Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Amendments to Rules Regarding Qualification, Registration and Continuing Education Applicable to Equity Trading Permit Holders, Options Trading Permit Holders or OTP Firms, 52272-52283 [2018-22430]
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Federal Register / Vol. 83, No. 200 / Tuesday, October 16, 2018 / Notices
Commission takes such action, the
Commission shall institute proceedings
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–
NYSEARCA–2018–70 on the subject
line.
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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–NYSEARCA–2018–70. 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–NYSEARCA–2018–70, and
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18:44 Oct 15, 2018
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should be submitted on or before
November 6, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
Eduardo A. Aleman,
Assistant Secretary.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–22433 Filed 10–15–18; 8:45 am]
BILLING CODE 8011–01–P
[FR Doc. 2018–22428 Filed 10–15–18; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84397; File No. SR–
PEARL–2018–16]
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Withdrawal of
a Proposed Rule Change To Amend
the Fee Schedule Regarding
Connectivity Fees for Members and
Non-Members
October 10, 2018.
On July 31, 2018, MIAX PEARL, LLC
(‘‘MIAX PEARL’’ or the ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’),1 and
Rule 19b–4 thereunder,2 a proposed rule
change to amend the MIAX PEARL Fee
Schedule to increase certain
connectivity fees. The proposed rule
change was immediately effective upon
filing with the Commission pursuant to
Section 19(b)(3)(A) of the Act.3 The
proposed rule change was published for
comment in the Federal Register on
August 13, 2018.4 The Commission
received one comment letter on the
proposal.5 On September 17, 2018,
pursuant to Section 19(b)(3)(C) of the
Act, the Commission: (1) Temporarily
suspended the proposed rule change;
and (2) instituted proceedings to
determine whether to approve or
disapprove the proposal.6 On October 5,
2018, the Exchange withdrew the
proposed rule change (SR–PEARL–
2018–16).
33 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 See Securities Exchange Act Release No. 83785
(August 7, 2018), 83 FR 40101.
5 See Letter from Tyler Gellasch, Executive
Director, The Healthy Markets Association, to Brent
J. Fields, Secretary, Commission, dated September
4, 2018.
6 See Securities Exchange Act Release No. 84177,
83 FR 47953 (September 21, 2018).
1 15
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[Release No. 34–84389; File No. SR–
NYSEARCA–2018–71]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of
Amendments to Rules Regarding
Qualification, Registration and
Continuing Education Applicable to
Equity Trading Permit Holders,
Options Trading Permit Holders or
OTP Firms
October 10, 2018.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on
September 27, 2018, NYSE Arca, Inc.
(the ‘‘Exchange’’ or ‘‘NYSE Arca’’) 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, Options Trading
Permit (‘‘OTP’’) Holders or OTP Firms.
The Exchange’s rule proposal is
intended to harmonize its rules with
Financial Regulatory Authority, Inc.
(‘‘FINRA’’) rules and thus promote
consistency within the securities
industry, and therefore the Exchange is
only adopting rules that are relevant to
the Exchange’s ETP Holders, OTP
Holders or OTP Firms. The Exchange is
not adopting registration categories that
are not applicable to ETP Holders, OTP
Holders or OTP Firms because they do
not engage in the type of business that
7 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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would require such registration. As
such, the Exchange is amending current
Rules 2.23 and 2.24 regarding
continuing education requirements to
reflect the FINRA rule; adopting
Commentary .06 to current Rule 2.23
and 2.24 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
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The Exchange proposes to amend its
qualification, registration, and
continuing education requirements
applicable to ETP Holders, OTP Holders
or OTP Firms. 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
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; (6)
General Securities Sales Supervisor; and (7)
Registered Options Principal. 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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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.
A. Amendments to Current Rules 2.5,
2.23, 2.24, 6.43–O, 9.27–O and 9.27–E
Current Rules 2.5(A) and (B) currently
require traders of ETP Holders to
successfully complete the Series 7
Examination. The Exchange proposes to
amend current Rules 2.5(A) and (B) by
requiring traders of ETP Holders to
successfully complete the Securities
Industry Essentials (‘‘SIE’’) examination
in addition to the Series 7 Examination
in order to satisfy the Exchange’s
registration requirement, consistent
with the proposed restructuring of the
representative-level examinations
proposed in the FINRA Filing.
Current Rule 2.23(b)(1) similarly
requires traders of OTP Holders and
OTP Firms to successfully complete the
Series 7 Examination. Consistent with
the proposed restructuring of the
representative-level examination
proposed in the FINRA Filing, the
Exchange proposes to amend current
Rule 2.23(b)(1) to require traders of OTP
Holders and OTP Firms to successfully
complete the SIE examination and the
Series 7 Examination in order to satisfy
the Exchange’s registration requirement.
Rule 2.23(b)(2) currently provides that
the examination requirement in Rule
2.23(b)(1) does not apply to an
individual who does not conduct
business with the public and who is
registered as a Market Maker or Market
Maker Authorized Traders, pursuant to
Rule 2.23(b)(2)(A), or as a Securities
Trader, pursuant to Rule 2.23(b)(2)(C),
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 ETP Holders,
OTP Holders or OTP Firms. For example, while
ETP Holders, OTP Holders or OTP Firms 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,’’ ‘‘OTP
Holder’’ or ‘‘OTP Firm’’ as applicable for ‘‘member’’
and the term ‘‘Exchange’’ for ‘‘FINRA.’’
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52273
in which case such individuals are
required to successfully complete the
Series 57 examination.
Consistent with the proposed
restructuring of the representative-level
examination proposed in the FINRA
Filing, the Exchange proposes to amend
current Rule 2.23(b)(2)(A) and (C) by
requiring traders of OTP Holders and
OTP Firms to successfully complete the
SIE examination and the Series 57
Examination in order to satisfy the
Exchange’s registration requirement.
Further, current Rule 2.23(b)(2)(C)
provides the definition of a Securities
Trader. The Exchange proposes to adopt
FINRA’s definition of Securities Trader
(as described below) and, therefore,
proposes to add a reference to Rule
2.1220(b)(3) as the appropriate rule in
the Exchange’s Rulebook where the
definition of Securities Trader can be
found. The Exchange also proposes to
adopt rule text within the current rule
that provides that a person registered as
a Securities Trader would not be
qualified to function in any other
registration category unless he or she is
also qualified and registered in such
other registration category. Current Rule
2.23(b)(3)(A) provides that a General
Securities Principal engaged in
supervisory activities must complete the
Series 7 examination and the Series 24
examination. Consistent with the
proposed restructuring of the
representative-level examination
proposed in the FINRA Filing, the
Exchange proposes to amend current
Rule 2.23(b)(3)(A) to require such
persons to also complete the SIE
examination.
Current Rule 2.24(b)(iii) provides that
employees of ETP Holders seeking
limited registration as Securities Traders
are required to complete the Series 57
examination. Consistent with the
proposed restructuring of the
representative-level examination
proposed in the FINRA Filing, the
Exchange proposes to amend current
Rule 2.24(b)(iii) to require such persons
to also complete the SIE examination in
addition to the Series 57 examination.
Further, current Rule 2.24, Commentary
.03, provides the definition of a
Securities Trader. With this proposed
rule change, the Exchange proposes to
adopt FINRA’s definition of Securities
Trader (as described below) and
therefore, proposes to add a reference to
Rule 2.1220(b)(3) as the appropriate rule
in the Exchange’s Rulebook where the
definition of Securities Trader can be
found. The Exchange also proposes to
adopt rule text within the current rule
that provides that a person registered as
a Securities Trader would not be
qualified to function in any other
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Federal Register / Vol. 83, No. 200 / Tuesday, October 16, 2018 / Notices
registration category unless he or she is
also qualified and registered in such
other registration category.
