Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Delete the Exchange Membership Rules and Incorporate by Reference the Membership Rules of The Nasdaq Stock Market LLC, 5284-5296 [2021-00948]

Download as PDF 5284 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Notices application. The complete application may be obtained via the Commission’s website by searching for the file number, or for an applicant using the Company name box, at https:// www.sec.gov/search/search.htm or by calling (202) 551–8090. Applicants 1. The Trust is a statutory trust established under the laws of the State of Maryland and will consist of one or more series operating as ActiveShares ETFs. The Trust is registered as an open-end management investment company under the Act. Applicants seek relief with respect to Funds (as defined below), including an initial Fund (the ‘‘Initial Fund’’). The Funds will operate as ActiveShares ETFs as described in the Reference Order.2 2. The Initial Adviser, a Delaware limited liability company, will be the investment adviser to the Initial Fund. An Adviser (as defined below) will serve as investment adviser to each Fund. The Initial Adviser is, and any other Adviser will be, registered as an investment adviser under the Investment Advisers Act of 1940 (‘‘Advisers Act’’). The Adviser may enter into sub-advisory agreements with other investment advisers to act as subadvisers with respect to the Funds (each a ‘‘Sub-Adviser’’). Any Sub-Adviser will be registered under the Advisers Act. 3. The Distributor is a Delaware limited liability company and a brokerdealer registered under the Securities Exchange Act of 1934, as amended, and will act as the principal underwriter of Shares of the Funds. Applicants request that the requested relief apply to any distributor of Shares, whether affiliated or unaffiliated with the Adviser and/or Sub-Adviser (included in the term ‘‘Distributor’’). Any Distributor will comply with the terms and conditions of the Order. khammond on DSKJM1Z7X2PROD with NOTICES Applicants’ Requested Exemptive Relief 4. Applicants seek the requested Order under section 6(c) of the Act for an exemption from sections 2(a)(32), 5(a)(1), and 22(d) of the Act and rule 22c–1 under the Act, and under sections 6(c) and 17(b) of the Act for an exemption from sections 17(a)(1) and 17(a)(2) of the Act. The requested Order would permit applicants to offer ActiveShares ETFs. Because the relief 2 To facilitate arbitrage, an ActiveShares ETF disseminates a ‘‘verified intraday indicative value’’ or ‘‘VIIV,’’ reflecting the value of its portfolio holdings, calculated every second during the trading day. To protect the identity and weightings of its portfolio holdings, an ActiveShares ETF sells and redeems its Shares in creation units to authorized participants only through an unaffiliated broker-dealer acting on an agency basis. VerDate Sep<11>2014 19:19 Jan 17, 2021 Jkt 253001 requested is the same as certain of the relief granted by the Commission under the Reference Order and because the Initial Adviser, or an affiliate thereof, has entered into a license agreement with Precidian Investments LLC, or an affiliate thereof, in order to offer ActiveShares ETFs,3 the Order would incorporate by reference the terms and conditions of the same relief of the Reference Order. 5. Applicants request that the Order apply to the Initial Fund and to any other existing or future registered openend management investment company or series thereof that: (a) Is advised by the Initial Adviser or any entity controlling, controlled by, or under common control with the Initial Adviser (any such entity, along with the Initial Adviser, included in the term ‘‘Adviser’’); (b) operates as an ActiveShares ETF as described in the Reference Order; and (c) complies with the terms and conditions of the Order and the terms and conditions of the Reference Order that are incorporated by reference into the Order (each such company or series and the Initial Fund, a ‘‘Fund’’).4 6. Section 6(c) of the Act provides that the Commission may exempt any person, security or transaction, or any class of persons, securities or transactions, from any provisions of the Act, if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Section 17(b) of the Act authorizes the Commission to exempt a proposed transaction from section 17(a) of the Act if evidence establishes that the terms of the transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any person concerned, and the transaction is consistent with the policies of the registered investment company and the general purposes of the Act. Applicants submit that for the reasons stated in the Reference Order the requested relief meets the exemptive standards under sections 6(c) and 17(b) of the Act. 3 Aspects of the Funds are covered by intellectual property rights, including but not limited to those which are described in one or more patent applications. 4 All entities that currently intend to rely on the Order are named as applicants. Any other entity that relies on the Order in the future will comply with the terms and conditions of the Order and the terms and conditions of the Reference Order that are incorporated by reference into the Order. PO 00000 Frm 00155 Fmt 4703 Sfmt 4703 For the Commission, by the Division of Investment Management, pursuant to delegated authority. J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–00960 Filed 1–15–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–90903; File No. SR–ISE– 2020–43] Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Delete the Exchange Membership Rules and Incorporate by Reference the Membership Rules of The Nasdaq Stock Market LLC January 12, 2021. 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 December 29, 2020, Nasdaq ISE, LLC (‘‘ISE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the 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 proposes to delete the Exchange’s membership rules currently under the General 3 title, incorporate by reference The Nasdaq Stock Market LLC’s (‘‘Nasdaq’’) rules in the General 3 Rule 1000 Series, and other related changes. The text of the proposed rule change is available on the Exchange’s website at https://listingcenter.nasdaq.com/ rulebook/ise/rules, 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 1 15 2 17 E:\FR\FM\19JAN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 19JAN1 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Notices 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 khammond on DSKJM1Z7X2PROD with NOTICES 1. Purpose General 3 of the Exchange’s General Rules and Nasdaq’s General 3, Rules 1000 Series prescribe the qualifications and procedures for applying for membership, respectively, on the Exchange and Nasdaq. The Exchange proposes to delete in their entirety the rules under its General 3 title, entitled ‘‘Membership and Access,’’ and incorporate by reference the Nasdaq General 