Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Align Existing Investigatory and Disciplinary Processes and Related Rules With the Investigatory and Disciplinary Processes and Associated Rules of Nasdaq BX, Inc., 37012-37020 [2018-16272]
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Federal Register / Vol. 83, No. 147 / Tuesday, July 31, 2018 / Notices
adjudicating the rights of Members and
Associated Persons. The Exchange is
proposing to provide advanced notice of
the implementation date of the new
processes, and will apply the new
processes to new matters that are
initiated on or after that implementation
date. Any matters initiated prior to the
implementation date will be completed
using the current processes. As a
consequence, the Exchange will delete
the applicable portions of Chapters 15–
17 from the Exchange’s Rulebook, but it
will maintain a transitional Rulebook on
the Exchange’s public rules website
(https://nasdaqISE.cchwallstreet.com/),
which will contain the Exchange Rules
as they are at the time of filing this rule
change.146 These transitional Rules will
apply exclusively to the matters
initiated prior to the implementation
date. Upon conclusion of the last matter
to which the transitional rules apply,
the Exchange will remove the defunct
transitional rules from its public rules
website. Thus, the transition will be
conducted in a fair, orderly, and
transparent manner.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as amended
[sic]. The proposed rule change is not
intended to address competitive issues,
but it should reduce burdens on
Members, [sic] and Associated Persons.
Specifically and as described in detail
above, the Exchange believes that this
change will bring efficiency and
consistency in application of the
investigative, disciplinary, and
adjudicatory processes, thereby
reducing the burden on Members and
Associated Persons who are also
members of BX.
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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 either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
146 The posting of the transitional rules on the
public rules website will make it clear what
disciplinary proceedings are governed by the
transitional rules (i.e., matters initiated prior to the
implementation date).
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burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 147 and
subparagraph (f)(6) of Rule 19b–4
thereunder.148
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: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) 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.
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:
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 website 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–ISE–2018–59 and should be
submitted on or before August 21, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.149
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–16271 Filed 7–30–18; 8:45 am]
Electronic Comments
BILLING CODE 8011–01–P
• 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–2018–59 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
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–2018–59. 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 website (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
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
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147 15
148 17
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[Release No. 34–83704; File No. SR–GEMX–
2018–24]
Self-Regulatory Organizations; Nasdaq
GEMX, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Align Existing
Investigatory and Disciplinary
Processes and Related Rules With the
Investigatory and Disciplinary
Processes and Associated Rules of
Nasdaq BX, Inc.
July 25, 2018.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on July 12,
2018, Nasdaq GEMX, LLC (‘‘GEMX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
149 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 83, No. 147 / Tuesday, July 31, 2018 / Notices
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to align its
existing investigatory and disciplinary
processes and related rules with the
investigatory and disciplinary processes
and associated rules of Nasdaq BX, Inc.
(‘‘BX’’).
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaqgemx.cchwallstreet.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 aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
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The Exchange proposes to adopt new
investigatory, disciplinary, and
adjudicatory processes that are
substantially the same as those of its
sister exchange, BX. Specifically, the
Exchange proposes to establish new
Chapters 80 and 90 of its Rules 3 and
then incorporate by reference into those
Chapters the BX Rule 8000 and 9000
Series,4 which set forth and govern the
BX investigatory, disciplinary, and
adjudicative processes.5 The Exchange
also proposes to amend its By-Laws to
establish a new body to review
disciplinary and certain other matters
(the ‘‘Exchange Review Council’’) that is
similar to the exchange review council
3 The Exchange proposes to add Chapters 23–79
and Chapters 81–89 to its Rules, but reserve such
Chapters for future use.
4 Citation herein to rules of the proposed Chapters
80 and 90 will be preceded by the term ‘‘BX Rule’’
to reflect incorporation of the BX Rule 8000 and
9000 Series. References to current rules will be
preceded by the term ‘‘Existing Rule.’’
5 The Exchange proposes to separately request an
exemption from the rule filing requirements of
Section 19(b) of the Act for changes to Chapters 80
and 90 to the extent such rules are effected solely
by virtue of a change to the BX Rule 8000 and 9000
Series.
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that BX utilizes for such purposes.6
These proposals, when coupled with
certain changes to the Exchange’s other
Rules, including Rules that govern
appeals of the Exchange’s membership
and other decisions, will render the
Exchange’s investigative, disciplinary,
and adjudicatory processes substantially
the same as those, not only of BX, but
also of other Nasdaq, Inc. exchanges.7
The proposal [sic] change will also
further harmonize the work that the
Financial Industry Regulatory Authority
(‘‘FINRA’’) conducts for all these
exchanges.
The Exchange’s current investigatory,
disciplinary, and adjudicatory processes
are set forth in Chapters 15–17 of its
Rules. Chapters 15–17 of the Exchange’s
Rules, in turn, incorporate by reference
the investigatory, disciplinary, and
adjudicatory processes of Nasdaq ISE,
LLC (‘‘Nasdaq ISE’’) that are set forth in
the corresponding chapters of the
Nasdaq ISE rulebook. As part of a
parallel Nasdaq ISE filing that also
proposes to adopt the investigatory,
disciplinary, and adjudicatory processes
and rules of BX (and incorporate them
by reference into new chapters 80 and
90 of the Nasdaq ISE rules), Nasdaq ISE
proposes to eliminate chapters 15 and
17 of its rules, and to largely eliminate
chapter 16.8 These proposed changes to
ISE chapters 15–17 will apply
automatically to Chapters 15–17 of the
Exchange’s Rules. Accordingly,
reference should be made to SR–ISE–
2018–59 for a detailed explanation of
the proposed changes to Chapters 15–17
and the purposes of those changes.
Likewise, reference should be made to
SR–ISE–2018–59 for a detailed
discussion of the BX Rule 8000 and
9000 Series, which will largely replace
6 As discussed below, the Exchange Review
Council will assume responsibilities that presently
reside with the Business Conduct Committee (the
‘‘BCC’’). The Exchange also proposes to eliminate
the BCC.
7 The Exchange notes that the BX Rule 8000 and
9000 Series are substantially similar to
corresponding rules of The Nasdaq Stock Market,
LLC (‘‘Nasdaq’’) and Nasdaq PHLX, LLC (‘‘Phlx’’).
Moreover, the Exchange notes that Nasdaq ISE, LLC
and Nasdaq MRX, LLC will propose similar changes
to their respective investigatory, disciplinary, and
adjudicatory processes and associated rules that
will render them substantially similar to those of
BX.
8 See SR–ISE–2018–59. Nasdaq ISE proposes to
retain Rule 1600, which sets forth the general
jurisdiction of the Exchange with respect to
disciplinary matters. It also proposes to retain
Existing Rule 1614(a), which sets forth its authority
to impose fines of up to $2,500 for violations of the
Exchange’s Minor Rule Violation Plan (‘‘MRVP’’)
and up to $5,000 for minor rule violations (other
than those subject to an MRVP). Nasdaq ISE also
proposes to retain Existing Rule 1614(d) (to be
renumbered as Rule 1614(b)), which sets forth the
Exchange’s schedule of MRVP violations and minor
rule violations and their associated fines.
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37013
Chapters 15–17 for both Nasdaq ISE and
the Exchange. Lastly, reference should
be made to SR–ISE–2018–59 for a
discussion of proposed changes to
certain other ISE rules that the Exchange
also incorporates by reference and that
are relevant to the Exchange’s adoption
of its new investigatory, disciplinary,
and adjudicatory processes.9
The following is a discussion of
proposed changes that are specific to the
Rules of the Exchange and that are not
otherwise addressed in or accomplished
by the corresponding Nasdaq ISE filing.
These changes include: (1) The
elimination of the Exchange’s BCC and
its replacement with the Exchange
Review Council; and (2) changes to
Exchange Rules that are necessary to
accommodate the new investigatory,
disciplinary, and adjudicatory processes
and rules and to harmonize those
processes and rules with those of BX.
Elimination of the Business Conduct
Committee and Establishment of the
Exchange Review Council
The Exchange presently utilizes the
BCC to help it enforce its Rules with
respect to its members (‘‘Members’’) and
persons associated with its members
(‘‘Associated Persons’’). The BCC is a
committee, established by the Board of
Directors,10 whose enforcement
jurisdiction includes the following: (1)
Ordering investigations of possible Rule
violations; (2) considering letters of
consent in expedited disciplinary
actions; (3) making its members
available to serve on Hearing Panels that
adjudicate formal disciplinary
proceedings; (4) imposing sanctions on
Members or Associated Persons in
disciplinary proceedings; (5) reviewing
Exchange actions involving minor rule
violations; (6) appointing panels to
conduct hearings and reviews of
Exchange actions that deny membership
or Member association privileges; and
(7) generally overseeing all matters
relating to the conduct of disciplinary
hearings and hearings for review of
Exchange decisions, and providing the
Exchange with advice for improving
disciplinary procedures.11
The Exchange proposes to retire the
BCC 12 and to amend its By-Laws to
9 The proposed changes involve Nasdaq ISE Rules
410, 413(b)(1), 1000, 1406, and 1800.
10 See Resolution of the Board of Directors of the
ISE Gemini Delegating Authority, dated July 30,
2013.
11 See GEMX Business Conduct Committee
Charter, as amended, May 1, 2003.
12 In a February 4, 2016 resolution, the Exchange
Board delegated its authority to the President of the
Exchange to establish a BCC to, among other things,
conduct disciplinary hearings under Chapter 16 of
the Existing Rules and conduct other hearings and
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establish in its place the Exchange
Review Council. The amended By-Laws
that the Exchange proposes to adopt in
this regard are substantially the same as
those that BX adopted to establish the
BX Exchange Review Council.13 Thus,
the By-Laws provide for the Exchange
Review Council to have the same
general structure and powers as does the
BX Exchange Review Council.14 The
proposed By-Laws will authorize the
Exchange Review Council to adjudicate
disciplinary actions and approve
settlements thereof as well as make
recommendations to the Board on
certain policy matters and rule changes.
Such policy functions of the Exchange
Review Council render its jurisdiction
broader than that of the BCC.
Specifically, proposed Article VI,
Section 1 of the proposed By-Laws
provides that the Exchange Review
Council may be authorized to act for the
Board with respect to: An appeal or
review of a disciplinary proceeding, a
statutory disqualification proceeding, or
a membership proceeding; a review of
an offer of settlement, a letter of
acceptance, waiver, and consent, and a
minor rule violation plan letter; the
exercise of exemptive authority; and
such other proceedings or actions as
may be authorized by the Exchange
rules. The Exchange Review Council
reviews as set forth in Chapter 17 of the Existing
Rules. On February 1, 2017, the Board passed a
resolution that both revoked the President’s
authority to establish a BCC and authorized the
establishment of an Exchange Review Council,
effective upon the date when this rule filing
becomes operative.
13 The BX by-laws differ from the proposed
Exchange By-Laws because the BX by-laws have a
different numbering convention from the
Exchange’s By-Laws and, in various places, the BX
by-laws refer to a Listing and Hearing Review
Council, which has no analogue with respect to the
Exchange.
14 The BX by-laws do not describe in detail the
process of the proceedings over which the BX
Exchange Review Council presides. However,
Section 7.9 of the BX by-laws state [sic] that a
quorum of three BX Exchange Review Council
members is necessary to adjudicate appeals of
determinations made under BX Rules 4612 (appeal
of denial of registration as an Equities Market
Maker), 4619 (review of denial of an excused
withdrawal of Equities Market Maker quotation),
4620 (appeal of denial of reinstatement of Equities
Market Maker that accidentally withdraws), 11890
(appeal of clearly erroneous transaction
determination), and BX Options Chapter V, Section
6 (appeal of obvious error determination). See BX
by-laws, Article VII, Section 9. The Exchange’s
Rules do not have analogues to BX Rules 4612,
4620, and 11890 and, as such, the corresponding
provision of the Exchange’s proposed By-Laws
(Article VII, Section 9) provides only that a quorum
of three Exchange Review Council members is
necessary for it to adjudicate appeals involving
determinations made under Rules 720 (appeal of
obvious error determination), 720A (appeal of
determinations of erroneous trades due to system
malfunctions and disruptions), and 804 (review of
denial of an excused withdrawal of market maker
quotation).
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also may consider and make
recommendations to the Board on
policy and rule changes relating to
business and sales practices of Exchange
Members and Associated Persons and
enforcement policies, including policies
with respect to fines and other
sanctions. It may advise the Board on
regulatory proposals and industry
initiatives relating to quotations,
execution, trade reporting, and trading
practices and it may advise the Board in
its administration of programs and
systems for the surveillance and
enforcement of rules governing
Exchange Members’ conduct and
trading activities in the Exchange.
