Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Amendments To Rules Regarding Qualification, Registration and Continuing Education Applicable to Members and Member Organizations, 50727-50736 [2018-21781]
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Federal Register / Vol. 83, No. 195 / Tuesday, October 9, 2018 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84336; File No. SR–NYSE–
2018–44]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Amendments To Rules Regarding
Qualification, Registration and
Continuing Education Applicable to
Members and Member Organizations
October 2, 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 27, 2018, New York Stock
Exchange LLC (‘‘NYSE’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes amendments
to the Exchange’s rules regarding
qualification, registration and
continuing education requirements
applicable to members or member
organizations. To the extent the
Exchange’s rule proposal is intended to
harmonize with Financial Regulatory
Authority, Inc. (‘‘FINRA’’) rules and
thus promote consistency within the
securities industry, the Exchange is only
adopting rules that are relevant to the
Exchange’s members or member
organizations. The Exchange is not
adopting registration categories that are
not applicable to members or member
organizations because members or
member organizations do not engage in
the type of business that would require
such registration. As such, the Exchange
is amending current Rule 345A
regarding continuing education
requirements to reflect the FINRA rule;
adopting Commentary .60 to current
Rule 345A regarding fingerprint
information; adopting new Rule 1210
regarding registration requirements and
related Commentary to new Rule 1210;
adopting new Rule 1220 regarding
registration categories 4 and related
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
4 The relevant principal registration categories the
Exchange proposes to adopt are (1) Principal; (2)
2 15
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Commentary to new Rule 1220; and
adopting new Rule 1230 regarding
associated persons exempt from
registration and related Commentary to
new Rule 1230. Each of these rule
changes, which are [sic] described in
more detail below, would become
operative on October 1, 2018. The
proposed rule change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
qualification, registration, and
continuing education requirements
applicable to members or member
organizations. The proposed
amendments are intended to: (i) Provide
transparency and clarity with respect to
the Exchange’s registration,
qualification and examination
requirements; (ii) amend its rules
relating to categories of registration and
respective qualification examinations
required for ETP Holders that engage in
trading activities on the Exchange; (iii)
harmonize the Exchange’s qualification,
registration and examination rules with
those of FINRA 5 so as to promote
General Securities Principal; (3) Compliance
Officer; (4) Financial and Operations Principal and
Introducing Broker-Dealer Financial and Operations
Principal; (5) Securities Trader Principal; and (6)
General Securities Sales Supervisor. The relevant
representative registration categories the Exchange
proposes to adopt are (1) Representative; (2) General
Securities Representative; and (3) Securities Trader.
5 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’’). The Exchange notes that in order to
maintain consistency with the FINRA Filing, the
Exchange proposes to incorporate certain terms
from the relevant FINRA rule into the Exchange’s
rule that may not be applicable to all member
organizations. For example, while member
organizations may not be engaged in ‘‘investment
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50727
uniform standards across the securities
industry; and (iv) add new definitions of
terms and make other conforming
changes to enhance the
comprehensiveness and clarity of the
Exchange’s rules.6 The proposed
changes are discussed below.
A. Amendment to Rule 345,
Commentary .10
Rule 345, Commentary .10, provides
the definition of a Securities Trader as
any person engaged in the purchase or
sale of securities or other similar
instruments for the account of a member
organization with which such person is
associated, as an employee or otherwise,
and who does not transact any business
with the public. With this proposed rule
change, the Exchange proposes to adopt
FINRA’s definition of Securities Trader
(as described below) and therefore,
proposes to add a reference in Rule 345,
Commentary .10 to Rule 2.1220(b)(3)
[sic] as the appropriate rule in the
Exchange’s Rulebook where the
definition of Securities Trader can be
found.
Further, Rule 345, Commentary .10,
states that a Securities Trader must be
registered as such on Web CRD and pass
the Series 57 examination. Given the
formulation of the Securities Industry
Essentials (‘‘SIE’’) examination
(discussed below) which all potential
representative-level registrants would be
required to pass, the Exchange proposes
to amend the current rule to require that
a Securities Trader must register as such
on Web CRD and must pass both the SIE
examination and the Series 57
examination.
B. Amendments to Rule 345A—
Continuing Education Requirements
Rule 345A provides the continuing
education requirements of registered
persons 7 subsequent to their initial
qualification and registration with the
Exchange, and includes a Regulatory
Element and a Firm Element. The
Regulatory Element applies to registered
persons and consists of periodic
computer-based training on regulatory,
compliance, ethical, supervisory
subjects and sales practice standards.
banking’’ activity, the Exchange proposes to adopt
that term within these registration rules to conform
them to the FINRA rules.
6 The conforming changes the Exchange proposes
would substitute the term ‘‘member or member
organization’’ for ‘‘member’’ and the term
‘‘Exchange’’ for ‘‘FINRA.’’
7 For purposes of Rule 345A, the term ‘‘registered
person’’ means any member, principal executive,
registered representative, or other person registered
or required to be registered under Exchange rules,
but does not include any such person whose
activities are limited solely to the transaction of
business on the Floor with member or registered
broker-dealers. See Rule 345A, Commentary .10.
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The Firm Element consists of at least an
annual, member-developed and
administered training programs [sic]
designed to keep registered persons
current regarding securities products,
services and strategies offered by the
member or member organization.
1. Regulatory Element
The Exchange proposes to amend
Rule 345A(a) to provide, consistent with
proposed Rule 2.1210 [sic], Commentary
.08, that a waiver-eligible person would
be subject to a Regulatory Element
program that correlates to his or her
most recent registration category, and
that the content of the Regulatory
Element would be based on the same
cycle had the individual remain [sic]
registered.8 The proposed amendment
to Rule 345A(a) also provides that if a
waiver-eligible person fails to complete
the Regulatory Element during the
prescribed time frames, he or she would
lose waiver eligibility.9
Further, the Exchange proposes to
amend Rule 345A(a) to provide that any
person whose registration has been
deemed inactive under the rule may not
accept or solicit business or receive any
compensation for the purchase or sale of
securities. The proposed amendment
provides, however, that such person
may receive trail or residual
commissions resulting from transactions
completed before the inactive status,
unless the member or member
organization with which the person is
associated has a policy prohibiting such
trail or residual commissions.10
Additionally, under Rule 345A(a), a
registered person is required to retake
the Regulatory Element in the event that
such person (i) is subject to any
statutory disqualification as defined in
Section 3(a)(39) of the Exchange Act; (ii)
is subject to suspension or to the
imposition of a fine of $5,000 or more
for violation of any provision of any
securities law or regulation, or any
agreement with or rule or standard of
conduct of any securities governmental
agency, securities self-regulatory
organization, or as imposed by any such
regulatory or self-regulatory
organization in connection with a
disciplinary proceeding; or (iii) is
ordered as a sanction in a disciplinary
action to retake the Regulatory Element
by any securities governmental agency
or self-regulatory organization. The
Exchange proposes to amend Rule
345A(a) to provide an exception to a
8 The proposed change is substantially similar to
that contained in FINRA Rule 1240(a)(1).
9 The proposed change is substantially similar to
that contained in FINRA Rule 1240(a)(2).
10 The proposed change is substantially similar to
that contained in FINRA Rule 1240(a)(2).
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waiver-eligible person from retaking the
Regulatory Element and satisfy [sic] all
of its requirements.11
2. Firm Element
Current Rule 345A(b) provides that
programs used to implement a member’s
or member organization’s training
program must be appropriate for the
business of the member or member
organization and, at a minimum must
cover specific matters concerning
securities products, services, and
strategies offered by the member or
member organization. The Exchange
proposes to amend the current rule to
expand the minimum standard for such
training programs by requiring that, at a
minimum, a firm’s training program
must also cover training in ethics and
professional responsibility.12
C. Proposed New Rule 345A—
Commentary .60—Fingerprint
Information 13
The Exchange proposes to adopt new
Rule 345A, Commentary .60, regarding
the submission of fingerprint
information by member organizations.
As proposed, upon filing an electronic
Form U4 on behalf of a person applying
for registration, a member organization
would be required to promptly submit
fingerprint information for that person.
If the member organization fails to
submit the fingerprint information
within 30 days after the Exchange
receives the electronic Form U4, the
person’s registration shall be deemed
inactive and the person would be
required to immediately cease all
activities requiring registration and
would be prohibited from performing
any duties and functioning in any
capacity requiring registration. The
proposed rule further provides allows
[sic] the Exchange to administratively
terminate a registration that is inactive
for a period of two years. However, a
person whose registration is
administratively terminated may seek to
reactivate his or her registration by
reapplying for registration and meeting
the qualification requirements under
Exchange rules.
D. Proposed New Rules 1210 Through
1230
As a general matter, FINRA
administers qualification examinations
that are designed to establish that
persons associated with member
organizations have attained specified
11 The proposed change is substantially similar to
that contained in FINRA Rule 1240(a)(3).
12 The proposed change is substantially similar to
that contained in FINRA Rule 1240(b)(2).
13 The proposed rule is substantially similar to
FINRA Rule 1010(d).
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levels of competence and knowledge.
Over time, the examination program has
increased in complexity to address the
introduction of new products and
functions, and related regulatory
concerns and requirements. As a result,
today, there are a large number of
examinations, considerable content
overlap across the representative-level
examinations and requirements for
individuals in various segments of the
industry to pass multiple examinations.
To address these issues, FINRA has
formulated a general knowledge
examination called the Securities
Industry Essentials examination that all
potential representative-level registrants
would take.14 Rule changes related to
the adoption of the SIE and other
proposed new rules are discussed
below.
1. Proposed Rule 1210—Registration
Requirements 15
Proposed Rule 1210 provides that
each person engaged in the investment
banking or securities business of a
member organization must register with
the Exchange as a representative or
principal in each category of registration
appropriate to his or her functions and
responsibilities as specified in proposed
Rule 1220, unless exempt from
registration pursuant to proposed Rule
1230. Proposed Rule 1210 also provides
that such person is not qualified to
function in any registered capacity other
than that for which the person is
registered, unless otherwise stated in
the rules.
2. Proposed Rule 1210, Commentary
.01—Permissive Registrations 16
The Exchange currently does not have
a specific rule that provides for
permissive registrations. With this
proposed rule change, and to conform
its rules to the FINRA rules, the
Exchange proposes to adopt a specific
rule regarding permissive registrations.
14 The SIE would assess basic product knowledge;
the structure and function of the securities industry
markets, regulatory agencies and their functions;
and regulated and prohibited practices. In
particular, the SIE will cover four major areas. The
first, ‘‘Knowledge of Capital Markets,’’ focuses on
topics such as types of markets and offerings,
broker-dealers and depositories, and economic
cycles. The second, ‘‘Understanding Products and
Their Risks,’’ covers securities products at a high
level as well as associated investment risks. The
third, ‘‘Understanding Trading, Customer Accounts
and Prohibited Activities,’’ focuses on accounts,
orders, settlement and prohibited activities. The
final area, ‘‘Overview of the Regulatory
Framework,’’ encompasses topics such as SROs,
registration requirements and specified conduct
rules.
15 The proposed rule is substantially similar to
FINRA Rule 1210.
16 The proposed rule is substantially similar to
FINRA Rule 1210.02.
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Proposed Rule 1210, Commentary .01,
allows any associated person to obtain
and maintain any registration permitted
by a member organization. For instance,
an associated person of a member
organization working solely in a clerical
or ministerial capacity would be able to
obtain and maintain a General
Securities Representative registration
with the member organization. As
another example, an associated person
of a member organization who is
registered, [sic] and functioning solely
as a General Securities Representative
would be able to obtain and maintain a
General Securities Principal registration
with the member organization. Further,
proposed Rule 1210, Commentary .01,
allows an individual engaged in the
securities business of a foreign
securities affiliate or subsidiary of a
member organization to obtain and
maintain any registration permitted by
the member organization.
The Exchange is proposing to permit
the registration of such individuals for
several reasons. First, a member
organization may foresee a need to move
a former representative or principal who
has not been registered for two or more
years back into a position that would
require such person to be registered.
Currently, such persons are required to
requalify (or obtain a waiver of the
applicable qualification examinations)
and reapply for registration. Second, the
proposed rule change would allow
member organizations to develop a
depth of associated persons with
registrations in the event of
unanticipated personnel changes.
Finally, allowing registration in
additional categories encourages greater
regulatory understanding.
Individuals maintaining a permissive
registration under the proposed rule
change would be considered registered
persons and subject to all Exchange
rules, to the extent relevant to their
activities. Additionally, consistent with
the requirements of the Exchange’s
supervision rules, member organizations
would be required to 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,
such as an individual working
exclusively in an administrative
capacity, the individual’s day-to-day
supervisor may be a non-registered
person. However, for purposes of
compliance with the Exchange’s
supervision rules, a member
organization would be required to
assign a registered supervisor who
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would be responsible for periodically
contacting such individual’s day-to-day
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 must be registered as a
representative or principal. If the
individual is permissively registered as
a principal, the registered supervisor
must be registered as a principal.17
3. Proposed Rule 1210, Commentary
.02—Qualification Examinations and
Waivers of Examinations 18
Proposed Rule 1210, Commentary .02,
provides that before the registration of a
person as a representative can become
effective under proposed Rule 1210,
such person must pass the SIE and an
appropriate representative-level
qualification examination as specified
in proposed Rule 1220.19 Proposed Rule
1210, Commentary .02, also provides
that before the registration of a person
as a principal can become effective
under proposed Rule 1210, such person
must pass an appropriate principal-level
qualification examination as specified
in proposed Rule 1220.
