Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 2.160 Related to the Qualification and Registration Requirements for Associated Persons of a Member and To Delete Rule 2.150 Which is Obsolete, 50132-50140 [2018-21582]
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Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Notices
As noted above, the Exchange asserts
that a lower tied hedge minimum
eligibility size is appropriate for options
on the Nasdaq 100 Index because the
index value for NDX and NDXP is high
compared to the index values of other
security instruments, adding that a size
of 50 contracts for NDX is still
considered a large size order given
NDX’s higher notional value.19 To
illustrate the high notional value of
options on the Nasdaq 100 Index, Phlx
stated that based on the index value, the
multiplier, and the premium value, the
current 500 minimum contract size
parameter would require an NDX
options transaction with a premium of
approximately $6.5 million in order to
qualify for the rule’s tied hedge
exception.20
The Commission believes that the
reduced tied hedge eligibility size
requirement of 50 contracts for options
on the Nasdaq 100 Index is in line with
the original intent of the provision, as it
will continue to be limited to larger
orders, given the relatively higher index
value and notional value of NDX and
NDXP.21 While the reduction in the
minimum size requirement may allow
more transactions to qualify for the tied
hedge exception, the Commission
believes that the proposed change is
narrow in scope as it relates only to
options in NDX and NDXP and will
continue to provide only a limited
exception for larger orders meeting the
conditions of the rule.22
The Commission also finds that the
non-substantive changes to Phlx Rule
1066 are designed to protect investors
and the public interest by adding clarity
and transparency to the rules.
For the reasons noted above, the
Commission finds that the proposed
rule change is consistent with the Act.
19 See
Notice, supra note 3, at 40798–99.
Notice, supra note 3, at 40798.
21 See Notice, supra note 3, at 40798–99. The
Commission also notes that the Exchange
represented that it conducts surveillance in
connection with anticipatory hedging. Specifically,
the Exchange represented that it conducts on-floor
surveillance to ensure both the stock and option
components of the trade were exposed in open
outcry and that the trading crowd had a reasonable
opportunity to participate in the transaction. The
Exchange asserted that it also conducts post-trade
surveillance. The Exchange also noted that prior to
entering tied hedge orders on behalf of customers,
the member or member organization must deliver
to the customer a written notification informing the
customer that his order may be executed using the
Exchange’s tied hedge procedures. See Phlx Rule
1064(d)(iii)(G).
22 The Commission notes that the Exchange
represented that tied hedge transactions do not
occur with great frequency on the Exchange’s
trading floor. Id.
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20 See
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IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,23 that the
proposed rule change (SR–Phlx–2018–
55) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–21586 Filed 10–3–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84320; File No. SR–IEX–
2018–19]
Self-Regulatory Organizations;
Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend Rule
2.160 Related to the Qualification and
Registration Requirements for
Associated Persons of a Member and
To Delete Rule 2.150 Which is Obsolete
September 28, 2018.
Pursuant to Section 19(b)(1)1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on
September 25, 2018, the Investors
Exchange LLC (‘‘IEX’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Pursuant to the provisions of Section
19(b)(1) under the Securities Exchange
Act of 1934 (‘‘Act’’),4 and Rule 19b–4
thereunder,5 IEX is filing with the
Commission a proposed rule change to
amend IEX Rule 2.160 to (i) harmonize
IEX rules with certain Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) rules related to qualification
and registration requirements for
associated persons of a Member 6 which
23 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
4 15 U.S.C. 78s(b)(1).
5 17 CRF 240.19b–4.
6 ‘‘Person Associated with a Member’’ or
‘‘Associated Person of a Member’’ mean [sic] any
24 17
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are pending effectiveness; (ii) specify
when associated persons of a Member
are required to be registered with the
Exchange; and (iii) delete Rule 2.150
related to a temporary membership
application process and waive-in, which
is obsolete. The Exchange has
designated this rule change as ‘‘noncontroversial’’ under Section 19(b)(3)(A)
of the Act 7 and provided the
Commission with the notice required by
Rule 19b–4(f)(6) thereunder.8
The text of the proposed rule change
is available at the Exchange’s website at
www.iextrading.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 the
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of
and basis for the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of these statement [sic] may be
examined at the places specified in Item
IV below. The self-regulatory
organization 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 the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange is proposing to amend
Rule 2.160 to (i) harmonize with certain
FINRA rules related to qualification and
registration requirements for associated
persons of a Member which are pending
effectiveness; (ii) specify when
associated persons of a Member are
required to be registered with the
Exchange; and (iii) delete Rule 2.150
related to a temporary membership
application process and waive-in, which
is obsolete. Each proposed change is
described below.
partner, officer, director, or branch manager of a
Member (or person occupying a similar status or
performing similar functions), any person directly
or indirectly controlling, controlled by, or under
common control with such Member, or any
employee of such Member, except that any person
associated with a Member whose functions are
solely clerical or ministerial shall not be included
in the meaning of such term for purposes of these
Rules. See IEX Rule 1.160(y). See also 15 U.S.C.
78c(a)(18).
7 15 U.S.C. 78s(b)(3)(A).
8 17 CFR 240.19b–4.
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Qualification and Registration
Requirements
FINRA recently amended its rules
relating to its qualification and
registration requirements in a number of
respects.9 These amended rules will be
effective beginning on October 1, 2018.
The Exchange is proposing several
amendments to IEX rules with respect to
membership and registration
requirements to harmonize with such
rule amendments in the FINRA Filing
and FINRA’s existing rules, as described
below. The Exchange is proposing to
adopt such harmonizing rule
amendments and registration categories
that it determined are relevant to its
operations.10
Rule 2.160, entitled ‘‘Restrictions on
Membership,’’ sets forth various
requirements applicable to Members
and their associated persons, including
registration requirements thereof. To
make the title of the rule more
descriptive of the current and proposed
requirements set forth therein, the
Exchange proposes to revise the title to
‘‘Registration Requirements and
Restrictions on Membership.’’ The
Exchange believes that this title will
more clearly direct Members, their
associated persons and other market
participants to the total scope of the
rule.
Rule 2.160(e) sets forth the
requirement that no person shall
become an associated person of a
Member unless such person agrees:
(1) To supply the Exchange with such
information with respect to such
person’s relationships and dealings with
the Member as may be specified by the
Exchange;
(2) to permit examination of such
person’s books and records by the
Exchange to verify the accuracy of any
information so supplied; and
(3) to be regulated by the Exchange
and to recognize that the Exchange is
obligated to undertake to enforce
compliance with the provisions of IEX
Rules, the Operating Agreement, the
9 See Securities Exchange Act Release No. 81098
(July 7, 2017), 82 FR 32419 (July 13, 2017) (SR–
FINRA–2017–007) (Approval Order) (the ‘‘FINRA
Filing’’).
10 The Exchange is not proposing to adopt
provisions comparable to Supplementary Material
.05, .06, or .11 [sic] to FINRA Rule 1210 because
such provisions are not directly relevant to the
Exchange’s operations. The Exchange is also not
proposing to adopt a provision comparable to
Supplementary Material .07 to FINRA Rule 1210
because comparable provisions are included in
proposed Rule 2.160(a) [sic]. In addition, the
Exchange is not proposing to adopt the registration
categories specified in FINRA Rule 1220(a)(5), (6),
(8), (9), (10), (11), (12), (13) or (14) or in (b)(3), (5),
(6), (7), (8), or (9) because such registration
categories are not directly relevant to the
Exchange’s operations.
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interpretations and policies of the
Exchange, and the provisions of the Act
and the regulations thereunder.
The manner in which an associated
person of a Member agrees to such terms
is by registering with the Exchange.
However, as described below, the
Exchange is proposing amendments to
Rule 2.160(m) to specify that certain
categories of associated persons of a
Member are not required to be registered
with the Exchange because such
persons’ roles and responsibilities are
unrelated to the Exchange’s operations,
and registration therefore serves no
regulatory purpose. Accordingly, the
Exchange is proposing to amend Rule
2.160(e) to specify which associated
persons of a Member must be registered
with the Exchange, and also to provide
that a Member shall not register or
maintain the registration of any
associated person unless consistent with
the requirements of Rule 2.160.
Further, the Exchange is proposing to
adopt Supplementary Material to Rule
2.160(e) governing permissive
registrations and the status of persons
serving in the Armed Forces of the
United States, each based on provisions
adopted by FINRA in the FINRA Filing
that will be effective on October 1,
2018.11
As proposed, Supplementary Material
.01 provides that a Member may make
application for or maintain the
registration as a representative or
principal, pursuant to Rule 2.160, of any
associated person of the Member and
any individual engaged in the
investment banking or securities
business of a foreign securities affiliate
or subsidiary of the Member.
Individuals maintaining such
permissive registrations shall be
considered registered persons and
subject to all IEX rules, to the extent
relevant to their activities.
Supplementary Material .01 also
addresses Members’ supervisory
obligations with respect to associated
persons with permissive registrations.
As proposed, consistent with the
requirements of Rule 5.110, Members
shall have adequate supervisory systems
and procedures reasonably designed to
ensure that individuals with permissive
registrations do not act outside the
scope of their assigned functions. With
respect to an individual who solely
maintains a permissive registration(s),
the individual’s direct supervisor shall
not be required to be a registered
11 See
FINRA Rules 1210.02 and 1210.10. The
Exchange is not including references to an
admission fee, which is included in FINRA Rule
1210.10(b), in paragraph (b) of Supplementary
Material .02 of Rule 2.160(e) since the Exchange
does not charge an admission fee to Members.
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50133
person. However, for purposes of
compliance with Rule 5.110(a)(5), a
Member shall assign a registered
supervisor who shall be responsible for
periodically contacting such
individual’s direct supervisor to verify
that the individual is not acting outside
the scope of his or her assigned
functions. If such individual is
permissively registered as a
representative, the registered supervisor
shall be registered as a representative or
principal. If the individual is
permissively registered as a principal,
the registered supervisor shall be
registered as a principal. Moreover, the
registered supervisor of an individual
who solely maintains a permissive
registration(s) shall not be required to be
registered in the same representative or
principal registration category as the
permissively-registered individual.
As proposed, Supplementary Material
.02 to Rule 2.160(e) addresses the status
of current and former registered persons
serving in active duty in the Armed
Forces of the United States. With
respect to a currently registered person
of a Member who volunteers for or is
called into active duty, paragraph (a)
provides that after proper notification to
the Exchange,12 such person shall be
placed on inactive status and need not
be re-registered by such Member upon
his or her return to active employment
with the Member. Such person shall
remain eligible to receive transactionrelated compensation, including
continuing commissions. The
employing Member also may allow such
person to enter into an arrangement
with another registered person of the
Member to take over and service the
person’s accounts and to share
transaction-related compensation based
upon the business generated by such
accounts. However, because such
persons are inactive, they may not
perform any of the functions and
responsibilities performed by a
registered person. Further, the registered
person shall not be required to complete
either the Regulatory Element or Firm
Element, as set forth in Rule 2.160(p),
while such person remains inactive and
registered with the Member with which
he or she was registered at the beginning
of active duty, regardless of whether the
person returns to active employment
with another Member upon completion
of his or her active duty. The relief shall
be provided only to a person registered
12 The Exchange will issue a Regulatory Circular
upon effectiveness of this proposed rule change
describing the manner in which Members should
provide notice to the Exchange with respect to the
status of their current and former registered persons
serving in active duty in the Armed Forces of the
United States.
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Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Notices
with a Member and only while the
person remains on active military duty.
Further, the Member with which such
person is registered shall promptly
notify the Exchange in such manner as
the Exchange may specify of such
person’s return to active employment
with the Member.13
Paragraph (b) of proposed
Commentary .02 addresses the status of
a Member that is a sole proprietor who
temporarily closes his or her business
by reason of volunteering for or being
called into active duty in the Armed
Forces of the United States. As
proposed, after proper notification to
the Exchange,14 such person shall be
placed on inactive status solely while
the Member remains on active military
duty. Further, the sole proprietor shall
promptly notify the Exchange in such
manner as the Exchange may specify 15
of his or her return to active
participation in the securities business
of the Member relating to activity that
occurs on the Exchange.
Paragraph (c) of proposed
Commentary .02 addresses the status of
formerly registered persons, with
respect to active military duty.
Specifically, as proposed, the provision
specifies that the lapse of such person’s
registrations shall be deferred (i.e.,
tolled) during the pendency of his or her
active service in the Armed Forces of
the United States, provided the
Exchange is properly notified of the
person’s period of active military
service within 90 days following his or
her completion of active service or upon
his or her re-registration with a Member,
whichever occurs first.16 The deferral
will terminate 90 days following the
person’s completion of active service in
the Armed Forces of the United States.