Current Rule 6.43–O(b)(1)(A)
currently requires qualified Floor
Brokers and Floor Clerks of qualified
Floor Brokers that conduct a public
business limited to accepting orders
directly from Professional Customers for
execution on the Floor of the Exchange
must successfully complete the Series 7
examination or the Series 7A
examination. Consistent with the
proposed restructuring of the
representative-level examination
proposed in the FINRA Filing, the
Exchange proposes to amend current
Rule 6.43–O(b)(1)(A) by requiring
qualified Floor Brokers and Floor Clerks
of qualified Floor Brokers to
successfully complete the SIE
examination and the Series 7
Examination or the Series 7A
examination in order to satisfy the
Exchange’s registration requirement.
Current Rule 9.27–O, Commentary
.01, and Rule 9.27–E, Commentary .01,
each states that the Exchange considers
the Uniform Registered Representative
Examination 7 (‘‘Series 7’’) as adequate
in measuring an applicant’s knowledge
of the securities industry and satisfies
the examination requirements
prescribed in the rule. As noted below,
given the adoption of the Securities
Industry Essential (‘‘SIE’’) examination
in the FINRA Filing, the Exchange
proposes to amend the current rules to
adopt the SIE exam as an additional
requirement. As amended, Rule 9.27–O,
Commentary .01, and Rule 9.27–E,
Commentary .01, would each provide
that in addition to the Series 7
examination, the Exchange would also
require an applicant to pass the SIE
examination to register as a general
securities representative.
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B. Amendments to Rules 2.23 and Rule
2.24—Continuing Education
Requirements
Rules 2.23 and 2.24 provide the
continuing education requirements of
registered persons 8 of an OTP Holder or
OTP Firm, and ETP Holders,
respectively, subsequent to their initial
qualification and registration with the
Exchange, and includes a Regulatory
7 The Exchange proposes to rename the Uniform
Registered Representative Examination in Rule
9.27–O, Commentary .01, and in Rule 9.27–E,
Commentary .01, as the General Securities
Representative Examination to reflect the current
name of the Series 7 examination.
8 For purposes of Rule 2.24, the term ‘‘registered
person’’ means any ETP Holder, Allied Person
thereof, registered representative or other person
registered or required to be registered under the
Rules of the Exchange. See Rule 2.24, Commentary
.01.
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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.
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 Rules
2.23(d)(1) and 2.24(d)(1) to provide an
exception to a waiver-eligible person
from retaking the Regulatory Element
and satisfy [sic] all of its requirements.12
2. Firm Element
Current Rule 2.23(d)(2)(B)(ii) provides
that programs used to implement an
OTP Firm’s or OTP Holder’s training
program must be appropriate for the
business of the OTP Firm or OTP Holder
and, at a minimum must cover specific
matters concerning securities products,
services, and strategies offered by the
OTP Firm or OTP Holder. Current Rule
2.24(d)(2)(B)(ii) also 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 both Rules
2.23(d)(2)(B)(ii) and 2.24(d)(2)(B)(ii) 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.13
1. Regulatory Element
The Exchange proposes to amend
Rules 2.23(d)(1) and 2.24(d)(1) to
provide, consistent with proposed Rule
2.1210, Commentary .08, that a waivereligible 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.9
The proposed amendment to Rules
2.23(d)(1) and 2.24(d)(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.10
Further, the Exchange proposes to
amend Rules 2.23(d)(1) and 2.24(d)(1) to
provide that any person whose
registration has been deemed inactive
under the rule may not accept or solicit
business or receive any compensation
for the purchase or sale of securities.
The proposed amendment provides,
however, that such person may receive
trail or residual commissions resulting
from transactions completed before the
inactive status, unless the OTP Holder
or OTP Firm, or ETP Holder, with
which the person is associated has a
policy prohibiting such trail or residual
commissions.11
Additionally, under Rules 2.23(d)(1)
and 2.24(d)(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
C. Proposed Rule 2.23—Commentary .06
and Proposed Rule 2.24—Commentary
.06—Fingerprint Information 14
The Exchange proposes to adopt Rule
2.23, Commentary .06 and Rule 2.24,
Commentary .06, regarding the
submission of fingerprint information
by OTP Firms or OTP Holders, and ETP
Holders, respectively. As proposed,
upon filing an electronic Form U4 on
behalf of a person applying for
registration, an OTP Firm or OTP
Holder, or ETP Holder, as applicable,
would be required to promptly submit
fingerprint information for that person.
If the OTP Firm or OTP Holder, or ETP
Holder, as applicable, 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
9 The proposed change is substantially similar to
that contained in FINRA Rule 1240(a)(1).
10 The proposed change is substantially similar to
that contained in FINRA Rule 1240(a)(2).
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)(3).
13 The proposed change is substantially similar to
that contained in FINRA Rule 1240(b)(2).
14 The proposed rule is substantially similar to
FINRA Rule 1010(d).
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prohibited from performing any duties
and functioning in any capacity
requiring registration. The proposed
rule further provides [sic] allows the
Exchange to administratively terminate
a registration that is inactive for a period
of two years. However, a person whose
registration is administratively
terminated may seek to reactivate his or
her registration by reapplying for
registration and meeting the
qualification requirements under
Exchange rules.
D. Proposed New Rules 2.1210 Through
2.1230
As a general matter, FINRA
administers qualification examinations
that are designed to establish that
persons associated with ETP Holders,
OTP Holders or OTP Firm 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.15 Rule changes
related to the adoption of the SIE and
other proposed new rules are discussed
below.
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1. Proposed Rule 2.1210—Registration
Requirements 16
Proposed Rule 2.1210 provides that
each person engaged in the investment
banking or securities business of an ETP
Holder, OTP Holder or OTP Firm must
register with the Exchange as a
representative or principal in each
category of registration appropriate to
15 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.
16 The proposed rule is substantially similar to
FINRA Rule 1210.
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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.
2. Proposed Rule 2.1210, Commentary
.01—Permissive Registrations 17
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, OTP Holder or OTP
Firm. For instance, an associated person
of an ETP Holder, OTP Holder or OTP
Firm 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, OTP Holder or
OTP Firm. As another example, an
associated person of an ETP Holder,
OTP Holder or OTP Firm 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, OTP Holder or
OTP Firm. 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, OTP
Holder or OTP Firm to obtain and
maintain any registration permitted by
the ETP Holder, OTP Holder or OTP
Firm.
The Exchange is proposing to permit
the registration of such individuals for
several reasons. First, an ETP Holder,
OTP Holder or OTP Firm 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, OTP
Holder or OTP Firm to develop a depth
of associated persons with registrations
in the event of unanticipated personnel
changes. Finally, allowing registration
17 The proposed rule is substantially similar to
FINRA Rule 1210.02.
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52275
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, OTP Holder or OTP Firm
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, OTP
Holder or OTP Firm 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.18
3. Proposed Rule 2.1210, Commentary
.02—Qualification Examinations and
Waivers of Examinations 19
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 2.1220.20 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
18 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.
19 The proposed rule is substantially similar to
FINRA Rule 1210.03.
20 Proposed Rule 2.1220 sets forth each
registration category and applicable qualification
examination for ETP Holders, OTP Holder or OTP
Firm on the Exchange.
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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
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 Rule
2.5(c), 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, OTP
Holder or OTP Firm for individuals
associated with the ETP Holder, OTP
Holder or OTP Firm 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
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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 21
Proposed Rule 2.1210, Commentary
.03, provides that an ETP Holder, OTP
Holder or OTP Firm may designate any
person currently registered, or who
becomes registered, with the ETP
Holder, OTP Holder or OTP Firm 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 the [sic] five-year
period immediately preceding the
designation. The proposed rule is
intended to ensure that representatives
designated to function as principals for
the limited period under the proposal
have an appropriate level of registered
representative experience. The proposed
rule clarifies that the requirements of
the rule apply to designations to any
principal category, including those
categories that are not subject to a
prerequisite representative-level
registration requirement, such as the
Financial and Operations Principal
registration category.22
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, OTP Holder or OTP Firm
to function in other principal categories
for a limited period. Specifically, the
proposed rule states that an ETP Holder,
OTP Holder or OTP Firm 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.
