Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend and Restate the Exchange's Membership Rules, 14429-14438 [2019-07050]
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Federal Register / Vol. 84, No. 69 / Wednesday, April 10, 2019 / Notices
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-CboeEDGX–2019–014, and
should be submitted on or before May
1, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–07051 Filed 4–9–19; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–85513; File No. SR–
NASDAQ–2019–022]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend and
Restate the Exchange’s Membership
Rules
April 4, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 27,
2019, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, and
II below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to a proposal
[sic] to amend and restate the
Exchange’s membership rules, as
discussed below.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaq.cchwallstreet.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
15 17
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
The Exchange has adopted Rules, as
set forth in the Rule 1000 Series, which
prescribe the qualifications for and the
procedures for applying for membership
on the Exchange. The Exchange now
proposes to update, reorganize and
clarify these Rules, as described below.
As a general matter, the proposal
makes several categories of changes to
the Exchange’s membership rules. First,
the proposal reorganizes the rules so
that they are arranged in a more logical
order. Second, the proposal removes
duplicative provisions, eliminates
unnecessary complexity in the
membership process, and otherwise
streamlines the membership rules and
their associated procedures. Third, the
proposal relaxes needlessly rigid
deadlines that the rules prescribe for
taking certain actions with respect to
membership applications. Fourth and
finally, the proposal makes technical
corrections and updates to the Rules,
including by updating obsolete
references to the National Association of
Securities Dealers (‘‘NASD,’’ now
known as ‘‘FINRA’’), correcting the
capitalization of defined terms (e.g.,
‘‘Member’’), and generalizing references
to the Exchange so as to facilitate
harmonization of the Exchange’s
membership rules with those of its sister
exchanges.
The Exchange does not believe that
any of the proposed changes will
adversely impact the existing rights of
prospective or existing Members or
Associated Persons. Likewise, the
Exchange does not believe that the
proposed changes will compromise the
ability of the Exchange or its
Membership Department to scrutinize
prospective or existing Members or
Associated Persons.
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A summary of specific proposed
changes follows.
Rule 1002
The proposal amends Rule 1002 in
several respects. First, it deletes existing
paragraph (c), which pertains to the
payment by Members and Associated
Persons of dues, fees, assessments and
other charges, because the requirement
of Members and Associated Persons to
make such payments is set forth
elsewhere in the Rules, such that
existing paragraph (c) is unnecessary.3
The Exchange also proposes to move
existing paragraph (d), which governs
the reinstatement of membership and
registration, to a new Rule 1018 that
will consolidate all provisions of the
Rules relating to transfer, resignation,
termination, and reinstatement of
membership. Additionally, the
Exchange proposes to consolidate and
move to this Rule, as newly-renumbered
paragraph (d), largely duplicative
provisions relating to the registration of
branch offices and the designation of
offices of supervisory jurisdiction,
which presently reside in Rule 1012(j)
and IM–1002–4, respectively.4 Within
the new paragraph (d), the Exchange
proposes to delete language from
existing Rule 1012(j)(1) that requires a
Member to pay dues, fees, and charges
associated with a branch office—as that
provision is superfluous for reasons
discussed above. Under renumbered
paragraph (d)(3)(A), the Exchange also
proposes to simplify the existing rules
for determining compliance with branch
office registration and supervisory office
designation requirements. Whereas the
existing processes—as set forth in Rule
1012(j) and IM–1002–4—provide that
Exchange Members that are also FINRA
members are deemed to comply with
the branch office and designated
supervisory office requirements to the
extent that they comply with NASD–
1000–4 and Article IV, Section 8 of the
NASD’s By-Laws, the proposal provides
that such Exchange Members are
deemed to comply to the extent that
they keep current Form BR, which
3 See
Rule 9553.
proposed subparagraph (d)(3)(B), the
Exchange proposes to clarify the existing rule text
in Rule 1012(j) and IM–1002–4, which provide that
Members that are not FINRA members shall
designate offices of supervisory jurisdiction and
branch offices by submitting to the Exchange a
‘‘written filing’’ to the Exchange ‘‘in such form as
[the Exchange] may prescribe.’’ The proposed
change clarifies that this written filing is the
‘‘Branch Office Disclosure Form.’’ The Branch
Office Disclosure Form is presently in use for this
purpose and it is not a new form. Nevertheless, the
Exchange believes that it will be helpful in the Rule
to identify the specific form that must be filed
rather than refer vaguely to a filing in such form as
the Exchange may prescribe.
4 In
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contains the requisite information and
which is accessible electronically to the
Exchange. Members that are not FINRA
members shall continue to submit to the
Exchange a Branch Office Disclosure
Form, as they have done previously.5
Lastly, the Exchange proposes to move
IM–1002–1, which prohibits a Member
or an Associated Person from filing with
the Exchange misleading information in
connection with membership or
registration, and requires misleading
information to be corrected, to proposed
amended Rule 1012 (General
Application Provisions), where the
Exchange believes it more logically fits.6
Rule 1011
In Rule 1011, which includes
definitions for the Rule 1000 Series, the
Exchange proposes to revise the defined
term ‘‘Investment banking or securities
business’’ to eliminate the reference to
‘‘investment banking’’ because the
Exchange does not accept applications
from firms that are engaged in the
investment banking business but are not
otherwise brokers or dealers in
securities. The Exchange believes that
references to the investment banking
business in this provision and
elsewhere in the Exchange’s
membership rules are unintended
errors.
In Rule 1011(g), the Exchange also
proposes to delete the defined term
‘‘material change in business
operations’’ and, as discussed below, to
incorporate it into Rule 1017(a)(5),
which is the only context in which it
applies.
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Rule 1012
The Exchange proposes to revise Rule
1012, which is presently entitled
‘‘General Provisions,’’ in several ways.
Principally, the Exchange proposes to
limit the scope of this Rule to include
only general provisions relating to
applications, and it proposes to amend
the title of the Rule to reflect that
narrowed scope (‘‘General Application
Provisions’’). It also proposes to remove
several existing provisions that are
outside of this scope, including existing
paragraphs (b) (lapses in applications),
5 The existing Rule states that Members that are
not FINRA members shall designate offices of
supervisory jurisdiction and branch offices by
submitting to the Exchange ‘‘a written filing in such
form as [the Exchange] may prescribe.’’ The form
that the Exchange presently prescribes for this
purpose is the Branch Office Disclosure Form. To
improve clarity, the Exchange proposes to identify
this form by name in the Rule. The Exchange
proposes no substantive changes to this Form.
6 The Exchange also amends the definition of a
‘‘Proprietary Trading Firm’’ in paragraph (o) to
make clear that such entities may be both
Applicants and Members of the Exchange for
purposes of the Rules.
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(c) (ex parte communications), (d)
(recusals and disqualifications from
membership appeal proceedings), (g)
(resignation of Exchange Members), (i)
(transfer and termination of Exchange
membership), and (j) (registration of
branch offices). As is discussed in
further detail below, the Exchange
proposes to move these provisions to
other Rules to which they more logically
relate. The Exchange does not believe
that moving these provisions as
described will have any substantive
effect.
In Rule 1012(a), which is presently
entitled ‘‘Filing by Applicant or Service
by Nasdaq,’’ the Exchange proposes to
retitle the paragraph for clarity purposes
as ‘‘Instructions for Filing Application
Materials with the Exchange and
Requirements for Service of Documents
by the Exchange.’’ In subparagraph
(a)(1), which presently permits an
Applicant to file an application only by
first-class mail, overnight courier, or
hand delivery, the Exchange proposes to
modernize the provision by allowing for
electronic filing as well. In a new
subparagraph (a)(3)(E), the Exchange
proposes to state that service by
electronic filing shall be deemed
complete on the day of transmission,
except that service or filing will not be
deemed to have occurred if, subsequent
to transmission, the serving or filing
party receives notice that its attempted
transmission was unsuccessful.
Furthermore, the Exchange proposes
to eliminate existing paragraph (f)
(similarity of membership names)
because the Exchange believes that it is
unnecessary for it to monitor for
similarities in the names of prospective
Members given that FINRA, through
WebCRD, and the SEC monitor this.
Finally, the Exchange proposes to
relocate and restate IM–1002–1
(regarding misleading information as to
membership or registration) and the last
paragraph of Rule 1013(a)(1) (requiring
Members and Applicants to keep
application materials current) to Rule
1012(c). Rather than state, as does IM–
1002–1, that Applicants, Members, and
Associated Persons shall not file false or
misleading membership information
with the Exchange, the Exchange
proposes to state in paragraph (c)(1) that
they shall have an affirmative duty to
ensure that their membership
information is accurate, complete, and
current at the time of filing. The
Exchange believes that the proposed
formulation is more comprehensive
than the existing one.7 Likewise, rather
Rule 1013
The Exchange proposes to
substantially restate Rule 1013, which
sets forth procedures for filing
applications for new membership on the
Exchange.
In paragraph (a) of Rule 1013, which
describes the contents of new
membership applications and
procedures for filing, the Exchange
proposes to amend subparagraphs
(a)(1)(A) and (B), which require an
Applicant to file a copy of its current
Form BD as well as an Exchangeapproved fingerprint card for each
Associated Person who will be subject
to SEC Rule 17f–2,8 to provide that the
Applicant must do so only if the
Exchange is not able to access the Form
itself or the fingerprints through the
Central Registration Depository (‘‘CRD’’
or ‘‘WebCRD’’) or a similar source. The
Exchange proposes this amendment to
relieve Applicants of the burden of
filing a Form or fingerprint cards that
the Exchange can readily retrieve itself.
In subparagraph (a)(1)(C), which
presently requires an Applicant to
provide a ‘‘check’’ for such fees as it
may be required to pay under the
Exchange’s Rules, the Exchange
proposes to delete the word ‘‘check’’
and replace it with a more general term,
‘‘payment,’’ so as to afford an Applicant
flexibility to pay the fee through
additional means, such as wire transfer.
In subparagraph (a)(1)(G), which
requires disclosure of the Applicant’s
principal place of business and ‘‘all
other offices, if any, whether or not such
offices would be required to be
registered under the Nasdaq Rules,’’ the
Exchange proposes to clarify the
provision by specifying that it applies to
7 The reformatted text also removes the references
in IM–1002–1 to registration decisions (which are
now covered elsewhere in the Exchange’s Rules).
8 The existing provision exempts Applicants from
filing fingerprint cards if it has already filed them
with another self-regulatory organization.
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than merely require, as does existing
Rule 1013(a)(1), that Applicants shall
keep current their application materials
after filing them, the Exchange proposes
more broadly, in paragraph (c)(2), to
require Applicants, Members, and
Associated Persons to ensure that their
membership applications and
supporting materials remain accurate,
complete, and current at all times, by
filing supplementary amendments with
the Department, as is necessary. (The
Exchange proposes to remove the
language in existing Rule 1013(a)(1) that
specifies that supplementary
amendments shall be filed by electronic
means insofar as Rule 1012(a) will now
specify the acceptable methods by
which membership materials shall be
filed with the Department.)
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‘‘branch’’ offices. The Exchange also
proposes to delete the phrase ‘‘whether
or not such offices would be required to
be registered under the Nasdaq Rules,’’
as the Exchange deems it unnecessary
for the Applicant to list offices other
than those that must be registered.
Finally, the Exchange again proposes to
state that an Applicant need not
separately provide this branch office
information to the Exchange to the
extent that the information is otherwise
available to the Exchange electronically
through WebCRD or a similar source.
Next, the Exchange proposes to
consolidate subparagraphs (a)(1)(J) and
(a)(1)(K). In subparagraph (a)(1)(J),
where the Exchange presently requires
the Applicant to state whether it is
currently or has been in the prior ten
years the subject of certain
investigations or disciplinary
proceedings that have not been reported
to the CRD, the Exchange proposes to
add language—currently in
subparagraph (a)(1)(K)—which states
that the obligation to disclose the
Applicant’s disciplinary history
pertains, not only to the Applicant
itself, but also ‘‘any person listed on
Schedule A of the Applicant’s Form
BD.’’ 9 With this amendment,
subparagraph (a)(1)(K) is duplicative of
(a)(1)(J), such that the Exchange
proposes to delete it.
In subparagraph (a)(1)(N), which
requires an Applicant to disclose how it
complies with Rule 3011, the Exchange
proposes to clarify that Rule 3011
requires Members to have anti-money
laundering compliance programs.
In subparagraph (a)(1)(P), the
Exchange proposes to delete language
that presently permits an Applicant to
submit a Form U–4 for each person
conducting and supervising the conduct
of the Applicant’s market making and
other trading activities. The Exchange
proposes to delete the requirement that
an Applicant submit a Form U–4
because the information that the Form
contains is otherwise accessible to the
Exchange through WebCRD, such that
submission of the Form itself is
unnecessary.
In subparagraph (a)(1)(Q), the
Exchange proposes to delete the
requirement that the Applicant provide
to the Exchange a FINRA Entitlement
Program agreement and Terms of Use
and an Account Administration
Entitlement Form, if not previously
provided to FINRA. The Exchange
proposes to delete this requirement
9 Such persons listed on Form BD include the
Applicant’s direct owners (as that term is defined
on Form BD), and certain partners, trusts and
trustees, and limited liability company members,
and executive officers of the Applicant.
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because the Exchange has determined
that the requirement is unnecessary.
Any Applicant for membership will
have already completed and submitted
this agreement and form prior to
applying to the Exchange. The
completion and submission of the
agreement and form will be evident to
the Exchange from the fact that FINRA
has granted the Applicant access to
WebCRD. The Exchange understands
that completion of the Account
Administration Entitlement Form is a
prerequisite to the creation of a
registered BD and receiving WebCRD
access.