3, Rules 1000 Series (the ‘‘Nasdaq Rule 1000 Series’’ or ‘‘Nasdaq Membership Rules’’) as described below.3 The Exchange will also relocate the text under its rule General 3, Section 5(g) and place it under new Options 2A, Section 1(f) rule and General 3, Section 4(b) which will be placed under new Exchange General 2, Section 11, as further described below. This proposal is part of the Exchange’s plan to harmonize its membership rules with the membership rules of the Nasdaq and Nasdaq BX, Inc. (‘‘BX’’) exchanges.4 The Exchange notes that Nasdaq GEMX, LLC, Nasdaq MRX, LLC, and Nasdaq Phlx, LLC (‘‘Phlx’’) (together with Nasdaq and BX, the ‘‘Affiliated Exchanges’’) each plan to propose similar rule changes that will render their membership rules substantially similar to those of Nasdaq and BX. To account for any differences that may exist, the proposed introductory paragraphs list instances in which cross references in the Nasdaq Series 1000 Rules to other Nasdaq rules shall be read to refer instead to the Exchange Rules, and references to Nasdaq terms (whether or not defined) shall be read to refer to the Exchangerelated meanings of those terms. For instance, references to defined terms ‘‘Exchange’’ or ‘‘Nasdaq’’ shall be read to refer to the Nasdaq ISE Exchange; ‘‘Rule’’ or ‘‘Exchange Rule’’ shall be 3 The Exchange will separately request an exemption from the rule filing requirements of Section 19(b) of the Act for changes to General 3 to the extent such rules are effected solely by virtue of a change to the Nasdaq Rule 1000 Series. The Exchange’s proposed rule change will not become effective unless and until the Commission approves this exemption request. 4 The BX membership rules were previously amended to incorporate by reference Nasdaq’s membership rules. See Securities Exchange Act Release No. 34–86425 (July 22, 2019), 84 FR 36139 (July 26, 2019) (SR–BX–2019–022). VerDate Sep<11>2014 19:19 Jan 17, 2021 Jkt 253001 read to refer to the Exchange Rules; the defined term ‘‘Applicant’’ in the Nasdaq Rule 1000 Series shall be read to refer to an Applicant to the Nasdaq ISE Exchange; the defined terms ‘‘Board’’ or ‘‘Exchange Board’’ in the Nasdaq Rule 1000 Series shall be read to refer to the Nasdaq ISE Board of Directors; the defined term ‘‘Director’’ in the Nasdaq Rule 1000 Series shall be read to refer to a Director of the Board of the Nasdaq ISE Exchange; the defined term ‘‘Exchange Review Council’’ in the Nasdaq Rule 1000 Series shall be read to refer to the Nasdaq ISE Exchange Review Council; the defined term ‘‘Subcommittee’’ in the Nasdaq Rule 1000 Series shall be read to refer to a Subcommittee of the Nasdaq ISE Exchange Review Council; the defined term ‘‘Interested Staff’’ in the Nasdaq Rule 1000 Series shall be read to refer to Interested Staff of Nasdaq ISE; the defined term ‘‘Member’’ in the Nasdaq Rule 1000 Series shall be read to refer to a Nasdaq ISE Member who acts in its capacity as an Electronic Access Member, a Primary Market Maker, or a Competitive Market Maker (including a ‘‘Foreign Member,’’ as defined under Nasdaq General 9, Section 50); the defined term ‘‘Associated Person’’ shall be read to refer to a Nasdaq ISE Associated Person; the defined terms ‘‘Exchange Membership Department’’ or ‘‘Membership Department’’ shall be read to refer to the Nasdaq ISE Membership Department; and the defined term ‘‘Exchange Regulation Department’’ shall be read to refer to the Nasdaq ISE Regulation Department. Additionally, cross references in the Nasdaq Rule 1000 Series to ‘‘General 1 and Equity 1’’ shall be read as references to Nasdaq ISE General 1, Section 1; cross references in the Nasdaq Rule 1000 Series to ‘‘General 9, Section 20’’ shall be read as references to Nasdaq ISE Options 10, Section 5(c)(2); cross references in the Nasdaq Rule 1000 Series to ‘‘General 9, Section 37’’ shall be read as references to Nasdaq ISE Options 9, Section 21; and cross references to the ‘‘General 4, Rule 1200 Series’’ shall be read as references to Nasdaq ISE General 4, Section 1.5 Finally, as explained below, the introductory paragraph will indicate that the Nasdaq Rule 1000 Series shall also apply to Nasdaq ISE Members who meet the requirements of a ‘‘Foreign Member.’’ 5 The Exchange notes that its General 4 title (entitled ‘‘Regulation’’) currently incorporates by reference the rules contained in Nasdaq’s General 4 title. See Securities Exchange Act Release No. 85728 (April 26, 2019), 84 FR 18892 (May 2, 2019) (SR–ISE–2019–12). PO 00000 Frm 00156 Fmt 4703 Sfmt 4703 5285 As compared to the Exchange’s existing General 3, by virtue of incorporating by reference the Nasdaq Membership Rules into the Exchange’s rulebook, the Exchange’s membership rules will be organized in a more logical order. The incorporated rules will eliminate unnecessary or vague provisions that exist under the current General 3 title, eliminate unnecessary complexity in the membership process, and otherwise streamline the Exchange’s existing membership rules and their associated procedures. Summary of Proposed Changes A comparison between the Exchange’s existing General 3 and the Nasdaq Membership Rules is summarized below. As a general matter, in comparison to the Exchange’s existing membership rules, the Nasdaq Membership Rules provide for more specific membership procedures and due process. Moreover, as described below, some of the Nasdaq Rule 1000 Series rules have no analogue in the existing Exchange rules. Finally, as explained later, the Exchange will also relocate the text under its General 3, Section 5(g) rule and place it under new Options 2A, Section 1(f) rule and General 3, Section 4(b) which will be relocated under new Exchange General 2, Section 11. Rule 1001 Nasdaq Rule 1001 states that Nasdaq and the Financial Industry Regulatory Authority (‘‘FINRA’’) are parties to a Regulatory Contract, pursuant to which FINRA has agreed to perform certain functions described in the Rule 1000 Series and the General 4, Rule 1200 Series on behalf of Nasdaq.6 Moreover, Nasdaq Rule 1001 provides that Nasdaq rules that refer to Nasdaq’s Regulation Department, Nasdaq Regulation Department staff, Nasdaq staff, and Nasdaq departments should be understood as also referring to FINRA staff and FINRA departments acting on behalf of Nasdaq pursuant to the Regulatory Contract. Nasdaq Rule 1001 also provides that, notwithstanding the fact that Nasdaq has entered into the Regulatory Contract with FINRA to perform some of Nasdaq’s functions, Nasdaq shall retain ultimate legal responsibility for, and control of, such functions. In addition, the rule informs that Nasdaq has incorporated by reference certain FINRA rules and that Nasdaq members shall comply with those rules and 6 Nasdaq’s General 4, Section 1 (Registration, Qualification and Continuing Education) is currently incorporated by reference into the Exchange’s General 4 title. See supra note 5. E:\FR\FM\19JAN1.SGM 19JAN1 5286 