Proposed Article VI, Section 2 states
that the Exchange Review Council
would consist of no fewer than eight
and no more than 12 members. The
Exchange Review Council must include
a number of Member Representative
members 15 that is equal to at least 20%
of the total number of members of the
Exchange Review Council. The number
of Non-Industry members,16 including
at least three Public members,17 shall
equal or exceed the sum of the number
of Industry members 18 and Member
Representative members. As soon as
practicable, following the appointment
of members, the Exchange Review
Council shall elect a Chair from among
its members. The Chair shall have such
powers and duties as may be
determined from time to time by the
Exchange Review Council. The Board,
by resolution adopted by a majority of
Directors then in office, may remove the
Chair from such position at any time for
refusal, failure, neglect, or inability to
discharge the duties of Chair. No more
than 50% of the members of the
Exchange Review Council shall be
engaged in market making activity or
employed by an Exchange Member firm
whose revenues from market making
activity exceed 10 percent of its total
revenues.
Proposed Article VI, Section 3
requires the Exchange’s Secretary to
collect from each nominee for the office
of member of the Exchange Review
Council such information as is
reasonably necessary to serve as the
basis for a determination of the
nominee’s qualifications and
classification as an Industry, Member
Representative, Non-Industry, or Public
member. The Secretary must also certify
to the Nominating Committee or the
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n.20, infra.
id.
17 See id.
18 See id.
Member Nominating Committee 19 (as
applicable) each nominee’s
qualifications and classification. After
appointment to the Exchange Review
Council, each member must update
such information at least annually and
upon request of the Exchange’s
Secretary, and must report immediately
to the Secretary any change in such
information.
Proposed Article VI, Section 4
provides that Exchange Review Council
members shall serve three-year terms, or
until a successor is duly appointed and
qualified, except in the event of earlier
termination from office by reason by
death, resignation, removal,
disqualification, or other reason.
Members are term limited out after two
consecutive terms. Proposed Article VI,
Section 5 sets forth the procedures for
resigning as a member of the Exchange
Review Council and provides that an
Exchange Review Council member may
resign at any time upon written notice
to the Board. Under proposed Article VI,
Section 6, any member of the Exchange
Review Council may be removed from
office at any time for refusal, failure,
neglect, or inability to discharge the
duties of such office by majority vote of
the Board.
Under proposed Article VI, Section 7,
an Exchange Review Council member
would be disqualified and removed
immediately upon a determination by
the Board, by a majority vote, (a) that
the member no longer satisfies the
classification (Industry, Member
Representative, Non-Industry, or Public)
for which the member was elected; and
(b) that the member’s continued service
as such would violate the compositional
requirements of the Exchange Review
Council set forth in Article VI, Section
2. If the term of office of an Exchange
Review Council member terminates
under this Section, and the remaining
term of office of such member at the
time of termination is not more than six
months, during the period of vacancy
the Exchange Review Council shall not
be deemed to be in violation of Article
VI, Section 2 by virtue of such vacancy.
Proposed Article VI, Section 8 contains
provisions for the filling of vacancies on
the Exchange Review Council and states
that if a position on the Exchange
Review Council becomes vacant, the
Nominating Committee or the Member
Nominating Committee (as applicable)
shall nominate, and the Board shall
appoint a person satisfying the
qualifications for the position as
provided in Article VI, Section 2 to fill
15 See
16 See
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19 The terms ‘‘Nominating Committee’’ and
‘‘Member Nominating Committee’’ are defined in
Exchange By-Laws, Article I.
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such vacancy, except that if the
remaining term of office for the vacant
position is not more than six months, no
replacement shall be required.
Proposed Article VI, Section 9
provides that a quorum of the Exchange
Review Council will consist of a
majority of its members, including not
less than 50% of its Non-Industry
members and one Member
Representative member. Proposed
Article VI, Section 10 contains
provisions related to the meetings of the
Exchange Review Council.
Under proposed Article VI, Section
11, the Exchange Review Council is
required to establish a Review
Subcommittee to determine whether
disciplinary and membership
proceedings decisions should be called
for review by the Exchange Review
Council under the disciplinary and
membership rules to be proposed for the
Exchange. The Review Subcommittee
shall be composed of no fewer than two
and no more than four members of the
Exchange Review Council. The number
of Non-Industry members of the Review
Subcommittee shall equal or exceed the
sum of the number of Industry members
and Member Representative members of
the Review Subcommittee, and the
subcommittee must include at least one
Member Representative member. At all
meetings of the Review Subcommittee,
a quorum for the transaction of business
shall consist of not less than 50 percent
of the members of the Review
Subcommittee, including not less than
50 percent of the Non-Industry members
of the Review Subcommittee and one
Member Representative member of the
Review Subcommittee.20
The BX Rules implement the
foregoing responsibilities of the
Exchange Review Council by
establishing various procedures to
govern its reviews. As the Exchange
20 In addition to adding Article VI to the By-Laws,
the Exchange proposes to make changes to other
articles of the By-Laws to accommodate the
existence of the Exchange Review Council. For
example, the Exchange proposes to amend Article
I, which defines the terms that the Exchange uses
in the By-Laws, to provide that the terms ‘‘Industry
member,’’ ‘‘Member representative member,’’ ‘‘Nonindustry member,’’ and ‘‘Public member’’ mean, in
part, members of the Exchange Review Council. The
Exchange also proposes to amend Article III,
Section 6, to add a new subsection (a) that directs
the Board to appoint an Exchange Review Council,
as provided in Article VI. It also proposes to amend
Article III, Section 6(b) to state that the Nominating
Committee and the Member Nominating Committee
of the Board shall have responsibility for
nominating members of the Exchange Review
Council. Finally, the Exchange proposes to amend
Sections 7 and 8 of Article III, which deal with
Director conflicts-of-interest/self-interested
transactions and Director compensation,
respectively, to ensure that the restrictions and
benefits that these provisions provide apply to
Exchange Review Council members.
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describes in further detail below, the
Exchange proposes to transfer to the
Exchange Review Council (or panels
thereof) certain responsibilities
currently vested in other Exchange
committees or the Board. For example,
pursuant to Existing Rule 720, an
Obvious Error Panel (‘‘OEP’’) is
presently responsible for reviewing
determinations regarding obvious and
catastrophic errors. Pursuant to Existing
Rule 720A, a ‘‘Review Panel’’ is
responsible for reviewing
determinations to nullify or adjust
transactions that arise from system
disruptions and malfunctions. The
Exchange is proposing to eliminate the
OEP and the Review Panel and to
transfer their responsibilities to a panel
of the new Exchange Review Council,
which corresponds to the practice of
BX. Subject to Chapter 90, the Exchange
also proposes to transfer responsibility
to the Exchange Review Council to
review denials or conditions imposed
upon those that seek to become or
remain a Member of the Exchange or
become or remain associated with a
Member of the Exchange, as set forth in
Existing Rule 303.21 In addition, the
Exchange proposes to amend Existing
Rule 804 to provide for the Exchange
Review Council to review
determinations regarding temporary
withdrawals of quotations, which are
not reviewable under the Existing Rules.
The Exchange notes that BX vests in its
Exchange Review Council responsibility
for reviewing similar types of matters.22
Other Conforming Rule Changes
The Exchange proposes to amend or
delete certain other Existing Rules,
which are either not needed, duplicated
elsewhere, or reference the deleted
Existing Rules. Below is a description of
the specific changes the Exchange
proposes to make to its Existing Rules.
Existing Rule 100 provides definitions
for purposes of the Existing Rules. The
Exchange is proposing to amend this
Existing Rule to include definitions for
several new terms. For example, the
proposed Rules will define the new
term ‘‘Code of Procedure’’ as the
procedural rules contained in Chapter
90. The Exchange also defines the new
term ‘‘Exchange Review Council,’’
which is largely copied from BX Rule
0120(m). The Exchange notes that item
21 The Exchange notes that it proposes to
establish procedures in Existing Rule 303 to govern
the review by the Exchange Review Council of
adverse membership and association
determinations. The Exchange proposes to base
these procedures upon those set forth BX Rules
1015 and 1016.
22 See Securities Exchange Act Release No. 72149
(May 12, 2014), 79 FR 28564 (May 16, 2014) (SR–
BX–2014–024).
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37015
(6) of the new definition differs from the
BX item (6) in that it cites the analogous
rules of the Exchange, which have
different rule numbers. Finally, the
Exchange proposes to amend the
definition of ‘‘SEC’’ so that it also
includes the word ‘‘Commission.’’
Existing Rule 206 concerns the
consequences of a Member’s or an
Associated Person’s failure to pay dues,
fees and other charges. The Exchange
proposes to delete this Existing Rule in
favor of BX Rule 9553, which is more
comprehensive than the Existing Rule
and differs from it in several respects.
Existing Rule 206 provides that
instances of nonpayment shall be
reported to the Exchange’s Chief
Executive Officer and President when
they are 30 days past due, and that the
Chief Executive Officer and President
thereafter shall provide reasonable
notice to the delinquent Member that
continued non-payment will result in
suspension of trading privileges. An
Associated Person that fails to pay may
be suspended from association with a
Member. By contrast, BX Rule 9553
states that the Exchange’s Regulation
Department, within an unspecified
period of time period [sic] after the
onset of a delinquency, may issue a
written notice to the delinquent Member
or Associated Person that failure to
comply within 21 days of service of the
notice will result in suspension or
cancellation of membership or
suspension or bar of association with a
Member, as applicable. BX Rule 9553
also provides for detailed provisions for
serving such notice, a provision for
requesting a hearing with respect to
such a notice, a provision declaring the
effectiveness of such notices (21 days
after service) when no hearing is
requested, and a means to request
termination of a suspension, which may
be granted for good cause shown.
Existing Rule 303 sets forth
circumstances in which the Exchange
may deny or condition approval of
membership applications or
applications to associate with Members.
Existing Rule 303(c) also sets forth
circumstances in which the Exchange
may determine not to permit a Member
or Associated Person from continuing
their [sic] membership or association
with a Member, including because they
become [sic] subject to [sic] statutory
disqualification under the Act. Existing
Rule 303(f) furthermore permits a
Member or Associated Person that
becomes subject to [sic] statutory
disqualification under the Act to apply
to the Exchange to continue as a
Member or as an Associated Person,
within 30 days of becoming subject to
the statutory disqualification. Existing
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Rule 303(g) states that, subject to the
summary suspension rules in Chapter
15, any applicant for membership or
association with a Member whose
application is denied or conditioned or
who is not permitted to continue as a
Member or Associated Person may
appeal such determinations under
Chapter 17 of the Existing Rules.
The Exchange proposes to modify
Existing Rule 303(f) so that it refers to
new and more robust procedures, set
forth in the BX Rule 9520 series, by
which a Member or an Associated
Person may obtain relief from
disqualification or ineligibility
determinations (BX Rule 9522).
The Exchange also proposes to amend
Existing Rule 303(g), which states that
subject to Chapter 15, the BCC may
review, in part, Exchange
determinations to deny membership or
association with a Member pursuant to
Chapter 17 of the Existing Rules. The
Exchange proposes to re-assign
responsibility for these reviews from the
BCC to the Exchange Review Council
and replace the review process
presently set forth in Chapter 17 of the
Existing Rules with processes that are
substantially the same as those set forth
in BX Rules 1015 and 1016.
Specifically, the proposed amendments
to Exchange Rule 303(g) state that,
subject to Chapter 90, the Exchange
Review Council will have jurisdiction to
review these decisions. Proposed Rule
303(g) states that anyone whose
application for membership on the
Exchange, association with an Exchange
Member, or whose continuing
membership or association is denied or
conditioned by the Exchange’s
Membership Department, may file a
written request for review by the
Exchange Review Council within 25
days after service of the Exchange’s
decision.23 The request must state
specifically why the applicant believes
that the Membership Department’s
decision is inconsistent with the
permissible bases for denial set forth in
Rule 303, or otherwise should be set
aside and state whether a hearing is
requested.24 The request will be heard
by a Subcommittee appointed by the
23 See proposed Rule 303(g)(1). The Exchange
notes that the deadline for filing petitions for BCC
review of an Exchange action under Existing Rule
1701(a) is 30 days from the date of such action. The
Existing Rules pertaining to membership do not
reference or define the terms ‘‘Membership
Department’’ or ‘‘Department.’’ As part of this
proposal, the Exchange proposes to amend Rule
303(g) to specify that the Exchange’s Membership
Department—rather than simply the ‘‘Exchange’’—
makes determinations as to whether to grant, deny,
or conditionally grant applications for membership
or association or to continue as a Member or an
Associated Person.
