and ``ATP Holder'' \30\ would be added
to paragraphs (a), (b) and (c). Under the proposed rule change, the
Exchange would retain jurisdiction to file a complaint against an
entity or individual for two years after such person's status as a
member organization or covered person is terminated. This differs from
current Rule 477, which provides that the Exchange retains jurisdiction
after the termination of status as long as a Charge Memorandum or
written notice of inquiry is served within one year after termination
of such status. The Exchange believes that the period under the
proposed rule is appropriate because it would harmonize the Exchange's
rule with NYSE's rule and would provide a fixed time period for a
complaint to be brought, which provides repose to respondents while
still providing Exchange staff with sufficient time to determine if a
complaint should be brought.
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\30\ See notes 24-26, supra, and accompanying text.
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Proposed Rule 8210 would set forth procedures for the provision of
information and testimony and the inspection and copying of books by
the Exchange, as amended by the NYSE in 2013.\31\ Proposed Rule 8210 is
the same as NYSE Rule 8210 except that references to ``member'' and
``ATP Holder'' would be added where appropriate to reflect the
Exchange's membership.
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\31\ See Securities Exchange Act Release No. 69963 (July 10,
2013), 78 FR 42573 (July 16, 2013) (SR-NYSE-2013-49).
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Proposed Rule 8210(a) would require a member organization or
covered person to provide information and testimony and permit the
inspection of books, records, and accounts that are in such member
organization's or covered person's possession, custody or control for
the purpose of an investigation, complaint, examination, or proceeding
authorized by the Exchange's rules. As noted above, under proposed Rule
8130, the Exchange would retain jurisdiction over a member organization
or covered person to file a complaint or otherwise initiate a
proceeding for two years after such member organization's or covered
person's status is terminated \32\ and as such can continue to obtain
information and testimony during such period and thereafter if a
complaint or proceeding is timely filed. Currently the Exchange also
requires persons subject to its jurisdiction to provide books and
records and appear and testify upon request under current Rules 475(e),
476(a)(11), and 477(a) and (b), and in Rule 31 in the General Rules. In
addition, as noted above, the Exchange retains jurisdiction after
termination of a registration as long as a Charge Memorandum or written
notice of inquiry has been served within one year following termination
of such status. The Exchange believes the proposed rule is appropriate
because it would harmonize the Exchange's rules with respect to
jurisdiction and obtaining books and records from member organizations
and covered persons with the NYSE's rules.
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\32\ This would include individual members since the definition
of ``covered person'' in proposed Rule 9120 includes ``members.''
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The Exchange also proposes new rule text in Rule 8210(a), recently
proposed by NYSE, 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 members and member organizations.\33\ This
requirement is consistent with longstanding policies and practices at
the Exchange. The proposed provision 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
commitment to performing its regulatory functions under its
disciplinary rules in an independent and impartial manner.\34\
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\33\ See NYSE Reintegration Facilitation Filing, 80 FR at 51337.
The inclusion of ``members and member organizations'' would conform
the proposed rule to the Exchange's membership.
\34\ See NYSE Arca Equities Rule 10.2(a); NYSE Arca Options Rule
10.2(a).
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Proposed Rule 8210(b) would authorize Exchange staff to enter into
regulatory cooperation agreements with a domestic federal agency or
subdivision thereof or a foreign regulator. Current Rule 27--Equities
permits the Exchange to enter into agreements with domestic or foreign
SROs or associations, contract markets and registered futures
associations, but does not specify domestic federal agencies or
subdivisions thereof or foreign regulators; because the scope of
current Rule 27--Equities is different, the Exchange would retain it
along with proposed Rule 8210(b).\35\ Similarly, current Commentary .02
of Rule 31 in the General Rules provides that the Exchange may enter
into agreements with domestic and foreign SROs providing for the
exchange of information and other forms of mutual assistance for market
surveillance, investigative, enforcement and other regulatory purposes.
Because current Rule 31.02 differs in scope from proposed Rule 8210(b),
the Exchange would retain it along with the proposed rule.\36\
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\35\ Rule 27--Equities also cross-references Rule 476(a)(11),
which enumerates certain violations, including the violation of
refusing or failing to comply with a request of the Exchange, or a
domestic or foreign SRO or association, contract market, or
registered futures association with which the Exchange has entered
into an agreement or to furnish information to or to appear or
testify before the Exchange or such other organization or
association. The proposed rule change would not alter this
substantive aspect of Rule 476(a)(11) and as such the cross-
reference in current Rule 27--Equities would not be amended.
\36\ As discussed below, the rest of Rule 31, which concerns
requests for books and records and testimony as well as extensions
of time to comply, would be deleted and Rule 31 would be re-named
``Regulatory Cooperation.''
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The remainder of proposed Rule 8210 would set forth certain
procedures for investigations. Proposed Rule 8210(c) would require
member organizations and covered persons to comply with information
requests under the Rule.
[[Page 11320]]
This requirement is substantially the same as current Rules 475(e),
476(a)(11), and 477(a) and (b), as noted above.
Proposed Rule 8210(d) would provide that a notice under this Rule
would be deemed received by the member organization or covered person
(including a currently or formerly registered person) to whom it is
directed by mailing or otherwise transmitting the notice to the last
known business address of the member organization or the last known
residential address of the covered person as reflected in the Central
Registration Depository (``CRD''). With respect to a person currently
associated with a member organization or ATP Holder in an unregistered
capacity, a notice under this Rule would be deemed received by the
person by mailing or otherwise transmitting the notice to the last
known business address of the member organization or ATP Holder as
reflected in the CRD. With respect to a person subject to the
Exchange's jurisdiction who was formerly associated with a member
organization or ATP Holder in an unregistered capacity, a notice under
this Rule would be deemed received by the person upon personal service,
as set forth in Rule 9134(a)(1).
If the Adjudicator or Exchange staff responsible for mailing or
otherwise transmitting the notice to the member organization or covered
person had actual knowledge that the address in the CRD is out of date
or inaccurate, then a copy of the notice would be mailed or otherwise
transmitted to: (1) The last known business address of the member
organization or the last known residential address of the covered
person as reflected in the CRD; and (2) any other more current address
of the member organization or covered person known to the Adjudicator
or Exchange staff responsible for mailing or otherwise transmitting the
notice. Current Rules 475(e), 476(a)(11), and 477(a) and (b), and Rule
31 in the General Rules, which require persons subject to the
Exchange's jurisdiction to provide books and records and appear and
testify upon the Exchange's request, do not specify the address to
which a notice of such request must be directed. The additional
specificity in proposed Rule 8210(d) would afford member organizations
and covered persons additional procedural protections in that respect.
If the Adjudicator or Exchange staff responsible for mailing or
otherwise transmitting the notice to the member organization or covered
person knew that the member organization or covered person was
represented by counsel regarding the investigation, complaint,
examination, or proceeding that was the subject of the notice, then the
notice would be served upon counsel by mailing or otherwise
transmitting the notice to the counsel in lieu of the member
organization or covered person, and any notice served upon counsel
would be deemed received by the member organization or covered person.
Proposed Rule 8210(e) would provide that in carrying out its
responsibilities under this Rule, the Exchange may, as appropriate,
establish programs for the submission of information to the Exchange on
a regular basis through a direct or indirect electronic interface
between the Exchange and members or member organizations. Proposed Rule
8210(f) would permit a witness to inspect the official transcript of
the witness's own testimony, and permit a person who has submitted
documentary evidence or testimony in an Exchange investigation to get a
copy of the person's documentary evidence or the transcript of the
person's testimony under certain circumstances. Finally, proposed Rule
8210(g) would require any member organization or covered person who in
response to a request pursuant to this Rule provided the requested
information on a portable media device to ensure that such information
was encrypted. The Exchange's current rules do not contain comparable
provisions.
Proposed Supplementary Material 8210.01 would provide that the rule
requires member organizations and covered persons to provide Exchange
staff and Adjudicators with requested books, records and accounts. In
specifying the books, records and accounts ``of such member
organization or covered person,'' paragraph (a) of the rule would refer
to books, records and accounts that the broker-dealer or its associated
persons make [sic] or keep [sic] relating to its operation as a broker-
dealer or relating to the person's association with the member
organization or ATP Holder. This would include but is not limited to
records relating to an Exchange investigation of outside business
activities, private securities transactions or possible violations of
just and equitable principles of trade, as well as other Exchange rules
and the federal securities laws. It would not ordinarily include books
and records that were in the possession, custody or control of a member
organization or covered person, but whose bona fide ownership was held
by an independent third party and the records were unrelated to the
business of the member organization or covered person. The rule would
require, however, that a member organization or covered person must
make available its books, records or accounts when these books, records
or accounts are in the possession of another person or entity, such as
a professional service provider, but the member organization or covered
person controlled or had a right to demand them. The Exchange's current
rules do not have comparable provisions.
Proposed Rule 8211 would set forth the procedures for the automated
submission of trading data requested by the Exchange (commonly referred
to as ``blue sheet'' data) for transactions on the Exchange. The
proposed Rule is the same as its NYSE counterpart except for the
inclusion of ``ATP Holder.''
The procedures set forth in proposed Rule 8211 are substantially
the same as current Rule 956.1NY and Rule 410A--Equities. Because FINRA
performs surveillance functions based on the information gathered as a
result of these rules, the Exchange believes that the procedures for
the automated submission of trading data should be harmonized with the
FINRA and NYSE rules. Therefore, the Exchange proposes to delete
current Rule 956.1NY and Rule 410A--Equities and adopt proposed Rule
8211 instead, which is identical to NYSE Rule 8211.\37\
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\37\ The Exchange is not proposing to adopt FINRA Rule 8213,
which provides for the automated submission of trading data for non-
exchange listed securities, and has marked it as ``Reserved.''
Because the Exchange does not have regulatory responsibility for
trading in non-Exchange listed securities, it is not necessary for
the Exchange to incorporate FINRA Rule 8213 into its rules.
Moreover, the Exchange recently deleted Rule 410B--Equities, which
required the reporting of off-Exchange transactions in Exchange-
listed securities that are not reported to the Consolidated Tape, as
duplicative of existing regulatory reporting requirements. See
Securities Exchange Act Release No. 76982 (January 28, 2016) (SR-
NYSEMKT-2015-80).
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Proposed Rule 8310 would set forth the range of sanctions that
could be imposed in connection with disciplinary actions under the
proposed rule change. Such sanctions would include censure, fine,
suspension, revocation, bar, expulsion, or any other fitting sanction.
The sanctions also are substantially the same as the permitted
sanctions set forth in current Rule 476(a)(11), which are expulsion;
suspension; limitation as to activities, functions, and operations,
including the suspension or cancellation of a registration in, or
assignment of, one or more stocks; fine; censure; suspension or bar
from being associated with any member or member organization; or any
other fitting sanction. Although there is some difference between the
text of the current and proposed rules, the Exchange believes that in
practice the
[[Page 11321]]
range of sanctions is the same due to the inclusion in both rules of
the general category ``any other fitting sanction.''
Proposed Rule 8310 would also allow the Exchange to impose a
temporary or permanent cease and desist order against a member
organization or covered person. This new authority, not currently
available under the Exchange's rules, is described in further detail
below in the section concerning the proposed Rule 9800 Series. Proposed
Rule 8310 is the same as NYSE Rule 8310 except for the inclusion of
references to ``member'' and ``ATP Holders.''
Proposed Rule 8311 would provide that if the Commission or the
Exchange imposed a suspension, revocation, cancellation or bar on a
covered person, a member organization or ATP Holder may not permit such
person to remain associated, and, in the case of a suspension, may not
pay any remuneration that results from any securities transaction. The
proposed rule is similar in result to current Rule 476(j), which
provides that a member will be deprived of all rights and privileges of
membership during a suspension and that an expulsion of a member
terminates all rights and privileges arising out of the membership.
However, the proposed rule is broader because it applies to all covered
persons subject to a suspension, revocation, cancellation or bar and
more explicitly prohibits the payment of compensation in the case of a
suspension. Except for references to ATP Holders where appropriate, the
proposed Rule is the same as NYSE Rule 8311.