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Notices khammond on DSKJM1Z7X2PROD with NOTICES interpretations as if such rules and interpretations were part of Nasdaq’s Rules. The Exchange is proposing to incorporate by reference Nasdaq Rule 1001, which currently has no analogue rule under its membership rules. The language of Nasdaq Rule 1001 is applicable to the Exchange, as the Exchange is, similarly, a signatory of a Regulatory Contract with FINRA, pursuant to which FINRA has agreed to perform certain membership functions on its behalf, and also retains the ultimate legal responsibility for the performance of said functions. The Exchange believes that the incorporation by reference to Nasdaq Rule 1001 is not a substantive amendment to the Exchange rules. Rule 1002 Nasdaq Rule 1002, which will be incorporated by reference under the Exchange’s General 3 title, describes the qualifications of Nasdaq members and associated persons, the registration of branch offices, and the designation of a Member’s office of supervisory jurisdiction. The Exchange will adopt by incorporation the provisions of Nasdaq Rule 1002 and delete those under current General 3, Section 1. The Exchange believes that incorporating by reference this rule will further the Exchange’s objective to provide uniformity and clarity to its rules by aligning them with the membership rules of the Nasdaq and BX exchanges. Nasdaq Rule 1002(a) provides that any registered broker or dealer shall be eligible for membership in Nasdaq (except for those excluded under paragraph (b) of the rule); additionally, paragraph (a) provides that any person shall be eligible to become an Associated Person of a Member (except for those excluded under Rule 1002(b)). Rule 1002(a) is similar to General 3, Section 1(a) of the Exchange’s membership rules to the extent that it describes that brokers or dealers may become Exchange members (‘‘Members’’). General 3, Section 1(a) provides that a Member may be a corporation, partnership, or limited liability company, and must be a registered broker-dealer and meet the qualifications for Exchange membership. The Exchange believes that incorporating by reference Nasdaq Rule 1002(a) expands upon Exchange General 3, Section 1(a) by including an associated person of a Member (‘‘Associated Person’’) under this threshold requirement. The Exchange’s General 3, Section 1(b) provides that a Member that does not maintain an office in the United VerDate Sep<11>2014 19:19 Jan 17, 2021 Jkt 253001 States (‘‘Foreign Member’’) that is responsible for preparing and maintaining financial and other reports required to be filed with the Commission and with the Exchange must prepare such reports in English and in U.S. dollars, reimburse the Exchange for any expense incurred in examining the Member to the extent that such expense is in excess of the cost associated with examining a Member located within the continental United States, and ensure the availability of an individual who is fluent in English and knowledgeable in securities and financial matters to assist representatives of the Exchange during examinations. Nasdaq General 9, Section 50 is a Nasdaq rule substantially similar to the provisions in General 3, Section 1(b). In order to preserve the enumerated characteristics of a Foreign Member, which would otherwise be deleted from its Rulebook by incorporating by reference the Nasdaq Rule 1000 Series, the Exchange proposes to include the text of its General 3, Section 1(b) under the General 3’s introductory paragraph and indicate that the Nasdaq Membership Rules will also apply to the members who meet the Foreign Member requirements. Furthermore, General 3, Section 1(c) provides that every Member shall have as the principal purpose of being a Member the conduct of a public securities business, and that purpose shall be deemed to exist if and so long as: (1) The Member has qualified and acts in respect of its business on the Exchange in one or more of the following capacities: (i) An Electronic Access Member; (ii) a Primary Market Maker; or (iii) a Competitive Market Maker; and (2) all transactions effected by the Member are in compliance with Section 11(a) of the Exchange Act and the rules and regulations adopted thereunder. The Exchange believes that the membership qualifications described in this section are consistent with the eligibility criteria described in Nasdaq Rule 1002 and the disclosures and information provided by Applicant pursuant to Nasdaq Rule 1013. To account for the Exchange rights referenced in Section 1(c) (Electronic Access Member, Primary Market Maker, or Competitive Market Maker), as defined under the Exchange’s Options 1, Section 1 provisions, the Exchange will also indicate in the proposed General 3 introductory paragraph that the defined term ‘‘Member’’ in the Nasdaq Rule 1000 Series shall be read to refer to a Nasdaq ISE Member who acts in its capacity as an Electronic Access PO 00000 Frm 00157 Fmt 4703 Sfmt 4703 Member, a Primary Market Maker, or a Competitive Market Maker. The Exchange notes that the rules related to a Primary Market Maker’s and Competitive Market Maker’s trading rights are not being impacted by this proposal. These rules are preserved and located in the Exchange’s Options 2A title, ISE Market Maker Rights. Nasdaq Rule 1002(b)(1) establishes that subject to such exceptions as may be explicitly provided elsewhere in the Nasdaq rules, no registered broker or dealer shall be admitted to membership, and no Member shall be continued in membership, if such broker, dealer, or Member fails or ceases to satisfy the qualification requirements established by Nasdaq rules, or if such broker, dealer, or Member is or becomes subject to a statutory disqualification, or if such broker, dealer, or Member fails to file such forms as may be required in accordance with such process as Nasdaq may prescribe. Nasdaq Rule 1002(b)(1) can be compared to the provision currently under Exchange’s General 3, Section 2(b) that establishes that the Exchange may deny or condition the approval of a Member, or preclude or condition a person from becoming associated with a Member, for the same reasons that the Commission may deny or revoke a broker-dealer registration and for those reasons required or allowed under the Act. Furthermore, the requirement to comply with Nasdaq rules under Section (b)(1), is also consistent with the provision under Exchange General 3, Section 4(c) that states that every Member shall pledge to abide by the by-laws and rules of the Exchange, as amended from time to time, and by all Options Regulatory Alerts, notices, directives or decisions adopted pursuant to or made in accordance with the Exchange’s by-laws and rules. Nasdaq Rule 1002(b)(2) establishes that, subject to such exceptions as may be explicitly provided elsewhere in Nasdaq rules, no person shall become associated with a Member, continue to be associated with a