Self-Regulatory Organizations; NYSE National, Inc.; Notice of Filing and Immediate Effectiveness of Amendments to Rules Regarding Qualification, Registration and Continuing Education Applicable to Equity Trading Permit Holders, 51030-51040 [2018-21903]
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Federal Register / Vol. 83, No. 196 / Wednesday, October 10, 2018 / Notices
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,27 that the
proposed rule change (SR–NYSEArca–
2018–57), as modified by Amendment
Nos. 4 and 6 be, and hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–21901 Filed 10–9–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84350; File No. SR–
NYSENAT–2018–21]
Self-Regulatory Organizations; NYSE
National, Inc.; Notice of Filing and
Immediate Effectiveness of
Amendments to Rules Regarding
Qualification, Registration and
Continuing Education Applicable to
Equity Trading Permit Holders
amozie on DSK3GDR082PROD with NOTICES1
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, NYSE National,
Inc. (the ‘‘Exchange’’ or ‘‘NYSE
National’’) filed with the Securities and
Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes amendments
to the Exchange’s rules regarding
qualification, registration and
continuing education requirements
applicable to Equity Trading Permit
(‘‘ETP’’) Holders. 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 ETP Holders. The Exchange
is not adopting registration categories
that are not applicable to ETP Holders
27 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
28 17
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because ETP Holders do not engage in
the type of business that would require
such registration. As such, the Exchange
is amending current Rule 2.2 regarding
continuing education requirements to
reflect the FINRA rule; adopting
Commentary .08 to current Rule 2.2
regarding fingerprint information;
adopting new Rule 2.1210 regarding
registration requirements and related
Commentary to new Rule 2.1210;
adopting new Rule 2.1220 regarding
registration categories 4 and related
Commentary to new Rule 2.1220; and
adopting new Rule 2.1230 regarding
associated persons exempt from
registration and related Commentary to
new Rule 2.1230. 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 ETP Holders. 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
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.
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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.
A. Amendments to Rule 2.2(c)
Rule 2.2(c)(1) currently provides,
among other things, that an ETP Holder
shall register with the Exchange as a
Principal any Person who meets the
definition of a Principal as described in
Rule 1.1 and that each such Principal
must be registered as such through the
FINRA Central Registration Depository
System (‘‘CRD’’), and must pass the
general Securities Principal (Series 24)
examination. The current rule further
provides that a Principal must pass the
Series 7 examination or an equivalent
foreign examination module as a
prerequisite to taking the Series 24
examination. The Exchange proposes to
amend the current rule to reflect the
change of the prerequisite examination
requirements for Principals registered
with the Exchange. The amended rule
provides that the Exchange would
require the Series 7 examination and the
Securities Industry Essentials
examination as a prerequisite to taking
the Series 24 examination and would no
longer accept a foreign examination
module as a prerequisite given the
elimination of the foreign examination
module in the FINRA Filing.
Rule 2.2(c)(2) currently provides,
among other things, that each ETP
Holder, other than a sole proprietorship
or a proprietary trading firm that has 25
or fewer Authorized Traders, is required
to register at least two Principals with
the Exchange. Per the rule, a sole
proprietorship or a proprietary trading
firm with 25 or fewer Authorized
Traders is required to register one
Principal with the Exchange. The
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 ETP Holders.
For example, while ETP Holders 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 ‘‘ETP Holder’’ for
‘‘member’’ and the term ‘‘Exchange’’ for ‘‘FINRA.’’
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Exchange proposes to make a drafting
change to the text of the rule without
any substantive change to the
application of the current rule.7 As
proposed, each ETP Holder would
continue to be required to register at
least two Principals unless the ETP
Holder is a sole proprietorship or a
proprietary trading firm, in which case,
such ETP Holder would continue to be
required to register one Principal with
the Exchange.
B. Amendments to Rule 2.2(e)—
Continuing Education Requirements
Rule 2.2(e) provides the continuing
education requirements of certain
Registered Persons 8 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. The Firm Element consists of
at least an annual, member-developed
and administered training programs
designed to keep Registered Persons
current regarding securities products,
services and strategies offered by the
member. For purposes of Rule 2.2(e), the
Exchange proposes to include within
the definition of a Registered Person any
Person who is permissively registered
pursuant to proposed Rule 2.1210,
Commentary .01, and any Person
designated as eligible for a waiver
pursuant to proposed Rule 2.1210,
Commentary .08.9 The purpose of this
change is to ensure all Registered
Persons, including those with
permissive registrations, keep their
knowledge of the securities industry
current. The inclusion of persons
designated as eligible for a waiver under
the term ‘‘Registered Person’’
corresponds to the requirements of
proposed Rule 2.1210, Commentary .08.
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1. Regulatory Element
The Exchange proposes to amend
Rule 2.2(e)(1) to provide, consistent
with proposed Rule 2.1210,
Commentary .08, that a waiver-eligible
person would be subject to a Regulatory
Element program that correlates to his
7 The proposed change would align the text of the
rule to the rules of other exchanges. See e.g.,
NASDAQ Stock Market Rule 1021(e).
8 For purposes of Rule 2.2(e), the term ‘‘Registered
Person’’ means any Person registered with the
Exchange as a General Securities Representative,
Securities Trader, Principal, Principal—Financial
and Operations (‘‘FINOP’’), Person Associated with
an ETP Holder, Authorized Trader or Market Maker
Authorized Trader. See Rule 2.2(e).
9 The proposed change is substantially similar to
that contained in FINRA Rule 1240(a)(5).
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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.10 The proposed amendment
to Rule 2.2(e)(1) 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.11
Further, the Exchange proposes to
amend Rule 2.2(e)(1) to provide that any
person who 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 ETP Holder with which the
person is associated has a policy
prohibiting such trail or residual
commissions.12
Additionally, under Rule 2.2(e)(1), 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
2.2(e)(1) to provide an exception to a
waiver-eligible person from retaking the
Regulatory Element and satisfy [sic] all
of its requirements.13
2. Firm Element
Current Rule 2.2(e)(2)(B)(ii) provides
that programs used to implement an
ETP Holder’s training program must be
appropriate for the business of the ETP
Holder and, at a minimum must cover
specific matters concerning securities
products, services, and strategies offered
by the ETP Holder. The Exchange
10 The proposed change is substantially similar to
that contained in FINRA Rule 1240(a)(1).
11 The proposed change is substantially similar to
that contained in FINRA Rule 1240(a)(2).
12 The proposed change is substantially similar to
that contained in FINRA Rule 1240(a)(2).
13 The proposed change is substantially similar to
that contained in FINRA Rule 1240(a)(3).
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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.14
C. Amendments to Rule 2.2,
Commentary .01
Current Rule 2.2, Commentary .01,
states that the Exchange requires the
General Securities Representative
examination (‘‘Series 7’’) or an
equivalent foreign examination module
approved by the Exchange in qualifying
Persons seeking registration as general
securities representatives. As noted
above, given the elimination of the
foreign examination module in the
FINRA Filing, the Exchange proposes to
amend the current rule to remove a
foreign examination module as an
equivalent requirement to register as a
general securities representative. As
amended, Rule 2.2, Commentary .01,
would provide that qualifying Persons
seeking registration as a general
securities representatives would be
required to take the Series 7
examination and the Securities Industry
Essentials examination.
D. Amendments to Rule 2.2,
Commentary .02
Current Rule 2.2, Commentary .02,
states that the Exchange will accept the
New York Stock Exchange Chief
Compliance Officer Examination
(‘‘NYSE Series 14’’) as an alternative
qualification to register as Principal an
individual identified as the Chief
Compliance Officer on an ETP Holder’s
Form BD. The Exchange proposes a
technical change to rename the NYSE
Series 14 examination as the
Compliance Official Examination which
is the correct name of the examination.