Proposed Rule 8313 would provide that the Exchange will publish all
final disciplinary decisions issued under the proposed Rule 9000
Series, other than minor rule violations, on its Web site.\38\ This is
the Exchange's longstanding practice, although it does not have a
current rule with respect to it. The Exchange believes that its current
practice is fair and non-discriminatory and as such proposes to
continue it. The proposed Rule is identical to the NYSE Rule.
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\38\ Consistent with current practice, a determination in a
statutory disqualification proceeding under the proposed Rule 9520
Series would not be considered a disciplinary decision and thus
would not be subject to publication.
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Proposed Rule 8320(a) would provide that all fines and other
monetary sanctions shall be paid to the Treasurer of the Exchange. Such
monies could not be used for commercial purposes.\39\ Rather, the
Exchange uses fine monies for regulatory purposes.\40\
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\39\ See Article IV, Section 4.05 of the Seventh Amended and
Restated Operating Agreement of NYSE MKT LLC, available at https://www.nyse.com/publicdocs/nyse/regulation/nyse-mkt/Seventh_Amended_and_Restated_Operating_Agreement_of_NYSE_MKT_LLC.pdf.
\40\ See Securities Exchange Act Release No. 58673 (September
29, 2008), 73 FR 57707, 57717 (October 3, 2008) (SR-NYSE-2008-60 and
SR-Amex-2008-62) (approving merger whereby the Exchange's
predecessor, the American Stock Exchange LLC, a subsidiary of The
Amex Membership Corporation, became a subsidiary of NYSE Euronext).
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Proposed Rule 8320(b) and (c) would permit the Exchange, after
seven days' notice in writing, to suspend or expel a member or member
organization from membership or revoke the registration of a covered
person for failure to pay a fine. The text of the proposed rule is the
same as the text of the NYSE's rule except for the inclusion of
``member'' in subpart (b) to reflect the Exchange's membership.
As noted above, under current Rule 476(k), a person may be
summarily suspended for failing to pay a fine within a 45-day notice
period; a membership cancellation or bar also could be imposed in a
regular disciplinary proceeding for non-payment of a fine. FINRA's
rules do not set forth a notice period but, as a matter of practice,
FINRA typically provides a respondent at least 30 days to pay a fine
after the conclusion of a proceeding. As the NYSE explained in
proposing its Rule 8320, a 30-day period, along with the seven days'
notice provided under NYSE Rule 8320, provides respondents with an
adequate amount of time to pay a fine and avoid any further sanction by
the Exchange.\41\ The Exchange proposes to follow the same reasoning
for its Rule 8320. For clarity regarding the transition, proposed Rule
8001 would provide that the Exchange may issue a written notice of
suspension for non-payment of a fine under Rule 476(k) until the
effective date of the proposed rule change, and thereafter proposed
Rule 8320 would apply. In addition, Rule 8320(d) would provide that the
Exchange may exercise the authority set forth in Rules 8320(b) and (c)
with respect to non-payment of a fine, monetary sanction, or cost
assessed in a disciplinary action initiated under Rule 476 for which a
decision was issued on or after the transition date.
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\41\ See 2013 Notice, 78 FR at 5222.
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Proposed Rule 8330 would provide that a disciplined member
organization or covered person may be assessed the costs of a
proceeding. There is no comparable requirement in the current rules,
although the Exchange may assess costs as a ``fitting sanction'' under
current Rule 476(a)(11). The proposed Rule is the same as the text of
the NYSE Rule.
Proposed Rule 9000 Series
As noted above, the text of the Rule 9000 Series would be based on
the text of the NYSE Rule 9000 Series, with certain changes noted
below.
Proposed Rules 9001 Through 9120
Proposed Rule 9001 would set forth the effective date of the rule,
noting the transitional provisions described above. The text of
proposed Rule 9001 would be based on the proposed introductory text of
Rule 476, except that the transition with respect to proposed Rule 8320
would be reflected in proposed Rule 8001 as described above.
Proposed Rule 9110 would state the types of proceedings to which
the proposed Rule 9000 Series would apply (each of which is described
below) and the rights, duties, and obligations of member organizations
and covered persons, and would set forth the defined terms and cross-
references. The Exchange also proposes to adopt rule text in Rule
9110(a), 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 members and member organizations. As discussed above, this
requirement is already being met and is consistent with longstanding
policies and practices at the Exchange, and the proposed provision
would also be consistent with rules currently in effect for the
equities and options markets of the Exchange's affiliate.\42\ The
Exchange does not have a comparable rule. Except for the inclusion of
``member,'' the proposed Rule is the same as NYSE Rule 9110.
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\42\ See notes 33 and 34, supra, and accompanying text.
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Proposed Rule 9120 would set forth definitions. The definitions are
identical to those in NYSE Rule 9120, except that the term ``Board of
Directors'' would be defined in paragraph (b), rather than including a
cross-reference to another rule; the term ``covered person'' in
proposed paragraph (g) would include a reference to ATP Holders; the
cross-reference in the definition of ``Exchange'' in proposed paragraph
(n) would be conformed to NYSE MKT's rules; and the definition of
``Party'' in proposed paragraph (w) would include a reference to ``ATP
Holder'' to conform to the proposed Rule 9520 Series. The Exchange also
proposes to include definitions recently added to NYSE Rule 9120,
including defined terms ``Enforcement'' and ``Regulatory
[[Page 11322]]
Staff.'' \43\ More specifically, the Exchange proposes the following:
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\43\ See NYSE Reintegration Facilitation Filing Approval Order,
80 FR at 72461. The Exchange also proposes to incorporate those
defined terms in proposed Rules 9131, 9146, 9211, 9212, 9213, 9215,
9216, 9251, 9253, 9264, 9269, 9270, 9551, 9552, 9554, 9556, 9810,
9820, and 9830.
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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.\44\
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\44\ 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 proposes to include definitions of
``Interested Staff'' and ``Party'' in proposed Rules 9120(t) and
9120(w), which include the terms ``Regulatory Staff'' and
``Enforcement,'' respectively, and are identical to the definitions in
the NYSE Rules.
The Exchange proposes to number the definitions in Rule
9120 to correspond with the NYSE Rules.
Proposed Rules 9130 Through 9138
Proposed Rules 9130 through 9138 would govern the service of a
complaint or other procedural documents under the rules. The proposed
Rules are the same as NYSE Rules 9130 through 9138.
Proposed Rule 9131 would set forth the requirements for serving a
complaint or document initiating a proceeding. Proposed Rule 9132 would
cover the service of orders, notices, and decisions by an Adjudicator.
Proposed Rule 9133 would govern the service of papers other than
complaints, orders, notices, or decisions. Proposed Rule 9134 would
describe the methods of service and the procedures for service.
Proposed Rule 9135 would set forth the procedure for filing papers with
an Adjudicator. Proposed Rule 9136 would govern the form of papers
filed in connection with any proceeding under the proposed Rule 9200
and 9300 Series. Proposed Rule 9137 would state the requirements for
and the effect of a signature in connection with the filing of papers.
Finally, proposed Rule 9138 would establish the computation of time.
By comparison, current Rule 476(d), which governs service of
process, is generally less detailed and, as noted above, provides that
service is deemed effective by personal service of the Charge
Memorandum, or by leaving the same either at the respondent's last
known office address during business hours or the respondent's last
place of residence as reflected in Exchange records, or upon mailing
same to the respondent at such office address or place of residence.
Under proposed Rule 9134, papers served on a natural person could
be served at the natural person's residential address, as reflected in
CRD, if applicable. When a Party or other person responsible for
serving such person had actual knowledge that the natural person's CRD
address was out of date, duplicate copies would be required to be
served on the natural person at the natural person's last known
residential address and the business address in CRD of the entity with
which the natural person is employed or affiliated. Papers could also
be served at the business address of the entity with which the natural
person is employed or affiliated, as reflected in CRD, or at a business
address, such as a branch office, at which the natural person is
employed or at which the natural person is physically present during a
normal business day. The Hearing Officer could waive the requirement of
serving documents (other than complaints) at the addresses listed in
CRD if there were evidence that these addresses were no longer valid
and there was a more current address available. If a natural person
were represented by counsel or a representative, papers served on the
natural person, excluding a complaint or a document initiating a
proceeding, would be required to be served on the counsel or
representative.
Similarly, under proposed Rule 9134, papers served on an entity
would be required to be made by service on an officer, a partner of a
partnership, a managing or general agent, a contact employee as set
forth on Form BD, or any other agent authorized by appointment or by
law to accept service. Such papers would be required to be served at
the entity's business address as reflected in CRD, if applicable;
provided, however, that when the Party or other person responsible for
serving such entity had actual knowledge that an entity's CRD address
was out of date, duplicate copies would be required to be served at the
entity's last known address. If an entity were represented by counsel
or a representative, papers served on such entity, excluding a
complaint or document initiating a proceeding, would be required to be
served on such counsel or representative.
The Exchange's current rules do not explicitly permit service of a
Charge Memorandum or other document on a respondent's counsel or other
authorized representative. The proposed rule change would accommodate
respondents who have retained counsel and have authorized them to
accept service. The proposed rule change also would harmonize the
Exchange's rules with many states' Rules of Professional Conduct for
attorneys, which generally require that, once a person retains an
attorney, unless the attorney specifically provides otherwise, all
communications be directed to such attorney.\45\
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\45\ See, e.g., American Bar Association Model Rule of
Professional Conduct 4.2 (Communication with Person Represented by
Counsel) (``ABA Rule 4.2''). ABA Rule 4.2 provides that ``[i]n
representing a client, a lawyer shall not communicate about the
subject of the representation with a person the lawyer knows to be
represented by another lawyer in the matter, unless the lawyer has
the consent of the other lawyer or is authorized to do so by law or
a court order.'' Many states have rules regarding communication with
a person represented by counsel that are based on ABA Rule 4.2.
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The Exchange believes that these more detailed procedures for
service of process would increase the likelihood of successful service
of process while providing appropriate due process protections to its
member organizations and covered persons.
Proposed Rules 9140 Through 9148
Proposed Rules 9140 through 9148 would contain various rules
relating to the conduct of disciplinary proceedings. The proposed Rules
are the same as NYSE Rules 9140 through 9148.
Proposed Rule 9141 would govern appearances in a proceeding,
notices of appearance, and representation. Proposed Rule 9141 would
permit a respondent to represent himself or be represented by an
attorney, just as is permitted under current Rule 476(h). Current Rule
476(h) is more general, in that it permits a respondent to be
represented by an attorney or other representative, while proposed Rule
9141 is more specific in that it permits a respondent to be represented
by an attorney admitted to practice in the United States, permits a
partnership to be represented by a partner, and permits a corporation,
trust, or association to be represented by an officer of such entity.
Proposed Rule 9141 also requires an attorney or representative to file
a notice of appearance, which is not required under current Exchange
rules.
In addition, proposed Rule 9141, in conformance with a recent NYSE
amendment and based on FINRA's
[[Page 11323]]
counterpart rule,\46\ would provide that no former Regulatory Staff
shall, within a period of one year immediately following termination of
employment with the Exchange or FINRA, make an appearance before an
Adjudicator on behalf of any other person in any proceeding under the
Rule 9000 Series. 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 Exchange believes that once Regulatory Staff reporting
to the CRO directly perform market surveillance, investigation and
enforcement functions following termination of the Intercompany RSA,
such a prohibition would help prevent potential conflicts or appearance
of conflicts of interest. Current Rule 476 does not address appearances
by former staff.
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\46\ See NYSE Reintegration Facilitation Filing Notice, 80 FR at
51337; Approval Order, 80 FR at 72462.
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Proposed Rule 9142 would require an attorney or representative to
file a motion to withdraw. There is no current comparable Exchange
rule.
Proposed Rule 9143(a) would prohibit certain ex parte
communications. Under proposed Rule 9143(b), an Adjudicator
participating in a decision with respect to a proceeding, or an
Exchange employee participating or advising in the decision of an
Adjudicator, who received, made, or knowingly caused to be made a
communication prohibited by the Rule would be required to place in the
record of the proceeding (1) all such written communications; (2)
memoranda stating the substance of all such oral communications; and
(3) all written responses and memoranda stating the substance of all
oral responses to all such communications.
