Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Its Rules Concerning Payment of Compensation and Rebates, and Research Analyst Attestation Requirements in Order To Harmonize With Certain FINRA Rules and Make Other Conforming Changes, 78880-78884 [2016-27024]
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Federal Register / Vol. 81, No. 217 / Wednesday, November 9, 2016 / Notices
it appears to the Commission that such
action is: (1) Necessary or appropriate in
the public interest; (2) for the protection
of investors; or (3) 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
should be approved or disapproved.
2016–59 and should be submitted on or
before November 30, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Brent J. Fields,
Secretary.
[FR Doc. 2016–27028 Filed 11–8–16; 8:45 am]
BILLING CODE 8011–01–P
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–
BatsEDGX–2016–59 on the subject line.
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IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposal is
consistent with the Act. Comments may
be submitted by any of the following
methods:
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending Its Rules
Concerning Payment of Compensation
and Rebates, and Research Analyst
Attestation Requirements in Order To
Harmonize With Certain FINRA Rules
and Make Other Conforming Changes
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–BatsEDGX–2016–59. 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 will also 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–BatsEDGX–
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79231; File No. SR–
NYSEMKT–2016–90]
November 3, 2016.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on October
19, 2016, NYSE MKT LLC (‘‘NYSE
MKT’’ or the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
rules regarding (1) payment of
compensation and rebates, and (2)
research analyst attestation
requirements in order to harmonize
with certain Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’)
rules and make other conforming
changes. 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.
22 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes amending its
rules concerning (1) payment of
compensation and rebates, and (2)
research analyst attestation
requirements in order to harmonize
with certain FINRA rules and make
other conforming changes. Specifically,
the Exchange proposes to:
• Delete Rule 353—Equities (Rebates
and Compensation),4 adopt the text of
FINRA Rule 2040 (Payments to
Unregistered Persons) (including
Supplementary Material .01) and add
new Supplementary Material .02 as new
Rule 2040—Equities, and amend Rule
8311 (Effect of a Suspension,
Revocation, Cancellation, or Bar)
(including adding Supplementary
Material .01) in order to harmonize its
rules with FINRA’s rules regarding the
payment of transaction-based
compensation by members to
unregistered persons;
• delete Rule 351—Equities
(Reporting Requirements) (including
Supplementary Material .11 and .12)
and amend Rules 472—Equities
(Communications With The Public) and
9217 (Violations Appropriate for
Disposition Under Rule 9216(b)) to
harmonize with FINRA’s rules regarding
annual attestation requirements for
research analysts; and
• make certain technical and
conforming changes.5
Background
In 2007, the Exchange’s affiliate the
New York Stock Exchange LLC
4 References to rules are to NYSE MKT rules
unless otherwise indicated.
5 As discussed below, the conforming changes the
Exchange proposes would substitute the term
‘‘member organization’’ for ‘‘member’’ and the term
‘‘Exchange’’ for ‘‘FINRA.’’
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Federal Register / Vol. 81, No. 217 / Wednesday, November 9, 2016 / Notices
As part of the rule consolidation
process, in 2014, FINRA adopted FINRA
Rule 2040 regarding payment of
transaction-based compensation by
members or associated persons to
unregistered persons.10 The
requirements of Incorporated NYSE
Rule 353, which are the same as Rule
353—Equities,11 were consolidated into
the new FINRA rule, and FINRA deleted
Incorporated NYSE Rule 353.12
In the same filing, FINRA amended
FINRA Rule 8311 to eliminate
duplicative provisions in NASD IM–
2420–2 (Continuing Commissions
Policy) 13 and clarify the scope of the
rule on payments by members to
persons subject to suspension,
revocation, cancellation, bar or other
disqualification and added new
Supplementary Material .01
(Remuneration Accrued Prior to
Effective Date of Sanction or
Disqualification) expressly permitting a
member to pay to any person subject to
a sanction or disqualification any
remuneration pursuant to an insurance
or medical plan, indemnity agreement
relating to legal fees, or as required by
an arbitration award or court
judgment.14
6 NYSE Regulation, Inc., a former not-for-profit
subsidiary of the NYSE, was also a party to the
Agreement by virtue of the fact that it performed
regulatory functions for the NYSE pursuant to a
delegation agreement. See Securities Exchange Act
Release No. 53382 (February 27, 2006), 71 FR
11251, 11264–65 (March 6, 2006) (SR–NYSE–2005–
77) (approving delegation agreement). NYSE
Regulation also performed regulatory services for
the Exchange pursuant to an intercompany
Regulatory Services Agreement (‘‘RSA’’) that gave
the Exchange the contractual right to review NYSE
Regulation’s performance. The delegation
agreement and related RSA terminated on February
16, 2016, and NYSE Regulation has ceased
providing regulatory services to the Exchange,
which has re-integrated its regulatory functions.
7 See Securities Exchange Act Release Nos. 56148
(July 26, 2007), 72 FR 42146 (August 1, 2007) (File
No. 4–544) (order approving the Agreement); 56147
(July 26, 2007), 72 FR 42166 (August 1, 2007) (SR–
NASD–2007–054) (order approving the
incorporation of certain NYSE Rules as ‘‘Common
Rules’’). Paragraph 2(b) of the Agreement sets forth
procedures regarding proposed changes to the
substance of any of the Common Rules.
8 See Securities Exchange Act Release Nos. 56148
(July 26, 2007), 72 FR 42146 (August 1, 2007) (File
No. 4–544) (order approving the Agreement); 56147
(July 26, 2007), 72 FR 42166 (August 1, 2007) (SR–
NASD–2007–054) (order approving the
incorporation of certain NYSE Rules as ‘‘Common
Rules’’); 60409 (July 30, 2009), 74 FR 39353 (File
No. 4–587) (August 6, 2009) (order approving the
amended and restated Agreement, adding NYSE
MKT as a party). Paragraph 2(b) of the Agreement
sets forth procedures regarding proposed changes
by FINRA, NYSE or NYSE MKT to the substance
of any of the Common Rules.
9 FINRA’s rulebook currently has three sets of
rules: (1) NASD Rules, (2) FINRA Incorporated
NYSE Rules, and (3) consolidated FINRA Rules.
The FINRA Incorporated NYSE Rules apply only to
those members of FINRA that are also members of
the NYSE (‘‘Dual Members’’), while the
consolidated FINRA Rules apply to all FINRA
members. For more information about the FINRA
rulebook consolidation process, see FINRA
Information Notice, March 12, 2008.