E. Amendments to Rule 2.2,
Commentary .03
Current Rule 2.2, Commentary .03,
provides that the definition of a
Securities Trader is defined in Rule 1.1.
With this proposed rule change, the
Exchange is adopting FINRA’s
definition of Securities Trader (as
described below) and therefore,
proposes to replace the reference to Rule
1.1 to Rule 2.1220(b)(3) in current Rule
2.2(e), Commentary .03, as the
appropriate rule in the Exchange’s
Rulebook where the definition of
Securities Trader can be found. In doing
so, the Exchange proposes to amend
current Rule 1.1(ac) which provides the
current definition of Securities Trader
14 The proposed change is substantially similar to
that contained in FINRA Rule 1240(b)(2).
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Federal Register / Vol. 83, No. 196 / Wednesday, October 10, 2018 / Notices
and proposes to mark that rule as
‘Reserved.’
Further, current Rule 2.2,
Commentary .03, states that each Person
Associated with an ETP Holder meeting
the definition of a Securities Trader
under Rule 1.1 must pass the Securities
Trader Qualification examination
(‘‘Series 57’’) and register as such in
CRD. The rule further provides that a
Person registered as a Securities Trader
shall not function in any other
registration category unless he/she is
also qualified in such other registration
category. Given the formulation of the
Securities Industry Essential
examination which all potential
representative-level registrants would be
required to pass, the Exchange proposes
to amend the current rule to require
each Person Associated with an ETP
Holder that meets the definition of a
Securities Trader to take the Series 57
examination and the Securities Industry
Essential examination and register as
such in CRD.
amozie on DSK3GDR082PROD with NOTICES1
F. Amendments to Rule 2.2,
Commentary .04
Current Rule 2.2, Commentary .04,
provides that the definition of a
Securities Trader Principal is defined in
Rule 1.1. With this proposed rule
change, the Exchange is adopting
FINRA’s definition of Securities Trader
(as described below) and therefore,
proposes to replace the reference to Rule
1.1 to Rule 2.1220(a)(5) in current Rule
2.2(e), Commentary .04, as the
appropriate rule in the Exchange’s
Rulebook where the definition of
Securities Trader Principal can be
found. In doing so, the Exchange
proposes to amend current Rule 1.1(ad)
which provides the current definition of
Securities Trader Principal and
proposes to mark that rule as ‘Reserved.’
Current Rule 2.2, Commentary .04,
references by incorporation NASD Rule
1032(f).15 With this proposed rule
change, the Exchange is adopting the
content of Rule 1032(f) into the
Exchange’s rules and therefore would
no longer need to reference by
incorporation the NASD rule. The
Exchange, therefore, proposes to replace
reference to NASD Rule 1032(f) in Rule
2.2, Commentary .04, with Rule
15 NASD Rule 1032(f) was recently amended to
expand the scope of individuals associated with a
FINRA member broker-dealer who are required to
register as Security Traders. See Securities
Exchange Act Release No. 77551 (April 7, 2016), 81
FR 21914 (April 13, 2016) (SR–FINRA–2016–007)
(Order Approving a Proposed Rule Change To
Require Registration as Securities Traders of
Associated Persons Primarily Responsible for the
Design, Development, Significant Modification of
Algorithmic Trading Strategies or Responsible for
the Day-to-Day Supervision of Such Activities).
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2.1220(b)(3) which is a proposed new
Exchange rule that is substantively
similar to NASD Rule 1032(f).
G. Amendment to Rule 2.2—
Commentary .06
Rule 2.2, Commentary .06, currently
provides that the Exchange may, in
exceptional cases and where good cause
is shown, waive a proficiency
examination and accept other standards
as evidence of an applicant’s
qualifications for registration. The rule
further provides that advanced age or
physical infirmity will not individually
of themselves constitute sufficient
grounds to waive a qualification
examination and that experience in
fields ancillary to the investment
banking or securities business may
constitute sufficient grounds to waive a
qualification examination. In light of the
Exchange’s proposal to adopt proposed
new Rule 2.1210, Commentary .02
(Qualification Examinations and
Waivers of Examinations),16 which
adopts revised language regarding the
waiver of examinations (see below for a
further discussion), the Exchange
proposes to delete the text of current
Rule 2.2, Commentary .06, in its
entirety.
The Exchange proposes to adopt new
Rule 2.2(e), Commentary .08, regarding
the submission of fingerprint
information by ETP Holders. As
proposed, upon filing an electronic
Form U4 on behalf of a person applying
for registration, an ETP Holder would be
required to promptly submit fingerprint
information for that person. If the ETP
Holder 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
16 The proposed rule is substantially similar to
FINRA Rule 1210.03.
17 The proposed rule is substantially similar to
FINRA Rule 1010(d).
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I. Proposed New Rules 2.1210 Through
2.1230
As a general matter, FINRA
administers qualification examinations
that are designed to establish that
persons associated with ETP Holders
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 Essential (‘‘SIE’’) that all
potential representative-level registrants
would take.18 Rule changes related to
the adoption of the SIE and other
proposed new rules are discussed
below.
1. Proposed Rule 2.1210—Registration
Requirements 19
H. Proposed New Rule 2.2—
Commentary .08—Fingerprint
Information 17
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the qualification requirements under
Exchange rules.
Proposed Rule 2.1210 provides that
each person engaged in the investment
banking or securities business of an ETP
Holder 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 2.1220,
unless exempt from registration
pursuant to proposed Rule 2.1230.
Proposed Rule 2.1210 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.
18 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.
19 The proposed rule is substantially similar to
FINRA Rule 1210.
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2. Proposed Rule 2.1210, Commentary
.01—Permissive Registrations 20
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.
Proposed Rule 2.1210, Commentary .01,
allows any associated person to obtain
and maintain any registration permitted
by an ETP Holder. For instance, an
associated person of an ETP Holder
working solely in a clerical or
ministerial capacity, such as in an
administrative capacity, would be able
to obtain and maintain a General
Securities Representative registration
with the ETP Holder. As another
example, an associated person of an ETP
Holder 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
ETP Holder. Further, proposed Rule
2.1210, Commentary .01, allows an
individual engaged in the securities
business of a foreign securities affiliate
or subsidiary of an ETP Holder to obtain
and maintain any registration permitted
by the ETP Holder.
The Exchange is proposing to permit
the registration of such individuals for
several reasons. First, an ETP Holder
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 ETP Holders 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, as proposed, ETP
Holders 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
20 The proposed rule is substantially similar to
FINRA Rule 1210.02.
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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, an ETP Holder 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.21
3. Proposed Rule 2.1210, Commentary
.02—Qualification Examinations and
Waivers of Examinations 22
Proposed Rule 2.1210, Commentary
.02, provides that before the registration
of a person as a representative can
become effective under proposed Rule
2.1210, such person must pass the SIE
and an appropriate representative-level
qualification examination as specified
in proposed Rule 2.1220.23 Proposed
Rule 2.1210, Commentary .02, also
provides that before the registration of a
person as a principal can become
effective under proposed Rule 2.1210,
such person must pass an appropriate
principal-level qualification
examination as specified in proposed
Rule 2.1220.
Further, proposed Rule 2.1210,
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 2.1210,
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
21 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.
22 The proposed rule is substantially similar to
FINRA Rule 1210.03.
23 Proposed Rule 2.1220 sets forth each
registration category and applicable qualification
examination for ETP Holders on the Exchange.
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51033
2.1210, 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 2.1210, Commentary
.02, also provides that the Exchange
may, in exceptional cases and where
good cause is shown, pursuant to the
Rule 10.9600 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 an ETP Holder for
individuals associated with the ETP
Holder 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 nonassociated persons or for associated
persons who are not registering as
representatives or principals.