24 See proposed Rule 303(g)(1).
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Exchange Review Council or the Review
Subcommittee composed of two or more
persons who are either current or past
members of the Council or former
Directors of the Exchange.25 If a hearing
is requested or directed, it must be held
within 45 days after the request for
review is filed with the Exchange or
service of the notice by the
Subcommittee.26 Applicants and the
Membership Department may be
represented by counsel at the hearing
and formal rules of evidence will not
apply during the hearing.27 The
Subcommittee must present a
recommended decision in writing to the
Exchange Review Council within 60
days after the date of the hearing, and
not later than seven days before the
meeting of the Exchange Review
Council at which the proceeding shall
be considered.28 The Exchange Review
Council must issue a proposed written
decision that affirms, modifies, or
reverses the Membership Department’s
decision, or remands the proceedings
with instructions and provide the
proposed decision to the Exchange
Board.29 If the Exchange Board does not
call the decision for review, it shall
become final. If the Exchange Review
Council does not serve its final written
decision within the time period
prescribed by Rule 303(g)(10)(C), then
the Applicant may file a written request
with the Exchange Board for the Board
to direct the Exchange Review Council
to issue its decision immediately or
show good cause why it needs
additional time to issue its decision.30
Proposed Rule 303(h), which mirrors BX
Rule 1016, grants the Exchange Board
discretion, at the request of a Director,
to review decisions of the Exchange
Review Council.31
Existing Rule 307(b) requires
Members to file with the Exchange and
keep current their addresses at which
notices may be served. The Exchange
proposes to amend this Existing Rule to
incorporate the language set forth in BX
Rule 1160. Rather than merely requiring
Members to provide the Exchange with
25 See proposed Rule 303(g)(4). The Exchange
notes that Existing Rule 1702 provides for review
by a BCC panel composed of two or more of its
members.
26 See proposed Rule 303(g)(6)(A).
27 See proposed Rule 303(g)(6)(B) & (C). Unlike
Existing Rule 1703, proposed Rule 303(g) does not
provide for intervention in proceedings by
interested non-parties.
28 See proposed Rule 303(g)(9).
29 See proposed Rule 303(g)(10)(A).
30 See proposed Rule 303(g)(10)(D).
31 Unlike Existing Rule 1704, proposed Rule
303(h) does not authorize the applicant or the
President of the Exchange to request that the Board
review the decision of the Exchange Review
Council.
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their current address, the proposed
amendment more broadly requires
Members to report to the Exchange,
through the FINRA Contact System, all
of their contact information, including
their mailing addresses, email
addresses, facsimile numbers, and other
information. It also requires members to
update such contact information in the
FINRA System within 30 days of any
changes thereto, and to generally verify
that such information remains accurate
within 17 business days after the end of
each calendar year. This proposed
amendment to the Existing Rule will
ensure that the Exchange has available
to it multiple means of contacting its
Members, including for purposes of
serving the notices specified in the BX
Rule 9550 series by email or by
facsimile. The Exchange proposes, in its
introduction to Chapter 90, to state that
cross references in the BX Rule 9000
Series to BX Rule 1160 should be read
instead to refer to Exchange Rule 307(b),
as modified herein.
To maintain consistency with the BX
Rules, the Exchange also proposes to
eliminate Existing Rule 307(d), which
requires Members to maintain a current
copy of the Exchange’s governing
documents and Rules in an accessible
place and make them available for
examination by customers, and to
replace it with BX Rule 8110, which is
materially equivalent.
Existing Rule 308 requires a Member
to notify the Exchange upon its
adoption of a plan of liquidation or
dissolution. The Existing Rule also
provides that upon receipt of such
notice, the Member’s trading privileges
may be suspended in accordance with
Chapter 15 of the Existing Rules. The
Exchange proposes to replace this
reference to Chapter 15 with a reference
to BX Rule 9558. Again, no analogue to
this proposal exists in the BX rules
insofar as those rules do not expressly
address suspensions for such reasons or
reviews of suspension determinations.
Nevertheless, the Exchange believes that
the process set forth in BX Rule 9558 is
most appropriate for reviewing
suspension determinations in these
circumstances given that they already
apply in circumstances where a Member
is experiencing extreme financial or
operating difficulty such that the
Exchange determines that the Member
cannot safely continue to do business on
the Exchange.
The Supplementary Material to
Existing Rule 306 concerns the
Exchange’s authority to waive the
applicable qualification examination
requirements and accept other standards
as evidence of an applicant’s
qualifications for registration. The
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Exchange is amending this Rule to
specify that such requests are handled
pursuant to the BX Rule 9600 Series
process. The BX Rule 9600 Series
concerns the procedures for requesting
exemptions, and the appeal of adverse
decisions regarding an exemptive
request. The Exchange notes that the
proposed revisions will render the text
of the Supplementary Material to
Existing Rule 306 consistent with BX
Rule 1070(d).
Existing Rule 720 concerns obvious
and catastrophic errors. Existing Rule
720(k) currently references the OEP as
the body responsible for reviewing
determinations made by Options
Exchange Officials pursuant to the Rule
and it sets forth procedures to govern
OEP review proceedings. In light of the
fact that the OEP’s responsibilities will
be incorporated into those of the
Exchange Review Council,32 the
amendments to the Rule remove
references to the OEP and replaces [sic]
them with references to a panel of the
Exchange Review Council. The
amended Rule also includes language
grafted from the BX Rules prescribing
the composition of panels convened for
purposes of these reviews.33
Existing Rule 720A also provides for
reviews by a ‘‘Review Panel’’ of
decisions nullifying or adjusting
transactions arising out of system
disruptions or malfunctions. The
Exchange proposes to eliminate the
Review Panel in the Exchange’s Rules
and transfer its responsibility to a panel
of the Exchange Review Council. The
new Rule also includes language grafted
from the BX Rules prescribing the
composition of Exchange Review
Council panels convened for purposes
of these reviews.34
Existing Rule 804 permits a Primary
Market Maker to apply to the Exchange
to withdraw temporarily from its
Primary Market Maker status in an
options class. The Existing Rule does
not presently authorize reviews of
Exchange determinations to deny
requests for temporary withdrawals or
to impose conditions on the reentry of
quotations. However, BX Rule 4619(f)
does provide for such reviews. To
provide consistency, the Exchange
proposes to amend Existing Rule 804(f)
to state that the Exchange Review
Council will have authority conduct
such reviews.
As discussed above, Chapter 16 of the
Exchange’s Rules incorporates by
reference Chapter 16 of the ISE rules.
However, Chapter 16 of the Exchange’s
32 See
proposed Rule 100(a)(21A).
BX Options Rules Ch. V, Sec. 6(l).
34 See id.
Rules contains an introductory
paragraph that references the
incorporation by reference and provides
instructions for cross-references. The
Exchange proposes to delete the last line
of this introductory paragraph, which
specifies that a reference in the ISE Rule
1615 to Nasdaq ISE’s contract with
FINRA shall be read to refer to the
Exchange’s contract with FINRA. The
Exchange proposes to delete this
sentence because Nasdaq ISE is
proposing to delete its Rule 1615, such
that this sentence will no longer be
necessary. The Exchange also proposes
to change the title of Chapter 16 from
‘‘Discipline’’ to ‘‘Disciplinary
Jurisdiction and Minor Rule Violation
Fines’’ so that it conforms to the new
title of Chapter 16 of the Nasdaq ISE
Rules and to the content of that Chapter
that Nasdaq ISE proposes to revise.35
Proposed Introductory Paragraphs to
Chapters 80 and 90
The Exchange proposes to include
introductory paragraphs to both
Chapters 80 and 90 which state that
they incorporate by reference the BX
Rule 8000 and 9000 Series, respectively,
and that such BX Rules shall be
applicable to Exchange Members,
Associated Persons, and other persons
subject to the Exchange’s jurisdiction.
These proposed introductory
paragraphs also list instances in which
cross references in the BX Rule 8000
and 9000 Series to other BX rules
should be read to refer instead to the
Exchange Rules, and references to
defined BX terms shall be read to refer
to the Exchange-related meanings of
those terms. For example, references in
both the BX Rule 8000 and 9000 Series
to the following defined terms shall be
read to refer to the Exchange-specific
meanings of those terms: ‘‘Exchange’’ or
‘‘Nasdaq BX’’ shall be read to refer to
the Exchange; ‘‘Rule’’ or ‘‘BX Rule’’
shall be read to refer to the Exchange
Rules; ‘‘Board’’ or ‘‘Exchange Board’’
shall be read to refer to the Exchange
Board of Directors; ‘‘Member’’ shall be
read to refer to an Exchange Member;
‘‘Associated Person’’ shall be read to
refer to an Exchange Associated Person;
‘‘BX Regulatory Department’’ or
‘‘Regulation Department’’ shall be read
to refer to the Exchange’s Regulatory
Department; ‘‘BX Regulation’’ shall be
read to refer to Exchange Regulation;
‘‘Chief Regulatory Officer’’ shall be read
to refer to the Chief Regulatory Officer
of the Exchange; and ‘‘Equity Rule’’
shall be read to refer to an Exchange
Rule.
33 See
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35 See
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37017
Additionally, the proposed
introduction to Chapter 80 states that
cross references in the BX Rule 8000
Series to the term ‘‘Rule 0120’’ shall be
read to refer to Exchange Rule 100 and
cross references in the BX Rule 8000
Series to ‘‘Rule 1015’’ shall be read to
refer to Exchange Rule 303. Similarly,
the proposed introduction to Chapter 90
states that cross-references in the BX
Rule 9000 Series to the following terms
shall be read to refer to the following
Exchange Rules: ‘‘Rule 0120’’ shall be
read to refer to Exchange Rule 100;
‘‘Rule 1013’’ shall be read to refer to
Exchange Rules 302 and 307; ‘‘Rule
1070’’ shall be read to refer to the
Supplementary Material to Exchange
Rule 306; ‘‘Rule 1160’’ shall be read to
refer to Exchange Rule 307(b); ‘‘Equity
Rule 2110’’ shall be read to refer to
Exchange Rule 400; ‘‘Equity Rule 2120’’
shall be read to refer to Exchange Rule
405; ‘‘Rule 2140’’ shall be read to refer
to Exchange Rule 309; ‘‘Equity Rule
2150’’ shall be read to refer to Exchange
Rules Chapter 6; ‘‘Rule 2170’’ shall be
read to refer to Exchange Rule 403;
‘‘Rule 4110A’’ shall be read to refer to
Exchange Rules Chapter 13; ‘‘Rule
4120A’’ shall be read to refer to
Exchange Rules Chapter 13; ‘‘Rule
10000 Series’’ shall be read to refer to
Exchange Rules Chapter 18; and
‘‘Chapter III, Section 16’’ shall be read
to refer to Exchange Rule 403.
Finally, the introduction to Chapter
90 states that BX IM–9216 in the BX
Rules shall not apply to the Exchange,
its Members, Associated Persons, or
other persons subject to the jurisdiction
of the Exchange and that instead,
references to BX IM–9216 shall be read
to refer to Exchange Rule 1614(b).