21 The proposed rule is substantially similar to
FINRA Rule 1210.04.
22 The Exchange notes that qualifying as a
registered representative is a prerequisite to
qualifying as a principal except with respect to the
following principal-level registrations: (1)
Compliance Official; (2) Financial and Operations
Principal; and (3) Introducing Broker-Dealer
Financial and Operations Principal.
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5. Proposed Rule 2.1210, Commentary
.04—Rules of Conduct for Taking
Examinations and Confidentiality of
Examinations 23
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 11.1. 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 11.1.
23 The proposed rule is substantially similar to
FINRA Rule 1210.05.
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6. Proposed Rule 2.1210, Commentary
.05—Waiting Periods for Retaking a
Failed Examination 24
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
agree to be subject to the same waiting
periods for retaking the SIE.
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7. Proposed Rule 2.1210, Commentary
.06—All Registered Persons Must
Satisfy the Regulatory Element of
Continuing Education 25
Pursuant to Rules 2.23(d) and 2.24(d),
the CE requirements applicable to
registered persons consist of a
Regulatory Element 26 and a Firm
Element.27 The Regulatory Element
applies to registered persons and must
be completed within prescribed time
frames.28 The Firm Element consists of
annual, ETP Holder-, OTP Holder- or
OTP Firm-developed and administered
training programs designed to keep
covered registered persons current
regarding securities products, services
and strategies offered by the ETP
Holder, OTP Holder or OTP Firm. For
24 The proposed rule is substantially similar to
FINRA Rule 1210.06.
25 The proposed rule is substantially similar to
FINRA Rule 1210.07.
26 See Rules 2.23(d)(1) and 2.24(d)(1).
27 See Rules 2.23(d)(2) and 2.24(d)(1).
28 Pursuant to Rules 2.23(d)(1) and 2.24(d)(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 twoyear 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 reeligible for registration.
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purposes of the Firm Element, the term
covered registered persons means any
registered Securities Trader and any
registered person who has direct contact
with customers in the conduct of the
ETP Holder’s, OTP Holder’s or OTP
Firm’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
registration, are required to satisfy the
Regulatory Element, as specified in
Rules 2.23(d)(1) and 2.24(d)(1). The
Exchange is making corresponding
changes to Rules 2.23(d)(1) and
2.24(d)(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 principallevel 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, OTP Holder or
OTP Firm who becomes CE inactive
would not be permitted to be registered
in another registration category with the
ETP Holder, OTP Holder or OTP Firm
or be registered in any registration
category with another ETP Holder, OTP
Holder or OTP Firm, until the person
has satisfied the Regulatory Element.
8. Proposed Rule 2.1210, Commentary
.07—Lapse of Registration and
Expiration of the SIE 29
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,
OTP Holder or OTP Firm at the time
29 The proposed rule is substantially similar to
FINRA Rule 1210.08.
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52277
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, OTP Holder or OTP Firm,
or a subsequent ETP Holder, OTP
Holder or OTP Firm, 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,
OTP Holder or OTP Firm 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, OTP Holder or
OTP Firm 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, OTP Holder or OTP Firm 30
Proposed Rule 2.1210, Commentary
.08, provides the process for individuals
working for a financial services industry
affiliate of an ETP Holder, OTP Holder
or OTP Firm 31 to terminate their
registrations with the ETP Holder, OTP
Holder or OTP Firm and be granted a
waiver of their requalification
requirements upon re-registering with
an ETP Holder, OTP Holder or OTP
Firm, provided the firm that is
requesting the waiver and the
30 The proposed rule is substantially similar to
FINRA Rule 1210.09.
31 Proposed Rule 2.1210, Commentary .07 [sic],
defines a ‘‘financial services industry affiliate of an
ETP Holder, OTP Holder or OTP Firm’’ as a legal
entity that controls, is controlled by or is under
common control with an ETP Holder, OTP Holder
or OTP Firm 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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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,
OTP Holder or OTP Firm with which
the individual is registered would notify
the Exchange of the FSA designation.
The ETP Holder, OTP Holder or OTP
Firm 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,
OTP Holder or OTP Firm, 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, OTP Holder or OTP
Firm. 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,32 provided that the other
conditions of the waiver, as described
below, have been satisfied.
Consequently, an ETP Holder, OTP
Holder or OTP Firm other than the ETP
Holder, OTP Holder or OTP Firm that
initially designated an individual as an
FSA-eligible person may request a
waiver for the individual and more than
one ETP Holder, OTP Holder or OTP
Firm may request a waiver for the
individual during the seven-year
period.33
32 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.
33 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
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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, OTP Holder or OTP
Firm. 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 2.23(d) and 2.24(d).
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
to the Exchange,34 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, OTP
Holder or OTP Firm that initially
designated the individual as an FSAeligible 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, OTP Holder or OTP
Firm;
(3) The initial designation and any
subsequent designation(s) were made
concurrently with the filing of the
individual’s related Form U5;
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.
34 The Exchange would consider a waiver of the
representative-level qualification examination(s),
the principal-level qualification examination(s) and
the SIE, as applicable.
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(4) The individual continuously
worked for the financial services
affiliate(s) of an ETP Holder, OTP
Holder or OTP Firm 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, OTP Holder
or OTP Firm.
Following the Form U5 filing, an
individual could move between the
financial services affiliates of an ETP
Holder, OTP Holder or OTP Firm 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.35 An individual who has been
designated as an FSA-eligible person by
an ETP Holder, OTP Holder or OTP
Firm would not be able to take
additional 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 36
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, OTP Holder or
OTP Firm 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
35 For example, if an ETP Holder, OTP Holder or
OTP Firm submits a waiver request for an FSAeligible person who has been working for a
financial services affiliate of the ETP Holder, OTP
Holder or OTP Firm for three years and re-registers
the individual, the ETP Holder, OTP Holder or OTP
Firm could subsequently file a Form U5 and redesignate the individual as an FSA-eligible person.
Moreover, if the individual works with a financial
services affiliate of the ETP Holder, OTP Holder or
OTP Firm for another three years, the ETP Holder,
OTP Holder or OTP Firm could submit a second
waiver request and re-register the individual upon
returning to the ETP Holder, OTP Holder or OTP
Firm.
36 The proposed rule is substantially similar to
FINRA Rule 1210.10.
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the Armed Forces of the United States.
The proposed rule further requires that
the ETP Holder, OTP Holder or OTP
Firm with which such person is
registered promptly notify the Exchange
of such person’s return to employment
with the ETP Holder, OTP Holder or
OTP Firm. The proposed rule would
require an ETP Holder, OTP Holder or
OTP Firm that is a sole proprietor to
also similarly notify the Exchange of his
or her return to participation in the
investment banking or securities
business. The proposed rule also
provides that the Exchange would defer
the lapse of the SIE for formerly
registered persons serving in the Armed
Forces of the United States.
E. Proposed New Rule 2.1220—
Registration Categories 37
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1. Proposed Rule 2.1220(a)(1)—
Principal
As set forth in proposed Rule
2.1220(a)(1), for purposes of these
registration rules, the term ‘‘Principal’’
to mean any Person Associated with an
ETP Holder, OTP Holder or OTP Firm
actively engaged in the management of
the ETP Holder’s, OTP Holder’s or OTP
Firm’s securities business, including
supervision, solicitation, conduct of the
ETP Holder’s, OTP Holder’s or OTP
Firm’s business, or the training of
Authorized Traders and Persons
Associated with an ETP Holder, OTP
Holder or OTP Firm for any of these
functions. Such Persons include Sole
Proprietors, Officers, Partners, and
Directors of Corporations.