If a person placed on inactive status
while serving in the Armed Forces of
the United States ceases to be registered
with a Member, the Exchange shall
defer the lapse of registration
requirements based on existing
information in the CRD system,
provided that the Exchange is properly
notified 17 of the person’s period of
active military service within two years
following his or her completion of
active service or upon his or her reregistration with a Member, whichever
occurs first.18
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13 Id.
14 Id.
15 Id.
16 Id.
17 Id.
18 The deferral shall terminate 90 days following
the person’s completion of active service in the
Armed Forces of the United States. Accordingly, if
such person does not re-register with a Member
within 90 days following his or her completion of
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Rule 2.160(f) specifies that the
Exchange may require the successful
completion of a written proficiency
examination to enable it to examine and
verify that prospective Members and
associated persons of Members have
adequate training, experience, and
competence to comply with IEX rules
and policies of the Exchange. Rule
2.160(g) specifies that if the Exchange
requires the completion of such
proficiency examinations, it may waive
such examinations in exceptional cases
and where good cause is shown, upon
written request of the applicant, and
accept other standards as evidence of an
applicant’s qualifications.19 The
Exchange is proposing to add
Supplementary Material .01 to provide
for a waiver of examinations for
individuals working for a financial
services industry affiliate of a
Member,20 based on provisions adopted
by FINRA in the FINRA Filing that will
be effective on October 1, 2018.21 As
proposed, the waiver is available upon
request by a Member for an individual
designated with the Exchange as
working for a financial services industry
affiliate of a Member if the following
conditions are met: (a) prior to the
individual’s initial designation, the
individual was registered as a
representative or principal with the
Exchange or FINRA for a total of five
years within the most recent 10-year
period, including for the most recent
year with the Member that initially
designated the individual; (b) the waiver
request is made within seven years of
the individual’s initial designation; (c)
the initial designation and any
subsequent designation(s) were made
concurrently with the filing of the
individual’s related Form U5; (d) the
individual continuously worked for the
financial services industry affiliate(s) of
a Member since the individual’s last
Form U5 filing; (e) the individual has
complied with the Regulatory Element
of continuing education as specified in
active service in the Armed Forces of the United
States, the amount of time in which the person
must become re-registered with a Member without
being subject to a representative or principal
qualification examination or the SIE shall consist of
the standard two-year period for representative and
principal qualification examinations or the standard
four-year period for the SIE, whichever is
applicable, as provided in Rule 2.160(o).
19 Any such waiver is pursuant to IEX Rule Series
9.600.
20 For purposes of the Supplementary Material, a
‘‘financial services affiliate of a Member’’ is a legal
entity that controls, is controlled by or is under
common control with a Member and is regulated by
the SEC, CFTC, state securities authorities, federal
or state banking authorities, state insurance
authorities, or substantially equivalent foreign
regulatory authorities.
21 See FINRA Rule 1210.09.
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Rule 2.160(a); and (f) the individual
does not have any pending or adverse
regulatory matters, or terminations, that
are reportable on the Form U4, and has
not otherwise been subject to a statutory
disqualification as defined in Section
3(a)(39) of the Exchange Act while the
individual was designated as eligible for
a waiver.
Rule 2.160(h) specifies that the
Exchange requires the General
Securities Representative Examination
(‘‘Series 7’’) or an equivalent foreign
examination module approved by the
Exchange in qualifying persons seeking
registration as General Securities
Representatives, including as
Authorized Traders, on behalf of
Members. For those persons seeking
limited registration as Securities Traders
as described in paragraph (k) below, the
Exchange requires the Securities
Traders Qualification Examination
(‘‘Series 57’’). Rule 2.160(h) also
provides that the Exchange uses the
Uniform Application for Securities
Industry Registration or Transfer (‘‘Form
U4’’) as part of its procedure for
registration and oversight of Member
personnel. The Exchange proposes
several changes to Rule 2.160(h). First,
the Exchange proposes to amend Rule
2.160(h) to specify that before the
registration of a qualifying person can
be effective, such person shall pass the
Securities Industry Essentials (‘‘SIE’’)
examination 22 and an appropriate
registration qualification examination,
as specified in Rule 2.160(h). The SIE is
a new general knowledge examination
that was adopted by FINRA in the
FINRA Filing and will be effective on
October 1, 2018. Going forward,
representative-level registration will
require successful completion of the SIE
and a tailored, specialized knowledge
examination for a person’s particular
registered role. The Exchange’s
proposed change aligns with changes to
FINRA Rule 1210.03, which were
included in the FINRA Filing and will
be effective beginning on October 1,
2018. Conforming changes are also
proposed to Rule 2.160(i) to reference
the SIE with respect to representativelevel prerequisites to the Series 14 and
24 principal-level examinations. The
Exchange also proposes to adopt
Commentary .01 to Rule 2.160(h) to
provide that any person who is in good
standing as representatives with the
Financial Conduct Authority in the
United Kingdom or with a Canadian
stock exchange or securities regulator
22 Individuals who are registered with the
Exchange, FINRA, or another national securities
exchange as of October 1, 2018 will be considered
to have passed the SIE.
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would be exempt from the requirement
to pass the SIE, and thus would be
required only to pass a specialized
knowledge examination to register with
the Exchange as a representative. FINRA
has adopted a similar provision in the
FINRA Filing and will be effective
beginning on October 1, 2018.
The Exchange also proposes to amend
Rule 2.160(h) to provide that any person
associated with a Member whose
trading activities are conducted
principally on behalf of an investment
company that is registered with the
Commission pursuant to the Investment
Company Act and that controls, is
controlled by or is under common
control, with the Member is not
required to be registered with the
Exchange as a Securities Trader. This
proposed change is substantially similar
to existing National Association of
Securities Dealers, Inc. (‘‘NASD’’) Rule
1032(f) and FINRA Rule 1220(b)(4)(A),
that was included in the FINRA Filing
and will be effective on October 1, 2018.
Rule 2.160(i) currently provides in
part that a sole proprietorship Member
is not required to register at least two
Principals with the Exchange, and that
the Exchange may waive the twoPrincipal requirement in situations that
indicate conclusively that only one
Principal associated with the Member
should be required to be registered.
Given that one-person Members may be
organized in legal forms other than a
sole proprietorship (such as a singleperson limited liability company), the
Exchange proposes to amend the
reference to a ‘‘sole proprietorship’’ to a
‘‘Member with only one associated
person’’ so that any Member with only
one associated person is not subject to
the two-Principal requirement. This
proposed change is substantially similar
to Supplementary Material .01 to FINRA
Rule 1210 that was included in the
FINRA Filing and will be effective on
October 1, 2018.
Rule 2.160(i) also specifies that the
Exchange will accept the New York
Stock Exchange Series 14 Compliance
Examination in lieu of the Series 24 to
satisfy the examination requirement for
any person designated as a Chief
Compliance Officer. The Exchange
proposes to delete the phrase ‘‘New
York Stock Exchange’’ since the Series
14 is now referred to as the Series 14
Compliance Official Examination.23
Further, the Exchange proposes to add
Supplementary Material .01 related to
the requirements for registered persons
functioning as principals for a limited
23 See Series 14 examination description on
FINRA website available at: https://www.finra.org/
industry/series14.
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period of up to 120 calendar days. The
provision aligns with FINRA Rule
1210.04 and is designed to provide
appropriate flexibility to a Member to
designate any person currently
registered, or who becomes registered,
with the Member as a representative to
function as a principal for a limited
period, providing such person has at
least 18 months of experience
functioning as a registered
representative within the five-year
period immediately preceding the
designation. As proposed, the provision
applies to designations to any principal
category, including those that are not
subject to a representative-level
prerequisite examination.24
Rule 2.160(j) sets forth the
requirements for designation and
registration of a Financial/Operations
Principal by a Member and relates to the
requirements for a Member to designate
a Financial/Operations Principal, the
Financial/Operations Principal’s
obligations, and examination
requirements. The rule specifies that the
Financial/Operations Principal is
required to successfully complete the
Financial and Operations Principal
Examination (‘‘Series 27’’) but that the
Exchange may waive such requirement
if a Member has otherwise satisfied the
financial and operational requirements
of its designated examining authority.
With respect to an Exchange waiver,
Rule 2.160(n) provides that an
alternative acceptable examination to
the Series 27 for a Financial/Operations
Principal is any other examination
acceptable to such Member’s designated
examining authority. The Exchange has
provided waivers under these
provisions for Members that operate as
introducing broker-dealers when FINRA
(as the Member’s designated examining
authority) has permitted the Member’s
Financial/Operations Principal to
function as such based on successful
completion of the Limited Principal—
Introducing Broker-Dealer Financial and
Operations Principal Examination
(‘‘Series 28’’) under applicable FINRA
Rules.25 FINRA Rule 1220(a)(4) (which
was included in the FINRA Filing and
will be effective on October 1, 2018)
specifies that a FINRA member, other
than a member operating pursuant to
Exchange Act Rules 15c3–1(a)(1)(ii),
(a)(2)(i) or (a)(8), may designate an
Introducing Broker-Dealer Financial and
Operations Principal (who must
successfully complete the Series 27 or
24 Principal categories for the Exchange that do
not have such a prerequisite are the Financial and
Operations Principal, Compliance Official, and
Introducing Broker-Dealer Financial and Operations
Principal.
25 See NASD Rule 1022(c).
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50135
28 examination) instead of a Financial
and Operations Principal (who must
successfully complete the Series 27
examination).26 Currently, an IEX
Member that is eligible to designate an
Introducing Broker-Dealer Financial and
Operations Principal under FINRA rules
or the rules of another national
securities exchange must request a
waiver from the Exchange, pursuant to
Rule 2.160(j), so that its Financial/
Operations Principal may successfully
complete the Series 28 examination
instead of the Series 27 examination.
Rule 2.160(j) specifies that the Exchange
may waive the requirement that the
Member’s Financial/Operations
Principal successfully complete the
Series 27 examination if the Member
has otherwise satisfied the financial and
operational requirements of its
designated examining authority.
Pursuant to such waiver provisions, the
Exchange has waived the Series 27
examination requirement for a
Member’s Financial/Operations
Principal and accepted the Series 28
examination. In order to simplify and
provide additional clarity on the
acceptable examination requirements
for IEX Members’ Financial/Operations
Principals, the Exchange proposes to
amend Rule 2.160(j) to specifically
describe when the Series 28 is an
acceptable examination for a Member’s
Financial/Operations Principal. As
proposed, the Exchange would replace
the language regarding possible waiver
of successful completion of the Series
27 examination with language providing
that in the case of a Member that
operates other than pursuant to
Exchange Act Rule 15c3–1(a)(1)(ii),
(a)(2)(i) or (a)(8), its Financial/
Operations Principal must successfully
complete either the Series 27 or Series
28 examination. Conforming
amendments are also proposed to Rule
2.160(n).
The Exchange is proposing to amend
Rule 2.160(o), which is currently
reserved, to adopt rule provisions
related to the circumstances under
which registrations lapse and the SIE
expires, aligning to FINRA Rule 1210.08
which was included in the FINRA
Filing and will be effective on October
1, 2018. For purposes of this paragraph,
an application shall not be considered
to have been received by the Exchange
26 The Exchange notes that the term Financial/
Operations Principal in IEX rules is synonymous
with the term Financial and Operations Principal in
FINRA rules. A Member may designate an
Introducing Broker-Dealer Financial and Operations
Principal as its Financial/Operations Principal if
the firm is not a clearing firm and does not operate
pursuant to Exchange Act Rule 15c3–1(a)(1)(ii),
(a)(2)(i) or (a)(8).
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if that application does not result in a
registration. Rule 2.160(o) provides that
a person who was last registered as a
representative or principal two or more
years immediately preceding the date of
receipt by the Exchange of a new
application as a representative or
principal, shall be required to pass a
representative and/or principal
qualification examination appropriate to
his or her category or registration as
specified in paragraphs (h), (i), (j), (k),
(l), and (n) of Rule 2.160. Further, any
person who last passed the SIE or who
was last registered as a representative,
whichever occurred last, four or more
years immediately preceding the date of
receipt by the Exchange of a new
application for registration as a
representative, shall be required to pass
the SIE in addition to a representative
qualification examination appropriate to
his or her category of registration as
specified in paragraphs (h), (i), (j), (k),
(l), and (n) of Rule 2.160. Additionally,
any person whose registration has been
revoked pursuant to Rule 8.310 shall be
required to pass a principal or
representative qualification examination
appropriate to his or her category of
registration as specified in paragraphs
(h), (i), (j), (k), (l), and (n) of Rule 2.160
to be eligible for registration with the
Exchange.