Under proposed Rule 9143(c), upon receipt of a prohibited
communication made or knowingly caused to be made by any Party, any
counsel to or representative of a Party, or any Interested Staff, the
Exchange or an Adjudicator may order the Party responsible for the
communication, or the Party who may benefit from the ex parte
communication made, to show cause why the Party's claim or interest in
the proceeding should not be dismissed, denied, disregarded, or
otherwise adversely affected by reason of such ex parte communication.
All participants in a proceeding could respond to any allegations or
contentions contained in a prohibited ex parte communication placed in
the record, and such responses would be placed in the record.
Under proposed Rule 9143(d), in a disciplinary proceeding governed
by the Rule 9200 Series and the Rule 9300 Series, the prohibitions of
the Rule would apply beginning with the authorization of a complaint as
provided in Rule 9211, unless the person responsible for the
communication had knowledge that the complaint would be authorized, in
which case the prohibitions would apply beginning at the time of his or
her acquisition of such knowledge. Under proposed Rule 9143(e), there
would be a waiver of the ex parte prohibition in the case of an offer
of settlement, letter of acceptance, waiver and consent, or minor rule
violation plan letter. There is no current comparable rule.
Proposed Rule 9144 would establish the separation of functions for
Interested Staff and Adjudicators and provide for waivers. There is no
current comparable rule.
Proposed Rule 9145 would provide that formal rules of evidence
would not apply in any proceeding brought under the proposed Rule 9000
Series. NYSE MKT does not have a current comparable rule that
explicitly makes such a statement, although in practice the result is
the same--formal rules of evidence do not apply to current NYSE MKT
disciplinary proceedings.
Proposed Rule 9146 would govern motions a Party may make and
requirements for responses and formatting. A Party would be permitted
to make written and oral motions, although an Adjudicator could require
that a motion be in writing. An opposition to a written motion would
have to be filed within 14 days, but the moving Party would have no
right to reply, unless an Adjudicator so permits, in which case such
reply generally would be due within five days. Proposed Rule 9146 also
would permit a Party to move for a protective order. There is no
current comparable rule that contains such detail. Current Rule 476(c)
simply provides that the Chief Hearing Officer or a Hearing Officer may
resolve any substantive legal motions. The Exchange believes that the
more detailed provisions of the proposed rule would provide additional
clarity to all Parties to a proceeding.
Proposed Rule 9147 would provide that Adjudicators may rule on
procedural matters. The proposed rule is similar to current Rule
476(c), which provides that the Chief Hearing Officer or a Hearing
Officer may resolve any procedural matters. However, the Exchange's
current rules do not explicitly provide for the Exchange Board of
Directors (who are included in the proposed definition of
``Adjudicator'') ruling on procedural matters.
Finally, proposed Rule 9148 would generally prohibit interlocutory
review, except as provided in proposed Rule 9280 for contemptuous
conduct. Similarly, current Rule 476(c) provides that there is no
interlocutory appeal to the Exchange Board of Directors.
Proposed Rule 9150
Proposed Rule 9150 would provide that a representative can be
excluded by an Adjudicator for improper or unethical conduct. The
proposed rule also is substantially the same as current Rule 476(h),
which provides that the Hearing Board can exclude a representative for
improper conduct in a proceeding, and is the same as NYSE Rule 9150.
Proposed Rule 9160
Proposed Rule 9160 would provide that no person may act as an
Adjudicator if he or she has a conflict of interest or bias, or
circumstances exist where his or her fairness could reasonably be
questioned. In such case, the person must recuse himself or herself, or
may be disqualified. The proposed rule would cover the recusal or
disqualification of an Adjudicator, the Chair of the Exchange Board of
Directors, or a Director. Current Rule 22--Equities similarly prohibits
a person from participating in an adjudication or consideration of a
matter if he or she has a personal interest, and would apply during the
transition period to proceedings under the current rules. The Exchange
believes that the broader text of the proposed rule could help to
increase the fairness of its proceedings and also cover matters
involving the Exchange's options market. Proposed Rules 9160(b), (c),
and (d) are designated as ``Reserved'' to maintain consistency with
NYSE's rule numbering. The proposed Rule is the same as the NYSE Rule.
Proposed Rules 9200 Through 9212
Proposed Rule 9200 would cover disciplinary proceedings. Proposed
Rule 9211 would permit Enforcement to request the authorization of the
CRO to issue a complaint against a member organization or covered
person, thereby commencing a disciplinary proceeding. The proposed Rule
is the same as NYSE Rule 9211. The complaint would replace the Charge
Memorandum currently used under Rule 476(d), as described above, which
requires that the specific charges against the respondent in the form
of a written statement be
[[Page 11324]]
signed by an authorized officer or employee of the Exchange, or an
authorized employee of another self-regulatory organization.
Proposed Rule 9212 would set forth the requirements of the
complaint, amendments to the complaint, withdrawal of the complaint,
and service of the complaint. The proposed rule would also permit the
Chief Hearing Officer to select one Floor-Based Panelist, who would be
a person who is, or, if retired, was, active on the Floor of the
Exchange, to serve on a Hearing Panel if the complaint alleges at least
one cause of action involving activities on the Floor of the Exchange.
The proposed rule change would be consistent with the Exchange's
practice under current Rule 476(b), which provides that in any
disciplinary proceeding involving activities on the Floor of the
Exchange, no more than one of the persons serving on the three-person
Hearing Panel may be, or, if retired, may have been, active on the
Floor of the Exchange. Proposed Rule 9212 is the same as the
counterpart NYSE Rule.
Under the proposed rule change, the form of the complaint also
would be more prescribed than under current Rule 476. Current Rule 476
also does not address the amendment or withdrawal of complaints.
Proposed Rules 9213 Through 9215
Proposed Rule 9213 would provide for the appointment of a Hearing
Officer and Panelists by the Chief Hearing Officer. Current Rule 476(b)
is similar in that it provides for the appointment of a Chief Hearing
Officer by the Exchange Board of Directors and the utilization of
three-person Hearing Panels led by a Hearing Officer.
Proposed Rule 9214 would permit the Chief Hearing Officer to sever
or consolidate two or more disciplinary proceedings under certain
circumstances and permit a Party to move for such action under certain
circumstances. There is no rule comparable to proposed Rule 9214 for
severing or consolidating proceedings. Under current Rule 476(c), the
Chief Hearing Officer or a Hearing Officer resolves all procedural
matters and substantive legal motions.
Proposed Rule 9215 would set forth requirements for answering a
complaint, including form, service, notice, content, defenses,
amendments, default, and timing. An answer to a Charge Memorandum under
current Rule 476(d) and an answer to a complaint under the proposed
rule change have the same 25-day response deadline; however, proposed
Rule 9215 would explicitly allow for an extension of time to answer an
amended complaint.
Proposed Rules 9213 through 9215 are the same as NYSE Rules 9213
through 9215.
Proposed Rules 9216 and 9217
Proposed Rule 9216 would establish the acceptance, waiver, and
consent (``AWC'') procedures by which a respondent, prior to the
issuance of a complaint, may execute a letter accepting a finding of
violation, consenting to the imposition of sanctions, and agreeing to
waive such respondent's right to a hearing, appeal, and certain other
procedures.\47\ The proposed rule also would establish procedures for
executing a minor rule violation plan letter.\48\
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\47\ Proposed Rule 9270 would address settlement procedures
after the issuance of a complaint.
\48\ As described in proposed Rules 9216(b) and 9217, a minor
rule violation plan letter is a means by which a fine (not to exceed
$5,000) and/or a censure may be imposed on a member organization or
covered person with respect to certain specifically enumerated
rules, provided that there is reason to believe a violation has
occurred and the member organization or covered person does not
dispute the violation.
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Enforcement could prepare and request that a member organization or
covered person execute an AWC letter if Enforcement had reason to
believe a violation had occurred and the member organization or covered
person did not dispute the violation. The CRO would be authorized to
accept or reject an AWC letter that has been executed by a member
organization or covered person. If the AWC letter were accepted by the
CRO, it would be deemed final and would constitute the complaint,
answer, and decision in the matter 25 days after it is sent to each
Director and each member of the Committee for Review, unless review by
the Exchange Board of Directors is requested pursuant to proposed Rule
9310(a)(1)(B). Such review is consistent with the call for review
process in connection with a Stipulation and Consent under current Rule
476(g) and the process set forth in the NYSE Rules.\49\ The Exchange
also believes that allowing AWC letters to be called for review by the
Exchange Board of Directors provides an additional, appropriate check
and balance to the settlement process. If the AWC letter were rejected
by the CRO, the member organization or covered person who executed the
letter would be notified in writing and the letter would be deemed
withdrawn.
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\49\ See NYSE Reintegration Facilitation Filing Approval Order,
80 FR at 72460.
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While the AWC process has some similarity to the Exchange's current
Stipulation and Consent procedure in Rule 476(g) in that it provides a
settlement mechanism, there are certain key differences. Under current
Rule 476(g), a Hearing Officer must act on a Stipulation and Consent
submitted by the parties and may choose to convene a Hearing Panel. No
Hearing Officer would be involved in the process under the proposed
rule.
The Exchange also proposes to adopt the NYSE's process for minor
rule violations while retaining the specific fine levels and list of
rules included in the Exchange's current minor rule violation plan,
with certain technical and conforming amendments. Under the proposed
rule, the CRO, on behalf of the SRO Board, would be authorized to
accept or reject a minor rule violation plan letter. If the minor rule
violation plan letter were accepted by the CRO, it would be deemed
final. Proposed Rule 9216(b)(4) would further provide that any fine
imposed pursuant to proposed Rule 9216(b) and not contested would not
be publicly reported, except as may be required by Rule 19d-1 under the
Exchange Act, and as may be required by any other regulatory authority.
If the letter were rejected by the CRO, the Exchange would be permitted
to take any other appropriate disciplinary action with respect to the
alleged violation or violations. If the letter were rejected, the
member organization or covered person would not be prejudiced by the
execution of the minor rule violation plan letter, and such document
could not be introduced into evidence in connection with the
determination of the issues set forth in any complaint or in any other
proceeding.
Unlike current Rule 476A, which is described above, the proposed
rule would not permit a respondent to contest a minor rule violation
letter by filing an answer and converting it into a regular
disciplinary proceeding, nor would the proposed rule permit any person
to require a review by the Board of any Hearing Panel determination in
such a proceeding. Rather, under the proposed rule, if the respondent
rejects the minor rule violation letter, then a complaint must be
served and filed under proposed Rule 9211 in order to begin a
disciplinary proceeding, and the minor rule violation letter may not be
introduced into evidence. The Exchange believes that the proposed rule
provides similar and sufficient procedural protections to respondents.
Proposed Rule 9217 would set forth the list of rules under which a
member organization or covered person may be subject to a fine under a
minor rule violation plan as described in proposed Rule 9216(b). The
Exchange would
[[Page 11325]]
retain the list of rules currently set forth in its own minor rule
violation plan (found in Parts 1A, 1C, and 1D of current Rule 476A),
and also insert them, with certain technical and conforming changes,
into proposed Rule 9217, rather than adopt the list of rules in NYSE's
plan.\50\
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\50\ The proposed rule also would retain the Exchange's maximum
fine for minor rule violations which, under current Rule 476A, is
$5,000. NYSE's maximum fine for minor rule violations is $2,500. See
NYSE Rule 9216(b).
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The technical and conforming changes relating to minor rule
violations are as follows. The list of equities rules violations would
be supplemented with references to proposed Rules 8210 and 8211. In
particular, references to the failure to submit books and records or to
furnish information on the date or within the time period that the
Exchange requires under Rule 476(a)(11) would be supplemented with a
reference to proposed Rule 8210. References to the submission of
trading data under Rule 410A--Equities would be supplemented with a
reference to proposed Rule 8211.
The list of options rules violations and accompanying fine levels
chart would be similarly updated. Failure to submit trade data to the
Exchange in a timely manner (item (ii)(1)) would be supplemented by
references to proposed Rule 8211 in both places. Failure to furnish in
a timely manner books, records or other requested information or
testimony in connection with an examination of financial responsibility
and/or operational conditions under Rule 31 (item (ii)(2)) would be
supplemented in both places with a reference to proposed Rule 8210.