For purposes of proposed Rule
2.1220(a)(1), the phrase ‘‘actively
engaged in the management of the ETP
Holder’s, OTP Holder’s or OTP Firm’s
securities business’’ includes the
management of, and the implementation
of corporate policies related to, such
business. The term also includes
managerial decision-making authority
37 The Exchange is not adopting the following
categories from the FINRA Filing because ETP
Holders, OTP Holders or OTP Firms do not engage
in the type of business that would require
registration with the Exchange: Investment Banking
Principal, Research 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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with respect to the ETP Holder’s, OTP
Holder’s or OTP Firm’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,
OTP Holder’s or OTP Firm’s executive,
management or operations committee.
52279
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, OTP Holder or OTP Firm
are limited to corporate securities
activities of the ETP Holder, OTP
Holder or OTP Firm. 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.
2. Proposed Rule 2.1220(a)(2)—General
Securities Principal 38
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, a Securities Trader Principal, or
a Registered Options 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
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
3. Proposed Rule 2.1220(a)(3)—
Compliance Officer 39
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, OTP Holders or OTP Firms
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. Chief Compliance
Officers at OTP Holders or OTP Firms,
who are currently not subject to a
registration requirement, would be
excluded from the requirements of the
proposed rule.
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
38 The proposed rule is substantially similar to
FINRA Rule 1220(a)(2).
39 The proposed rule is substantially similar to
FINRA Rule 1220(a)(3).
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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, OTP Holder or OTP Firm 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, OTP
Holder’s or OTP Firm’s business.
4. Proposed Rule 2.1220(a)(4)—
Financial and Operation Principal and
Introducing Broker-Dealer Financial and
Operations Principal 40
Proposed Rule 2.1220(a)(4) provides
that each principal who is responsible
for the financial and operational
management of an ETP Holder, OTP
Holder or OTP Firm 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, OTP Holder or OTP Firm that
has a minimum net capital requirement
of $150,000 under SEA Rule 15c3–
1(a)(8) must be designated as a Financial
and Operations Principal. In addition,
proposed Rule 2.1220(a)(4) provides
that a principal who is responsible for
the financial and operational
management of an ETP Holder, OTP
Holder or OTP Firm that is subject to
the net capital requirements of SEA
Rule 15c3–1, other than an ETP Holder,
OTP Holder or OTP Firm 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 BrokerDealer Financial and Operations
40 The proposed rule is substantially similar to
FINRA Rule 1220(a)(4).
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Principal. Financial and Operations
Principals and Introducing BrokerDealer 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,
OTP Holder or OTP Firm 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, OTP Holders
or OTP Firms that neither self-clear nor
provide clearing services are more
limited, such ETP Holders, OTP Holders
or OTP Firms 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, OTP Holders or OTP
Firms 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, OTP Holders or
OTP Firms 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, OTP Holder or OTP Firm 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 41
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 42
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, OTP Holder or OTP Firm are
limited to the securities sales activities
of the ETP Holder, OTP Holder or OTP
Firm, including the approval of
customer accounts, training of sales and
sales supervisory personnel and the
maintenance of records of original entry
or ledger accounts of the ETP Holder,
OTP Holder or OTP Firm 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.43 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(a)(7)—
Registered Options Principal 44
Proposed Rule 2.1220(a)(7) provides
that each OTP Holder or OTP Firm
engaged in options transactions with the
public have at least one Registered
Options Principal. The proposed rule
further requires that a principal
responsible for supervising an OTP
41 The proposed rule is substantially similar to
FINRA Rule 1220(a)(7).
42 The proposed rule is substantially similar to
FINRA Rule 1220(a)(10).
43 An individual may also register as a General
Securities Sales Supervisor by passing a
combination of other principal-level examinations.
44 The proposed rule is substantially similar to
FINRA Rule 1220(a)(8).
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Holder or OTP Firm’s options sales
practices with the public, including a
person designated pursuant to Rule
11.18(b)(2) register with the Exchange as
a Registered Options Principal, unless
such principal’s options activities are
limited solely to those activities that
may be supervised by a General
Securities Sales Supervisor, in which
case, such person may register as a
General Securities Sales Supervisor in
lieu of registering as a Registered
Options Principal.
Proposed Rule 2.1220(a)(7)(B) 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
Registered Options Principal on October
1, 2018 and each person who was
registered with the Exchange as a
Registered Options Principal within two
years prior to October 1, 2018 would be
qualified to register as a Registered
Options Principal without having to
pass any additional qualification
examinations. The proposed rule further
provides that all other individuals
registering as Registered Options
Principals after October 1, 2018 shall,
prior to or concurrent with such
registration, become registered as a
General Securities Representative and
pass the Registered Options Principal
qualification examination.
10. Proposed Rule 2.1220(b)(3)—
Securities Trader 47
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
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, OTP Holder or OTP
Firm 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, OTP
Holder or OTP Firm. 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.48
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.
45 The proposed rule is substantially similar to
FINRA Rule 1220(b)(1).
46 The proposed rule is substantially similar to
FINRA Rule 1220(b)(2).
47 The proposed rule is substantially similar to
FINRA Rule 1220(b)(4).
48 See e.g., MIAX International Stock Exchange,
LLC Rule 203(d).
8. Proposed Rule 2.1220(b)(1)—
Representative 45
Proposed Rule 2.1220(b)(1) defines a
representative as any person associated
with an ETP Holder, OTP Holder or
OTP Firm, including assistant officers
other than principals, who is engaged in
the ETP Holder’s, OTP Holder’s or OTP
Firm’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, OTP
Holder or OTP Firm for any of these
functions.
9. Proposed Rule 2.1220(b)(2)—General
Securities Representative 46
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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.
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52281
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.
11. Proposed Rule 2.1220, Commentary
.01—Foreign Registrations 49
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
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.
12. Proposed Rule 2.1220, Commentary
.02—Additional Qualification
Requirements for Persons Engaged in
Security Futures 50
Proposed Rule 2.1220, Commentary
.02, states that each person who is
49 The proposed rule is substantially similar to
FINRA Rule 1220.01 and 1220.06.
50 The proposed rule is substantially similar to
FINRA Rule 1220.02.
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registered with the Exchange as a
General Securities Representative,
United Kingdom Securities
Representative, Canada Securities
Representative, Options Representative,
Registered Options Principal 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
2.23(d)(2) for ETP Holders and in Rule
2.24(d)(2) for OTP Holders or OTP
Firms that addresses security futures
products before such person engages in
security futures activities.
13. Proposed Rule 2.1220, Commentary
.03—Scope of General Securities Sales
Supervisor Registration Category 51
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.
51 The proposed rule is substantially similar to
FINRA Rule 1220.04.
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14. Proposed Rule 2.1220, Commentary
.04—OTP Holders and OTP Firms With
One Registered Options Principal 52
Proposed Rule 2.1220, Commentary
.03, requires that an OTP Holder or OTP
Firm that have one Registered Options
Principal promptly notify the Exchange
and agree to specified conditions if such
person is terminated, resigns, becomes
incapacitated or is otherwise unable to
perform his or her duties.
F. Proposed New Rule 2.1230—
Associated Persons Exempt From
Registration 53
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, OTP Holder or OTP Firm whose
functions are solely and exclusively
clerical or ministerial would be exempt
from registration.54
1. Proposed Rule 2.1230, Commentary
.01—Registration Requirements for
Associated Persons Who Accept
Customer Orders 55
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.
52 The proposed rule is substantially similar to
FINRA Rule 1220.03.
53 The proposed rule is substantially similar to
FINRA Rule 1230.
54 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, OTP Holder or OTP Firms 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.
55 The proposed rule is substantially similar to
FINRA Rule 1230.01.