Member, or transfer association to another Member, if such person fails or ceases to satisfy the qualification requirements established by Nasdaq rules, or if such person is or becomes subject to a statutory disqualification; and no broker or dealer shall be admitted to membership, and no Member shall be continued in membership, if any person associated with it is ineligible to be an Associated Person under Nasdaq Membership Rules. Nasdaq Rule 1002(b)(2) is similar to the requirement that applies to Associated Persons under General 3, Section 3(a) of the Exchange rules. The E:\FR\FM\19JAN1.SGM 19JAN1 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Notices khammond on DSKJM1Z7X2PROD with NOTICES Exchange’s General 3, Section 3 rules enumerate conditions that apply to persons associated with Members of the Exchange. Exchange General 3, Section 3(a) provides that Associated Persons are bound by the Exchange’s by-laws and rules and the rules of the Clearing Corporation and describes the circumstances concerning the barring of an Associated Person in such role. Exchange General 3, Sections 2(b), 3(a), and 4(c) are, substantially similar to the provisions of Nasdaq Rule 1002(b),7 which the Exchange proposes be incorporated by reference into its membership rules. The Exchange notes that General 3, Section 3(b) requires that Members file and keep current a list of its associated persons who are its executive officers, directors, principals, shareholders, and general partners. A Member’s obligation to maintain updated information for their registered representatives or principals is prescribed under Nasdaq’s General 4 title which was previously incorporated by reference into the Exchange rules,8 rendering Exchange General 3, Section 3(b) unnecessary. Exchange General 3, Section 3(c) provides that a claim of any Associated Person described in the first sentence of General 3, Section 3(b) (i.e., a Member’s executive officers, directors, principal shareholders, and general partners) against a Member shall be subordinate in right of payment of customers and other Members. This subordination rule was approved as part of the Exchange’s Form 1 filing on February 24, 2000.9 At that time, Exchange members had equity ownership interest in the Exchange and the subordination language was relevant. In April of 2002, the Exchange demutualized, which ultimately resulted in Exchange members no longer having any equity ownership interest in ISE. As such, this language became obsolete.10 The Exchange proposes to delete this provision in its entirety. Nasdaq Rule 1002(c) establishes, as a condition to maintaining Nasdaq membership, that Members shall at all 7 The Exchange notes that it will not relocate or carve-out this duplicative provision concerning The Options Clearing Corporation (‘‘OCC’’). Pursuant to the Exchange’s Options 9, Section 2 (‘‘Adherence to Law’’), Members are required to abide by the Act, the Exchange’s by-laws, the rules of the Exchange, and OCC rules. 8 See supra note 5. 9 See Securities Exchange Act Release No. 42455 (February 24, 2000), 65 FR 11401 (March 2, 2000) (Order Granting Registration as a National Securities Exchange). 10 See Securities Exchange Act Release No. 45803 (April 23, 2002), 67 FR 21306 (April 30, 2002) (Order Approving Proposed Rule Change and Amendment No. 1 thereto by the International Securities Exchange LLC To Restructure From a Limited Liability Company to a Corporation). VerDate Sep<11>2014 19:19 Jan 17, 2021 Jkt 253001 times maintain membership in a registered securities association or another registered exchange. Furthermore, the rule prescribes that Members that transact business with customers shall at all times be members of FINRA. The Exchange proposes to incorporate this rule by reference. Because the Exchange does not act in the capacity of a designated examining authority (‘‘DEA’’), like the Nasdaq and BX exchanges, it requires that all applicants for membership have an assigned DEA in place as a condition of its membership. Nasdaq Rule 1002(d) states that Nasdaq members are deemed to comply with Nasdaq’s branch office registration requirements to the extent that they keep current a Uniform Branch Office Registration Form (‘‘Form BR’’), which contains the requisite information and which is accessible electronically to Nasdaq. Members that are not FINRA members shall continue to submit to Nasdaq a Branch Office Disclosure Form, as they have done previously. The Exchange proposes to incorporate by reference this rule, which is consistent with the provisions under the Exchange’s Options 10, Section 5, entitled Branch Offices. The Exchange proposes that the cross-reference in Nasdaq Rule 1002(d)(2) to General 9, Section 20 shall be read as a reference to Exchange Options 10, Section 5(c)(2). Rule 1011 Nasdaq Rule 1011 contains definitions applicable to the Nasdaq Membership Rules. Nasdaq Rule 1011 has no analogue rule in the existing Exchange’s General 3 title. By incorporating by reference the Nasdaq definitions under Rule 1011, the Exchange believes it will further harmonize its rules with respect to the membership rules of Nasdaq and BX. The Exchange notes that the defined terms in Nasdaq Rule 1011, to be incorporated by reference into the Exchange’s rules, are self-contained and have no impact on ISE rules outside its membership rules. The terms ‘‘Applicant,’’ ‘‘Department,’’ ‘‘Director,’’ ‘‘Interested Staff,’’ ‘‘Securities business,’’ ‘‘Exchange Board,’’ ‘‘principal place of business,’’ ‘‘registered broker or dealer,’’ ‘‘Representative,’’ ‘‘sales practice event,’’ ‘‘Subcommittee,’’ and ‘‘statutory disqualification’’ have not been defined in the Exchange’s rulebook. The Exchange notes that the term ‘‘associated person’’ as defined in the Exchange’s rulebook 11 is substantially similar to the definition in Nasdaq 11 Exchange PO 00000 General 1, Section 1(a)(1). Frm 00158 Fmt 4703 Sfmt 4703 5287 General 1(b)(2). Relatedly, the term ‘‘Proprietary Trading Firm’’ as defined in Nasdaq Rule 1011(o) is substantially similar with the definition of ‘‘proprietary trading’’ as defined in the Exchange’s rulebook.12 The Exchange proposes to adopt by incorporation the text of Nasdaq Rule 1011 in its entirety. The Exchange believes that incorporating by reference this rule will further the Exchange’s objective to provide uniformity and clarity to its rules by aligning them with the membership rules of the Nasdaq and BX exchanges. Rule 1012 Nasdaq Rule 1012 (‘‘General Application Provisions’’) provides a detailed outline of the requirements that an Applicant must follow in order to file an application for membership with Nasdaq. In contrast, the Exchange membership rules contain vague provisions describing the manner in which an application shall be submitted or how service shall be performed. The Exchange believes that Nasdaq Rule 1012 provides a more detailed set of instructions for Applicants, Members, and Associated