The Exchange proposes to amend
subparagraphs (a)(1)(T), (U), and (V) of
the Rule, which presently require an
Applicant to submit to the Exchange an
agreement to comply with the federal
securities laws, the rules and
regulations thereunder, the Exchange’s
Rules, and all rulings, orders, directions,
decisions, and sanctions thereunder, as
well as an agreement to pay such dues,
assessments, and other charges in the
manner and in the amount as the
Exchange prescribes. The Exchange
proposes to preface these requirements
with a more general requirement that an
Applicant submit a duly executed copy
of the Exchange’s Membership
Agreement. The Membership Agreement
comprises the foregoing commitments,
among others, and Applicants presently
submit an executed copy of the
Membership Agreement to satisfy
existing subparagraphs (a)(1)(T) and (U).
The Exchange proposes to insert the
new language in subparagraph (a)(1)(T)
and move the language in existing
subparagraphs (a)(1)(T) and (U) to new
subparagraphs (a)(1)(T)(1) and (2). The
Exchange proposes to renumber existing
subparagraph (a)(1)(V) as subparagraph
(a)(1)(U).
The Exchange proposes to delete
existing subparagraph (a)(2) of the Rule,
which presently requires an Applicant
to submit uniform registration forms,
due to the fact that the information that
these forms contain is readily accessible
to the Exchange through WebCRD.
Next, the Exchange proposes to restate
its requirements and procedures for
deeming applications to be filed, for
dealing with incomplete applications,
and for requesting additional
information from an Applicant or a
third party in connection with a
pending application. The Exchange is
restating these requirements and
procedures to improve their clarity, to
relax certain procedural deadlines that
are needlessly rigid, and to provide
additional due process to Applicants.
First, in lieu of the deleted text in
subparagraph (a)(2), the Exchange
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proposes to insert a new provision,
entitled ‘‘When an Application is
Deemed to be Filed,’’ which states what
is now only implied in Rule 1013—that
the Department will deem an
application to be filed on the date when
it is ‘‘substantially complete,’’ meaning
the date on which the Department
receives from the Applicant all material
documentation and information
required under Rule 1013. The
Exchange believes that Applicants will
benefit from this clarification,
particularly because it affords the
Department discretion to deem an
application to be filed when it obtains
sufficent information or documentation
from the Applicant to enable the
Department to commence processing the
application. The new provision also
would require the Department to inform
the Applicant in writing when the
Exchange deems an application to be
substantially complete so that there will
be no ambiguity as to when the
Department will begin to process the
application.
Second, the Exchange proposes to
delete existing subparagraph (a)(3),
which presently governs the rejection of
applications that are not substantially
complete, and it proposes to replace the
deleted text with two new provisions
that deal with lapses in applications
that are not substantially complete, and
the rejection of filed applications that
remain or become incomplete after
filing.
New subparagraph (a)(3)(A), which
will govern lapses of applications, will
also replace existing Rule 1012(b). The
new provision states that if the
Department does not deem an
application to be substantially complete
(and thereby filed, in accordance with
proposed subparagraph (a)(2)) within 90
calendar days after an Applicant
initiates it, then absent a showing of
good cause by the Applicant, the
Department may, at its discretion, deem
the application to have lapsed without
filing, such the Department will take no
action in furtherance of the application.
The proposal is conceptually different
from existing Rule 1012(b). The
proposal conceives of a lapsed
application as one that an Applicant
initiates but does not substantially
complete even after a prolonged period
of time, such that the Department treats
it as having been abandoned prior to
filing. Under existing Rule 1012(b), by
contrast, the Exchange treats lapses
more broadly as any unexcused failure
of an Applicant to complete an
application, to respond to the
Department’s requests for information or
documents, to participate in a
membership interview, or to file with
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the Exchange an executed membership
agreement. As is discussed below, the
proposal will treat an Applicant’s postfiling non-responsiveness to the
Department’s requirements as a basis for
rejection of an application, not a lapse
of an application, because once an
application is deemed filed, the
Department will begin to take action in
furtherance of the application. Also
unlike the existing Rule, the proposal
provides that the Department merely
has discretion to, but need not deem an
application to have lapsed once it meets
the requirements of the subparagraph.
Moreover, the proposal requires that
once the Department deems an
application to have lapsed, then the
Department must serve a written notice
of that determination on the Applicant
and refund any application fees that the
Applicant paid to the Exchange
(provided that the Exchange did not, in
fact, take action in furtherance of the
lapsed application). Finally, the
proposal states that an Applicant that
still wishes to apply for membership on
the Exchange after receiving notice of a
lapse in its application must submit a
new application pursuant to these Rules
and pay a new application fee for doing
so, if applicable.
Proposed subparagraph (a)(3)(B) will
govern the circumstances in which the
Department may reject an application
that it already has deemed to be
‘‘substantially complete’’ and thus filed.
Specifically, the Exchange proposes that
if a pending application remains
incomplete after filing, or becomes
incomplete after filing due to the fact
that the Applicant has not timely
responded to the Department’s request
for supplemental information or
documents, then the Department will
serve notice on the Applicant of the
nature of the incompleteness and afford
the Applicant a reasonable time period
in which to address it. If the Applicant
fails to address the incompleteness
within the time period that the
Department prescribes in the notice,
then, absent a showing of good cause by
the Applicant, the Department may—
but again it is not required to—deem the
application to be rejected and it must
serve written notice of any such
determination upon the Applicant. The
proposal states, moreover, that if the
Department deems an application to be
rejected, then the Applicant shall not be
entitled to a refund of any fees that the
Applicant may have paid in connection
with its application so that the
Exchange can recover its costs
associated with processing the filed
application prior to rejecting it. Finally,
the proposal states that if an Applicant
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chooses to continue to pursue
membership following a rejection of its
application, then it must submit a new
application and pay any associated fees
that are required under the Rule.
Third, the Exchange proposes to
restate subparagraph (a)(4), which
governs requests made by the
Department for additional information
or documents during its consideration
of an application. The Exchange also
proposes to restate and consolidate into
subparagraph (a)(4) the provision of
Rule 1013 that governs membership
interviews and information pertinent to
the application that the Department
gathers from third party sources other
than the Applicant (existing paragraph
(b)). The Exchange believes that rules
governing supplemental information
and document requests, membership
interviews, and third party information
are related and should be consolidated
into a single provision. Moreover, the
Exchange notes that it does not, as a
practical matter, opt to conduct formal
membership interviews because it is
more efficient and less onerous for all
parties to instead engage in informal
discussions when questions and
concerns arise. Because the Exchange
does not exercise its discretion to
conduct formal interviews the Exchange
believes that it is reasonable to
eliminate the concept and the
procedures that govern such interviews
in the new subparagraph.
In particular, the proposed restated
subparagraph provides that at any time
before the Department serves its
decision on a membership
application,10 it may issue a request for
additional information or documents—
either from the Applicant or from a
third party—if the Department deems
such information or documentation to
be necessary to clarify, verify, or
supplement the application materials.
The proposal states that the Department
may request that the information or
documentation be provided in writing
or through an in-person or telephonic
interview. The proposal furthermore
states that the Department shall serve its
request in writing. The proposal states
that the Department must afford the
recipient a reasonable amount of time
10 The restated provision eliminates the
requirement in the existing Rule that the
Department must serve an initial supplemental
request for information or documents within 15
business days after an application is deemed to be
filed. The Exchange finds no good reason to
distinguish in the rule between an ‘‘initial’’ and a
subsequent supplemental Departmental request or
to impose a specific deadline for the Department to
issue any such requests; the Department has a
shared interest with the Applicant in issuing
supplemental requests expeditiously such that no
artificial deadline is necessary.
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within which to respond to the
request 11 and that the failure of an
Applicant to respond within the allotted
time may serve as a basis for the
Department to reject an application
under subparagraph (a)(3)(B), described
above. Finally, the proposal for the first
time affords the Applicant due process
in the event that the Department obtains
information or documentation about the
Applicant from a third party that the
Department reasonably believes could
adversely impact its decision on an
application.12 In such a circumstance,
the proposal requires the Department to
promptly inform the Applicant in
writing and describe the third party
information or documentation that the
Department obtained. The Department
must also afford the Applicant a
reasonable opportunity to discuss with
it or object to the Department’s use of
the third party information or
documentation in its application
decision prior to the Department
rendering the decision.
Fourth, the Exchange proposes to
establish a new Rule 1013(b), entitled
‘‘Special Application Procedures,’’
which restates and expands upon the
existing special application procedures
set forth in subparagraph (a)(5).
Presently, subparagraph (a)(5)(A) states
that when an Applicant is applying for
FINRA membership and Exchange
membership at the same time, then the
Exchange will wait to process the
application until the applicant becomes
a FINRA member.13 Presently,
subparagraph (a)(5)(C) states that
expedited application procedures will
apply to Applicants that are already
members of FINRA and Nasdaq BX, Inc.
or Nasdaq PHLX LLC. The Exchange
proposes to delete subparagraph
(a)(5)(A) and (B) because the Exchange,
upon review, believes that these
provision add little value, especially in
light of other changes that the Exchange
11 Rather than impose a minimum time period for
a response, the Exchange proposes to require only
that the Department prescribe a reasonable deadline
for a response. The Exchange believes that the
appropriate response period will vary depending
upon the nature of the information or
documentation requested. Moreover, the Exchange
again believes that the Department and the
Applicant have a shared interest in ensuring that
the Applicant has adequate time to respond to a
request.
12 The Department may consult third parties, such
as other SROs of which an Applicant is or was a
member previously, to obtain additional
information about or to confirm aspects of an
application or the Applicant’s character or history.
The Department might also consult third party
services to investigate or verify the Applicant’s
financial condition or history.
13 Existing subparagraph (a)(5)(B) also specifies
that Applicants that are already members of another
registered securities association or exchange must
submit a regular application form.
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now proposes to adopt. Likewise, the
Exchange proposes to delete (a)(5)(C)
because it has become outdated in that
it does not provide expedited
application procedures for Applicants
that are members of the Exchange’s
other affiliates; this provision also does
not explain what an ‘‘expedited’’
application process entails.
In lieu of the existing subparagraph
(a)(5), the Exchange proposes to adopt
two types of special applications in new
Rule 1013(b). First, proposed Rule
1013(b)(1) prescribes a special
application process for Applicants that
are already FINRA members.
Specifically, the proposal states that
such an Applicant will have the option
to ‘‘waive-in’’ to become an Exchange
Member and to register with the
Exchange all persons associated with it
whose registrations FINRA has
approved (in categories recognized by
the Exchange’s rules). The proposal
defines the term ‘‘waive-in’’ to mean
that the Department will rely
substantially upon FINRA’s prior
determination to approve the Applicant
for FINRA membership when the
Department evaluates the Applicant for
Exchange membership. That is, the
Department will normally permit a
FINRA member to waive-into Exchange
membership without conducting an
independent examination of the
Applicant’s qualifications for
membership on the Exchange, provided
that the Department is not otherwise
aware of any basis set forth in Rule 1014
to deny or condition approval of the
application.
Procedurally, the proposal states that
a FINRA member that wishes to waiveinto Exchange membership must do so
by submitting to the Department an
application form (the standard
application form contains an option to
select waive-in membership) and an
executed Exchange Membership
Agreement. The Department, in turn,
will act upon a duly submitted waivein application within a reasonable time
frame not to exceed 20 days from
submission of the application, unless
the Department and the Applicant agree
to a longer time frame for issuing a
decision.14 If the Department fails to
issue a decision on a waive-in
application within the prescribed time
frame, then the Applicant may petition
the Exchange’s Board of Directors to
force the Department to act, as set forth
14 The Exchange proposes this time frame to
accommodate FINRA, which will review waive-in
applications on behalf of the Exchange to verify that
the Applicants are FINRA members in good
standing. As a practical matter, the Exchange
expects to act on waive-in applications prior to the
20 day deadline.
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In several respects, the Exchange
proposes to amend Rule 1014, which
governs the issuance of membership
application decisions by the
Department.
First, to improve clarity, the Exchange
proposes to reorganize the Rule. Rather
than begin the Rule with a paragraph
that describes the bases for the
Department to issue a decision on an
application, as is the case presently, the
Exchange proposes to begin with a
paragraph (a) to be entitled ‘‘Authority
of Department to Approve, Approve
with Restrictions, or Deny an
Application.’’ This new paragraph sets
forth the general authority of the
Department to act on an application by
approving it, denying it, or approving it
subject to restrictions: (1) That are
reasonably designed to address a
specific (financial, operational,
supervisory, disciplinary, investigatory,
or other regulatory) concern; or (2) that
mirror a restriction placed upon the
Applicant by FINRA or an Affiliated
Exchange. It incorporates elements of
what is now Rule 1014(b) (which the
Exchange proposes to delete going
forward).
Second, the Exchange proposes to
renumber existing paragraph (a) as new
paragraph (b). This paragraph will be
retitled ‘‘Bases for Approval,
Conditional Approval, or Denial’’ but
will otherwise remain the same.
Third, as noted above, existing
paragraph (b) will be deleted.
Fourth, the Exchange proposes to
amend paragraph (c), which prescribes
the time period within which the
Department must issue and serve a
written decision on a membership
application. Presently, the provision
requires the Department to serve a
written decision within 15 business
days after the Applicant concludes its
membership interview (if any) or files
all of its required information or
documents, whichever is later. The
Exchange proposes to relax this
requirement by stating that the
Department must respond in a
reasonable time period, not to exceed 45
(calendar) days after the Applicant files
and provides to the Exchange all
required and requested information or
documents in connection with the
application, unless the Department and
the Applicant agree to further extend
the decision deadline.16 The Exchange
proposes these amendments because it
adjudges the existing timeframe to be
needlessly short and inflexible. In
certain instances where the Department
has outstanding questions or concerns
associated with an application, the
existing Rule may force the parties to
rush to address outstanding questions
and resolve outstanding issues. The
proposal would allow for such
questions and issues to be addressed
with less time pressure involved. The
Exchange notes that it does not intend
for this proposal to routinely lengthen
the Department’s timeframe for serving
application decisions. Under the
existing Rule, the Exchange typically
issues decisions far in advance of the 15
business day deadline and the Exchange
expects that it will continue to do so in
most instances. Indeed, the Exchange
has a self-interest in issuing decisions as
soon as is possible. The proposed 45
day decision period is merely intended
to allow for the parties to have
flexibility in unusual circumstances.