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2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),56 in general, and furthers the
objectives of Section 6(b)(5),57 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, OTP Holders
or OTP Firms 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, OTP Holders or OTP
Firms 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, OTP Holder or OTP Firm,
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.
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
56 15
57 15
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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, OTP Holders
or OTP Firms 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 foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 58 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) 59 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.60 The waiver of the operative
delay would make the Exchange’s
58 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6)(iii).
60 See supra note 5.
59 17
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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, 2018.61
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEARCA–2018–71 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–NYSEARCA–2018–71. 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
61 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).
PO 00000
Frm 00096
Fmt 4703
Sfmt 4703
52283
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–NYSEARCA–2018–71 and
should be submitted on or before
November 6,2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.62
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–22430 Filed 10–15–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84391; File No. SR–BOX–
2018–34]
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the Fee
Schedule on the BOX Options Market
LLC (‘‘BOX’’) Facility To Adopt a New
Rebate for Certain Manual
Transactions Initiated From the
Trading Floor
October 10, 2018.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 27, 2018, BOX Exchange LLC
(the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Exchange filed the proposed rule change
pursuant to Section 19(b)(3)(A)(ii) of the
Act,3 and Rule 19b–4(f)(2) thereunder,4
which renders the proposal effective
upon filing with the Commission. The
Commission is publishing this notice to
62 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
1 15
E:\FR\FM\16OCN1.SGM
16OCN1
]]>Agencies
[Federal Register Volume 83, Number 200 (Tuesday, October 16, 2018)]
[Notices]
[Pages 52272-52283]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22430]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84389; File No. SR-NYSEARCA-2018-71]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Amendments to Rules Regarding
Qualification, Registration and Continuing Education Applicable to
Equity Trading Permit Holders, Options Trading Permit Holders or OTP
Firms
October 10, 2018.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on September 27, 2018, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes amendments to the Exchange's rules regarding
qualification, registration and continuing education requirements
applicable to Equity Trading Permit (``ETP'') Holders, Options Trading
Permit (``OTP'') Holders or OTP Firms. The Exchange's rule proposal is
intended to harmonize its rules with Financial Regulatory Authority,
Inc. (``FINRA'') rules and thus promote consistency within the
securities industry, and therefore the Exchange is only adopting rules
that are relevant to the Exchange's ETP Holders, OTP Holders or OTP
Firms. The Exchange is not adopting registration categories that are
not applicable to ETP Holders, OTP Holders or OTP Firms because they do
not engage in the type of business that
[[Page 52273]]
would require such registration. As such, the Exchange is amending
current Rules 2.23 and 2.24 regarding continuing education requirements
to reflect the FINRA rule; adopting Commentary .06 to current Rule 2.23
and 2.24 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.
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\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; (6) General Securities
Sales Supervisor; and (7) Registered Options Principal. 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, OTP
Holders or OTP Firms. 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.
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\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 ETP Holders, OTP
Holders or OTP Firms. For example, while ETP Holders, OTP Holders or
OTP Firms 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,'' ``OTP Holder'' or ``OTP Firm''
as applicable for ``member'' and the term ``Exchange'' for
``FINRA.''
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A. Amendments to Current Rules 2.5, 2.23, 2.24, 6.43-O, 9.27-O and
9.27-E
Current Rules 2.5(A) and (B) currently require traders of ETP
Holders to successfully complete the Series 7 Examination. The Exchange
proposes to amend current Rules 2.5(A) and (B) by requiring traders of
ETP Holders to successfully complete the Securities Industry Essentials
(``SIE'') examination in addition to the Series 7 Examination in order
to satisfy the Exchange's registration requirement, consistent with the
proposed restructuring of the representative-level examinations
proposed in the FINRA Filing.
Current Rule 2.23(b)(1) similarly requires traders of OTP Holders
and OTP Firms to successfully complete the Series 7 Examination.
Consistent with the proposed restructuring of the representative-level
examination proposed in the FINRA Filing, the Exchange proposes to
amend current Rule 2.23(b)(1) to require traders of OTP Holders and OTP
Firms to successfully complete the SIE examination and the Series 7
Examination in order to satisfy the Exchange's registration
requirement. Rule 2.23(b)(2) currently provides that the examination
requirement in Rule 2.23(b)(1) does not apply to an individual who does
not conduct business with the public and who is registered as a Market
Maker or Market Maker Authorized Traders, pursuant to Rule
2.23(b)(2)(A), or as a Securities Trader, pursuant to Rule
2.23(b)(2)(C), in which case such individuals are required to
successfully complete the Series 57 examination.
Consistent with the proposed restructuring of the representative-
level examination proposed in the FINRA Filing, the Exchange proposes
to amend current Rule 2.23(b)(2)(A) and (C) by requiring traders of OTP
Holders and OTP Firms to successfully complete the SIE examination and
the Series 57 Examination in order to satisfy the Exchange's
registration requirement. Further, current Rule 2.23(b)(2)(C) provides
the definition of a Securities Trader. The Exchange proposes to adopt
FINRA's definition of Securities Trader (as described below) and,
therefore, proposes to add a reference to Rule 2.1220(b)(3) as the
appropriate rule in the Exchange's Rulebook where the definition of
Securities Trader can be found. The Exchange also proposes to adopt
rule text within the current rule that provides that a person
registered as a Securities Trader would not be qualified to function in
any other registration category unless he or she is also qualified and
registered in such other registration category. Current Rule
2.23(b)(3)(A) provides that a General Securities Principal engaged in
supervisory activities must complete the Series 7 examination and the
Series 24 examination. Consistent with the proposed restructuring of
the representative-level examination proposed in the FINRA Filing, the
Exchange proposes to amend current Rule 2.23(b)(3)(A) to require such
persons to also complete the SIE examination.
Current Rule 2.24(b)(iii) provides that employees of ETP Holders
seeking limited registration as Securities Traders are required to
complete the Series 57 examination. Consistent with the proposed
restructuring of the representative-level examination proposed in the
FINRA Filing, the Exchange proposes to amend current Rule 2.24(b)(iii)
to require such persons to also complete the SIE examination in
addition to the Series 57 examination. Further, current Rule 2.24,
Commentary .03, provides the definition of a Securities Trader. With
this proposed rule change, the Exchange proposes to adopt FINRA's
definition of Securities Trader (as described below) and therefore,
proposes to add a reference to Rule 2.1220(b)(3) as the appropriate
rule in the Exchange's Rulebook where the definition of Securities
Trader can be found. The Exchange also proposes to adopt rule text
within the current rule that provides that a person registered as a
Securities Trader would not be qualified to function in any other
[[Page 52274]]
registration category unless he or she is also qualified and registered
in such other registration category.
Current Rule 6.43-O(b)(1)(A) currently requires qualified Floor
Brokers and Floor Clerks of qualified Floor Brokers that conduct a
public business limited to accepting orders directly from Professional
Customers for execution on the Floor of the Exchange must successfully
complete the Series 7 examination or the Series 7A examination.
Consistent with the proposed restructuring of the representative-level
examination proposed in the FINRA Filing, the Exchange proposes to
amend current Rule 6.43-O(b)(1)(A) by requiring qualified Floor Brokers
and Floor Clerks of qualified Floor Brokers to successfully complete
the SIE examination and the Series 7 Examination or the Series 7A
examination in order to satisfy the Exchange's registration
requirement.
Current Rule 9.27-O, Commentary .01, and Rule 9.27-E, Commentary
.01, each states that the Exchange considers the Uniform Registered
Representative Examination \7\ (``Series 7'') as adequate in measuring
an applicant's knowledge of the securities industry and satisfies the
examination requirements prescribed in the rule. As noted below, given
the adoption of the Securities Industry Essential (``SIE'') examination
in the FINRA Filing, the Exchange proposes to amend the current rules
to adopt the SIE exam as an additional requirement. As amended, Rule
9.27-O, Commentary .01, and Rule 9.27-E, Commentary .01, would each
provide that in addition to the Series 7 examination, the Exchange
would also require an applicant to pass the SIE examination to register
as a general securities representative.