Persons to submit materials and the requirements for service of documents. The Exchange believes that incorporating Rule 1012 by reference will further the Exchange’s objective to provide uniformity and clarity to its rules by aligning them with the membership rules of the Nasdaq and BX exchanges. Nasdaq Rule 1012(a) provides that Applicants and Nasdaq Members may submit an application or other documents and information to Nasdaq by first-class mail, overnight courier, hand delivery, or by electronic means; this section also provides that Nasdaq shall serve a notice or decision issued under the Nasdaq Membership Rules by first-class mail or electronic means on the Applicant or Member or its counsel, unless a Nasdaq rule specifies a different method of service; finally, this section also details when service by Nasdaq or an Applicant shall be deemed complete. The Exchange membership rules contain no such provision. The Exchange believes that incorporating Nasdaq 1012(a) by reference improves its membership application process by adopting specific provisions regarding the manner of submission and service of documents. Nasdaq Rule 1012(b) provides a definition of the term ‘‘calendar days’’ and describes the manner in which times under the Nasdaq Membership Rule shall be computed. The Exchange 12 Exchange E:\FR\FM\19JAN1.SGM Options 1, Section 1(a)(41) 19JAN1 khammond on DSKJM1Z7X2PROD with NOTICES 5288 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Notices membership rules contain no such provision. The Exchange believes that adopting this rule by incorporation will provide further clarity to the calculation of times under its membership rules. Nasdaq Rule 1012(c) describes a(n) Applicant’s, Member’s, and Associated Person’s duty to ensure that the information they provide to Nasdaq at the time of the filing is accurate, complete, and current. Moreover, this provision requires that Applicant’s, Member’s, and Associated Person’s shall ensure that membership applications and supporting materials filed with Nasdaq remain accurate, complete, and current at all times by filing supplementary amendments, which must be filed within 15 business days of their learning of the facts or circumstances giving rise to the need for an amendment. Furthermore, this section requires that Applicants, Members, and Associated Persons promptly notify Nasdaq, in writing, of any material adverse change in their financial condition. The Exchange membership rules contain no such provision. The Exchange believes that incorporating Nasdaq 1012(c) by reference improves its membership rules by adopting provisions concerning a Member’s duty to ensure the accuracy, completeness, and current nature of membership information. Exchange General 3, Section 4(b) states that every Member shall report to the Exchange all contact information required by the Exchange via the FINRA Contact System. Section 4(b) also requires Exchange Members to update their contact information promptly when necessary, but in no event later than 30 days following any change, and within 17 business days after the end of each calendar year; furthermore, it requires members to comply with any request for such information by the Exchange within 15 days or any longer period agreed upon with Exchange staff. The Exchange proposes the relocation of this provision, with minor lettering changes, to Exchange General 2 title (‘‘Organization and Administration’’) under new Section 11, entitled Contact Information Requirements. Exchange General 3, Section 4(b) is substantially similar to the rule text in both Nasdaq’s and BX’s General 2, Section 11. As previously stated, the Exchange proposes to adopt by incorporation the text of Nasdaq Rule 1012 in its entirety, as the rule’s provisions provide clear instructions concerning the submission of membership applications and other materials; the requirements for service of documents; and the Applicants’, Members’, and Associated Persons’ duty VerDate Sep<11>2014 19:19 Jan 17, 2021 Jkt 253001 to ensure that the information filed with the Exchange is up to date. Rule 1013 Nasdaq Rule 1013 sets forth the procedure for filing applications for new membership on the Exchange. The Exchange proposes to incorporate Nasdaq Rule 1013 by reference under its General 3 title. The Exchange is adopting Nasdaq Rule 1013 as it expands upon and provides clarity to the procedure in the Exchange’s General 3, Section 5. The Exchange believes that incorporating Rule 1013 by reference will further the Exchange’s objective to provide uniformity and clarity to its rules by aligning them with the membership rules of the Nasdaq and BX exchanges. Nasdaq Rule 1013(a) describes in detail the membership application process. Subsection (a)(1) (‘‘Where to File; Contents’’), provides that an application shall include (A) a copy of the Applicant’s current Form BD, if not otherwise available to Nasdaq electronically through the Central Registration Depository (‘‘CRD’’); (B) an original Nasdaq-approved fingerprint card for each Associated Person who will be subject to SEC Rule 17f-2 and for whom a fingerprint card has not been filed with another self-regulatory organization (SRO), if such fingerprints are not otherwise available electronically to Nasdaq through CRD; (C) payment for such fee as may be required under the Rules; (D) a description of the Applicant’s proposed trading activities on Nasdaq, such as the types of securities it will trade, whether it will be a market maker, or an order entry firm, and/or engage in block trading activities, and the extent to which the Applicant is conducting such activities as a member of other SROs; (E) a copy of the Applicant’s most recent audited financial statements and a description of any material changes in the Applicant’s financial condition since the date of the financial statements; (F) an organizational chart; (G) the intended location of the Applicant’s principal place of business and all other branch offices, if any, and the names of the persons who will be in charge of each office; (H) a description of the communications and operational systems the Applicant will employ to conduct business and the plans and procedures the Applicant will employ to ensure business continuity, including: system capacity to handle the anticipated level of usage; contingency plans in the event of systems or other technological or communications problems or failures; system redundancies; disaster recovery plans; PO 00000 Frm 00159 Fmt 4703 Sfmt 4703 and system security; (I) a copy of any decision or order by a federal or state authority or SRO taking permanent or temporary adverse action with respect to a registration or licensing determination regarding the Applicant or an Associated Person; (J) a statement indicating whether the Applicant or any person listed on Schedule A of the Applicant’s Form BD is currently, or has been in the last ten years, the subject of any