Fifth, the Exchange proposes to delete
existing paragraph (d), which states that
a decision by the Department to approve
an application is contingent upon the
15 The Nasdaq Stock Exchange, LLC, Nasdaq BX,
Inc., Nasdaq PHLX, LLC, Nasdaq ISE, LLC, Nasdaq
MRX, LLC, and Nasdaq GEMX, LLC are all affiliated
exchanges (the ‘‘Affiliated Exchanges’’).
16 The Exchange also proposes conforming
amendments to Rule 1014(c)(3), which addresses
failures of the Department to serve a decision
within the prescribed time frame.
in Rule 1014(c)(3). Finally, the proposal
states that a decision issued under this
provision shall have the same
effectiveness as set forth in Rule 1014
and shall be subject to review as set
forth in Rules 1015 and 1016.
The second proposed special
application process, to be set forth in
Rule 1013(b)(2), will permit Applicants
for Exchange membership that are
already approved members of one or
more of the Exchange’s affiliated
exchanges 15 to waive-into the Exchange
membership. In this context, ‘‘waive-in’’
means that the Department will rely
substantially upon an Affiliated
Exchange’s prior determination to
approve the Applicant for membership
on the Affiliated Exchange when the
Department evaluates the Applicant for
Exchange membership. The proposed
procedures for an Applicant to submit a
waive-in application under this
provision and for the Department to
issue a decision based upon such an
application are identical to the
procedures described above for FINRA
members that seek to waive-into
Exchange membership. The Exchange
proposes to amend its application form
to reflect the fact that Applicants may
waive-into membership on the
Exchange based upon their membership
on any of the other five Affiliated
Exchanges.
Rule 1014
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Applicant filing with the Department an
executed written membership
agreement that contains the Applicant’s
agreement to abide by any restriction
specified in the Department’s decision
and to obtain the Department’s approval
prior to undertaking a change in
ownership, control, or business
operations, or prior to modifying or
removing a membership restriction. The
Exchange proposes to delete this
provision because, as explained above,
the Exchange proposes in Rule 1013 to
expressly require an Applicant to file a
duly executed copy of the Membership
Agreement as part of its application.
The existing Membership Agreement
contains the undertakings described in
paragraph (d). Accordingly, paragraph
(d) is superfluous.
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Rule 1015
The Exchange proposes to amend
Rule 1015, which states that the
Department’s membership decisions are
subject to review by the Exchange
Review Council. Specifically, the
Exchange proposes to move from
existing Rule 1012(c) to new Rule
1015(k) a provision that prohibits ex
parte communications involving
membership decisions subject to review
among certain Exchange staff, members
of the Exchange Review Council,
members of a Subcommittee of the
Council, and the Board of Directors.
Similarly, the Exchange proposes to
move from existing Rule 1012(d) to new
Rule 1015(l) a provision that governs the
recusal and disqualification of a
member of the Exchange Review
Council, a Subcommittee thereof, or the
Board of Directors from participating in
a review of a membership decision. The
Exchange proposes these moves because
it believes that these two provisions fit
logically within the section of the
membership rules that govern appeals of
membership decisions. The Exchange
proposes no substantive changes to
these provisions 17 and it does not
believe that moving them will have any
substantive effect.
Rule 1017
The Exchange proposes substantial
changes to Rule 1017, which requires
Members to obtain approval prior to
effecting a change in ownership,
control, or business operations. These
changes are generally intended to
streamline and simplify the existing
Rule, which the Exchange believes are
unnecessary onerous and complex. As
17 The Exchange proposes to remove the
requirement from Rule 1015(a) that an applicant file
a request for review ‘‘by first-class mail.’’ Rule
1012(a) now provides for a more modern array of
filing options that includes electronic submission.
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much as possible, the Exchange
proposes to apply the same procedures
to these applications for approval as it
does to its applications for membership
under Rules 1013 and 1014.
The first change that the Exchange
proposes involves Rule 1017(a), which
defines the events that require Members
to file applications. The existing
paragraph states that a Member shall file
an application for approval prior to
effecting the following changes: (1) A
merger of the Member with another
Member (unless both are members or
the surviving member will continue to
be a member of the New York Stock
Exchange (‘‘NYSE’’)); (2) a direct or
indirect acquisition by the Member of
another Member (unless the acquiring
Member is a member of the NYSE); (3)
direct or indirect acquisitions or
transfers of 25% or more in the
aggregate of the Member’s assets or any
asset, business line or line of operations
that generates revenues comprising 25%
or more in the aggregate of the Member’s
earnings measured on a rolling 36
month basis (unless both the seller and
acquirer are members of the NYSE); (4)
a change in the equity ownership or
partnership capital of the Member that
results in one person or entity directly
or indirectly owning or controlling 25
percent or more of the equity or
partnership capital; or (5) a ‘‘material
change in business operations.’’ Existing
Rule 1011(g), in turn, defines a
‘‘material change in business
operations’’ to mean, among other
things: (1) Removing or modifying a
membership restriction; (2) acting as a
dealer for the first time; (3) market
making for the first time on the
Exchange (except when the member’s
market making has been approved
previously by FINRA or Nasdaq BX); (4)
adding business activities that require
higher minimum net capital under SEC
Rule 15c3–1; and (5) adding business
activities that would cause a proprietary
trading firm no longer to meet the
definition of that term contained in the
rule.
For ease of reference, the Exchange
proposes to incorporate into Rule
1017(a)(5) the definition of a ‘‘material
change in business operations’’ rather
than define it separately in Rule 1011(g).
The Exchange also proposes to take the
existing exclusion from that definition—
excluding first time market makers on
the Exchange whose market making
activities have been approved
previously by FINRA or Nasdaq BX—
and apply it more broadly to all of Rule
1017(a). That is, the Exchange proposes
that none of the changes enumerated in
Rule 1017(a) would require prior
Departmental approval to the extent that
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the Member’s Designated Examining
Authority (‘‘DEA’’), or an Affiliated
Exchange, has approved the change
previously in accordance with their
respective rules and provided that the
Member provides written evidence to
the Department of such prior approval.
The Exchange believes that this
proposal is prudent because in all
instances in which a Member’s DEA or
any Affiliated Exchange 18 have already
approved a change, the Exchange can be
reasonably confident that such prior
approval would be consistent with its
own judgment on the matter, such that
no purpose would be served in
requiring the Department to
independently approve the same
change.19 The proposal would also ease
burdens on Members that wish to make
changes to their businesses and which
presently require multiple approvals to
do so. The Exchange notes that it
proposes to retain authority to require
approval of a proposed change where
the nature, terms, or conditions of the
change have altered since the Member’s
DEA or an Affiliated Exchange approved
it.
Next, the Exchange proposes to make
several organizational and clarifying
amendments to Rule 1017(b), which
governs the filing and content of
applications filed under Rule 1017. It
proposes to preface subparagraph
(b)(2)—which presently states vaguely
that the ‘‘application’’ shall contain
certain items—with language clarifying
that the provision pertains to
applications for approval of a change in
ownership or control or a material
change in the business operations of a
member. It also breaks out the last
sentence of (b)(2) into new
subparagraphs (2)(A) and (2)(B).
Furthermore, it proposes clarifying
changes in (2)(A) (proposing to specify
that a description of a ‘‘change in
ownership, control, or business
operations’’ means a ‘‘proposed’’ change
in ownership, control, or ‘‘material’’
business operations) and (2)(B)
18 Exchange notes that the existing Rule is underinclusive in that it does not account for prior
approvals granted by all of the Affiliated Exchanges.
The Exchange believes that there is no reasonable
basis for it to defer to a prior approval granted by
Nasdaq BX and to not do the same with respect to
prior approvals granted by the other Affiliated
Exchanges.
19 In Rule 1017(a), the Exchange also proposes to
eliminate exceptions relating to NYSE membership.
The Exchange believes that this proposal is
reasonable insofar as the NYSE’s rules may, at
times, diverge with those of the Exchange. Going
forward, the Exchange feels more confident
deferring to the prior judgment of a Member’s DEA
or of an Affiliated Exchange as to the specific
change event at issue than it does to the mere fact
that a Member or its counterparty in a business
transaction are NYSE members.
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(specifying that the Member must
‘‘attach’’ rather than ‘‘include’’ a
business plan, pro forma financials, an
organizational chart, and written
supervisory procedures relating to the
‘‘proposed’’ change). Finally, the
Exchange proposes to renumber the
remainder of the Rule.
The Exchange proposes to amend
Rule 1017(c) to limit its scope.
Specifically, it proposes to eliminate
from subparagraph (c)(1) the ability of a
Member to effect a change in ownership
or control prior to receiving approval
from the Department and the ability of
the Department to impose interim
restrictions on the Member pending
final Department approval. The
Exchange believes that the concepts of
interim changes and restrictions are
overly complex, potentially disruptive,
and ultimately unnecessary given the
short time frames that the Rules
prescribe for the Department to act on
applications.20 Additionally, the
Exchange notes that in its experience
reviewing applications under Rule 1017,
these provisions never have been
invoked. Finally, the Exchange proposes
to change the title of this provision to
reflect the deletion of the foregoing.
Whereas now, the title is ‘‘Effecting
Change and Imposition of Interim
Restrictions,’’ the Exchange proposes to
re-title it as ‘‘When Applications Shall
or May Be Filed.’’
Existing paragraphs (d), (e), and (f) of
Rule 1017, prescribes standards for
rejecting applications that are not
substantially complete, authorizes the
Department to serve a request for
additional documents and information,
and permits the Department to conduct
interviews of Applicants, respectively.
The Exchange proposes to delete these
provisions and replace them with
provisions that are more consistent with
proposed amended Rule 1013(a)(2), (3),
and (4). That is, new Rule 1017(d) will
state that the Department will deem an
application to be filed on the date when
it is substantially complete, meaning the
date on which the Department receives
from the Applicant all material
documentation and information
required under the Rule. It also requires
the Department to inform the Applicant
in writing when the Department deems
an application to be substantially
complete. New Rule 1017(d) will state
that the Department may treat an
20 The Exchange also notes that FINRA is also
publicly contemplating eliminating the concept of
allowing its members to effect business changes on
an interim basis. See FINRA, Regulatory Notice 18–
23: Membership Application Proceedings (Request
for Public Comment), Attachment B (July 26, 2018),
available at https://www.finra.org/sites/default/files/
Attachment-B_Regulatory-Notice-18-23.pdf.
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application filed under this Rule as
having lapsed, and the Department may
reject an application filed under this
Rule, in accordance with Rule
1013(a)(3), except that the Department
may treat an application as having
lapsed if it is not substantially complete
for 30 days or more after the applicant
initiates it.21 Finally, proposed Rule
1017(f) will state that at any time before
the Department serves its decision on an
application filed under Rule 1017, the
Department may request additional
information or documentation from the
Applicant or from a third party in
accordance with Rule 1013(a)(4).22
Existing Rule 1017(g) prescribes a
complex system for the Department to
issue decisions in response to
applications filed under Rule 1017. For
example, it differentiates between
decisions issued with respect to
Members that are and are not FINRA
members (or required to be FINRA
members). With respect to Members that
are FINRA members, the Rule requires
the Department to consider whether the
Applicant and its Associated Persons
meet the standards set forth in NASD
(FINRA) Rule 1014(a). It also prescribes
specific criteria for issuing decisions
where the Applicant seeks a
modification or removal of a
membership restriction. The Exchange
believes that this complex system is
unnecessary and can be simplified
considerably, particularly in light of the
proposal described above to exempt a
Member from obtaining the Exchange’s
approval to effect a change in ownership
or control or a material change in its
business operations when FINRA has
already approved the change previously.
That is, there is no reason for the
Exchange to make an independent
assessment of whether the proposed
change complies with FINRA rules if
FINRA has already made that
determination.
In lieu of the existing provisions, the
Exchange proposes to state that the
Department will render a decision on an
application filed under Rule 1017 in
accordance with the standards set forth
in Rule 1014, except with respect to
applications to modify or remove a
membership restriction, in which case
the Department will consider the factors
presently set forth in existing Rule
21 The Exchange notes that this 30 day time
period for deeming an application to have lapsed
derives from existing Rule 1017(d).
22 As stated previously, circumstances where the
Department may consult a third party include to
seek additional information about or to verify
aspects of an application. For example, the
Department may consult another SRO to verify the
financial status or prior disciplinary history of a
Member’s prospective new ownership.
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1017(g)(1)(D) (the Exchange proposes to
renumber this provision as
subparagraph (g)(1)).
Additionally, in lieu of existing Rule
1017(g)(2), which requires the
Department to serve a written decision
on an application filed under Rule 1017
within 30 (calendar days) after
conclusion of a membership interview
or the filing of additional information or
documents (whichever is later), the
Exchange proposes to state that the
Department will serve a written
decision in accordance with Rule
1013(c).23 The Exchange proposes this
change to 1017(g)(2) for the same
reasons that it discussed above with
respect to Rule 1013(c).