10 See Securities Exchange Act Release Nos.
73210 (September 25, 2014), 79 FR 59322 (October
1, 2014) (SR–FINRA–2014–037) (‘‘FINRA Notice’’)
and 73954 (December 30, 2014), 80 FR 553 (January
6, 2015) (SR–FINRA–2014–37) (‘‘FINRA Approval
Order’’).
11 Rule 353(a)—Equities, like the NYSE Rule,
prohibits a member, principal executive, registered
representative or officer from, directly or indirectly,
rebating to any person any part of the compensation
he receives from the solicitation of orders for the
purchase or sale of securities or other similar
instruments for the accounts of customers of the
member, or pay such compensation, or any part
thereof, as a bonus, commission, fee or other
consideration for business sought or procured for
him or for any other member. Rule 353(b)—Equities
further provides that a member, principal executive,
registered representative or officer cannot be
compensated for business done by or through his
employer after the termination of his employment
except as may be permitted by the Exchange.
12 FINRA also incorporated the requirements of
Incorporated NYSE Rule Interpretation 345(a)(i)/01
(Compensation to Non-Registered Persons),
Incorporated NYSE Rule Interpretation 345(a)(i)/02
(Compensation Paid for Advisory Solicitations), and
NYSE Rule Interpretation 345(a)(i)/03
(Compensation to Non-Registered Foreign Persons
Acting as Finders) into its Rule 2040. The Exchange
did not adopt these interpretations when it adopted
NYSE Rule 345.
13 NASD IM–2420–2 allows members to pay
continuing commissions to former registered
representatives after they cease to be employed by
a member, if, among other things, a bona fide
contract between the member and the registered
representative calling for the payments was entered
into in good faith while the person was a registered
representative of the employing member. See
FINRA Notice, 79 FR at 59326. Rule 353(b)—
Equities, on the other hand, provides that a
member, principal executive, registered
representative or officer cannot be compensated for
business done by or through his employer after the
termination of his employment except as may be
permitted by the Exchange.
14 FINRA Approval Order, 80 FR at 556–57.
(‘‘NYSE’’) and FINRA 6 entered into an
agreement (the ‘‘Agreement’’) pursuant
to Rule 17d–2 under the Act to reduce
regulatory duplication by allocating to
FINRA certain regulatory
responsibilities for NYSE rules and rule
interpretations (‘‘FINRA Incorporated
NYSE Rules’’).7 The Exchange became a
party to the Agreement effective
December 15, 2008.8
In order to reduce regulatory
duplication and relieve firms that are
members of the Exchange, the NYSE
and FINRA of conflicting or
unnecessary regulatory burdens, FINRA
has been reviewing and amending the
NASD and FINRA Incorporated NYSE
Rules in order to create a consolidated
FINRA rulebook.9
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Payment of Transaction-Based
Compensation
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78881
Research Analyst Attestation
Requirements
In 2011, the Exchange adopted FINRA
Rule 4530 (Reporting Requirements) as
Rule 4530—Equities. FINRA Rule 4530
was modeled in part on former NYSE
Rule 351(a)–(d) governing trade
investigation reporting requirements,
which the Exchange adopted as Rule
351—Equities.15 The Exchange retained
Rule 351(f)—Equities, which requires a
letter of attestation signed by a principal
executive that the member or member
organization has established and
implemented procedures reasonably
designed to comply with the provisions
of Rule 472—Equities, that each
research analyst’s compensation was
reviewed and approved in accordance
with the requirements of Rule
472(h)(2)—Equities, and that the basis
for such approval has been documented.
At the time, the Exchange noted that
NYSE Rules 351(f)—Equities, 351.11—
Equities and 351.12—Equities governing
the annual attestation requirement
would be addressed as part of the
research analyst conflict of interest
rules.16
In 2015, FINRA adopted FINRA Rule
2241 (Research Analysts and Research
Reports), which deleted the requirement
to attest annually that the firm has in
place written supervisory policies and
procedures reasonably designed to
achieve compliance with the applicable
provisions of the rules, including the
compensation committee review
provision.17 As FINRA explained in its
filing, firms were already obligated
pursuant to NASD Rule 3010
(Supervision) to have a supervisory
system reasonably designed to achieve
compliance with all applicable
securities laws and regulations and
FINRA rules. Moreover, the research
rules also were subject to the
supervisory control rules (NASD Rule
3012) and the annual certification
requirement regarding compliance and
supervisory processes embodied in
FINRA Rule 3130. As such, FINRA did
not believe that a separate attestation
requirement for the research rules was
necessary.18
15 See Securities Exchange Act Release No. 64784
(June 30, 2011), 76 FR 39947, 39948 (July 7, 2011)
(SR–NYSEAmex–2011–42).
16 See id. at 39948, n.8.
17 See Securities Exchange Act Release No. 75471
(July 16, 2015), 80 FR 43482, 43488 (July 22, 2015)
(SR–FINRA–2014–047) (‘‘Release No. 75471’’).
18 See id. NASD Rules 3010 and 3012 referred to
in the approval order were adopted with changes
as FINRA Rules 3110 (Supervision) and 3120
(Supervisory Control System). See id., n. 83;
Securities Exchange Act Release No. 71179
(December 23, 2013), 78 FR 79542 (December 30,
2013) (SR–FINRA–2013–025).
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Federal Register / Vol. 81, No. 217 / Wednesday, November 9, 2016 / Notices
The attestation requirement in current
Rule 351(f)—Equities is inconsistent
with FINRA Rule 2241, thereby
presenting member organizations that
are also FINRA members with
inconsistent requirements. Moreover,
the Exchange has adopted FINRA Rules
3110, 3120 and 3130 as Rules 3110—
Equities, 3120—Equities and 3130—
Equities.19 Exchange member
organizations are therefore subject to the
same supervisory requirements as
FINRA member firms, including the
annual certification requirement
regarding compliance and supervisory
processes in Rule 3130—Equities.