Delaying, impeding or failing to cooperate in an Exchange investigation
under Rule Section 9A (item (ii)(5)) would be supplemented in both
places with references to proposed Rule 8210. Finally, the Exchange
proposes to replace the reference to Rule 476A in the first paragraph
under the heading ``List of Reports Required to be Filed with the
Exchange by ATP Holders and Filing Deadlines'' relating to the
Exchange's ability to impose a $100 per day fine on any ATP Holder
failing to file an enumerated report with a reference to Rule 9216(b).
The current list of minor rules includes a reference to Rule
504(b)(6)--Equities, which was deleted in August 2012; \51\ as such,
the Exchange proposes to delete the rule from the list in Rule 476A and
not include it in proposed Rule 9217. The current list of NYSE MKT
minor rules also includes references to certain rules that have been
removed from the rules as part of the FINRA rule harmonization process,
including previous Rules 312(h)--Equities, 382(a)--Equities, 352(b) and
(c)--Equities, 392--Equities, and 445(4)--Equities, as well as rules
the Exchange is proposing to delete in the current rule filing, such as
Rule 410A--Equities. The Exchange proposes to maintain the references
to these former rules in its current list of minor rules in proposed
Rule 9217. By doing so, the Exchange could continue to resolve
violations of them that occurred prior to the harmonization via a minor
rule violation letter.\52\ For example, guarantees against loss were
covered by Rule 352--Equities until December 2009, when Rule 2150--
Equities was adopted.\53\ The Exchange could resolve a guarantee
against loss violation that occurred in November 2009 when Rule 352--
Equities was effective, and Rule 2150--Equities was not effective, via
a minor rule violation plan letter under proposed Rule 9217. The
Exchange will determine at a later time when it is appropriate to
remove these previous rule references from the list of minor rules.
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\51\ See Securities Exchange Act Release No. 67740 (August 28,
2012), 77 FR 53952 (September 4, 2012) (SR-NYSEMKT-2012-37).
\52\ This rationale for maintaining references to former rules
in the list of minor rule violations was noted in Securities
Exchange Act Release No. 62940 (September 20, 2010), 75 FR 58452
(September 24, 2010) (SR-NYSE-2010-66).
\53\ See Securities Exchange Act Release No. 61157 (December 11,
2009), 74 FR 67939 (December 21, 2009) (SR-NYSEAmex-2009-88).
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Proposed Rules 9220 Through 9222
Proposed Rules 9220 and 9222 would describe how a respondent can
request a hearing, the notice of a hearing, and timing considerations.
The proposed rules are the same as NYSE Rules 9220 through 9222.
Proposed Rule 9221 provides that a Hearing Officer generally must
provide at least 28 days' notice of the hearing. Current Rule 476 does
not have comparable provisions relating to how a hearing can be ordered
and time for notices; rather, current Rule 476(b) states that all
proceedings under the Rule, except as to matters that are resolved by a
Hearing Officer when so authorized, are conducted at a Hearing in
accordance with the provisions of Rule 476.
Proposed Rules 9230 Through 9235
Proposed Rules 9231 and 9232 would govern how a Hearing Panel,
Extended Hearing Panel, Replacement Hearing Officer, Panelists,
Replacement Panelists, and Floor-Based Panelists are appointed and
their composition and criteria for selection. Proposed Rules 9231 and
9232 are the same as the counterpart NYSE rules, except for the
substitution of ``Exchange'' for ``NYSE'' before ``hearing board'' and
the use of ``ATP Holders'' in proposed Rule 9232 to reflect the
Exchange's membership.
Under the proposed rule change, the Exchange would use FINRA's
Chief Hearing Officer and Hearing Officers from FINRA's Office of
Hearing Officers, rather than have the Exchange Board of Directors
appoint such persons as it does under current Rule 476(b). To harmonize
the Exchange's rules with the hearing process under NYSE rules, the
Exchange believes that it is reasonable to utilize FINRA's Office of
Hearing Officers as described in the proposed rule change.
The Exchange would continue to draw Panelists appointed from an
Exchange hearing board. The hearing board would be composed of members
of the Exchange who are not members of the Exchange Board of Directors
and registered employees and non-registered employees of member
organizations or ATP Holders, as well as former members, allied
members, or registered and non-registered employees of member
organizations or ATP Holders who have retired from the securities
industry.\54\ As is the case under current Rule 476(b), Panelists would
be required to be persons of integrity and judgment. The proposed rule
would provide that the hearing board would be appointed by the Exchange
Board of Directors. Under current Rule 476(b), the Hearing Board is
selected by the Chairman of the Exchange Board of Directors, subject to
the approval of the Board of Directors. The Exchange believes that
because the approval of the Exchange Board of Directors is required for
appointment of the hearing board, it is not necessary to specify that
the Chairman of the Exchange Board shall appoint the hearing board
subject to such approval.\55\
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\54\ As noted above, the Exchange no longer has allied members,
but former allied members would continue to be eligible to be
appointed to the Hearing Board, and the text of proposed Rule 9232
reflects this. See note 27, supra.
\55\ The proposed rule is based on NYSE's recent amendment to
NYSE Rule 9232. See NYSE Reintegration Facilitation Filing Approval
Order, 80 FR at 72464.
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There would be one change in hearing board eligibility in the
proposed rule as compared to the current rule. Currently, the Exchange
requires that a Panelist cannot have been retired from the securities
industry for more than five years. In order to have the largest number
of potential retired Panelists available following the proposed rule
change, the Exchange proposes to drop
[[Page 11326]]
the five-year restriction. The Exchange believes that there are well-
qualified persons, in particular retirees, who continue to stay abreast
of industry developments and rules after more than five years of
retirement and that such persons would be valuable additions to the
hearing board.
In addition, as noted above, the Exchange proposes to permit the
Chief Hearing Officer to select one Floor-Based Panelist to serve on a
Hearing Panel if the complaint alleges at least one cause of action
involving activities on the Floor of the Exchange, consistent with the
Exchange's practice under current Rule 476(b).
Proposed Rule 9232 would include Panelist selection criteria, which
are expertise, absence of any conflict of interest or bias or any
appearance thereof, availability, and the frequency with which a person
has served as a Panelist in the last two years, favoring the selection
of a person as a Panelist who has never served or who has served
infrequently as a Panelist during the period. Rule 476(b) currently
does not include these criteria.
Proposed Rules 9233 and 9234 would establish the processes for
recusal and disqualification of Hearing Officers, Hearing Panels, or
Extended Hearing Panels. Current Rule 22--Equities similarly prohibits
a person from participating in an adjudication if he or she has a
personal interest but does not specifically provide for recusals and
disqualifications in the manner in which the comparable NYSE rule does.
The options market does not have a comparable rule. Proposed Rules 9233
and 9234 are the same as the NYSE rules.
Proposed Rule 9235 would set forth the Hearing Officer's duties and
authority in detail. The proposed rule change is similar to current
Rule 476(c), which gives the Hearing Officer general authority in
procedural and evidentiary matters. The proposed rule is the same as
NYSE Rule 9235.
Proposed Rules 9240 Through 9242
Proposed Rules 9241 and 9242 would govern the substantive and
procedural requirements for pre-hearing conferences and pre-hearing
submissions. In addition, proposed Rule 9242, in conformance with the
current NYSE rule based on FINRA's counterpart rule, would provide that
no former Regulatory Staff shall, within a period of one year
immediately following termination of employment with the Exchange or
FINRA, provide expert testimony on behalf of any other person under the
Rule 9000 Series.\56\ Nothing in this Rule would prohibit former
Regulatory Staff from testifying as a witness on behalf of the Exchange
or FINRA. The rule text in proposed Rule 9242(b) 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. Given the Exchange's resumption of certain
regulatory functions earlier this year, 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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\56\ See id., 80 FR at 51338.
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As stated above, current Rule 476(c) gives Hearing Officers general
authority in procedural matters, but there are no specific provisions
in the current rules relating to pre-hearing conferences and
submissions, nor do the current rules address expert testimony by
former staff.
Proposed Rules 9250 Through 9253
Proposed Rules 9250 through 9253 would address discovery, including
the requirements and limitations relating to the inspection and copying
of documents in the possession of Exchange staff, requests for
information and limitations on such requests, and the production of
witness statements and any harmless error relating to the production of
such witness statements. The proposed rules are the same as NYSE Rules
9250 through 9253.
Proposed Rule 9251 would generally require Enforcement to make
available to a respondent any documents prepared or obtained in
connection with the investigation that led to the proceedings, except
that certain privileged or other internal documents, such as
examination or inspection reports or documents that would reveal an
examination, investigation, or enforcement technique or confidential
source, or documents that are prohibited from disclosure under federal
law, are not required to be made available. A Hearing Officer may
require that a withheld document list be prepared. Proposed Rule 9251
also sets forth procedures for inspection and copying of produced
documents. In addition, if a Document required to be made available to
a respondent pursuant to the proposed Rule was not made available by
Enforcement, no rehearing or amended decision of a proceeding already
heard or decided would be required unless the respondent establishes
that the failure to make the Document available was not harmless error.
The Hearing Officer, or, upon review under proposed Rule 9310, the
Exchange Board of Directors, would determine whether the failure to
make the document available was not harmless error, applying applicable
Exchange, FINRA, SEC, and federal judicial precedent. The proposed Rule
would not establish any preference for Exchange versus other precedent
in this respect; rather, the Adjudicators could determine in their
discretion what precedent to apply.
Current Rule 476(c) contains provisions that address the same
subject. As described above, under that rule the Chief Hearing Officer,
or any Hearing Officer designated by the Chief Hearing Officer, may
require the Exchange to permit a respondent to inspect and copy
documents or records in the possession of the Exchange that are
material to the preparation of the defense or are intended for use by
the Exchange as evidence in chief at the hearing; however, the rule
does not authorize the discovery or inspection of reports, memoranda,
or other internal Exchange documents prepared by the Exchange in
connection with the proceeding. Under the proposed rule, there would be
no materiality standard. The Exchange believes that eliminating the
materiality standard will ease administration of the rule while still
providing appropriate protections for internal Exchange documents.
In addition, under current Rule 476(c), the respondent may be
required to provide discovery of non-privileged documents and records
to the Exchange. There is no explicit counterpart in the proposed NYSE
MKT or current NYSE rules, but the Exchange notes that proposed Rule
8210 may always be used to obtain non-privileged documents from a
respondent. Thus, in that respect, there is no substantive difference
in the result under the current or proposed rules.
Under proposed Rule 9252, a respondent could request that the
Exchange invoke proposed Rule 8210 to compel the production of
Documents or testimony at the hearing if the respondent can show that
certain standards are met, e.g., that the information sought is
relevant, material, and non-cumulative. Current Rule 476 provides that
a respondent may be required to provide discovery of non-privileged
documents to the Exchange.
[[Page 11327]]
Under proposed Rule 9253, a respondent could file a motion to
obtain certain witness statements. The Exchange's current rules do not
contain such a provision.
Proposed Rules 9260 Through 9269
Proposed Rules 9260 through 9269 would govern hearings and
decisions. The proposed rules are the same as the counterpart NYSE
rules except for the inclusion of ``ATP Holder'' and ``member'' in Rule
9268.
Proposed Rule 9261 would generally require the Parties to submit a
list of documentary evidence and witnesses no later than 10 days before
the hearing. The Exchange's current rules do not contain such a
provision.
Proposed Rule 9262 would require persons subject to the Exchange's
jurisdiction to testify under oath or affirmation at a hearing. The
Exchange's current rules do not contain such a provision.
Proposed Rule 9263 would authorize the Hearing Officer to exclude
irrelevant, immaterial, or unduly repetitious or prejudicial evidence
and a Party to object; excluded evidence would be attached to the
record as a supplemental document. Under current Rule 476(c), the Chief
Hearing Officer or a Hearing Officer resolves all evidentiary issues.
There is no explicit provision in the Exchange's current rules for
excluded evidence to be attached to the record.
Proposed Rule 9264 would allow Parties to file a motion for summary
disposition under certain circumstances and would describe the
procedures for filing and ruling on such a motion. Under current Rule
476(c), the Chief Hearing Officer or a Hearing Officer resolves all
procedural matters, but the Rule does not specifically address motions
for summary disposition. In practice, however, Hearing Panels accept
and rule on motions for summary disposition.