Finally, the Exchange proposes to
delete Rule 1017(k). This provision
presently states that if an application for
approval of a change in ownership
lapses or is denied and all appeals are
exhausted or waived, the Member must,
within 60 days, submit a new
application, unwind the transaction, or
file a Form BDW. It also provides for the
Department to shorten or lengthen the
60 day period under certain
circumstances. Due to the fact that the
Exchange—as explained previously—
proposes to eliminate the ability of a
Member to effect a change in ownership
while its application for Departmental
approval is pending, this provision will
no longer be necessary. That is, there
will be no interim change in ownership
that will need to be unwound or
otherwise addressed if the Department
denies an application or it lapses.
Rule 1018
The Exchange proposes to consolidate
within Rule 1018, which is presently
reserved, existing provisions of the
Rules pertaining to the resignation of
members (existing Rule 1012(g), transfer
of membership (existing Rule
1012(i)(1)), termination of membership
(existing Rule 1012(i)(2)), and
reinstatement of membership (existing
Rule 1002(d)). The Exchange believes
that these provisions are logically
related and belong together in a single
Rule. The Exchange generally proposes
to maintain the substance of these
consolidated provisions unchanged
from their existing state, except that the
Exchange proposes that resignations
will no longer require a 30 day time
period to become effective. Also, the
provision on reinstatement will apply to
23 The Exchange notes that the proposed crossreference to Rule 1013(c) also addresses the
Applicant’s rights in the event that the Department
does not serve it with a timely written decision.
Accordingly, the Exchange proposes to delete
existing subparagraph (g)(3), which covers the same
topic.
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membership only and not to
registration, which is covered separately
in the Exchange’s Rules.
Other Miscellaneous Changes
Lastly, the Exchange proposes to
make non-substantive changes
throughout the Rule 1000 Series, as
follows. Where the Rules refer
specifically to ‘‘Nasdaq,’’ the Exchange
proposes to replace such references with
more general terms ‘‘Exchange’’ or ‘‘the
Exchange.’’ The Exchange proposes this
change to make it easier in the future to
harmonize the Exchange’s membership
rules with those of the other Affiliated
Exchanges. The Exchange also proposes
to update obsolete references to the
‘‘NASD’’ to reflect the fact that the
NASD is now known as ‘‘FINRA.’’
Finally, where applicable, the Exchange
proposes to renumber the Rules and
update or correct cross-references.
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Implementation
To facilitate an orderly transition from
the existing membership rules to the
new rules, the Exchange is proposing to
apply the existing rules to all
applications which have been submitted
to the Exchange (including applications
that are not yet complete) and are
pending approval prior to the operative
date. The Exchange also will apply the
existing rules to any appeal of an
Exchange membership decision or any
request for the Board to direct action on
an application is pending before the
Exchange Review Council, the Board, or
the Commission, as applicable. As a
consequence of this transition process,
the Exchange will retain the existing
processes during the transition period
until such time that there are no longer
any applications or matters proceeding
under the existing rules. To facilitate
this transition process, the Exchange
will retain a transitional Rulebook that
will contain the Exchange’s membership
rules as they are at the time that this
proposal is filed with the Commission.
This transitional Rulebook will apply
only to matters initiated prior to the
operational date of the changes
proposed herein and it will be posted to
the Exchange’s public rules website.
When the transition is complete, the
Exchange will remove the transitional
Rulebook from its public rules website.
The Exchange will announce and
explain this transition process in a
regulatory alert.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,24 in general, and furthers the
objectives of Section 6(b)(5) and of the
Act,25 in particular, in that it is designed
to promote just and equitable principles
of trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest. It is
also consistent with Section 6(b)(7) of
the Act in that it provides for a fair
procedure for denying Exchange
membership to any person who seeks it,
barring any person from becoming
associated with an Exchange Member,
and prohibiting or limiting any person
with respect to access to services offered
by the Exchange or a Member thereof.26
As a general matter, the Exchange
believes that its proposal to amend its
membership Rules will promote a free
and open market, and will benefit
investors, the public, and the markets,
because it will render the Rules clearer,
better organized, simpler, and easier to
comply with.
The proposal is just and equitable
because it will render the Exchange’s
membership rules easier for Applicants
and Members to read and understand,
including by doing the following:
• Establishing a ‘‘roadmap’’
paragraph in proposed Rule 1014(a) that
sets forth the basic authority of the
Department to approve, approve with
conditions, or deny applications for
membership before the Rule goes on to
enumerate criteria for the Department to
apply when taking each of those actions;
• Making the titles of the Rules more
accurate and descriptive (e.g., proposed
Rule 1014(b) (amending the existing
title ‘‘Bases for Denial’’ to also include
bases for approval and conditional
approval to make it more accurate and
complete));
• Grouping logically-related
provisions together in the Rules (e.g.,
provisions governing resignation,
termination, transfer, and reinstatement
of membership (moving them from Rule
1002(d) and 1012(g) and (i) to proposed
Rule 1018); provisions relating to ex
parte communications (existing Rule
1012(c)) and recusals and
disqualifications (existing Rule 1012(d)
(moving them into Rule 1015, which
governs reviews of membership
decisions));
• Rationalizing and consolidating
provisions that presently govern lapses
and rejections of applications, including
by making clearer conceptual
distinctions between lapses (i.e.,
applications that are not substantially
complete and which the Department
may deem to be abandoned, such that
25 15
24 15
U.S.C. 78f(b).
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U.S.C. 78f(b)(7).
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the Department will refund any
application fees paid by the Applicant)
and rejections (i.e., applications that the
Department deemed to be filed but
which it refuses to act upon due to
lingering incompleteness, in which case
the Department will not refund
application fees paid to it), and by
consolidating Rules 1012(b) and
1013(a)(3) into proposed Rule
1013(a)(3)(A) and (B);
• Consolidating overlapping
provisions that govern the registration of
branch offices and office of supervisory
jurisdiction into a single provision
(consolidating Rule 1012(j) and IM–
1002–4 into Rule 1002(d));
• Eliminating references in Rule
1002(c), Rule 1012(j), and Rule
1013(a)(1)(U) to the obligation of
Members (and their branch offices) to
pay fees, charges, dues, and assessments
to the Exchange insofar as those
obligations are duplicative of Rule 9553;
• Converting IM–1002–1 and IM–
1002–4 into rule text;
• Clarifying when the Department
will deem an application to be filed
(when the application is ‘‘substantially
complete,’’ as set forth in proposed Rule
1013(a)(2)) and by requiring the
Department to notify an Applicant in
writing of the filing date;
• Clarifying what the Exchange
means when it states that an Applicant
may ‘‘waive-in’’ to Exchange
membership (as set forth in proposed
Rule 1013(b)); and
• Updating obsolete cross-references
throughout the Rules from NASD to
FINRA.
The proposal will also make
compliance with the membership rules
simpler and less burdensome for
Applicants and Members by doing the
following:
• Eliminating obsolete requirements
to submit paper copies of Forms U–4
and BD or explain information listed on
the forms (Rule 1013(a)(1)(A), (J), (K),
and (P) and Rule 1013(a)(2)) where the
Department already has electronic
access to the Forms and the information
contained therein;
• Permitting electronic filing of
applications (proposed Rule 1012(a)(1);
• Allowing payment of application
fees by means other than paper check
(proposed Rule 1013(a)(1)(C));
• Relaxing deadlines that needlessly
rush the process of responding to the
Department’s questions and concerns
about an application 27 or that force the
27 Rather than require an Applicant to file a
response to a supplemental request for documents
or information within 15 business days, proposed
Rule 1013(a)(3) states that the Applicant must
respond within a ‘‘reasonable period of time’’ to be
prescribed by the Department. Even then, Rule
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Department to render a decision when
the Applicant is not ready for the
Department to do so; 28
• Eliminating formal membership
interviews and procedures related
thereto, which the Exchange has not
utilized historically (Rule 1013(b)); 29
• Harmonizing disparate procedures
under Rules 1013 and 1017 for filing,
evaluating, and responding to initial
membership applications and
applications for approval of business
changes, including by streamlining the
Rule 1017 procedures;
• Broadening the circumstances in
which an Applicant may waive-into
Exchange membership to include the
Applicant’s membership in any of the
Affiliated Exchanges 30 and defining
procedures for processing and
responding to waive-in applications
(proposed Rule 1013(b));
• Narrowing the circumstances in
which a Member must obtain prior
Department approval before effecting a
change in ownership, control, or
material business operations by
excluding changes for which a Member
has obtained prior approval from the
Member’s DEA, or an Affiliated
Exchange (proposed Rule 1017(a)); 31
1013(a)(3)(B) states that the Department must serve
upon the Applicant a notice of incompleteness if it
fails to respond to a supplemental request and then
afford the Applicant an additional reasonable time
period to remedy the failure before it may reject the
Applicant’s application.
28 Rather than require the Department to serve a
written decision within 15 business days, proposed
Rule 1014(c) states that it must issue a decision
within a reasonable period of time, not to exceed
45 calendar days after the application is filed and
complete, unless the parties agree to a later date.
As explained above, the Exchange does not intend
for this change to result in the Department routinely
issuing decisions later than it does presently. The
Exchange presently issues decisions, in most
instances, well in advance of the current 15
business day deadline and it has a self-interest in
continuing to do so whenever possible. However,
the Exchange believes that it is in the interest of
Applicants for the Department to have discretion to
respond at a later time in the event that the
Applicant needs to address or resolve outstanding
questions or concerns associated with its
application.
29 The elimination of the formal membership
interview process will have no practical effect on
the membership process insofar as the Department
otherwise has authority to request additional
information from the Applicant. Under the
proposed Rule 1014(a)(4), this authority may
include a request for the Applicant to provide
information or documents in-person or by
telephone. In other words, the Department will
retain authority to conduct an informal interview of
the Applicant.
30 As noted above, the Exchange believes that it
is reasonable to permit reciprocity in membership
among all of the Affiliated Exchanges. The
Exchange believes that there is no reasonable basis
for it to defer to a prior approval granted by Nasdaq
BX and to not do the same with respect to prior
approvals granted by the other Affiliated
Exchanges.
31 As is discussed above, the Exchange believes
that deference to prior approvals of a proposed
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• Eliminating the unused,
unnecessary, and potentially disruptive
ability of Members, pursuant to Rule
1017(c), to effect ownership changes on
an interim basis while an application for
Department approval is pending; and
• Eliminating the 30 day waiting
period for Members that seek to resign
their memberships under proposed Rule
1018(a).
In sum, the foregoing changes will
update, rationalize, and streamline the
Exchange’s membership rules and
processes, all to the benefit of
Applicants and Members. Moreover,
these changes will not adversely impact
the rights of Applicants or Members to
appeal adverse Departmental decisions
under these Rules or to request Board
action to compel the Department to
render decisions on applications.
Last, the Exchange believes that its
proposal to phase-in the
implementation of the new membership
rules and processes is consistent with
Section 6(b)(7) of the Act 32 because
both the current and proposed processes
provide fair procedures for granting and
denying applications for becoming an
Exchange Member, becoming an
Associated Person, and making material
changes to the business operations of a
Member. The Exchange is proposing to
provide advanced notice of the
implementation date of the new
processes, and will apply the new
processes to new applications, appeals,
and requests for Board action that are
initiated on or after that implementation
date. Any application, appeal, or request
for Board action initiated prior to the
implementation date will be completed
using the current processes. As a
consequence, the Exchange will
maintain a transitional Rulebook on the
Exchange’s public rules website which
will contain the Exchange Rules as they
are at the time of filing this rule change.
These transitional rules will apply
exclusively to applications, appeals, and
requests for Board action initiated prior
to the implementation date. Upon
conclusion of the last decision on a
matter to which the transitional rules
apply, the Exchange will remove the
business change made by an Affiliated Exchange or
the Exchange’s DEA is reasonable because the
judgment of these entities on such matters is likely
to be the same as that which the Exchange would
itself employ. The Exchange assesses that any
marginal benefit that might be gained from it
applying its own independent judgment outweighs
the burden to Applicants of obtaining multiple
approvals for the same proposed change. The
Exchange notes that it will require a Member to
obtain approval for such a change if the nature,
terms, or conditions of the proposed change have
altered since its DEA or an Affiliated Exchange
approved it.
32 15 U.S.C. 78f(b)(7).
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Frm 00099
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14437
defunct transitional rules from its public
rules website. Thus, the transition will
be conducted in a fair, orderly, and
transparent manner.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not expect that its
proposed changes to the membership
rules will have any competitive impact
on its existing or prospective
membership. The proposed changes will
apply equally to all similarly situated
Applicants and Members and they will
confer no relative advantage or
disadvantage upon any category of
Exchange Applicant or Member.
Moreover, the Exchange does not expect
that its proposal will have an adverse
impact on competition among
exchanges for members; to the contrary,
the Exchange hopes that by clarifying,
reorganizing, and streamlining its
membership rules, and by making the
Exchange’s membership process less
burdensome for Applicants and
Members, the Exchange will improve its
competitive standing relative to other
exchanges.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 33 and Rule
19b–4(f)(6) thereunder.34
A proposed rule change filed under
Rule 19b–4(f)(6) 35 normally does not
become operative for 30 days after the
date of filing. However, pursuant to
33 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization
give the Commission written notice of its intent to
file the proposed rule change at least five business
days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
35 17 CFR 240.19b–4(f)(6).
34 17
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Rule 19b–4(f)(6)(iii),36 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest. The
Exchange has asked the Commission to
waive the 30-day operative delay so that
the proposal may become operative
upon filing. The Exchange states that
the proposed changes are primarily
intended to update and reorganize the
Exchange’s existing membership rules
and processes. Further, the Exchange
states these rules are intended to
streamline and clarify processes and
also eliminate unused and outdated
provisions. The Exchange states the
effect of these changes will make the
membership process less burdensome
for Applicants, Members, and
Associated Persons while not limiting
the Exchange’s ability to appropriately
scrutinize prospective and existing
Members and Associated Persons. For
the foregoing reasons, the Commission
believes that waiving the 30-day
operative delay is consistent with the
protection of investors and the public
interest and, therefore, the Commission
designates the proposed rule change to
be operative upon filing.37
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
jbell on DSK30RV082PROD with NOTICES
IV. Solicitation of Comments
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–NASDAQ–2019–022. 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 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–
NASDAQ–2019–022 and should be
submitted on or before May 1, 2019.