Further, proposed Rule 1210,
Commentary .02, provides that if a
registered person’s job functions change
and he or she needs to become
registered in another representativelevel category, he or she would not need
to pass the SIE again. Rather, the
registered person would need to pass
only the appropriate representativelevel qualification examination.
Moreover, proposed Rule 1210,
Commentary .02, provides that all
associated persons, such as associated
persons whose functions are solely and
exclusively clerical or ministerial, are
eligible to take the SIE. Proposed Rule
1210, Commentary .02, also provides
that individuals who are not associated
persons of firms, such as members of the
general public, are eligible to take the
SIE. The Exchange believes that
expanding the pool of individuals who
are eligible to take the SIE would enable
prospective securities industry
professionals to demonstrate to
prospective employers a basic level of
knowledge prior to submitting a job
application. Further, this approach
17 In either case, the registered supervisor of an
individual who solely maintains a permissive
registration would not be required to be registered
in the same representative or principal registration
category as the permissively-registered individual.
18 The proposed rule is substantially similar to
FINRA Rule 1210.03.
19 Proposed Rule 1220 sets forth each registration
category and applicable qualification examination
for member organizations.
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would allow for more flexibility and
career mobility within the securities
industry. While all associated persons of
firms as well as individuals who are not
associated persons would be eligible to
take the SIE pursuant to the proposed
rule, passing the SIE alone would not
qualify them for registration with the
Exchange. Rather, to be eligible for
registration with the Exchange, an
individual must pass an applicable
representative or principal qualification
examination and complete the other
requirements of the registration process.
Proposed Rule 1210, Commentary .02,
also provides that the Exchange may, in
exceptional cases and where good cause
is shown, pursuant to the Rule 9600
Series, waive the applicable
qualification examination(s) and accept
other standards as evidence of an
applicant’s qualifications for
registration. The proposed rule further
provides that the Exchange will only
consider examination waiver requests
submitted by a member organization for
individuals associated with the member
organization who are seeking
registration in a representative- or
principal-level registration category.
Moreover, the proposed rule states that
the Exchange will consider waivers of
the SIE alone or the SIE and the
representative- and principal-level
examination(s) for such individuals.
The Exchange would not consider a
waiver of the SIE for non-associated
persons or for associated persons who
are not registering as representatives or
principals.
4. Proposed Rule 1210, Commentary
.03—Requirements for Registered
Persons Functioning as Principals for a
Limited Period 20
Proposed Rule 1210, Commentary .03,
provides that a member organization
may designate any person currently
registered, or who becomes registered,
with the member organization as a
representative to function as a principal
for a limited period, provided that such
person has at least 18 months of
experience functioning as a registered
representative with [sic] the five-year
period immediately preceding the
designation. The proposed rule is
intended to ensure that representatives
designated to function as principals for
the limited period under the proposal
have an appropriate level of registered
representative experience. The proposed
rule clarifies that the requirements of
the rule apply to designations to any
principal category, including those
categories that are not subject to a
20 The proposed rule is substantially similar to
FINRA Rule 1210.04.
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prerequisite representative-level
registration requirement, such as the
Financial and Operations Principal
registration category.21
The proposed rule also clarifies that
the individual must fulfill all applicable
prerequisite registration, fee and
examination requirements before his or
her designation as a principal. Further,
the proposed rule provides that in no
event may such person function as a
principal beyond the initial 120
calendar days without having
successfully passed an appropriate
principal qualification examination. The
proposed rule also provides an
exception to the experience requirement
for principals who are designated by a
member organization to function in
other principal categories for a limited
period. Specifically, the proposed rule
states that a member organization may
designate any person currently
registered, or who becomes registered,
with the member organization as a
principal to function in another
principal category for 120 calendar days
before passing any applicable
examinations.
5. Proposed Rule 1210, Commentary
.04—Rules of Conduct for Taking
Examinations and Confidentiality of
Examinations 22
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Proposed Rule 1210, Commentary .04
states that associated persons taking the
SIE would be subject to the SIE Rules of
Conduct, and associated persons taking
a representative or principal
examination would be subject to the
Rules of Conduct for representative and
principal examinations. Pursuant to
proposed Rule 1210, Commentary .04, a
violation of the SIE Rules of Conduct or
the Rules of Conduct for representative
and principal examinations by an
associated person would be deemed to
be a violation of Rule 2010. Moreover,
if an associated person is deemed to
have violated the SIE Rules of Conduct
or the Rules of Conduct for
representative and principal
examinations, the associated person
may forfeit the results of the
examination and may be subject to
disciplinary action by the Exchange.
Further, the proposed rule states that
individuals taking the SIE who are not
associated persons must agree to be
subject to the SIE Rules of Conduct.
21 The Exchange notes that qualifying as a
registered representative is a prerequisite to
qualifying as a principal except with respect to the
following principal-level registrations: (1)
Compliance Official; (2) Financial and Operations
Principal; and (3) Introducing Broker-Dealer
Financial and Operations Principal.
22 The proposed rule is substantially similar to
FINRA Rule 1210.05.
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Among other things, the SIE Rules of
Conduct would require individuals to
attest that they are not qualified to
engage in the investment banking or
securities business based on passing the
SIE and would prohibit individuals
from cheating on the examination or
misrepresenting their qualifications to
the public subsequent to passing the
SIE. Moreover, non-associated persons
may forfeit their SIE results and may be
prohibited from retaking the SIE if the
Exchange determines that they cheated
on the SIE or that they misrepresented
their qualifications to the public
subsequent to passing the SIE.
The proposed rule further notes that
the Exchange considers all qualification
examinations [sic] content to be highly
confidential and that the removal of
examination content from an
examination center, reproduction,
disclosure, receipt from or passing to
any person, or use for study purposes of
any portion of such qualification
examination or any other use that would
compromise the effectiveness of the
examinations and the use in any manner
and at any time of the questions or
answers to the examinations is
prohibited and would be deemed a
violation of Rule 2010.
6. Proposed Rule 1210, Commentary
.05—Waiting Periods for Retaking a
Failed Examination 23
Proposed Rule 1210, Commentary .05
provides that any person who fails a
qualification examination may retake
that examination after 30 calendar days
from the date of the person’s last
attempt to pass that examination. The
proposed rule further provides that if a
person fails an examination three or
more times in succession within a twoyear period, he or she would be
prohibited from retaking the
examination either until a period of 180
calendar days from the date of the
person’s last attempt to pass it [sic].
These waiting periods would apply to
the SIE and the representative- and
principal-level examinations. Moreover,
the proposed rule provides that nonassociated persons taking the SIE must
agree to be subject to the same waiting
periods for retaking the SIE.
7. Proposed Rule 1210, Commentary
.06—All Registered Persons Must
Satisfy the Regulatory Element of
Continuing Education 24
Pursuant to Rule 345A, the CE
requirements applicable to registered
23 The proposed rule is substantially similar to
FINRA Rule 1210.06.
24 The proposed rule is substantially similar to
FINRA Rule 1210.07.
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persons consist of a Regulatory
Element 25 and a Firm Element.26 The
Regulatory Element applies to registered
persons and must be completed within
prescribed time frames.27 For purposes
of the Regulatory Element, a registered
person is any member, principal
executive, registered representative, or
other person registered or required to be
registered under Exchange rules, but
does not include any such person whose
activities are limited solely to the
transaction of business on the Floor
with member [sic] or registered brokerdealers. The Firm Element consists of
annual, member organization-developed
and administered training programs
designed to keep covered registered
persons current regarding securities
products, services and strategies offered
by the member organization. For
purposes of the Firm Element, the term
covered registered persons means any
person registered with a member
organization who has direct contact
with customers in the conduct of the
member organization’s securities sales,
trading and investment banking
activities and to the immediate
supervisors of such persons.
The Exchange believes that all
registered persons, regardless of their
activities, should be subject to the
Regulatory Element of the CE
requirements so that they can keep their
knowledge of the securities industry
current. Therefore, the Exchange
proposes to adopt Rule 1210,
Commentary .06, to clarify that all
registered persons, including those who
solely maintain a permissive
registration, are required to satisfy the
Regulatory Element, as specified in Rule
345A(a). The Exchange is making
corresponding changes to Rule 345A(a)
[sic]. The Exchange is not proposing any
changes to the Firm Element
requirement at this time. Individuals
25 See
Rule 345A(a).
Rule 345A(b).
27 Pursuant to Rule 345A(a), each specified
registered person is required to complete the
Regulatory Element initially within 120 days after
the person’s second registration anniversary date
and, thereafter, within 120 days after every third
registration anniversary date. A registered person
who has not completed the Regulatory Element
program within the prescribed time frames will
have his or her registrations deemed inactive and
designated as ‘‘CE inactive’’ on the CRD system
until such time as the requirements of the program
have been satisfied. A CE inactive person is
prohibited from performing, or being compensated
for, any activities requiring registration, including
supervision. Moreover, if a registered person is CE
inactive for a two-year period, the Exchange will
administratively terminate the person’s registration
status. The two-year period would be calculated
from the date the person becomes CE inactive. In
either case, such person must requalify (or obtain
a waiver of the applicable qualification
examination(s)) to be re-eligible for registration.
26 See
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who have passed the SIE but not a
representative- or principal-level
examination and do not hold a
registered position would not be subject
to any CE requirements.
Proposed Rule 1210, Commentary .06,
also provides that a registered person of
a member organization who becomes CE
inactive would not be permitted to be
registered in another registration
category with the member organization
or be registered in any registration
category with another member
organization, until the person has
satisfied the Regulatory Element.
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8. Proposed Rule 1210, Commentary
.07—Lapse of Registration and
Expiration of the SIE 28
Proposed Rule 1210, Commentary .07,
provides that any person who was last
registered as a representative two or
more years immediately preceding the
date of receipt by the Exchange of a new
application for registration as a
representative is required to pass a
qualification examination for
representatives appropriate to the
category of registration as specified in
proposed Rule 1220(b). Proposed Rule
1210, Commentary .07, also sets forth
that a passing result on the SIE would
be valid for up to four years. Therefore,
under the proposed rule change, an
individual who passes the SIE and is an
associated person of a member
organization at the time would have up
to four years from the date he or she
passes the SIE to pass a representativelevel examination to register as a
representative with that member
organization, or a subsequent member
organization, without having to retake
the SIE. In addition, an individual who
passes the SIE and is not an associated
person at the time would have up to
four years from the date he or she passes
the SIE to become an associated person
of a member organization and pass a
representative-level examination and
register as a representative without
having to retake the SIE.
Moreover, an individual holding a
representative-level registration who
leaves the industry after the effective
date of this proposed rule change would
have up to four years to re-associate
with a member organization and register
as a representative without having to
retake the SIE. However, the four-year
expiration period in the proposed rule
change extends only to the SIE, and not
the representative- and principal-level
registrations. The representative- and
principal-level registrations would
28 The proposed rule is substantially similar to
FINRA Rule 1210.08.
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continue to be subject to a two-year
expiration period as is the case today.
Finally, proposed Rule 1210,
Commentary .07, clarifies that, for
purposes of the proposed rule, an
application would not be considered to
have been received by the Exchange if
that application does not result in a
registration.
9. Proposed Rule 1210, Commentary
.08—Waiver of Examinations for
Individuals Working for a Financial
Services Industry Affiliate of a Member
Organization 29
Proposed Rule 1210, Commentary .08,
provides the process for individuals
working for a financial services industry
affiliate of a member organization 30 to
terminate their registrations with the
member organization and be granted a
waiver of their requalification
requirements upon re-registering with a
member organization, provided the firm
that is requesting the waiver and the
individual satisfy the criteria for a
Financial Services Affiliate (‘‘FSA’’)
waiver.
Under the proposed waiver process,
the first time a registered person is
designated as eligible for a waiver based
on the FSA criteria, the member
organization with which the individual
is registered would notify the Exchange
of the FSA designation. The member
organization would concurrently file a
full Form U5 terminating the
individual’s registration with the firm,
which would also terminate the
individual’s other SRO and state
registrations. To be eligible for initial
designation as an FSA-eligible person
by a member organization, an individual
must have been registered for a total of
five years within the most recent 10year period prior to the designation,
including for the most recent year with
that member organization. An
individual would have to satisfy these
preconditions only for purposes of his
or her initial designation as an FSAeligible person, and not for any
subsequent FSA designation(s).
Thereafter, the individual would be
eligible for a waiver for up to seven
years from the date of initial
designation,31 provided that the other
29 The proposed rule is substantially similar to
FINRA Rule 1210.09.
30 Proposed Rule 1210, Commentary .07 [sic],
defines a ‘‘financial services industry affiliate of a
member organization’’ as a legal entity that controls,
is controlled by or is under common control with
a member organization and is regulated by the SEC,
CFTC, state securities authorities, federal or state
banking authorities, state insurance authorities, or
substantially equivalent foreign regulatory
authorities.
31 Individuals would be eligible for a single, fixed
seven-year period from the date of initial
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conditions of the waiver, as described
below, have been satisfied.
Consequently, a member organization
other than the member organization that
initially designated an individual as an
FSA-eligible person may request a
waiver for the individual and more than
one member organization may request a
waiver for the individual during the
seven-year period.32
An individual designated as an FSAeligible person would be subject to the
Regulatory Element of CE while working
for a financial services industry affiliate
of a member organization. The
individual would be subject to a
Regulatory Element program that
correlates to his or her most recent
registration category, and CE would be
based on the same cycle had the
individual remained registered. If the
individual fails to complete the
prescribed Regulatory Element during
the 120-day window for taking the
session, he or she would lose FSA
eligibility (i.e., the individual would
have the standard two-year period after
termination to re-register without
having to retake an examination). The
Exchange is making corresponding
changes to Rule 345A.