4. Proposed Rule 2.1210, Commentary
.03—Requirements for Registered
Persons Functioning as Principals for a
Limited Period 24
Proposed Rule 2.1210, Commentary
.03, provides that an ETP Holder may
designate any person currently
registered, or who becomes registered,
with the ETP Holder 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
24 The proposed rule is substantially similar to
FINRA Rule 1210.04.
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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
prerequisite representative-level
registration requirement, such as the
Financial and Operations Principal
registration category.25
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 an
ETP Holder to function in other
principal categories for a limited period.
Specifically, the proposed rule states
that an ETP Holder may designate any
person currently registered, or who
becomes registered, with the ETP
Holder as a principal to function in
another principal category for 120
calendar days before passing any
applicable examinations.
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5. Proposed Rule 2.1210, Commentary
.04—Rules of Conduct for Taking
Examinations and Confidentiality of
Examinations 26
Proposed Rule 2.1210, 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 2.1210, 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 11.3.1. Moreover,
if an associated person is deemed to
25 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.
26 The proposed rule is substantially similar to
FINRA Rule 1210.05.
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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 11.3.1.
6. Proposed Rule 2.1210, Commentary
.05—Waiting Periods for Retaking a
Failed Examination 27
Proposed Rule 2.1210, 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
27 The proposed rule is substantially similar to
FINRA Rule 1210.06.
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agree to be subject to the same waiting
periods for retaking the SIE.
7. Proposed Rule 2.1210, Commentary
.06—All Registered Persons Must
Satisfy the Regulatory Element of
Continuing Education 28
Pursuant to Rule 2.2(e), the CE
requirements applicable to Registered
Persons consist of a Regulatory
Element 29 and a Firm Element.30 The
Regulatory Element applies to
Registered Persons and must be
completed within prescribed time
frames.31 For purposes of the Regulatory
Element, a Registered Person is any
person registered with the Exchange as
a General Securities Principal,
Securities Trader, Principal, FINOP,
Person Associated with an ETP Holder,
Authorized Trader or Market Maker
Authorized Trader. The Firm Element
consists of annual, ETP Holderdeveloped and administered training
programs designed to keep covered
Registered Persons current regarding
securities products, services and
strategies offered by the ETP Holder. For
purposes of the Firm Element, the term
covered Registered Persons means any
Person registered with an ETP Holder
who has direct contact with customers
in the conduct of the ETP Holder’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 2.1210,
Commentary .06, to clarify that all
Registered Persons, including those who
solely maintain a permissive
28 The proposed rule is substantially similar to
FINRA Rule 1210.07.
29 See Rule 2.2(e)(1).
30 See Rule 2.2(e)(2).
31 Pursuant to Rule 2.2(e)(1), 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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registration, are required to satisfy the
Regulatory Element, as specified in Rule
2.2(e)(1). The Exchange is making
corresponding changes to Rule 2.2(e)(1).
The Exchange is not proposing any
changes to the Firm Element
requirement at this time. Individuals
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 2.1210, Commentary
.06, also provides that a Registered
Person of an ETP Holder who becomes
CE inactive would not be permitted to
be registered in another registration
category with the ETP Holder or be
registered in any registration category
with another ETP Holder, until the
person has satisfied the Regulatory
Element.
8. Proposed Rule 2.1210, Commentary
.07—Lapse of Registration and
Expiration of the SIE 32
Proposed Rule 2.1210, 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 2.1220(b). Proposed Rule
2.1210, 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 an ETP Holder 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 ETP Holder, or
a subsequent ETP Holder, 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 an ETP Holder
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 an ETP Holder and register as a
representative without having to retake
32 The proposed rule is substantially similar to
FINRA Rule 1210.08.
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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 2.1210,
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 2.1210, Commentary
.08—Waiver of Examinations for
Individuals Working for a Financial
Services Industry Affiliate of an ETP
Holder 33
Proposed Rule 2.1210, Commentary
.08, provides the process for individuals
working for a financial services industry
affiliate of an ETP Holder 34 to terminate
their registrations with the ETP Holder
and be granted a waiver of their
requalification requirements upon reregistering with an ETP Holder,
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 ETP Holder
with which the individual is registered
would notify the Exchange of the FSA
designation. The ETP Holder 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 an ETP Holder, 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 ETP Holder. 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
33 The proposed rule is substantially similar to
FINRA Rule 1210.09.
34 Proposed Rule 2.1210, Commentary .07 [sic],
defines a ‘‘financial services industry affiliate of an
ETP Holder’’ as a legal entity that controls, is
controlled by or is under common control with an
ETP Holder 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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date of initial designation,35 provided
that the other conditions of the waiver,
as described below, have been satisfied.
Consequently, an ETP Holder other than
the ETP Holder that initially designated
an individual as an FSA-eligible person
may request a waiver for the individual
and more than one ETP Holder may
request a waiver for the individual
during the seven-year period.36
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 an ETP Holder. 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 2.2(e).
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
35 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.
36 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,37 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 ETP Holder 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 an ETP Holder;
(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 an ETP Holder 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 an ETP Holder.
Following the Form U5 filing, an
individual could move between the
financial services affiliates of an ETP
Holder so long as the individual is
continuously working for an affiliate.
Further, an ETP Holder could submit
multiple waiver requests for the
individual, provided that the waiver
requests are made during the course of
the seven-year period.38 An individual
who has been designated as an FSAeligible person by an ETP Holder would
not be able to take additional
37 The Exchange would consider a waiver of the
representative-level qualification examination(s),
the principal-level qualification examination(s) and
the SIE, as applicable.
38 For example, if an ETP Holder submits a waiver
request for an FSA-eligible person who has been
working for a financial services affiliate of the ETP
Holder for three years and re-registers the
individual, the ETP Holder 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 ETP
Holder for another three years, the ETP Holder
could submit a second waiver request and reregister the individual upon returning to the ETP
Holder.
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examinations to gain additional
registrations while working for a
financial services affiliate of an ETP
Holder.
10. Proposed Rule 2.1210, Commentary
.09—Status of Persons Serving in the
Armed Forces of the United States 39
Proposed Rule 2.1210, 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 an ETP Holder 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 ETP Holder with which such person
is registered promptly notify the
Exchange of such person’s return to
employment with the ETP Holder. The
proposed rule would require an ETP
Holder 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.
J. Proposed New Rule 2.1220—
Registration Categories 40
1. Proposed Rule 2.1220(a)(1)—
Principal
Rule 1.1(y) currently defines the term
‘‘Principal’’ to mean any Person
Associated with an ETP Holder actively
39 The proposed rule is substantially similar to
FINRA Rule 1210.10.
40 The Exchange is not adopting the following
categories from the FINRA Filing because ETP
Holders 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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engaged in the management of the ETP
Holder’s securities business, including
supervision, solicitation, conduct of the
ETP Holder’s business, or the training of
Authorized Traders and Persons
Associated with an ETP Holder for any
of these functions. Such Persons include
Sole Proprietors, Officers, Partners, and
Directors of Corporations. The Exchange
is not proposing any change to the
current definition for purposes of the
proposed new registration rules.
The Exchange does, however, propose
to codify the phrase ‘‘actively engaged
in the management of the ETP Holder’s
securities business’’ to include 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 ETP Holder’s
securities business and managementlevel responsibilities for supervising any
aspect of such business, such as serving
as a voting member of the ETP Holder’s
executive, management or operations
committee.