Rule 2.160(p) specifies the Regulatory
Element of the continuing education
requirements for associated persons of a
Member and aligns with the FINRA
requirements for the particular
registration category of the registered
person. Exchange rules do not currently
address the Firm Element continuing
education requirements.27 The
Exchange proposes to revise Rule
2.160(p) to harmonize with the
amended continuing education
requirements specified in FINRA Rule
1240, as included in the FINRA Filing
that will be effective on October 1, 2018.
27 The Exchange notes that the FINRA Firm
Element requirement is only applicable to: (i)
Persons registered with a FINRA member who have
direct contact with customers in the conduct of the
member’s securities sales, trading, and investment
banking activities; (ii) persons registered as an
operations professional or research analyst; and (iii)
their immediate supervisors. An Exchange Member
with associated persons registered in each of the
aforementioned categories would be conducting a
customer business. The Exchange is not proposing
to adopt similar language modifying the ‘‘direct
contact with customers’’ language in FINRA’s rule.
Any Exchange Member with a customer business is
required to be a FINRA member pursuant to Section
15(b)(8) of the Act. Thus any Exchange Member that
is not a FINRA member would not be conducting
a customer business and thus would not have any
associated persons that meet the FINRA criteria to
be subject to the FINRA Firm Element rule.
Therefore, there is no gap in the application of the
Firm Element requirement to Exchange Members
and their associated persons.
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As proposed, Rule 2.160(p) will specify
the required Continuing Education
Regulatory Element and Firm Element.
The Exchange is proposing several
changes to Regulatory Element
provisions. First, the Exchange proposes
to add introductory text at the beginning
of Rule 2.160(p) stating that ‘‘this [rule]
prescribes requirements regarding the
continuing education of specified
persons subsequent to their initial
registration with the Exchange. The
requirements shall consist of a
Regulatory Element and a Firm Element
as set forth below.’’ The Exchange also
proposes to add subparagraph (a)
entitled ‘‘Regulatory Element’’
immediately after the new introductory
text to delineate that the provisions that
follow relate to the Regulatory Element.
The Exchange also proposes several
amendments to subparagraphs (a)(1), (2)
and (3) to align with changes to FINRA
Rule 1240.
Several changes are proposed to
subparagraph (a)(1). First, in lieu of the
current text describing persons subject
to the continuing education
requirements that refers to any
‘‘Authorized Trader, Principal, or
Financial/Operations Principal’’
abbreviated as ‘‘Registered
Representative,’’ the language would be
revised to refer to ‘‘any associated
person registered with the Exchange’’
abbreviated as ‘‘Registered Person’’ to be
simpler and more inclusive and
descriptive, since not all registered
persons listed are considered to be a
Registered Representative. Conforming
changes are proposed throughout the
rule. Second, existing rule text in the
first paragraph of subparagraph (a)(1)
providing that ‘‘no Member shall permit
any . . . Registered Representative to
continue to, and no Registered
Representative shall continue to,
perform duties as a Registered
Representative on behalf of such
Member, unless such person has
complied with the continuing education
requirements in this IEX Rule’’ will be
replaced with language aligned with
language in FINRA Rule 1240(a) and (5),
providing that all registered persons,
including any person who is
permissively registered pursuant to
Commentary .02 to Rule 2.160 and any
person who is designated as eligible for
a waiver pursuant to Commentary .01 to
Rule 2.160(g), shall comply with the
requirement to complete the Regulatory
Element. Additionally, the Exchange
proposes to add language at the end of
subparagraph (a)(1) stating that the
content of the Regulatory Element for a
person designated as eligible for a
waiver pursuant to Commentary .01 to
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Rule 2.160(g) shall be determined based
on the person’s most recent registration
status, and the Regulatory Element shall
be completed based on the same cycle
had the person remained registered.
Subparagraph (p)(2) [sic] specifies the
consequences to a Registered Person
who fails to complete the Regulatory
Element of the continuing education
program within the prescribed time
frames. Currently, the rule provides that
such a person will have their [sic]
registration deemed inactive until such
time as the requirements of the program
have been satisfied and shall cease all
activities requiring registration. The
Exchange proposes to amend the rule to
codify existing FINRA guidance
regarding the impact of failing to
complete the Regulation Element on a
Registered Person’s activities and
compensation.28 Specifically, as
proposed, Rule 2.160(p)(2) [sic]
provides that any person whose
registration has been deemed inactive
under the rule shall not be permitted to
be registered in another registration
category under Rule 2.160 with that
Member or to be registered in any
registration category under Rule 2.160
with another Member, until the person
has satisfied the deficiency. This
provision is comparable to FINRA Rule
1210.07 (which was included in the
FINRA Filing and will be effective on
October 1, 2018). Further, the Exchange
proposes to add provisions that such a
person may not accept or solicit
business or receive any compensation
for the purchase or sale of securities.
However, such person may receive trail
or residual commissions resulting from
transactions completed before the
inactive status, unless the Member with
which such person is associated has a
policy prohibiting such trail or residual
commissions. This clarifying language is
substantially similar to amendments to
FINRA Rule 1240 (which was included
in the FINRA Filing and will be
effective on October 1, 2018). In
addition, the Exchange proposes to add
language specifying that if a person
designated as eligible for a waiver
pursuant to Supplementary Material .01
to Rule 2.160(g) fails to complete the
Regulatory Element within the
prescribed time frames, the person shall
no longer be eligible for such a waiver.
The Exchange also proposes a
conforming change to subparagraph
(a)(3) with respect to the requirement to
retake the Regulatory Element and
satisfy all of its requirements in the
event the person is subject to certain
28 See, e.g., NASD Notice to Members 95–35 (May
1995).
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specified disciplinary action. These
provisions align with FINRA Rule 1240.
Additionally, the Exchange proposes
to add subparagraphs (a)(5)–(7) to align
with FINRA Rule 1240. As proposed,
subparagraph (a)(5) is reserved. The
corresponding part of FINRA Rule 1240
pertains to the definition of a ‘‘Covered
Person’’ under FINRA rules, who is
subject to the Regulatory Element. As
discussed above, the Exchange is using
the term ‘‘Registered Person’’ which is
incorporated into subparagraph (a)(1).29
Subparagraph (a)(6) specifies that
delivery of the Regulatory Element will
be administered through web-based
delivery or such other technological
manner and format as specified [sic] by
FINRA. Subparagraph (a)(7) requires
designation and identification of the
Regulatory Element Contact Person to
FINRA on behalf of the Exchange and
describes the role of such person to
receive email notifications provided via
CRD regarding Regulatory Element
deadlines for Registered Persons subject
to the Regulatory Element, including
when such a person is deemed inactive
for failure to complete the Regulatory
Element.
The Exchange also proposes to add
new subparagraph (b) to Rule 2.160(p)
to set forth the Firm Element
requirements, which are substantially
similar to FINRA Rule 1240(b) 30 and
consist of annual, Member-developed
and administered training programs
designed to enhance covered registered
persons’ securities knowledge, skill, and
professionalism, taking into
consideration the Member’s size,
organizational structure, and scope of
business activities, as well as regulatory
developments and the performance of
covered registered persons in the
Regulatory Element.31 If a Member’s
analysis establishes the need for
29 The term ‘‘Registered Person’’ in the Regulatory
Element rule provisions has substantially the same
meaning as FINRA’s term ‘‘Covered Person’’ except
that FINRA excludes ‘‘Foreign Associates’’ from the
term ‘‘Covered Person.’’ Foreign Associate is a
discontinued FINRA registration category, as
described in the FINRA Filing, and is not
recognized by IEX rules. Accordingly, the Exchange
does not believe it is necessary to exclude Foreign
Associates from the definition of ‘‘Registered
Person.’’
30 In setting forth the persons subject to the Firm
Element, proposed Rule 2.160(b)(1) [sic] is limited
to persons registered with a Member pursuant to
Rule 2.160 who have direct contact with customers
in the securities business of the Member relating to
activity that occurs on the Exchange, and to their
immediate supervisors. FINRA Rule 1240(b)(1) is
broader in scope given FINRA’s broader regulatory
mandate.
31 The definition of ‘‘covered registered person’’
under proposed Rule 2.160(p)(b) does not include
Registered Options Professionals [sic] because that
is not a registration category provided for in
Exchange rules.
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supervisory training for persons with
supervisory responsibilities, such
training must be included in the
Member’s training plan.
As proposed, any person registered
with a Member pursuant to Rule 2.160
who has direct contact with
customers 32 in the securities business of
the Member relating to activity that
occurs on the Exchange, and the
immediate supervisors of such persons,
must take all appropriate and reasonable
steps to participate in the Firm Element
training as required by his or her
Member. Subparagraph (b)(2)(B) sets
forth the minimum standards for the
Firm Element training programs. Such
programs must be appropriate for the
business of the Member and, at a
minimum, must cover training in ethics
and professional responsibility and the
following matters concerning securities
products, services and strategies offered
by the Member: General investment
features and associated risk factors;
suitability and sales practice
considerations; and applicable
regulatory requirements. Further, a
Member must administer its continuing
education programs in accordance with
its annual evaluation and written plan,
and must maintain records documenting
the content of the programs and
completion of the programs by covered
Registered Persons.33
Finally, the Exchange also proposes to
correct a typographical error in the
footnote numbering of the chart in Rule
2.160(n).
Exchange Registration Exceptions
The Exchange is proposing to amend
Rule 2.160(m), which is currently
reserved, to specify that certain
associated persons of a Member are not
required to be registered with the
Exchange, because such person’s roles
and responsibilities are unrelated to the
Exchange’s operations, and registration
therefore serves no regulatory purpose.
As proposed, the following categories of
associated persons of a Member are not
required to be registered with the
Exchange:
(1) Associated persons of a Member
whose functions are solely and
exclusively clerical or ministerial.
(2) Associated persons of a Member
whose functions are related solely and
exclusively to:
32 ‘‘Customer’’ means any natural person and any
organization, other than another broker or dealer,
executing securities transactions with or through a
Member.
33 The Exchange may also require a Member,
individually or as part of a larger group, to provide
specific training to its covered Registered Persons
in such areas as the Exchange deems appropriate.
See proposed Rule 2.160(p)(b)(4).
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50137
(A) Effecting transactions on the floor
of a national securities exchange and
who are appropriately registered with
such exchange;
(B) transactions in municipal
securities;
(C) transactions in commodities; or
(D) transactions in securities futures,
provided that any such person is
appropriately registered with a
registered futures association.
(3) Associated persons of a Member
that are restricted from accessing the
Exchange and that do not engage in the
securities business of the Member
relating to activity that occurs on the
Exchange.
The Exchange notes that each
proposed exception is based on existing
exceptions in FINRA rules or those of
other exchanges. The proposed
exceptions in Rule 2.160(m)(1) and (2)
are substantially similar to FINRA rules,
and the exception in Rule 2.160(m)(3) is
substantially similar to a CBOE [sic]
Exchange, Inc. (‘‘CBOE’’) rule.34
With respect to the proposed
exception in Rule 2.160(m)(3), the
Exchange believes that such individuals
do not need to be registered with the
Exchange because those individuals do
not access the Exchange directly and do
not engage in the securities business of
the Member relating to activity that
occurs on the Exchange. For example,
suppose that Firm XYZ is an Exchange
Member and a member of the Nasdaq
Stock Market LLC (‘‘Nasdaq’’). Ms. ABC
is an associated person of XYZ, assigned
to XYZ’s Nasdaq market maker ‘‘desk’’
which only sends orders to Nasdaq. Ms.
ABC is subject to Nasdaq’s registration
and qualification requirements. Ms.
ABC would not be required to
separately register with the Exchange so
long as Ms. ABC does not send orders
directly to the Exchange through XYZ
and not another Exchange Member.35
In addition, the Exchange proposes to
add Supplementary Material .01 to
clarify the registration requirements
applicable to associated persons of a
Member who accept customer orders,
and the applicability to a determination
of whether the functions of an
associated person of a Member are
solely and exclusively clerical or
ministerial. As proposed,
Supplementary Material .01 provides
that the function of accepting customer
orders is not considered a clerical or
ministerial function. Each associated
person of a Member who accepts
34 See current NASD Rule 1060, FINRA Rule 1230
(which is pending effectiveness), and CBOE [sic]
Exchange, Inc. Rule 3.6A(a)(2)(D).
35 For example, an order originating from XYZ’s
Nasdaq market maker desk may be routed to the
Exchange by another Member.