---------------------------------------------------------------------------
\7\ The Exchange proposes to rename the Uniform Registered
Representative Examination in Rule 9.27-O, Commentary .01, and in
Rule 9.27-E, Commentary .01, as the General Securities
Representative Examination to reflect the current name of the Series
7 examination.
---------------------------------------------------------------------------
B. Amendments to Rules 2.23 and Rule 2.24--Continuing Education
Requirements
Rules 2.23 and 2.24 provide the continuing education requirements
of registered persons \8\ of an OTP Holder or OTP Firm, and ETP
Holders, respectively, 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.
---------------------------------------------------------------------------
\8\ For purposes of Rule 2.24, the term ``registered person''
means any ETP Holder, Allied Person thereof, registered
representative or other person registered or required to be
registered under the Rules of the Exchange. See Rule 2.24,
Commentary .01.
---------------------------------------------------------------------------
1. Regulatory Element
The Exchange proposes to amend Rules 2.23(d)(1) and 2.24(d)(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.\9\ The proposed
amendment to Rules 2.23(d)(1) and 2.24(d)(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.\10\
---------------------------------------------------------------------------
\9\ The proposed change is substantially similar to that
contained in FINRA Rule 1240(a)(1).
\10\ The proposed change is substantially similar to that
contained in FINRA Rule 1240(a)(2).
---------------------------------------------------------------------------
Further, the Exchange proposes to amend Rules 2.23(d)(1) and
2.24(d)(1) to provide that any person whose registration has been
deemed inactive under the rule may not accept or solicit business or
receive any compensation for the purchase or sale of securities. The
proposed amendment provides, however, that such person may receive
trail or residual commissions resulting from transactions completed
before the inactive status, unless the OTP Holder or OTP Firm, or ETP
Holder, with which the person is associated has a policy prohibiting
such trail or residual commissions.\11\
---------------------------------------------------------------------------
\11\ The proposed change is substantially similar to that
contained in FINRA Rule 1240(a)(2).
---------------------------------------------------------------------------
Additionally, under Rules 2.23(d)(1) and 2.24(d)(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 Rules 2.23(d)(1) and 2.24(d)(1) to provide an
exception to a waiver-eligible person from retaking the Regulatory
Element and satisfy [sic] all of its requirements.\12\
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\12\ The proposed change is substantially similar to that
contained in FINRA Rule 1240(a)(3).
---------------------------------------------------------------------------
2. Firm Element
Current Rule 2.23(d)(2)(B)(ii) provides that programs used to
implement an OTP Firm's or OTP Holder's training program must be
appropriate for the business of the OTP Firm or OTP Holder and, at a
minimum must cover specific matters concerning securities products,
services, and strategies offered by the OTP Firm or OTP Holder. Current
Rule 2.24(d)(2)(B)(ii) also 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 both Rules 2.23(d)(2)(B)(ii) and
2.24(d)(2)(B)(ii) 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.\13\
---------------------------------------------------------------------------
\13\ The proposed change is substantially similar to that
contained in FINRA Rule 1240(b)(2).
---------------------------------------------------------------------------
C. Proposed Rule 2.23--Commentary .06 and Proposed Rule 2.24--
Commentary .06--Fingerprint Information \14\
---------------------------------------------------------------------------
\14\ The proposed rule is substantially similar to FINRA Rule
1010(d).
---------------------------------------------------------------------------
The Exchange proposes to adopt Rule 2.23, Commentary .06 and Rule
2.24, Commentary .06, regarding the submission of fingerprint
information by OTP Firms or OTP Holders, and ETP Holders, respectively.
As proposed, upon filing an electronic Form U4 on behalf of a person
applying for registration, an OTP Firm or OTP Holder, or ETP Holder, as
applicable, would be required to promptly submit fingerprint
information for that person. If the OTP Firm or OTP Holder, or ETP
Holder, as applicable, 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
[[Page 52275]]
prohibited from performing any duties and functioning in any capacity
requiring registration. The proposed rule further provides [sic] allows
the Exchange to administratively terminate a registration that is
inactive for a period of two years. However, a person whose
registration is administratively terminated may seek to reactivate his
or her registration by reapplying for registration and meeting the
qualification requirements under Exchange rules.
D. Proposed New Rules 2.1210 Through 2.1230
As a general matter, FINRA administers qualification examinations
that are designed to establish that persons associated with ETP
Holders, OTP Holders or OTP Firm 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.\15\ Rule changes related to the adoption of the
SIE and other proposed new rules are discussed below.
---------------------------------------------------------------------------
\15\ 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 \16\
---------------------------------------------------------------------------
\16\ 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, OTP Holder
or OTP Firm 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.
2. Proposed Rule 2.1210, Commentary .01--Permissive Registrations \17\
---------------------------------------------------------------------------
\17\ 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, OTP Holder or OTP Firm. For
instance, an associated person of an ETP Holder, OTP Holder or OTP Firm
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, OTP Holder
or OTP Firm. As another example, an associated person of an ETP Holder,
OTP Holder or OTP Firm 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, OTP Holder or OTP Firm. 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, OTP
Holder or OTP Firm to obtain and maintain any registration permitted by
the ETP Holder, OTP Holder or OTP Firm.
The Exchange is proposing to permit the registration of such
individuals for several reasons. First, an ETP Holder, OTP Holder or
OTP Firm 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, OTP Holder or
OTP Firm 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, OTP Holder or OTP Firm
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, OTP Holder or OTP Firm
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.\18\
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\18\ In either case, the registered supervisor of an individual
who solely maintains a permissive registration would not be required
to be registered in the same representative or principal
registration category as the permissively-registered individual.
---------------------------------------------------------------------------
3. Proposed Rule 2.1210, Commentary .02--Qualification Examinations and
Waivers of Examinations \19\
---------------------------------------------------------------------------
\19\ 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.\20\ 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
[[Page 52276]]
examination as specified in proposed Rule 2.1220.
---------------------------------------------------------------------------
\20\ Proposed Rule 2.1220 sets forth each registration category
and applicable qualification examination for ETP Holders, OTP Holder
or OTP Firm 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 Rule 2.5(c), 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, OTP Holder or OTP Firm for individuals
associated with the ETP Holder, OTP Holder or OTP Firm 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 \21\
---------------------------------------------------------------------------
\21\ The proposed rule is substantially similar to FINRA Rule
1210.04.
---------------------------------------------------------------------------
Proposed Rule 2.1210, Commentary .03, provides that an ETP Holder,
OTP Holder or OTP Firm may designate any person currently registered,
or who becomes registered, with the ETP Holder, OTP Holder or OTP Firm
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 the [sic] five-year
period immediately preceding the designation. The proposed rule is
intended to ensure that representatives designated to function as
principals for the limited period under the proposal have an
appropriate level of registered representative experience. The proposed
rule clarifies that the requirements of the rule apply to designations
to any principal category, including those categories that are not
subject to a prerequisite representative-level registration
requirement, such as the Financial and Operations Principal
registration category.\22\
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\22\ 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, OTP
Holder or OTP Firm to function in other principal categories for a
limited period. Specifically, the proposed rule states that an ETP
Holder, OTP Holder or OTP Firm 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 \23\
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\23\ The proposed rule is substantially similar to FINRA Rule
1210.05.
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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 11.1. 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 11.1.
[[Page 52277]]
6. Proposed Rule 2.1210, Commentary .05--Waiting Periods for Retaking a
Failed Examination \24\
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\24\ The proposed rule is substantially similar to FINRA Rule
1210.06.
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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 \25\
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\25\ The proposed rule is substantially similar to FINRA Rule
1210.07.