Upon registering an FSA-eligible
person, a firm would file a Form U4 and
request the appropriate registration(s)
for the individual. The firm would also
submit an examination waiver request
designation, and the period would not be tolled or
renewed.
32 The following examples illustrate this point:
Example 1. Firm A designates an individual as an
FSA-eligible person by notifying the Exchange and
files a Form U5. The individual joins Firm A’s
financial services affiliate. Firm A does not submit
a waiver request for the individual. After working
for Firm A’s financial services affiliate for three
years, the individual directly joins Firm B’s
financial services affiliate for three years. Firm B
then submits a waiver request to register the
individual.
Example 2. Same as Example 1, but the
individual directly joins Firm B after working for
Firm A’s financial services affiliate, and Firm B
submits a waiver request to register the individual
at that point in time.
Example 3. Firm A designates an individual as an
FSA-eligible person by notifying the Exchange and
files a Form U5. The individual joins Firm A’s
financial services affiliate for three years. Firm A
then submits a waiver request to re-register the
individual. After working for Firm A in a registered
capacity for six months, Firm A re-designates the
individual as an FSA-eligible person by notifying
the Exchange and files a Form U5. The individual
rejoins Firm A’s financial services affiliate for two
years, after which the individual directly joins Firm
B’s financial services affiliate for one year. Firm B
then submits a waiver request to register the
individual.
Example 4. Same as Example 3, but the
individual directly joins Firm B after the second
period of working for Firm A’s financial services
affiliate, and Firm B submits a waiver request to
register the individual at that point in time.
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to the Exchange,33 similar to the process
used today for waiver requests, and it
would represent that the individual is
eligible for an FSA waiver based on the
conditions set forth below. The
Exchange would review the waiver
request and make a determination of
whether to grant the request within 30
calendar days of receiving the request.
The Exchange would summarily grant
the request if the following conditions
are met:
(1) Prior to the individual’s initial
designation as an FSA-eligible person,
the individual was registered for a total
of five years within the most recent 10year period, including for the most
recent year with the member
organization that initially designated the
individual as an FSA-eligible person;
(2) The waiver request is made within
seven years of the individual’s initial
designation as an FSA-eligible person
by a member organization;
(3) The initial designation and any
subsequent designation(s) were made
concurrently with the filing of the
individual’s related Form U5;
(4) The individual continuously
worked for the financial services
affiliate(s) of a member organization
since the last Form U5 filing;
(5) The individual has complied with
the Regulatory Element of CE; and
(6) 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 while the individual
was designated as an FSA-eligible
person with a member organization.
Following the Form U5 filing, an
individual could move between the
financial services affiliates of a member
organization so long as the individual is
continuously working for an affiliate.
Further, a member organization could
submit multiple waiver requests for the
individual, provided that the waiver
requests are made during the course of
the seven-year period.34 An individual
who has been designated as an FSAeligible person by a member
33 The Exchange would consider a waiver of the
representative-level qualification examination(s),
the principal-level qualification examination(s) and
the SIE, as applicable.
34 For example, if a member organization submits
a waiver request for an FSA-eligible person who has
been working for a financial services affiliate of the
member organization for three years and re-registers
the individual, the member organization could
subsequently file a Form U5 and re-designate the
individual as an FSA-eligible person. Moreover, if
the individual works with a financial services
affiliate of the member organization for another
three years, the member organization could submit
a second waiver request and re-register the
individual upon returning to the member
organization.
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organization would not be able to take
additional examinations to gain
additional registrations while working
for a financial services affiliate of a
member organization.
10. Proposed Rule 1210, Commentary
.09—Status of Persons Serving in the
Armed Forces of the United States 35
Proposed Rule 1210, Commentary .09,
provides specific relief to registered
persons serving in the Armed Forces of
the United States. Among other things,
the proposed rule permits a registered
person of a member organization who
volunteers for or is called into active
duty in the Armed Forces of the United
States to be registered in an inactive
status and remain eligible to receive
ongoing transaction-related
compensation. The proposed rule also
includes specific provisions regarding
the deferment of the lapse of registration
requirements for formerly registered
persons serving in the Armed Forces of
the United States. The proposed rule
further requires that the member
organization with which such person is
registered promptly notify the Exchange
of such person’s return to employment
with the member organization. The
proposed rule would require a member
organization that is a sole proprietor to
also similarly notify the Exchange of his
or her return to participation in the
investment banking or securities
business. The proposed rule also
provides that the Exchange would defer
the lapse of the SIE for formerly
registered persons serving in the Armed
Forces of the United States.
E. Proposed New Rule 1220—
Registration Categories 36
1. Proposed Rule 1220(a)(1)—Principal
As set forth in proposed Rule
1220(a)(1), for purposes of these
35 The proposed rule is substantially similar to
FINRA Rule 1210.10.
36 The Exchange is not adopting the following
categories from the FINRA Filing because member
organizations do not engage in the type of business
that would require registration with the Exchange:
Investment Banking Principal, Research Principal,
Registered Options Principal, Government
Securities Principal, Investment Company and
Variable Contracts Products Principal, Direct
Participation Programs Principal, Private Securities
Offerings Principal, Supervisory Analyst,
Operations Professional, Investment Banking
Representative, Research Analyst, Investment
Company and Variable Contracts Products
Representative, Direct Participation Programs
Representative, and Private Securities Offering
Representative. The Exchange is also not adopting
the following categories because the FINRA Filing
eliminated them: Order Processing Assistant
Representative, United Kingdom Securities
Representative, Canadian Securities Representative,
Options Representative, Corporate Securities
Representative and Government Securities
Representative.
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registration rules, the term ‘‘Principal’’
[sic] to mean any Person Associated
with a member organization actively
engaged in the management of the
member organization’s securities
business, including supervision,
solicitation, conduct of the member
organization’s business, or the training
of Authorized Traders and Persons
Associated with a member organization
for any of these functions. Such Persons
include Sole Proprietors, Officers,
Partners, and Directors of Corporations.
For purposes of proposed Rule
1220(a)(1), the phrase ‘‘actively engaged
in the management of the member
organization’s securities business’’
includes the management of, and the
implementation of corporate policies
related to, such business. The term also
includes managerial decision-making
authority with respect to the member
organization’s securities business and
management-level responsibilities for
supervising any aspect of such business,
such as serving as a voting member of
the member organization’s executive,
management or operations committee.
2. Proposed Rule 1220(a)(2)—General
Securities Principal 37
Proposed Rule 1220(a)(2)(A) states
that each principal as defined in
proposed Rule 1220(a)(1) is required to
register with the Exchange as a General
Securities Principal, subject to the
following exceptions. The proposed rule
provides that if a principal’s activities
include the functions of a Compliance
Officer, a Financial and Operations
Principal (or an Introducing BrokerDealer Financial and Operations
Principal, as applicable), a Principal
Financial Officer, a Principal Operations
Officer, or a Securities Trader Principal,
then the principal must appropriately
register in one or more of these
categories.
Proposed Rule 1220(a)(2)(A) further
provides that if a principal’s activities
are limited solely to the functions of a
General Securities Sales Supervisor,
then the principal may appropriately
register in that category in lieu of
registering as a General Securities
Principal.
Proposed Rule 1220(a)(2)(B) requires
that an individual registering as a
General Securities Principal satisfy the
General Securities Representative
prerequisite registration and pass the
General Securities Principal
qualification examination. Proposed
Rule 1220(a)(2)(B) also clarifies that an
individual may register as a General
Securities Sales Supervisor and pass the
37 The proposed rule is substantially similar to
FINRA Rule 1220(a)(2).
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General Securities Sales Supervisor
qualification examination in lieu of
passing the General Securities Principal
examination.
As a general matter, the Exchange
currently recognizes the Corporate
Securities Representative but would no
longer recognize this registration
category given its elimination by
FINRA. Proposed Rule 1220(a)(2)(B),
however, provides that, subject to the
lapse of registration provisions in
proposed Rule 1210, Commentary .07,
each person registered with the
Exchange as a Corporate Securities
Representative and a General Securities
Principal on October 1, 2018 and each
person who was registered with the
Exchange as a Corporate Securities
Representative and a General Securities
Principal within two years prior to
October 1, 2018 would be qualified to
register as a General Securities Principal
without having to take any additional
qualification examinations, provided
that such person’s supervisory
responsibilities in the investment
banking and securities business of a
member organization are limited to
corporate securities activities of the
member organization. The proposed
rule further provides that all other
individuals registering as General
Securities Principals after October 1,
2018 shall, prior to or concurrent with
such registration, become registered as a
General Securities Representative and
either (1) pass the General Securities
Principal qualification examination; or
(2) register as a General Securities Sales
Supervisor and pass the General
Securities Sales Supervisor qualification
examination.
requirements for CCOs. Specifically,
proposed Rule 1220(a)(3) set forth the
following qualification requirements for
Compliance Officer registration:
• Subject to the lapse of registration
provisions in proposed Rule 1210,
Commentary .07, each person registered
with the Exchange as a General
Securities Representative and a General
Securities Principal on October 1, 2018
and each person who was registered
with the Exchange as a General
Securities Representative and a General
Securities Principal within two years
prior to October 1, 2018 would be
qualified to register as Compliance
Officers without having to take any
additional examinations. In addition,
subject to the lapse of registration
provisions in proposed Rule 1210,
Commentary .07, individuals registered
as Compliance Officials in the CRD
system on October 1, 2018 and
individuals who were registered as such
within two years prior to October 1,
2018 would also be qualified to register
as Compliance Officers without having
to take any additional examinations;
[sic]
• All other individuals registering as
Compliance Officers after October 1,
2018 would have to: (1) Satisfy the
General Securities Representative
prerequisite registration and pass the
General Securities Principal
qualification examination; or (2) pass
the Compliance Official qualification
examination.
• An individual designated as a CCO
on Schedule A of Form BD of an ETP
Holder [sic] that is engaged in limited
investment banking or securities
business may be registered in a
principal category under proposed Rule
1220(a) that corresponds to the limited
scope of the member organization’s
business.
3. Proposed Rule 1220(a)(3)—
Compliance Officer 38
Proposed Rule 1220(a)(3) establishes a
Compliance Officer registration category
and requires all persons designated as
CCOs on Schedule A of Form BD to
register as Compliance Officers, subject
to an exception for member
organizations engaged in limited
investment banking or securities
business. The proposed rule only
addresses the registration requirements
for CCOs. However, consistent with
proposed Rule 1210, Commentary .01
relating to permissive registrations, a
firm may allow other associated persons
to register as Compliance Officers.
In addition, the Exchange is
proposing to provide CCOs of firms that
engage in limited investment banking or
securities business with greater
flexibility to satisfy the qualification
4. Proposed Rule 1220(a)(4)—Financial
and Operation Principal and
Introducing Broker-Dealer Financial and
Operations Principal 39
Proposed Rule 1220(a)(4) provides
that each principal who is responsible
for the financial and operational
management of a member organization
that has a minimum net capital
requirement of $250,000 under SEA
Rules 15c3–1(a)(1)(ii) and 15c3–
1(a)(2)(i), or a member organization that
has a minimum net capital requirement
of $150,000 under SEA Rule 15c3–
1(a)(8) must be designated as a Financial
and Operations Principal. In addition,
proposed Rule 1220(a)(4) provides that
a principal who is responsible for the
38 The proposed rule is substantially similar to
FINRA Rule 1220(a)(3).
39 The proposed rule is substantially similar to
FINRA Rule 1220(a)(4).
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50733
financial and operational management
of a member organization that is subject
to the net capital requirements of SEA
Rule 15c3–1, other than a member
organization that is subject to the net
capital requirements of SEA Rules
15c3–1(a)(1)(ii), (a)(2)(i) or (a)(8), must
be designated and registered as either a
Financial and Operations Principal or
an Introducing Broker-Dealer Financial
and Operations Principal. Financial and
Operations Principals and Introducing
Broker-Dealer Financial and Operation
Principals are not subject to a
prerequisite representative registration,
but they must pass the Financial and
Operations Principal or Introducing
Broker-Dealer Financial and Operations
Principal examination, as applicable.
Additionally, proposed Rule
1220(a)(4)(B) requires a member
organization to designate a Principal
Financial Officer with primary
responsibility for the day-to-day
operations of the business, including
overseeing the receipt and delivery of
securities and funds, safeguarding
customer and firm assets, calculation
and collection of margin from customers
and processing dividend receivable and
payables and reorganization
redemptions and those books and
records related to such activities.
Further, the proposed rule requires that
a firm’s Principal Financial Officer and
Principal Operations Officer qualify and
register as Financial and Operations
Principals or Introducing Broker-Dealer
Financial and Operations Principals, as
applicable.
Because the financial and operational
activities of member organizations that
neither self-clear nor provide clearing
services are more limited, such member
organizations may designate the same
person as the Principal Financial
Officer, Principal Operations Officer
and Financial and Operations Principal
or Introducing Broker-Dealer Financial
and Operations Principal (that is, such
member organizations are not required
to designate different persons to
function in these capacities).
Given the level of financial and
operational responsibility at clearing
and self-clearing members, the
Exchange believes that it is necessary
for such member organizations to
designate separate persons to function
as Principal Financial Officer and
Principal Operations Officer. Such
persons may also carry out the other
responsibilities of a Financial and
Operations Principal, such as
supervision of individuals engaged in
financial and operational activities. In
addition, the proposed rule provides
that a clearing or self-clearing member
organization that is limited in size and
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resources may request a waiver of the
requirement to designate separate
persons to function as Principal
Financial Officer and Principal
Operations Officer.