2. Proposed Rule 2.1220(a)(2)—General
Securities Principal 41
Proposed Rule 2.1220(a)(2)(A) states
that each principal as defined in
proposed Rule 2.1220(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 2.1220(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 2.1220(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 2.1220(a)(2)(B) also clarifies that an
individual may register as a General
Securities Sales Supervisor and pass the
General Securities Sales Supervisor
41 The proposed rule is substantially similar to
FINRA Rule 1220(a)(2).
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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 2.1220(a)(2)(B),
however, provides that, subject to the
lapse of registration provisions in
proposed Rule 2.1210, 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 an
ETP Holder are limited to corporate
securities activities of the ETP Holder.
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.
following qualification requirements for
Compliance Officer registration:
• Subject to the lapse of registration
provisions in proposed Rule 2.1210,
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 2.1210,
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 that is engaged in limited
investment banking or securities
business may be registered in a
principal category under proposed Rule
2.1220(a) that corresponds to the limited
scope of the ETP Holder’s business.
3. Proposed Rule 2.1220(a)(3)—
Compliance Officer 42
Proposed Rule 2.1220(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 ETP
Holders engaged in limited investment
banking or securities business. The
proposed rule only addresses the
registration requirements for CCOs.
However, consistent with proposed Rule
2.1210, 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 2.1220(a)(3) set forth the
4. Proposed Rule 2.1220(a)(4)—
Financial and Operation Principal and
Introducing Broker-Dealer Financial and
Operations Principal 43
Proposed Rule 2.1220(a)(4) provides
that each principal who is responsible
for the financial and operational
management of an ETP Holder 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 an ETP
Holder that has a minimum net capital
requirement of $150,000 under SEA
Rule 15c–3–1(a)(8) must be designated
as a Financial and Operations Principal.
In addition, proposed Rule 2.1220(a)(4)
provides that a principal who is
responsible for the financial and
operational management of an ETP
Holder that is subject to the net capital
requirements of SEA Rule 15c3–1, other
42 The proposed rule is substantially similar to
FINRA Rule 1220(a)(3).
43 The proposed rule is substantially similar to
FINRA Rule 1220(a)(4).
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than an ETP Holder 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
2.1220(a)(4)(B) requires an ETP Holder
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 ETP Holders that neither
self-clear nor provide clearing services
are more limited, such ETP Holders 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 ETP Holders 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 ETP Holders 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
ETP Holder that is limited in size and
resources may request a waiver of the
requirement to designate separate
persons to function as Principal
Financial Officer and Principal
Operations Officer.
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5. Proposed Rule 2.1220(a)(5)—
Securities Trader Principal 44
persons associated with an ETP Holder
for any of these functions.
Proposed Rule 2.1220(a)(5) requires
that a principal responsible for
supervising the securities trading
activities specified in proposed Rule
2.1220(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.
8. Proposed Rule 2.1220(b)(2)—General
Securities Representative 48
6. Proposed Rule 2.1220(a)(6)—General
Securities Sales Supervisor 45
Proposed Rule 2.1220(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 an ETP
Holder are limited to the securities sales
activities of the ETP Holder, 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 ETP Holder 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.46 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 2.1220(b)(1)—
Representative 47
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Proposed Rule 2.1220(b)(1) defines a
representative as any person associated
with an ETP Holder, including assistant
officers other than principals, who is
engaged in the ETP Holder’s investment
banking or securities business, such as
supervision, solicitation, conduct of
business in securities or the training of
44 The proposed rule is substantially similar to
FINRA Rule 1220(a)(7).
45 The proposed rule is substantially similar to
FINRA Rule 1220(a)(10).
46 An individual may also register as a General
Securities Sales Supervisor by passing a
combination of other principal-level examinations.
47 The proposed rule is substantially similar to
FINRA Rule 1220(b)(1).
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Proposed Rule 2.1220(b)(2)(A) states
that each representative as defined in
proposed Rule 2.1220(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 2.1210,
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.
align the text of the rule to that adopted
by FINRA and other exchanges.50
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 2.1210,
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 2.1220, Commentary
.01—Foreign Registrations 51
Proposed Rule 2.1220(b)(3) provides
that each representative as defined in
proposed Rule 2.1220(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
an ETP Holder 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 an ETP Holder. The
Exchange proposes to adopt FINRA’s
definition of Securities Trader in
proposed Rule 2.1220(b)(3) in order to
Proposed Rule 2.1220, 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 2.1220, Commentary .01, provides
that, subject to the lapse of registration
provisions in Rule 2.1210, Commentary
.07, each person who is registered with
the Exchange as a United Kingdom
Securities Representative or a Canada
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
48 The proposed rule is substantially similar to
FINRA Rule 1220(b)(2).
49 The proposed rule is substantially similar to
FINRA Rule 1220(b)(4).
50 See e.g., MIAX International Stock Exchange,
LLC Rule 203(d).
51 The proposed rule is substantially similar to
FINRA Rule 1220.01 and 1220.06.
9. Proposed Rule 2.1220(b)(3)—
Securities Trader 49
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Federal Register / Vol. 83, No. 196 / Wednesday, October 10, 2018 / Notices
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 2.1220, Commentary
.02—Additional Qualification
Requirements for Persons Engaged in
Security Futures 52
Proposed Rule 2.1220, 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 2.2(e)(2)
that addresses security futures products
before such person engages in security
futures activities.53
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12. Proposed Rule 2.1220, Commentary
.03—Scope of General Securities Sales
Supervisor Registration Category 54
Proposed Rule 2.1220, 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, the NYSE 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
52 The proposed rule is substantially similar to
FINRA Rule 1220.02.
53 FINRA Rule 1220.02 also includes Options
Representative and Registered Options Principal
registration categories. NYSE National does not
trade options and ETP Holders of NYSE National
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 2.1220, Commentary .03 [sic].
54 The proposed rule is substantially similar to
FINRA Rule 1220.04.
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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 2.1220,
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.
K. Proposed New Rule 2.1230—
Associated Persons Exempt From
Registration 55
Proposed Rule 2.1230 provides an
exemption from registration with the
Exchange for certain associated persons.
Specifically, the proposed rule provides
that persons associated with an ETP
Holder whose functions are solely and
exclusively clerical or ministerial would
be exempt from registration.56
1. Proposed Rule 2.1230, Commentary
.01—Registration Requirements for
Associated Persons Who Accept
Customer Orders 57
Proposed Rule 2.1230, 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
55 The proposed rule is substantially similar to
FINRA Rule 1230.
56 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. ETP
Holders of NYSE National 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.
57 The proposed rule is substantially similar to
FINRA Rule 1230.01.
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51039
customer to confirm the order details
before entering the order [sic]
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),58 in general, and furthers the
objectives of Section 6(b)(5),59 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 ETP Holders 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 ETP Holders 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 an
ETP Holder, 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.
58 15
59 15
E:\FR\FM\10OCN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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Federal Register / Vol. 83, No. 196 / Wednesday, October 10, 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 ETP Holders 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.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change
does not: (i) Significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative prior to 30 days from the date
on which it was filed, or such shorter
time as the Commission may designate,
if consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)
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) 60 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
60 17
CFR 240.19b–4(f)(6)(iii).
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October 1, 2018 to coincide with the
effective date of FINRA’s proposed rule
change on which the proposal is
based.61 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, 2018.62
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 63 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSENAT–2018–21 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–NYSENAT–2018–21. 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
61 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).
63 15 U.S.C. 78s(b)(2)(B).
62 For
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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–NYSENAT–2018–21 and
should be submitted on or before
October 31, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.64
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–21903 Filed 10–9–18; 8:45 am]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
Reporting and Recordkeeping
Requirements Under OMB Review
Small Business Administration.
30-Day notice.
AGENCY:
ACTION:
The Small Business
Administration (SBA) is publishing this
notice to comply with requirements of
the Paperwork Reduction Act (PRA)
which requires agencies to submit
proposed reporting and recordkeeping
requirements to OMB for review and
approval, and to publish a notice in the
Federal Register notifying the public of
that submission.