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Pursuant to Rules 2.23(d) and 2.24(d), the CE requirements
applicable to registered persons consist of a Regulatory Element \26\
and a Firm Element.\27\ The Regulatory Element applies to registered
persons and must be completed within prescribed time frames.\28\ The
Firm Element consists of annual, ETP Holder-, OTP Holder- or OTP Firm-
developed and administered training programs designed to keep covered
registered persons current regarding securities products, services and
strategies offered by the ETP Holder, OTP Holder or OTP Firm. For
purposes of the Firm Element, the term covered registered persons means
any registered Securities Trader and any registered person who has
direct contact with customers in the conduct of the ETP Holder's, OTP
Holder's or OTP Firm's securities sales, trading and investment banking
activities and to the immediate supervisors of such persons.
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\26\ See Rules 2.23(d)(1) and 2.24(d)(1).
\27\ See Rules 2.23(d)(2) and 2.24(d)(1).
\28\ Pursuant to Rules 2.23(d)(1) and 2.24(d)(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 registration, are
required to satisfy the Regulatory Element, as specified in Rules
2.23(d)(1) and 2.24(d)(1). The Exchange is making corresponding changes
to Rules 2.23(d)(1) and 2.24(d)(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, OTP Holder or OTP Firm who becomes
CE inactive would not be permitted to be registered in another
registration category with the ETP Holder, OTP Holder or OTP Firm or be
registered in any registration category with another ETP Holder, OTP
Holder or OTP Firm, until the person has satisfied the Regulatory
Element.
8. Proposed Rule 2.1210, Commentary .07--Lapse of Registration and
Expiration of the SIE \29\
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\29\ The proposed rule is substantially similar to FINRA Rule
1210.08.
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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, OTP Holder or OTP Firm 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, OTP Holder or OTP Firm, or a subsequent ETP Holder,
OTP Holder or OTP Firm, 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, OTP Holder or OTP Firm
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,
OTP Holder or OTP Firm 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, OTP Holder or OTP Firm \30\
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\30\ The proposed rule is substantially similar to FINRA Rule
1210.09.
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Proposed Rule 2.1210, Commentary .08, provides the process for
individuals working for a financial services industry affiliate of an
ETP Holder, OTP Holder or OTP Firm \31\ to terminate their
registrations with the ETP Holder, OTP Holder or OTP Firm and be
granted a waiver of their requalification requirements upon re-
registering with an ETP Holder, OTP Holder or OTP Firm, provided the
firm that is requesting the waiver and the
[[Page 52278]]
individual satisfy the criteria for a Financial Services Affiliate
(``FSA'') waiver.
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\31\ Proposed Rule 2.1210, Commentary .07 [sic], defines a
``financial services industry affiliate of an ETP Holder, OTP Holder
or OTP Firm'' as a legal entity that controls, is controlled by or
is under common control with an ETP Holder, OTP Holder or OTP Firm
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, OTP Holder or OTP Firm with which the
individual is registered would notify the Exchange of the FSA
designation. The ETP Holder, OTP Holder or OTP Firm 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, OTP Holder or OTP Firm, 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, OTP Holder or OTP Firm. 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,\32\ provided that the other conditions of the waiver, as
described below, have been satisfied. Consequently, an ETP Holder, OTP
Holder or OTP Firm other than the ETP Holder, OTP Holder or OTP Firm
that initially designated an individual as an FSA-eligible person may
request a waiver for the individual and more than one ETP Holder, OTP
Holder or OTP Firm may request a waiver for the individual during the
seven-year period.\33\
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\32\ 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.
\33\ 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, OTP Holder or OTP Firm. 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 2.23(d) and 2.24(d).
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 to the
Exchange,\34\ 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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\34\ 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, OTP Holder or OTP Firm 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, OTP Holder or OTP Firm;
(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, OTP Holder or OTP Firm 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,
OTP Holder or OTP Firm.
Following the Form U5 filing, an individual could move between the
financial services affiliates of an ETP Holder, OTP Holder or OTP Firm
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.\35\ An individual who has been
designated as an FSA-eligible person by an ETP Holder, OTP Holder or
OTP Firm would not be able to take additional examinations to gain
additional registrations while working for a financial services
affiliate of an ETP Holder.
---------------------------------------------------------------------------
\35\ For example, if an ETP Holder, OTP Holder or OTP Firm
submits a waiver request for an FSA-eligible person who has been
working for a financial services affiliate of the ETP Holder, OTP
Holder or OTP Firm for three years and re-registers the individual,
the ETP Holder, OTP Holder or OTP Firm 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, OTP Holder or OTP Firm for another
three years, the ETP Holder, OTP Holder or OTP Firm could submit a
second waiver request and re-register the individual upon returning
to the ETP Holder, OTP Holder or OTP Firm.
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10. Proposed Rule 2.1210, Commentary .09--Status of Persons Serving in
the Armed Forces of the United States \36\
---------------------------------------------------------------------------
\36\ The proposed rule is substantially similar to FINRA Rule
1210.10.
---------------------------------------------------------------------------
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, OTP Holder or OTP Firm 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
[[Page 52279]]
the Armed Forces of the United States. The proposed rule further
requires that the ETP Holder, OTP Holder or OTP Firm with which such
person is registered promptly notify the Exchange of such person's
return to employment with the ETP Holder, OTP Holder or OTP Firm. The
proposed rule would require an ETP Holder, OTP Holder or OTP Firm that
is a sole proprietor to also similarly notify the Exchange of his or
her return to participation in the investment banking or securities
business. The proposed rule also provides that the Exchange would defer
the lapse of the SIE for formerly registered persons serving in the
Armed Forces of the United States.
E. Proposed New Rule 2.1220--Registration Categories \37\
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\37\ The Exchange is not adopting the following categories from
the FINRA Filing because ETP Holders, OTP Holders or OTP Firms do
not engage in the type of business that would require registration
with the Exchange: Investment Banking Principal, Research 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.
---------------------------------------------------------------------------
1. Proposed Rule 2.1220(a)(1)--Principal
As set forth in proposed Rule 2.1220(a)(1), for purposes of these
registration rules, the term ``Principal'' to mean any Person
Associated with an ETP Holder, OTP Holder or OTP Firm actively engaged
in the management of the ETP Holder's, OTP Holder's or OTP Firm's
securities business, including supervision, solicitation, conduct of
the ETP Holder's, OTP Holder's or OTP Firm's business, or the training
of Authorized Traders and Persons Associated with an ETP Holder, OTP
Holder or OTP Firm for any of these functions. Such Persons include
Sole Proprietors, Officers, Partners, and Directors of Corporations.
For purposes of proposed Rule 2.1220(a)(1), the phrase ``actively
engaged in the management of the ETP Holder's, OTP Holder's or OTP
Firm's securities business'' includes the management of, and the
implementation of corporate policies related to, such business. The
term also includes managerial decision-making authority with respect to
the ETP Holder's, OTP Holder's or OTP Firm'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, OTP
Holder's or OTP Firm's executive, management or operations committee.
2. Proposed Rule 2.1220(a)(2)--General Securities Principal \38\
---------------------------------------------------------------------------
\38\ 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, a Securities Trader Principal, or a Registered Options
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 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, OTP Holder or OTP Firm are limited to corporate
securities activities of the ETP Holder, OTP Holder or OTP Firm. 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 \39\
---------------------------------------------------------------------------
\39\ The proposed rule is substantially similar to FINRA Rule
1220(a)(3).
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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, OTP Holders or OTP Firms 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. Chief Compliance Officers at OTP Holders or OTP
Firms, who are currently not subject to a registration requirement,
would be excluded from the requirements of the proposed rule.
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
[[Page 52280]]
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, OTP Holder or OTP Firm 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, OTP Holder's or OTP Firm's
business.