Proposed Rule 9265 would require that the hearing be recorded by a
court reporter, that a transcript be prepared and made available for
purchase, and that a Party be permitted to seek a correction of the
transcript from the Hearing Officer. Current Rule 476(e) provides
generally that the Exchange must keep a record of hearings.
Proposed Rule 9266 would authorize the Hearing Officer to require a
post-hearing brief or proposed findings of fact and conclusions of law
and would outline the form and timing for such submissions. Under
current Rule 476(c), the Chief Hearing Officer or a Hearing Officer
resolves all procedural matters, but the rule does not specifically
address such post-hearing activities.
Proposed Rule 9267(a) would detail the required contents of the
hearing record and Rule 9267(b) would describe treatment of
supplemental documents attached to the record. The Exchange's current
rules do not contain such a provision.
Proposed Rule 9268 would set forth the timing and the contents of a
decision of the Hearing Panel or Extended Hearing Panel and the
procedures for a dissenting opinion, service of the decision, and any
requests for review. Other than a reference to ``ATP Holder'' in
subparagraph (d), the proposed Rule is the same as NYSE Rule 9268.
The Exchange notes that it has a member organization affiliate.\57\
As such, in proposed Rule 9268(e)(2), the Exchange proposes to include
text providing that a disciplinary decision concerning an Exchange
member or member organization that is an affiliate of the Exchange
would not be subject to review under proposed Rule 9310 but instead
would be treated as a final disciplinary action subject to SEC review.
The Exchange does not believe that an appeal by an affiliate to the
Exchange Board of Directors is appropriate, but rather such affiliate
should be permitted to appeal directly to the SEC. The Exchange notes
that NASDAQ, which also has an affiliate, has a rule that is
substantially the same as the Exchange's proposed rule and NYSE's
current rule.\58\ Because the Exchange's affiliates will still have a
right to appeal to the SEC, the Exchange believes that the proposed
rule is not unfairly discriminatory.
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\57\ The Exchange has one member organization, Archipelago
Securities LLC, that is an affiliate of the Exchange and that is
used for inbound and outbound routing of certain orders. See Rule 1,
Rule 17(c)--Equities & Rule 993NY.
\58\ See NASDAQ Rule 9268(e)(2); NYSE Rule 9268(e)(2).
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Finally, proposed Rule 9269 would establish the process for the
issuance and review of default decisions by a Hearing Officer when a
respondent fails to timely answer a complaint or fails to appear at a
pre-hearing conference or hearing where due notice has been provided. A
Party may, for good cause shown, file a motion to set aside a default
decision. A default decision would become the final disciplinary action
of the Exchange if a request for review by the Exchange Board of
Directors is not filed within 25 days after the date the decision is
served on the Parties. The proposed rule is the same as NYSE Rule 9269.
Current Rule 476(d) provides a similar mechanism for default
decisions as the proposed rule change. As described above, under the
current rule, if the respondent has failed to file an Answer, the
Exchange, by motion, accompanied by proof of notice to the respondent,
may request a determination of guilt by default, and may recommend a
penalty to be imposed. If the respondent opposes the motion, the
Hearing Officer, on a determination that the respondent had adequate
reason to fail to file an Answer, may adjourn the hearing date and
direct the respondent to promptly file an Answer. If the default motion
is unopposed, or the respondent did not have adequate reason to fail to
file an Answer, or the respondent failed to file an Answer after being
given an opportunity to do so, the Hearing Officer, on a determination
that the respondent has had notice of the charges and that the Exchange
has jurisdiction in the matter, may find guilt and determine a penalty.
Unlike the proposed rule, the current rule does not contain a provision
for setting aside a default decision that has been rendered.
Proposed Rule 9270
Proposed Rule 9270 would provide for a settlement procedure for a
respondent who has been notified that a proceeding has been instituted
against him or her. The proposed settlement procedure would be
different from the Stipulation and Consent procedure under current Rule
476(g), which is described above. The proposed rule would be the same
as NYSE Rule 9270, except as described below.
Under proposed Rule 9270(a), a respondent notified of the
institution of a disciplinary proceeding could make a written offer of
settlement at any time, but the proposal would not stay the proceeding
unless the Hearing Officer determined otherwise. The proposed rule
differs from current Rule 476(g), which requires that a Stipulation and
Consent be agreed to by both the respondent and Exchange staff.
Under proposed Rule 9270(b), a respondent would be prohibited from
making a frivolous settlement offer or one that was inconsistent with
the seriousness of the violations. Current Rule 476(g) does not contain
a similar provision.
Proposed Rule 9270(c) would set forth the required content of the
proposal, which would include a statement consenting to findings of
fact and violations and a proposed sanction. The proposed rule would be
the same as NYSE's rule, except that, like FINRA Rule 9270(c)(5), the
proposed rule would also require that the proposed
[[Page 11328]]
sanction be consistent with the Exchange's sanctions guidelines, if
applicable, or, if inconsistent with the sanction guidelines, include a
detailed statement supporting the proposed sanction. The NYSE does not
have sanctions guidelines, so this requirement was not included in
NYSE's rules.\59\ As noted above, the Exchange's Sanctions Guidelines
apply only to matters involving violations of the options rules. In
connection with matters not covered by the Sanctions Guidelines, the
CRO, Hearing Panel or Extended Hearing Panel, as applicable, would
consider relevant Exchange precedent or such other precedent as it
deemed appropriate in determining whether to accept a settlement offer.
Current Rule 476(g) similarly requires that a Stipulation and Consent
contain proposed findings of fact, violations, and a specified penalty.
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\59\ See 2013 Notice, 78 FR at 5229.
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Proposed Rule 9270(d) would provide that submission of a settlement
offer waives a respondent's right to a hearing, the right to claim bias
or ex parte communication violations, and the right to review by the
Exchange Board of Directors, the Commission, or the courts. This
differs from current Rule 476(g), which allows either party to request
a hearing on a Stipulation and Consent or a Hearing Officer to convene
a hearing on a Stipulation and Consent in certain circumstances.
Proposed Rule 9270(e) would address contested settlement offers.
Under the proposed rule, if a respondent made an offer of settlement
and Enforcement opposed it, the offer of settlement would be contested
and thereby deemed rejected, and thus the proceeding would continue to
completion under the proposed Rule 9200 Series. The contested offer of
settlement would not be transmitted to the Office of Hearing Officers,
the CRO, or Hearing Panel or Extended Hearing Panel, and would not
constitute a part of the record in any proceeding against the
respondent making the offer. The Exchange has determined that if the
Parties cannot reach agreement on the offer of settlement, then the
matter should proceed under the proposed Rule 9200 Series. The Exchange
believes that its proposed rule would encourage respondents to make
reasonable offers of settlement that will be acceptable to Enforcement
and is consistent with the Exchange's current process under Rule
476(g), which does not contemplate contested settlement offers but
rather requires that both the respondent and Exchange staff agree on
the Stipulation and Consent.
Proposed Rule 9270(f) and (h) would address uncontested offers of
settlement. Under the proposed rule, an offer of settlement would be
uncontested if Enforcement does not oppose it. If a hearing on the
merits had not begun, the CRO could accept the settlement offer; if a
hearing on the merits had begun, the Hearing Panel or Extended Hearing
Panel could accept the settlement offer.\60\ If they did not, the offer
would be deemed withdrawn and the matter would proceed under the
proposed Rule 9200 Series and the settlement offer would not be part of
the record. As described below, if the offer of settlement were
accepted by the CRO, Hearing Panel or Extended Hearing Panel, it would
become final 25 days after being sent, together with an order of
acceptance, to each Director and each member of the Committee for
Review, unless review by the Exchange Board of Directors is required
pursuant to proposed Rule 9310(a)(1)(A) or (B).
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\60\ In determining whether to accept a settlement offer, the
CRO, Hearing Panel or Extended Hearing Panel, as applicable, would
consider Exchange precedent or such other precedent as it deemed
appropriate, in addition to considering the Sanctions Guidelines, if
applicable.
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The Exchange anticipates that the required acceptance by the CRO,
Hearing Panel, or Extended Hearing Panel would help ensure objectivity
and consistency among offers of settlement that are issued. The
proposed rule change would also allow an offer of settlement to be
called for review by the Exchange Board of Directors. The Exchange
believes that this review mechanism provides an additional, appropriate
check and balance to the proposed settlement process.
While the offer of settlement process has some similarity to the
Exchange's current Stipulation and Consent procedure in Rule 476(g) in
that it provides a settlement mechanism, there are certain key
differences. Under current Rule 476(g), a Hearing Officer must act on a
Stipulation and Consent submitted by the parties and may choose to
convene a Hearing Panel. Under the proposed rule change, as under NYSE
Rule 9270, a Hearing Officer would be required to act on an offer of
settlement only if a hearing on the merits had already begun. In
addition, under Rule 476(g), all determinations and penalties imposed
in connection with a Stipulation and Consent are final and conclusive
25 days after notice has been served upon the respondent. As discussed
below in connection with proposed Rule 9310(a)(1)(B), an offer of
settlement issued before a hearing on the merits has begun would become
final 25 days after being sent to each Director and member of the
Committee for Review, if not called for review by the Exchange Board of
Directors.
Proposed Rule 9270(i) would address disciplinary proceedings with
multiple respondents and permit settlement offers to be accepted or
rejected as to any one or all of such respondents. Current Rule 476(g)
does not have a similar provision.
Proposed Rule 9270(j) would provide that a respondent may not be
prejudiced by a rejected offer of settlement nor may such an offer of
settlement be introduced into evidence. The current rules do not have a
similar provision.
Proposed Rule 9280
Proposed Rule 9280 would set forth sanctions for contemptuous
conduct by a Party or attorney or other representative, which may
include exclusion from a hearing or conference, and sets forth a
process for reviewing such exclusions. The Exchange proposes to have
the Chief Hearing Officer review exclusions. The Exchange believes that
respondents and their attorneys and representatives will have adequate
procedural protections with a review by the Chief Hearing Officer.
Current Rule 476 does not have similar procedures for contemptuous
conduct generally, but Rule 476(h) does allow for a fine or sanction
for improper conduct before a Hearing Board. The proposed Rule is the
same as NYSE Rule 9280.
Proposed Rule 9290
Under proposed Rule 9290, for any disciplinary proceeding the
subject matter of which also is subject to a temporary cease and desist
proceeding initiated pursuant to proposed Rule 9810 or a temporary
cease and desist order, hearings would be required to be held and
decisions rendered at the earliest possible time. The Exchange
currently does not have a similar rule. The proposed rule is the same
as NYSE Rule 9290.
Proposed Rules 9300 and 9310
The Exchange's appellate and call for review processes would be set
forth in the Rule 9300 Series, specifically proposed Rule 9310. The
text is substantially similar to current Rule 476(f), (g) and (l), with
certain differences that are described below. The text of proposed Rule
9310 is the same as NYSE Rule 9310, except as described below.
Under proposed Rule 9310(a)(1)(A), any Party, any Director, and any
member of the Committee for Review could require a review by the
Exchange
[[Page 11329]]
Board of Directors of any determination or penalty, or both, imposed by
a Hearing Panel or Extended Hearing Panel under the proposed Rule 9200
Series, except that none of the aforementioned persons could request a
review by the Exchange Board of Directors of a decision concerning an
Exchange member or member organization that is an affiliate. Under the
proposed rule, a request for review would be made by filing with the
Secretary of the Exchange a written request therefor, which states the
basis and reasons for such review, within 25 days after notice of the
determination and/or penalty was served upon the respondent. The
Secretary of the Exchange would give notice of any such request for
review to the Parties.
Proposed Rule 9310(a)(1)(B) would govern the call for review
process in connection with AWC letters and offers of settlement
determined to be uncontested before a hearing on the merits has begun.
Under the proposed rule, any Director and any member of the Committee
for Review could require a review by the Exchange Board of Directors of
any determination or penalty, or both, imposed in connection with an
AWC letter under Rule 9216 or an offer of settlement determined to be
uncontested before a hearing on the merits has begun under Rule
9270(f), except that none of those persons could request a review by
the Exchange Board of Directors of a determination or penalty
concerning an Exchange member or member organization that is an
affiliate of the Exchange. A request for review pursuant to proposed
paragraph (a)(1)(B)(i) would be made by filing with the Secretary of
the Exchange a written request stating the basis and reasons for such
review, within 25 days after the AWC letter or offer of settlement has
been sent to each Director and each member of the CFR. The Secretary of
the Exchange would give notice of any such request for review to the
Parties.