DATES: Submit comments on or before
November 9, 2018.
ADDRESSES: Comments should refer to
the information collection by name and/
or OMB Control Number and should be
sent to: Agency Clearance Officer, Curtis
Rich, Small Business Administration,
409 3rd Street SW, 5th Floor,
SUMMARY:
64 17
E:\FR\FM\10OCN1.SGM
CFR 200.30–3(a)(12).
10OCN1
Agencies
[Federal Register Volume 83, Number 196 (Wednesday, October 10, 2018)]
[Notices]
[Pages 51030-51040]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-21903]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84350; File No. SR-NYSENAT-2018-21]
Self-Regulatory Organizations; NYSE National, Inc.; Notice of
Filing and Immediate Effectiveness of Amendments to Rules Regarding
Qualification, Registration and Continuing Education Applicable to
Equity Trading Permit Holders
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, NYSE National, Inc. (the ``Exchange''
or ``NYSE National'') 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 Equity Trading Permit (``ETP'') Holders. 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 ETP Holders. The
Exchange is not adopting registration categories that are not
applicable to ETP Holders because ETP Holders do not engage in the type
of business that would require such registration. As such, the Exchange
is amending current Rule 2.2 regarding continuing education
requirements to reflect the FINRA rule; adopting Commentary .08 to
current Rule 2.2 regarding fingerprint information; adopting new Rule
2.1210 regarding registration requirements and related Commentary to
new Rule 2.1210; adopting new Rule 2.1220 regarding registration
categories \4\ and related Commentary to new Rule 2.1220; and adopting
new Rule 2.1230 regarding associated persons exempt from registration
and related Commentary to new Rule 2.1230. 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 ETP Holders. 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 ETP Holders. For
example, while ETP Holders 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 ``ETP Holder'' for ``member'' and the term
``Exchange'' for ``FINRA.''
---------------------------------------------------------------------------
A. Amendments to Rule 2.2(c)
Rule 2.2(c)(1) currently provides, among other things, that an ETP
Holder shall register with the Exchange as a Principal any Person who
meets the definition of a Principal as described in Rule 1.1 and that
each such Principal must be registered as such through the FINRA
Central Registration Depository System (``CRD''), and must pass the
general Securities Principal (Series 24) examination. The current rule
further provides that a Principal must pass the Series 7 examination or
an equivalent foreign examination module as a prerequisite to taking
the Series 24 examination. The Exchange proposes to amend the current
rule to reflect the change of the prerequisite examination requirements
for Principals registered with the Exchange. The amended rule provides
that the Exchange would require the Series 7 examination and the
Securities Industry Essentials examination as a prerequisite to taking
the Series 24 examination and would no longer accept a foreign
examination module as a prerequisite given the elimination of the
foreign examination module in the FINRA Filing.
Rule 2.2(c)(2) currently provides, among other things, that each
ETP Holder, other than a sole proprietorship or a proprietary trading
firm that has 25 or fewer Authorized Traders, is required to register
at least two Principals with the Exchange. Per the rule, a sole
proprietorship or a proprietary trading firm with 25 or fewer
Authorized Traders is required to register one Principal with the
Exchange. The
[[Page 51031]]
Exchange proposes to make a drafting change to the text of the rule
without any substantive change to the application of the current
rule.\7\ As proposed, each ETP Holder would continue to be required to
register at least two Principals unless the ETP Holder is a sole
proprietorship or a proprietary trading firm, in which case, such ETP
Holder would continue to be required to register one Principal with the
Exchange.
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\7\ The proposed change would align the text of the rule to the
rules of other exchanges. See e.g., NASDAQ Stock Market Rule
1021(e).
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B. Amendments to Rule 2.2(e)--Continuing Education Requirements
Rule 2.2(e) provides the continuing education requirements of
certain Registered Persons \8\ 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. The Firm Element consists of at least an annual,
member-developed and administered training programs designed to keep
Registered Persons current regarding securities products, services and
strategies offered by the member. For purposes of Rule 2.2(e), the
Exchange proposes to include within the definition of a Registered
Person any Person who is permissively registered pursuant to proposed
Rule 2.1210, Commentary .01, and any Person designated as eligible for
a waiver pursuant to proposed Rule 2.1210, Commentary .08.\9\ The
purpose of this change is to ensure all Registered Persons, including
those with permissive registrations, keep their knowledge of the
securities industry current. The inclusion of persons designated as
eligible for a waiver under the term ``Registered Person'' corresponds
to the requirements of proposed Rule 2.1210, Commentary .08.
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\8\ For purposes of Rule 2.2(e), the term ``Registered Person''
means any Person registered with the Exchange as a General
Securities Representative, Securities Trader, Principal, Principal--
Financial and Operations (``FINOP''), Person Associated with an ETP
Holder, Authorized Trader or Market Maker Authorized Trader. See
Rule 2.2(e).
\9\ The proposed change is substantially similar to that
contained in FINRA Rule 1240(a)(5).
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1. Regulatory Element
The Exchange proposes to amend Rule 2.2(e)(1) to provide,
consistent with proposed Rule 2.1210, 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.\10\ The proposed amendment
to Rule 2.2(e)(1) 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.\11\
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\10\ The proposed change is substantially similar to that
contained in FINRA Rule 1240(a)(1).
\11\ The proposed change is substantially similar to that
contained in FINRA Rule 1240(a)(2).
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Further, the Exchange proposes to amend Rule 2.2(e)(1) to provide
that any person who 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 ETP Holder with which the person is associated has a policy
prohibiting such trail or residual commissions.\12\
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\12\ The proposed change is substantially similar to that
contained in FINRA Rule 1240(a)(2).
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Additionally, under Rule 2.2(e)(1), 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
2.2(e)(1) to provide an exception to a waiver-eligible person from
retaking the Regulatory Element and satisfy [sic] all of its
requirements.\13\
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\13\ The proposed change is substantially similar to that
contained in FINRA Rule 1240(a)(3).
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2. Firm Element
Current Rule 2.2(e)(2)(B)(ii) provides that programs used to
implement an ETP Holder's training program must be appropriate for the
business of the ETP Holder and, at a minimum must cover specific
matters concerning securities products, services, and strategies
offered by the ETP Holder. 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.\14\
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\14\ The proposed change is substantially similar to that
contained in FINRA Rule 1240(b)(2).
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C. Amendments to Rule 2.2, Commentary .01
Current Rule 2.2, Commentary .01, states that the Exchange requires
the General Securities Representative examination (``Series 7'') or an
equivalent foreign examination module approved by the Exchange in
qualifying Persons seeking registration as general securities
representatives. As noted above, given the elimination of the foreign
examination module in the FINRA Filing, the Exchange proposes to amend
the current rule to remove a foreign examination module as an
equivalent requirement to register as a general securities
representative. As amended, Rule 2.2, Commentary .01, would provide
that qualifying Persons seeking registration as a general securities
representatives would be required to take the Series 7 examination and
the Securities Industry Essentials examination.
D. Amendments to Rule 2.2, Commentary .02
Current Rule 2.2, Commentary .02, states that the Exchange will
accept the New York Stock Exchange Chief Compliance Officer Examination
(``NYSE Series 14'') as an alternative qualification to register as
Principal an individual identified as the Chief Compliance Officer on
an ETP Holder's Form BD. The Exchange proposes a technical change to
rename the NYSE Series 14 examination as the Compliance Official
Examination which is the correct name of the examination.