Proposed Rule Changes
Payment of Transaction-Based
Compensation
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Deletion of Rule 353—Equities and
Adoption of FINRA Rule 2040
In light of FINRA’s adoption of a
comprehensive rule regarding the
payment of transaction-based
compensation, the Exchange proposes to
adopt the text of FINRA Rule 2040 as
NYSE MKT Rule 2040—Equities and
delete Rule 353—Equities, the
Exchange’s current rule governing
rebates and compensation. As noted
above, the requirements of NYSE MKT
Rule 353—Equities have been
consolidated into the FINRA rule,
making them redundant.20 For
consistency with FINRA rules, the
Exchange proposes to: (1) Change
references to ‘‘member’’ in the text of
FINRA Rule 2040 (including
Supplementary Material .01) to
‘‘member organization’’; 21 (2) change
references to ‘‘FINRA’’ in the text of
FINRA Rule 2040 (including
Supplementary Material .01) to ‘‘the
Exchange’’; and (3) change the reference
in Rule 2040(c)(1) to ‘‘disqualification as
defined in Article III, Section 4 of
FINRA’s By-Laws’’ to ‘‘statutory
disqualification as defined in Section
3(a)(39) of the Securities Exchange Act
of 1934.’’ In addition, in order to ensure
that proposed Rule 2040—Equities and
FINRA Rule 2040 are fully harmonized,
the Exchange also proposes to add
Supplementary Material .02 to proposed
Rule 2040 to provide that, for purposes
19 See Securities Exchange Act Release No. 73640
(November 19, 2014), 79 FR 70237 (November 25,
2014) (SR–NYSEMKT–2014–93) (adopting FINRA
Rules 3110 and 3120); Securities Exchange Act
Release No. 59656 (March 30, 2009), 74 FR 15540
(April 6, 2009) (SR–NYSEALTR–2009–26)
(adopting FINRA Rule 3130).
20 See FINRA Approval Order, 80 FR at 555 &
557. See also notes 10–12 and accompanying text,
supra.
21 Under Exchange rules, ‘‘member organization’’
is the equivalent term to FINRA’s ‘‘member.’’ See
note 25, infra.
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of the rule, the term ‘‘associated person’’
shall have the same meaning as the
terms ‘‘person associated with a
member’’ or ‘‘associated person of a
member’’ as defined in Article I (rr) of
the FINRA ByLaws. The proposed Rule
is otherwise the same as its FINRA
counterpart.
Amendment to Rule 8311 To Reflect
Recent Amendments to FINRA Rule
8311
To reflect FINRA’s recent
amendments to FINRA Rule 8311, the
Exchange proposes certain amendments
to NYSE MKT Rule 8311 to fully
harmonize the two rules.22 First, the
Exchange proposes to delete the word
‘‘or’’ in the heading and add the phrase
‘‘or Other Disqualification.’’ The first
paragraph would be become subsection
(a) and the text would be harmonized
with FINRA Rule 8311(a).
Proposed Rule 8311(a) would clarify
the scope of payments by member
organizations to persons subject to
suspension, revocation, cancellation,
bar (each a ‘‘sanction’’) or other
disqualification and would provide that
if a person is subject to a sanction or
other disqualification, a member
organization may not allow such person
to be associated with it in any capacity
that is inconsistent with the sanction
imposed or disqualified status,
including a clerical or ministerial
capacity. Proposed Rule 8311(a) would
further provide that a member
organization may not pay or credit to
any person subject to a sanction or
disqualification, during the period of
the sanction or disqualification or any
period thereafter, any salary,
commission, profit, or any other
remuneration that the person might
accrue, not just earn, during the period
of the sanction or disqualification. The
Exchange also proposes to add a new
sentence to proposed Rule 8311(a)
providing that a member organization
may make payments or credits to a
person subject to a sanction that are
consistent with the scope of activities
permitted under the sanction where the
sanction solely limits an associated
person from conducting specified
activities (such as a suspension from
acting in a principal capacity) or to a
disqualified person that has been
approved (or is otherwise permitted
22 Rule 8311 provides 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. Rule 8311
applies to both the Exchange’s equities and options
markets.
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pursuant to Exchange rules and the
federal securities laws) to associate with
a member organization.
Further, the Exchange proposes to add
a new subsection (b) and new proposed
Supplementary Material .01 that, with
the exception of conforming references
to ‘‘members’’ in the text of FINRA Rule
8311 to ‘‘member organizations’’ and
references to ‘‘FINRA’’ to ‘‘the
Exchange,’’ would be identical to the
recent amendments to FINRA Rule
8311.
The Exchange believes that the
proposed Rule complements proposed
Rule 2040 and would harmonize the
Exchange’s rules on payments by
member organizations to persons subject
to suspension, revocation, cancellation,
bar or other disqualification.
Research Analyst Attestation
Requirements
Deletion of Rule 351(f)—Equities and
Supplementary Material .11 and .12
In light of FINRA’s elimination of an
annual attestation requirement when it
adopted FINRA Rule 2241,23 the
Exchange proposes to delete Rule
351(f)—Equities and Supplementary
Material .11 and .12, thereby
eliminating inconsistent requirements
for member organizations that are also
FINRA members.24 As noted above,
Exchange member organizations are also
subject to the same supervisory
requirements as FINRA member firms,
including the annual certification
requirement regarding compliance and
supervisory processes in Rule 3130—
Equities.
The Exchange proposes to mark the
entire Rule as ‘‘Reserved’’ and delete
headings (a) through (e), which have no
content and are marked ‘‘Reserved’’.
Conforming Changes
The Exchange proposes the following
conforming changes. First, the Exchange
would substitute the term ‘‘member
organization’’ for ‘‘member’’ 25 and the
23 See
Release No. 75471, 80 FR at 43488.
Exchange has not adopted FINRA Rule
2241. Under Rule 2(b)(i), member organizations that
transact business with public customers must at all
times be members of FINRA and, as such, would
be subject to FINRA’s rules, including the
requirements of Rule 2241.
25 The term ‘‘member’’ has different meanings
under FINRA and Exchange rules. Under FINRA
Rule 0160(b)(10), a ‘‘member’’ means an individual,
partnership, corporation or other legal entity
admitted to membership in FINRA under Articles
III and IV of the FINRA By-Laws. Article III, Sec.
1(a) of the FINRA By-Laws generally limits
membership to registered brokers, dealers,
municipal securities brokers or dealers, or
government securities brokers or dealers. The
Exchange’s equivalent term is ‘‘member
organization.’’ See Rule 2(b)(i)—Equities (defining
‘‘member organization’’ as a registered broker or
24 The
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term ‘‘Exchange’’ for ‘‘FINRA’’ in
proposed Rule 2040—Equities and in
the changes proposed for Rule 8311.
Second, the Exchange would delete
references to Rule 351—Equities in
Rules 472(c) and (h)—Equities,
governing communications with the
public, and 9217, which sets forth the
rules included in NYSE MKT’s minor
rule violation plan.