Similarly, the introduction states that
the procedures set forth in BX Rule
9216(b) and 9143(e)(3), which govern
the handling of violations of rules
subject to the MRVP (‘‘MRVP
violations’’) and the issuance of MRVP
violation letters, shall also apply to the
Exchange’s handling of other violations
of Rules listed in Rule 1614(b) that are
not subject to the MRVP (‘‘minor rule
violations’’) and the issuance of minor
rule violation letters, except that the
Exchange shall promptly report any
final disciplinary action to the
Commission, in accordance with SEC
Rule 19d–1(c)(1). These proposed
references are necessary to account for
Nasdaq ISE’s proposed revisions to
Chapter 16 of its rules, which will retain
the Exchange’s existing authority to
impose fines of up to $2,500 for MRVP
violations and up to $5,000 for minor
rule violations, as well as the
Exchange’s existing fine schedule for
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violation fine or a minor rule violation
fine whereby the subject may yet or has
contested the determination pursuant to
Conclusion
Existing Rule 1614(a). In terms of formal
The changes proposed herein will
disciplinary matters, any matter that has
allow the Exchange to harmonize its
been approved for the issuance of a
investigatory and disciplinary processes statement of charges 38 by the CRO will
with the processes of BX, thus providing continue under the Existing Rules.
a uniform process for the investigation
Moreover, any appeal of a matter that is
and discipline of Members and
pending before an OEP pursuant to
Associated Persons across all of the
Existing Rule 720, a Review Panel
Nasdaq, Inc. exchanges, as administered pursuant to Existing Rule 720A, or the
by FINRA pursuant to Regulatory
BCC pursuant to Existing Rule 303 will
Services Agreements. Harmonizing the
continue under the Existing Rules. As a
investigatory and disciplinary processes consequence of this transition process,
of all of the Nasdaq, Inc. exchanges will the Exchange will retain the BCC, the
bring efficiency to FINRA’s
OEP, the Review Panel, and the existing
administration of its responsibilities
processes during the transition period
under the RSAs because the process
until such time that there are no longer
[sic] it must follow are nearly identical,
any matters proceeding under the
and are all based on the process that
Existing Rules. To facilitate this
FINRA follows. Harmonized processes
transition process, the Exchange will
will bring consistency to investigations
retain a transitional Rulebook that will
and adjudication of rule violations, and
contain the Exchange’s Rules as they are
will reduce the number of disciplinary
at the time of that this proposal is filed
processes and requirements with which with the Commission. This transitional
Members and Associated Persons, as
Rulebook will apply only to matters
well as their counsel, must be familiar.
initiated prior to the operational date of
The Exchange believes that the new
the changes proposed herein and it will
investigatory and disciplinary processes be posted to the Exchange’s public rules
are substantially similar to the existing
website. When the transition is
process, and where there are differences complete and there are no longer any
between the new and old processes, the Members, Associated Persons, or other
Exchange believes that the new process
persons subject to the existing
does not disadvantage its Members or
disciplinary processes, the Exchange
Associated Persons. To the contrary, the will remove the transitional Rulebook
Exchange believes that the new process
from its public rules website.
will benefit all parties as it provides
The Exchange furthermore notes that
greater detail and specificity than the
retired Rules, and that it is consequently it expects the transition from the BCC to
the Exchange Review Council to be
more transparent.
smooth given that it expects to nominate
The Exchange intends to announce
the existing (and shared) membership of
the operative date of the new Rules at
least 30 days in advance via a regulatory the BX, Nasdaq, and Phlx Review
alert.36 To facilitate an orderly transition Councils to also become members of the
Exchange Review Council.39 The
from the Existing Rules to the new
Exchange does not expect that any
Rules, the Exchange is proposing to
apply the Existing Rules to all Letters of existing members of the BCC will be
nominated to become members of the
Consent 37 that the Chief Regulatory
Exchange Review Council; however, the
Officer of the Exchange has approved
Exchange will ensure that, in advance of
and which are pending approval of the
the operative day, the members of the
BCC prior to the operative date. The
Exchange Review Council will
Exchange also will apply the Existing
familiarize themselves with the Rules
Rules to any matter for which, prior to
and procedures of the Exchange so that
the operative date, the Exchange has
they will be prepared to fulfill their
provided notice to a subject of its
responsibilities.
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such violations, which will be set forth
in Rule 1614(b).
36 The Exchange notes that the proposed changes
will not become operative unless and until the
Commission approves the Exchange’s request,
which it has filed pursuant to Section 36 of the
Exchange Act and SEC Rule 0–12 thereunder, for
an exemption from the rule filing requirements of
Section 19(b) of the Exchange Act as to changes to
Chapters 80 and 90 that are effected solely by virtue
of a change to the BX Rule 8000 or 9000 Series.
37 A ‘‘Letter of Consent’’ is a means by which the
Exchange may consensually address a violation of
its Rules without resort to the formal disciplinary
process. See Existing Rule 1603.
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38 A ‘‘statement of charges’’ is formal disciplinary
complaint. See Existing Rule 1604.
39 The Exchange anticipates that the members of
the Exchange Review Council will serve in a
manner that is consistent with their tenures on the
Nasdaq, BX, and Phlx review councils. That is, to
the extent that the tenure of a member of these other
review councils is due to expire on a particular
date, then the same expiration date will apply to
that member’s tenure on the Exchange Review
Council. All terms for members on the Exchange
Review Council will comply with Article VI,
Section 4 of the proposed By-Laws.
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2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,40 in general, and furthers the
objectives of Section 6(b)(5) of the Act,41
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest, and
are [sic] not designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
The Exchange also believes that the
proposal is consistent with Section
6(b)(6) of the Act,42 which requires that
the rules of an exchange provide that its
members be appropriately disciplined
for violations of the Act as well as the
rules and regulations thereunder, or the
rules of the Exchange, by expulsion,
suspension, limitation of activities,
functions, and operations, fine, censure,
being suspended or barred from being
associated with a member, or any other
fitting sanction.
First, the Exchange’s proposals are
consistent with the Act to [sic] make
miscellaneous changes to the Existing
Rules to account for the adoption of the
BX Rule 8000 and 9000 Series and the
replacement of the BCC with the
Exchange Review Council. For example,
subject to Chapter 90, proposed changes
to Rule 303 re-assign responsibility to
the Exchange Review Council to review
decisions of the Exchange’s Membership
Department to deny or condition
applications for membership and
association with Exchange Members and
to deny or condition continuing
membership or association. The
proposal also establishes a new process
by which the Exchange Review Council
will adjudicate such reviews. The
Exchange believes that these proposed
changes to the Existing Rules are
consistent with the Act because the new
adjudicatory processes that the
Exchange proposes to adopt in place of
its existing processes are substantially
similar to those that BX already utilizes.
Moreover, the Exchange believes that
the proposed processes will facilitate
prompt, appropriate, and fair
adjudications, consistent with the Act.
Second, the Exchange’s proposals are
consistent with the Act to [sic] make
minor updates, corrections, and
conforming amendments to the
Exchange’s Rules because they are
necessary to ensure that the Exchange’s
40 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
42 15 U.S.C. 78f(b)(6).
41 15
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cross-references and terminology remain
current and accurate.
Third, the proposed rule change is
necessary to ensure that the Exchange
maintains a disciplinary process, in
accordance with Section 6(b)(5) and (6)
of the Act,43 once Nasdaq ISE deletes its
disciplinary rules from chapters 15–17
of the Nasdaq ISE rulebook, which the
Exchange presently incorporates by
reference. The proposed rule change
will also ensure that going forward, the
Exchange’s disciplinary rules will
continue to exist in harmony with those
of Nasdaq ISE. As noted earlier, Nasdaq
ISE is similarly proposing to incorporate
by reference the BX Rule 8000 and 9000
Series into new chapters 80 and 90 of
its rulebook as to well make similar
conforming changes to its other rules.
The Exchange believes that
harmonizing its investigative,
disciplinary, and adjudicatory processes
with those of BX will reduce the burden
on Members and Associated Persons
that are also members of BX, Nasdaq,
Phlx, and/or FINRA. The Exchange
notes that all of its Members are also
members of BX, Nasdaq, Phlx, and/or
FINRA. BX, Nasdaq, Phlx, and FINRA
already have in place investigative,
disciplinary, and adjudicatory processes
that are the same or similar to those that
the Exchange proposes to incorporate by
reference.
As discussed above, the Exchange
believes that the proposed Rules will
benefit all parties involved in the
Exchange’s disciplinary and
adjudicatory processes as they will
include greater detail and specificity
than do the Existing Rules. The proposal
will render the Exchange’s
investigatory, disciplinary, and
adjudicatory processes more transparent
than the Existing Rules.
The Exchange also believes that
adopting an Exchange Review Council
is consistent with the Act because the
Council’s mandate is to, among other
things, ensure consistent and fair
application of the Exchange rules
pertaining to discipline of Members and
Associated Persons. The Exchange
Review Council will be a body
appointed by the Exchange Board of
Directors and composed of
representatives of the securities industry
as well as persons from outside the
securities industry. The broad
membership of the new Exchange
Review Council will ensure that the
decisions and guidance it provides will
be fair and balanced. The Exchange
Review Council will be similar in
structure and function to the BX
exchange review council. In addition to
43 15
U.S.C. 78f(b)(5)–(6).
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reviewing appeals of disciplinary
actions, the Exchange Review Council
will also have jurisdiction to review
membership decisions (proposed Rule
303), and appeals regarding limitations
placed on Members or their employees
that are subject to a statutory
disqualification (BX Rule 9524).
Additionally, the Exchange Review
Council may consider and make
recommendations to the Board on
policy and rule changes relating to
business and sales practices of Exchange
Members and Associated Persons, and
enforcement policies, including policies
with respect to fines and other
sanctions. Thus, the Exchange Review
Council will provide the Exchange and
market participants with a fair and
impartial body overseeing disciplinary
matters, as well as the rules and policies
concerning the disciplinary process. For
these reasons, the Exchange believes
that adoption of the Exchange Review
Council is consistent with the Act.
The Exchange believes that
eliminating the BCC, the OEP (as
provided for under Existing Rule 720),
and the Review Panel (as provided for
under Existing Rule 720A) is consistent
with Sections 6(b)(5) and 6(b)(6) of the
Act,44 because the Exchange Review
Council and the New Hearing Panels
will assume the responsibilities of the
BCC and the Panels. In particular, the
functions of the current Hearing Panels
of the BCC (‘‘Current Hearing Panels’’)—
which include adjudicating disciplinary
actions—will be handled by new
Hearing Panels, which FINRA’s Office
of Hearing Officers (‘‘OHO’’) shall
convene (‘‘New Hearing Panels’’).45
Going forward, the BCC’s (and the
CRO’s) responsibility for approving
settlements will be assumed by the
Exchange Review Council and, in
certain instances, FINRA’s Office of
Disciplinary Affairs (the ‘‘ODA’’).46 The
BCC’s responsibilities for hearing
appeals of Exchange decisions on
membership or association with a
Member will be assumed by the
Exchange Review Council. The
responsibilities of the OEP and the
Review Panel to hear appeals of
Exchange determinations to nullify or
adjust transactions that involve obvious
errors or that result from system
44 Id.
45 The OHO is an office within FINRA that is
independent of the FINRA enforcement function
and not involved in investigating or litigating cases.
46 Pursuant to BX Rule 9270, proposed
settlements must be submitted to and accepted by
the Exchange Review Council, except that proposed
settlements involving an affiliate of the Exchange
must be reviewed by the ODA. Like the OHO, the
ODA is an office within FINRA that is independent
of the FINRA enforcement function and not
involved in investigating or litigating cases.
PO 00000
Frm 00148
Fmt 4703
Sfmt 4703
37019
disruptions and malfunctions also will
be assumed by the Exchange Review
Council. The Exchange believes that the
proposal will provide for the Exchange
Review Council, the New Hearing
Panels, and the ODA to execute the
responsibilities of the BCC and the
Panels in a manner that the
Commission, within the context of the
BX Rules, has already deemed to be
consistent with the Act.47 For example,
the Exchange proposes to replace its
existing process for handling appeals of
membership decisions, as set forth in
Existing Rule 303 and Chapter 17, with
a process that BX already employs in BX
Rules 1015 and 1016. Moreover,
Exchange Members and Associated
Persons will already be familiar with the
proposed responsibilities and
procedures of the Exchange Review
Council, the New Hearing Panels, and
the ODA from their experiences as
members of BX and other SROs whose
rules provide for similar assignments of
responsibilities and processes.
The Exchange believes that its
proposal furthers the objectives of
Section 6(b)(7) of the Act 48 in that it is
designed to provide a fair procedure for
the disciplining of Members and
Associated Persons, 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. Specifically, the Exchange
believes that the proposed investigatory,
disciplinary, and adjudicatory processes
are consistent with Section 6(b)(7) of the
Act 49 because they are based on the
existing processes used by BX. The BX
processes are well-established as
consistent with the Act.50
Last, the Exchange believes that its
proposal to phase-in the
implementation of the new
investigatory, disciplinary, and
adjudicatory processes is consistent
with Section 6(b)(7) 51 of the Act
because both the current and proposed
processes are consistent with the Act,
providing fair procedures for
investigating, disciplining, and
adjudicating the rights of Members and
Associated Persons. The Exchange is
proposing to provide advanced notice of
the implementation date of the new
processes, and will apply the new
47 See Securities Exchange Act Release No. 34–
59154 (Dec. 23, 2008), 73 FR 80468 (Dec. 31, 2008)
(SR–BSE–2008–048).
48 15 U.S.C. 78f(b)(7).
49 Id.
50 See n.46, supra.
51 15 U.S.C. 78f(b)(7).
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37020
Federal Register / Vol. 83, No. 147 / Tuesday, July 31, 2018 / Notices
processes to new matters that are
initiated on or after that implementation
date. Any matters initiated prior to the
implementation date will be completed
using the current processes. As a
consequence, the Exchange will delete
the applicable portions of Chapters 15–
17 from the Exchange’s Rulebook, but it
will maintain a transitional Rulebook on
the Exchange’s public rules website
(https://https://nasdaqgemx.cchwall
street.com/), which will contain the
Exchange Rules as they are at the time
of filing this rule change.52 These
transitional Rules will apply exclusively
to the matters initiated prior to the
implementation date. Upon conclusion
of the last matter to which the
transitional rules apply, the Exchange
will remove the defunct transitional
rules from its public rules website.