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customer orders under any
circumstances shall be registered in an
appropriate registration category
pursuant to Rule 2.160. However, an
associated person of a Member shall not
be considered to be accepting a
customer order where occasionally,
when an appropriately registered person
is unavailable, such person transcribes
order details submitted by a customer
and the registered person contacts the
customer to confirm the order details
before entering the order. This
clarification is substantially similar to
Supplementary Material .01 to FINRA
Rule 1230 (which was included in the
FINRA Filing and will be effective on
October 1, 2018), and is designed to
provide that acceptance of customer
orders is appropriately overseen by a
registered associated person of a
Member.
The Exchange also proposes a
conforming amendment to Rule 2.160(e)
to incorporate the registration
exception.
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Deletion of Obsolete Rule 2.150
As approved by the Commission as
part of the Exchange’s Form 1
application,36 Rule 2.150 provided a
temporary Member Application and
Waive-In Process that permitted current
subscribers to the alternative trading
system previously operated by the
Exchange’s affiliate, IEX Services, LLC,
to apply to become a Member of the
Exchange by submitting a ‘‘waive-in
application’’ within ninety (90) days of
approval of the Form 1 by the
Commission. The Commission approved
the Exchange’s Form 1 application on
June 17, 2016, meaning that waive-in
applications must have been received by
the Exchange on or prior to September
15, 2016. Accordingly, Rule 2.150 is
obsolete, and the Exchange proposes to
delete the rule.
2. Statutory Basis
IEX believes that the proposed rule
change is consistent with the provisions
of Section 6(b) of the Act 37 in general,
and furthers the objectives of Section
6(b)(5) of the Act 38 in particular, in that
it is designed to prevent fraudulent and
manipulative acts and practices, 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. The
Exchange also believes that the
36 See Securities Exchange Act Release No. 34–
78101 (June 17, 2016), 81 FR 41141 (June 23, 2016)
(File No. 10–222).
37 15 U.S.C. 78f.
38 15 U.S.C. 78f(b)(5).
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proposed rule change furthers the
objectives of Section 6(c)(3)(B) of the
Act,39 which authorizes the exchange to
prescribe standards of training,
experience and competence for persons
associated with an IEX Member.
The Exchange believes that the
proposed rule change overall will
harmonize its membership and
registration rules with FINRA rules,40
thus assisting Members and associated
persons of Members in complying with
those rules and thereby enhancing
regulatory efficiency. In addition, the
Exchange believes that providing greater
harmonization between IEX and FINRA
rules with a similar purpose will result
in less burdensome and more efficient
regulatory compliance for IEX Members
that are subject to regulatory
examination and oversight by FINRA
pursuant to a regulatory services
agreement between IEX and FINRA, and
facilitate FINRA’s performance of its
regulatory functions for IEX under the
regulatory services agreement, thereby
removing impediments to and
perfecting the mechanism of a free and
open market and a national market
system, consistent with the objectives of
Section 6(b)(5) of the Act.
As described in the Purpose section,
the Exchange proposes various revisions
to Rule 2.160, which sets forth the
requirements applicable to Members
and their associated persons, including
registration requirements thereof. The
Exchange believes that these proposed
rule amendments are consistent with
the public interest and the protection of
investors. With respect to the revisions
to the rule title, the Exchange believes
that referencing registration
requirements, as well as restrictions on
membership, is a clearer description of
the scope of the rule and will thereby
enable Members, their associated
persons, and other market participants
to better identify such requirements in
IEX rules. Similarly, the Exchange
believes that adding text to paragraph
(e) of Rule 2.160 to reference proposed
changes to paragraph (m) regarding
registration exemptions (as discussed
further below) and impermissible
registrations will help to assure that
IEX’s rules are clear regarding such
requirements.
The Exchange further believes that the
addition of Supplementary Material .01
to Rule 2.160(e), to permit permissive
registrations, is consistent with the Act
in order to allow Members to develop a
depth of associated persons with
39 15
U.S.C. 78(c)(3)(B).
Exchange is proposing to harmonize with
those aspects of FINRA rules that IEX determined
are relevant to its operations.
registrations to respond to unanticipated
personnel changes and will encourage
greater regulatory understanding. The
Exchange also believes that the addition
Supplementary .02 to Rule 2.160(e)
regarding the status of current and
former registered persons serving in
active duty in the Armed Forces of the
United States is consistent with the Act
because it provides a reasonable
accommodation to such persons, who
are engaged in efforts to protect and
defend the United States, with an
appropriate notification process to the
Exchange, thereby removing
impediments to and perfecting the
mechanism of a free and open market
and a national market system, consistent
with the objectives of Section 6(b)(5)
[sic] of the Act.
Additionally, the Exchange believes it
is consistent with the Act to provide an
examination waiver for individuals
working for a financial services industry
affiliate of a Member, pursuant to
Supplementary Material .02 to Rule
2.160(g), because it will provide
appropriate flexibility to Members and
their financial services industry
affiliates in the management of their
personnel, thereby removing
impediments to and perfecting the
mechanism of a free and open market
and a national market system, consistent
with the objectives of Section 6(b)(5
[sic] of the Act.
The Exchange also believes that its
proposed changes to Rule 2.160(h) are
consistent with the Act. Specifically,
adoption of the SIE is designed to
promote uniformity and consistency
with FINRA’s rules of similar purpose,
thereby fostering cooperation and
coordination with persons engaged in
regulating and facilitating transactions
in securities. In addition, the Exchange
believes that it is consistent with the
Act to not require Exchange registration
as a Securities Trader for associated
persons of a Member whose trading
activities are conducted principally on
behalf of an investment company
affiliate of the Member, as described in
the Purpose section. This exemption has
been part of FINRA (and its predecessor,
the NASD) rules applicable to the
current Securities Trader examination
as well as the predecessor Series 55
examination for many years, and
recognizes that such traders are
generally in the same position as ‘‘buyside’’ professionals employed within
investment companies, who would not
be subject to the examination
requirement.41
40 The
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41 See, e.g., NASD Notice to Members 98–17 and
Securities Exchange Act Release No. 75783 (August
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The Exchange also believes it is
appropriate to provide an exemption
from the SIE for any person who is in
good standing as a representative with
the Financial Conduct Authority in the
United Kingdom or with a Canadian
stock exchange or securities regulatory.
The Exchange believes that there is
sufficient overlap between the SIE and
such foreign qualification requirements
to permit them to act as exemptions to
the SIE, and that the exemption
provides appropriate flexibility to such
persons, thereby removing impediments
to and perfecting the mechanism of a
free and open market and a national
market system, consistent with the
objectives of Section 6(b)(5 [sic] of the
Act.
With respect to the amendment to
Rule 2.160(i) to revise the reference to
‘‘sole proprietorship’’ to a ‘‘Member
with only one associated person’’ the
Exchange believes that this change is
consistent with the Act because it
recognizes that one-person Members
may be organized in legal forms other
than a sole proprietorship, and thus
provides fair and consistent regulatory
requirements to all one-person
Members. Further, the Exchange
believes that elimination of the
reference to ‘‘New York Stock
Exchange’’ with respect to the Series 14
Compliance Official Examination is
consistent with the Act because it will
make the Exchange’s rule in this respect
accurate. The Exchange also believes
that the addition of Supplementary
Material .01 to Rule 2.160(i) to provide
for registered persons to function as
principals for a limited period of time
is consistent with the Act because it
provides appropriate flexibility to
Members, thereby removing
impediments to and perfecting the
mechanism of a free and open market
and a national market system, consistent
with the objectives of Section 6(b)(5
[sic] of the Act.
With respect to the amendment to
Rules 2.160(j) and (n) to specify the
circumstances under which the Series
28 would be an acceptable examination
for a Member’s Financial/Operations
Principal, the Exchange believes that the
proposed change will provide
additional clarity to Members with
respect to such examination
requirements and also reduce the
existing burden on impacted Members
to request a waiver from the Exchange
for an examination that has already been
accepted by the Member’s designated
examining authority, thereby removing
impediments to and perfecting the
28, 2015), 80 FR 53369 (September 03, 2015)
(approving File No. SR–FINRA–2015–17).
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mechanism of a free and open market
and a national market system, consistent
with the objectives of Section 6(b)(5) of
the Act.
With respect to the amendments to
Rule 2.160(o) to add rule provisions
regarding the circumstances under
which registrations lapse and the SIE
expires, the Exchange believes such
amendments are consistent with the Act
because they will align with FINRA
rules of similar purpose, thereby
fostering cooperation and coordination
with persons engaged in regulating and
facilitating transactions in securities.
With respect to the proposed
amendments to Rule 2.160(p) regarding
continuing education requirements, the
Exchange believes that the proposed
changes are consistent with the Act and
the public interest, because they will
provide additional clarity and
consistency to the rule provisions in
several respects and also align with
FINRA rules of similar purpose, thereby
fostering cooperation and coordination
with persons engaged in regulating and
facilitating transactions in securities.
First, the Exchange believes that the
terminology change to collectively refer
to a ‘‘Registered Person’’ rather than a
‘‘Registered Representative’’ is more
inclusive and descriptive of the
categories of associated persons of a
Member who are registered with the
Exchange and subject to the continuing
education requirements, thereby
avoiding any potential confusion.
Second, the Exchange believes that
harmonizing with FINRA’s continuing
education requirements will promote
uniformity in the application of the
continuing education requirements for
Registered Persons and thereby avoid
any confusion on the part of IEX
Members and their associated persons
on what is required under IEX rules.
The Exchange also believes that
correcting the typographical error in the
footnote numbering of the chart in Rule
2.160(n) is consistent with the Act
because it will avoid any potential
confusion regarding the chart and its
footnotes.
The Exchange believes that the
proposed amendments to Rule 2.160(m)
(and conforming amendment to Rule
2.160(e)) to specify that certain
categories of associated persons of a
Member are not required to be registered
with the Exchange is consistent with the
Act because such persons’ roles and
responsibilities are unrelated to the
Exchange’s operations, and registration
therefore serves no regulatory purpose.
Further, the Exchange believes that
(except for floor members of another
national securities exchange and
associated persons restricted from
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50139
accessing the Exchange and that do not
engage in the securities business of the
Member relating to activity that occurs
on the Exchange) such persons would
not be considered actively engaged in
the securities business. With respect to
persons registered as floor members on
another national securities exchange
and associated persons restricted from
accessing the Exchange and that do not
engage in the securities business of the
Member relating to activity that occurs
on the Exchange, the Exchange believes
that requiring registration with IEX is
not warranted since the associated
person’s activities are unrelated to
activity that occurs on the Exchange. As
discussed in the Purpose section, the
proposed registration exemptions are
substantially similar to existing
registration exemptions in FINRA and
CBOE [sic] rules, and thus do not raise
any new or novel issues not already
considered by the Commission. Thus,
the Exchange believes that the proposed
exemptions will remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, consistent with the objectives of
Section 6(b)(5) of the Act.
In addition, the Exchange believes
that proposed Supplementary Material
.01 to Rule 2.160(m) is consistent with
the Act because it provides clarity on
when the functions of an associated
person are solely and exclusively
clerical or ministerial, which also is
consistent with the objectives of Section
6(b)(5) of the Act.
Finally, the Exchange believes that
deletion of Rule 2.150 is consistent with
the Act because the rule is obsolete, as
described in the Purpose section.
Accordingly, deletion of the rule will
remove any potential confusion among
potential Members as to the
membership application process.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
IEX 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. The
proposed amendments are intended to
promote transparency in the Exchange’s
rules, and consistency with the rules of
FINRA and other national securities
exchanges with respect to the
examination, qualification, and
continuing education requirements
applicable to Members and their
associated persons. Accordingly, the
Exchange does not believe that the
proposed rule change imposes any
burden on competition that is not
necessary or appropriate in furtherance
of such regulatory objectives. Further,
E:\FR\FM\04OCN1.SGM
04OCN1
50140
Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Notices
the proposed changes would apply to all
Members and their associated persons
in the same manner and therefore would
not impose any unnecessary intramarket
burdens. The Exchange also does not
believe that the proposed rule change
would impose any burden on
intermarket competition since all
national securities exchanges are
expected to adopt similar rules with
uniform standards for the qualification,
registration and continuing education
requirements.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has designated this rule
filing as non-controversial under
Section 19(b)(3)(A) 42 of the Act and
Rule 19b–4(f)(6) 43 thereunder. Because
the proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
for 30 days 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) 44 of the Act and Rule 19b–
4(f)(6) 45 thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) 46 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),47 the
Commission may designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
Commission to waive the 30-day
operative delay so the proposed rule
change may become operative on
October 1, 2018. According to the
Exchange, waiving the 30-day operative
delay would allow the Exchange to
harmonize its rules with FINRA as of
the effective date of the FINRA Filing.