E. Amendments to Rule 2.2, Commentary .03
Current Rule 2.2, Commentary .03, provides that the definition of a
Securities Trader is defined in Rule 1.1. With this proposed rule
change, the Exchange is adopting FINRA's definition of Securities
Trader (as described below) and therefore, proposes to replace the
reference to Rule 1.1 to Rule 2.1220(b)(3) in current Rule 2.2(e),
Commentary .03, as the appropriate rule in the Exchange's Rulebook
where the definition of Securities Trader can be found. In doing so,
the Exchange proposes to amend current Rule 1.1(ac) which provides the
current definition of Securities Trader
[[Page 51032]]
and proposes to mark that rule as `Reserved.'
Further, current Rule 2.2, Commentary .03, states that each Person
Associated with an ETP Holder meeting the definition of a Securities
Trader under Rule 1.1 must pass the Securities Trader Qualification
examination (``Series 57'') and register as such in CRD. The rule
further provides that a Person registered as a Securities Trader shall
not function in any other registration category unless he/she is also
qualified in such other registration category. Given the formulation of
the Securities Industry Essential examination which all potential
representative-level registrants would be required to pass, the
Exchange proposes to amend the current rule to require each Person
Associated with an ETP Holder that meets the definition of a Securities
Trader to take the Series 57 examination and the Securities Industry
Essential examination and register as such in CRD.
F. Amendments to Rule 2.2, Commentary .04
Current Rule 2.2, Commentary .04, provides that the definition of a
Securities Trader Principal is defined in Rule 1.1. With this proposed
rule change, the Exchange is adopting FINRA's definition of Securities
Trader (as described below) and therefore, proposes to replace the
reference to Rule 1.1 to Rule 2.1220(a)(5) in current Rule 2.2(e),
Commentary .04, as the appropriate rule in the Exchange's Rulebook
where the definition of Securities Trader Principal can be found. In
doing so, the Exchange proposes to amend current Rule 1.1(ad) which
provides the current definition of Securities Trader Principal and
proposes to mark that rule as `Reserved.'
Current Rule 2.2, Commentary .04, references by incorporation NASD
Rule 1032(f).\15\ With this proposed rule change, the Exchange is
adopting the content of Rule 1032(f) into the Exchange's rules and
therefore would no longer need to reference by incorporation the NASD
rule. The Exchange, therefore, proposes to replace reference to NASD
Rule 1032(f) in Rule 2.2, Commentary .04, with Rule 2.1220(b)(3) which
is a proposed new Exchange rule that is substantively similar to NASD
Rule 1032(f).
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\15\ NASD Rule 1032(f) was recently amended to expand the scope
of individuals associated with a FINRA member broker-dealer who are
required to register as Security Traders. See Securities Exchange
Act Release No. 77551 (April 7, 2016), 81 FR 21914 (April 13, 2016)
(SR-FINRA-2016-007) (Order Approving a Proposed Rule Change To
Require Registration as Securities Traders of Associated Persons
Primarily Responsible for the Design, Development, Significant
Modification of Algorithmic Trading Strategies or Responsible for
the Day-to-Day Supervision of Such Activities).
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G. Amendment to Rule 2.2--Commentary .06
Rule 2.2, Commentary .06, currently provides that the Exchange may,
in exceptional cases and where good cause is shown, waive a proficiency
examination and accept other standards as evidence of an applicant's
qualifications for registration. The rule further provides that
advanced age or physical infirmity will not individually of themselves
constitute sufficient grounds to waive a qualification examination and
that experience in fields ancillary to the investment banking or
securities business may constitute sufficient grounds to waive a
qualification examination. In light of the Exchange's proposal to adopt
proposed new Rule 2.1210, Commentary .02 (Qualification Examinations
and Waivers of Examinations),\16\ which adopts revised language
regarding the waiver of examinations (see below for a further
discussion), the Exchange proposes to delete the text of current Rule
2.2, Commentary .06, in its entirety.
---------------------------------------------------------------------------
\16\ The proposed rule is substantially similar to FINRA Rule
1210.03.
---------------------------------------------------------------------------
H. Proposed New Rule 2.2--Commentary .08--Fingerprint Information \17\
---------------------------------------------------------------------------
\17\ The proposed rule is substantially similar to FINRA Rule
1010(d).
---------------------------------------------------------------------------
The Exchange proposes to adopt new Rule 2.2(e), Commentary .08,
regarding the submission of fingerprint information by ETP Holders. As
proposed, upon filing an electronic Form U4 on behalf of a person
applying for registration, an ETP Holder would be required to promptly
submit fingerprint information for that person. If the ETP Holder 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.
I. Proposed New Rules 2.1210 Through 2.1230
As a general matter, FINRA administers qualification examinations
that are designed to establish that persons associated with ETP Holders
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 Essential (``SIE'') that all
potential representative-level registrants would take.\18\ Rule changes
related to the adoption of the SIE and other proposed new rules are
discussed below.
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\18\ 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 2.1210--Registration Requirements \19\
---------------------------------------------------------------------------
\19\ The proposed rule is substantially similar to FINRA Rule
1210.
---------------------------------------------------------------------------
Proposed Rule 2.1210 provides that each person engaged in the
investment banking or securities business of an ETP Holder 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 2.1220, unless exempt
from registration pursuant to proposed Rule 2.1230. Proposed Rule
2.1210 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.
[[Page 51033]]
2. Proposed Rule 2.1210, Commentary .01--Permissive Registrations \20\
---------------------------------------------------------------------------
\20\ 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. Proposed Rule 2.1210,
Commentary .01, allows any associated person to obtain and maintain any
registration permitted by an ETP Holder. For instance, an associated
person of an ETP Holder working solely in a clerical or ministerial
capacity, such as in an administrative capacity, would be able to
obtain and maintain a General Securities Representative registration
with the ETP Holder. As another example, an associated person of an ETP
Holder 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 ETP Holder. Further,
proposed Rule 2.1210, Commentary .01, allows an individual engaged in
the securities business of a foreign securities affiliate or subsidiary
of an ETP Holder to obtain and maintain any registration permitted by
the ETP Holder.
The Exchange is proposing to permit the registration of such
individuals for several reasons. First, an ETP Holder 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 ETP Holders 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, as proposed, ETP Holders 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, an ETP Holder 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.\21\
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\21\ 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.
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3. Proposed Rule 2.1210, Commentary .02--Qualification Examinations and
Waivers of Examinations \22\
---------------------------------------------------------------------------
\22\ The proposed rule is substantially similar to FINRA Rule
1210.03.
---------------------------------------------------------------------------
Proposed Rule 2.1210, Commentary .02, provides that before the
registration of a person as a representative can become effective under
proposed Rule 2.1210, such person must pass the SIE and an appropriate
representative-level qualification examination as specified in proposed
Rule 2.1220.\23\ Proposed Rule 2.1210, Commentary .02, also provides
that before the registration of a person as a principal can become
effective under proposed Rule 2.1210, such person must pass an
appropriate principal-level qualification examination as specified in
proposed Rule 2.1220.
---------------------------------------------------------------------------
\23\ Proposed Rule 2.1220 sets forth each registration category
and applicable qualification examination for ETP Holders on the
Exchange.
---------------------------------------------------------------------------
Further, proposed Rule 2.1210, 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 2.1210, 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 2.1210, 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 2.1210, Commentary .02, also provides that the
Exchange may, in exceptional cases and where good cause is shown,
pursuant to the Rule 10.9600 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 an ETP Holder for individuals associated with the ETP
Holder 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 2.1210, Commentary .03--Requirements for Registered
Persons Functioning as Principals for a Limited Period \24\
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\24\ The proposed rule is substantially similar to FINRA Rule
1210.04.