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.38
Eduardo A. Aleman,
Deputy Secretary.
Electronic Comments
[FR Doc. 2019–07050 Filed 4–9–19; 8:45 am]
• 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–
NASDAQ–2019–022 on the subject line.
BILLING CODE 8011–01–P
36 17
CFR 240.19b–4(f)(6)(iii).
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).
37 For
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85512; File No. SR–MIAX–
2019–17]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend Its Fee Schedule
April 4, 2019.
Pursuant to the provisions of Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on March 27, 2019, Miami International
Securities Exchange LLC (‘‘MIAX
Options’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I, II, and III below,
which Items have been prepared by the
Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend the MIAX Options Fee Schedule
(the ‘‘Fee Schedule’’) to amend its fees
and rebates for Qualified Contingent
Cross (‘‘QCC’’) orders and Complex
Qualified Contingent Cross (‘‘cQCC’’)
orders.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings, at MIAX’s principal office, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
1 15
38 17
PO 00000
CFR 200.30–3(a)(12).
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2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
10APN1
]]>Agencies
[Federal Register Volume 84, Number 69 (Wednesday, April 10, 2019)]
[Notices]
[Pages 14429-14438]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07050]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85513; File No. SR-NASDAQ-2019-022]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend and Restate the Exchange's Membership Rules
April 4, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 27, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to a proposal [sic] to amend and restate the
Exchange's membership rules, as discussed below.
The text of the proposed rule change is available on the Exchange's
website at https://nasdaq.cchwallstreet.com, at the principal office of
the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange has adopted Rules, as set forth in the Rule 1000
Series, which prescribe the qualifications for and the procedures for
applying for membership on the Exchange. The Exchange now proposes to
update, reorganize and clarify these Rules, as described below.
As a general matter, the proposal makes several categories of
changes to the Exchange's membership rules. First, the proposal
reorganizes the rules so that they are arranged in a more logical
order. Second, the proposal removes duplicative provisions, eliminates
unnecessary complexity in the membership process, and otherwise
streamlines the membership rules and their associated procedures.
Third, the proposal relaxes needlessly rigid deadlines that the rules
prescribe for taking certain actions with respect to membership
applications. Fourth and finally, the proposal makes technical
corrections and updates to the Rules, including by updating obsolete
references to the National Association of Securities Dealers (``NASD,''
now known as ``FINRA''), correcting the capitalization of defined terms
(e.g., ``Member''), and generalizing references to the Exchange so as
to facilitate harmonization of the Exchange's membership rules with
those of its sister exchanges.
The Exchange does not believe that any of the proposed changes will
adversely impact the existing rights of prospective or existing Members
or Associated Persons. Likewise, the Exchange does not believe that the
proposed changes will compromise the ability of the Exchange or its
Membership Department to scrutinize prospective or existing Members or
Associated Persons.
A summary of specific proposed changes follows.
Rule 1002
The proposal amends Rule 1002 in several respects. First, it
deletes existing paragraph (c), which pertains to the payment by
Members and Associated Persons of dues, fees, assessments and other
charges, because the requirement of Members and Associated Persons to
make such payments is set forth elsewhere in the Rules, such that
existing paragraph (c) is unnecessary.\3\ The Exchange also proposes to
move existing paragraph (d), which governs the reinstatement of
membership and registration, to a new Rule 1018 that will consolidate
all provisions of the Rules relating to transfer, resignation,
termination, and reinstatement of membership. Additionally, the
Exchange proposes to consolidate and move to this Rule, as newly-
renumbered paragraph (d), largely duplicative provisions relating to
the registration of branch offices and the designation of offices of
supervisory jurisdiction, which presently reside in Rule 1012(j) and
IM-1002-4, respectively.\4\ Within the new paragraph (d), the Exchange
proposes to delete language from existing Rule 1012(j)(1) that requires
a Member to pay dues, fees, and charges associated with a branch
office--as that provision is superfluous for reasons discussed above.
Under renumbered paragraph (d)(3)(A), the Exchange also proposes to
simplify the existing rules for determining compliance with branch
office registration and supervisory office designation requirements.
Whereas the existing processes--as set forth in Rule 1012(j) and IM-
1002-4--provide that Exchange Members that are also FINRA members are
deemed to comply with the branch office and designated supervisory
office requirements to the extent that they comply with NASD-1000-4 and
Article IV, Section 8 of the NASD's By-Laws, the proposal provides that
such Exchange Members are deemed to comply to the extent that they keep
current Form BR, which
[[Page 14430]]
contains the requisite information and which is accessible
electronically to the Exchange. Members that are not FINRA members
shall continue to submit to the Exchange a Branch Office Disclosure
Form, as they have done previously.\5\ Lastly, the Exchange proposes to
move IM-1002-1, which prohibits a Member or an Associated Person from
filing with the Exchange misleading information in connection with
membership or registration, and requires misleading information to be
corrected, to proposed amended Rule 1012 (General Application
Provisions), where the Exchange believes it more logically fits.\6\
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\3\ See Rule 9553.
\4\ In proposed subparagraph (d)(3)(B), the Exchange proposes to
clarify the existing rule text in Rule 1012(j) and IM-1002-4, which
provide that Members that are not FINRA members shall designate
offices of supervisory jurisdiction and branch offices by submitting
to the Exchange a ``written filing'' to the Exchange ``in such form
as [the Exchange] may prescribe.'' The proposed change clarifies
that this written filing is the ``Branch Office Disclosure Form.''
The Branch Office Disclosure Form is presently in use for this
purpose and it is not a new form. Nevertheless, the Exchange
believes that it will be helpful in the Rule to identify the
specific form that must be filed rather than refer vaguely to a
filing in such form as the Exchange may prescribe.
\5\ The existing Rule states that Members that are not FINRA
members shall designate offices of supervisory jurisdiction and
branch offices by submitting to the Exchange ``a written filing in
such form as [the Exchange] may prescribe.'' The form that the
Exchange presently prescribes for this purpose is the Branch Office
Disclosure Form. To improve clarity, the Exchange proposes to
identify this form by name in the Rule. The Exchange proposes no
substantive changes to this Form.
\6\ The Exchange also amends the definition of a ``Proprietary
Trading Firm'' in paragraph (o) to make clear that such entities may
be both Applicants and Members of the Exchange for purposes of the
Rules.
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Rule 1011
In Rule 1011, which includes definitions for the Rule 1000 Series,
the Exchange proposes to revise the defined term ``Investment banking
or securities business'' to eliminate the reference to ``investment
banking'' because the Exchange does not accept applications from firms
that are engaged in the investment banking business but are not
otherwise brokers or dealers in securities. The Exchange believes that
references to the investment banking business in this provision and
elsewhere in the Exchange's membership rules are unintended errors.
In Rule 1011(g), the Exchange also proposes to delete the defined
term ``material change in business operations'' and, as discussed
below, to incorporate it into Rule 1017(a)(5), which is the only
context in which it applies.
Rule 1012
The Exchange proposes to revise Rule 1012, which is presently
entitled ``General Provisions,'' in several ways. Principally, the
Exchange proposes to limit the scope of this Rule to include only
general provisions relating to applications, and it proposes to amend
the title of the Rule to reflect that narrowed scope (``General
Application Provisions''). It also proposes to remove several existing
provisions that are outside of this scope, including existing
paragraphs (b) (lapses in applications), (c) (ex parte communications),
(d) (recusals and disqualifications from membership appeal
proceedings), (g) (resignation of Exchange Members), (i) (transfer and
termination of Exchange membership), and (j) (registration of branch
offices). As is discussed in further detail below, the Exchange
proposes to move these provisions to other Rules to which they more
logically relate. The Exchange does not believe that moving these
provisions as described will have any substantive effect.
In Rule 1012(a), which is presently entitled ``Filing by Applicant
or Service by Nasdaq,'' the Exchange proposes to retitle the paragraph
for clarity purposes as ``Instructions for Filing Application Materials
with the Exchange and Requirements for Service of Documents by the
Exchange.'' In subparagraph (a)(1), which presently permits an
Applicant to file an application only by first-class mail, overnight
courier, or hand delivery, the Exchange proposes to modernize the
provision by allowing for electronic filing as well. In a new
subparagraph (a)(3)(E), the Exchange proposes to state that service by
electronic filing shall be deemed complete on the day of transmission,
except that service or filing will not be deemed to have occurred if,
subsequent to transmission, the serving or filing party receives notice
that its attempted transmission was unsuccessful.
Furthermore, the Exchange proposes to eliminate existing paragraph
(f) (similarity of membership names) because the Exchange believes that
it is unnecessary for it to monitor for similarities in the names of
prospective Members given that FINRA, through WebCRD, and the SEC
monitor this.
Finally, the Exchange proposes to relocate and restate IM-1002-1
(regarding misleading information as to membership or registration) and
the last paragraph of Rule 1013(a)(1) (requiring Members and Applicants
to keep application materials current) to Rule 1012(c). Rather than
state, as does IM-1002-1, that Applicants, Members, and Associated
Persons shall not file false or misleading membership information with
the Exchange, the Exchange proposes to state in paragraph (c)(1) that
they shall have an affirmative duty to ensure that their membership
information is accurate, complete, and current at the time of filing.
The Exchange believes that the proposed formulation is more
comprehensive than the existing one.\7\ Likewise, rather than merely
require, as does existing Rule 1013(a)(1), that Applicants shall keep
current their application materials after filing them, the Exchange
proposes more broadly, in paragraph (c)(2), to require Applicants,
Members, and Associated Persons to ensure that their membership
applications and supporting materials remain accurate, complete, and
current at all times, by filing supplementary amendments with the
Department, as is necessary. (The Exchange proposes to remove the
language in existing Rule 1013(a)(1) that specifies that supplementary
amendments shall be filed by electronic means insofar as Rule 1012(a)
will now specify the acceptable methods by which membership materials
shall be filed with the Department.)
---------------------------------------------------------------------------
\7\ The reformatted text also removes the references in IM-1002-
1 to registration decisions (which are now covered elsewhere in the
Exchange's Rules).
---------------------------------------------------------------------------
Rule 1013
The Exchange proposes to substantially restate Rule 1013, which
sets forth procedures for filing applications for new membership on the
Exchange.
In paragraph (a) of Rule 1013, which describes the contents of new
membership applications and procedures for filing, the Exchange
proposes to amend subparagraphs (a)(1)(A) and (B), which require an
Applicant to file a copy of its current Form BD as well as an Exchange-
approved fingerprint card for each Associated Person who will be
subject to SEC Rule 17f-2,\8\ to provide that the Applicant must do so
only if the Exchange is not able to access the Form itself or the
fingerprints through the Central Registration Depository (``CRD'' or
``WebCRD'') or a similar source. The Exchange proposes this amendment
to relieve Applicants of the burden of filing a Form or fingerprint
cards that the Exchange can readily retrieve itself.
---------------------------------------------------------------------------
\8\ The existing provision exempts Applicants from filing
fingerprint cards if it has already filed them with another self-
regulatory organization.
---------------------------------------------------------------------------
In subparagraph (a)(1)(C), which presently requires an Applicant to
provide a ``check'' for such fees as it may be required to pay under
the Exchange's Rules, the Exchange proposes to delete the word
``check'' and replace it with a more general term, ``payment,'' so as
to afford an Applicant flexibility to pay the fee through additional
means, such as wire transfer.
In subparagraph (a)(1)(G), which requires disclosure of the
Applicant's principal place of business and ``all other offices, if
any, whether or not such offices would be required to be registered
under the Nasdaq Rules,'' the Exchange proposes to clarify the
provision by specifying that it applies to
[[Page 14431]]
``branch'' offices. The Exchange also proposes to delete the phrase
``whether or not such offices would be required to be registered under
the Nasdaq Rules,'' as the Exchange deems it unnecessary for the
Applicant to list offices other than those that must be registered.
Finally, the Exchange again proposes to state that an Applicant need
not separately provide this branch office information to the Exchange
to the extent that the information is otherwise available to the
Exchange electronically through WebCRD or a similar source.
Next, the Exchange proposes to consolidate subparagraphs (a)(1)(J)
and (a)(1)(K). In subparagraph (a)(1)(J), where the Exchange presently
requires the Applicant to state whether it is currently or has been in
the prior ten years the subject of certain investigations or
disciplinary proceedings that have not been reported to the CRD, the
Exchange proposes to add language--currently in subparagraph
(a)(1)(K)--which states that the obligation to disclose the Applicant's
disciplinary history pertains, not only to the Applicant itself, but
also ``any person listed on Schedule A of the Applicant's Form BD.''
\9\ With this amendment, subparagraph (a)(1)(K) is duplicative of
(a)(1)(J), such that the Exchange proposes to delete it.
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\9\ Such persons listed on Form BD include the Applicant's
direct owners (as that term is defined on Form BD), and certain
partners, trusts and trustees, and limited liability company
members, and executive officers of the Applicant.
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In subparagraph (a)(1)(N), which requires an Applicant to disclose
how it complies with Rule 3011, the Exchange proposes to clarify that
Rule 3011 requires Members to have anti-money laundering compliance
programs.
In subparagraph (a)(1)(P), the Exchange proposes to delete language
that presently permits an Applicant to submit a Form U-4 for each
person conducting and supervising the conduct of the Applicant's market
making and other trading activities. The Exchange proposes to delete
the requirement that an Applicant submit a Form U-4 because the
information that the Form contains is otherwise accessible to the
Exchange through WebCRD, such that submission of the Form itself is
unnecessary.