investigation or disciplinary proceeding conducted by any SRO, the foreign equivalent of a SRO, a foreign or international securities exchange, a contract market designated pursuant to the Commodity Exchange Act (‘‘CEA’’) or any substantially equivalent foreign statute or regulation, a futures association registered under the CEA or any substantially similar foreign statute or regulation, the Commission or any other ‘‘appropriate regulatory agency’’ (as defined in the Act), the Commodity Futures Trading Commission, or any state financial regulatory agency regarding the Applicant’s activities that has not been reported to the CRD, together with all relevant details, including any sanctions imposed; (K) a statement indicating whether any person listed on Schedule A of the Applicant’s Form BD is currently, or has been in the last ten years, the subject of any investigation or disciplinary proceeding conducted by any SRO, the foreign equivalent of an SRO, a foreign or international securities exchange, a contract market designated pursuant to the CEA or any substantially equivalent foreign statute or regulation, a futures association registered under the CEA or any substantially similar foreign statute or regulation, the Commission or any other ‘‘appropriate regulatory agency’’, the CFTC, or any state financial regulatory agency regarding the Applicant’s activities that has not been reported to the CRD, together with all relevant details, including any sanctions imposed; (L) a copy of any contract or agreement with another broker-dealer, a bank, a clearing entity, a service bureau or a similar entity to provide the Applicant with services regarding the execution or clearance and settlement of transactions effected on Nasdaq; (M) if the Applicant proposes to make markets on Nasdaq, a description of the source and amount of Applicant’s capital to support its market making activities on Nasdaq, and the source of any additional capital that may become necessary; (N) a description of the financial controls to be employed by the Applicant with respect to anti-money laundering compliance rules as set forth in General 9, Section 37; (O) a copy of E:\FR\FM\19JAN1.SGM 19JAN1 khammond on DSKJM1Z7X2PROD with NOTICES Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Notices the Applicant’s written supervisory procedures with respect to the activities identified in paragraph (a)(1)(D); (P) a list of the persons conducting the Applicant’s market making and other trading activities, and a list of the persons responsible for such persons’ supervision, together with the CRD numbers; (R) a copy of the Applicant’s most recent ‘‘FOCUS Report’’ (Form X– 17A–5) filed with the SEC pursuant to SEC Rule 17a–5; (S) all examination reports and corresponding responses regarding the Applicant for the previous two years from the SROs of which it is a member; (T) a copy of Nasdaq’s Membership Agreement, duly executed by the Applicant, which includes, among other things: (1) An agreement to comply with the federal securities laws, the rules and regulations thereunder, Nasdaq rules, and all rulings, orders, directions, and decisions issued and sanctions imposed under Nasdaq rules; (2) an agreement to pay such dues, assessments, and other charges in the manner and amount as from time to time shall be fixed pursuant to Nasdaq rules; and (U) such other reasonable information with respect to the Applicant as Nasdaq may require. In contrast, current General 3, Section 2(a) states simply that to become a Member of the Exchange an Applicant must seek approval in the form and manner prescribed by the Exchange. Relatedly, General 3, Section 4(a) provides a short list of documents that Applicants and Members may submit with their application for membership with the Exchange. Section 4(a) states that Members and Applicants shall file with (and be subject to review by) the Exchange, at a minimum, their partnership agreements and any subsequent amendments, in the case of partnerships; articles of incorporation, by-laws and their amendments, in the case of corporations; the articles of organization and operating agreements and their respective amendments, in the case of limited liability companies; and any lease agreements that Members may be subject to.13 The paragraph further provides that no action or failure by the Exchange to act shall be construed to mean that the Exchange has in any way passed on the investment merits of or approved the submitted document. The Exchange believes that deleting General 3, Section 4(a) is appropriate because the Exchange’s current rule is ambiguous while Nasdaq Rule 13 Concerning the lease agreements referenced in Section 4(a), the Exchange also believes it unnecessary to preserve this text for purposes of the General 3 amendments. The lease agreements are fully described in Options 2A, Section 4. (‘‘Leasing Memberships’’) in the Exchange’s rulebook. VerDate Sep<11>2014 19:19 Jan 17, 2021 Jkt 253001 1013(a)(1), which will be incorporated by reference, lists in detail all of the supplementary application materials required for submission by an Applicant. Incorporating this provision by reference will further standardize the Exchange’s membership application process. Exchange’s General 3, Section 5(a) provides that to become a Member of the Exchange an Applicant shall file an application, which must be accompanied by a non-refundable application fee. The Exchange proposes to delete Section 5(a) because the provisions in this section are already included in Nasdaq Rule 1013, New Member Application which is being incorporated by reference. The Exchange also believes that the provision under General 3, Section 5(c) that indicates that an applicant must be approved by the Exchange to perform in at least one of the recognized capacities of a Member as stated in General 3, Section 1(c) (discussed above when describing the incorporation by reference of Nasdaq Rule 1002) is substantially similar to the language contained in Nasdaq Rule 1013(a)(1)(D). Nasdaq Rule 1013(a)(2) provides that the Membership Department will deem an application to be filed on the date when it is substantially complete, meaning the date on which the Membership Department receives from the Applicant all material documentation and information required under Rule 1013. This rule also provides that Nasdaq will notify the Applicant in writing when it deems the Applicant’s application to be substantially complete. The Exchange’s General 3, Section 5(d) contains a parallel, although brief, provision when describing the completion of the application process (‘‘Upon completion of the application process, the Exchange shall consider whether to approve the application, unless there is just cause for delay’’). Nasdaq Rule 1013(a)(3) provides the procedure concerning incomplete applications (including the conditions necessary for the refund of application fees); and the request for additional