---------------------------------------------------------------------------
Proposed Rule 2.1210, Commentary .03, provides that an ETP Holder
may designate any person currently registered, or who becomes
registered, with the ETP Holder 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
[[Page 51034]]
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 prerequisite representative-level registration
requirement, such as the Financial and Operations Principal
registration category.\25\
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\25\ 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.
---------------------------------------------------------------------------
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 an ETP Holder to
function in other principal categories for a limited period.
Specifically, the proposed rule states that an ETP Holder may designate
any person currently registered, or who becomes registered, with the
ETP Holder as a principal to function in another principal category for
120 calendar days before passing any applicable examinations.
5. Proposed Rule 2.1210, Commentary .04--Rules of Conduct for Taking
Examinations and Confidentiality of Examinations \26\
---------------------------------------------------------------------------
\26\ The proposed rule is substantially similar to FINRA Rule
1210.05.
---------------------------------------------------------------------------
Proposed Rule 2.1210, 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 2.1210, 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 11.3.1. 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 11.3.1.
6. Proposed Rule 2.1210, Commentary .05--Waiting Periods for Retaking a
Failed Examination \27\
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\27\ The proposed rule is substantially similar to FINRA Rule
1210.06.
---------------------------------------------------------------------------
Proposed Rule 2.1210, 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 2.1210, Commentary .06--All Registered Persons Must
Satisfy the Regulatory Element of Continuing Education \28\
---------------------------------------------------------------------------
\28\ The proposed rule is substantially similar to FINRA Rule
1210.07.
---------------------------------------------------------------------------
Pursuant to Rule 2.2(e), the CE requirements applicable to
Registered Persons consist of a Regulatory Element \29\ and a Firm
Element.\30\ The Regulatory Element applies to Registered Persons and
must be completed within prescribed time frames.\31\ For purposes of
the Regulatory Element, a Registered Person is any person registered
with the Exchange as a General Securities Principal, Securities Trader,
Principal, FINOP, Person Associated with an ETP Holder, Authorized
Trader or Market Maker Authorized Trader. The Firm Element consists of
annual, ETP Holder-developed and administered training programs
designed to keep covered Registered Persons current regarding
securities products, services and strategies offered by the ETP Holder.
For purposes of the Firm Element, the term covered Registered Persons
means any Person registered with an ETP Holder who has direct contact
with customers in the conduct of the ETP Holder's securities sales,
trading and investment banking activities and to the immediate
supervisors of such Persons.
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\29\ See Rule 2.2(e)(1).
\30\ See Rule 2.2(e)(2).
\31\ Pursuant to Rule 2.2(e)(1), 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
2.1210, Commentary .06, to clarify that all Registered Persons,
including those who solely maintain a permissive
[[Page 51035]]
registration, are required to satisfy the Regulatory Element, as
specified in Rule 2.2(e)(1). The Exchange is making corresponding
changes to Rule 2.2(e)(1). The Exchange is not proposing any changes to
the Firm Element requirement at this time. Individuals 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 2.1210, Commentary .06, also provides that a
Registered Person of an ETP Holder who becomes CE inactive would not be
permitted to be registered in another registration category with the
ETP Holder or be registered in any registration category with another
ETP Holder, until the person has satisfied the Regulatory Element.
8. Proposed Rule 2.1210, Commentary .07--Lapse of Registration and
Expiration of the SIE \32\
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\32\ The proposed rule is substantially similar to FINRA Rule
1210.08.
---------------------------------------------------------------------------
Proposed Rule 2.1210, 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 2.1220(b). Proposed Rule
2.1210, 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 an ETP Holder 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 ETP Holder, or a
subsequent ETP Holder, 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 an ETP Holder 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 an ETP Holder
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 2.1210, 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 2.1210, Commentary .08--Waiver of Examinations for
Individuals Working for a Financial Services Industry Affiliate of an
ETP Holder \33\
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\33\ The proposed rule is substantially similar to FINRA Rule
1210.09.
---------------------------------------------------------------------------
Proposed Rule 2.1210, Commentary .08, provides the process for
individuals working for a financial services industry affiliate of an
ETP Holder \34\ to terminate their registrations with the ETP Holder
and be granted a waiver of their requalification requirements upon re-
registering with an ETP Holder, provided the firm that is requesting
the waiver and the individual satisfy the criteria for a Financial
Services Affiliate (``FSA'') waiver.
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\34\ Proposed Rule 2.1210, Commentary .07 [sic], defines a
``financial services industry affiliate of an ETP Holder'' as a
legal entity that controls, is controlled by or is under common
control with an ETP Holder 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 ETP Holder with which the individual is registered would
notify the Exchange of the FSA designation. The ETP Holder 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 an ETP Holder, 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 ETP Holder. 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,\35\
provided that the other conditions of the waiver, as described below,
have been satisfied. Consequently, an ETP Holder other than the ETP
Holder that initially designated an individual as an FSA-eligible
person may request a waiver for the individual and more than one ETP
Holder may request a waiver for the individual during the seven-year
period.\36\
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\35\ 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.
\36\ 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 an ETP Holder. 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 2.2(e).
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 51036]]
to the Exchange,\37\ 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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\37\ 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 ETP Holder 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 an ETP
Holder;
(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 an ETP Holder 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 an ETP Holder.
Following the Form U5 filing, an individual could move between the
financial services affiliates of an ETP Holder so long as the
individual is continuously working for an affiliate. Further, an ETP
Holder could submit multiple waiver requests for the individual,
provided that the waiver requests are made during the course of the
seven-year period.\38\ An individual who has been designated as an FSA-
eligible person by an ETP Holder would not be able to take additional
examinations to gain additional registrations while working for a
financial services affiliate of an ETP Holder.
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\38\ For example, if an ETP Holder submits a waiver request for
an FSA-eligible person who has been working for a financial services
affiliate of the ETP Holder for three years and re-registers the
individual, the ETP Holder 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 ETP
Holder for another three years, the ETP Holder could submit a second
waiver request and re-register the individual upon returning to the
ETP Holder.
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10. Proposed Rule 2.1210, Commentary .09--Status of Persons Serving in
the Armed Forces of the United States \39\
---------------------------------------------------------------------------
\39\ The proposed rule is substantially similar to FINRA Rule
1210.10.
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Proposed Rule 2.1210, 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 an
ETP Holder 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 ETP Holder with
which such person is registered promptly notify the Exchange of such
person's return to employment with the ETP Holder. The proposed rule
would require an ETP Holder 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.
J. Proposed New Rule 2.1220--Registration Categories \40\
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\40\ The Exchange is not adopting the following categories from
the FINRA Filing because ETP Holders 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 2.1220(a)(1)--Principal
Rule 1.1(y) currently defines the term ``Principal'' to mean any
Person Associated with an ETP Holder actively engaged in the management
of the ETP Holder's securities business, including supervision,
solicitation, conduct of the ETP Holder's business, or the training of
Authorized Traders and Persons Associated with an ETP Holder for any of
these functions. Such Persons include Sole Proprietors, Officers,
Partners, and Directors of Corporations. The Exchange is not proposing
any change to the current definition for purposes of the proposed new
registration rules.
The Exchange does, however, propose to codify the phrase ``actively
engaged in the management of the ETP Holder's securities business'' to
include 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 ETP Holder's securities business
and management-level responsibilities for supervising any aspect of
such business, such as serving as a voting member of the ETP Holder's
executive, management or operations committee.
2. Proposed Rule 2.1220(a)(2)--General Securities Principal \41\
---------------------------------------------------------------------------
\41\ The proposed rule is substantially similar to FINRA Rule
1220(a)(2).