In subparagraph (a)(1)(Q), the Exchange proposes to delete the
requirement that the Applicant provide to the Exchange a FINRA
Entitlement Program agreement and Terms of Use and an Account
Administration Entitlement Form, if not previously provided to FINRA.
The Exchange proposes to delete this requirement because the Exchange
has determined that the requirement is unnecessary. Any Applicant for
membership will have already completed and submitted this agreement and
form prior to applying to the Exchange. The completion and submission
of the agreement and form will be evident to the Exchange from the fact
that FINRA has granted the Applicant access to WebCRD. The Exchange
understands that completion of the Account Administration Entitlement
Form is a prerequisite to the creation of a registered BD and receiving
WebCRD access.
The Exchange proposes to amend subparagraphs (a)(1)(T), (U), and
(V) of the Rule, which presently require an Applicant to submit to the
Exchange an agreement to comply with the federal securities laws, the
rules and regulations thereunder, the Exchange's Rules, and all
rulings, orders, directions, decisions, and sanctions thereunder, as
well as an agreement to pay such dues, assessments, and other charges
in the manner and in the amount as the Exchange prescribes. The
Exchange proposes to preface these requirements with a more general
requirement that an Applicant submit a duly executed copy of the
Exchange's Membership Agreement. The Membership Agreement comprises the
foregoing commitments, among others, and Applicants presently submit an
executed copy of the Membership Agreement to satisfy existing
subparagraphs (a)(1)(T) and (U). The Exchange proposes to insert the
new language in subparagraph (a)(1)(T) and move the language in
existing subparagraphs (a)(1)(T) and (U) to new subparagraphs
(a)(1)(T)(1) and (2). The Exchange proposes to renumber existing
subparagraph (a)(1)(V) as subparagraph (a)(1)(U).
The Exchange proposes to delete existing subparagraph (a)(2) of the
Rule, which presently requires an Applicant to submit uniform
registration forms, due to the fact that the information that these
forms contain is readily accessible to the Exchange through WebCRD.
Next, the Exchange proposes to restate its requirements and
procedures for deeming applications to be filed, for dealing with
incomplete applications, and for requesting additional information from
an Applicant or a third party in connection with a pending application.
The Exchange is restating these requirements and procedures to improve
their clarity, to relax certain procedural deadlines that are
needlessly rigid, and to provide additional due process to Applicants.
First, in lieu of the deleted text in subparagraph (a)(2), the
Exchange proposes to insert a new provision, entitled ``When an
Application is Deemed to be Filed,'' which states what is now only
implied in Rule 1013--that the Department will deem an application to
be filed on the date when it is ``substantially complete,'' meaning the
date on which the Department receives from the Applicant all material
documentation and information required under Rule 1013. The Exchange
believes that Applicants will benefit from this clarification,
particularly because it affords the Department discretion to deem an
application to be filed when it obtains sufficent information or
documentation from the Applicant to enable the Department to commence
processing the application. The new provision also would require the
Department to inform the Applicant in writing when the Exchange deems
an application to be substantially complete so that there will be no
ambiguity as to when the Department will begin to process the
application.
Second, the Exchange proposes to delete existing subparagraph
(a)(3), which presently governs the rejection of applications that are
not substantially complete, and it proposes to replace the deleted text
with two new provisions that deal with lapses in applications that are
not substantially complete, and the rejection of filed applications
that remain or become incomplete after filing.
New subparagraph (a)(3)(A), which will govern lapses of
applications, will also replace existing Rule 1012(b). The new
provision states that if the Department does not deem an application to
be substantially complete (and thereby filed, in accordance with
proposed subparagraph (a)(2)) within 90 calendar days after an
Applicant initiates it, then absent a showing of good cause by the
Applicant, the Department may, at its discretion, deem the application
to have lapsed without filing, such the Department will take no action
in furtherance of the application. The proposal is conceptually
different from existing Rule 1012(b). The proposal conceives of a
lapsed application as one that an Applicant initiates but does not
substantially complete even after a prolonged period of time, such that
the Department treats it as having been abandoned prior to filing.
Under existing Rule 1012(b), by contrast, the Exchange treats lapses
more broadly as any unexcused failure of an Applicant to complete an
application, to respond to the Department's requests for information or
documents, to participate in a membership interview, or to file with
[[Page 14432]]
the Exchange an executed membership agreement. As is discussed below,
the proposal will treat an Applicant's post-filing non-responsiveness
to the Department's requirements as a basis for rejection of an
application, not a lapse of an application, because once an application
is deemed filed, the Department will begin to take action in
furtherance of the application. Also unlike the existing Rule, the
proposal provides that the Department merely has discretion to, but
need not deem an application to have lapsed once it meets the
requirements of the subparagraph. Moreover, the proposal requires that
once the Department deems an application to have lapsed, then the
Department must serve a written notice of that determination on the
Applicant and refund any application fees that the Applicant paid to
the Exchange (provided that the Exchange did not, in fact, take action
in furtherance of the lapsed application). Finally, the proposal states
that an Applicant that still wishes to apply for membership on the
Exchange after receiving notice of a lapse in its application must
submit a new application pursuant to these Rules and pay a new
application fee for doing so, if applicable.
Proposed subparagraph (a)(3)(B) will govern the circumstances in
which the Department may reject an application that it already has
deemed to be ``substantially complete'' and thus filed. Specifically,
the Exchange proposes that if a pending application remains incomplete
after filing, or becomes incomplete after filing due to the fact that
the Applicant has not timely responded to the Department's request for
supplemental information or documents, then the Department will serve
notice on the Applicant of the nature of the incompleteness and afford
the Applicant a reasonable time period in which to address it. If the
Applicant fails to address the incompleteness within the time period
that the Department prescribes in the notice, then, absent a showing of
good cause by the Applicant, the Department may--but again it is not
required to--deem the application to be rejected and it must serve
written notice of any such determination upon the Applicant. The
proposal states, moreover, that if the Department deems an application
to be rejected, then the Applicant shall not be entitled to a refund of
any fees that the Applicant may have paid in connection with its
application so that the Exchange can recover its costs associated with
processing the filed application prior to rejecting it. Finally, the
proposal states that if an Applicant chooses to continue to pursue
membership following a rejection of its application, then it must
submit a new application and pay any associated fees that are required
under the Rule.
Third, the Exchange proposes to restate subparagraph (a)(4), which
governs requests made by the Department for additional information or
documents during its consideration of an application. The Exchange also
proposes to restate and consolidate into subparagraph (a)(4) the
provision of Rule 1013 that governs membership interviews and
information pertinent to the application that the Department gathers
from third party sources other than the Applicant (existing paragraph
(b)). The Exchange believes that rules governing supplemental
information and document requests, membership interviews, and third
party information are related and should be consolidated into a single
provision. Moreover, the Exchange notes that it does not, as a
practical matter, opt to conduct formal membership interviews because
it is more efficient and less onerous for all parties to instead engage
in informal discussions when questions and concerns arise. Because the
Exchange does not exercise its discretion to conduct formal interviews
the Exchange believes that it is reasonable to eliminate the concept
and the procedures that govern such interviews in the new subparagraph.
In particular, the proposed restated subparagraph provides that at
any time before the Department serves its decision on a membership
application,\10\ it may issue a request for additional information or
documents--either from the Applicant or from a third party--if the
Department deems such information or documentation to be necessary to
clarify, verify, or supplement the application materials. The proposal
states that the Department may request that the information or
documentation be provided in writing or through an in-person or
telephonic interview. The proposal furthermore states that the
Department shall serve its request in writing. The proposal states that
the Department must afford the recipient a reasonable amount of time
within which to respond to the request \11\ and that the failure of an
Applicant to respond within the allotted time may serve as a basis for
the Department to reject an application under subparagraph (a)(3)(B),
described above. Finally, the proposal for the first time affords the
Applicant due process in the event that the Department obtains
information or documentation about the Applicant from a third party
that the Department reasonably believes could adversely impact its
decision on an application.\12\ In such a circumstance, the proposal
requires the Department to promptly inform the Applicant in writing and
describe the third party information or documentation that the
Department obtained. The Department must also afford the Applicant a
reasonable opportunity to discuss with it or object to the Department's
use of the third party information or documentation in its application
decision prior to the Department rendering the decision.
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\10\ The restated provision eliminates the requirement in the
existing Rule that the Department must serve an initial supplemental
request for information or documents within 15 business days after
an application is deemed to be filed. The Exchange finds no good
reason to distinguish in the rule between an ``initial'' and a
subsequent supplemental Departmental request or to impose a specific
deadline for the Department to issue any such requests; the
Department has a shared interest with the Applicant in issuing
supplemental requests expeditiously such that no artificial deadline
is necessary.
\11\ Rather than impose a minimum time period for a response,
the Exchange proposes to require only that the Department prescribe
a reasonable deadline for a response. The Exchange believes that the
appropriate response period will vary depending upon the nature of
the information or documentation requested. Moreover, the Exchange
again believes that the Department and the Applicant have a shared
interest in ensuring that the Applicant has adequate time to respond
to a request.
\12\ The Department may consult third parties, such as other
SROs of which an Applicant is or was a member previously, to obtain
additional information about or to confirm aspects of an application
or the Applicant's character or history. The Department might also
consult third party services to investigate or verify the
Applicant's financial condition or history.
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Fourth, the Exchange proposes to establish a new Rule 1013(b),
entitled ``Special Application Procedures,'' which restates and expands
upon the existing special application procedures set forth in
subparagraph (a)(5). Presently, subparagraph (a)(5)(A) states that when
an Applicant is applying for FINRA membership and Exchange membership
at the same time, then the Exchange will wait to process the
application until the applicant becomes a FINRA member.\13\ Presently,
subparagraph (a)(5)(C) states that expedited application procedures
will apply to Applicants that are already members of FINRA and Nasdaq
BX, Inc. or Nasdaq PHLX LLC. The Exchange proposes to delete
subparagraph (a)(5)(A) and (B) because the Exchange, upon review,
believes that these provision add little value, especially in light of
other changes that the Exchange
[[Page 14433]]
now proposes to adopt. Likewise, the Exchange proposes to delete
(a)(5)(C) because it has become outdated in that it does not provide
expedited application procedures for Applicants that are members of the
Exchange's other affiliates; this provision also does not explain what
an ``expedited'' application process entails.
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\13\ Existing subparagraph (a)(5)(B) also specifies that
Applicants that are already members of another registered securities
association or exchange must submit a regular application form.
---------------------------------------------------------------------------
In lieu of the existing subparagraph (a)(5), the Exchange proposes
to adopt two types of special applications in new Rule 1013(b). First,
proposed Rule 1013(b)(1) prescribes a special application process for
Applicants that are already FINRA members. Specifically, the proposal
states that such an Applicant will have the option to ``waive-in'' to
become an Exchange Member and to register with the Exchange all persons
associated with it whose registrations FINRA has approved (in
categories recognized by the Exchange's rules). The proposal defines
the term ``waive-in'' to mean that the Department will rely
substantially upon FINRA's prior determination to approve the Applicant
for FINRA membership when the Department evaluates the Applicant for
Exchange membership. That is, the Department will normally permit a
FINRA member to waive-into Exchange membership without conducting an
independent examination of the Applicant's qualifications for
membership on the Exchange, provided that the Department is not
otherwise aware of any basis set forth in Rule 1014 to deny or
condition approval of the application.
Procedurally, the proposal states that a FINRA member that wishes
to waive-into Exchange membership must do so by submitting to the
Department an application form (the standard application form contains
an option to select waive-in membership) and an executed Exchange
Membership Agreement. The Department, in turn, will act upon a duly
submitted waive-in application within a reasonable time frame not to
exceed 20 days from submission of the application, unless the
Department and the Applicant agree to a longer time frame for issuing a
decision.\14\ If the Department fails to issue a decision on a waive-in
application within the prescribed time frame, then the Applicant may
petition the Exchange's Board of Directors to force the Department to
act, as set forth in Rule 1014(c)(3). Finally, the proposal states that
a decision issued under this provision shall have the same
effectiveness as set forth in Rule 1014 and shall be subject to review
as set forth in Rules 1015 and 1016.
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\14\ The Exchange proposes this time frame to accommodate FINRA,
which will review waive-in applications on behalf of the Exchange to
verify that the Applicants are FINRA members in good standing. As a
practical matter, the Exchange expects to act on waive-in
applications prior to the 20 day deadline.
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The second proposed special application process, to be set forth in
Rule 1013(b)(2), will permit Applicants for Exchange membership that
are already approved members of one or more of the Exchange's
affiliated exchanges \15\ to waive-into the Exchange membership. In
this context, ``waive-in'' means that the Department will rely
substantially upon an Affiliated Exchange's prior determination to
approve the Applicant for membership on the Affiliated Exchange when
the Department evaluates the Applicant for Exchange membership. The
proposed procedures for an Applicant to submit a waive-in application
under this provision and for the Department to issue a decision based
upon such an application are identical to the procedures described
above for FINRA members that seek to waive-into Exchange membership.
The Exchange proposes to amend its application form to reflect the fact
that Applicants may waive-into membership on the Exchange based upon
their membership on any of the other five Affiliated Exchanges.
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\15\ The Nasdaq Stock Exchange, LLC, Nasdaq BX, Inc., Nasdaq
PHLX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, and Nasdaq GEMX, LLC
are all affiliated exchanges (the ``Affiliated Exchanges'').
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Rule 1014
In several respects, the Exchange proposes to amend Rule 1014,
which governs the issuance of membership application decisions by the
Department.