documents or supporting information. Specifically, Nasdaq Rule 1013(a)(3)(A) (‘‘Lapse of Applications that are not Substantially Complete’’) provides that if an application that was initiated under 1013 is not deemed to be substantially complete by the Membership Department within 90 calendar days after an Applicant initiates it, then absent a showing of good cause by the Applicant, the Membership Department may, at its discretion, deem the application to have PO 00000 Frm 00160 Fmt 4703 Sfmt 4703 5289 lapsed without filing, and the Membership Department will take no action in furtherance of the application. If the Membership Department deems an application to have lapsed, then the Membership Department shall serve a written notice of that determination on the Applicant. If an Applicant still wishes to apply for membership on Nasdaq after receiving notice of a lapse in its application, then the Applicant will be required to submit a new application pursuant to Nasdaq Membership Rules and pay a new application fee for doing so, if applicable. The Membership Department will refund fees that an Applicant has paid to the Nasdaq in connection with a lapsed application, in accordance with Nasdaq rules regarding fees, provided that the Nasdaq has not proceeded to process the application at the time it lapses. The rule also provides that, for purposes of Rule 1013(a)(3)(A), the Membership Department will deem an application to be not ‘‘substantially complete’’ if the Applicant fails to submit to the Membership Department materially important information or documentation that is required or requested under these Rules. Nasdaq Rule 1013(a)(3)(B) (‘‘Rejection of Filed Applications that Remain or Become Incomplete After Filing’’) provides that if an application that was initiated under Rule 1013 is substantially complete and thus is deemed to be filed with Nasdaq under Rule 1013(a)(2), but the application nevertheless remains or becomes incomplete with respect to any required or requested information or documentation, then the Membership Department shall serve written notice to the Applicant of such incompleteness and describe the missing information or documentation. If the Applicant fails to submit to Nasdaq the missing information or documentation within a reasonable period after it receives a notice of incompleteness, then absent a showing of good cause by the Applicant, the Membership Department may, at its discretion, reject the application. If the Membership Department rejects an application on the basis of incompleteness, then the Membership Department shall serve a written notice on the Applicant of the Membership Department’s determination and the reasons therefor. Nasdaq shall not refund the application fees that an Applicant has paid to Nasdaq in connection with an application that Nasdaq rejects. If the Applicant determines to continue to seek membership on Nasdaq, then the Applicant shall submit a new E:\FR\FM\19JAN1.SGM 19JAN1 khammond on DSKJM1Z7X2PROD with NOTICES 5290 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Notices application and pay a new application fee in accordance with Nasdaq rules. The Exchange currently contains two provisions related to the lapsing of its membership applications. Pursuant to General 3, Section 5(f), if the membership application process is not completed within six (6) months of the filing of the application form and payment of the appropriate fee, the application shall be deemed to be automatically withdrawn. The Exchange plans to replace General 3, Section 5(f) by incorporating by reference Rule 1013(a)(3) which provides well-defined processes for the treatment of applications that become stale or result in the Applicant’s failure to pursue membership by not responding to requests for additional information. The second rule describing the lapsing of an application is currently located under the Exchange’s General 3, Section 5(g). Section 5(g) is specific to Applicants who are seeking approval as either a Competitive Market Maker or a Primary Market Maker on the Exchange, either of which require the Applicant to purchase or lease trading rights. This provision establishes that approved Applicants must become effective Members within 90 days of the date of approval by owning or leasing a membership or else the approval will expire (unless the Exchange grants an extension). Because this rule specifically relates to the requirement for Market Makers to promptly secure their trading rights, the Exchange believes that it will be better situated under the Options 2A, Section 1 (‘‘Market Maker Rights’’) title. The Exchange thus proposes to relocate the rule text in General 3, Section 5(g) and create new subsection Options 2A, Section 1(f) in the Exchange’s rulebook (the Exchange will make some minor style changes to the rule text to facilitate its reading). The Exchange intends to preserve the rules related to Competitive Market Makers and Primary Market Makers in Options 2A due to the unique nature of this structure. As stated above, the Exchange is not amending this structure nor the process by which Exchange Members secure and exercise Market Maker trading rights. Nasdaq Rule 1013(a)(4) (‘‘Requests by the Department for Additional Documents or Information from the Applicant or from Third Parties’’) establishes that (A) at any time before the Membership Department serves its decision as to an application for new membership in Nasdaq, the Membership Department may serve a written request for additional information or documentation, from the Applicant or from a third party, if the Membership VerDate Sep<11>2014 19:19 Jan 17, 2021 Jkt 253001 Department deems such information or documentation to be necessary to clarify, verify, or supplement the application materials. The Membership Department may, at its discretion, request that the Applicant or the third party provide the requested information or documentation in writing or through an in-person or telephonic interview. In the written request, the Membership Department shall afford the Applicant or the third party a reasonable period of time within which to respond to the request; moreover, (B) in the event that the Membership Department obtains information or documentation about an Applicant from a third party that the Membership Department reasonably believes could adversely impact its decision on an application, then the Membership Department shall promptly inform the Applicant in writing and provide the Applicant with a description of the information or a copy of the documentation that the Membership Department obtained, where appropriate under the circumstances. Prior to rendering an application decision on the basis of information or documentation obtained from a third party source, the Membership Department shall afford the Applicant with a reasonable opportunity to discuss or to otherwise address the information or documentation that the Membership