5. Proposed Rule 1220(a)(5)—Securities
Trader Principal 40
Proposed Rule 1220(a)(5) requires that
a principal responsible for supervising
the securities trading activities specified
in proposed Rule 1220(b)(3) register as
a Securities Trader Principal. The
proposed rule requires that individuals
registering as Securities Trader
Principals must be registered as
Securities Traders and pass the General
Securities Principal qualification
examination.
6. Proposed Rule 1220(a)(6)—General
Securities Sales Supervisor 41
Proposed Rule 1220(a)(6) provides
that a principal may register with the
Exchange as a General Securities Sales
Supervisor if his or her supervisory
responsibilities in the investment
banking or securities business of a
member organization are limited to the
securities sales activities of the member
organization, including the approval or
customer accounts, training of sales and
sales supervisory personnel and the
maintenance of records of original entry
or ledger accounts of the member
organization required to be maintained
in branch offices by Exchange Act
record-keeping rules.
A person registering as a General
Securities Sales Supervisor must satisfy
the General Securities Representative
prerequisite registration and pass the
General Securities Sales Supervisor
examinations.42 Moreover, a General
Securities Sales Supervisor is precluded
from performing any of the following
activities: (1) Supervision of the
origination and structuring of
underwritings; (2) supervision of
market-making commitments; (3)
supervision of the custody of firm or
customer funds or securities for
purposes of SEA Rule 15c3–3; or (4)
supervision of overall compliance with
financial responsibility rules.
7. Proposed Rule 1220(b)(1)—
Representative 43
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Proposed Rule 1220(b)(1) defines a
representative as any person associated
40 The proposed rule is substantially similar to
FINRA Rule 1220(a)(7).
41 The proposed rule is substantially similar to
FINRA Rule 1220(a)(10).
42 An individual may also register as a General
Securities Sales Supervisor by passing a
combination of other principal-level examinations.
43 The proposed rule is substantially similar to
FINRA Rule 1220(b)(1).
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with a member organization, including
assistant officers other than principals,
who is engaged in the member
organization’s investment banking or
securities business, such as supervision,
solicitation, conduct of business in
securities or the training of persons
associated with a member organizations
for any of these functions.
8. Proposed Rule 1220(b)(2)—General
Securities Representative 44
Proposed Rule 1220(b)(2)(A) states
that each representative as defined in
proposed Rule 1220(b)(1) is required to
register with the Exchange as a General
Securities Representative, subject to the
following exceptions. The proposed rule
provides that if a representative’s
activities include the function of a
Securities Trader, then the
representative must appropriately
register in that category.
The proposed rule further provides
that, subject to the lapse of registration
provisions in proposed Rule 1210,
Commentary .07, each person registered
with the Exchange as a General
Securities Representative on October 1,
2018 and each person who was
registered with the Exchange as a
General Securities Representative
within two years prior to October 1,
2018 would be qualified to register as a
General Securities Representative
without having to take any additional
qualification examinations.
Additionally, the proposed rule would
require that individuals registering as
General Securities Representatives after
October 1, 2018 shall, prior to or
concurrent with such registration, pass
the SIE and the General Securities
Representative examination.
Investment Company Act and that
controls, is controlled by, or is under
common control with a member
organization. The Exchange proposes to
adopt FINRA’s definition of Securities
Trader in proposed Rule 1220(b)(3) in
order to align the text of the rule to that
adopted by FINRA and other
exchanges.46
The proposed rule also requires that
associated persons primarily
responsible for the design, development
or significant modification of
algorithmic trading strategies (or
responsible for the day-to-day
supervision or direction of such
activities) register as Securities Traders.
Individuals registering as Securities
Traders must pass the SIE and the
Securities Trader examination.
Finally, the proposed rule provides
that, subject to the lapse of registration
provisions in proposed Rule 1210,
Commentary .07, each person registered
with the Exchange as a Securities Trader
on October 1, 2018 and each person
who was registered with the Exchange
as a Securities Trader within two years
prior to October 1, 2018 would be
qualified to register as a Securities
Trader without having to take any
additional qualification examinations.
Additionally, the proposed rule would
require that individuals registering as
Securities Traders after October 1, 2018
shall, prior to or concurrent with such
registration, pass the SIE and the
Securities Trader qualification
examination.
10. Proposed Rule 1220, Commentary
.01—Foreign Registrations 47
Proposed Rule 1220(b)(3) provides
that each representative as defined in
proposed Rule 1220(b)(1) is required to
register as a Securities Trader if, with
respect to transactions in equity
(including equity options), preferred or
convertible debt securities, such person
is engaged in proprietary trading, the
execution of transactions on an agency
basis, or the direct supervision of such
activities. The proposed rule provides
an exception from the registration
requirement for any associated person of
a member organization whose trading
activities are conducted primarily on
behalf of an investment company that is
registered with the SEC pursuant to the
Proposed Rule 1220, Commentary .01,
states that individuals who are in good
standing as representatives with the
Financial Conduct Authority in the
United Kingdom or with a Canadian
stock exchange or securities regulator
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. The
proposed approach would provide
individuals with a United Kingdom or
Canadian qualification more flexibility
to obtain a representative-level
registration. Additionally, proposed
Rule 1220, Commentary .01, provides
that, subject to the lapse of registration
provisions in Rule 1210, Commentary
.07, each person who is registered with
the Exchange as a United Kingdom
Securities Representative or a Canada
44 The proposed rule is substantially similar to
FINRA Rule 1220(b)(2).
45 The proposed rule is substantially similar to
FINRA Rule 1220(b)(4).
46 See e.g., MIAX International Stock Exchange,
LLC Rule 203(d).
47 The proposed rule is substantially similar to
FINRA Rule 1220.01 and 1220.06.
9. Proposed Rule 1220(b)(3)—Securities
Trader 45
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Securities Representative on October 1,
2018 and each person who was
registered with the Exchange in such
categories within two years prior to
October 1, 2018 would be eligible to
maintain such registrations with the
Exchange. However, if persons
registered in such categories
subsequently terminate such
registration(s) with the Exchange and
the registration remains terminated for
two or more years, they would not be
eligible to re-register in such categories.
11. Proposed Rule 1220, Commentary
.02—Additional Qualification
Requirements for Persons Engaged in
Security Futures 48
Proposed Rule 1220, Commentary .02,
states that each person who is registered
with the Exchange as a General
Securities Representative, United
Kingdom Securities Representative,
Canada Securities Representative, or
General Securities Sales Supervisor
shall be eligible to engage in security
futures activities as a representative or
principal, as applicable, provided that
such individual completes a Firm
Element program as set forth in Rule
345A(b) that addresses security futures
products before such person engages in
security futures activities.49
amozie on DSK3GDR082PROD with NOTICES1
12. Proposed Rule 1220, Commentary
.03—Scope of General Securities Sales
Supervisor Registration Category 50
Proposed Rule 1220, Commentary .03,
explains the purpose of the General
Securities Sales Supervisor registration
category. The General Securities Sales
Supervisor category is an alternate
category of registration designed to
lessen the qualification burdens on
principals of general securities firms
who supervise sales. Without this
category of limited registration, such
principals would be required to
separately qualify pursuant to the rules
of FINRA, the MSRB, and the options
exchanges. While persons may continue
to separately qualify with all relevant
self-regulatory organizations, the
General Securities Sales Supervisor
examination permits qualification as a
supervisor of sales of all securities
through one registration category.
Persons registered as General Securities
48 The proposed rule is substantially similar to
FINRA Rule 1220.02.
49 FINRA Rule 1220.02 also includes Options
Representative and Registered Options Principal
registration categories. NYSE does not trade options
and member organizations therefore would not be
required to register with the Exchange in those
categories and therefore the Exchange is not
adopting those categories within proposed Rule
1220, Commentary .03 [sic].
50 The proposed rule is substantially similar to
FINRA Rule 1220.04.
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19:13 Oct 05, 2018
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Sales Supervisors may also qualify in
any other category of principal
registration. Persons who are already
qualified in one or more categories of
principal registration may supervise
sales activities of all securities by also
qualifying as General Securities Sales
Supervisors.
The proposed rule further provides
that any person required to be registered
as a principal who supervises sales
activities in corporate, municipal and
option securities, investment company
products, variable contracts, and
security futures (subject to the
requirements of Rule 1220, Commentary
.02) may be registered solely as a
General Securities Sales Supervisor. In
addition to branch office managers,
other persons such as regional and
national sales managers may also be
registered solely as General Securities
Sales Supervisors as long as they
supervise only sales activities.
F. Proposed New Rule 1230—
Associated Persons Exempt From
Registration 51
Proposed Rule 1230 provides an
exemption from registration with the
Exchange for certain associated persons.
Specifically, the proposed rule provides
that persons associated with a member
organization whose functions are solely
and exclusively clerical or ministerial
would be exempt from registration.52
1. Proposed Rule 1230, Commentary
.01—Registration Requirements for
Associated Persons Who Accept
Customer Orders 53
Proposed Rule 1230, Commentary .01,
clarifies that the function of accepting
customer orders is not considered
clerical or ministerial and that
associated persons who accept customer
orders under any circumstances are
required to be appropriately registered.
However, the proposed rule provides
that an associated person is not
accepting a customer order where
51 The proposed rule is substantially similar to
FINRA Rule 1230.
52 FINRA Rule 1230 provides an exemption from
registration with FINRA to persons associated with
a FINRA member whose functions are solely and
exclusively clerical or ministerial and persons
associated with a FINRA member whose functions
are related solely and exclusively to (i) effecting
transactions on the floor of a national securities
exchange and who are appropriately registered with
such exchange; (ii) effecting transactions in
municipal securities; (iii) effecting transactions in
commodities; or (iv) effecting transactions in
security futures, provided that any such person is
registered with a registered futures association.
Member organizations do not solely and exclusively
engage in any of the foregoing transactions and
therefore the Exchange is not adopting that portion
of FINRA Rule 1230.
53 The proposed rule is substantially similar to
FINRA Rule 1230.01.
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Frm 00105
Fmt 4703
Sfmt 4703
50735
occasionally, when an appropriately
registered person is unavailable, the
associated person transcribes the order
details and the registered person
contacts the customer to confirm the
order details before entering the order.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),54 in general, and furthers the
objectives of Section 6(b)(5),55 in
particular, because it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, to remove
impediments to, and perfect the
mechanism of, a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
The Exchange believes that the
proposed rule change will streamline,
and bring consistency and uniformity
to, the registration rules, which will, in
turn, assist member organizations and
their associated persons in complying
with these rules and improve regulatory
efficiency. The proposed rule change
will also improve the efficiency of the
examination program, without
compromising the qualification
standards. In addition, the proposed
rule change will expand the scope of
permissive registrations, which, among
other things, will allow member
organizations to develop a depth of
associated persons with registrations to
respond to unanticipated personnel
changes and will encourage greater
regulatory understanding. Further, the
proposed rule change will provide a
more streamlined and effective waiver
process for individuals working for a
financial services industry affiliate of a
member organization, and it will require
such individuals to maintain specified
levels of competence and knowledge
while working in areas ancillary to the
investment banking and securities
business.
Finally, the Exchange believes that,
with the introduction of the SIE and
expansion of the pool of individuals
who are eligible to take the SIE, the
proposed rule change has the potential
of enhancing the pool of prospective
securities industry professionals by
introducing them to securities laws,
rules and regulations and appropriate
conduct before they join the industry in
a registered capacity.
54 15
55 15
E:\FR\FM\09OCN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
09OCN1
50736
Federal Register / Vol. 83, No. 195 / Tuesday, October 9, 2018 / Notices
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed amendments are intended to
promote transparency in the Exchange’s
rules, and consistency with the rules of
other SROs with respect to the
examination, qualification, and
continuing education requirements
applicable to member organizations and
their registered personnel. The
Exchange believes that in that regard
that any burden on competition would
be clearly outweighed by the important
regulatory goal of ensuring clear and
consistent requirements applicable
across SROs, avoiding duplication, and
mitigating any risk of SROs
implementing different standards in
these important areas.
Further, the Exchange does not
believe that the proposed amendments
will affect competition among securities
markets since all SROs are expected to
adopt similar rules with uniform
standards for qualification, registration
and continuing education requirements.
amozie on DSK3GDR082PROD with NOTICES1
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 56 and Rule 19b–
4(f)(6) thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) normally does not
become operative for 30 days from the
date of filing. However, Rule 19b–
4(f)(6)(iii) 57 permits the Commission to
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 that
the proposal may become operative on
October 1, 2018 to coincide with the
56 15
57 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6)(iii).
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19:13 Oct 05, 2018
Jkt 247001
effective date of FINRA’s proposed rule
change on which the proposal is
based.58 The waiver of the operative
delay would make the Exchange’s
qualification requirements consistent
with those of FINRA, as of October 1,
2018. Therefore, the Commission
believes that the waiver of the 30-day
operative delay is consistent with the
protection of investors and the public
interest and hereby waives the 30-day
operative delay and designates the
proposal operative on October 1, 2018.59
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.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSE–2018–44 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–NYSE–2018–44. 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
58 See
supra note 5.
purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
59 For
PO 00000
Frm 00106
Fmt 4703
Sfmt 4703
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–NYSE–2018–44 and should
be submitted on or before October 30,
2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.60
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–21781 Filed 10–5–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Proposed Collection; Comment
Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Extension:
Rule 17f–2(a), SEC File No. 270–034, OMB
Control No. 3235–0034
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.) (‘‘PRA’’), the
Securities and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the existing collection of information
provided for in Rule 17f–2(a) (17 CFR
240.17f–2(a)), under the Securities
Exchange Act of 1934 (15 U.S.C. 78a et
seq.). The Commission plans to submit
the existing collection of information to
the Office of Management and Budget
(‘‘OMB’’) for extension and approval.