---------------------------------------------------------------------------
Proposed Rule 2.1220(a)(2)(A) states that each principal as defined
in proposed Rule 2.1220(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 2.1220(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 2.1220(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
2.1220(a)(2)(B) also clarifies that an individual may register as a
General Securities Sales Supervisor and pass the General Securities
Sales Supervisor
[[Page 51037]]
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
2.1220(a)(2)(B), however, provides that, subject to the lapse of
registration provisions in proposed Rule 2.1210, 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
an ETP Holder are limited to corporate securities activities of the ETP
Holder. 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 2.1220(a)(3)--Compliance Officer \42\
---------------------------------------------------------------------------
\42\ The proposed rule is substantially similar to FINRA Rule
1220(a)(3).
---------------------------------------------------------------------------
Proposed Rule 2.1220(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 ETP Holders engaged in limited investment banking or
securities business. The proposed rule only addresses the registration
requirements for CCOs. However, consistent with proposed Rule 2.1210,
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 2.1220(a)(3) set forth the following
qualification requirements for Compliance Officer registration:
Subject to the lapse of registration provisions in
proposed Rule 2.1210, 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 2.1210, 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 that is engaged in limited investment banking or
securities business may be registered in a principal category under
proposed Rule 2.1220(a) that corresponds to the limited scope of the
ETP Holder's business.
4. Proposed Rule 2.1220(a)(4)--Financial and Operation Principal and
Introducing Broker-Dealer Financial and Operations Principal \43\
---------------------------------------------------------------------------
\43\ The proposed rule is substantially similar to FINRA Rule
1220(a)(4).
---------------------------------------------------------------------------
Proposed Rule 2.1220(a)(4) provides that each principal who is
responsible for the financial and operational management of an ETP
Holder 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 an ETP Holder that has a
minimum net capital requirement of $150,000 under SEA Rule 15c-3-
1(a)(8) must be designated as a Financial and Operations Principal. In
addition, proposed Rule 2.1220(a)(4) provides that a principal who is
responsible for the financial and operational management of an ETP
Holder that is subject to the net capital requirements of SEA Rule
15c3-1, other than an ETP Holder 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 2.1220(a)(4)(B) requires an ETP Holder
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 ETP Holders
that neither self-clear nor provide clearing services are more limited,
such ETP Holders 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 ETP Holders 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 ETP Holders 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
ETP Holder that is limited in size and resources may request a waiver
of the requirement to designate separate persons to function as
Principal Financial Officer and Principal Operations Officer.
[[Page 51038]]
5. Proposed Rule 2.1220(a)(5)--Securities Trader Principal \44\
---------------------------------------------------------------------------
\44\ The proposed rule is substantially similar to FINRA Rule
1220(a)(7).
---------------------------------------------------------------------------
Proposed Rule 2.1220(a)(5) requires that a principal responsible
for supervising the securities trading activities specified in proposed
Rule 2.1220(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 2.1220(a)(6)--General Securities Sales Supervisor \45\
---------------------------------------------------------------------------
\45\ The proposed rule is substantially similar to FINRA Rule
1220(a)(10).
---------------------------------------------------------------------------
Proposed Rule 2.1220(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 an ETP Holder are limited to the securities
sales activities of the ETP Holder, 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 ETP
Holder 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.\46\
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.
---------------------------------------------------------------------------
\46\ 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 2.1220(b)(1)--Representative \47\
---------------------------------------------------------------------------
\47\ The proposed rule is substantially similar to FINRA Rule
1220(b)(1).
---------------------------------------------------------------------------
Proposed Rule 2.1220(b)(1) defines a representative as any person
associated with an ETP Holder, including assistant officers other than
principals, who is engaged in the ETP Holder's investment banking or
securities business, such as supervision, solicitation, conduct of
business in securities or the training of persons associated with an
ETP Holder for any of these functions.
8. Proposed Rule 2.1220(b)(2)--General Securities Representative \48\
---------------------------------------------------------------------------
\48\ The proposed rule is substantially similar to FINRA Rule
1220(b)(2).
---------------------------------------------------------------------------
Proposed Rule 2.1220(b)(2)(A) states that each representative as
defined in proposed Rule 2.1220(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 2.1210, 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 2.1220(b)(3)--Securities Trader \49\
---------------------------------------------------------------------------
\49\ The proposed rule is substantially similar to FINRA Rule
1220(b)(4).
---------------------------------------------------------------------------
Proposed Rule 2.1220(b)(3) provides that each representative as
defined in proposed Rule 2.1220(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 an ETP Holder 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 an ETP
Holder. The Exchange proposes to adopt FINRA's definition of Securities
Trader in proposed Rule 2.1220(b)(3) in order to align the text of the
rule to that adopted by FINRA and other exchanges.\50\
---------------------------------------------------------------------------
\50\ See e.g., MIAX International Stock Exchange, LLC Rule
203(d).
---------------------------------------------------------------------------
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 2.1210, 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 2.1220, Commentary .01--Foreign Registrations \51\
---------------------------------------------------------------------------
\51\ The proposed rule is substantially similar to FINRA Rule
1220.01 and 1220.06.
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Proposed Rule 2.1220, 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 2.1220, Commentary .01,
provides that, subject to the lapse of registration provisions in Rule
2.1210, Commentary .07, each person who is registered with the Exchange
as a United Kingdom Securities Representative or a Canada 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
[[Page 51039]]
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 2.1220, Commentary .02--Additional Qualification
Requirements for Persons Engaged in Security Futures \52\
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\52\ The proposed rule is substantially similar to FINRA Rule
1220.02.
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Proposed Rule 2.1220, 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 2.2(e)(2) that addresses
security futures products before such person engages in security
futures activities.\53\
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\53\ FINRA Rule 1220.02 also includes Options Representative and
Registered Options Principal registration categories. NYSE National
does not trade options and ETP Holders of NYSE National 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 2.1220, Commentary .03 [sic].
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12. Proposed Rule 2.1220, Commentary .03--Scope of General Securities
Sales Supervisor Registration Category \54\
---------------------------------------------------------------------------
\54\ The proposed rule is substantially similar to FINRA Rule
1220.04.
---------------------------------------------------------------------------
Proposed Rule 2.1220, 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, the NYSE
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
2.1220, 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.
K. Proposed New Rule 2.1230--Associated Persons Exempt From
Registration \55\
---------------------------------------------------------------------------
\55\ The proposed rule is substantially similar to FINRA Rule
1230.
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Proposed Rule 2.1230 provides an exemption from registration with
the Exchange for certain associated persons. Specifically, the proposed
rule provides that persons associated with an ETP Holder whose
functions are solely and exclusively clerical or ministerial would be
exempt from registration.\56\
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\56\ 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. ETP
Holders of NYSE National 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 2.1230, Commentary .01--Registration Requirements for
Associated Persons Who Accept Customer Orders \57\
---------------------------------------------------------------------------
\57\ The proposed rule is substantially similar to FINRA Rule
1230.01.
---------------------------------------------------------------------------
Proposed Rule 2.1230, 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 [sic]
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the ``Act''),\58\ in general, and
furthers the objectives of Section 6(b)(5),\59\ 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.
---------------------------------------------------------------------------
\58\ 15 U.S.C. 78f(b).
\59\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change will
streamline, and bring consistency and uniformity to, the registration
rules, which will, in turn, assist ETP Holders 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 ETP
Holders 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 an ETP Holder,
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 51040]]
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 ETP Holders 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 proposed rule change does not: (i) Significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6) 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) \60\ 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.\61\ 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.\62\
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\60\ 17 CFR 240.19b-4(f)(6)(iii).
\61\ See supra note 5.
\62\ 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. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \63\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\63\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSENAT-2018-21 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-NYSENAT-2018-21. 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-NYSENAT-2018-21 and should be submitted
on or before October 31, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\64\
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\64\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-21903 Filed 10-9-18; 8:45 am]
BILLING CODE 8011-01-P