Thus, the transition will be conducted
in a fair, orderly, and transparent
manner.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as amended
[sic]. The proposed rule change is not
intended to address competitive issues,
but it should reduce burdens on
Members, [sic] and Associated Persons.
Specifically and as described in detail
above, the Exchange believes that this
change will bring efficiency and
consistency in application of the
investigative, disciplinary, and
adjudicatory processes, thereby
reducing the burden on Members and
Associated Persons who are also
members of BX and the other Nasdaq,
Inc. Exchanges.
daltland on DSKBBV9HB2PROD with NOTICES
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing 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 from the date on
which it was filed, or such shorter time
52 The posting of the transitional rules on the
public rules website will make it clear what
disciplinary proceedings are governed by the
transitional rules (i.e., matters initiated prior to the
implementation date).
VerDate Sep<11>2014
18:30 Jul 30, 2018
Jkt 244001
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 53 and
subparagraph (f)(6) of Rule 19b–4
thereunder.54
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: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) 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.
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–
GEMX–2018–24 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–GEMX–2018–24. 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 website (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
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
PO 00000
53 15
54 17
Frm 00149
Fmt 4703
Sfmt 4703
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–GEMX–2018–24 and
should be submitted on or before
August 21, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.55
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–16272 Filed 7–30–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83705; File No. SR–MRX–
2018–23]
Self-Regulatory Organizations; Nasdaq
MRX, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Align Existing
Investigatory and Disciplinary
Processes and Related Rules With the
Investigatory and Disciplinary
Processes and Associated Rules of
Nasdaq BX, Inc.
July 25, 2018.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on July 16,
2018, Nasdaq MRX, LLC (‘‘MRX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
55 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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]]>Agencies
[Federal Register Volume 83, Number 147 (Tuesday, July 31, 2018)]
[Notices]
[Pages 37012-37020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-16272]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83704; File No. SR-GEMX-2018-24]
Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Align Existing
Investigatory and Disciplinary Processes and Related Rules With the
Investigatory and Disciplinary Processes and Associated Rules of Nasdaq
BX, Inc.
July 25, 2018.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 12, 2018, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I, II, and III, below,
which Items have been prepared by the Exchange. 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\ 17 CFR 240.19b-4.
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[[Page 37013]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to align its existing investigatory and
disciplinary processes and related rules with the investigatory and
disciplinary processes and associated rules of Nasdaq BX, Inc.
(``BX'').
The text of the proposed rule change is available on the Exchange's
website at https://nasdaqgemx.cchwallstreet.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 aspects 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 to adopt new investigatory, disciplinary, and
adjudicatory processes that are substantially the same as those of its
sister exchange, BX. Specifically, the Exchange proposes to establish
new Chapters 80 and 90 of its Rules \3\ and then incorporate by
reference into those Chapters the BX Rule 8000 and 9000 Series,\4\
which set forth and govern the BX investigatory, disciplinary, and
adjudicative processes.\5\ The Exchange also proposes to amend its By-
Laws to establish a new body to review disciplinary and certain other
matters (the ``Exchange Review Council'') that is similar to the
exchange review council that BX utilizes for such purposes.\6\ These
proposals, when coupled with certain changes to the Exchange's other
Rules, including Rules that govern appeals of the Exchange's membership
and other decisions, will render the Exchange's investigative,
disciplinary, and adjudicatory processes substantially the same as
those, not only of BX, but also of other Nasdaq, Inc. exchanges.\7\ The
proposal [sic] change will also further harmonize the work that the
Financial Industry Regulatory Authority (``FINRA'') conducts for all
these exchanges.
---------------------------------------------------------------------------
\3\ The Exchange proposes to add Chapters 23-79 and Chapters 81-
89 to its Rules, but reserve such Chapters for future use.
\4\ Citation herein to rules of the proposed Chapters 80 and 90
will be preceded by the term ``BX Rule'' to reflect incorporation of
the BX Rule 8000 and 9000 Series. References to current rules will
be preceded by the term ``Existing Rule.''
\5\ The Exchange proposes to separately request an exemption
from the rule filing requirements of Section 19(b) of the Act for
changes to Chapters 80 and 90 to the extent such rules are effected
solely by virtue of a change to the BX Rule 8000 and 9000 Series.
\6\ As discussed below, the Exchange Review Council will assume
responsibilities that presently reside with the Business Conduct
Committee (the ``BCC''). The Exchange also proposes to eliminate the
BCC.
\7\ The Exchange notes that the BX Rule 8000 and 9000 Series are
substantially similar to corresponding rules of The Nasdaq Stock
Market, LLC (``Nasdaq'') and Nasdaq PHLX, LLC (``Phlx''). Moreover,
the Exchange notes that Nasdaq ISE, LLC and Nasdaq MRX, LLC will
propose similar changes to their respective investigatory,
disciplinary, and adjudicatory processes and associated rules that
will render them substantially similar to those of BX.
---------------------------------------------------------------------------
The Exchange's current investigatory, disciplinary, and
adjudicatory processes are set forth in Chapters 15-17 of its Rules.
Chapters 15-17 of the Exchange's Rules, in turn, incorporate by
reference the investigatory, disciplinary, and adjudicatory processes
of Nasdaq ISE, LLC (``Nasdaq ISE'') that are set forth in the
corresponding chapters of the Nasdaq ISE rulebook. As part of a
parallel Nasdaq ISE filing that also proposes to adopt the
investigatory, disciplinary, and adjudicatory processes and rules of BX
(and incorporate them by reference into new chapters 80 and 90 of the
Nasdaq ISE rules), Nasdaq ISE proposes to eliminate chapters 15 and 17
of its rules, and to largely eliminate chapter 16.\8\ These proposed
changes to ISE chapters 15-17 will apply automatically to Chapters 15-
17 of the Exchange's Rules. Accordingly, reference should be made to
SR-ISE-2018-59 for a detailed explanation of the proposed changes to
Chapters 15-17 and the purposes of those changes. Likewise, reference
should be made to SR-ISE-2018-59 for a detailed discussion of the BX
Rule 8000 and 9000 Series, which will largely replace Chapters 15-17
for both Nasdaq ISE and the Exchange. Lastly, reference should be made
to SR-ISE-2018-59 for a discussion of proposed changes to certain other
ISE rules that the Exchange also incorporates by reference and that are
relevant to the Exchange's adoption of its new investigatory,
disciplinary, and adjudicatory processes.\9\
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\8\ See SR-ISE-2018-59. Nasdaq ISE proposes to retain Rule 1600,
which sets forth the general jurisdiction of the Exchange with
respect to disciplinary matters. It also proposes to retain Existing
Rule 1614(a), which sets forth its authority to impose fines of up
to $2,500 for violations of the Exchange's Minor Rule Violation Plan
(``MRVP'') and up to $5,000 for minor rule violations (other than
those subject to an MRVP). Nasdaq ISE also proposes to retain
Existing Rule 1614(d) (to be renumbered as Rule 1614(b)), which sets
forth the Exchange's schedule of MRVP violations and minor rule
violations and their associated fines.
\9\ The proposed changes involve Nasdaq ISE Rules 410,
413(b)(1), 1000, 1406, and 1800.
---------------------------------------------------------------------------
The following is a discussion of proposed changes that are specific
to the Rules of the Exchange and that are not otherwise addressed in or
accomplished by the corresponding Nasdaq ISE filing. These changes
include: (1) The elimination of the Exchange's BCC and its replacement
with the Exchange Review Council; and (2) changes to Exchange Rules
that are necessary to accommodate the new investigatory, disciplinary,
and adjudicatory processes and rules and to harmonize those processes
and rules with those of BX.
Elimination of the Business Conduct Committee and Establishment of the
Exchange Review Council
The Exchange presently utilizes the BCC to help it enforce its
Rules with respect to its members (``Members'') and persons associated
with its members (``Associated Persons''). The BCC is a committee,
established by the Board of Directors,\10\ whose enforcement
jurisdiction includes the following: (1) Ordering investigations of
possible Rule violations; (2) considering letters of consent in
expedited disciplinary actions; (3) making its members available to
serve on Hearing Panels that adjudicate formal disciplinary
proceedings; (4) imposing sanctions on Members or Associated Persons in
disciplinary proceedings; (5) reviewing Exchange actions involving
minor rule violations; (6) appointing panels to conduct hearings and
reviews of Exchange actions that deny membership or Member association
privileges; and (7) generally overseeing all matters relating to the
conduct of disciplinary hearings and hearings for review of Exchange
decisions, and providing the Exchange with advice for improving
disciplinary procedures.\11\
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\10\ See Resolution of the Board of Directors of the ISE Gemini
Delegating Authority, dated July 30, 2013.
\11\ See GEMX Business Conduct Committee Charter, as amended,
May 1, 2003.
---------------------------------------------------------------------------
The Exchange proposes to retire the BCC \12\ and to amend its By-
Laws to
[[Page 37014]]
establish in its place the Exchange Review Council. The amended By-Laws
that the Exchange proposes to adopt in this regard are substantially
the same as those that BX adopted to establish the BX Exchange Review
Council.\13\ Thus, the By-Laws provide for the Exchange Review Council
to have the same general structure and powers as does the BX Exchange
Review Council.\14\ The proposed By-Laws will authorize the Exchange
Review Council to adjudicate disciplinary actions and approve
settlements thereof as well as make recommendations to the Board on
certain policy matters and rule changes. Such policy functions of the
Exchange Review Council render its jurisdiction broader than that of
the BCC.
---------------------------------------------------------------------------
\12\ In a February 4, 2016 resolution, the Exchange Board
delegated its authority to the President of the Exchange to
establish a BCC to, among other things, conduct disciplinary
hearings under Chapter 16 of the Existing Rules and conduct other
hearings and reviews as set forth in Chapter 17 of the Existing
Rules. On February 1, 2017, the Board passed a resolution that both
revoked the President's authority to establish a BCC and authorized
the establishment of an Exchange Review Council, effective upon the
date when this rule filing becomes operative.
\13\ The BX by-laws differ from the proposed Exchange By-Laws
because the BX by-laws have a different numbering convention from
the Exchange's By-Laws and, in various places, the BX by-laws refer
to a Listing and Hearing Review Council, which has no analogue with
respect to the Exchange.
\14\ The BX by-laws do not describe in detail the process of the
proceedings over which the BX Exchange Review Council presides.
However, Section 7.9 of the BX by-laws state [sic] that a quorum of
three BX Exchange Review Council members is necessary to adjudicate
appeals of determinations made under BX Rules 4612 (appeal of denial
of registration as an Equities Market Maker), 4619 (review of denial
of an excused withdrawal of Equities Market Maker quotation), 4620
(appeal of denial of reinstatement of Equities Market Maker that
accidentally withdraws), 11890 (appeal of clearly erroneous
transaction determination), and BX Options Chapter V, Section 6
(appeal of obvious error determination). See BX by-laws, Article
VII, Section 9. The Exchange's Rules do not have analogues to BX
Rules 4612, 4620, and 11890 and, as such, the corresponding
provision of the Exchange's proposed By-Laws (Article VII, Section
9) provides only that a quorum of three Exchange Review Council
members is necessary for it to adjudicate appeals involving
determinations made under Rules 720 (appeal of obvious error
determination), 720A (appeal of determinations of erroneous trades
due to system malfunctions and disruptions), and 804 (review of
denial of an excused withdrawal of market maker quotation).
---------------------------------------------------------------------------
Specifically, proposed Article VI, Section 1 of the proposed By-
Laws provides that the Exchange Review Council may be authorized to act
for the Board with respect to: An appeal or review of a disciplinary
proceeding, a statutory disqualification proceeding, or a membership
proceeding; a review of an offer of settlement, a letter of acceptance,
waiver, and consent, and a minor rule violation plan letter; the
exercise of exemptive authority; and such other proceedings or actions
as may be authorized by the Exchange rules. The Exchange Review Council
also may consider and make recommendations to the Board on policy and
rule changes relating to business and sales practices of Exchange
Members and Associated Persons and enforcement policies, including
policies with respect to fines and other sanctions. It may advise the
Board on regulatory proposals and industry initiatives relating to
quotations, execution, trade reporting, and trading practices and it
may advise the Board in its administration of programs and systems for
the surveillance and enforcement of rules governing Exchange Members'
conduct and trading activities in the Exchange.