Rule 17f–2(a) (Fingerprinting
Requirements for Securities
Professionals) requires that securities
professionals be fingerprinted. This
requirement serves to identify securityrisk personnel, to allow an employer to
make fully informed employment
60 17
E:\FR\FM\09OCN1.SGM
CFR 200.30–3(a)(12).
09OCN1
]]>Agencies
[Federal Register Volume 83, Number 195 (Tuesday, October 9, 2018)]
[Notices]
[Pages 50727-50736]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-21781]
[[Page 50727]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84336; File No. SR-NYSE-2018-44]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Amendments To Rules
Regarding Qualification, Registration and Continuing Education
Applicable to Members and Member Organizations
October 2, 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 27, 2018, New York Stock Exchange LLC (``NYSE''
or the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes amendments to the Exchange's rules regarding
qualification, registration and continuing education requirements
applicable to members or member organizations. To the extent the
Exchange's rule proposal is intended to harmonize with Financial
Regulatory Authority, Inc. (``FINRA'') rules and thus promote
consistency within the securities industry, the Exchange is only
adopting rules that are relevant to the Exchange's members or member
organizations. The Exchange is not adopting registration categories
that are not applicable to members or member organizations because
members or member organizations do not engage in the type of business
that would require such registration. As such, the Exchange is amending
current Rule 345A regarding continuing education requirements to
reflect the FINRA rule; adopting Commentary .60 to current Rule 345A
regarding fingerprint information; adopting new Rule 1210 regarding
registration requirements and related Commentary to new Rule 1210;
adopting new Rule 1220 regarding registration categories \4\ and
related Commentary to new Rule 1220; and adopting new Rule 1230
regarding associated persons exempt from registration and related
Commentary to new Rule 1230. Each of these rule changes, which are
[sic] described in more detail below, would become operative on October
1, 2018. The proposed rule change is available on the Exchange's
website at www.nyse.com, at the principal office of the Exchange, and
at the Commission's Public Reference Room.
---------------------------------------------------------------------------
\4\ The relevant principal registration categories the Exchange
proposes to adopt are (1) Principal; (2) General Securities
Principal; (3) Compliance Officer; (4) Financial and Operations
Principal and Introducing Broker-Dealer Financial and Operations
Principal; (5) Securities Trader Principal; and (6) General
Securities Sales Supervisor. The relevant representative
registration categories the Exchange proposes to adopt are (1)
Representative; (2) General Securities Representative; and (3)
Securities Trader.
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its qualification, registration, and
continuing education requirements applicable to members or member
organizations. The proposed amendments are intended to: (i) Provide
transparency and clarity with respect to the Exchange's registration,
qualification and examination requirements; (ii) amend its rules
relating to categories of registration and respective qualification
examinations required for ETP Holders that engage in trading activities
on the Exchange; (iii) harmonize the Exchange's qualification,
registration and examination rules with those of FINRA \5\ so as to
promote uniform standards across the securities industry; and (iv) add
new definitions of terms and make other conforming changes to enhance
the comprehensiveness and clarity of the Exchange's rules.\6\ The
proposed changes are discussed below.
---------------------------------------------------------------------------
\5\ 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''). The Exchange notes that in order to
maintain consistency with the FINRA Filing, the Exchange proposes to
incorporate certain terms from the relevant FINRA rule into the
Exchange's rule that may not be applicable to all member
organizations. For example, while member organizations may not be
engaged in ``investment banking'' activity, the Exchange proposes to
adopt that term within these registration rules to conform them to
the FINRA rules.
\6\ The conforming changes the Exchange proposes would
substitute the term ``member or member organization'' for ``member''
and the term ``Exchange'' for ``FINRA.''
---------------------------------------------------------------------------
A. Amendment to Rule 345, Commentary .10
Rule 345, Commentary .10, provides the definition of a Securities
Trader as any person engaged in the purchase or sale of securities or
other similar instruments for the account of a member organization with
which such person is associated, as an employee or otherwise, and who
does not transact any business with the public. With this proposed rule
change, the Exchange proposes to adopt FINRA's definition of Securities
Trader (as described below) and therefore, proposes to add a reference
in Rule 345, Commentary .10 to Rule 2.1220(b)(3) [sic] as the
appropriate rule in the Exchange's Rulebook where the definition of
Securities Trader can be found.
Further, Rule 345, Commentary .10, states that a Securities Trader
must be registered as such on Web CRD and pass the Series 57
examination. Given the formulation of the Securities Industry
Essentials (``SIE'') examination (discussed below) which all potential
representative-level registrants would be required to pass, the
Exchange proposes to amend the current rule to require that a
Securities Trader must register as such on Web CRD and must pass both
the SIE examination and the Series 57 examination.
B. Amendments to Rule 345A--Continuing Education Requirements
Rule 345A provides the continuing education requirements of
registered persons \7\ subsequent to their initial qualification and
registration with the Exchange, and includes a Regulatory Element and a
Firm Element. The Regulatory Element applies to registered persons and
consists of periodic computer-based training on regulatory, compliance,
ethical, supervisory subjects and sales practice standards.
[[Page 50728]]
The Firm Element consists of at least an annual, member-developed and
administered training programs [sic] designed to keep registered
persons current regarding securities products, services and strategies
offered by the member or member organization.
---------------------------------------------------------------------------
\7\ For purposes of Rule 345A, the term ``registered person''
means any member, principal executive, registered representative, or
other person registered or required to be registered under Exchange
rules, but does not include any such person whose activities are
limited solely to the transaction of business on the Floor with
member or registered broker-dealers. See Rule 345A, Commentary .10.
---------------------------------------------------------------------------
1. Regulatory Element
The Exchange proposes to amend Rule 345A(a) to provide, consistent
with proposed Rule 2.1210 [sic], Commentary .08, that a waiver-eligible
person would be subject to a Regulatory Element program that correlates
to his or her most recent registration category, and that the content
of the Regulatory Element would be based on the same cycle had the
individual remain [sic] registered.\8\ The proposed amendment to Rule
345A(a) also provides that if a waiver-eligible person fails to
complete the Regulatory Element during the prescribed time frames, he
or she would lose waiver eligibility.\9\
---------------------------------------------------------------------------
\8\ The proposed change is substantially similar to that
contained in FINRA Rule 1240(a)(1).
\9\ The proposed change is substantially similar to that
contained in FINRA Rule 1240(a)(2).
---------------------------------------------------------------------------
Further, the Exchange proposes to amend Rule 345A(a) to provide
that any person whose registration has been deemed inactive under the
rule may not accept or solicit business or receive any compensation for
the purchase or sale of securities. The proposed amendment provides,
however, that such person may receive trail or residual commissions
resulting from transactions completed before the inactive status,
unless the member or member organization with which the person is
associated has a policy prohibiting such trail or residual
commissions.\10\
---------------------------------------------------------------------------
\10\ The proposed change is substantially similar to that
contained in FINRA Rule 1240(a)(2).
---------------------------------------------------------------------------
Additionally, under Rule 345A(a), a registered person is required
to retake the Regulatory Element in the event that such person (i) is
subject to any statutory disqualification as defined in Section
3(a)(39) of the Exchange Act; (ii) is subject to suspension or to the
imposition of a fine of $5,000 or more for violation of any provision
of any securities law or regulation, or any agreement with or rule or
standard of conduct of any securities governmental agency, securities
self-regulatory organization, or as imposed by any such regulatory or
self-regulatory organization in connection with a disciplinary
proceeding; or (iii) is ordered as a sanction in a disciplinary action
to retake the Regulatory Element by any securities governmental agency
or self-regulatory organization. The Exchange proposes to amend Rule
345A(a) to provide an exception to a waiver-eligible person from
retaking the Regulatory Element and satisfy [sic] all of its
requirements.\11\
---------------------------------------------------------------------------
\11\ The proposed change is substantially similar to that
contained in FINRA Rule 1240(a)(3).
---------------------------------------------------------------------------
2. Firm Element
Current Rule 345A(b) provides that programs used to implement a
member's or member organization's training program must be appropriate
for the business of the member or member organization and, at a minimum
must cover specific matters concerning securities products, services,
and strategies offered by the member or member organization. The
Exchange proposes to amend the current rule to expand the minimum
standard for such training programs by requiring that, at a minimum, a
firm's training program must also cover training in ethics and
professional responsibility.\12\
---------------------------------------------------------------------------
\12\ The proposed change is substantially similar to that
contained in FINRA Rule 1240(b)(2).
---------------------------------------------------------------------------
C. Proposed New Rule 345A--Commentary .60--Fingerprint Information \13\
---------------------------------------------------------------------------
\13\ The proposed rule is substantially similar to FINRA Rule
1010(d).
---------------------------------------------------------------------------
The Exchange proposes to adopt new Rule 345A, Commentary .60,
regarding the submission of fingerprint information by member
organizations. As proposed, upon filing an electronic Form U4 on behalf
of a person applying for registration, a member organization would be
required to promptly submit fingerprint information for that person. If
the member organization fails to submit the fingerprint information
within 30 days after the Exchange receives the electronic Form U4, the
person's registration shall be deemed inactive and the person would be
required to immediately cease all activities requiring registration and
would be prohibited from performing any duties and functioning in any
capacity requiring registration. The proposed rule further provides
allows [sic] the Exchange to administratively terminate a registration
that is inactive for a period of two years. However, a person whose
registration is administratively terminated may seek to reactivate his
or her registration by reapplying for registration and meeting the
qualification requirements under Exchange rules.
D. Proposed New Rules 1210 Through 1230
As a general matter, FINRA administers qualification examinations
that are designed to establish that persons associated with member
organizations have attained specified levels of competence and
knowledge. Over time, the examination program has increased in
complexity to address the introduction of new products and functions,
and related regulatory concerns and requirements. As a result, today,
there are a large number of examinations, considerable content overlap
across the representative-level examinations and requirements for
individuals in various segments of the industry to pass multiple
examinations. To address these issues, FINRA has formulated a general
knowledge examination called the Securities Industry Essentials
examination that all potential representative-level registrants would
take.\14\ Rule changes related to the adoption of the SIE and other
proposed new rules are discussed below.
---------------------------------------------------------------------------
\14\ The SIE would assess basic product knowledge; the structure
and function of the securities industry markets, regulatory agencies
and their functions; and regulated and prohibited practices. In
particular, the SIE will cover four major areas. The first,
``Knowledge of Capital Markets,'' focuses on topics such as types of
markets and offerings, broker-dealers and depositories, and economic
cycles. The second, ``Understanding Products and Their Risks,''
covers securities products at a high level as well as associated
investment risks. The third, ``Understanding Trading, Customer
Accounts and Prohibited Activities,'' focuses on accounts, orders,
settlement and prohibited activities. The final area, ``Overview of
the Regulatory Framework,'' encompasses topics such as SROs,
registration requirements and specified conduct rules.
---------------------------------------------------------------------------
1. Proposed Rule 1210--Registration Requirements \15\
---------------------------------------------------------------------------
\15\ The proposed rule is substantially similar to FINRA Rule
1210.
---------------------------------------------------------------------------
Proposed Rule 1210 provides that each person engaged in the
investment banking or securities business of a member organization must
register with the Exchange as a representative or principal in each
category of registration appropriate to his or her functions and
responsibilities as specified in proposed Rule 1220, unless exempt from
registration pursuant to proposed Rule 1230. Proposed Rule 1210 also
provides that such person is not qualified to function in any
registered capacity other than that for which the person is registered,
unless otherwise stated in the rules.
2. Proposed Rule 1210, Commentary .01--Permissive Registrations \16\
---------------------------------------------------------------------------
\16\ The proposed rule is substantially similar to FINRA Rule
1210.02.
---------------------------------------------------------------------------
The Exchange currently does not have a specific rule that provides
for permissive registrations. With this proposed rule change, and to
conform its rules to the FINRA rules, the Exchange proposes to adopt a
specific rule regarding permissive registrations.
[[Page 50729]]
Proposed Rule 1210, Commentary .01, allows any associated person to
obtain and maintain any registration permitted by a member
organization. For instance, an associated person of a member
organization working solely in a clerical or ministerial capacity would
be able to obtain and maintain a General Securities Representative
registration with the member organization. As another example, an
associated person of a member organization who is registered, [sic] and
functioning solely as a General Securities Representative would be able
to obtain and maintain a General Securities Principal registration with
the member organization. Further, proposed Rule 1210, Commentary .01,
allows an individual engaged in the securities business of a foreign
securities affiliate or subsidiary of a member organization to obtain
and maintain any registration permitted by the member organization.
The Exchange is proposing to permit the registration of such
individuals for several reasons. First, a member organization may
foresee a need to move a former representative or principal who has not
been registered for two or more years back into a position that would
require such person to be registered. Currently, such persons are
required to requalify (or obtain a waiver of the applicable
qualification examinations) and reapply for registration. Second, the
proposed rule change would allow member organizations to develop a
depth of associated persons with registrations in the event of
unanticipated personnel changes. Finally, allowing registration in
additional categories encourages greater regulatory understanding.
Individuals maintaining a permissive registration under the
proposed rule change would be considered registered persons and subject
to all Exchange rules, to the extent relevant to their activities.
Additionally, consistent with the requirements of the Exchange's
supervision rules, member organizations would be required to 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, such as an
individual working exclusively in an administrative capacity, the
individual's day-to-day supervisor may be a non-registered person.