2. Statutory Basis
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The Exchange believes that the
proposed rule changes are consistent
with Section 6(b) of the Act,26 in
general, and Section 6(b)(5) of the Act,27
in particular, because the proposed rule
changes would be consistent with and
facilitate a governance and regulatory
structure that is designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to,
and perfect the mechanism of a free and
open market and a national market
system and, in general, to protect
investors and the public interest. The
Exchange believes that the proposed
rule changes support the objectives of
the Act by providing greater
harmonization between Exchange rules
and FINRA rules of similar purpose,
resulting in less burdensome and more
efficient regulatory compliance. In
particular, adopting proposed Rule
2040—Equities and amending Rule 8311
based on FINRA Rules 2040 and 8311
would promote just and equitable
principles of trade by providing greater
harmonization between NYSE MKT
Rules and FINRA Rules of similar
purpose, resulting in less burdensome
and more efficient regulatory
compliance.
Similarly, deleting Rule 351(f)—
Equities and Supplementary Material
.11 and .12 as inconsistent with FINRA
Rule 2241 would eliminate inconsistent
annual attestation requirements,
resulting in less burdensome and more
efficient regulatory compliance and
promoting just and equitable principles
of trade. The Exchange further believes
that eliminating the annual attestation
dealer (unless exempt pursuant to the Act) that is
a member of FINRA or another registered securities
exchange). Under NYSE Rule 2(a)—Equities, the
term ‘‘member’’ means a natural person associated
with a member organization who has been
approved by the Exchange and designated by such
member organization to effect transactions on the
floor of the Exchange or any facility thereof.
26 15 U.S.C. 78f(b).
27 15 U.S.C. 78f(b)(1).
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requirement would not be inconsistent
with the Exchange’s obligations under
the Exchange Act to prevent fraudulent
or manipulative acts and practices
because Exchange member
organizations are subject to the same
supervisory requirements as FINRA
member firms, including an annual
certification requirement regarding
compliance and supervisory processes
set forth in Rule 3130—Equities. To the
extent the Exchange has proposed
changes that differ from the FINRA
version of the Exchange rules, such
changes are generally technical in
nature and do not change the substance
of the proposed rules. The Exchange
also believes that the proposed
conforming changes will update and
add specificity to the Exchange’s rules,
which will promote just and equitable
principles of trade and help to protect
investors.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act,28 the Exchange does not believe
that the proposed rule changes will
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
The proposed rule changes are not
intended to address competitive issues
but rather to achieve greater
transparency and consistency between
the Exchange’s rules and FINRA’s
requirements concerning payments to
unregistered persons, the effect of
suspensions, revocations, cancellations,
bars or other disqualifications, and
research analyst annual attestation
requirements.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 29 and Rule
19b–4(f)(6) thereunder.30 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
prior to 30 days from the date on which
U.S.C. 78f(b)(8).
U.S.C. 78s(b)(3)(A)(iii).
30 17 CFR 240.19b–4(f)(6).
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) 31 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b4(f)(6)(iii),32 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest.
At any time within 60 days of the
filing of such 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
under Section 19(b)(2)(B) 33 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEMKT–2016–90 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEMKT–2016–90. 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
28 15
31 17
29 15
32 17
PO 00000
Frm 00112
Fmt 4703
Sfmt 4703
78883
CFR 240.19b–4(f)(6).
CFR 240.19b–4(f)(6)(iii).
33 15 U.S.C. 78s(b)(2)(B).
E:\FR\FM\09NON1.SGM
09NON1
78884
Federal Register / Vol. 81, No. 217 / Wednesday, November 9, 2016 / Notices
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEMKT–2016–90 and should be
submitted on or before November 30,
2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
Brent J. Fields,
Secretary.
[FR Doc. 2016–27024 Filed 11–8–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79224; File No. SR–DTC–
2016–802]
Self-Regulatory Organizations; The
Depository Trust Company; Notice of
Filing of and Extension of Review
Period of Advance Notice Relating to
Processing of Transactions in Money
Market Instruments
sradovich on DSK3GMQ082PROD with NOTICES
November 3, 2016.
Pursuant to Section 806(e)(1) of Title
VIII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act
entitled the Payment, Clearing, and
Settlement Supervision Act of 2010
(‘‘Clearing Supervision Act’’) 1 and Rule
19b–4(n)(1)(i) under the Securities
Exchange Act of 1934 (‘‘Act’’),2 notice is
hereby given that on September 23,
2016, The Depository Trust Company
(‘‘DTC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the advance notice SR–DTC–2016–802
(‘‘Advance Notice’’) as described in
34 17
CFR 200.30–3(a)(12).
U.S.C. 5465(e)(1).
2 17 CFR 240.19b–4(n)(1)(i).
1 12
VerDate Sep<11>2014
16:29 Nov 08, 2016
Jkt 241001
Items I and II below, which Items have
been prepared primarily by DTC.3 The
Commission is publishing this notice to
solicit comments on the Advance Notice
from interested persons and to extend
the review period of the Advance
Notice, for an additional 60 days under
Section 806(e)(1)(H) of the Clearing
Supervision Act.4
I. Clearing Agency’s Statement of the
Terms of Substance of the Advance
Notice
This Advance Notice consists of
modifications to (i) the DTC Rules, Bylaws and Organization Certificate
(‘‘Rules’’),5 (ii) the DTC Settlement
Service Guide (‘‘Settlement Guide’’),6
and (iii) the DTC Distributions Service
Guide (‘‘Distributions Guide’’),7
annexed hereto as Exhibit 5
(‘‘Proposal’’). The Proposal would
modify the Rules, Settlement Guide, and
Distributions Guide to establish a
change in the processing of transactions
in money market instruments (‘‘MMI’’)
that are processed in DTC’s MMI
Program (‘‘MMI Securities’’).8 The
Proposal would affect DTC’s processing
of issuances of MMI Securities
(‘‘Issuances’’) by issuers of MMI
Securities (‘‘Issuers’’) as well as
Maturity Presentments, Income
Presentments, Principal Presentments,
and Reorganization Presentments
(collectively, ‘‘Presentments’’)
(Issuances and Presentments,
collectively ‘‘MMI Obligations’’). The
Proposal would amend the Rules and
Settlement Guide to (i) eliminate intraday reversals of processed but not yet
settled MMI Obligations resulting from
an Issuing and Paying Agent (‘‘IPA’’)
3 On September 23, 2016, DTC filed this Advance
Notice as a proposed rule change (SR–DTC–2016–
008) with the Commission pursuant to Section
19(b)(1) of the Act, 15 U.S.C. 78s(b)(1), and Rule
19b–4, 17 CFR 240.19b–4. Securities Exchange Act
Release No. 34–79046 (October 5, 2016), 81 FR
70200 (October 11, 2016) (SR–DTC–2016–008).