Proposed Article VI, Section 2 states that the Exchange Review
Council would consist of no fewer than eight and no more than 12
members. The Exchange Review Council must include a number of Member
Representative members \15\ that is equal to at least 20% of the total
number of members of the Exchange Review Council. The number of Non-
Industry members,\16\ including at least three Public members,\17\
shall equal or exceed the sum of the number of Industry members \18\
and Member Representative members. As soon as practicable, following
the appointment of members, the Exchange Review Council shall elect a
Chair from among its members. The Chair shall have such powers and
duties as may be determined from time to time by the Exchange Review
Council. The Board, by resolution adopted by a majority of Directors
then in office, may remove the Chair from such position at any time for
refusal, failure, neglect, or inability to discharge the duties of
Chair. No more than 50% of the members of the Exchange Review Council
shall be engaged in market making activity or employed by an Exchange
Member firm whose revenues from market making activity exceed 10
percent of its total revenues.
---------------------------------------------------------------------------
\15\ See n.20, infra.
\16\ See id.
\17\ See id.
\18\ See id.
---------------------------------------------------------------------------
Proposed Article VI, Section 3 requires the Exchange's Secretary to
collect from each nominee for the office of member of the Exchange
Review Council such information as is reasonably necessary to serve as
the basis for a determination of the nominee's qualifications and
classification as an Industry, Member Representative, Non-Industry, or
Public member. The Secretary must also certify to the Nominating
Committee or the Member Nominating Committee \19\ (as applicable) each
nominee's qualifications and classification. After appointment to the
Exchange Review Council, each member must update such information at
least annually and upon request of the Exchange's Secretary, and must
report immediately to the Secretary any change in such information.
---------------------------------------------------------------------------
\19\ The terms ``Nominating Committee'' and ``Member Nominating
Committee'' are defined in Exchange By-Laws, Article I.
---------------------------------------------------------------------------
Proposed Article VI, Section 4 provides that Exchange Review
Council members shall serve three-year terms, or until a successor is
duly appointed and qualified, except in the event of earlier
termination from office by reason by death, resignation, removal,
disqualification, or other reason. Members are term limited out after
two consecutive terms. Proposed Article VI, Section 5 sets forth the
procedures for resigning as a member of the Exchange Review Council and
provides that an Exchange Review Council member may resign at any time
upon written notice to the Board. Under proposed Article VI, Section 6,
any member of the Exchange Review Council may be removed from office at
any time for refusal, failure, neglect, or inability to discharge the
duties of such office by majority vote of the Board.
Under proposed Article VI, Section 7, an Exchange Review Council
member would be disqualified and removed immediately upon a
determination by the Board, by a majority vote, (a) that the member no
longer satisfies the classification (Industry, Member Representative,
Non-Industry, or Public) for which the member was elected; and (b) that
the member's continued service as such would violate the compositional
requirements of the Exchange Review Council set forth in Article VI,
Section 2. If the term of office of an Exchange Review Council member
terminates under this Section, and the remaining term of office of such
member at the time of termination is not more than six months, during
the period of vacancy the Exchange Review Council shall not be deemed
to be in violation of Article VI, Section 2 by virtue of such vacancy.
Proposed Article VI, Section 8 contains provisions for the filling of
vacancies on the Exchange Review Council and states that if a position
on the Exchange Review Council becomes vacant, the Nominating Committee
or the Member Nominating Committee (as applicable) shall nominate, and
the Board shall appoint a person satisfying the qualifications for the
position as provided in Article VI, Section 2 to fill
[[Page 37015]]
such vacancy, except that if the remaining term of office for the
vacant position is not more than six months, no replacement shall be
required.
Proposed Article VI, Section 9 provides that a quorum of the
Exchange Review Council will consist of a majority of its members,
including not less than 50% of its Non-Industry members and one Member
Representative member. Proposed Article VI, Section 10 contains
provisions related to the meetings of the Exchange Review Council.
Under proposed Article VI, Section 11, the Exchange Review Council
is required to establish a Review Subcommittee to determine whether
disciplinary and membership proceedings decisions should be called for
review by the Exchange Review Council under the disciplinary and
membership rules to be proposed for the Exchange. The Review
Subcommittee shall be composed of no fewer than two and no more than
four members of the Exchange Review Council. The number of Non-Industry
members of the Review Subcommittee shall equal or exceed the sum of the
number of Industry members and Member Representative members of the
Review Subcommittee, and the subcommittee must include at least one
Member Representative member. At all meetings of the Review
Subcommittee, a quorum for the transaction of business shall consist of
not less than 50 percent of the members of the Review Subcommittee,
including not less than 50 percent of the Non-Industry members of the
Review Subcommittee and one Member Representative member of the Review
Subcommittee.\20\
---------------------------------------------------------------------------
\20\ In addition to adding Article VI to the By-Laws, the
Exchange proposes to make changes to other articles of the By-Laws
to accommodate the existence of the Exchange Review Council. For
example, the Exchange proposes to amend Article I, which defines the
terms that the Exchange uses in the By-Laws, to provide that the
terms ``Industry member,'' ``Member representative member,'' ``Non-
industry member,'' and ``Public member'' mean, in part, members of
the Exchange Review Council. The Exchange also proposes to amend
Article III, Section 6, to add a new subsection (a) that directs the
Board to appoint an Exchange Review Council, as provided in Article
VI. It also proposes to amend Article III, Section 6(b) to state
that the Nominating Committee and the Member Nominating Committee of
the Board shall have responsibility for nominating members of the
Exchange Review Council. Finally, the Exchange proposes to amend
Sections 7 and 8 of Article III, which deal with Director conflicts-
of-interest/self-interested transactions and Director compensation,
respectively, to ensure that the restrictions and benefits that
these provisions provide apply to Exchange Review Council members.
---------------------------------------------------------------------------
The BX Rules implement the foregoing responsibilities of the
Exchange Review Council by establishing various procedures to govern
its reviews. As the Exchange describes in further detail below, the
Exchange proposes to transfer to the Exchange Review Council (or panels
thereof) certain responsibilities currently vested in other Exchange
committees or the Board. For example, pursuant to Existing Rule 720, an
Obvious Error Panel (``OEP'') is presently responsible for reviewing
determinations regarding obvious and catastrophic errors. Pursuant to
Existing Rule 720A, a ``Review Panel'' is responsible for reviewing
determinations to nullify or adjust transactions that arise from system
disruptions and malfunctions. The Exchange is proposing to eliminate
the OEP and the Review Panel and to transfer their responsibilities to
a panel of the new Exchange Review Council, which corresponds to the
practice of BX. Subject to Chapter 90, the Exchange also proposes to
transfer responsibility to the Exchange Review Council to review
denials or conditions imposed upon those that seek to become or remain
a Member of the Exchange or become or remain associated with a Member
of the Exchange, as set forth in Existing Rule 303.\21\ In addition,
the Exchange proposes to amend Existing Rule 804 to provide for the
Exchange Review Council to review determinations regarding temporary
withdrawals of quotations, which are not reviewable under the Existing
Rules. The Exchange notes that BX vests in its Exchange Review Council
responsibility for reviewing similar types of matters.\22\
---------------------------------------------------------------------------
\21\ The Exchange notes that it proposes to establish procedures
in Existing Rule 303 to govern the review by the Exchange Review
Council of adverse membership and association determinations. The
Exchange proposes to base these procedures upon those set forth BX
Rules 1015 and 1016.
\22\ See Securities Exchange Act Release No. 72149 (May 12,
2014), 79 FR 28564 (May 16, 2014) (SR-BX-2014-024).
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Other Conforming Rule Changes
The Exchange proposes to amend or delete certain other Existing
Rules, which are either not needed, duplicated elsewhere, or reference
the deleted Existing Rules. Below is a description of the specific
changes the Exchange proposes to make to its Existing Rules.
Existing Rule 100 provides definitions for purposes of the Existing
Rules. The Exchange is proposing to amend this Existing Rule to include
definitions for several new terms. For example, the proposed Rules will
define the new term ``Code of Procedure'' as the procedural rules
contained in Chapter 90. The Exchange also defines the new term
``Exchange Review Council,'' which is largely copied from BX Rule
0120(m). The Exchange notes that item (6) of the new definition differs
from the BX item (6) in that it cites the analogous rules of the
Exchange, which have different rule numbers. Finally, the Exchange
proposes to amend the definition of ``SEC'' so that it also includes
the word ``Commission.''
Existing Rule 206 concerns the consequences of a Member's or an
Associated Person's failure to pay dues, fees and other charges. The
Exchange proposes to delete this Existing Rule in favor of BX Rule
9553, which is more comprehensive than the Existing Rule and differs
from it in several respects. Existing Rule 206 provides that instances
of nonpayment shall be reported to the Exchange's Chief Executive
Officer and President when they are 30 days past due, and that the
Chief Executive Officer and President thereafter shall provide
reasonable notice to the delinquent Member that continued non-payment
will result in suspension of trading privileges. An Associated Person
that fails to pay may be suspended from association with a Member. By
contrast, BX Rule 9553 states that the Exchange's Regulation
Department, within an unspecified period of time period [sic] after the
onset of a delinquency, may issue a written notice to the delinquent
Member or Associated Person that failure to comply within 21 days of
service of the notice will result in suspension or cancellation of
membership or suspension or bar of association with a Member, as
applicable. BX Rule 9553 also provides for detailed provisions for
serving such notice, a provision for requesting a hearing with respect
to such a notice, a provision declaring the effectiveness of such
notices (21 days after service) when no hearing is requested, and a
means to request termination of a suspension, which may be granted for
good cause shown.
Existing Rule 303 sets forth circumstances in which the Exchange
may deny or condition approval of membership applications or
applications to associate with Members. Existing Rule 303(c) also sets
forth circumstances in which the Exchange may determine not to permit a
Member or Associated Person from continuing their [sic] membership or
association with a Member, including because they become [sic] subject
to [sic] statutory disqualification under the Act. Existing Rule 303(f)
furthermore permits a Member or Associated Person that becomes subject
to [sic] statutory disqualification under the Act to apply to the
Exchange to continue as a Member or as an Associated Person, within 30
days of becoming subject to the statutory disqualification. Existing
[[Page 37016]]
Rule 303(g) states that, subject to the summary suspension rules in
Chapter 15, any applicant for membership or association with a Member
whose application is denied or conditioned or who is not permitted to
continue as a Member or Associated Person may appeal such
determinations under Chapter 17 of the Existing Rules.
The Exchange proposes to modify Existing Rule 303(f) so that it
refers to new and more robust procedures, set forth in the BX Rule 9520
series, by which a Member or an Associated Person may obtain relief
from disqualification or ineligibility determinations (BX Rule 9522).
The Exchange also proposes to amend Existing Rule 303(g), which
states that subject to Chapter 15, the BCC may review, in part,
Exchange determinations to deny membership or association with a Member
pursuant to Chapter 17 of the Existing Rules. The Exchange proposes to
re-assign responsibility for these reviews from the BCC to the Exchange
Review Council and replace the review process presently set forth in
Chapter 17 of the Existing Rules with processes that are substantially
the same as those set forth in BX Rules 1015 and 1016. Specifically,
the proposed amendments to Exchange Rule 303(g) state that, subject to
Chapter 90, the Exchange Review Council will have jurisdiction to
review these decisions. Proposed Rule 303(g) states that anyone whose
application for membership on the Exchange, association with an
Exchange Member, or whose continuing membership or association is
denied or conditioned by the Exchange's Membership Department, may file
a written request for review by the Exchange Review Council within 25
days after service of the Exchange's decision.\23\ The request must
state specifically why the applicant believes that the Membership
Department's decision is inconsistent with the permissible bases for
denial set forth in Rule 303, or otherwise should be set aside and
state whether a hearing is requested.\24\ The request will be heard by
a Subcommittee appointed by the Exchange Review Council or the Review
Subcommittee composed of two or more persons who are either current or
past members of the Council or former Directors of the Exchange.\25\ If
a hearing is requested or directed, it must be held within 45 days
after the request for review is filed with the Exchange or service of
the notice by the Subcommittee.\26\ Applicants and the Membership
Department may be represented by counsel at the hearing and formal
rules of evidence will not apply during the hearing.\27\ The
Subcommittee must present a recommended decision in writing to the
Exchange Review Council within 60 days after the date of the hearing,
and not later than seven days before the meeting of the Exchange Review
Council at which the proceeding shall be considered.\28\ The Exchange
Review Council must issue a proposed written decision that affirms,
modifies, or reverses the Membership Department's decision, or remands
the proceedings with instructions and provide the proposed decision to
the Exchange Board.\29\ If the Exchange Board does not call the
decision for review, it shall become final. If the Exchange Review
Council does not serve its final written decision within the time
period prescribed by Rule 303(g)(10)(C), then the Applicant may file a
written request with the Exchange Board for the Board to direct the
Exchange Review Council to issue its decision immediately or show good
cause why it needs additional time to issue its decision.\30\ Proposed
Rule 303(h), which mirrors BX Rule 1016, grants the Exchange Board
discretion, at the request of a Director, to review decisions of the
Exchange Review Council.\31\
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\23\ See proposed Rule 303(g)(1). The Exchange notes that the
deadline for filing petitions for BCC review of an Exchange action
under Existing Rule 1701(a) is 30 days from the date of such action.