4. Proposed Rule 2.1220(a)(4)--Financial and Operation Principal and
Introducing Broker-Dealer Financial and Operations Principal \40\
---------------------------------------------------------------------------
\40\ 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, OTP Holder or OTP Firm 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, OTP Holder or OTP Firm that has a minimum
net capital requirement of $150,000 under SEA Rule 15c3-1(a)(8) must be
designated as a Financial and Operations Principal. In addition,
proposed Rule 2.1220(a)(4) provides that a principal who is responsible
for the financial and operational management of an ETP Holder, OTP
Holder or OTP Firm that is subject to the net capital requirements of
SEA Rule 15c3-1, other than an ETP Holder, OTP Holder or OTP Firm 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,
OTP Holder or OTP Firm 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,
OTP Holders or OTP Firms that neither self-clear nor provide clearing
services are more limited, such ETP Holders, OTP Holders or OTP Firms
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, OTP Holders or OTP Firms 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, OTP Holders or OTP Firms 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, OTP Holder or OTP Firm 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.
5. Proposed Rule 2.1220(a)(5)--Securities Trader Principal \41\
---------------------------------------------------------------------------
\41\ 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 \42\
---------------------------------------------------------------------------
\42\ The proposed rule is substantially similar to FINRA Rule
1220(a)(10).
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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, OTP Holder or OTP Firm are
limited to the securities sales activities of the ETP Holder, OTP
Holder or OTP Firm, including the approval of customer accounts,
training of sales and sales supervisory personnel and the maintenance
of records of original entry or ledger accounts of the ETP Holder, OTP
Holder or OTP Firm 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.\43\
Moreover, a General Securities Sales Supervisor is precluded from
performing any of the following activities: (1) Supervision of the
origination and structuring of underwritings; (2) supervision of
market-making commitments; (3) supervision of the custody of firm or
customer funds or securities for purposes of SEA Rule 15c3-3; or (4)
supervision of overall compliance with financial responsibility rules.
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\43\ 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(a)(7)--Registered Options Principal \44\
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\44\ The proposed rule is substantially similar to FINRA Rule
1220(a)(8).
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Proposed Rule 2.1220(a)(7) provides that each OTP Holder or OTP
Firm engaged in options transactions with the public have at least one
Registered Options Principal. The proposed rule further requires that a
principal responsible for supervising an OTP
[[Page 52281]]
Holder or OTP Firm's options sales practices with the public, including
a person designated pursuant to Rule 11.18(b)(2) register with the
Exchange as a Registered Options Principal, unless such principal's
options activities are limited solely to those activities that may be
supervised by a General Securities Sales Supervisor, in which case,
such person may register as a General Securities Sales Supervisor in
lieu of registering as a Registered Options Principal.
Proposed Rule 2.1220(a)(7)(B) 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 Registered Options
Principal on October 1, 2018 and each person who was registered with
the Exchange as a Registered Options Principal within two years prior
to October 1, 2018 would be qualified to register as a Registered
Options Principal without having to pass any additional qualification
examinations. The proposed rule further provides that all other
individuals registering as Registered Options Principals after October
1, 2018 shall, prior to or concurrent with such registration, become
registered as a General Securities Representative and pass the
Registered Options Principal qualification examination.
8. Proposed Rule 2.1220(b)(1)--Representative \45\
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\45\ The proposed rule is substantially similar to FINRA Rule
1220(b)(1).
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Proposed Rule 2.1220(b)(1) defines a representative as any person
associated with an ETP Holder, OTP Holder or OTP Firm, including
assistant officers other than principals, who is engaged in the ETP
Holder's, OTP Holder's or OTP Firm'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,
OTP Holder or OTP Firm for any of these functions.
9. Proposed Rule 2.1220(b)(2)--General Securities Representative \46\
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\46\ The proposed rule is substantially similar to FINRA Rule
1220(b)(2).
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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.
10. Proposed Rule 2.1220(b)(3)--Securities Trader \47\
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\47\ The proposed rule is substantially similar to FINRA Rule
1220(b)(4).
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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, OTP Holder or OTP Firm
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, OTP Holder or OTP Firm. 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.\48\
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\48\ See e.g., MIAX International Stock Exchange, LLC Rule
203(d).
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The proposed rule also requires that associated persons primarily
responsible for the design, development or significant modification of
algorithmic trading strategies (or responsible for the day-to-day
supervision or direction of such activities) register as Securities
Traders. Individuals registering as Securities Traders must pass the
SIE and the Securities Trader examination.
Finally, the proposed rule provides that, subject to the lapse of
registration provisions in proposed Rule 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.
11. Proposed Rule 2.1220, Commentary .01--Foreign Registrations \49\
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\49\ 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 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.
12. Proposed Rule 2.1220, Commentary .02--Additional Qualification
Requirements for Persons Engaged in Security Futures \50\
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\50\ 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
[[Page 52282]]
registered with the Exchange as a General Securities Representative,
United Kingdom Securities Representative, Canada Securities
Representative, Options Representative, Registered Options Principal 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 2.23(d)(2) for ETP Holders and in Rule
2.24(d)(2) for OTP Holders or OTP Firms that addresses security futures
products before such person engages in security futures activities.
13. Proposed Rule 2.1220, Commentary .03--Scope of General Securities
Sales Supervisor Registration Category \51\
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\51\ The proposed rule is substantially similar to FINRA Rule
1220.04.
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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.
14. Proposed Rule 2.1220, Commentary .04--OTP Holders and OTP Firms
With One Registered Options Principal \52\
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\52\ The proposed rule is substantially similar to FINRA Rule
1220.03.
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Proposed Rule 2.1220, Commentary .03, requires that an OTP Holder
or OTP Firm that have one Registered Options Principal promptly notify
the Exchange and agree to specified conditions if such person is
terminated, resigns, becomes incapacitated or is otherwise unable to
perform his or her duties.
F. Proposed New Rule 2.1230--Associated Persons Exempt From
Registration \53\
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\53\ 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, OTP Holder or
OTP Firm whose functions are solely and exclusively clerical or
ministerial would be exempt from registration.\54\
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\54\ 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, OTP Holder or OTP Firms 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 \55\
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\55\ The proposed rule is substantially similar to FINRA Rule
1230.01.
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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.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the ``Act''),\56\ in general, and
furthers the objectives of Section 6(b)(5),\57\ in particular, because
it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, to remove impediments to, and perfect the
mechanism of, a free and open market and a national market system and,
in general, to protect investors and the public interest.
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\56\ 15 U.S.C. 78f(b).
\57\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change will
streamline, and bring consistency and uniformity to, the registration
rules, which will, in turn, assist ETP Holders, OTP Holders or OTP
Firms 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, OTP Holders or OTP Firms 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, OTP Holder or
OTP Firm, 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.
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
[[Page 52283]]
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, OTP Holders or OTP Firms and
their registered personnel. The Exchange believes that in that regard
that any burden on competition would be clearly outweighed by the
important regulatory goal of ensuring clear and consistent requirements
applicable across SROs, avoiding duplication, and mitigating any risk
of SROs implementing different standards in these important areas.
Further, the Exchange does not believe that the proposed amendments
will affect competition among securities markets since all SROs are
expected to adopt similar rules with uniform standards for
qualification, registration and continuing education requirements.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \58\ and Rule 19b-
4(f)(6) thereunder.
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\58\ 15 U.S.C. 78s(b)(3)(A).
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days from the date of filing. However, Rule
19b-4(f)(6)(iii) \59\ 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.\60\ 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.\61\
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\59\ 17 CFR 240.19b-4(f)(6)(iii).
\60\ See supra note 5.
\61\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEARCA-2018-71 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-NYSEARCA-2018-71. 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-NYSEARCA-2018-71 and should be submitted
on or before November 6, 2018.
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\62\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\62\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22430 Filed 10-15-18; 8:45 am]
BILLING CODE 8011-01-P