4 See 12 U.S.C. 5465(e)(1)(H).
5 Available at https://www.dtcc.com/legal/rulesand-procedures.aspx.
6 Available at https://www.dtcc.com/∼/media/
Files/Downloads/legal/service-guides/
Settlement.pdf.
7 Available at https://www.dtcc.com/∼/media/
Files/Downloads/legal/service-guides/
Distributions%20Service%20Guide%20FINAL%20
November%202014.pdf.
8 Eligibility for inclusion in the MMI Program
covers MMI, which are short-term debt Securities
that generally mature 1 to 270 days from their
original issuance date. MMI include, but are not
limited to, commercial paper, banker’s acceptances
and short-term bank notes and are issued by
financial institutions, large corporations, or state
and local governments. Most MMI trade in large
denominations (typically, $250,000 to $50 million)
and are purchased by institutional investors.
Eligibility for inclusion in the MMI Program also
covers medium term notes that mature over a longer
term.
PO 00000
Frm 00113
Fmt 4703
Sfmt 4703
notifying DTC of its refusal to pay
(‘‘RTP’’) for Presentments of an Issuer’s
maturing MMI Securities for a
designated Acronym; 9 (ii) eliminate the
Largest Provisional Net Credit (‘‘LPNC’’)
risk management control; (iii) provide
that the IPA must acknowledge its
funding obligations for Presentments
and that Receivers of Issuances must
approve their receipt of those Issuances
in DTC’s Receiver Authorized Delivery
(‘‘RAD’’) system before DTC would
process MMI Presentments; (iv)
implement an enhanced process to test
risk management controls under certain
conditions with respect to an Acronym
(to be referred to as MMI Optimization,
as defined below); (v) make updates and
revisions to the Settlement Processing
Schedule in the Settlement Guide
(‘‘Processing Schedule’’), as described
below, (vi) eliminate the ‘‘receive versus
payment NA’’ control (‘‘RVPNA’’), as
described below, and (vii) make other
technical and clarifying changes to the
text, as more fully described below. In
addition, the Proposal would amend the
Distributions Guide to make changes to
text relating to the processing of Income
Presentments so that it is consistent
with the changes proposed in the
Settlement Guide in that regard, as more
fully described below.10
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Advance Notice
In its filing with the Commission, the
clearing agency included statements
concerning the purpose of and basis for
the Advance Notice and discussed any
comments it received on the Advance
Notice. The text of these statements may
be examined at the places specified in
Item IV below. The clearing agency has
prepared summaries, set forth in
sections A and B below, of the most
significant aspects of such statements.
(A) Clearing Agency’s Statement on
Comments on the Advance Notice
Received From Members, Participants,
or Others
DTC has not solicited and does not
intend to solicit comments regarding the
Proposal. DTC has not received any
unsolicited written comments from
9 Rule 1, supra note 5. MMI of an Issuer are
designated by DTC using unique four-character
identifiers employed by DTC referred to as
Acronyms. An MMI Issuer can have multiple
Acronyms representing its Securities. MMI
Transactions and other functions relating to MMI
(e.g., confirmations and RTP) instructed and/or
performed by IPAs, Participants and/or DTC as
described herein are performed on an ‘‘Acronymby-Acronym’’ basis.
10 Capitalized terms not otherwise defined herein
have the respective meanings set forth in the Rules,
the Settlement Guide, and the Distributions Guide.
E:\FR\FM\09NON1.SGM
09NON1
]]>Agencies
[Federal Register Volume 81, Number 217 (Wednesday, November 9, 2016)]
[Notices]
[Pages 78880-78884]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-27024]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79231; File No. SR-NYSEMKT-2016-90]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending Its Rules
Concerning Payment of Compensation and Rebates, and Research Analyst
Attestation Requirements in Order To Harmonize With Certain FINRA Rules
and Make Other Conforming Changes
November 3, 2016.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on October 19, 2016, NYSE MKT LLC (``NYSE MKT'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its rules regarding (1) payment of
compensation and rebates, and (2) research analyst attestation
requirements in order to harmonize with certain Financial Industry
Regulatory Authority, Inc. (``FINRA'') rules and make other conforming
changes. The proposed rule change is available on the Exchange's Web
site at www.nyse.com, at the principal office of the Exchange, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes amending its rules concerning (1) payment of
compensation and rebates, and (2) research analyst attestation
requirements in order to harmonize with certain FINRA rules and make
other conforming changes. Specifically, the Exchange proposes to:
Delete Rule 353--Equities (Rebates and Compensation),\4\
adopt the text of FINRA Rule 2040 (Payments to Unregistered Persons)
(including Supplementary Material .01) and add new Supplementary
Material .02 as new Rule 2040--Equities, and amend Rule 8311 (Effect of
a Suspension, Revocation, Cancellation, or Bar) (including adding
Supplementary Material .01) in order to harmonize its rules with
FINRA's rules regarding the payment of transaction-based compensation
by members to unregistered persons;
---------------------------------------------------------------------------
\4\ References to rules are to NYSE MKT rules unless otherwise
indicated.
---------------------------------------------------------------------------
delete Rule 351--Equities (Reporting Requirements)
(including Supplementary Material .11 and .12) and amend Rules 472--
Equities (Communications With The Public) and 9217 (Violations
Appropriate for Disposition Under Rule 9216(b)) to harmonize with
FINRA's rules regarding annual attestation requirements for research
analysts; and
make certain technical and conforming changes.\5\
---------------------------------------------------------------------------
\5\ As discussed below, the conforming changes the Exchange
proposes would substitute the term ``member organization'' for
``member'' and the term ``Exchange'' for ``FINRA.''
---------------------------------------------------------------------------
Background
In 2007, the Exchange's affiliate the New York Stock Exchange LLC
[[Page 78881]]
(``NYSE'') and FINRA \6\ entered into an agreement (the ``Agreement'')
pursuant to Rule 17d-2 under the Act to reduce regulatory duplication
by allocating to FINRA certain regulatory responsibilities for NYSE
rules and rule interpretations (``FINRA Incorporated NYSE Rules'').\7\
The Exchange became a party to the Agreement effective December 15,
2008.\8\
---------------------------------------------------------------------------
\6\ NYSE Regulation, Inc., a former not-for-profit subsidiary of
the NYSE, was also a party to the Agreement by virtue of the fact
that it performed regulatory functions for the NYSE pursuant to a
delegation agreement. See Securities Exchange Act Release No. 53382
(February 27, 2006), 71 FR 11251, 11264-65 (March 6, 2006) (SR-NYSE-
2005-77) (approving delegation agreement). NYSE Regulation also
performed regulatory services for the Exchange pursuant to an
intercompany Regulatory Services Agreement (``RSA'') that gave the
Exchange the contractual right to review NYSE Regulation's
performance. The delegation agreement and related RSA terminated on
February 16, 2016, and NYSE Regulation has ceased providing
regulatory services to the Exchange, which has re-integrated its
regulatory functions.