However, for purposes of compliance with the Exchange's supervision
rules, a member organization would be required to assign a registered
supervisor who would be responsible for periodically contacting such
individual's day-to-day 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 must be registered as a representative or
principal. If the individual is permissively registered as a principal,
the registered supervisor must be registered as a principal.\17\
---------------------------------------------------------------------------
\17\ In either case, the registered supervisor of an individual
who solely maintains a permissive registration would not be required
to be registered in the same representative or principal
registration category as the permissively-registered individual.
---------------------------------------------------------------------------
3. Proposed Rule 1210, Commentary .02--Qualification Examinations and
Waivers of Examinations \18\
---------------------------------------------------------------------------
\18\ The proposed rule is substantially similar to FINRA Rule
1210.03.
---------------------------------------------------------------------------
Proposed Rule 1210, Commentary .02, provides that before the
registration of a person as a representative can become effective under
proposed Rule 1210, such person must pass the SIE and an appropriate
representative-level qualification examination as specified in proposed
Rule 1220.\19\ Proposed Rule 1210, Commentary .02, also provides that
before the registration of a person as a principal can become effective
under proposed Rule 1210, such person must pass an appropriate
principal-level qualification examination as specified in proposed Rule
1220.
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\19\ Proposed Rule 1220 sets forth each registration category
and applicable qualification examination for member organizations.
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Further, proposed Rule 1210, Commentary .02, provides that if a
registered person's job functions change and he or she needs to become
registered in another representative-level category, he or she would
not need to pass the SIE again. Rather, the registered person would
need to pass only the appropriate representative-level qualification
examination.
Moreover, proposed Rule 1210, Commentary .02, provides that all
associated persons, such as associated persons whose functions are
solely and exclusively clerical or ministerial, are eligible to take
the SIE. Proposed Rule 1210, Commentary .02, also provides that
individuals who are not associated persons of firms, such as members of
the general public, are eligible to take the SIE. The Exchange believes
that expanding the pool of individuals who are eligible to take the SIE
would enable prospective securities industry professionals to
demonstrate to prospective employers a basic level of knowledge prior
to submitting a job application. Further, this approach would allow for
more flexibility and career mobility within the securities industry.
While all associated persons of firms as well as individuals who are
not associated persons would be eligible to take the SIE pursuant to
the proposed rule, passing the SIE alone would not qualify them for
registration with the Exchange. Rather, to be eligible for registration
with the Exchange, an individual must pass an applicable representative
or principal qualification examination and complete the other
requirements of the registration process.
Proposed Rule 1210, Commentary .02, also provides that the Exchange
may, in exceptional cases and where good cause is shown, pursuant to
the Rule 9600 Series, waive the applicable qualification examination(s)
and accept other standards as evidence of an applicant's qualifications
for registration. The proposed rule further provides that the Exchange
will only consider examination waiver requests submitted by a member
organization for individuals associated with the member organization
who are seeking registration in a representative- or principal-level
registration category. Moreover, the proposed rule states that the
Exchange will consider waivers of the SIE alone or the SIE and the
representative- and principal-level examination(s) for such
individuals. The Exchange would not consider a waiver of the SIE for
non-associated persons or for associated persons who are not
registering as representatives or principals.
4. Proposed Rule 1210, Commentary .03--Requirements for Registered
Persons Functioning as Principals for a Limited Period \20\
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\20\ The proposed rule is substantially similar to FINRA Rule
1210.04.
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Proposed Rule 1210, Commentary .03, provides that a member
organization may designate any person currently registered, or who
becomes registered, with the member organization as a representative to
function as a principal for a limited period, provided that such person
has at least 18 months of experience functioning as a registered
representative with [sic] the five-year period immediately preceding
the designation. The proposed rule is intended to ensure that
representatives designated to function as principals for the limited
period under the proposal have an appropriate level of registered
representative experience. The proposed rule clarifies that the
requirements of the rule apply to designations to any principal
category, including those categories that are not subject to a
[[Page 50730]]
prerequisite representative-level registration requirement, such as the
Financial and Operations Principal registration category.\21\
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\21\ The Exchange notes that qualifying as a registered
representative is a prerequisite to qualifying as a principal except
with respect to the following principal-level registrations: (1)
Compliance Official; (2) Financial and Operations Principal; and (3)
Introducing Broker-Dealer Financial and Operations Principal.
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The proposed rule also clarifies that the individual must fulfill
all applicable prerequisite registration, fee and examination
requirements before his or her designation as a principal. Further, the
proposed rule provides that in no event may such person function as a
principal beyond the initial 120 calendar days without having
successfully passed an appropriate principal qualification examination.
The proposed rule also provides an exception to the experience
requirement for principals who are designated by a member organization
to function in other principal categories for a limited period.
Specifically, the proposed rule states that a member organization may
designate any person currently registered, or who becomes registered,
with the member organization as a principal to function in another
principal category for 120 calendar days before passing any applicable
examinations.
5. Proposed Rule 1210, Commentary .04--Rules of Conduct for Taking
Examinations and Confidentiality of Examinations \22\
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\22\ The proposed rule is substantially similar to FINRA Rule
1210.05.
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Proposed Rule 1210, Commentary .04 states that associated persons
taking the SIE would be subject to the SIE Rules of Conduct, and
associated persons taking a representative or principal examination
would be subject to the Rules of Conduct for representative and
principal examinations. Pursuant to proposed Rule 1210, Commentary .04,
a violation of the SIE Rules of Conduct or the Rules of Conduct for
representative and principal examinations by an associated person would
be deemed to be a violation of Rule 2010. Moreover, if an associated
person is deemed to have violated the SIE Rules of Conduct or the Rules
of Conduct for representative and principal examinations, the
associated person may forfeit the results of the examination and may be
subject to disciplinary action by the Exchange.
Further, the proposed rule states that individuals taking the SIE
who are not associated persons must agree to be subject to the SIE
Rules of Conduct. Among other things, the SIE Rules of Conduct would
require individuals to attest that they are not qualified to engage in
the investment banking or securities business based on passing the SIE
and would prohibit individuals from cheating on the examination or
misrepresenting their qualifications to the public subsequent to
passing the SIE. Moreover, non-associated persons may forfeit their SIE
results and may be prohibited from retaking the SIE if the Exchange
determines that they cheated on the SIE or that they misrepresented
their qualifications to the public subsequent to passing the SIE.
The proposed rule further notes that the Exchange considers all
qualification examinations [sic] content to be highly confidential and
that the removal of examination content from an examination center,
reproduction, disclosure, receipt from or passing to any person, or use
for study purposes of any portion of such qualification examination or
any other use that would compromise the effectiveness of the
examinations and the use in any manner and at any time of the questions
or answers to the examinations is prohibited and would be deemed a
violation of Rule 2010.
6. Proposed Rule 1210, Commentary .05--Waiting Periods for Retaking a
Failed Examination \23\
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\23\ The proposed rule is substantially similar to FINRA Rule
1210.06.
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Proposed Rule 1210, Commentary .05 provides that any person who
fails a qualification examination may retake that examination after 30
calendar days from the date of the person's last attempt to pass that
examination. The proposed rule further provides that if a person fails
an examination three or more times in succession within a two-year
period, he or she would be prohibited from retaking the examination
either until a period of 180 calendar days from the date of the
person's last attempt to pass it [sic]. These waiting periods would
apply to the SIE and the representative- and principal-level
examinations. Moreover, the proposed rule provides that non-associated
persons taking the SIE must agree to be subject to the same waiting
periods for retaking the SIE.
7. Proposed Rule 1210, Commentary .06--All Registered Persons Must
Satisfy the Regulatory Element of Continuing Education \24\
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\24\ The proposed rule is substantially similar to FINRA Rule
1210.07.
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Pursuant to Rule 345A, the CE requirements applicable to registered
persons consist of a Regulatory Element \25\ and a Firm Element.\26\
The Regulatory Element applies to registered persons and must be
completed within prescribed time frames.\27\ For purposes of the
Regulatory Element, a registered person is any member, principal
executive, registered representative, or other person registered or
required to be registered under Exchange rules, but does not include
any such person whose activities are limited solely to the transaction
of business on the Floor with member [sic] or registered broker-
dealers. The Firm Element consists of annual, member organization-
developed and administered training programs designed to keep covered
registered persons current regarding securities products, services and
strategies offered by the member organization. For purposes of the Firm
Element, the term covered registered persons means any person
registered with a member organization who has direct contact with
customers in the conduct of the member organization's securities sales,
trading and investment banking activities and to the immediate
supervisors of such persons.
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\25\ See Rule 345A(a).
\26\ See Rule 345A(b).
\27\ Pursuant to Rule 345A(a), each specified registered person
is required to complete the Regulatory Element initially within 120
days after the person's second registration anniversary date and,
thereafter, within 120 days after every third registration
anniversary date. A registered person who has not completed the
Regulatory Element program within the prescribed time frames will
have his or her registrations deemed inactive and designated as ``CE
inactive'' on the CRD system until such time as the requirements of
the program have been satisfied. A CE inactive person is prohibited
from performing, or being compensated for, any activities requiring
registration, including supervision. Moreover, if a registered
person is CE inactive for a two-year period, the Exchange will
administratively terminate the person's registration status. The
two-year period would be calculated from the date the person becomes
CE inactive. In either case, such person must requalify (or obtain a
waiver of the applicable qualification examination(s)) to be re-
eligible for registration.
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The Exchange believes that all registered persons, regardless of
their activities, should be subject to the Regulatory Element of the CE
requirements so that they can keep their knowledge of the securities
industry current. Therefore, the Exchange proposes to adopt Rule 1210,
Commentary .06, to clarify that all registered persons, including those
who solely maintain a permissive registration, are required to satisfy
the Regulatory Element, as specified in Rule 345A(a). The Exchange is
making corresponding changes to Rule 345A(a) [sic]. The Exchange is not
proposing any changes to the Firm Element requirement at this time.
Individuals
[[Page 50731]]
who have passed the SIE but not a representative- or principal-level
examination and do not hold a registered position would not be subject
to any CE requirements.
Proposed Rule 1210, Commentary .06, also provides that a registered
person of a member organization who becomes CE inactive would not be
permitted to be registered in another registration category with the
member organization or be registered in any registration category with
another member organization, until the person has satisfied the
Regulatory Element.
8. Proposed Rule 1210, Commentary .07--Lapse of Registration and
Expiration of the SIE \28\
---------------------------------------------------------------------------
\28\ The proposed rule is substantially similar to FINRA Rule
1210.08.
---------------------------------------------------------------------------
Proposed Rule 1210, Commentary .07, provides that any person who
was last registered as a representative two or more years immediately
preceding the date of receipt by the Exchange of a new application for
registration as a representative is required to pass a qualification
examination for representatives appropriate to the category of
registration as specified in proposed Rule 1220(b). Proposed Rule 1210,
Commentary .07, also sets forth that a passing result on the SIE would
be valid for up to four years. Therefore, under the proposed rule
change, an individual who passes the SIE and is an associated person of
a member organization at the time would have up to four years from the
date he or she passes the SIE to pass a representative-level
examination to register as a representative with that member
organization, or a subsequent member organization, without having to
retake the SIE. In addition, an individual who passes the SIE and is
not an associated person at the time would have up to four years from
the date he or she passes the SIE to become an associated person of a
member organization and pass a representative-level examination and
register as a representative without having to retake the SIE.
Moreover, an individual holding a representative-level registration
who leaves the industry after the effective date of this proposed rule
change would have up to four years to re-associate with a member
organization and register as a representative without having to retake
the SIE. However, the four-year expiration period in the proposed rule
change extends only to the SIE, and not the representative- and
principal-level registrations. The representative- and principal-level
registrations would continue to be subject to a two-year expiration
period as is the case today.
Finally, proposed Rule 1210, Commentary .07, clarifies that, for
purposes of the proposed rule, an application would not be considered
to have been received by the Exchange if that application does not
result in a registration.
9. Proposed Rule 1210, Commentary .08--Waiver of Examinations for
Individuals Working for a Financial Services Industry Affiliate of a
Member Organization \29\
---------------------------------------------------------------------------
\29\ The proposed rule is substantially similar to FINRA Rule
1210.09.
---------------------------------------------------------------------------
Proposed Rule 1210, Commentary .08, provides the process for
individuals working for a financial services industry affiliate of a
member organization \30\ to terminate their registrations with the
member organization and be granted a waiver of their requalification
requirements upon re-registering with a member organization, provided
the firm that is requesting the waiver and the individual satisfy the
criteria for a Financial Services Affiliate (``FSA'') waiver.
---------------------------------------------------------------------------
\30\ Proposed Rule 1210, Commentary .07 [sic], defines a
``financial services industry affiliate of a member organization''
as a legal entity that controls, is controlled by or is under common
control with a member organization and is regulated by the SEC,
CFTC, state securities authorities, federal or state banking
authorities, state insurance authorities, or substantially
equivalent foreign regulatory authorities.
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Under the proposed waiver process, the first time a registered
person is designated as eligible for a waiver based on the FSA
criteria, the member organization with which the individual is
registered would notify the Exchange of the FSA designation. The member
organization would concurrently file a full Form U5 terminating the
individual's registration with the firm, which would also terminate the
individual's other SRO and state registrations. To be eligible for
initial designation as an FSA-eligible person by a member organization,
an individual must have been registered for a total of five years
within the most recent 10-year period prior to the designation,
including for the most recent year with that member organization. An
individual would have to satisfy these preconditions only for purposes
of his or her initial designation as an FSA-eligible person, and not
for any subsequent FSA designation(s). Thereafter, the individual would
be eligible for a waiver for up to seven years from the date of initial
designation,\31\ provided that the other conditions of the waiver, as
described below, have been satisfied. Consequently, a member
organization other than the member organization that initially
designated an individual as an FSA-eligible person may request a waiver
for the individual and more than one member organization may request a
waiver for the individual during the seven-year period.\32\
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\31\ Individuals would be eligible for a single, fixed seven-
year period from the date of initial designation, and the period
would not be tolled or renewed.