The Existing Rules pertaining to membership do not reference or
define the terms ``Membership Department'' or ``Department.'' As
part of this proposal, the Exchange proposes to amend Rule 303(g) to
specify that the Exchange's Membership Department--rather than
simply the ``Exchange''--makes determinations as to whether to
grant, deny, or conditionally grant applications for membership or
association or to continue as a Member or an Associated Person.
\24\ See proposed Rule 303(g)(1).
\25\ See proposed Rule 303(g)(4). The Exchange notes that
Existing Rule 1702 provides for review by a BCC panel composed of
two or more of its members.
\26\ See proposed Rule 303(g)(6)(A).
\27\ See proposed Rule 303(g)(6)(B) & (C). Unlike Existing Rule
1703, proposed Rule 303(g) does not provide for intervention in
proceedings by interested non-parties.
\28\ See proposed Rule 303(g)(9).
\29\ See proposed Rule 303(g)(10)(A).
\30\ See proposed Rule 303(g)(10)(D).
\31\ Unlike Existing Rule 1704, proposed Rule 303(h) does not
authorize the applicant or the President of the Exchange to request
that the Board review the decision of the Exchange Review Council.
---------------------------------------------------------------------------
Existing Rule 307(b) requires Members to file with the Exchange and
keep current their addresses at which notices may be served. The
Exchange proposes to amend this Existing Rule to incorporate the
language set forth in BX Rule 1160. Rather than merely requiring
Members to provide the Exchange with their current address, the
proposed amendment more broadly requires Members to report to the
Exchange, through the FINRA Contact System, all of their contact
information, including their mailing addresses, email addresses,
facsimile numbers, and other information. It also requires members to
update such contact information in the FINRA System within 30 days of
any changes thereto, and to generally verify that such information
remains accurate within 17 business days after the end of each calendar
year. This proposed amendment to the Existing Rule will ensure that the
Exchange has available to it multiple means of contacting its Members,
including for purposes of serving the notices specified in the BX Rule
9550 series by email or by facsimile. The Exchange proposes, in its
introduction to Chapter 90, to state that cross references in the BX
Rule 9000 Series to BX Rule 1160 should be read instead to refer to
Exchange Rule 307(b), as modified herein.
To maintain consistency with the BX Rules, the Exchange also
proposes to eliminate Existing Rule 307(d), which requires Members to
maintain a current copy of the Exchange's governing documents and Rules
in an accessible place and make them available for examination by
customers, and to replace it with BX Rule 8110, which is materially
equivalent.
Existing Rule 308 requires a Member to notify the Exchange upon its
adoption of a plan of liquidation or dissolution. The Existing Rule
also provides that upon receipt of such notice, the Member's trading
privileges may be suspended in accordance with Chapter 15 of the
Existing Rules. The Exchange proposes to replace this reference to
Chapter 15 with a reference to BX Rule 9558. Again, no analogue to this
proposal exists in the BX rules insofar as those rules do not expressly
address suspensions for such reasons or reviews of suspension
determinations. Nevertheless, the Exchange believes that the process
set forth in BX Rule 9558 is most appropriate for reviewing suspension
determinations in these circumstances given that they already apply in
circumstances where a Member is experiencing extreme financial or
operating difficulty such that the Exchange determines that the Member
cannot safely continue to do business on the Exchange.
The Supplementary Material to Existing Rule 306 concerns the
Exchange's authority to waive the applicable qualification examination
requirements and accept other standards as evidence of an applicant's
qualifications for registration. The
[[Page 37017]]
Exchange is amending this Rule to specify that such requests are
handled pursuant to the BX Rule 9600 Series process. The BX Rule 9600
Series concerns the procedures for requesting exemptions, and the
appeal of adverse decisions regarding an exemptive request. The
Exchange notes that the proposed revisions will render the text of the
Supplementary Material to Existing Rule 306 consistent with BX Rule
1070(d).
Existing Rule 720 concerns obvious and catastrophic errors.
Existing Rule 720(k) currently references the OEP as the body
responsible for reviewing determinations made by Options Exchange
Officials pursuant to the Rule and it sets forth procedures to govern
OEP review proceedings. In light of the fact that the OEP's
responsibilities will be incorporated into those of the Exchange Review
Council,\32\ the amendments to the Rule remove references to the OEP
and replaces [sic] them with references to a panel of the Exchange
Review Council. The amended Rule also includes language grafted from
the BX Rules prescribing the composition of panels convened for
purposes of these reviews.\33\
---------------------------------------------------------------------------
\32\ See proposed Rule 100(a)(21A).
\33\ See BX Options Rules Ch. V, Sec. 6(l).
---------------------------------------------------------------------------
Existing Rule 720A also provides for reviews by a ``Review Panel''
of decisions nullifying or adjusting transactions arising out of system
disruptions or malfunctions. The Exchange proposes to eliminate the
Review Panel in the Exchange's Rules and transfer its responsibility to
a panel of the Exchange Review Council. The new Rule also includes
language grafted from the BX Rules prescribing the composition of
Exchange Review Council panels convened for purposes of these
reviews.\34\
---------------------------------------------------------------------------
\34\ See id.
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Existing Rule 804 permits a Primary Market Maker to apply to the
Exchange to withdraw temporarily from its Primary Market Maker status
in an options class. The Existing Rule does not presently authorize
reviews of Exchange determinations to deny requests for temporary
withdrawals or to impose conditions on the reentry of quotations.
However, BX Rule 4619(f) does provide for such reviews. To provide
consistency, the Exchange proposes to amend Existing Rule 804(f) to
state that the Exchange Review Council will have authority conduct such
reviews.
As discussed above, Chapter 16 of the Exchange's Rules incorporates
by reference Chapter 16 of the ISE rules. However, Chapter 16 of the
Exchange's Rules contains an introductory paragraph that references the
incorporation by reference and provides instructions for cross-
references. The Exchange proposes to delete the last line of this
introductory paragraph, which specifies that a reference in the ISE
Rule 1615 to Nasdaq ISE's contract with FINRA shall be read to refer to
the Exchange's contract with FINRA. The Exchange proposes to delete
this sentence because Nasdaq ISE is proposing to delete its Rule 1615,
such that this sentence will no longer be necessary. The Exchange also
proposes to change the title of Chapter 16 from ``Discipline'' to
``Disciplinary Jurisdiction and Minor Rule Violation Fines'' so that it
conforms to the new title of Chapter 16 of the Nasdaq ISE Rules and to
the content of that Chapter that Nasdaq ISE proposes to revise.\35\
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\35\ See SR-ISE-2018-59.
---------------------------------------------------------------------------
Proposed Introductory Paragraphs to Chapters 80 and 90
The Exchange proposes to include introductory paragraphs to both
Chapters 80 and 90 which state that they incorporate by reference the
BX Rule 8000 and 9000 Series, respectively, and that such BX Rules
shall be applicable to Exchange Members, Associated Persons, and other
persons subject to the Exchange's jurisdiction.
These proposed introductory paragraphs also list instances in which
cross references in the BX Rule 8000 and 9000 Series to other BX rules
should be read to refer instead to the Exchange Rules, and references
to defined BX terms shall be read to refer to the Exchange-related
meanings of those terms. For example, references in both the BX Rule
8000 and 9000 Series to the following defined terms shall be read to
refer to the Exchange-specific meanings of those terms: ``Exchange'' or
``Nasdaq BX'' shall be read to refer to the Exchange; ``Rule'' or ``BX
Rule'' shall be read to refer to the Exchange Rules; ``Board'' or
``Exchange Board'' shall be read to refer to the Exchange Board of
Directors; ``Member'' shall be read to refer to an Exchange Member;
``Associated Person'' shall be read to refer to an Exchange Associated
Person; ``BX Regulatory Department'' or ``Regulation Department'' shall
be read to refer to the Exchange's Regulatory Department; ``BX
Regulation'' shall be read to refer to Exchange Regulation; ``Chief
Regulatory Officer'' shall be read to refer to the Chief Regulatory
Officer of the Exchange; and ``Equity Rule'' shall be read to refer to
an Exchange Rule.
Additionally, the proposed introduction to Chapter 80 states that
cross references in the BX Rule 8000 Series to the term ``Rule 0120''
shall be read to refer to Exchange Rule 100 and cross references in the
BX Rule 8000 Series to ``Rule 1015'' shall be read to refer to Exchange
Rule 303. Similarly, the proposed introduction to Chapter 90 states
that cross-references in the BX Rule 9000 Series to the following terms
shall be read to refer to the following Exchange Rules: ``Rule 0120''
shall be read to refer to Exchange Rule 100; ``Rule 1013'' shall be
read to refer to Exchange Rules 302 and 307; ``Rule 1070'' shall be
read to refer to the Supplementary Material to Exchange Rule 306;
``Rule 1160'' shall be read to refer to Exchange Rule 307(b); ``Equity
Rule 2110'' shall be read to refer to Exchange Rule 400; ``Equity Rule
2120'' shall be read to refer to Exchange Rule 405; ``Rule 2140'' shall
be read to refer to Exchange Rule 309; ``Equity Rule 2150'' shall be
read to refer to Exchange Rules Chapter 6; ``Rule 2170'' shall be read
to refer to Exchange Rule 403; ``Rule 4110A'' shall be read to refer to
Exchange Rules Chapter 13; ``Rule 4120A'' shall be read to refer to
Exchange Rules Chapter 13; ``Rule 10000 Series'' shall be read to refer
to Exchange Rules Chapter 18; and ``Chapter III, Section 16'' shall be
read to refer to Exchange Rule 403.
Finally, the introduction to Chapter 90 states that BX IM-9216 in
the BX Rules shall not apply to the Exchange, its Members, Associated
Persons, or other persons subject to the jurisdiction of the Exchange
and that instead, references to BX IM-9216 shall be read to refer to
Exchange Rule 1614(b). Similarly, the introduction states that the
procedures set forth in BX Rule 9216(b) and 9143(e)(3), which govern
the handling of violations of rules subject to the MRVP (``MRVP
violations'') and the issuance of MRVP violation letters, shall also
apply to the Exchange's handling of other violations of Rules listed in
Rule 1614(b) that are not subject to the MRVP (``minor rule
violations'') and the issuance of minor rule violation letters, except
that the Exchange shall promptly report any final disciplinary action
to the Commission, in accordance with SEC Rule 19d-1(c)(1). These
proposed references are necessary to account for Nasdaq ISE's proposed
revisions to Chapter 16 of its rules, which will retain the Exchange's
existing authority to impose fines of up to $2,500 for MRVP violations
and up to $5,000 for minor rule violations, as well as the Exchange's
existing fine schedule for
[[Page 37018]]
such violations, which will be set forth in Rule 1614(b).
Conclusion
The changes proposed herein will allow the Exchange to harmonize
its investigatory and disciplinary processes with the processes of BX,
thus providing a uniform process for the investigation and discipline
of Members and Associated Persons across all of the Nasdaq, Inc.
exchanges, as administered by FINRA pursuant to Regulatory Services
Agreements. Harmonizing the investigatory and disciplinary processes of
all of the Nasdaq, Inc. exchanges will bring efficiency to FINRA's
administration of its responsibilities under the RSAs because the
process [sic] it must follow are nearly identical, and are all based on
the process that FINRA follows. Harmonized processes will bring
consistency to investigations and adjudication of rule violations, and
will reduce the number of disciplinary processes and requirements with
which Members and Associated Persons, as well as their counsel, must be
familiar.
The Exchange believes that the new investigatory and disciplinary
processes are substantially similar to the existing process, and where
there are differences between the new and old processes, the Exchange
believes that the new process does not disadvantage its Members or
Associated Persons. To the contrary, the Exchange believes that the new
process will benefit all parties as it provides greater detail and
specificity than the retired Rules, and that it is consequently more
transparent.