\7\ See Securities Exchange Act Release Nos. 56148 (July 26,
2007), 72 FR 42146 (August 1, 2007) (File No. 4-544) (order
approving the Agreement); 56147 (July 26, 2007), 72 FR 42166 (August
1, 2007) (SR-NASD-2007-054) (order approving the incorporation of
certain NYSE Rules as ``Common Rules''). Paragraph 2(b) of the
Agreement sets forth procedures regarding proposed changes to the
substance of any of the Common Rules.
\8\ See Securities Exchange Act Release Nos. 56148 (July 26,
2007), 72 FR 42146 (August 1, 2007) (File No. 4-544) (order
approving the Agreement); 56147 (July 26, 2007), 72 FR 42166 (August
1, 2007) (SR-NASD-2007-054) (order approving the incorporation of
certain NYSE Rules as ``Common Rules''); 60409 (July 30, 2009), 74
FR 39353 (File No. 4-587) (August 6, 2009) (order approving the
amended and restated Agreement, adding NYSE MKT as a party).
Paragraph 2(b) of the Agreement sets forth procedures regarding
proposed changes by FINRA, NYSE or NYSE MKT to the substance of any
of the Common Rules.
---------------------------------------------------------------------------
In order to reduce regulatory duplication and relieve firms that
are members of the Exchange, the NYSE and FINRA of conflicting or
unnecessary regulatory burdens, FINRA has been reviewing and amending
the NASD and FINRA Incorporated NYSE Rules in order to create a
consolidated FINRA rulebook.\9\
---------------------------------------------------------------------------
\9\ FINRA's rulebook currently has three sets of rules: (1) NASD
Rules, (2) FINRA Incorporated NYSE Rules, and (3) consolidated FINRA
Rules. The FINRA Incorporated NYSE Rules apply only to those members
of FINRA that are also members of the NYSE (``Dual Members''), while
the consolidated FINRA Rules apply to all FINRA members. For more
information about the FINRA rulebook consolidation process, see
FINRA Information Notice, March 12, 2008.
---------------------------------------------------------------------------
Payment of Transaction-Based Compensation
As part of the rule consolidation process, in 2014, FINRA adopted
FINRA Rule 2040 regarding payment of transaction-based compensation by
members or associated persons to unregistered persons.\10\ The
requirements of Incorporated NYSE Rule 353, which are the same as Rule
353--Equities,\11\ were consolidated into the new FINRA rule, and FINRA
deleted Incorporated NYSE Rule 353.\12\
---------------------------------------------------------------------------
\10\ See Securities Exchange Act Release Nos. 73210 (September
25, 2014), 79 FR 59322 (October 1, 2014) (SR-FINRA-2014-037)
(``FINRA Notice'') and 73954 (December 30, 2014), 80 FR 553 (January
6, 2015) (SR-FINRA-2014-37) (``FINRA Approval Order'').
\11\ Rule 353(a)--Equities, like the NYSE Rule, prohibits a
member, principal executive, registered representative or officer
from, directly or indirectly, rebating to any person any part of the
compensation he receives from the solicitation of orders for the
purchase or sale of securities or other similar instruments for the
accounts of customers of the member, or pay such compensation, or
any part thereof, as a bonus, commission, fee or other consideration
for business sought or procured for him or for any other member.
Rule 353(b)--Equities further provides that a member, principal
executive, registered representative or officer cannot be
compensated for business done by or through his employer after the
termination of his employment except as may be permitted by the
Exchange.
\12\ FINRA also incorporated the requirements of Incorporated
NYSE Rule Interpretation 345(a)(i)/01 (Compensation to Non-
Registered Persons), Incorporated NYSE Rule Interpretation
345(a)(i)/02 (Compensation Paid for Advisory Solicitations), and
NYSE Rule Interpretation 345(a)(i)/03 (Compensation to Non-
Registered Foreign Persons Acting as Finders) into its Rule 2040.
The Exchange did not adopt these interpretations when it adopted
NYSE Rule 345.
---------------------------------------------------------------------------
In the same filing, FINRA amended FINRA Rule 8311 to eliminate
duplicative provisions in NASD IM-2420-2 (Continuing Commissions
Policy) \13\ and clarify the scope of the rule on payments by members
to persons subject to suspension, revocation, cancellation, bar or
other disqualification and added new Supplementary Material .01
(Remuneration Accrued Prior to Effective Date of Sanction or
Disqualification) expressly permitting a member to pay to any person
subject to a sanction or disqualification any remuneration pursuant to
an insurance or medical plan, indemnity agreement relating to legal
fees, or as required by an arbitration award or court judgment.\14\
---------------------------------------------------------------------------
\13\ NASD IM-2420-2 allows members to pay continuing commissions
to former registered representatives after they cease to be employed
by a member, if, among other things, a bona fide contract between
the member and the registered representative calling for the
payments was entered into in good faith while the person was a
registered representative of the employing member. See FINRA Notice,
79 FR at 59326. Rule 353(b)--Equities, on the other hand, provides
that a member, principal executive, registered representative or
officer cannot be compensated for business done by or through his
employer after the termination of his employment except as may be
permitted by the Exchange.
\14\ FINRA Approval Order, 80 FR at 556-57.
---------------------------------------------------------------------------
Research Analyst Attestation Requirements
In 2011, the Exchange adopted FINRA Rule 4530 (Reporting
Requirements) as Rule 4530--Equities. FINRA Rule 4530 was modeled in
part on former NYSE Rule 351(a)-(d) governing trade investigation
reporting requirements, which the Exchange adopted as Rule 351--
Equities.\15\ The Exchange retained Rule 351(f)--Equities, which
requires a letter of attestation signed by a principal executive that
the member or member organization has established and implemented
procedures reasonably designed to comply with the provisions of Rule
472--Equities, that each research analyst's compensation was reviewed
and approved in accordance with the requirements of Rule 472(h)(2)--
Equities, and that the basis for such approval has been documented. At
the time, the Exchange noted that NYSE Rules 351(f)--Equities, 351.11--
Equities and 351.12--Equities governing the annual attestation
requirement would be addressed as part of the research analyst conflict
of interest rules.\16\
---------------------------------------------------------------------------
\15\ See Securities Exchange Act Release No. 64784 (June 30,
2011), 76 FR 39947, 39948 (July 7, 2011) (SR-NYSEAmex-2011-42).