In addition, the Exchange proposes that any party could require a
review by the Exchange Board of Directors of any rejection by the CRO
of an AWC letter under Rule 9216 or an offer of settlement determined
to be uncontested before a hearing on the merits has begun under Rule
9270(f), except that no party could request Board review of a rejection
of an AWC letter or offer of settlement concerning an Exchange member
or member organization that is an affiliate of the Exchange. Under
subparagraph (B)(ii) of proposed Rule 9310(a)(1), such a request for
review would be made by filing with the Secretary of the Exchange a
written request therefor, which states the basis and reasons for such
review, within 25 days after notification pursuant to Rule 9216(a)(3)
or Rule 9270(h) that an AWC letter or uncontested offer of settlement
or order of acceptance is not accepted by the CRO. The Exchange
proposes that the Secretary of the Exchange would give notice of any
such request for review to the parties.
The text of proposed Rule 9310(a)(1) differs from Rule 476 in order
to align it with terms used in the remainder of the proposed Rule 9000
Series. The call for review process described in proposed Rule
9310(a)(1)(A) is consistent with the process described in Rule 476(f)
and (g) regarding review of a determination or penalty imposed by a
Hearing Panel. The call for review process described in Rule
9310(a)(1)(B) for AWC letters and offers of settlement before a hearing
on the merits has begun differs from Rule 476 because it describes a
process for reviewing determinations and penalties imposed without
involvement of a Hearing Officer or Hearing Panel. No such process
exists under the Exchange's current rules because Rule 476(g) provides
that a Hearing Officer must act on a Stipulation and Consent submitted
by the parties and may choose to convene a Hearing Panel.
The Exchange believes that allowing AWC letters and offers of
settlement accepted by the CRO to be called for review by the Exchange
Board of Directors, together with the proposed rule permitting parties
to request Board review of a determination to reject an uncontested
offer of settlement, provides an additional, appropriate check and
balance to the settlement process. Allowing for such review would
provide an additional layer of review for determinations made by the
CRO. It would also permit all AWC letters and offers of settlement to
be subject to review if requested by a Director or a member of the
Committee for Review. The Exchange believes that the 25-day period in
proposed Rule 9310(a)(1)(B) is reasonable and sufficient. The proposed
25-day period is consistent with the 25-day period for Board review of
a Stipulation and Consent (or rejection thereof) set forth in current
Rule 476(g). The proposed rule change is also consistent with the
period applicable to review of a determination or penalty imposed by a
Hearing Panel or Extended Hearing Panel in NYSE Rule 9310(a)(1).
Similarly, the proposed rule change is consistent with the 25-day
period for requesting review of a default decision under proposed Rule
9269(d).
Under proposed Rule 9310(a)(2), the Secretary of the Exchange would
direct the Office of Hearing Officers, in connection with any review
under paragraph (a)(1)(A), to complete and transmit a record of the
disciplinary proceeding in accordance with Rule 9267. Within 21 days
after the Secretary of the Exchange gives notice of a request for
review to the Parties, or at such later time as the Secretary of the
Exchange could designate, the Office of Hearing Officers would assemble
and prepare an index to the record, transmit the record and the index
to the Secretary of the Exchange, and serve copies of the index upon
all Parties. The Hearing Officer who participated in the disciplinary
proceeding, or the Chief Hearing Officer, would certify that the record
transmitted to the Secretary of the Exchange was complete. Current Rule
476(f) does not contain such requirements.
Under proposed Rule 9310(b), any review by the Exchange Board of
Directors would be based on oral arguments and written briefs and
limited to consideration of the record before the Hearing Panel or
Extended Hearing Panel. Proposed Rule 9310(b) also incorporates Rule
476(f)'s provision relating to appeals panels.\61\ Specifically, under
proposed Rule 9310(b), the CFR may, but is not required to, appoint an
appeals panel to conduct a review under this subsection and make a
recommendation to the CFR. An appeals panel appointed by the CFR would
consist of at least three and no more than five individuals. An appeals
panel appointed by the CFR for equities matters would be composed of at
least one director and one member or individual associated with an
equities member organization. An appeals panel appointed by the CFR for
options matters would be composed of at least one director and one
member or individual associated with an options member organization.
NYSE Rule 9310(b) does not contain a similar provision relating to
appeals panels.
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\61\ See note 15, supra.
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Upon review, and with the advice of the CFR, the Exchange Board of
Directors, by the affirmative vote of a majority of the Exchange Board
of Directors then in office, could sustain any determination or penalty
imposed, or both; could modify or reverse any such determination; and
could increase, decrease or eliminate any such penalty, or impose any
penalty permitted under the Exchange's rules, as it deems appropriate.
Unless the Exchange Board of Directors otherwise specifically directed,
the determination and penalty,
[[Page 11330]]
if any, of the Exchange Board of Directors after review would be final
and conclusive, subject to the provisions for review under the Act. The
proposed rule is substantially the same as provided in current Rule
476(f), other than conforming and technical changes to align it with
terms used in the remainder of the proposed Rule 9000 Series.
Under proposed Rule 9310(c), notwithstanding the foregoing, if
either Party upon review applied to the Exchange Board of Directors for
leave to adduce additional evidence, and showed to the satisfaction of
the Exchange Board of Directors that the additional evidence was
material and that there were reasonable grounds for failure to adduce
it before the Hearing Panel or Extended Hearing Panel, the Exchange
Board of Directors could remand the case for further proceedings, in
whatever manner and on whatever conditions the Exchange Board of
Directors considered appropriate. The proposed rule is substantially
the same as provided in current Rule 476(f), other than conforming and
technical changes to align it with terms used in the remainder of the
proposed Rule 9000 Series.
Under proposed Rule 9310(d), notwithstanding any other provisions
of the proposed Rule 9000 Series, the CEO could not require a review by
the Exchange Board of Directors under this Rule and would be recused
from deliberations and actions of the Exchange Board of Directors with
respect to such matters. The proposed rule is substantially the same as
provided in current Rule 476(l), other than conforming and technical
changes to align it with terms used in the remainder of the proposed
Rule 9000 Series.
Proposed Rules 9500 Through 9527
The proposed Rule 9520 Series would govern eligibility proceedings
for persons subject to statutory disqualifications that are not FINRA
members. The Exchange does not currently have any rules governing this
subject matter and proposes to adopt the NYSE Rule 9520 Series.\62\ The
Exchange intends for the scope of the proposed Rule 9520 Series to be
the same as the NYSE Rule 9520 Series, and as such, intends to issue a
notice to that effect.
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\62\ The NYSE Rule 9520 Series was based on the FINRA Rule 9520
Series, and the scope of the NYSE Rule 9520 Series was intended to
be the same as FINRA Rule 9520 Series. See 2013 Approval Order, 78
FR at 15399. FINRA has been processing statutory disqualification
applications on behalf of the Exchange since 2009. See Securities
Exchange Act Release No. 60409 (July 30, 2009), 74 FR 39353 (August
6, 2009) (File No. 4-587).
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Proposed Rule 9521 would add certain definitions relating to
eligibility proceedings that are not currently part of the Exchange's
rules, including definitions of ``Application,'' ``disqualified member
organization,'' ``disqualified person,'' and ``sponsoring member
organization.'' Proposed Rule 9521 is the same as NYSE Rule 9521 except
that it includes ``ATP Holder'' in subparagraph (a) describing the
rule's purpose and in the definition of ``disqualified member
organization'' in subparagraph (b)(2). As noted previously, the
references to ATP Holders in the proposed Rule 9520 Series relate
solely to options members that have employees and not ATP Holders
without employees or those associated with an options member
organization.
Proposed Rule 9522 would govern the initiation of an eligibility
proceeding by the Exchange and the obligation for a member organization
or covered person to file an application to initiate an eligibility
proceeding if it has been subject to certain disqualifications.
Further, under the proposed rule, FINRA's Department of Member
Regulation could approve a written request for relief from the
eligibility requirements under certain circumstances. Once again, the
proposed Rule is the same as its NYSE counterpart except for references
to ``ATP Holder'' to reflect the Exchange's membership.
Proposed Rule 9523 would allow the Department of Member Regulation
to recommend a supervisory plan to which the disqualified member
organization, sponsoring member organization, and/or disqualified
person, as the case may be, may consent and by doing so, waive the
right to hearing or appeal if the plan is accepted and the right to
claim bias or prejudgment, or prohibited ex parte communications. If
such a supervisory plan were rejected, proposed Rule 9524 would allow a
request for review by the applicant to the Exchange Board of Directors.
Proposed Rule 9524 is the same as the NYSE Rule. Proposed Rule 9527
would provide that a filing of an application for review would not stay
the effectiveness of final action by the Exchange unless the Commission
otherwise ordered. Proposed Rule 9527 is the same as the NYSE Rule. To
maintain consistency with NYSE's rule numbering, proposed Rules 9525
and 9526 would be designated ``Reserved.''
Proposed Rules 9550 Through 9559
Proposed Rules 9551 through 9559 would govern expedited
proceedings.\63\
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\63\ Proposed Rule 9553 would be designated ``Reserved'' to
maintain consistency with NYSE's rule numbering.
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Under proposed Rule 9551, Regulatory Staff could issue a written
notice requiring a member or member organization \64\ to file
communications with the Exchange's Advertising Regulation Department at
least 10 days prior to use if the staff determined that the member or
member organization had departed from the standards of Rule 2210--
Equities or Rule 991.\65\ The notice would state the specific grounds
and include the factual basis for the action as well as the effective
date. The member or member organization could file a written request
for a hearing with the Office of Hearing Officers pursuant to proposed
Rule 9559. A member or member organization would be required to set
forth with specificity any and all defenses to the action in its
request for a hearing. Pursuant to proposed Rules 8310(a) and 9559(n),
a Hearing Officer or, if applicable, Hearing Panel, could approve,
modify or withdraw any and all sanctions or limitations imposed by the
staff's notice, and impose any other fitting sanction. A member or
member organization subject to a pre-use filing requirement also could
file a written request for modification or termination of the
requirement. The Exchange currently uses FINRA Rule 9551 and 9559,
which are the same, to carry out these procedures.
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\64\ See notes 25 and 26, supra.
\65\ Proposed Rule 9551 is the same as NYSE Rule 9551 except for
the inclusion of references to Exchange rules, and the inclusion of
``member'' before ``member organization'' to reflect the Exchange's
membership.
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Proposed Rule 9552 would establish procedures in the event that a
member organization or covered person failed to provide any
information, report, material, data, or testimony requested or required
to be filed under the Exchange's rules, or failed to keep its
membership application or supporting documents current. In the event of
the foregoing, under proposed Rule 9552, the member organization or
covered person could be suspended if corrective action were not taken
within 21 days after service of notice. A member organization or
covered person served with a notice could request a hearing within the
21-day period. A member organization or covered person subject to a
suspension could file a written request for termination of the
suspension on the ground of full compliance. A member organization or
covered person suspended under the
[[Page 11331]]
proposed rule change that failed to request termination of the
suspension within three months of issuance of the original notice of
suspension would automatically be expelled or barred.\66\
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\66\ The Exchange believes that the provision for automatic
expulsion or bar after three months is consistent with Section 6 of
the Act because the respondent would have ample notice and
opportunity to be heard under proposed Rule 9552, the proposed rule
is substantially the same as FINRA's counterpart rule, and the
Commission has upheld at least one bar under a prior version of
FINRA's rule. See, e.g., Dennis A. Pearson, Jr., Securities Exchange
Act Rel. Nos. 54913 (December 11, 2006) (dismissing application for
review by associated person barred under NASD Rule 9552(h)) & 55597A
(April 6, 2007) (denying motion for reconsideration).
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There is no provision for such an expedited proceeding under the
Exchange's current rules. Under current Rule 476(a)(11), a member
organization or covered person is subject to a regular, as opposed to
expedited, disciplinary proceeding for failure to submit books and
records or provide testimony upon request of the Exchange and for
failure to update a Form BD. Proposed Rule 9552 is the same as its NYSE
counterpart except for references to ``ATP Holder'' to reflect the
Exchange's membership.