First, to improve clarity, the Exchange proposes to reorganize the
Rule. Rather than begin the Rule with a paragraph that describes the
bases for the Department to issue a decision on an application, as is
the case presently, the Exchange proposes to begin with a paragraph (a)
to be entitled ``Authority of Department to Approve, Approve with
Restrictions, or Deny an Application.'' This new paragraph sets forth
the general authority of the Department to act on an application by
approving it, denying it, or approving it subject to restrictions: (1)
That are reasonably designed to address a specific (financial,
operational, supervisory, disciplinary, investigatory, or other
regulatory) concern; or (2) that mirror a restriction placed upon the
Applicant by FINRA or an Affiliated Exchange. It incorporates elements
of what is now Rule 1014(b) (which the Exchange proposes to delete
going forward).
Second, the Exchange proposes to renumber existing paragraph (a) as
new paragraph (b). This paragraph will be retitled ``Bases for
Approval, Conditional Approval, or Denial'' but will otherwise remain
the same.
Third, as noted above, existing paragraph (b) will be deleted.
Fourth, the Exchange proposes to amend paragraph (c), which
prescribes the time period within which the Department must issue and
serve a written decision on a membership application. Presently, the
provision requires the Department to serve a written decision within 15
business days after the Applicant concludes its membership interview
(if any) or files all of its required information or documents,
whichever is later. The Exchange proposes to relax this requirement by
stating that the Department must respond in a reasonable time period,
not to exceed 45 (calendar) days after the Applicant files and provides
to the Exchange all required and requested information or documents in
connection with the application, unless the Department and the
Applicant agree to further extend the decision deadline.\16\ The
Exchange proposes these amendments because it adjudges the existing
timeframe to be needlessly short and inflexible. In certain instances
where the Department has outstanding questions or concerns associated
with an application, the existing Rule may force the parties to rush to
address outstanding questions and resolve outstanding issues. The
proposal would allow for such questions and issues to be addressed with
less time pressure involved. The Exchange notes that it does not intend
for this proposal to routinely lengthen the Department's timeframe for
serving application decisions. Under the existing Rule, the Exchange
typically issues decisions far in advance of the 15 business day
deadline and the Exchange expects that it will continue to do so in
most instances. Indeed, the Exchange has a self-interest in issuing
decisions as soon as is possible. The proposed 45 day decision period
is merely intended to allow for the parties to have flexibility in
unusual circumstances.
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\16\ The Exchange also proposes conforming amendments to Rule
1014(c)(3), which addresses failures of the Department to serve a
decision within the prescribed time frame.
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Fifth, the Exchange proposes to delete existing paragraph (d),
which states that a decision by the Department to approve an
application is contingent upon the
[[Page 14434]]
Applicant filing with the Department an executed written membership
agreement that contains the Applicant's agreement to abide by any
restriction specified in the Department's decision and to obtain the
Department's approval prior to undertaking a change in ownership,
control, or business operations, or prior to modifying or removing a
membership restriction. The Exchange proposes to delete this provision
because, as explained above, the Exchange proposes in Rule 1013 to
expressly require an Applicant to file a duly executed copy of the
Membership Agreement as part of its application. The existing
Membership Agreement contains the undertakings described in paragraph
(d). Accordingly, paragraph (d) is superfluous.
Rule 1015
The Exchange proposes to amend Rule 1015, which states that the
Department's membership decisions are subject to review by the Exchange
Review Council. Specifically, the Exchange proposes to move from
existing Rule 1012(c) to new Rule 1015(k) a provision that prohibits ex
parte communications involving membership decisions subject to review
among certain Exchange staff, members of the Exchange Review Council,
members of a Subcommittee of the Council, and the Board of Directors.
Similarly, the Exchange proposes to move from existing Rule 1012(d) to
new Rule 1015(l) a provision that governs the recusal and
disqualification of a member of the Exchange Review Council, a
Subcommittee thereof, or the Board of Directors from participating in a
review of a membership decision. The Exchange proposes these moves
because it believes that these two provisions fit logically within the
section of the membership rules that govern appeals of membership
decisions. The Exchange proposes no substantive changes to these
provisions \17\ and it does not believe that moving them will have any
substantive effect.
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\17\ The Exchange proposes to remove the requirement from Rule
1015(a) that an applicant file a request for review ``by first-class
mail.'' Rule 1012(a) now provides for a more modern array of filing
options that includes electronic submission.
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Rule 1017
The Exchange proposes substantial changes to Rule 1017, which
requires Members to obtain approval prior to effecting a change in
ownership, control, or business operations. These changes are generally
intended to streamline and simplify the existing Rule, which the
Exchange believes are unnecessary onerous and complex. As much as
possible, the Exchange proposes to apply the same procedures to these
applications for approval as it does to its applications for membership
under Rules 1013 and 1014.
The first change that the Exchange proposes involves Rule 1017(a),
which defines the events that require Members to file applications. The
existing paragraph states that a Member shall file an application for
approval prior to effecting the following changes: (1) A merger of the
Member with another Member (unless both are members or the surviving
member will continue to be a member of the New York Stock Exchange
(``NYSE'')); (2) a direct or indirect acquisition by the Member of
another Member (unless the acquiring Member is a member of the NYSE);
(3) direct or indirect acquisitions or transfers of 25% or more in the
aggregate of the Member's assets or any asset, business line or line of
operations that generates revenues comprising 25% or more in the
aggregate of the Member's earnings measured on a rolling 36 month basis
(unless both the seller and acquirer are members of the NYSE); (4) a
change in the equity ownership or partnership capital of the Member
that results in one person or entity directly or indirectly owning or
controlling 25 percent or more of the equity or partnership capital; or
(5) a ``material change in business operations.'' Existing Rule
1011(g), in turn, defines a ``material change in business operations''
to mean, among other things: (1) Removing or modifying a membership
restriction; (2) acting as a dealer for the first time; (3) market
making for the first time on the Exchange (except when the member's
market making has been approved previously by FINRA or Nasdaq BX); (4)
adding business activities that require higher minimum net capital
under SEC Rule 15c3-1; and (5) adding business activities that would
cause a proprietary trading firm no longer to meet the definition of
that term contained in the rule.
For ease of reference, the Exchange proposes to incorporate into
Rule 1017(a)(5) the definition of a ``material change in business
operations'' rather than define it separately in Rule 1011(g). The
Exchange also proposes to take the existing exclusion from that
definition--excluding first time market makers on the Exchange whose
market making activities have been approved previously by FINRA or
Nasdaq BX--and apply it more broadly to all of Rule 1017(a). That is,
the Exchange proposes that none of the changes enumerated in Rule
1017(a) would require prior Departmental approval to the extent that
the Member's Designated Examining Authority (``DEA''), or an Affiliated
Exchange, has approved the change previously in accordance with their
respective rules and provided that the Member provides written evidence
to the Department of such prior approval. The Exchange believes that
this proposal is prudent because in all instances in which a Member's
DEA or any Affiliated Exchange \18\ have already approved a change, the
Exchange can be reasonably confident that such prior approval would be
consistent with its own judgment on the matter, such that no purpose
would be served in requiring the Department to independently approve
the same change.\19\ The proposal would also ease burdens on Members
that wish to make changes to their businesses and which presently
require multiple approvals to do so. The Exchange notes that it
proposes to retain authority to require approval of a proposed change
where the nature, terms, or conditions of the change have altered since
the Member's DEA or an Affiliated Exchange approved it.
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\18\ Exchange notes that the existing Rule is under-inclusive in
that it does not account for prior approvals granted by all of the
Affiliated Exchanges. The Exchange believes that there is no
reasonable basis for it to defer to a prior approval granted by
Nasdaq BX and to not do the same with respect to prior approvals
granted by the other Affiliated Exchanges.
\19\ In Rule 1017(a), the Exchange also proposes to eliminate
exceptions relating to NYSE membership. The Exchange believes that
this proposal is reasonable insofar as the NYSE's rules may, at
times, diverge with those of the Exchange. Going forward, the
Exchange feels more confident deferring to the prior judgment of a
Member's DEA or of an Affiliated Exchange as to the specific change
event at issue than it does to the mere fact that a Member or its
counterparty in a business transaction are NYSE members.
---------------------------------------------------------------------------
Next, the Exchange proposes to make several organizational and
clarifying amendments to Rule 1017(b), which governs the filing and
content of applications filed under Rule 1017. It proposes to preface
subparagraph (b)(2)--which presently states vaguely that the
``application'' shall contain certain items--with language clarifying
that the provision pertains to applications for approval of a change in
ownership or control or a material change in the business operations of
a member. It also breaks out the last sentence of (b)(2) into new
subparagraphs (2)(A) and (2)(B). Furthermore, it proposes clarifying
changes in (2)(A) (proposing to specify that a description of a
``change in ownership, control, or business operations'' means a
``proposed'' change in ownership, control, or ``material'' business
operations) and (2)(B)
[[Page 14435]]
(specifying that the Member must ``attach'' rather than ``include'' a
business plan, pro forma financials, an organizational chart, and
written supervisory procedures relating to the ``proposed'' change).
Finally, the Exchange proposes to renumber the remainder of the Rule.
The Exchange proposes to amend Rule 1017(c) to limit its scope.
Specifically, it proposes to eliminate from subparagraph (c)(1) the
ability of a Member to effect a change in ownership or control prior to
receiving approval from the Department and the ability of the
Department to impose interim restrictions on the Member pending final
Department approval. The Exchange believes that the concepts of interim
changes and restrictions are overly complex, potentially disruptive,
and ultimately unnecessary given the short time frames that the Rules
prescribe for the Department to act on applications.\20\ Additionally,
the Exchange notes that in its experience reviewing applications under
Rule 1017, these provisions never have been invoked. Finally, the
Exchange proposes to change the title of this provision to reflect the
deletion of the foregoing. Whereas now, the title is ``Effecting Change
and Imposition of Interim Restrictions,'' the Exchange proposes to re-
title it as ``When Applications Shall or May Be Filed.''
---------------------------------------------------------------------------
\20\ The Exchange also notes that FINRA is also publicly
contemplating eliminating the concept of allowing its members to
effect business changes on an interim basis. See FINRA, Regulatory
Notice 18-23: Membership Application Proceedings (Request for Public
Comment), Attachment B (July 26, 2018), available at https://www.finra.org/sites/default/files/Attachment-B_Regulatory-Notice-18-23.pdf.
---------------------------------------------------------------------------
Existing paragraphs (d), (e), and (f) of Rule 1017, prescribes
standards for rejecting applications that are not substantially
complete, authorizes the Department to serve a request for additional
documents and information, and permits the Department to conduct
interviews of Applicants, respectively. The Exchange proposes to delete
these provisions and replace them with provisions that are more
consistent with proposed amended Rule 1013(a)(2), (3), and (4). That
is, new Rule 1017(d) will state that the Department will deem an
application to be filed on the date when it is substantially complete,
meaning the date on which the Department receives from the Applicant
all material documentation and information required under the Rule. It
also requires the Department to inform the Applicant in writing when
the Department deems an application to be substantially complete. New
Rule 1017(d) will state that the Department may treat an application
filed under this Rule as having lapsed, and the Department may reject
an application filed under this Rule, in accordance with Rule
1013(a)(3), except that the Department may treat an application as
having lapsed if it is not substantially complete for 30 days or more
after the applicant initiates it.\21\ Finally, proposed Rule 1017(f)
will state that at any time before the Department serves its decision
on an application filed under Rule 1017, the Department may request
additional information or documentation from the Applicant or from a
third party in accordance with Rule 1013(a)(4).\22\
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\21\ The Exchange notes that this 30 day time period for deeming
an application to have lapsed derives from existing Rule 1017(d).
\22\ As stated previously, circumstances where the Department
may consult a third party include to seek additional information
about or to verify aspects of an application. For example, the
Department may consult another SRO to verify the financial status or
prior disciplinary history of a Member's prospective new ownership.
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Existing Rule 1017(g) prescribes a complex system for the
Department to issue decisions in response to applications filed under
Rule 1017. For example, it differentiates between decisions issued with
respect to Members that are and are not FINRA members (or required to
be FINRA members). With respect to Members that are FINRA members, the
Rule requires the Department to consider whether the Applicant and its
Associated Persons meet the standards set forth in NASD (FINRA) Rule
1014(a). It also prescribes specific criteria for issuing decisions
where the Applicant seeks a modification or removal of a membership
restriction. The Exchange believes that this complex system is
unnecessary and can be simplified considerably, particularly in light
of the proposal described above to exempt a Member from obtaining the
Exchange's approval to effect a change in ownership or control or a
material change in its business operations when FINRA has already
approved the change previously. That is, there is no reason for the
Exchange to make an independent assessment of whether the proposed
change complies with FINRA rules if FINRA has already made that
determination.
In lieu of the existing provisions, the Exchange proposes to state
that the Department will render a decision on an application filed
under Rule 1017 in accordance with the standards set forth in Rule
1014, except with respect to applications to modify or remove a
membership restriction, in which case the Department will consider the
factors presently set forth in existing Rule 1017(g)(1)(D) (the
Exchange proposes to renumber this provision as subparagraph (g)(1)).
Additionally, in lieu of existing Rule 1017(g)(2), which requires
the Department to serve a written decision on an application filed
under Rule 1017 within 30 (calendar days) after conclusion of a
membership interview or the filing of additional information or
documents (whichever is later), the Exchange proposes to state that the
Department will serve a written decision in accordance with Rule
1013(c).\23\ The Exchange proposes this change to 1017(g)(2) for the
same reasons that it discussed above with respect to Rule 1013(c).
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\23\ The Exchange notes that the proposed cross-reference to
Rule 1013(c) also addresses the Applicant's rights in the event that
the Department does not serve it with a timely written decision.
Accordingly, the Exchange proposes to delete existing subparagraph
(g)(3), which covers the same topic.