42 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
44 15 U.S.C. 78s(b)(3)(A).
45 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires the Exchange to give the
Commission written notice of the Exchange’s intent
to file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
46 17 CFR 240.19b–4(f)(6).
47 17 CFR 240.19b–4(f)(6)(iii).
daltland on DSKBBV9HB2PROD with NOTICES
43 17
VerDate Sep<11>2014
17:43 Oct 03, 2018
Jkt 247001
The Commission notes that, as
described in detail above, the
Exchange’s proposal does not raise any
new or novel issues, as the Exchange is
harmonizing its rules with FINRA and
Cboe, and deleting obsolete text.
Therefore, the Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest.
Accordingly, the Commission hereby
waives the 30-day operative delay and
designates the proposal operative on
October 1, 2018.48
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 49 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
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–IEX–2018–19 and should
be submitted on or before October 25,
2018.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.50
Eduardo A. Aleman,
Assistant Secretary.
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–
IEX–2018–19 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–IEX–2018–19. 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
48 For purposes only of waving the 30-day
operative delay, the Commission has considered the
purposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
49 15 U.S.C. 78s(b)(2)(B).
PO 00000
Frm 00078
Fmt 4703
Sfmt 4703
[FR Doc. 2018–21582 Filed 10–3–18; 8:45 am]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #15698 and #15699;
South Carolina Disaster Number SC–00054]
Presidential Declaration Amendment of
a Major Disaster for the State of South
Carolina
U.S. Small Business
Administration.
ACTION: Amendment 2.
AGENCY:
This is an amendment of the
Presidential declaration of a major
disaster for the State of South Carolina
(FEMA–4394–DR), dated 09/21/2018.
Incident: Hurricane Florence.
Incident Period: 09/08/2018 and
continuing.
SUMMARY:
Issued on 09/26/2018.
Physical Loan Application Deadline
Date: 11/20/2018.
Economic Injury (EIDL) Loan
Application Deadline Date: 06/21/2019.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing and
DATES:
50 17
E:\FR\FM\04OCN1.SGM
CFR 200.30–3(a)(12).
04OCN1
]]>Agencies
[Federal Register Volume 83, Number 193 (Thursday, October 4, 2018)]
[Notices]
[Pages 50132-50140]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-21582]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84320; File No. SR-IEX-2018-19]
Self-Regulatory Organizations; Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Rule 2.160 Related to the Qualification and Registration Requirements
for Associated Persons of a Member and To Delete Rule 2.150 Which is
Obsolete
September 28, 2018.
Pursuant to Section 19(b)(1)\1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on September 25, 2018, the Investors Exchange LLC (``IEX''
or the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Pursuant to the provisions of Section 19(b)(1) under the Securities
Exchange Act of 1934 (``Act''),\4\ and Rule 19b-4 thereunder,\5\ IEX is
filing with the Commission a proposed rule change to amend IEX Rule
2.160 to (i) harmonize IEX rules with certain Financial Industry
Regulatory Authority, Inc. (``FINRA'') rules related to qualification
and registration requirements for associated persons of a Member \6\
which are pending effectiveness; (ii) specify when associated persons
of a Member are required to be registered with the Exchange; and (iii)
delete Rule 2.150 related to a temporary membership application process
and waive-in, which is obsolete. The Exchange has designated this rule
change as ``non-controversial'' under Section 19(b)(3)(A) of the Act
\7\ and provided the Commission with the notice required by Rule 19b-
4(f)(6) thereunder.\8\
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78s(b)(1).
\5\ 17 CRF 240.19b-4.
\6\ ``Person Associated with a Member'' or ``Associated Person
of a Member'' mean [sic] any partner, officer, director, or branch
manager of a Member (or person occupying a similar status or
performing similar functions), any person directly or indirectly
controlling, controlled by, or under common control with such
Member, or any employee of such Member, except that any person
associated with a Member whose functions are solely clerical or
ministerial shall not be included in the meaning of such term for
purposes of these Rules. See IEX Rule 1.160(y). See also 15 U.S.C.
78c(a)(18).
\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
The text of the proposed rule change is available at the Exchange's
website at www.iextrading.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 the
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of and basis for the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statement [sic] may be examined
at the places specified in Item IV below. The self-regulatory
organization 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is proposing to amend Rule 2.160 to (i) harmonize with
certain FINRA rules related to qualification and registration
requirements for associated persons of a Member which are pending
effectiveness; (ii) specify when associated persons of a Member are
required to be registered with the Exchange; and (iii) delete Rule
2.150 related to a temporary membership application process and waive-
in, which is obsolete. Each proposed change is described below.
[[Page 50133]]
Qualification and Registration Requirements
FINRA recently amended its rules relating to its qualification and
registration requirements in a number of respects.\9\ These amended
rules will be effective beginning on October 1, 2018. The Exchange is
proposing several amendments to IEX rules with respect to membership
and registration requirements to harmonize with such rule amendments in
the FINRA Filing and FINRA's existing rules, as described below. The
Exchange is proposing to adopt such harmonizing rule amendments and
registration categories that it determined are relevant to its
operations.\10\
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\9\ See Securities Exchange Act Release No. 81098 (July 7,
2017), 82 FR 32419 (July 13, 2017) (SR-FINRA-2017-007) (Approval
Order) (the ``FINRA Filing'').
\10\ The Exchange is not proposing to adopt provisions
comparable to Supplementary Material .05, .06, or .11 [sic] to FINRA
Rule 1210 because such provisions are not directly relevant to the
Exchange's operations. The Exchange is also not proposing to adopt a
provision comparable to Supplementary Material .07 to FINRA Rule
1210 because comparable provisions are included in proposed Rule
2.160(a) [sic]. In addition, the Exchange is not proposing to adopt
the registration categories specified in FINRA Rule 1220(a)(5), (6),
(8), (9), (10), (11), (12), (13) or (14) or in (b)(3), (5), (6),
(7), (8), or (9) because such registration categories are not
directly relevant to the Exchange's operations.
---------------------------------------------------------------------------
Rule 2.160, entitled ``Restrictions on Membership,'' sets forth
various requirements applicable to Members and their associated
persons, including registration requirements thereof. To make the title
of the rule more descriptive of the current and proposed requirements
set forth therein, the Exchange proposes to revise the title to
``Registration Requirements and Restrictions on Membership.'' The
Exchange believes that this title will more clearly direct Members,
their associated persons and other market participants to the total
scope of the rule.
Rule 2.160(e) sets forth the requirement that no person shall
become an associated person of a Member unless such person agrees:
(1) To supply the Exchange with such information with respect to
such person's relationships and dealings with the Member as may be
specified by the Exchange;
(2) to permit examination of such person's books and records by the
Exchange to verify the accuracy of any information so supplied; and
(3) to be regulated by the Exchange and to recognize that the
Exchange is obligated to undertake to enforce compliance with the
provisions of IEX Rules, the Operating Agreement, the interpretations
and policies of the Exchange, and the provisions of the Act and the
regulations thereunder.
The manner in which an associated person of a Member agrees to such
terms is by registering with the Exchange. However, as described below,
the Exchange is proposing amendments to Rule 2.160(m) to specify that
certain categories of associated persons of a Member are not required
to be registered with the Exchange because such persons' roles and
responsibilities are unrelated to the Exchange's operations, and
registration therefore serves no regulatory purpose. Accordingly, the
Exchange is proposing to amend Rule 2.160(e) to specify which
associated persons of a Member must be registered with the Exchange,
and also to provide that a Member shall not register or maintain the
registration of any associated person unless consistent with the
requirements of Rule 2.160.
Further, the Exchange is proposing to adopt Supplementary Material
to Rule 2.160(e) governing permissive registrations and the status of
persons serving in the Armed Forces of the United States, each based on
provisions adopted by FINRA in the FINRA Filing that will be effective
on October 1, 2018.\11\
---------------------------------------------------------------------------
\11\ See FINRA Rules 1210.02 and 1210.10. The Exchange is not
including references to an admission fee, which is included in FINRA
Rule 1210.10(b), in paragraph (b) of Supplementary Material .02 of
Rule 2.160(e) since the Exchange does not charge an admission fee to
Members.
---------------------------------------------------------------------------
As proposed, Supplementary Material .01 provides that a Member may
make application for or maintain the registration as a representative
or principal, pursuant to Rule 2.160, of any associated person of the
Member and any individual engaged in the investment banking or
securities business of a foreign securities affiliate or subsidiary of
the Member. Individuals maintaining such permissive registrations shall
be considered registered persons and subject to all IEX rules, to the
extent relevant to their activities. Supplementary Material .01 also
addresses Members' supervisory obligations with respect to associated
persons with permissive registrations. As proposed, consistent with the
requirements of Rule 5.110, Members shall have adequate supervisory
systems and procedures reasonably designed to ensure that individuals
with permissive registrations do not act outside the scope of their
assigned functions. With respect to an individual who solely maintains
a permissive registration(s), the individual's direct supervisor shall
not be required to be a registered person. However, for purposes of
compliance with Rule 5.110(a)(5), a Member shall assign a registered
supervisor who shall be responsible for periodically contacting such
individual's direct supervisor to verify that the individual is not
acting outside the scope of his or her assigned functions. If such
individual is permissively registered as a representative, the
registered supervisor shall be registered as a representative or
principal. If the individual is permissively registered as a principal,
the registered supervisor shall be registered as a principal. Moreover,
the registered supervisor of an individual who solely maintains a
permissive registration(s) shall not be required to be registered in
the same representative or principal registration category as the
permissively-registered individual.
As proposed, Supplementary Material .02 to Rule 2.160(e) addresses
the status of current and former registered persons serving in active
duty in the Armed Forces of the United States. With respect to a
currently registered person of a Member who volunteers for or is called
into active duty, paragraph (a) provides that after proper notification
to the Exchange,\12\ such person shall be placed on inactive status and
need not be re-registered by such Member upon his or her return to
active employment with the Member. Such person shall remain eligible to
receive transaction-related compensation, including continuing
commissions. The employing Member also may allow such person to enter
into an arrangement with another registered person of the Member to
take over and service the person's accounts and to share transaction-
related compensation based upon the business generated by such
accounts. However, because such persons are inactive, they may not
perform any of the functions and responsibilities performed by a
registered person. Further, the registered person shall not be required
to complete either the Regulatory Element or Firm Element, as set forth
in Rule 2.160(p), while such person remains inactive and registered
with the Member with which he or she was registered at the beginning of
active duty, regardless of whether the person returns to active
employment with another Member upon completion of his or her active
duty. The relief shall be provided only to a person registered
[[Page 50134]]
with a Member and only while the person remains on active military
duty. Further, the Member with which such person is registered shall
promptly notify the Exchange in such manner as the Exchange may specify
of such person's return to active employment with the Member.\13\
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\12\ The Exchange will issue a Regulatory Circular upon
effectiveness of this proposed rule change describing the manner in
which Members should provide notice to the Exchange with respect to
the status of their current and former registered persons serving in
active duty in the Armed Forces of the United States.
\13\ Id.
---------------------------------------------------------------------------
Paragraph (b) of proposed Commentary .02 addresses the status of a
Member that is a sole proprietor who temporarily closes his or her
business by reason of volunteering for or being called into active duty
in the Armed Forces of the United States. As proposed, after proper
notification to the Exchange,\14\ such person shall be placed on
inactive status solely while the Member remains on active military
duty. Further, the sole proprietor shall promptly notify the Exchange
in such manner as the Exchange may specify \15\ of his or her return to
active participation in the securities business of the Member relating
to activity that occurs on the Exchange.
---------------------------------------------------------------------------
\14\ Id.
\15\ Id.
---------------------------------------------------------------------------
Paragraph (c) of proposed Commentary .02 addresses the status of
formerly registered persons, with respect to active military duty.
Specifically, as proposed, the provision specifies that the lapse of
such person's registrations shall be deferred (i.e., tolled) during the
pendency of his or her active service in the Armed Forces of the United
States, provided the Exchange is properly notified of the person's
period of active military service within 90 days following his or her
completion of active service or upon his or her re-registration with a
Member, whichever occurs first.\16\ The deferral will terminate 90 days
following the person's completion of active service in the Armed Forces
of the United States. If a person placed on inactive status while
serving in the Armed Forces of the United States ceases to be
registered with a Member, the Exchange shall defer the lapse of
registration requirements based on existing information in the CRD
system, provided that the Exchange is properly notified \17\ of the
person's period of active military service within two years following
his or her completion of active service or upon his or her re-
registration with a Member, whichever occurs first.\18\
---------------------------------------------------------------------------
\16\ Id.