Proposed Rule 9554, relating to failures to comply with an
arbitration award or related settlement or an Exchange order of
restitution or Exchange settlement agreement providing for restitution,
would contain similar procedures and consequences as proposed Rule
9552. Under proposed Rule 9554, if a member organization or covered
person failed to comply with an arbitration award or a settlement
agreement related to an arbitration or mediation under the Exchange's
rules, or an Exchange order of restitution or Exchange settlement
agreement providing for restitution, Regulatory Staff could provide
written notice to such member organization or covered person stating
that the failure to comply within 21 days of service of the notice will
result in a suspension or cancellation of membership or a suspension
from associating with any member organization or ATP Holder. Under
current Rule 600(c)--Equities and Rule 624 of the Exchange's
Arbitration Rules applicable to options members, the failure to honor
an arbitration award subjects a member organization, member, or
registered person to a regular disciplinary proceeding under Rule 476.
Proposed Rule 9554 is also the same as its NYSE counterpart except for
references to ``ATP Holder.''
Proposed Rule 9555 would govern the failure to meet the eligibility
or qualification standards or prerequisites for access to services
offered by the Exchange. Under proposed Rule 9555, if a member
organization or covered person did not meet the eligibility or
qualification standards set forth in the Exchange's rules, Exchange
staff could provide written notice to such member organization or
covered person stating that the failure to become eligible or qualified
will result in a suspension or cancellation of membership or a
suspension or bar from associating with any member organization or ATP
Holder.
Similarly, if a member organization or covered person did not meet
the prerequisites for access to services offered by the Exchange or a
member or member organization thereof or could not be permitted to
continue to have access to services offered by the Exchange or a member
or member organization thereof with safety to investors, creditors,
members or member organizations, or the Exchange, Exchange staff could
provide written notice to such member organization or covered person
limiting or prohibiting access to services offered by the Exchange or a
member or member organization thereof. The limitation, prohibition,
suspension, cancellation, or bar referenced in the notice would become
effective 14 days after service of the notice unless the member
organization or covered person requested a hearing during that time,
except that the effective date for a notice of a limitation or
prohibition on access to services would be upon service of the notice.
As described above, under Rule 475(a), the Exchange currently may
prohibit or limit access to services offered by the Exchange or any
member or member organization thereof if the Exchange has provided 15
days' prior written notice of, and an opportunity to be heard upon, the
specific grounds for such prohibition or limitation, and provides a
written decision. Proposed Rule 9555 is the same as its NYSE
counterpart except for references to ``member'' and ``ATP Holder'' as
appropriate to reflect the Exchange's membership.
Proposed Rule 9556 would provide procedures and consequences for a
failure to comply with temporary and permanent cease and desist orders,
which would be authorized by proposed Rule 9810. The Exchange currently
does not issue temporary or permanent cease and desist orders and, as
such, there is no counterpart in the Exchange's current rules. The
proposed rule is the same as its NYSE counterpart except for references
to ``ATP Holder.''
Proposed Rule 9557 would allow the Exchange to issue a notice
directing a member or member organization to comply with the provisions
of Rule 470 (Capital Requirements for Members and Member
Organizations), Rule 471 (Business Expansion Restrictions and Business
Reduction Requirements), Rule 4110--Equities (Capital Compliance),
4120--Equities (Regulatory Notification and Business Curtailment), or
4130--Equities (Regulation of Activities of Section 15C Member
Organizations Experiencing Financial and/or Operational Difficulties)
or otherwise directing it to restrict its business activities. The
notice would be immediately effective, except that a timely request for
a hearing would stay the effective date for 10 business days (unless
the Exchange's CRO determined otherwise) or until an order was issued
by the Office of Hearing Officers, whichever was earlier. The notice
could be withdrawn upon a showing that all the requirements were met.
Currently, if a member organization fails to comply with Rule 4110--
Equities, 4120--Equities, or 4130--Equities (which are substantially
the same as FINRA Rules 4110, 4120, and 4130), the Exchange issues a
notice pursuant to FINRA Rule 9557. Summary suspensions are also
authorized pursuant to Rule 475(b), as described above, for any
equities or options member or member organization that is in such
financial or operating difficulty that the member or member
organization cannot be permitted to continue to do business with safety
to investors, creditors, other members or member organizations, or the
Exchange. The proposed rule is the same as its NYSE counterpart except
for the inclusion of references to ``member'' to reflect the Exchange's
membership.
Proposed Rule 9558 would allow the Exchange's CRO to provide
written authorization to Exchange staff to issue a written notice for a
summary proceeding for an action authorized by Section 6(d)(3) of the
Act. Such notice would be immediately effective. Such summary
proceedings are currently authorized under Rule 475(b), under which the
Exchange has authority to summarily suspend a member organization that
is expelled or suspended by another SRO or a covered person that is
barred or suspended by an SRO or limit or prohibit any person with
respect to access to Exchange services in certain circumstances; while
this rule also provides for notice and an opportunity for a hearing, it
does not set forth a specific time limit for requesting a hearing. The
proposed rule is the same
[[Page 11332]]
as its NYSE counterpart except for references to ``ATP Holder.''
Proposed Rule 9559 would set forth uniform hearing procedures for
all expedited proceedings under the proposed Rule 9550 Series.
Currently, the Exchange does not have a rule comparable to FINRA Rule
9559. The proposed rule is the same as its NYSE counterpart except for
references to ``ATP Holder.''
Proposed Rule 9600 Series
The Exchange proposes to adopt a new Rule 9600 Series, which would
set forth procedures by which a member or member organization could
seek exemptive relief from current Rule 341.05 of Section 4 of the
Office Rules and Rule 345.15--Equities (examination requirements); Rule
2210--Equities (communications with the public pre-filing
requirements); Rule 3170--Equities (tape recording of registered
persons by certain firms); Rule 4311--Equities (carrying agreements);
Rule 4360--Equities (fidelity bonds); and proposed Rule 8211
(submission of electronic trading data). Under proposed Rule 9610, a
member or member organization seeking exemptive relief would be
required to file a written application with the appropriate department
or staff of the Exchange and provide a copy of the application to the
CRO. Under proposed Rule 9620, after considering the application,
Exchange staff would be required to issue a written decision setting
forth its findings and conclusions. The decision would be served on the
Applicant pursuant to proposed Rules 9132 and 9134. Under proposed Rule
9630, an Applicant that wished to appeal the decision would be required
to file a written notice of appeal with the Exchange's CRO within 15
calendar days after service of the decision. Under proposed Rule
9630(e), the CRO would affirm, modify, or reverse the decision issued
under proposed Rule 9620 and issue a written decision setting forth his
or her findings and conclusions and serve the decision on the
Applicant. The decision would be served pursuant to proposed Rules 9132
and 9134, would be effective upon service, and would constitute final
action of the Exchange.
Currently, Rule 410A(d)--Equities permits a member or member
organization to seek an exception from the data format elements for
submitting electronic trading data for transactions effected on the
Exchange, but the Rule does not set forth specific procedures for doing
so. Similarly, current Rule 345.15--Equities and Rule 341.05 of Section
4 of the Office Rules and Rule 4311--Equities permit exemptions but do
not set forth specific procedures. Current Rules 2210--Equities and
4360--Equities reference FINRA's exemptive process; these rules would
be amended to delete the reference to the FINRA Rule 9600 Series as the
Exchange would now have its own such provisions.
The proposed Rule 9600 Series is the same as the NYSE Rule 9600
Series, except for the list of rules providing exemptive relief and
references to ``member'' and ``ATP Holder'' to reflect the Exchange's
membership.
Proposed Rule 9700 Series
The Rule 9700 Series would be marked ``Reserved'' to maintain
consistency with NYSE's rule numbering conventions. In adopting FINRA's
Rule 9000 Series in 2013, the NYSE did not adopt FINRA's Rule 9700
Series, which provides redress for persons aggrieved by the operations
of any automated quotation, execution, or communication system owned or
operated by FINRA, as inapplicable to the NYSE. For the same reasons,
the Exchange does not propose to adopt the FINRA Rule 9700 Series. The
Exchange notes that under current Rule 18--Equities, if a member
organization suffers a loss related to an Exchange system failure, it
can submit a claim pursuant to the procedures of that rule.\67\ ATP
Holders can submit similar claims for damages arising out of the use of
the NYSE Amex Options trading platform under Rule 905NY, subject to the
limitations set forth in that rule.
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\67\ The NYSE referenced its counterpart rule, NYSE Rule 18, in
the 2013 NYSE Disciplinary Rule Filing. See 2013 Approval Order, 78
FR at 15400.
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Proposed Rule 9800 Series
The Exchange proposes to adopt a new Rule 9800 Series to set forth
procedures for issuing temporary cease and desist orders. The Exchange
does not currently have a comparable rule.
Under proposed Rule 9810, with the prior written authorization of
the Exchange's CRO or such other senior officers as the CRO may
designate, Enforcement could initiate a temporary cease and desist
proceeding with respect to alleged violations of Section 10(b) of the
Act, SEC Rules 10b-5 and 15g-1 through 15g-9, Rule 476(a)(6) or Rule
2010--Equities (if the alleged violation is unauthorized trading, or
misuse or conversion of customer assets, or is based on violations of
Section 17(a) of the Securities Act of 1933) or Rule 476(a)(5) or Rule
2020--Equities. Proposed Rule 9820 would govern the appointment of a
Hearing Officer and Panelists.
Under proposed Rule 9830, the hearing would be held not later than
15 days after service of the notice and filing initiating the temporary
cease and desist proceeding, unless otherwise extended by the Hearing
Officer with the consent of the Parties for good cause shown. Proposed
Rule 9830 would govern how the hearing was conducted.
Under proposed Rule 9840, the Hearing Panel would be authorized to
issue a written decision stating whether a temporary cease and desist
order would be imposed. The Hearing Panel would be required to issue
the decision not later than 10 days after receipt of the hearing
transcript, unless otherwise extended by the Hearing Officer with the
consent of the Parties for good cause shown. Under proposed Rule 9850,
at any time after the Office of Hearing Officers served the respondent
with a temporary cease and desist order, a Party could apply to the
Hearing Panel to have the order modified, set aside, limited, or
suspended. The Hearing Panel generally would be required to respond to
the request in writing within 10 days after receipt of the request.
Proposed Rule 9860 would authorize the initiation of a suspension or
cancellation of a respondent's association or membership under proposed
Rule 9556 if the respondent violated a temporary cease and desist
order.
Finally, proposed Rule 9870 would provide that temporary cease and
desist orders issued under the proposed Rule 9800 Series would
constitute final and immediately effective disciplinary sanctions
imposed by the Exchange, and that the right to have any action under
this rule series reviewed by the Commission would be governed by
Section 19 of the Act. The filing of an application for review would
not stay the effectiveness of the temporary cease and desist order,
unless the Commission otherwise ordered.\68\
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\68\ FINRA recently amended its Rule 9800 Series to lower the
evidentiary standard for finding a violation to ``a showing of
likelihood of success on the merits.'' FINRA also amended Rule
Series 9100, 9200, 9300, and 9550 to adopt a new expedited
proceeding for failure to comply with a temporary cease and desist
order or a permanent cease and desist order; to harmonize the
provisions governing how documents are served in temporary cease and
desist proceedings and related expedited proceedings; to clarify the
process for issuing permanent cease and desist orders; to ease
FINRA's administrative burden in temporary cease and desist
proceedings; and to make conforming changes. See Securities Exchange
Act Release No. 75629 (Aug. 6, 2015), 80 FR 48379 (August 12, 2015)
(SR-FINRA-2015-019). The Exchange is not proposing to incorporate
similar amendments into its proposed Rule Series 9100, 9200, 9300,
9550, and 9800 at this time.
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The proposed Rule 9800 Series is the same as the NYSE Rule 9800
Series,
[[Page 11333]]
except that proposed Rule 9810(a) references violations of Exchange
rules rather than violations of similar NYSE rules.
Technical and Conforming Changes
The Exchange proposes the following technical and conforming
changes.