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Finally, the Exchange proposes to delete Rule 1017(k). This
provision presently states that if an application for approval of a
change in ownership lapses or is denied and all appeals are exhausted
or waived, the Member must, within 60 days, submit a new application,
unwind the transaction, or file a Form BDW. It also provides for the
Department to shorten or lengthen the 60 day period under certain
circumstances. Due to the fact that the Exchange--as explained
previously--proposes to eliminate the ability of a Member to effect a
change in ownership while its application for Departmental approval is
pending, this provision will no longer be necessary. That is, there
will be no interim change in ownership that will need to be unwound or
otherwise addressed if the Department denies an application or it
lapses.
Rule 1018
The Exchange proposes to consolidate within Rule 1018, which is
presently reserved, existing provisions of the Rules pertaining to the
resignation of members (existing Rule 1012(g), transfer of membership
(existing Rule 1012(i)(1)), termination of membership (existing Rule
1012(i)(2)), and reinstatement of membership (existing Rule 1002(d)).
The Exchange believes that these provisions are logically related and
belong together in a single Rule. The Exchange generally proposes to
maintain the substance of these consolidated provisions unchanged from
their existing state, except that the Exchange proposes that
resignations will no longer require a 30 day time period to become
effective. Also, the provision on reinstatement will apply to
[[Page 14436]]
membership only and not to registration, which is covered separately in
the Exchange's Rules.
Other Miscellaneous Changes
Lastly, the Exchange proposes to make non-substantive changes
throughout the Rule 1000 Series, as follows. Where the Rules refer
specifically to ``Nasdaq,'' the Exchange proposes to replace such
references with more general terms ``Exchange'' or ``the Exchange.''
The Exchange proposes this change to make it easier in the future to
harmonize the Exchange's membership rules with those of the other
Affiliated Exchanges. The Exchange also proposes to update obsolete
references to the ``NASD'' to reflect the fact that the NASD is now
known as ``FINRA.'' Finally, where applicable, the Exchange proposes to
renumber the Rules and update or correct cross-references.
Implementation
To facilitate an orderly transition from the existing membership
rules to the new rules, the Exchange is proposing to apply the existing
rules to all applications which have been submitted to the Exchange
(including applications that are not yet complete) and are pending
approval prior to the operative date. The Exchange also will apply the
existing rules to any appeal of an Exchange membership decision or any
request for the Board to direct action on an application is pending
before the Exchange Review Council, the Board, or the Commission, as
applicable. As a consequence of this transition process, the Exchange
will retain the existing processes during the transition period until
such time that there are no longer any applications or matters
proceeding under the existing rules. To facilitate this transition
process, the Exchange will retain a transitional Rulebook that will
contain the Exchange's membership rules as they are at the time that
this proposal is filed with the Commission. This transitional Rulebook
will apply only to matters initiated prior to the operational date of
the changes proposed herein and it will be posted to the Exchange's
public rules website. When the transition is complete, the Exchange
will remove the transitional Rulebook from its public rules website.
The Exchange will announce and explain this transition process in a
regulatory alert.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\24\ in general, and furthers the objectives of Section
6(b)(5) and of the Act,\25\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest. It is also consistent with Section 6(b)(7) of the Act in that
it provides for a fair procedure for denying Exchange membership to any
person who seeks it, barring any person from becoming associated with
an Exchange Member, and prohibiting or limiting any person with respect
to access to services offered by the Exchange or a Member thereof.\26\
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\24\ 15 U.S.C. 78f(b).
\25\ 15 U.S.C. 78f(b)(5).
\26\ 15 U.S.C. 78f(b)(7).
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As a general matter, the Exchange believes that its proposal to
amend its membership Rules will promote a free and open market, and
will benefit investors, the public, and the markets, because it will
render the Rules clearer, better organized, simpler, and easier to
comply with.
The proposal is just and equitable because it will render the
Exchange's membership rules easier for Applicants and Members to read
and understand, including by doing the following:
Establishing a ``roadmap'' paragraph in proposed Rule
1014(a) that sets forth the basic authority of the Department to
approve, approve with conditions, or deny applications for membership
before the Rule goes on to enumerate criteria for the Department to
apply when taking each of those actions;
Making the titles of the Rules more accurate and
descriptive (e.g., proposed Rule 1014(b) (amending the existing title
``Bases for Denial'' to also include bases for approval and conditional
approval to make it more accurate and complete));
Grouping logically-related provisions together in the
Rules (e.g., provisions governing resignation, termination, transfer,
and reinstatement of membership (moving them from Rule 1002(d) and
1012(g) and (i) to proposed Rule 1018); provisions relating to ex parte
communications (existing Rule 1012(c)) and recusals and
disqualifications (existing Rule 1012(d) (moving them into Rule 1015,
which governs reviews of membership decisions));
Rationalizing and consolidating provisions that presently
govern lapses and rejections of applications, including by making
clearer conceptual distinctions between lapses (i.e., applications that
are not substantially complete and which the Department may deem to be
abandoned, such that the Department will refund any application fees
paid by the Applicant) and rejections (i.e., applications that the
Department deemed to be filed but which it refuses to act upon due to
lingering incompleteness, in which case the Department will not refund
application fees paid to it), and by consolidating Rules 1012(b) and
1013(a)(3) into proposed Rule 1013(a)(3)(A) and (B);
Consolidating overlapping provisions that govern the
registration of branch offices and office of supervisory jurisdiction
into a single provision (consolidating Rule 1012(j) and IM-1002-4 into
Rule 1002(d));
Eliminating references in Rule 1002(c), Rule 1012(j), and
Rule 1013(a)(1)(U) to the obligation of Members (and their branch
offices) to pay fees, charges, dues, and assessments to the Exchange
insofar as those obligations are duplicative of Rule 9553;
Converting IM-1002-1 and IM-1002-4 into rule text;
Clarifying when the Department will deem an application to
be filed (when the application is ``substantially complete,'' as set
forth in proposed Rule 1013(a)(2)) and by requiring the Department to
notify an Applicant in writing of the filing date;
Clarifying what the Exchange means when it states that an
Applicant may ``waive-in'' to Exchange membership (as set forth in
proposed Rule 1013(b)); and
Updating obsolete cross-references throughout the Rules
from NASD to FINRA.
The proposal will also make compliance with the membership rules
simpler and less burdensome for Applicants and Members by doing the
following:
Eliminating obsolete requirements to submit paper copies
of Forms U-4 and BD or explain information listed on the forms (Rule
1013(a)(1)(A), (J), (K), and (P) and Rule 1013(a)(2)) where the
Department already has electronic access to the Forms and the
information contained therein;
Permitting electronic filing of applications (proposed
Rule 1012(a)(1);
Allowing payment of application fees by means other than
paper check (proposed Rule 1013(a)(1)(C));
Relaxing deadlines that needlessly rush the process of
responding to the Department's questions and concerns about an
application \27\ or that force the
[[Page 14437]]
Department to render a decision when the Applicant is not ready for the
Department to do so; \28\
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\27\ Rather than require an Applicant to file a response to a
supplemental request for documents or information within 15 business
days, proposed Rule 1013(a)(3) states that the Applicant must
respond within a ``reasonable period of time'' to be prescribed by
the Department. Even then, Rule 1013(a)(3)(B) states that the
Department must serve upon the Applicant a notice of incompleteness
if it fails to respond to a supplemental request and then afford the
Applicant an additional reasonable time period to remedy the failure
before it may reject the Applicant's application.
\28\ Rather than require the Department to serve a written
decision within 15 business days, proposed Rule 1014(c) states that
it must issue a decision within a reasonable period of time, not to
exceed 45 calendar days after the application is filed and complete,
unless the parties agree to a later date. As explained above, the
Exchange does not intend for this change to result in the Department
routinely issuing decisions later than it does presently. The
Exchange presently issues decisions, in most instances, well in
advance of the current 15 business day deadline and it has a self-
interest in continuing to do so whenever possible. However, the
Exchange believes that it is in the interest of Applicants for the
Department to have discretion to respond at a later time in the
event that the Applicant needs to address or resolve outstanding
questions or concerns associated with its application.
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Eliminating formal membership interviews and procedures
related thereto, which the Exchange has not utilized historically (Rule
1013(b)); \29\
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\29\ The elimination of the formal membership interview process
will have no practical effect on the membership process insofar as
the Department otherwise has authority to request additional
information from the Applicant. Under the proposed Rule 1014(a)(4),
this authority may include a request for the Applicant to provide
information or documents in-person or by telephone. In other words,
the Department will retain authority to conduct an informal
interview of the Applicant.
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Harmonizing disparate procedures under Rules 1013 and 1017
for filing, evaluating, and responding to initial membership
applications and applications for approval of business changes,
including by streamlining the Rule 1017 procedures;
Broadening the circumstances in which an Applicant may
waive-into Exchange membership to include the Applicant's membership in
any of the Affiliated Exchanges \30\ and defining procedures for
processing and responding to waive-in applications (proposed Rule
1013(b));
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\30\ As noted above, the Exchange believes that it is reasonable
to permit reciprocity in membership among all of the Affiliated
Exchanges. The Exchange believes that there is no reasonable basis
for it to defer to a prior approval granted by Nasdaq BX and to not
do the same with respect to prior approvals granted by the other
Affiliated Exchanges.
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Narrowing the circumstances in which a Member must obtain
prior Department approval before effecting a change in ownership,
control, or material business operations by excluding changes for which
a Member has obtained prior approval from the Member's DEA, or an
Affiliated Exchange (proposed Rule 1017(a)); \31\
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\31\ As is discussed above, the Exchange believes that deference
to prior approvals of a proposed business change made by an
Affiliated Exchange or the Exchange's DEA is reasonable because the
judgment of these entities on such matters is likely to be the same
as that which the Exchange would itself employ. The Exchange
assesses that any marginal benefit that might be gained from it
applying its own independent judgment outweighs the burden to
Applicants of obtaining multiple approvals for the same proposed
change. The Exchange notes that it will require a Member to obtain
approval for such a change if the nature, terms, or conditions of
the proposed change have altered since its DEA or an Affiliated
Exchange approved it.
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Eliminating the unused, unnecessary, and potentially
disruptive ability of Members, pursuant to Rule 1017(c), to effect
ownership changes on an interim basis while an application for
Department approval is pending; and
Eliminating the 30 day waiting period for Members that
seek to resign their memberships under proposed Rule 1018(a).
In sum, the foregoing changes will update, rationalize, and
streamline the Exchange's membership rules and processes, all to the
benefit of Applicants and Members. Moreover, these changes will not
adversely impact the rights of Applicants or Members to appeal adverse
Departmental decisions under these Rules or to request Board action to
compel the Department to render decisions on applications.
Last, the Exchange believes that its proposal to phase-in the
implementation of the new membership rules and processes is consistent
with Section 6(b)(7) of the Act \32\ because both the current and
proposed processes provide fair procedures for granting and denying
applications for becoming an Exchange Member, becoming an Associated
Person, and making material changes to the business operations of a
Member. The Exchange is proposing to provide advanced notice of the
implementation date of the new processes, and will apply the new
processes to new applications, appeals, and requests for Board action
that are initiated on or after that implementation date. Any
application, appeal, or request for Board action initiated prior to the
implementation date will be completed using the current processes. As a
consequence, the Exchange will maintain a transitional Rulebook on the
Exchange's public rules website which will contain the Exchange Rules
as they are at the time of filing this rule change. These transitional
rules will apply exclusively to applications, appeals, and requests for
Board action initiated prior to the implementation date. Upon
conclusion of the last decision on a matter to which the transitional
rules apply, the Exchange will remove the defunct transitional rules
from its public rules website. Thus, the transition will be conducted
in a fair, orderly, and transparent manner.
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\32\ 15 U.S.C. 78f(b)(7).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange does not expect
that its proposed changes to the membership rules will have any
competitive impact on its existing or prospective membership. The
proposed changes will apply equally to all similarly situated
Applicants and Members and they will confer no relative advantage or
disadvantage upon any category of Exchange Applicant or Member.
Moreover, the Exchange does not expect that its proposal will have an
adverse impact on competition among exchanges for members; to the
contrary, the Exchange hopes that by clarifying, reorganizing, and
streamlining its membership rules, and by making the Exchange's
membership process less burdensome for Applicants and Members, the
Exchange will improve its competitive standing relative to other
exchanges.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \33\ and Rule
19b-4(f)(6) thereunder.\34\
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\33\ 15 U.S.C. 78s(b)(3)(A)(iii).
\34\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization give the Commission written
notice of its intent to file the proposed rule change at least five
business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \35\ normally
does not become operative for 30 days after the date of filing.
However, pursuant to
[[Page 14438]]
Rule 19b-4(f)(6)(iii),\36\ the Commission may designate a shorter time
if such action is consistent with the protection of investors and the
public interest. The Exchange has asked the Commission to waive the 30-
day operative delay so that the proposal may become operative upon
filing. The Exchange states that the proposed changes are primarily
intended to update and reorganize the Exchange's existing membership
rules and processes. Further, the Exchange states these rules are
intended to streamline and clarify processes and also eliminate unused
and outdated provisions. The Exchange states the effect of these
changes will make the membership process less burdensome for
Applicants, Members, and Associated Persons while not limiting the
Exchange's ability to appropriately scrutinize prospective and existing
Members and Associated Persons. For the foregoing reasons, the
Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest
and, therefore, the Commission designates the proposed rule change to
be operative upon filing.\37\
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\35\ 17 CFR 240.19b-4(f)(6).
\36\ 17 CFR 240.19b-4(f)(6)(iii).
\37\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NASDAQ-2019-022 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-NASDAQ-2019-022. 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 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-NASDAQ-2019-022 and should be submitted on or before May 1, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
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\38\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-07050 Filed 4-9-19; 8:45 am]
BILLING CODE 8011-01-P