\16\ See id. at 39948, n.8.
---------------------------------------------------------------------------
In 2015, FINRA adopted FINRA Rule 2241 (Research Analysts and
Research Reports), which deleted the requirement to attest annually
that the firm has in place written supervisory policies and procedures
reasonably designed to achieve compliance with the applicable
provisions of the rules, including the compensation committee review
provision.\17\ As FINRA explained in its filing, firms were already
obligated pursuant to NASD Rule 3010 (Supervision) to have a
supervisory system reasonably designed to achieve compliance with all
applicable securities laws and regulations and FINRA rules. Moreover,
the research rules also were subject to the supervisory control rules
(NASD Rule 3012) and the annual certification requirement regarding
compliance and supervisory processes embodied in FINRA Rule 3130. As
such, FINRA did not believe that a separate attestation requirement for
the research rules was necessary.\18\
---------------------------------------------------------------------------
\17\ See Securities Exchange Act Release No. 75471 (July 16,
2015), 80 FR 43482, 43488 (July 22, 2015) (SR-FINRA-2014-047)
(``Release No. 75471'').
\18\ See id. NASD Rules 3010 and 3012 referred to in the
approval order were adopted with changes as FINRA Rules 3110
(Supervision) and 3120 (Supervisory Control System). See id., n. 83;
Securities Exchange Act Release No. 71179 (December 23, 2013), 78 FR
79542 (December 30, 2013) (SR-FINRA-2013-025).
---------------------------------------------------------------------------
[[Page 78882]]
The attestation requirement in current Rule 351(f)--Equities is
inconsistent with FINRA Rule 2241, thereby presenting member
organizations that are also FINRA members with inconsistent
requirements. Moreover, the Exchange has adopted FINRA Rules 3110, 3120
and 3130 as Rules 3110--Equities, 3120--Equities and 3130--
Equities.\19\ Exchange member organizations are therefore subject to
the same supervisory requirements as FINRA member firms, including the
annual certification requirement regarding compliance and supervisory
processes in Rule 3130--Equities.
---------------------------------------------------------------------------
\19\ See Securities Exchange Act Release No. 73640 (November 19,
2014), 79 FR 70237 (November 25, 2014) (SR-NYSEMKT-2014-93)
(adopting FINRA Rules 3110 and 3120); Securities Exchange Act
Release No. 59656 (March 30, 2009), 74 FR 15540 (April 6, 2009) (SR-
NYSEALTR-2009-26) (adopting FINRA Rule 3130).
---------------------------------------------------------------------------
Proposed Rule Changes
Payment of Transaction-Based Compensation
Deletion of Rule 353--Equities and Adoption of FINRA Rule 2040
In light of FINRA's adoption of a comprehensive rule regarding the
payment of transaction-based compensation, the Exchange proposes to
adopt the text of FINRA Rule 2040 as NYSE MKT Rule 2040--Equities and
delete Rule 353--Equities, the Exchange's current rule governing
rebates and compensation. As noted above, the requirements of NYSE MKT
Rule 353--Equities have been consolidated into the FINRA rule, making
them redundant.\20\ For consistency with FINRA rules, the Exchange
proposes to: (1) Change references to ``member'' in the text of FINRA
Rule 2040 (including Supplementary Material .01) to ``member
organization''; \21\ (2) change references to ``FINRA'' in the text of
FINRA Rule 2040 (including Supplementary Material .01) to ``the
Exchange''; and (3) change the reference in Rule 2040(c)(1) to
``disqualification as defined in Article III, Section 4 of FINRA's By-
Laws'' to ``statutory disqualification as defined in Section 3(a)(39)
of the Securities Exchange Act of 1934.'' In addition, in order to
ensure that proposed Rule 2040--Equities and FINRA Rule 2040 are fully
harmonized, the Exchange also proposes to add Supplementary Material
.02 to proposed Rule 2040 to provide that, for purposes of the rule,
the term ``associated person'' shall have the same meaning as the terms
``person associated with a member'' or ``associated person of a
member'' as defined in Article I (rr) of the FINRA ByLaws. The proposed
Rule is otherwise the same as its FINRA counterpart.
---------------------------------------------------------------------------
\20\ See FINRA Approval Order, 80 FR at 555 & 557. See also
notes 10-12 and accompanying text, supra.
\21\ Under Exchange rules, ``member organization'' is the
equivalent term to FINRA's ``member.'' See note 25, infra.
---------------------------------------------------------------------------
Amendment to Rule 8311 To Reflect Recent Amendments to FINRA Rule 8311
To reflect FINRA's recent amendments to FINRA Rule 8311, the
Exchange proposes certain amendments to NYSE MKT Rule 8311 to fully
harmonize the two rules.\22\ First, the Exchange proposes to delete the
word ``or'' in the heading and add the phrase ``or Other
Disqualification.'' The first paragraph would be become subsection (a)
and the text would be harmonized with FINRA Rule 8311(a).
---------------------------------------------------------------------------
\22\ Rule 8311 provides 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. Rule 8311 applies to both the Exchange's equities and
options markets.
---------------------------------------------------------------------------
Proposed Rule 8311(a) would clarify the scope of payments by member
organizations to persons subject to suspension, revocation,
cancellation, bar (each a ``sanction'') or other disqualification and
would provide that if a person is subject to a sanction or other
disqualification, a member organization may not allow such person to be
associated with it in any capacity that is inconsistent with the
sanction imposed or disqualified status, including a clerical or
ministerial capacity. Proposed Rule 8311(a) would further provide that
a member organization may not pay or credit to any person subject to a
sanction or disqualification, during the period of the sanction or
disqualification or any period thereafter, any salary, commission,
profit, or any other remuneration that the person might accrue, not
just earn, during the period of the sanction or disqualification. The
Exchange also proposes to add a new sentence to proposed Rule 8311(a)
providing that a member organization may make payments or credits to a
person subject to a sanction that are consistent with the scope of
activities permitted under the sanction where the sanction solely
limits an associated person from conducting specified activities (such
as a suspension from acting in a principal capacity) or to a
disqualified person that has been approved (or is otherwise permitted
pursuant to Exchange rules and the federal securities laws) to
associate with a member organization.