The Exchange intends to announce the operative date of the new
Rules at least 30 days in advance via a regulatory alert.\36\ To
facilitate an orderly transition from the Existing Rules to the new
Rules, the Exchange is proposing to apply the Existing Rules to all
Letters of Consent \37\ that the Chief Regulatory Officer of the
Exchange has approved and which are pending approval of the BCC prior
to the operative date. The Exchange also will apply the Existing Rules
to any matter for which, prior to the operative date, the Exchange has
provided notice to a subject of its determination to impose an MRVP
violation fine or a minor rule violation fine whereby the subject may
yet or has contested the determination pursuant to Existing Rule
1614(a). In terms of formal disciplinary matters, any matter that has
been approved for the issuance of a statement of charges \38\ by the
CRO will continue under the Existing Rules. Moreover, any appeal of a
matter that is pending before an OEP pursuant to Existing Rule 720, a
Review Panel pursuant to Existing Rule 720A, or the BCC pursuant to
Existing Rule 303 will continue under the Existing Rules. As a
consequence of this transition process, the Exchange will retain the
BCC, the OEP, the Review Panel, and the existing processes during the
transition period until such time that there are no longer any matters
proceeding under the Existing Rules. To facilitate this transition
process, the Exchange will retain a transitional Rulebook that will
contain the Exchange's Rules as they are at the time of that this
proposal is filed with the Commission. This transitional Rulebook will
apply only to matters initiated prior to the operational date of the
changes proposed herein and it will be posted to the Exchange's public
rules website. When the transition is complete and there are no longer
any Members, Associated Persons, or other persons subject to the
existing disciplinary processes, the Exchange will remove the
transitional Rulebook from its public rules website.
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\36\ The Exchange notes that the proposed changes will not
become operative unless and until the Commission approves the
Exchange's request, which it has filed pursuant to Section 36 of the
Exchange Act and SEC Rule 0-12 thereunder, for an exemption from the
rule filing requirements of Section 19(b) of the Exchange Act as to
changes to Chapters 80 and 90 that are effected solely by virtue of
a change to the BX Rule 8000 or 9000 Series.
\37\ A ``Letter of Consent'' is a means by which the Exchange
may consensually address a violation of its Rules without resort to
the formal disciplinary process. See Existing Rule 1603.
\38\ A ``statement of charges'' is formal disciplinary
complaint. See Existing Rule 1604.
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The Exchange furthermore notes that it expects the transition from
the BCC to the Exchange Review Council to be smooth given that it
expects to nominate the existing (and shared) membership of the BX,
Nasdaq, and Phlx Review Councils to also become members of the Exchange
Review Council.\39\ The Exchange does not expect that any existing
members of the BCC will be nominated to become members of the Exchange
Review Council; however, the Exchange will ensure that, in advance of
the operative day, the members of the Exchange Review Council will
familiarize themselves with the Rules and procedures of the Exchange so
that they will be prepared to fulfill their responsibilities.
---------------------------------------------------------------------------
\39\ The Exchange anticipates that the members of the Exchange
Review Council will serve in a manner that is consistent with their
tenures on the Nasdaq, BX, and Phlx review councils. That is, to the
extent that the tenure of a member of these other review councils is
due to expire on a particular date, then the same expiration date
will apply to that member's tenure on the Exchange Review Council.
All terms for members on the Exchange Review Council will comply
with Article VI, Section 4 of the proposed By-Laws.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\40\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\41\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest, and are [sic] not designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\40\ 15 U.S.C. 78f(b).
\41\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange also believes that the proposal is consistent with
Section 6(b)(6) of the Act,\42\ which requires that the rules of an
exchange provide that its members be appropriately disciplined for
violations of the Act as well as the rules and regulations thereunder,
or the rules of the Exchange, by expulsion, suspension, limitation of
activities, functions, and operations, fine, censure, being suspended
or barred from being associated with a member, or any other fitting
sanction.
---------------------------------------------------------------------------
\42\ 15 U.S.C. 78f(b)(6).
---------------------------------------------------------------------------
First, the Exchange's proposals are consistent with the Act to
[sic] make miscellaneous changes to the Existing Rules to account for
the adoption of the BX Rule 8000 and 9000 Series and the replacement of
the BCC with the Exchange Review Council. For example, subject to
Chapter 90, proposed changes to Rule 303 re-assign responsibility to
the Exchange Review Council to review decisions of the Exchange's
Membership Department to deny or condition applications for membership
and association with Exchange Members and to deny or condition
continuing membership or association. The proposal also establishes a
new process by which the Exchange Review Council will adjudicate such
reviews. The Exchange believes that these proposed changes to the
Existing Rules are consistent with the Act because the new adjudicatory
processes that the Exchange proposes to adopt in place of its existing
processes are substantially similar to those that BX already utilizes.
Moreover, the Exchange believes that the proposed processes will
facilitate prompt, appropriate, and fair adjudications, consistent with
the Act.
Second, the Exchange's proposals are consistent with the Act to
[sic] make minor updates, corrections, and conforming amendments to the
Exchange's Rules because they are necessary to ensure that the
Exchange's
[[Page 37019]]
cross-references and terminology remain current and accurate.
Third, the proposed rule change is necessary to ensure that the
Exchange maintains a disciplinary process, in accordance with Section
6(b)(5) and (6) of the Act,\43\ once Nasdaq ISE deletes its
disciplinary rules from chapters 15-17 of the Nasdaq ISE rulebook,
which the Exchange presently incorporates by reference. The proposed
rule change will also ensure that going forward, the Exchange's
disciplinary rules will continue to exist in harmony with those of
Nasdaq ISE. As noted earlier, Nasdaq ISE is similarly proposing to
incorporate by reference the BX Rule 8000 and 9000 Series into new
chapters 80 and 90 of its rulebook as to well make similar conforming
changes to its other rules.
---------------------------------------------------------------------------
\43\ 15 U.S.C. 78f(b)(5)-(6).
---------------------------------------------------------------------------
The Exchange believes that harmonizing its investigative,
disciplinary, and adjudicatory processes with those of BX will reduce
the burden on Members and Associated Persons that are also members of
BX, Nasdaq, Phlx, and/or FINRA. The Exchange notes that all of its
Members are also members of BX, Nasdaq, Phlx, and/or FINRA. BX, Nasdaq,
Phlx, and FINRA already have in place investigative, disciplinary, and
adjudicatory processes that are the same or similar to those that the
Exchange proposes to incorporate by reference.
As discussed above, the Exchange believes that the proposed Rules
will benefit all parties involved in the Exchange's disciplinary and
adjudicatory processes as they will include greater detail and
specificity than do the Existing Rules. The proposal will render the
Exchange's investigatory, disciplinary, and adjudicatory processes more
transparent than the Existing Rules.
The Exchange also believes that adopting an Exchange Review Council
is consistent with the Act because the Council's mandate is to, among
other things, ensure consistent and fair application of the Exchange
rules pertaining to discipline of Members and Associated Persons. The
Exchange Review Council will be a body appointed by the Exchange Board
of Directors and composed of representatives of the securities industry
as well as persons from outside the securities industry. The broad
membership of the new Exchange Review Council will ensure that the
decisions and guidance it provides will be fair and balanced. The
Exchange Review Council will be similar in structure and function to
the BX exchange review council. In addition to reviewing appeals of
disciplinary actions, the Exchange Review Council will also have
jurisdiction to review membership decisions (proposed Rule 303), and
appeals regarding limitations placed on Members or their employees that
are subject to a statutory disqualification (BX Rule 9524).
Additionally, the Exchange Review Council may consider and make
recommendations to the Board on policy and rule changes relating to
business and sales practices of Exchange Members and Associated
Persons, and enforcement policies, including policies with respect to
fines and other sanctions. Thus, the Exchange Review Council will
provide the Exchange and market participants with a fair and impartial
body overseeing disciplinary matters, as well as the rules and policies
concerning the disciplinary process. For these reasons, the Exchange
believes that adoption of the Exchange Review Council is consistent
with the Act.
The Exchange believes that eliminating the BCC, the OEP (as
provided for under Existing Rule 720), and the Review Panel (as
provided for under Existing Rule 720A) is consistent with Sections
6(b)(5) and 6(b)(6) of the Act,\44\ because the Exchange Review Council
and the New Hearing Panels will assume the responsibilities of the BCC
and the Panels. In particular, the functions of the current Hearing
Panels of the BCC (``Current Hearing Panels'')--which include
adjudicating disciplinary actions--will be handled by new Hearing
Panels, which FINRA's Office of Hearing Officers (``OHO'') shall
convene (``New Hearing Panels'').\45\ Going forward, the BCC's (and the
CRO's) responsibility for approving settlements will be assumed by the
Exchange Review Council and, in certain instances, FINRA's Office of
Disciplinary Affairs (the ``ODA'').\46\ The BCC's responsibilities for
hearing appeals of Exchange decisions on membership or association with
a Member will be assumed by the Exchange Review Council. The
responsibilities of the OEP and the Review Panel to hear appeals of
Exchange determinations to nullify or adjust transactions that involve
obvious errors or that result from system disruptions and malfunctions
also will be assumed by the Exchange Review Council. The Exchange
believes that the proposal will provide for the Exchange Review
Council, the New Hearing Panels, and the ODA to execute the
responsibilities of the BCC and the Panels in a manner that the
Commission, within the context of the BX Rules, has already deemed to
be consistent with the Act.\47\ For example, the Exchange proposes to
replace its existing process for handling appeals of membership
decisions, as set forth in Existing Rule 303 and Chapter 17, with a
process that BX already employs in BX Rules 1015 and 1016. Moreover,
Exchange Members and Associated Persons will already be familiar with
the proposed responsibilities and procedures of the Exchange Review
Council, the New Hearing Panels, and the ODA from their experiences as
members of BX and other SROs whose rules provide for similar
assignments of responsibilities and processes.
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\44\ Id.
\45\ The OHO is an office within FINRA that is independent of
the FINRA enforcement function and not involved in investigating or
litigating cases.
\46\ Pursuant to BX Rule 9270, proposed settlements must be
submitted to and accepted by the Exchange Review Council, except
that proposed settlements involving an affiliate of the Exchange
must be reviewed by the ODA. Like the OHO, the ODA is an office
within FINRA that is independent of the FINRA enforcement function
and not involved in investigating or litigating cases.
\47\ See Securities Exchange Act Release No. 34-59154 (Dec. 23,
2008), 73 FR 80468 (Dec. 31, 2008) (SR-BSE-2008-048).
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The Exchange believes that its proposal furthers the objectives of
Section 6(b)(7) of the Act \48\ in that it is designed to provide a
fair procedure for the disciplining of Members and Associated Persons,
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. Specifically, the Exchange believes that the proposed
investigatory, disciplinary, and adjudicatory processes are consistent
with Section 6(b)(7) of the Act \49\ because they are based on the
existing processes used by BX. The BX processes are well-established as
consistent with the Act.\50\
---------------------------------------------------------------------------
\48\ 15 U.S.C. 78f(b)(7).
\49\ Id.
\50\ See n.46, supra.
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Last, the Exchange believes that its proposal to phase-in the
implementation of the new investigatory, disciplinary, and adjudicatory
processes is consistent with Section 6(b)(7) \51\ of the Act because
both the current and proposed processes are consistent with the Act,
providing fair procedures for investigating, disciplining, and
adjudicating the rights of Members and Associated Persons. The Exchange
is proposing to provide advanced notice of the implementation date of
the new processes, and will apply the new
[[Page 37020]]
processes to new matters that are initiated on or after that
implementation date. Any matters initiated prior to the implementation
date will be completed using the current processes. As a consequence,
the Exchange will delete the applicable portions of Chapters 15-17 from
the Exchange's Rulebook, but it will maintain a transitional Rulebook
on the Exchange's public rules website (https://https://nasdaqgemx.cchwallstreet.com/), which will contain the Exchange Rules
as they are at the time of filing this rule change.\52\ These
transitional Rules will apply exclusively to the matters initiated
prior to the implementation date. Upon conclusion of the last matter to
which the transitional rules apply, the Exchange will remove the
defunct transitional rules from its public rules website. Thus, the
transition will be conducted in a fair, orderly, and transparent
manner.
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\51\ 15 U.S.C. 78f(b)(7).
\52\ The posting of the transitional rules on the public rules
website will make it clear what disciplinary proceedings are
governed by the transitional rules (i.e., matters initiated prior to
the implementation date).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended
[sic]. The proposed rule change is not intended to address competitive
issues, but it should reduce burdens on Members, [sic] and Associated
Persons. Specifically and as described in detail above, the Exchange
believes that this change will bring efficiency and consistency in
application of the investigative, disciplinary, and adjudicatory
processes, thereby reducing the burden on Members and Associated
Persons who are also members of BX and the other Nasdaq, Inc.
Exchanges.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing 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 from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \53\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\54\
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\53\ 15 U.S.C. 78s(b)(3)(A)(iii).
\54\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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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: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) 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.
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 [email protected]. Please include
File Number SR-GEMX-2018-24 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-GEMX-2018-24. 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 website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-GEMX-2018-24 and should be submitted on
or before August 21, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\55\
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\55\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-16272 Filed 7-30-18; 8:45 am]
BILLING CODE 8011-01-P