\17\ Id.
\18\ The deferral shall terminate 90 days following the person's
completion of active service in the Armed Forces of the United
States. Accordingly, if such person does not re-register with a
Member within 90 days following his or her completion of active
service in the Armed Forces of the United States, the amount of time
in which the person must become re-registered with a Member without
being subject to a representative or principal qualification
examination or the SIE shall consist of the standard two-year period
for representative and principal qualification examinations or the
standard four-year period for the SIE, whichever is applicable, as
provided in Rule 2.160(o).
---------------------------------------------------------------------------
Rule 2.160(f) specifies that the Exchange may require the
successful completion of a written proficiency examination to enable it
to examine and verify that prospective Members and associated persons
of Members have adequate training, experience, and competence to comply
with IEX rules and policies of the Exchange. Rule 2.160(g) specifies
that if the Exchange requires the completion of such proficiency
examinations, it may waive such examinations in exceptional cases and
where good cause is shown, upon written request of the applicant, and
accept other standards as evidence of an applicant's
qualifications.\19\ The Exchange is proposing to add Supplementary
Material .01 to provide for a waiver of examinations for individuals
working for a financial services industry affiliate of a Member,\20\
based on provisions adopted by FINRA in the FINRA Filing that will be
effective on October 1, 2018.\21\ As proposed, the waiver is available
upon request by a Member for an individual designated with the Exchange
as working for a financial services industry affiliate of a Member if
the following conditions are met: (a) prior to the individual's initial
designation, the individual was registered as a representative or
principal with the Exchange or FINRA for a total of five years within
the most recent 10-year period, including for the most recent year with
the Member that initially designated the individual; (b) the waiver
request is made within seven years of the individual's initial
designation; (c) the initial designation and any subsequent
designation(s) were made concurrently with the filing of the
individual's related Form U5; (d) the individual continuously worked
for the financial services industry affiliate(s) of a Member since the
individual's last Form U5 filing; (e) the individual has complied with
the Regulatory Element of continuing education as specified in Rule
2.160(a); and (f) the individual does not have any pending or adverse
regulatory matters, or terminations, that are reportable on the Form
U4, and has not otherwise been subject to a statutory disqualification
as defined in Section 3(a)(39) of the Exchange Act while the individual
was designated as eligible for a waiver.
---------------------------------------------------------------------------
\19\ Any such waiver is pursuant to IEX Rule Series 9.600.
\20\ For purposes of the Supplementary Material, a ``financial
services affiliate of a Member'' is a legal entity that controls, is
controlled by or is under common control with a Member and is
regulated by the SEC, CFTC, state securities authorities, federal or
state banking authorities, state insurance authorities, or
substantially equivalent foreign regulatory authorities.
\21\ See FINRA Rule 1210.09.
---------------------------------------------------------------------------
Rule 2.160(h) specifies that the Exchange requires the General
Securities Representative Examination (``Series 7'') or an equivalent
foreign examination module approved by the Exchange in qualifying
persons seeking registration as General Securities Representatives,
including as Authorized Traders, on behalf of Members. For those
persons seeking limited registration as Securities Traders as described
in paragraph (k) below, the Exchange requires the Securities Traders
Qualification Examination (``Series 57''). Rule 2.160(h) also provides
that the Exchange uses the Uniform Application for Securities Industry
Registration or Transfer (``Form U4'') as part of its procedure for
registration and oversight of Member personnel. The Exchange proposes
several changes to Rule 2.160(h). First, the Exchange proposes to amend
Rule 2.160(h) to specify that before the registration of a qualifying
person can be effective, such person shall pass the Securities Industry
Essentials (``SIE'') examination \22\ and an appropriate registration
qualification examination, as specified in Rule 2.160(h). The SIE is a
new general knowledge examination that was adopted by FINRA in the
FINRA Filing and will be effective on October 1, 2018. Going forward,
representative-level registration will require successful completion of
the SIE and a tailored, specialized knowledge examination for a
person's particular registered role. The Exchange's proposed change
aligns with changes to FINRA Rule 1210.03, which were included in the
FINRA Filing and will be effective beginning on October 1, 2018.
Conforming changes are also proposed to Rule 2.160(i) to reference the
SIE with respect to representative-level prerequisites to the Series 14
and 24 principal-level examinations. The Exchange also proposes to
adopt Commentary .01 to Rule 2.160(h) to provide that any person who is
in good standing as representatives with the Financial Conduct
Authority in the United Kingdom or with a Canadian stock exchange or
securities regulator
[[Page 50135]]
would be exempt from the requirement to pass the SIE, and thus would be
required only to pass a specialized knowledge examination to register
with the Exchange as a representative. FINRA has adopted a similar
provision in the FINRA Filing and will be effective beginning on
October 1, 2018.
---------------------------------------------------------------------------
\22\ Individuals who are registered with the Exchange, FINRA, or
another national securities exchange as of October 1, 2018 will be
considered to have passed the SIE.
---------------------------------------------------------------------------
The Exchange also proposes to amend Rule 2.160(h) to provide that
any person associated with a Member whose trading activities are
conducted principally on behalf of an investment company that is
registered with the Commission pursuant to the Investment Company Act
and that controls, is controlled by or is under common control, with
the Member is not required to be registered with the Exchange as a
Securities Trader. This proposed change is substantially similar to
existing National Association of Securities Dealers, Inc. (``NASD'')
Rule 1032(f) and FINRA Rule 1220(b)(4)(A), that was included in the
FINRA Filing and will be effective on October 1, 2018.
Rule 2.160(i) currently provides in part that a sole proprietorship
Member is not required to register at least two Principals with the
Exchange, and that the Exchange may waive the two-Principal requirement
in situations that indicate conclusively that only one Principal
associated with the Member should be required to be registered. Given
that one-person Members may be organized in legal forms other than a
sole proprietorship (such as a single-person limited liability
company), the Exchange proposes to amend the reference to a ``sole
proprietorship'' to a ``Member with only one associated person'' so
that any Member with only one associated person is not subject to the
two-Principal requirement. This proposed change is substantially
similar to Supplementary Material .01 to FINRA Rule 1210 that was
included in the FINRA Filing and will be effective on October 1, 2018.
Rule 2.160(i) also specifies that the Exchange will accept the New
York Stock Exchange Series 14 Compliance Examination in lieu of the
Series 24 to satisfy the examination requirement for any person
designated as a Chief Compliance Officer. The Exchange proposes to
delete the phrase ``New York Stock Exchange'' since the Series 14 is
now referred to as the Series 14 Compliance Official Examination.\23\
---------------------------------------------------------------------------
\23\ See Series 14 examination description on FINRA website
available at: https://www.finra.org/industry/series14.
---------------------------------------------------------------------------
Further, the Exchange proposes to add Supplementary Material .01
related to the requirements for registered persons functioning as
principals for a limited period of up to 120 calendar days. The
provision aligns with FINRA Rule 1210.04 and is designed to provide
appropriate flexibility to a Member to designate any person currently
registered, or who becomes registered, with the Member as a
representative to function as a principal for a limited period,
providing such person has at least 18 months of experience functioning
as a registered representative within the five-year period immediately
preceding the designation. As proposed, the provision applies to
designations to any principal category, including those that are not
subject to a representative-level prerequisite examination.\24\
---------------------------------------------------------------------------
\24\ Principal categories for the Exchange that do not have such
a prerequisite are the Financial and Operations Principal,
Compliance Official, and Introducing Broker-Dealer Financial and
Operations Principal.
---------------------------------------------------------------------------
Rule 2.160(j) sets forth the requirements for designation and
registration of a Financial/Operations Principal by a Member and
relates to the requirements for a Member to designate a Financial/
Operations Principal, the Financial/Operations Principal's obligations,
and examination requirements. The rule specifies that the Financial/
Operations Principal is required to successfully complete the Financial
and Operations Principal Examination (``Series 27'') but that the
Exchange may waive such requirement if a Member has otherwise satisfied
the financial and operational requirements of its designated examining
authority. With respect to an Exchange waiver, Rule 2.160(n) provides
that an alternative acceptable examination to the Series 27 for a
Financial/Operations Principal is any other examination acceptable to
such Member's designated examining authority. The Exchange has provided
waivers under these provisions for Members that operate as introducing
broker-dealers when FINRA (as the Member's designated examining
authority) has permitted the Member's Financial/Operations Principal to
function as such based on successful completion of the Limited
Principal--Introducing Broker-Dealer Financial and Operations Principal
Examination (``Series 28'') under applicable FINRA Rules.\25\ FINRA
Rule 1220(a)(4) (which was included in the FINRA Filing and will be
effective on October 1, 2018) specifies that a FINRA member, other than
a member operating pursuant to Exchange Act Rules 15c3-1(a)(1)(ii),
(a)(2)(i) or (a)(8), may designate an Introducing Broker-Dealer
Financial and Operations Principal (who must successfully complete the
Series 27 or 28 examination) instead of a Financial and Operations
Principal (who must successfully complete the Series 27
examination).\26\ Currently, an IEX Member that is eligible to
designate an Introducing Broker-Dealer Financial and Operations
Principal under FINRA rules or the rules of another national securities
exchange must request a waiver from the Exchange, pursuant to Rule
2.160(j), so that its Financial/Operations Principal may successfully
complete the Series 28 examination instead of the Series 27
examination. Rule 2.160(j) specifies that the Exchange may waive the
requirement that the Member's Financial/Operations Principal
successfully complete the Series 27 examination if the Member has
otherwise satisfied the financial and operational requirements of its
designated examining authority. Pursuant to such waiver provisions, the
Exchange has waived the Series 27 examination requirement for a
Member's Financial/Operations Principal and accepted the Series 28
examination. In order to simplify and provide additional clarity on the
acceptable examination requirements for IEX Members' Financial/
Operations Principals, the Exchange proposes to amend Rule 2.160(j) to
specifically describe when the Series 28 is an acceptable examination
for a Member's Financial/Operations Principal. As proposed, the
Exchange would replace the language regarding possible waiver of
successful completion of the Series 27 examination with language
providing that in the case of a Member that operates other than
pursuant to Exchange Act Rule 15c3-1(a)(1)(ii), (a)(2)(i) or (a)(8),
its Financial/Operations Principal must successfully complete either
the Series 27 or Series 28 examination. Conforming amendments are also
proposed to Rule 2.160(n).
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\25\ See NASD Rule 1022(c).
\26\ The Exchange notes that the term Financial/Operations
Principal in IEX rules is synonymous with the term Financial and
Operations Principal in FINRA rules. A Member may designate an
Introducing Broker-Dealer Financial and Operations Principal as its
Financial/Operations Principal if the firm is not a clearing firm
and does not operate pursuant to Exchange Act Rule 15c3-1(a)(1)(ii),
(a)(2)(i) or (a)(8).
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The Exchange is proposing to amend Rule 2.160(o), which is
currently reserved, to adopt rule provisions related to the
circumstances under which registrations lapse and the SIE expires,
aligning to FINRA Rule 1210.08 which was included in the FINRA Filing
and will be effective on October 1, 2018. For purposes of this
paragraph, an application shall not be considered to have been received
by the Exchange
[[Page 50136]]
if that application does not result in a registration. Rule 2.160(o)
provides that a person who was last registered as a representative or
principal two or more years immediately preceding the date of receipt
by the Exchange of a new application as a representative or principal,
shall be required to pass a representative and/or principal
qualification examination appropriate to his or her category or
registration as specified in paragraphs (h), (i), (j), (k), (l), and
(n) of Rule 2.160. Further, any person who last passed the SIE or who
was last registered as a representative, whichever occurred last, four
or more years immediately preceding the date of receipt by the Exchange
of a new application for registration as a representative, shall be
required to pass the SIE in addition to a representative qualification
examination appropriate to his or her category of registration as
specified in paragraphs (h), (i), (j), (k), (l), and (n) of Rule 2.160.
Additionally, any person whose registration has been revoked pursuant
to Rule 8.310 shall be required to pass a principal or representative
qualification examination appropriate to his or her category of
registration as specified in paragraphs (h), (i), (j), (k), (l), and
(n) of Rule 2.160 to be eligible for registration with the Exchange.