Further, the Exchange proposes to add a new subsection (b) and new
proposed Supplementary Material .01 that, with the exception of
conforming references to ``members'' in the text of FINRA Rule 8311 to
``member organizations'' and references to ``FINRA'' to ``the
Exchange,'' would be identical to the recent amendments to FINRA Rule
8311.
The Exchange believes that the proposed Rule complements proposed
Rule 2040 and would harmonize the Exchange's rules on payments by
member organizations to persons subject to suspension, revocation,
cancellation, bar or other disqualification.
Research Analyst Attestation Requirements
Deletion of Rule 351(f)--Equities and Supplementary Material .11 and
.12
In light of FINRA's elimination of an annual attestation
requirement when it adopted FINRA Rule 2241,\23\ the Exchange proposes
to delete Rule 351(f)--Equities and Supplementary Material .11 and .12,
thereby eliminating inconsistent requirements for member organizations
that are also FINRA members.\24\ As noted above, Exchange member
organizations are also subject to the same supervisory requirements as
FINRA member firms, including the annual certification requirement
regarding compliance and supervisory processes in Rule 3130--Equities.
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\23\ See Release No. 75471, 80 FR at 43488.
\24\ The Exchange has not adopted FINRA Rule 2241. Under Rule
2(b)(i), member organizations that transact business with public
customers must at all times be members of FINRA and, as such, would
be subject to FINRA's rules, including the requirements of Rule
2241.
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The Exchange proposes to mark the entire Rule as ``Reserved'' and
delete headings (a) through (e), which have no content and are marked
``Reserved''.
Conforming Changes
The Exchange proposes the following conforming changes. First, the
Exchange would substitute the term ``member organization'' for
``member'' \25\ and the
[[Page 78883]]
term ``Exchange'' for ``FINRA'' in proposed Rule 2040--Equities and in
the changes proposed for Rule 8311. Second, the Exchange would delete
references to Rule 351--Equities in Rules 472(c) and (h)--Equities,
governing communications with the public, and 9217, which sets forth
the rules included in NYSE MKT's minor rule violation plan.
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\25\ The term ``member'' has different meanings under FINRA and
Exchange rules. Under FINRA Rule 0160(b)(10), a ``member'' means an
individual, partnership, corporation or other legal entity admitted
to membership in FINRA under Articles III and IV of the FINRA By-
Laws. Article III, Sec. 1(a) of the FINRA By-Laws generally limits
membership to registered brokers, dealers, municipal securities
brokers or dealers, or government securities brokers or dealers. The
Exchange's equivalent term is ``member organization.'' See Rule
2(b)(i)--Equities (defining ``member organization'' as a registered
broker or dealer (unless exempt pursuant to the Act) that is a
member of FINRA or another registered securities exchange). Under
NYSE Rule 2(a)--Equities, the term ``member'' means a natural person
associated with a member organization who has been approved by the
Exchange and designated by such member organization to effect
transactions on the floor of the Exchange or any facility thereof.
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2. Statutory Basis
The Exchange believes that the proposed rule changes are consistent
with Section 6(b) of the Act,\26\ in general, and Section 6(b)(5) of
the Act,\27\ in particular, because the proposed rule changes would be
consistent with and facilitate a governance and regulatory structure
that is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to, and
perfect the mechanism of a free and open market and a national market
system and, in general, to protect investors and the public interest.
The Exchange believes that the proposed rule changes support the
objectives of the Act by providing greater harmonization between
Exchange rules and FINRA rules of similar purpose, resulting in less
burdensome and more efficient regulatory compliance. In particular,
adopting proposed Rule 2040--Equities and amending Rule 8311 based on
FINRA Rules 2040 and 8311 would promote just and equitable principles
of trade by providing greater harmonization between NYSE MKT Rules and
FINRA Rules of similar purpose, resulting in less burdensome and more
efficient regulatory compliance.
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\26\ 15 U.S.C. 78f(b).
\27\ 15 U.S.C. 78f(b)(1).
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Similarly, deleting Rule 351(f)--Equities and Supplementary
Material .11 and .12 as inconsistent with FINRA Rule 2241 would
eliminate inconsistent annual attestation requirements, resulting in
less burdensome and more efficient regulatory compliance and promoting
just and equitable principles of trade. The Exchange further believes
that eliminating the annual attestation requirement would not be
inconsistent with the Exchange's obligations under the Exchange Act to
prevent fraudulent or manipulative acts and practices because Exchange
member organizations are subject to the same supervisory requirements
as FINRA member firms, including an annual certification requirement
regarding compliance and supervisory processes set forth in Rule 3130--
Equities. To the extent the Exchange has proposed changes that differ
from the FINRA version of the Exchange rules, such changes are
generally technical in nature and do not change the substance of the
proposed rules. The Exchange also believes that the proposed conforming
changes will update and add specificity to the Exchange's rules, which
will promote just and equitable principles of trade and help to protect
investors.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\28\ the Exchange
does not believe that the proposed rule changes will impose any burden
on competition that is not necessary or appropriate in furtherance of
the purposes of the Act. The proposed rule changes are not intended to
address competitive issues but rather to achieve greater transparency
and consistency between the Exchange's rules and FINRA's requirements
concerning payments to unregistered persons, the effect of suspensions,
revocations, cancellations, bars or other disqualifications, and
research analyst annual attestation requirements.
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\28\ 15 U.S.C. 78f(b)(8).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \29\ and Rule 19b-4(f)(6) thereunder.\30\
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 prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\29\ 15 U.S.C. 78s(b)(3)(A)(iii).
\30\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \31\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(f)(6)(iii),\32\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest.
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\31\ 17 CFR 240.19b-4(f)(6).
\32\ 17 CFR 240.19b-4(f)(6)(iii).
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At any time within 60 days of the filing of such 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 under
Section 19(b)(2)(B) \33\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\33\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
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-NYSEMKT-2016-90 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEMKT-2016-90. 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
[[Page 78884]]
amendments, all written statements with respect to the proposed rule
change that are filed with the Commission, and all written
communications relating to the proposed rule change between the
Commission and any person, other than those that may be withheld from
the public in accordance with the provisions of 5 U.S.C. 552, will be
available for Web site viewing and printing in the Commission's Public
Reference Room, 100 F Street NE., Washington, DC 20549 on official
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of
the filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-NYSEMKT-2016-90 and should be submitted on or before
November 30, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-27024 Filed 11-8-16; 8:45 am]
BILLING CODE 8011-01-P