\32\ The following examples illustrate this point:
Example 1. Firm A designates an individual as an FSA-eligible
person by notifying the Exchange and files a Form U5. The individual
joins Firm A's financial services affiliate. Firm A does not submit
a waiver request for the individual. After working for Firm A's
financial services affiliate for three years, the individual
directly joins Firm B's financial services affiliate for three
years. Firm B then submits a waiver request to register the
individual.
Example 2. Same as Example 1, but the individual directly joins
Firm B after working for Firm A's financial services affiliate, and
Firm B submits a waiver request to register the individual at that
point in time.
Example 3. Firm A designates an individual as an FSA-eligible
person by notifying the Exchange and files a Form U5. The individual
joins Firm A's financial services affiliate for three years. Firm A
then submits a waiver request to re-register the individual. After
working for Firm A in a registered capacity for six months, Firm A
re-designates the individual as an FSA-eligible person by notifying
the Exchange and files a Form U5. The individual rejoins Firm A's
financial services affiliate for two years, after which the
individual directly joins Firm B's financial services affiliate for
one year. Firm B then submits a waiver request to register the
individual.
Example 4. Same as Example 3, but the individual directly joins
Firm B after the second period of working for Firm A's financial
services affiliate, and Firm B submits a waiver request to register
the individual at that point in time.
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An individual designated as an FSA-eligible person would be subject
to the Regulatory Element of CE while working for a financial services
industry affiliate of a member organization. The individual would be
subject to a Regulatory Element program that correlates to his or her
most recent registration category, and CE would be based on the same
cycle had the individual remained registered. If the individual fails
to complete the prescribed Regulatory Element during the 120-day window
for taking the session, he or she would lose FSA eligibility (i.e., the
individual would have the standard two-year period after termination to
re-register without having to retake an examination). The Exchange is
making corresponding changes to Rule 345A.
Upon registering an FSA-eligible person, a firm would file a Form
U4 and request the appropriate registration(s) for the individual. The
firm would also submit an examination waiver request
[[Page 50732]]
to the Exchange,\33\ similar to the process used today for waiver
requests, and it would represent that the individual is eligible for an
FSA waiver based on the conditions set forth below. The Exchange would
review the waiver request and make a determination of whether to grant
the request within 30 calendar days of receiving the request. The
Exchange would summarily grant the request if the following conditions
are met:
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\33\ The Exchange would consider a waiver of the representative-
level qualification examination(s), the principal-level
qualification examination(s) and the SIE, as applicable.
---------------------------------------------------------------------------
(1) Prior to the individual's initial designation as an FSA-
eligible person, the individual was registered for a total of five
years within the most recent 10-year period, including for the most
recent year with the member organization that initially designated the
individual as an FSA-eligible person;
(2) The waiver request is made within seven years of the
individual's initial designation as an FSA-eligible person by a member
organization;
(3) The initial designation and any subsequent designation(s) were
made concurrently with the filing of the individual's related Form U5;
(4) The individual continuously worked for the financial services
affiliate(s) of a member organization since the last Form U5 filing;
(5) The individual has complied with the Regulatory Element of CE;
and
(6) 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 while the
individual was designated as an FSA-eligible person with a member
organization.
Following the Form U5 filing, an individual could move between the
financial services affiliates of a member organization so long as the
individual is continuously working for an affiliate. Further, a member
organization could submit multiple waiver requests for the individual,
provided that the waiver requests are made during the course of the
seven-year period.\34\ An individual who has been designated as an FSA-
eligible person by a member organization would not be able to take
additional examinations to gain additional registrations while working
for a financial services affiliate of a member organization.
---------------------------------------------------------------------------
\34\ For example, if a member organization submits a waiver
request for an FSA-eligible person who has been working for a
financial services affiliate of the member organization for three
years and re-registers the individual, the member organization could
subsequently file a Form U5 and re-designate the individual as an
FSA-eligible person. Moreover, if the individual works with a
financial services affiliate of the member organization for another
three years, the member organization could submit a second waiver
request and re-register the individual upon returning to the member
organization.
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10. Proposed Rule 1210, Commentary .09--Status of Persons Serving in
the Armed Forces of the United States \35\
---------------------------------------------------------------------------
\35\ The proposed rule is substantially similar to FINRA Rule
1210.10.
---------------------------------------------------------------------------
Proposed Rule 1210, Commentary .09, provides specific relief to
registered persons serving in the Armed Forces of the United States.
Among other things, the proposed rule permits a registered person of a
member organization who volunteers for or is called into active duty in
the Armed Forces of the United States to be registered in an inactive
status and remain eligible to receive ongoing transaction-related
compensation. The proposed rule also includes specific provisions
regarding the deferment of the lapse of registration requirements for
formerly registered persons serving in the Armed Forces of the United
States. The proposed rule further requires that the member organization
with which such person is registered promptly notify the Exchange of
such person's return to employment with the member organization. The
proposed rule would require a member organization that is a sole
proprietor to also similarly notify the Exchange of his or her return
to participation in the investment banking or securities business. The
proposed rule also provides that the Exchange would defer the lapse of
the SIE for formerly registered persons serving in the Armed Forces of
the United States.
E. Proposed New Rule 1220--Registration Categories \36\
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\36\ The Exchange is not adopting the following categories from
the FINRA Filing because member organizations do not engage in the
type of business that would require registration with the Exchange:
Investment Banking Principal, Research Principal, Registered Options
Principal, Government Securities Principal, Investment Company and
Variable Contracts Products Principal, Direct Participation Programs
Principal, Private Securities Offerings Principal, Supervisory
Analyst, Operations Professional, Investment Banking Representative,
Research Analyst, Investment Company and Variable Contracts Products
Representative, Direct Participation Programs Representative, and
Private Securities Offering Representative. The Exchange is also not
adopting the following categories because the FINRA Filing
eliminated them: Order Processing Assistant Representative, United
Kingdom Securities Representative, Canadian Securities
Representative, Options Representative, Corporate Securities
Representative and Government Securities Representative.
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1. Proposed Rule 1220(a)(1)--Principal
As set forth in proposed Rule 1220(a)(1), for purposes of these
registration rules, the term ``Principal'' [sic] to mean any Person
Associated with a member organization actively engaged in the
management of the member organization's securities business, including
supervision, solicitation, conduct of the member organization's
business, or the training of Authorized Traders and Persons Associated
with a member organization for any of these functions. Such Persons
include Sole Proprietors, Officers, Partners, and Directors of
Corporations.
For purposes of proposed Rule 1220(a)(1), the phrase ``actively
engaged in the management of the member organization's securities
business'' includes the management of, and the implementation of
corporate policies related to, such business. The term also includes
managerial decision-making authority with respect to the member
organization's securities business and management-level
responsibilities for supervising any aspect of such business, such as
serving as a voting member of the member organization's executive,
management or operations committee.
2. Proposed Rule 1220(a)(2)--General Securities Principal \37\
---------------------------------------------------------------------------
\37\ The proposed rule is substantially similar to FINRA Rule
1220(a)(2).
---------------------------------------------------------------------------
Proposed Rule 1220(a)(2)(A) states that each principal as defined
in proposed Rule 1220(a)(1) is required to register with the Exchange
as a General Securities Principal, subject to the following exceptions.
The proposed rule provides that if a principal's activities include the
functions of a Compliance Officer, a Financial and Operations Principal
(or an Introducing Broker-Dealer Financial and Operations Principal, as
applicable), a Principal Financial Officer, a Principal Operations
Officer, or a Securities Trader Principal, then the principal must
appropriately register in one or more of these categories.
Proposed Rule 1220(a)(2)(A) further provides that if a principal's
activities are limited solely to the functions of a General Securities
Sales Supervisor, then the principal may appropriately register in that
category in lieu of registering as a General Securities Principal.
Proposed Rule 1220(a)(2)(B) requires that an individual registering
as a General Securities Principal satisfy the General Securities
Representative prerequisite registration and pass the General
Securities Principal qualification examination. Proposed Rule
1220(a)(2)(B) also clarifies that an individual may register as a
General Securities Sales Supervisor and pass the
[[Page 50733]]
General Securities Sales Supervisor qualification examination in lieu
of passing the General Securities Principal examination.
As a general matter, the Exchange currently recognizes the
Corporate Securities Representative but would no longer recognize this
registration category given its elimination by FINRA. Proposed Rule
1220(a)(2)(B), however, provides that, subject to the lapse of
registration provisions in proposed Rule 1210, Commentary .07, each
person registered with the Exchange as a Corporate Securities
Representative and a General Securities Principal on October 1, 2018
and each person who was registered with the Exchange as a Corporate
Securities Representative and a General Securities Principal within two
years prior to October 1, 2018 would be qualified to register as a
General Securities Principal without having to take any additional
qualification examinations, provided that such person's supervisory
responsibilities in the investment banking and securities business of a
member organization are limited to corporate securities activities of
the member organization. The proposed rule further provides that all
other individuals registering as General Securities Principals after
October 1, 2018 shall, prior to or concurrent with such registration,
become registered as a General Securities Representative and either (1)
pass the General Securities Principal qualification examination; or (2)
register as a General Securities Sales Supervisor and pass the General
Securities Sales Supervisor qualification examination.
3. Proposed Rule 1220(a)(3)--Compliance Officer \38\
---------------------------------------------------------------------------
\38\ The proposed rule is substantially similar to FINRA Rule
1220(a)(3).
---------------------------------------------------------------------------
Proposed Rule 1220(a)(3) establishes a Compliance Officer
registration category and requires all persons designated as CCOs on
Schedule A of Form BD to register as Compliance Officers, subject to an
exception for member organizations engaged in limited investment
banking or securities business. The proposed rule only addresses the
registration requirements for CCOs. However, consistent with proposed
Rule 1210, Commentary .01 relating to permissive registrations, a firm
may allow other associated persons to register as Compliance Officers.
In addition, the Exchange is proposing to provide CCOs of firms
that engage in limited investment banking or securities business with
greater flexibility to satisfy the qualification requirements for CCOs.
Specifically, proposed Rule 1220(a)(3) set forth the following
qualification requirements for Compliance Officer registration:
Subject to the lapse of registration provisions in
proposed Rule 1210, Commentary .07, each person registered with the
Exchange as a General Securities Representative and a General
Securities Principal on October 1, 2018 and each person who was
registered with the Exchange as a General Securities Representative and
a General Securities Principal within two years prior to October 1,
2018 would be qualified to register as Compliance Officers without
having to take any additional examinations. In addition, subject to the
lapse of registration provisions in proposed Rule 1210, Commentary .07,
individuals registered as Compliance Officials in the CRD system on
October 1, 2018 and individuals who were registered as such within two
years prior to October 1, 2018 would also be qualified to register as
Compliance Officers without having to take any additional examinations;
[sic]
All other individuals registering as Compliance Officers
after October 1, 2018 would have to: (1) Satisfy the General Securities
Representative prerequisite registration and pass the General
Securities Principal qualification examination; or (2) pass the
Compliance Official qualification examination.
An individual designated as a CCO on Schedule A of Form BD
of an ETP Holder [sic] that is engaged in limited investment banking or
securities business may be registered in a principal category under
proposed Rule 1220(a) that corresponds to the limited scope of the
member organization's business.
4. Proposed Rule 1220(a)(4)--Financial and Operation Principal and
Introducing Broker-Dealer Financial and Operations Principal \39\
---------------------------------------------------------------------------
\39\ The proposed rule is substantially similar to FINRA Rule
1220(a)(4).
---------------------------------------------------------------------------
Proposed Rule 1220(a)(4) provides that each principal who is
responsible for the financial and operational management of a member
organization that has a minimum net capital requirement of $250,000
under SEA Rules 15c3-1(a)(1)(ii) and 15c3-1(a)(2)(i), or a member
organization that has a minimum net capital requirement of $150,000
under SEA Rule 15c3-1(a)(8) must be designated as a Financial and
Operations Principal. In addition, proposed Rule 1220(a)(4) provides
that a principal who is responsible for the financial and operational
management of a member organization that is subject to the net capital
requirements of SEA Rule 15c3-1, other than a member organization that
is subject to the net capital requirements of SEA Rules 15c3-
1(a)(1)(ii), (a)(2)(i) or (a)(8), must be designated and registered as
either a Financial and Operations Principal or an Introducing Broker-
Dealer Financial and Operations Principal. Financial and Operations
Principals and Introducing Broker-Dealer Financial and Operation
Principals are not subject to a prerequisite representative
registration, but they must pass the Financial and Operations Principal
or Introducing Broker-Dealer Financial and Operations Principal
examination, as applicable.
Additionally, proposed Rule 1220(a)(4)(B) requires a member
organization to designate a Principal Financial Officer with primary
responsibility for the day-to-day operations of the business, including
overseeing the receipt and delivery of securities and funds,
safeguarding customer and firm assets, calculation and collection of
margin from customers and processing dividend receivable and payables
and reorganization redemptions and those books and records related to
such activities. Further, the proposed rule requires that a firm's
Principal Financial Officer and Principal Operations Officer qualify
and register as Financial and Operations Principals or Introducing
Broker-Dealer Financial and Operations Principals, as applicable.
Because the financial and operational activities of member
organizations that neither self-clear nor provide clearing services are
more limited, such member organizations may designate the same person
as the Principal Financial Officer, Principal Operations Officer and
Financial and Operations Principal or Introducing Broker-Dealer
Financial and Operations Principal (that is, such member organizations
are not required to designate different persons to function in these
capacities).