Rule 2.160(p) specifies the Regulatory Element of the continuing
education requirements for associated persons of a Member and aligns
with the FINRA requirements for the particular registration category of
the registered person. Exchange rules do not currently address the Firm
Element continuing education requirements.\27\ The Exchange proposes to
revise Rule 2.160(p) to harmonize with the amended continuing education
requirements specified in FINRA Rule 1240, as included in the FINRA
Filing that will be effective on October 1, 2018. As proposed, Rule
2.160(p) will specify the required Continuing Education Regulatory
Element and Firm Element. The Exchange is proposing several changes to
Regulatory Element provisions. First, the Exchange proposes to add
introductory text at the beginning of Rule 2.160(p) stating that ``this
[rule] prescribes requirements regarding the continuing education of
specified persons subsequent to their initial registration with the
Exchange. The requirements shall consist of a Regulatory Element and a
Firm Element as set forth below.'' The Exchange also proposes to add
subparagraph (a) entitled ``Regulatory Element'' immediately after the
new introductory text to delineate that the provisions that follow
relate to the Regulatory Element. The Exchange also proposes several
amendments to subparagraphs (a)(1), (2) and (3) to align with changes
to FINRA Rule 1240.
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\27\ The Exchange notes that the FINRA Firm Element requirement
is only applicable to: (i) Persons registered with a FINRA member
who have direct contact with customers in the conduct of the
member's securities sales, trading, and investment banking
activities; (ii) persons registered as an operations professional or
research analyst; and (iii) their immediate supervisors. An Exchange
Member with associated persons registered in each of the
aforementioned categories would be conducting a customer business.
The Exchange is not proposing to adopt similar language modifying
the ``direct contact with customers'' language in FINRA's rule. Any
Exchange Member with a customer business is required to be a FINRA
member pursuant to Section 15(b)(8) of the Act. Thus any Exchange
Member that is not a FINRA member would not be conducting a customer
business and thus would not have any associated persons that meet
the FINRA criteria to be subject to the FINRA Firm Element rule.
Therefore, there is no gap in the application of the Firm Element
requirement to Exchange Members and their associated persons.
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Several changes are proposed to subparagraph (a)(1). First, in lieu
of the current text describing persons subject to the continuing
education requirements that refers to any ``Authorized Trader,
Principal, or Financial/Operations Principal'' abbreviated as
``Registered Representative,'' the language would be revised to refer
to ``any associated person registered with the Exchange'' abbreviated
as ``Registered Person'' to be simpler and more inclusive and
descriptive, since not all registered persons listed are considered to
be a Registered Representative. Conforming changes are proposed
throughout the rule. Second, existing rule text in the first paragraph
of subparagraph (a)(1) providing that ``no Member shall permit any . .
. Registered Representative to continue to, and no Registered
Representative shall continue to, perform duties as a Registered
Representative on behalf of such Member, unless such person has
complied with the continuing education requirements in this IEX Rule''
will be replaced with language aligned with language in FINRA Rule
1240(a) and (5), providing that all registered persons, including any
person who is permissively registered pursuant to Commentary .02 to
Rule 2.160 and any person who is designated as eligible for a waiver
pursuant to Commentary .01 to Rule 2.160(g), shall comply with the
requirement to complete the Regulatory Element. Additionally, the
Exchange proposes to add language at the end of subparagraph (a)(1)
stating that the content of the Regulatory Element for a person
designated as eligible for a waiver pursuant to Commentary .01 to Rule
2.160(g) shall be determined based on the person's most recent
registration status, and the Regulatory Element shall be completed
based on the same cycle had the person remained registered.
Subparagraph (p)(2) [sic] specifies the consequences to a
Registered Person who fails to complete the Regulatory Element of the
continuing education program within the prescribed time frames.
Currently, the rule provides that such a person will have their [sic]
registration deemed inactive until such time as the requirements of the
program have been satisfied and shall cease all activities requiring
registration. The Exchange proposes to amend the rule to codify
existing FINRA guidance regarding the impact of failing to complete the
Regulation Element on a Registered Person's activities and
compensation.\28\ Specifically, as proposed, Rule 2.160(p)(2) [sic]
provides that any person whose registration has been deemed inactive
under the rule shall not be permitted to be registered in another
registration category under Rule 2.160 with that Member or to be
registered in any registration category under Rule 2.160 with another
Member, until the person has satisfied the deficiency. This provision
is comparable to FINRA Rule 1210.07 (which was included in the FINRA
Filing and will be effective on October 1, 2018). Further, the Exchange
proposes to add provisions that such a person may not accept or solicit
business or receive any compensation for the purchase or sale of
securities. However, such person may receive trail or residual
commissions resulting from transactions completed before the inactive
status, unless the Member with which such person is associated has a
policy prohibiting such trail or residual commissions. This clarifying
language is substantially similar to amendments to FINRA Rule 1240
(which was included in the FINRA Filing and will be effective on
October 1, 2018). In addition, the Exchange proposes to add language
specifying that if a person designated as eligible for a waiver
pursuant to Supplementary Material .01 to Rule 2.160(g) fails to
complete the Regulatory Element within the prescribed time frames, the
person shall no longer be eligible for such a waiver. The Exchange also
proposes a conforming change to subparagraph (a)(3) with respect to the
requirement to retake the Regulatory Element and satisfy all of its
requirements in the event the person is subject to certain
[[Page 50137]]
specified disciplinary action. These provisions align with FINRA Rule
1240.
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\28\ See, e.g., NASD Notice to Members 95-35 (May 1995).
---------------------------------------------------------------------------
Additionally, the Exchange proposes to add subparagraphs (a)(5)-(7)
to align with FINRA Rule 1240. As proposed, subparagraph (a)(5) is
reserved. The corresponding part of FINRA Rule 1240 pertains to the
definition of a ``Covered Person'' under FINRA rules, who is subject to
the Regulatory Element. As discussed above, the Exchange is using the
term ``Registered Person'' which is incorporated into subparagraph
(a)(1).\29\ Subparagraph (a)(6) specifies that delivery of the
Regulatory Element will be administered through web-based delivery or
such other technological manner and format as specified [sic] by FINRA.
Subparagraph (a)(7) requires designation and identification of the
Regulatory Element Contact Person to FINRA on behalf of the Exchange
and describes the role of such person to receive email notifications
provided via CRD regarding Regulatory Element deadlines for Registered
Persons subject to the Regulatory Element, including when such a person
is deemed inactive for failure to complete the Regulatory Element.
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\29\ The term ``Registered Person'' in the Regulatory Element
rule provisions has substantially the same meaning as FINRA's term
``Covered Person'' except that FINRA excludes ``Foreign Associates''
from the term ``Covered Person.'' Foreign Associate is a
discontinued FINRA registration category, as described in the FINRA
Filing, and is not recognized by IEX rules. Accordingly, the
Exchange does not believe it is necessary to exclude Foreign
Associates from the definition of ``Registered Person.''
---------------------------------------------------------------------------
The Exchange also proposes to add new subparagraph (b) to Rule
2.160(p) to set forth the Firm Element requirements, which are
substantially similar to FINRA Rule 1240(b) \30\ and consist of annual,
Member-developed and administered training programs designed to enhance
covered registered persons' securities knowledge, skill, and
professionalism, taking into consideration the Member's size,
organizational structure, and scope of business activities, as well as
regulatory developments and the performance of covered registered
persons in the Regulatory Element.\31\ If a Member's analysis
establishes the need for supervisory training for persons with
supervisory responsibilities, such training must be included in the
Member's training plan.
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\30\ In setting forth the persons subject to the Firm Element,
proposed Rule 2.160(b)(1) [sic] is limited to persons registered
with a Member pursuant to Rule 2.160 who have direct contact with
customers in the securities business of the Member relating to
activity that occurs on the Exchange, and to their immediate
supervisors. FINRA Rule 1240(b)(1) is broader in scope given FINRA's
broader regulatory mandate.
\31\ The definition of ``covered registered person'' under
proposed Rule 2.160(p)(b) does not include Registered Options
Professionals [sic] because that is not a registration category
provided for in Exchange rules.
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As proposed, any person registered with a Member pursuant to Rule
2.160 who has direct contact with customers \32\ in the securities
business of the Member relating to activity that occurs on the
Exchange, and the immediate supervisors of such persons, must take all
appropriate and reasonable steps to participate in the Firm Element
training as required by his or her Member. Subparagraph (b)(2)(B) sets
forth the minimum standards for the Firm Element training programs.
Such programs must be appropriate for the business of the Member and,
at a minimum, must cover training in ethics and professional
responsibility and the following matters concerning securities
products, services and strategies offered by the Member: General
investment features and associated risk factors; suitability and sales
practice considerations; and applicable regulatory requirements.
Further, a Member must administer its continuing education programs in
accordance with its annual evaluation and written plan, and must
maintain records documenting the content of the programs and completion
of the programs by covered Registered Persons.\33\
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\32\ ``Customer'' means any natural person and any organization,
other than another broker or dealer, executing securities
transactions with or through a Member.
\33\ The Exchange may also require a Member, individually or as
part of a larger group, to provide specific training to its covered
Registered Persons in such areas as the Exchange deems appropriate.
See proposed Rule 2.160(p)(b)(4).
---------------------------------------------------------------------------
Finally, the Exchange also proposes to correct a typographical
error in the footnote numbering of the chart in Rule 2.160(n).
Exchange Registration Exceptions
The Exchange is proposing to amend Rule 2.160(m), which is
currently reserved, to specify that certain associated persons of a
Member are not required to be registered with the Exchange, because
such person's roles and responsibilities are unrelated to the
Exchange's operations, and registration therefore serves no regulatory
purpose. As proposed, the following categories of associated persons of
a Member are not required to be registered with the Exchange:
(1) Associated persons of a Member whose functions are solely and
exclusively clerical or ministerial.
(2) Associated persons of a Member whose functions are related
solely and exclusively to:
(A) Effecting transactions on the floor of a national securities
exchange and who are appropriately registered with such exchange;
(B) transactions in municipal securities;
(C) transactions in commodities; or
(D) transactions in securities futures, provided that any such
person is appropriately registered with a registered futures
association.
(3) Associated persons of a Member that are restricted from
accessing the Exchange and that do not engage in the securities
business of the Member relating to activity that occurs on the
Exchange.
The Exchange notes that each proposed exception is based on
existing exceptions in FINRA rules or those of other exchanges. The
proposed exceptions in Rule 2.160(m)(1) and (2) are substantially
similar to FINRA rules, and the exception in Rule 2.160(m)(3) is
substantially similar to a CBOE [sic] Exchange, Inc. (``CBOE'')
rule.\34\
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\34\ See current NASD Rule 1060, FINRA Rule 1230 (which is
pending effectiveness), and CBOE [sic] Exchange, Inc. Rule
3.6A(a)(2)(D).
---------------------------------------------------------------------------
With respect to the proposed exception in Rule 2.160(m)(3), the
Exchange believes that such individuals do not need to be registered
with the Exchange because those individuals do not access the Exchange
directly and do not engage in the securities business of the Member
relating to activity that occurs on the Exchange. For example, suppose
that Firm XYZ is an Exchange Member and a member of the Nasdaq Stock
Market LLC (``Nasdaq''). Ms. ABC is an associated person of XYZ,
assigned to XYZ's Nasdaq market maker ``desk'' which only sends orders
to Nasdaq. Ms. ABC is subject to Nasdaq's registration and
qualification requirements. Ms. ABC would not be required to separately
register with the Exchange so long as Ms. ABC does not send orders
directly to the Exchange through XYZ and not another Exchange
Member.\35\
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\35\ For example, an order originating from XYZ's Nasdaq market
maker desk may be routed to the Exchange by another Member.
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In addition, the Exchange proposes to add Supplementary Material
.01 to clarify the registration requirements applicable to associated
persons of a Member who accept customer orders, and the applicability
to a determination of whether the functions of an associated person of
a Member are solely and exclusively clerical or ministerial. As
proposed, Supplementary Material .01 provides that the function of
accepting customer orders is not considered a clerical or ministerial
function. Each associated person of a Member who accepts
[[Page 50138]]
customer orders under any circumstances shall be registered in an
appropriate registration category pursuant to Rule 2.160. However, an
associated person of a Member shall not be considered to be accepting a
customer order where occasionally, when an appropriately registered
person is unavailable, such person transcribes order details submitted
by a customer and the registered person contacts the customer to
confirm the order details before entering the order. This clarification
is substantially similar to Supplementary Material .01 to FINRA Rule
1230 (which was included in the FINRA Filing and will be effective on
October 1, 2018), and is designed to provide that acceptance of
customer orders is appropriately overseen by a registered associated
person of a Member.
The Exchange also proposes a conforming amendment to Rule 2.160(e)
to incorporate the registration exception.