General Rules
Rule 0 in the Definitions under the General and Floor Rules would
be amended so that it correctly cross-references the current and
proposed disciplinary rule sets.
Rule 31 of the General Rules and Supplementary Material .01 would
be deleted. This rule contains text that concerns requests for books
and records and testimony that is duplicative of current Rule
476(a)(11) and proposed Rule 8210. Supplementary Material .02 relating
to regulatory cooperation is not duplicative of proposed Rule 8210(b)
and would be retained. Rule 31 would be renamed ``Regulatory
Cooperation.''
Rule 40 of the General Rules, which concerns denial of an ATP,
would be deleted. It is a legacy rule that is duplicative of current
Rule 475 and would be covered by proposed Rule 9558.
Contracts in Securities Rules
Rule 781, which concerns insolvency, cross-references current Rule
475, so a cross-reference to proposed Rule 9558 would be added.
Equities Rules Rule 0--Equities and Rule 500--Equities would be
amended so that they correctly cross-reference the current and proposed
disciplinary rule sets.
Rule 2A--Equities would be amended to specify that the list of
disciplinary sanctions currently set forth in that rule would apply to
proceedings under current Rules 475 and 476, and the list of
disciplinary sanctions set forth in proposed Rule 8310(a) would apply
to proceedings initiated under the proposed Rule 9000 Series.
Rule 36--Equities would be amended to include a reference to
proposed Rule 9558, which relates to summary proceedings for actions
authorized by Section 6(d)(3) of the Act.
Rule 103B--Equities, which sets forth certain security allocation
and reallocation procedures when a Designated Market Maker unit loses
its registration in a specialty stock due to disciplinary proceedings,
would be amended to include references to the proposed Rule 8000 Series
and Rule 9000 Series.
Rule 308--Equities, which sets forth procedures for member and
member organization acceptability proceedings, would be amended to
reference the Chief Hearing Officer as defined in proposed Rule 9120,
and delete the reference to a Chief Hearing Officer designated under
legacy Rule 476(b).
The text of Rule 309--Equities would be deleted and the rule marked
``Reserved'' because new Rule 41 would replace it, as described above.
Rule 345A--Equities would be amended to delete a reference to
recently deleted Rule 346(f)--Equities and replace it with a reference
to Rule 342(e) of the Office Rules.\69\
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\69\ Rule 346(f)--Equities provided that unless otherwise
permitted by the Exchange, no member, member organization, approved
person, employee or any person directly or indirectly controlling,
controlled by or under common control with a member or member
organization shall have associated with him or it any person who is
known, or in the exercise of reasonable care should be known, to be
subject to any ``statutory disqualification'' defined in Section
3(a)(39) of the Exchange Act. See 15 U.S.C. 78c(a)(39). Rule 346--
Equities was based on NYSE Rule 346 (Limitations--Employment and
Association with Members and Member Organizations). FINRA deleted
Incorporated NYSE Rule 346 in 2010 after adopting NASD Rule 3030
(Outside Business Activities of an Associated Person) as FINRA Rule
3270 (Outside Business Activities of Registered Persons). See
Securities Exchange Act Release No. 62762 (August 23, 2010), 75 FR
53362 (August 31, 2010) (order approving SR-FINRA-2009-042). FINRA
deleted NYSE Rule 346(f) as redundant given that FINRA had amended
its definition of disqualification in its By-Laws to align with the
Exchange Act definition, thereby incorporating additional categories
of statutory disqualification, including certain affiliated
relationships. See id., 75 FR at 53363.
The Exchange deleted Rule 346(f)--Equities in its entirety and
adopted a new Rule 3270--Equities (Outside Business Activities of
Registered Persons), to correspond with rule changes filed by FINRA.
See Securities Exchange Act Release No. 64130 (March 28, 2011), 76
FR 18283 (April 1, 2011) (SR-NYSEAmex-2011-17). Rule 3270--Equities,
however, does not contain a provision comparable to Rule 346(f)--
Equities and in fact makes no mention of statutory disqualification.
The comparable provision to Rule 346(f)--Equities in the Exchange's
rules can be found in Rule 342(e) of the Office Rules, which
provides that no member, member organization, allied member,
approved person, employee, or any person directly or indirectly
controlling, controlled by or under common control with a member or
member organization shall have associated with him or it any person
who is known, or in the exercise of reasonable care should be known,
to be subject to any ``statutory disqualification'' defined in
Section 3(a)(39) of the Exchange Act. The Exchange accordingly
proposes to replace the reference to Rule 346(f)--Equities in Rule
345A--Equities with a reference to Rule 342(e).
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Rule 410A--Equities, concerning electronic trading data, would be
deleted as described above.
Rule 600--Equities would be amended to include references to the
disciplinary proceedings of the proposed Rule 8000 Series and Rule 9000
Series for failure to honor an arbitration award.
As the Exchange proposes to adopt Rules 9551 and 9559 and the Rule
9600 Series, Rule 2210--Equities would be amended to revise the cross-
references to ``FINRA,'' ``FINRA Rules 9551 and 9559,'' and the ``FINRA
Rule 9600 Series.'' These cross-references were adopted as part of a
prior harmonization of Rule 2210--Equities with FINRA's rules and would
be obsolete.\70\
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\70\ See Securities Exchange Act Release No. 70963 (November 29,
2013), 78 FR 73223 (December 5, 2013) (SR-NYSEMKT-2013-95).
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Rule 3170--Equities, concerning tape recording of registered
persons by certain firms, would be amended to add a reference to the
proposed Rule 9600 Series, pursuant to which exemptive relief may be
sought.
Rules 4110--Equities, 4120--Equities, and 4130--Equities would be
amended to revise a cross-reference to FINRA Rule 9557 as the Exchange
proposes to adopt Rule 9557. Rule 4110--Equities would also be
corrected to add the missing paragraph designation for paragraph (e) of
the rule.
Rule 4360--Equities would be amended to provide that any request
for an exemption would be processed under the proposed Rule 9600 Series
rather than FINRA rules.
Options Rules
Rules 972, 902NY, 921NY, 923NY, 927.1NY, 927.2NY, 931NY, 955NY and
957NY contain cross-references to the current disciplinary rules.
Corresponding references to the proposed disciplinary rules would be
added.
Rule 991 would be amended to revise cross-references to FINRA Rules
9551 and 9559 as the Exchange proposes to adopt Rules 9551 and
9559.\71\
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\71\ See id.
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Finally, as noted above, Rule 956.1NY, which concerns electronic
trading data, would be deleted and marked ``Reserved.''
Certain Current Exchange Rules Not Included in Proposed Rule Text
Certain aspects of current Exchange rules described above would not
be included in the proposed Rule 8000-9000 Series, because either the
Exchange does not believe they are necessary or the authority is
implicit in the proposed rule change.
First, under current Rule 475(f), any person suspended under Rule
475 may, at any time, be reinstated by the Exchange Board of Directors.
The Exchange does not believe that it would continue to be appropriate
for the Exchange Board of Directors to have the authority to overturn a
suspension imposed by another Adjudicator in light of the detailed
procedural rules,
[[Page 11334]]
comprehensive protections to respondents, and continued availability of
the Exchange's appeals process under the proposed rule change.
Second, under current Rules 475(g) and 476(k), any person suspended
under such rules may be disciplined in accordance with the Exchange's
rules for any offense committed before or after the suspension. The
Exchange believes that such authority is implicit in proposed Rule 9211
and need not be expressed in the proposed rule change.
Under current Rules 475(h) and 476(j) and (k), a suspended person
is deprived during the term of the suspension of all rights and
privileges of membership, and any suspension of a member or principal
executive creates a vacancy in any office or position held by such
member or principal executive. The Exchange believes that this is
implicit in the concept of a suspension and need not be expressed in
the proposed rule change.
Under current Rule 476(i), a member or principal executive of the
Exchange who is associated with a member organization is liable to the
same discipline and penalties for any act or omission of such member
organization as for the member or principal executive's own personal
act or omission. The Hearing Panel that considers the charges may
relieve him from the penalty therefor or may adjust the penalty on such
terms and conditions as the Hearing Panel or the Exchange Board of
Directors deems fair and equitable. The Exchange believes that this
authority is contained in the proposed rule change because complaints
may be brought against both member organizations and covered persons
and are subject to review by the Hearing Panel and the Exchange Board
of Directors.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\72\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\73\ in particular, because it
is designed to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in
facilitating transactions in securities, 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,\74\
in particular, in that it provides fair procedures for the disciplining
of members and persons associated with members,\75\ 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.
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\72\ 15 U.S.C. 78f(b).
\73\ 15 U.S.C. 78f(b)(5).
\74\ 15 U.S.C. 78f(b)(7).
\75\ Under the Exchange's equities rules, the equivalent to the
term ``member'' in this context is ``member organization.'' See
notes 25-26, supra, and accompanying text.
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The proposed changes will provide greater harmonization between
Exchange, NYSE, and FINRA rules of similar purpose, resulting in less
burdensome and more efficient regulatory compliance for common members.
As previously noted, the proposed rule text is substantially the same
as the NYSE's rule text. The proposed rule change will enhance the
Exchange's ability to have a direct and meaningful impact on the end-
to-end quality of its regulatory program, from detection and
investigation of potential violations through the efficient initiation
and completion of disciplinary measures where appropriate. As such, the
proposed rule change would foster cooperation and coordination with
persons engaged in facilitating transactions in securities and would
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
Certain key aspects of the Exchange's disciplinary proceedings
would be retained. In particular, the Exchange would retain its current
selection process for Hearing Panelists. The Exchange believes that it
is necessary to do so in order to provide a fair procedure to its
member organizations and covered persons, some of which are not subject
to NYSE or FINRA jurisdiction. As such, the Exchange's Hearing
Panelists cannot be drawn solely from a pool of NYSE or FINRA members
and associated persons but rather must include NYSE MKT-only member
organizations and persons with experience in NYSE MKT Floor matters in
order for the Exchange's members to have a fair representation in its
affairs. For the same reasons, the Exchange also believes that its
Board of Directors remains the appropriate body for appeals or reviews
of initial disciplinary decisions because its Board of Directors
includes fair representation candidates from its membership.
The Exchange further believes that the proposed processes for
settling disciplinary matters both before and after the issuance of a
complaint are fair and reasonable. While such proposed rules differ
both from certain aspects of the Exchange's current Stipulation and
Consent process and FINRA's current settlement processes, the Exchange
believes that the proposed rule change nonetheless provides adequate
procedural protections to all parties and promotes efficiency.
The Exchange would retain its list of minor rule violations, which
have already been approved by the Commission,\76\ with certain
technical and conforming amendments, while adopting NYSE's and FINRA's
process for imposing minor rule violation fines, which also have
already been approved by the Commission.\77\
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\76\ The most recent amendments to the Exchange's minor rule
violation plan were approved in Securities Exchange Act Release No.
66809 (April 13, 2012), 77 FR 23532 (April 19, 2012) (SR-NYSEAmex-
2012-10).
\77\ See NYSE Rule 9216(b) and FINRA Rule 9216(b).
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Finally, the Exchange believes that its proposed transition plan
would allow for a more orderly and less burdensome transition for the
Exchange's members and member organizations. The proposed delayed
implementation of the new rule set would provide a clear demarcation
between matters that would proceed under the new rules and those that
would be completed under the legacy 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 it is designed
to (i) provide greater harmonization among Exchange, NYSE, and FINRA
rules of similar purpose for investigations and disciplinary matters;
and (ii) enhance the quality of the Exchange's regulatory program, from
detection of violations through disciplinary actions, resulting in less
burdensome and more efficient regulatory compliance and facilitating
performance of regulatory functions.
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.
[[Page 11335]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change does not (i) significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days after the date of the filing, or such shorter time as the
Commission may designate, it has become effective pursuant to Section
19(b)(3)(A) of the Act \78\ and Rule 19b-4(f)(6) thereunder.\79\
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\78\ 15 U.S.C. 78s(b)(3)(A).
\79\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File No. SR-NYSEMKT-2016-30 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File No. SR-NYSEMKT-2016-30. 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 No. SR-NYSEMKT-2016-30, and should be
submitted on or before March 24, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\80\
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\80\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-04633 Filed 3-2-16; 8:45 am]
BILLING CODE 8011-01-P