Given the level of financial and operational responsibility at
clearing and self-clearing members, the Exchange believes that it is
necessary for such member organizations to designate separate persons
to function as Principal Financial Officer and Principal Operations
Officer. Such persons may also carry out the other responsibilities of
a Financial and Operations Principal, such as supervision of
individuals engaged in financial and operational activities. In
addition, the proposed rule provides that a clearing or self-clearing
member organization that is limited in size and
[[Page 50734]]
resources may request a waiver of the requirement to designate separate
persons to function as Principal Financial Officer and Principal
Operations Officer.
5. Proposed Rule 1220(a)(5)--Securities Trader Principal \40\
---------------------------------------------------------------------------
\40\ The proposed rule is substantially similar to FINRA Rule
1220(a)(7).
---------------------------------------------------------------------------
Proposed Rule 1220(a)(5) requires that a principal responsible for
supervising the securities trading activities specified in proposed
Rule 1220(b)(3) register as a Securities Trader Principal. The proposed
rule requires that individuals registering as Securities Trader
Principals must be registered as Securities Traders and pass the
General Securities Principal qualification examination.
6. Proposed Rule 1220(a)(6)--General Securities Sales Supervisor \41\
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\41\ The proposed rule is substantially similar to FINRA Rule
1220(a)(10).
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Proposed Rule 1220(a)(6) provides that a principal may register
with the Exchange as a General Securities Sales Supervisor if his or
her supervisory responsibilities in the investment banking or
securities business of a member organization are limited to the
securities sales activities of the member organization, including the
approval or customer accounts, training of sales and sales supervisory
personnel and the maintenance of records of original entry or ledger
accounts of the member organization required to be maintained in branch
offices by Exchange Act record-keeping rules.
A person registering as a General Securities Sales Supervisor must
satisfy the General Securities Representative prerequisite registration
and pass the General Securities Sales Supervisor examinations.\42\
Moreover, a General Securities Sales Supervisor is precluded from
performing any of the following activities: (1) Supervision of the
origination and structuring of underwritings; (2) supervision of
market-making commitments; (3) supervision of the custody of firm or
customer funds or securities for purposes of SEA Rule 15c3-3; or (4)
supervision of overall compliance with financial responsibility rules.
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\42\ An individual may also register as a General Securities
Sales Supervisor by passing a combination of other principal-level
examinations.
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7. Proposed Rule 1220(b)(1)--Representative \43\
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\43\ The proposed rule is substantially similar to FINRA Rule
1220(b)(1).
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Proposed Rule 1220(b)(1) defines a representative as any person
associated with a member organization, including assistant officers
other than principals, who is engaged in the member organization's
investment banking or securities business, such as supervision,
solicitation, conduct of business in securities or the training of
persons associated with a member organizations for any of these
functions.
8. Proposed Rule 1220(b)(2)--General Securities Representative \44\
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\44\ The proposed rule is substantially similar to FINRA Rule
1220(b)(2).
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Proposed Rule 1220(b)(2)(A) states that each representative as
defined in proposed Rule 1220(b)(1) is required to register with the
Exchange as a General Securities Representative, subject to the
following exceptions. The proposed rule provides that if a
representative's activities include the function of a Securities
Trader, then the representative must appropriately register in that
category.
The proposed rule further provides that, subject to the lapse of
registration provisions in proposed Rule 1210, Commentary .07, each
person registered with the Exchange as a General Securities
Representative on October 1, 2018 and each person who was registered
with the Exchange as a General Securities Representative within two
years prior to October 1, 2018 would be qualified to register as a
General Securities Representative without having to take any additional
qualification examinations. Additionally, the proposed rule would
require that individuals registering as General Securities
Representatives after October 1, 2018 shall, prior to or concurrent
with such registration, pass the SIE and the General Securities
Representative examination.
9. Proposed Rule 1220(b)(3)--Securities Trader \45\
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\45\ The proposed rule is substantially similar to FINRA Rule
1220(b)(4).
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Proposed Rule 1220(b)(3) provides that each representative as
defined in proposed Rule 1220(b)(1) is required to register as a
Securities Trader if, with respect to transactions in equity (including
equity options), preferred or convertible debt securities, such person
is engaged in proprietary trading, the execution of transactions on an
agency basis, or the direct supervision of such activities. The
proposed rule provides an exception from the registration requirement
for any associated person of a member organization whose trading
activities are conducted primarily on behalf of an investment company
that is registered with the SEC pursuant to the Investment Company Act
and that controls, is controlled by, or is under common control with a
member organization. The Exchange proposes to adopt FINRA's definition
of Securities Trader in proposed Rule 1220(b)(3) in order to align the
text of the rule to that adopted by FINRA and other exchanges.\46\
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\46\ See e.g., MIAX International Stock Exchange, LLC Rule
203(d).
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The proposed rule also requires that associated persons primarily
responsible for the design, development or significant modification of
algorithmic trading strategies (or responsible for the day-to-day
supervision or direction of such activities) register as Securities
Traders. Individuals registering as Securities Traders must pass the
SIE and the Securities Trader examination.
Finally, the proposed rule provides that, subject to the lapse of
registration provisions in proposed Rule 1210, Commentary .07, each
person registered with the Exchange as a Securities Trader on October
1, 2018 and each person who was registered with the Exchange as a
Securities Trader within two years prior to October 1, 2018 would be
qualified to register as a Securities Trader without having to take any
additional qualification examinations. Additionally, the proposed rule
would require that individuals registering as Securities Traders after
October 1, 2018 shall, prior to or concurrent with such registration,
pass the SIE and the Securities Trader qualification examination.
10. Proposed Rule 1220, Commentary .01--Foreign Registrations \47\
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\47\ The proposed rule is substantially similar to FINRA Rule
1220.01 and 1220.06.
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Proposed Rule 1220, Commentary .01, states that individuals who are
in good standing as representatives with the Financial Conduct
Authority in the United Kingdom or with a Canadian stock exchange or
securities regulator 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. The
proposed approach would provide individuals with a United Kingdom or
Canadian qualification more flexibility to obtain a representative-
level registration. Additionally, proposed Rule 1220, Commentary .01,
provides that, subject to the lapse of registration provisions in Rule
1210, Commentary .07, each person who is registered with the Exchange
as a United Kingdom Securities Representative or a Canada
[[Page 50735]]
Securities Representative on October 1, 2018 and each person who was
registered with the Exchange in such categories within two years prior
to October 1, 2018 would be eligible to maintain such registrations
with the Exchange. However, if persons registered in such categories
subsequently terminate such registration(s) with the Exchange and the
registration remains terminated for two or more years, they would not
be eligible to re-register in such categories.
11. Proposed Rule 1220, Commentary .02--Additional Qualification
Requirements for Persons Engaged in Security Futures \48\
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\48\ The proposed rule is substantially similar to FINRA Rule
1220.02.
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Proposed Rule 1220, Commentary .02, states that each person who is
registered with the Exchange as a General Securities Representative,
United Kingdom Securities Representative, Canada Securities
Representative, or General Securities Sales Supervisor shall be
eligible to engage in security futures activities as a representative
or principal, as applicable, provided that such individual completes a
Firm Element program as set forth in Rule 345A(b) that addresses
security futures products before such person engages in security
futures activities.\49\
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\49\ FINRA Rule 1220.02 also includes Options Representative and
Registered Options Principal registration categories. NYSE does not
trade options and member organizations therefore would not be
required to register with the Exchange in those categories and
therefore the Exchange is not adopting those categories within
proposed Rule 1220, Commentary .03 [sic].
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12. Proposed Rule 1220, Commentary .03--Scope of General Securities
Sales Supervisor Registration Category \50\
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\50\ The proposed rule is substantially similar to FINRA Rule
1220.04.
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Proposed Rule 1220, Commentary .03, explains the purpose of the
General Securities Sales Supervisor registration category. The General
Securities Sales Supervisor category is an alternate category of
registration designed to lessen the qualification burdens on principals
of general securities firms who supervise sales. Without this category
of limited registration, such principals would be required to
separately qualify pursuant to the rules of FINRA, the MSRB, and the
options exchanges. While persons may continue to separately qualify
with all relevant self-regulatory organizations, the General Securities
Sales Supervisor examination permits qualification as a supervisor of
sales of all securities through one registration category. Persons
registered as General Securities Sales Supervisors may also qualify in
any other category of principal registration. Persons who are already
qualified in one or more categories of principal registration may
supervise sales activities of all securities by also qualifying as
General Securities Sales Supervisors.
The proposed rule further provides that any person required to be
registered as a principal who supervises sales activities in corporate,
municipal and option securities, investment company products, variable
contracts, and security futures (subject to the requirements of Rule
1220, Commentary .02) may be registered solely as a General Securities
Sales Supervisor. In addition to branch office managers, other persons
such as regional and national sales managers may also be registered
solely as General Securities Sales Supervisors as long as they
supervise only sales activities.
F. Proposed New Rule 1230--Associated Persons Exempt From Registration
\51\
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\51\ The proposed rule is substantially similar to FINRA Rule
1230.
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Proposed Rule 1230 provides an exemption from registration with the
Exchange for certain associated persons. Specifically, the proposed
rule provides that persons associated with a member organization whose
functions are solely and exclusively clerical or ministerial would be
exempt from registration.\52\
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\52\ FINRA Rule 1230 provides an exemption from registration
with FINRA to persons associated with a FINRA member whose functions
are solely and exclusively clerical or ministerial and persons
associated with a FINRA member whose functions are related solely
and exclusively to (i) effecting transactions on the floor of a
national securities exchange and who are appropriately registered
with such exchange; (ii) effecting transactions in municipal
securities; (iii) effecting transactions in commodities; or (iv)
effecting transactions in security futures, provided that any such
person is registered with a registered futures association. Member
organizations do not solely and exclusively engage in any of the
foregoing transactions and therefore the Exchange is not adopting
that portion of FINRA Rule 1230.
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1. Proposed Rule 1230, Commentary .01--Registration Requirements for
Associated Persons Who Accept Customer Orders \53\
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\53\ The proposed rule is substantially similar to FINRA Rule
1230.01.
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Proposed Rule 1230, Commentary .01, clarifies that the function of
accepting customer orders is not considered clerical or ministerial and
that associated persons who accept customer orders under any
circumstances are required to be appropriately registered. However, the
proposed rule provides that an associated person is not accepting a
customer order where occasionally, when an appropriately registered
person is unavailable, the associated person transcribes the order
details and the registered person contacts the customer to confirm the
order details before entering the order.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the ``Act''),\54\ in general, and
furthers the objectives of Section 6(b)(5),\55\ in particular, because
it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, to remove impediments to, and perfect the
mechanism of, a free and open market and a national market system and,
in general, to protect investors and the public interest.
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\54\ 15 U.S.C. 78f(b).
\55\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change will
streamline, and bring consistency and uniformity to, the registration
rules, which will, in turn, assist member organizations and their
associated persons in complying with these rules and improve regulatory
efficiency. The proposed rule change will also improve the efficiency
of the examination program, without compromising the qualification
standards. In addition, the proposed rule change will expand the scope
of permissive registrations, which, among other things, will allow
member organizations to develop a depth of associated persons with
registrations to respond to unanticipated personnel changes and will
encourage greater regulatory understanding. Further, the proposed rule
change will provide a more streamlined and effective waiver process for
individuals working for a financial services industry affiliate of a
member organization, and it will require such individuals to maintain
specified levels of competence and knowledge while working in areas
ancillary to the investment banking and securities business.
Finally, the Exchange believes that, with the introduction of the
SIE and expansion of the pool of individuals who are eligible to take
the SIE, the proposed rule change has the potential of enhancing the
pool of prospective securities industry professionals by introducing
them to securities laws, rules and regulations and appropriate conduct
before they join the industry in a registered capacity.
[[Page 50736]]
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed amendments are
intended to promote transparency in the Exchange's rules, and
consistency with the rules of other SROs with respect to the
examination, qualification, and continuing education requirements
applicable to member organizations and their registered personnel. The
Exchange believes that in that regard that any burden on competition
would be clearly outweighed by the important regulatory goal of
ensuring clear and consistent requirements applicable across SROs,
avoiding duplication, and mitigating any risk of SROs implementing
different standards in these important areas.
Further, the Exchange does not believe that the proposed amendments
will affect competition among securities markets since all SROs are
expected to adopt similar rules with uniform standards for
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
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \56\ and Rule 19b-
4(f)(6) thereunder.
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\56\ 15 U.S.C. 78s(b)(3)(A).
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days from the date of filing. However, Rule
19b-4(f)(6)(iii) \57\ permits the Commission to 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 that the proposal may become operative on
October 1, 2018 to coincide with the effective date of FINRA's proposed
rule change on which the proposal is based.\58\ The waiver of the
operative delay would make the Exchange's qualification requirements
consistent with those of FINRA, as of October 1, 2018. Therefore, the
Commission believes that the waiver of the 30-day operative delay is
consistent with the protection of investors and the public interest and
hereby waives the 30-day operative delay and designates the proposal
operative on October 1, 2018.\59\
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\57\ 17 CFR 240.19b-4(f)(6)(iii).
\58\ See supra note 5.
\59\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed 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.
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-NYSE-2018-44 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-NYSE-2018-44. 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-NYSE-2018-44 and should be submitted on
or before October 30, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\60\
Eduardo A. Aleman,
Assistant Secretary.
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\60\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2018-21781 Filed 10-5-18; 8:45 am]
BILLING CODE 8011-01-P