Deletion of Obsolete Rule 2.150
As approved by the Commission as part of the Exchange's Form 1
application,\36\ Rule 2.150 provided a temporary Member Application and
Waive-In Process that permitted current subscribers to the alternative
trading system previously operated by the Exchange's affiliate, IEX
Services, LLC, to apply to become a Member of the Exchange by
submitting a ``waive-in application'' within ninety (90) days of
approval of the Form 1 by the Commission. The Commission approved the
Exchange's Form 1 application on June 17, 2016, meaning that waive-in
applications must have been received by the Exchange on or prior to
September 15, 2016. Accordingly, Rule 2.150 is obsolete, and the
Exchange proposes to delete the rule.
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\36\ See Securities Exchange Act Release No. 34-78101 (June 17,
2016), 81 FR 41141 (June 23, 2016) (File No. 10-222).
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2. Statutory Basis
IEX believes that the proposed rule change is consistent with the
provisions of Section 6(b) of the Act \37\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \38\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
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. The Exchange also believes that the proposed rule
change furthers the objectives of Section 6(c)(3)(B) of the Act,\39\
which authorizes the exchange to prescribe standards of training,
experience and competence for persons associated with an IEX Member.
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\37\ 15 U.S.C. 78f.
\38\ 15 U.S.C. 78f(b)(5).
\39\ 15 U.S.C. 78(c)(3)(B).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change overall will
harmonize its membership and registration rules with FINRA rules,\40\
thus assisting Members and associated persons of Members in complying
with those rules and thereby enhancing regulatory efficiency. In
addition, the Exchange believes that providing greater harmonization
between IEX and FINRA rules with a similar purpose will result in less
burdensome and more efficient regulatory compliance for IEX Members
that are subject to regulatory examination and oversight by FINRA
pursuant to a regulatory services agreement between IEX and FINRA, and
facilitate FINRA's performance of its regulatory functions for IEX
under the regulatory services agreement, thereby removing impediments
to and perfecting the mechanism of a free and open market and a
national market system, consistent with the objectives of Section
6(b)(5) of the Act.
---------------------------------------------------------------------------
\40\ The Exchange is proposing to harmonize with those aspects
of FINRA rules that IEX determined are relevant to its operations.
---------------------------------------------------------------------------
As described in the Purpose section, the Exchange proposes various
revisions to Rule 2.160, which sets forth the requirements applicable
to Members and their associated persons, including registration
requirements thereof. The Exchange believes that these proposed rule
amendments are consistent with the public interest and the protection
of investors. With respect to the revisions to the rule title, the
Exchange believes that referencing registration requirements, as well
as restrictions on membership, is a clearer description of the scope of
the rule and will thereby enable Members, their associated persons, and
other market participants to better identify such requirements in IEX
rules. Similarly, the Exchange believes that adding text to paragraph
(e) of Rule 2.160 to reference proposed changes to paragraph (m)
regarding registration exemptions (as discussed further below) and
impermissible registrations will help to assure that IEX's rules are
clear regarding such requirements.
The Exchange further believes that the addition of Supplementary
Material .01 to Rule 2.160(e), to permit permissive registrations, is
consistent with the Act in order to allow Members to develop a depth of
associated persons with registrations to respond to unanticipated
personnel changes and will encourage greater regulatory understanding.
The Exchange also believes that the addition Supplementary .02 to Rule
2.160(e) regarding the status of current and former registered persons
serving in active duty in the Armed Forces of the United States is
consistent with the Act because it provides a reasonable accommodation
to such persons, who are engaged in efforts to protect and defend the
United States, with an appropriate notification process to the
Exchange, thereby removing impediments to and perfecting the mechanism
of a free and open market and a national market system, consistent with
the objectives of Section 6(b)(5) [sic] of the Act.
Additionally, the Exchange believes it is consistent with the Act
to provide an examination waiver for individuals working for a
financial services industry affiliate of a Member, pursuant to
Supplementary Material .02 to Rule 2.160(g), because it will provide
appropriate flexibility to Members and their financial services
industry affiliates in the management of their personnel, thereby
removing impediments to and perfecting the mechanism of a free and open
market and a national market system, consistent with the objectives of
Section 6(b)(5 [sic] of the Act.
The Exchange also believes that its proposed changes to Rule
2.160(h) are consistent with the Act. Specifically, adoption of the SIE
is designed to promote uniformity and consistency with FINRA's rules of
similar purpose, thereby fostering cooperation and coordination with
persons engaged in regulating and facilitating transactions in
securities. In addition, the Exchange believes that it is consistent
with the Act to not require Exchange registration as a Securities
Trader for associated persons of a Member whose trading activities are
conducted principally on behalf of an investment company affiliate of
the Member, as described in the Purpose section. This exemption has
been part of FINRA (and its predecessor, the NASD) rules applicable to
the current Securities Trader examination as well as the predecessor
Series 55 examination for many years, and recognizes that such traders
are generally in the same position as ``buy-side'' professionals
employed within investment companies, who would not be subject to the
examination requirement.\41\
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\41\ See, e.g., NASD Notice to Members 98-17 and Securities
Exchange Act Release No. 75783 (August 28, 2015), 80 FR 53369
(September 03, 2015) (approving File No. SR-FINRA-2015-17).
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[[Page 50139]]
The Exchange also believes it is appropriate to provide an
exemption from the SIE for any person who is in good standing as a
representative with the Financial Conduct Authority in the United
Kingdom or with a Canadian stock exchange or securities regulatory. The
Exchange believes that there is sufficient overlap between the SIE and
such foreign qualification requirements to permit them to act as
exemptions to the SIE, and that the exemption provides appropriate
flexibility to such persons, thereby removing impediments to and
perfecting the mechanism of a free and open market and a national
market system, consistent with the objectives of Section 6(b)(5 [sic]
of the Act.
With respect to the amendment to Rule 2.160(i) to revise the
reference to ``sole proprietorship'' to a ``Member with only one
associated person'' the Exchange believes that this change is
consistent with the Act because it recognizes that one-person Members
may be organized in legal forms other than a sole proprietorship, and
thus provides fair and consistent regulatory requirements to all one-
person Members. Further, the Exchange believes that elimination of the
reference to ``New York Stock Exchange'' with respect to the Series 14
Compliance Official Examination is consistent with the Act because it
will make the Exchange's rule in this respect accurate. The Exchange
also believes that the addition of Supplementary Material .01 to Rule
2.160(i) to provide for registered persons to function as principals
for a limited period of time is consistent with the Act because it
provides appropriate flexibility to Members, thereby removing
impediments to and perfecting the mechanism of a free and open market
and a national market system, consistent with the objectives of Section
6(b)(5 [sic] of the Act.
With respect to the amendment to Rules 2.160(j) and (n) to specify
the circumstances under which the Series 28 would be an acceptable
examination for a Member's Financial/Operations Principal, the Exchange
believes that the proposed change will provide additional clarity to
Members with respect to such examination requirements and also reduce
the existing burden on impacted Members to request a waiver from the
Exchange for an examination that has already been accepted by the
Member's designated examining authority, thereby removing impediments
to and perfecting the mechanism of a free and open market and a
national market system, consistent with the objectives of Section
6(b)(5) of the Act.
With respect to the amendments to Rule 2.160(o) to add rule
provisions regarding the circumstances under which registrations lapse
and the SIE expires, the Exchange believes such amendments are
consistent with the Act because they will align with FINRA rules of
similar purpose, thereby fostering cooperation and coordination with
persons engaged in regulating and facilitating transactions in
securities.
With respect to the proposed amendments to Rule 2.160(p) regarding
continuing education requirements, the Exchange believes that the
proposed changes are consistent with the Act and the public interest,
because they will provide additional clarity and consistency to the
rule provisions in several respects and also align with FINRA rules of
similar purpose, thereby fostering cooperation and coordination with
persons engaged in regulating and facilitating transactions in
securities. First, the Exchange believes that the terminology change to
collectively refer to a ``Registered Person'' rather than a
``Registered Representative'' is more inclusive and descriptive of the
categories of associated persons of a Member who are registered with
the Exchange and subject to the continuing education requirements,
thereby avoiding any potential confusion. Second, the Exchange believes
that harmonizing with FINRA's continuing education requirements will
promote uniformity in the application of the continuing education
requirements for Registered Persons and thereby avoid any confusion on
the part of IEX Members and their associated persons on what is
required under IEX rules.
The Exchange also believes that correcting the typographical error
in the footnote numbering of the chart in Rule 2.160(n) is consistent
with the Act because it will avoid any potential confusion regarding
the chart and its footnotes.
The Exchange believes that the proposed amendments to Rule 2.160(m)
(and conforming amendment to Rule 2.160(e)) to specify that certain
categories of associated persons of a Member are not required to be
registered with the Exchange is consistent with the Act because such
persons' roles and responsibilities are unrelated to the Exchange's
operations, and registration therefore serves no regulatory purpose.
Further, the Exchange believes that (except for floor members of
another national securities exchange and associated persons restricted
from accessing the Exchange and that do not engage in the securities
business of the Member relating to activity that occurs on the
Exchange) such persons would not be considered actively engaged in the
securities business. With respect to persons registered as floor
members on another national securities exchange and associated persons
restricted from accessing the Exchange and that do not engage in the
securities business of the Member relating to activity that occurs on
the Exchange, the Exchange believes that requiring registration with
IEX is not warranted since the associated person's activities are
unrelated to activity that occurs on the Exchange. As discussed in the
Purpose section, the proposed registration exemptions are substantially
similar to existing registration exemptions in FINRA and CBOE [sic]
rules, and thus do not raise any new or novel issues not already
considered by the Commission. Thus, the Exchange believes that the
proposed exemptions will remove impediments to and perfect the
mechanism of a free and open market and a national market system,
consistent with the objectives of Section 6(b)(5) of the Act.
In addition, the Exchange believes that proposed Supplementary
Material .01 to Rule 2.160(m) is consistent with the Act because it
provides clarity on when the functions of an associated person are
solely and exclusively clerical or ministerial, which also is
consistent with the objectives of Section 6(b)(5) of the Act.
Finally, the Exchange believes that deletion of Rule 2.150 is
consistent with the Act because the rule is obsolete, as described in
the Purpose section. Accordingly, deletion of the rule will remove any
potential confusion among potential Members as to the membership
application process.
B. Self-Regulatory Organization's Statement on Burden on Competition
IEX 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. The proposed amendments are
intended to promote transparency in the Exchange's rules, and
consistency with the rules of FINRA and other national securities
exchanges with respect to the examination, qualification, and
continuing education requirements applicable to Members and their
associated persons. Accordingly, the Exchange does not believe that the
proposed rule change imposes any burden on competition that is not
necessary or appropriate in furtherance of such regulatory objectives.
Further,
[[Page 50140]]
the proposed changes would apply to all Members and their associated
persons in the same manner and therefore would not impose any
unnecessary intramarket burdens. The Exchange also does not believe
that the proposed rule change would impose any burden on intermarket
competition since all national securities exchanges are expected to
adopt similar rules with uniform standards for the qualification,
registration and continuing education requirements.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has designated this rule filing as non-controversial
under Section 19(b)(3)(A) \42\ of the Act and Rule 19b-4(f)(6) \43\
thereunder. Because the proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days 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) \44\ of the Act and Rule 19b-
4(f)(6) \45\ thereunder.
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\42\ 15 U.S.C. 78s(b)(3)(A).
\43\ 17 CFR 240.19b-4(f)(6).
\44\ 15 U.S.C. 78s(b)(3)(A).
\45\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \46\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\47\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so the proposed rule
change may become operative on October 1, 2018. According to the
Exchange, waiving the 30-day operative delay would allow the Exchange
to harmonize its rules with FINRA as of the effective date of the FINRA
Filing. The Commission notes that, as described in detail above, the
Exchange's proposal does not raise any new or novel issues, as the
Exchange is harmonizing its rules with FINRA and Cboe, and deleting
obsolete text. Therefore, the Commission believes that waiving the 30-
day operative delay is consistent with the protection of investors and
the public interest. Accordingly, the Commission hereby waives the 30-
day operative delay and designates the proposal operative on October 1,
2018.\48\
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\46\ 17 CFR 240.19b-4(f)(6).
\47\ 17 CFR 240.19b-4(f)(6)(iii).
\48\ For purposes only of waving the 30-day operative delay, the
Commission has considered the purposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \49\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\49\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-IEX-2018-19 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-IEX-2018-19. 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-IEX-2018-19 and should be submitted on
or before October 25, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\50\
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\50\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-21582 Filed 10-3-18; 8:45 am]
BILLING CODE 8011-01-P