Department obtained from the third party. The provisions under the Nasdaq Rule 1013(a)(4) are similar to the Exchange’s General 3, Section 4(a), to the extent that they describe the Exchange’s authority to request additional documents or information from the Applicant or Member. Relatedly, General 3, Section (d) also provides the Exchange with authority to request Associated Persons to provide additional information or testimony. The Exchange believes that incorporating by reference Nasdaq Rule 1013(a)(4) into its membership rules will provide a greater degree of detail concerning the Exchange’s discretion and authority to request additional information. Nasdaq Rule 1013(b)(1) sets forth the procedure that allows an Applicant who is a FINRA member 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). This section defines the term ‘‘waivein’’ to mean that the Membership Department will rely substantially upon FINRA’s prior determination to approve the Applicant for FINRA membership PO 00000 Frm 00161 Fmt 4703 Sfmt 4703 when the Membership Department evaluates the Applicant for Exchange membership. That is, the Membership 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 Membership Department is not otherwise aware of any basis set forth in Nasdaq Rule 1014 to deny or condition approval of the application. The second special application process, which is set forth in Nasdaq 1013(b)(2), permits Applicants for Nasdaq membership that are already approved members of one or more of the affiliated exchanges to waive-into Nasdaq. In this context, ‘‘waive-in’’ means that the Membership Department will rely substantially upon an affiliated exchange’s prior determination to approve the Applicant for Nasdaq membership. The procedures in Nasdaq Rule 1013(b)(2) for an Applicant to submit a waive-in application under this provision and for the Membership 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 Nasdaq membership. Applicants who meet the criteria for this waive-in review process have already demonstrated their ability to meet membership standards on one or more of the affiliated exchanges which eliminates the need for a full review. Nasdaq Rule 1013(b) (‘‘Special Application Procedures’’) was adopted by Nasdaq to expedite the membership application process of Applicants who were already members of FINRA or members of one of the affiliated exchanges. The Special Application Procedures also include updated provisions requiring compliance with Nasdaq’s anti-money laundering rules.14 The Exchange proposes to adopt by incorporation these same provisions to facilitate Applicants who meet the rule requirements. The adoption of this rule will offer members of FINRA, Nasdaq, and BX the option to apply for membership on the Exchange through an expedited membership application process. Current Exchange rules do not allow this expedited process. However, today, this concept does exist in both GEMX and MRX General 3, Section 5. Both GEMX and MRX rules afford an Exchange member in good standing the ability to become a GEMX or MRX 14 See Securities Exchange Act Release No. 34– 85513 (April 4, 2019), 84 FR 14429 (April 10, 2019) (SR–NASDAQ–2019–022). E:\FR\FM\19JAN1.SGM 19JAN1 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Notices khammond on DSKJM1Z7X2PROD with NOTICES member of the same category without application. The Exchange believes that incorporating by reference Nasdaq’s waive-in provisions will further the Exchange’s objective to provide uniformity and clarity to its rules by aligning its membership application process with the Nasdaq and BX exchanges. Rule 1014 Nasdaq Rule 1014 (‘‘Department Decision’’) describes the Membership Department’s process for the issuance of a decision. The Exchange proposes to incorporate by reference Nasdaq Rule 1014 in its entirety as it provides a more organized, detailed, and logical description of the procedure currently described in General 3, Section 2 (in addition to the grounds for approval or disapproval referenced in General 3, Section 5(d) and (e)). Incorporating Nasdaq Rule 1014 by reference in the Exchange’s rules will improve the membership application and decision making process by better defining the Membership Department’s authority and obligations, describing the basis for approval, conditional approval or denial of an application. Further, the Exchange believes that this proposed change provides consistency in the treatment of Exchange Applicants. Nasdaq Rule 1014(a) describes the Membership Department’s authority 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, investor protection, or other regulatory) concern; or (2) that mirror a restriction placed upon the Applicant by FINRA or an affiliated exchange. Nasdaq Rule 1014(b), entitled ‘‘Bases for Approval, Conditional Approval, or Denial,’’ provides that the Membership Department will approve, grant conditional approval, or deny a membership application filed under Nasdaq Rules 1013 and 1017 by an Applicant that is not, and is not required to become, a FINRA member. Nasdaq Rule 1014(b)(1) indicates that the Membership Department may deny or condition membership approval for the same reasons that the Commission may deny or revoke a broker or dealer’s registration; this Nasdaq Rule parallels existing General 3, Section 2(b), which describes the Exchange’s authority to deny an application for the same reasons that the SEC may deny or revoke a broker-dealer registration and for those reasons required or allowed under the Act. Nasdaq Rule 1014(b)(2) enumerates the reasons for denial or conditional VerDate Sep<11>2014 19:19 Jan 17, 2021 Jkt 253001 approval of a membership application in the cases when the Applicant (A) is unable to satisfactorily demonstrate its capacity to adhere to the Exchange and Commission rules; (B) has previously violated, and there is a reasonable likelihood that such Applicant will again engage in violative acts or practices, of any Exchange or Commission policies, rules, and regulations; (C) has engaged in acts or practices inconsistent with just and equitable principles of trade, and there is a reasonable likelihood that such Applicant will again engage in violative acts or practices, of any Exchange or Commission policies, rules, and regulations; (D) is not in compliance with the Commission’s net capital rule or has financial difficulties greater than 5% of their net worth; (E) has been itself, or is the successor to an entity subject to a bankruptcy, proceeding, receivership, or arrangement for the benefit of creditors within the past 3 years; (F) has engaged in an established pattern of failure to pay just debts; (G) does not hold required licenses or registrations; or (H) is unable to satisfactorily demonstrate reasonably adequate systems capacity and capability. The Exchange notes that the basis for denial listed under its General 3, Section 2(c)(1), regarding an Applicant who has a negative net worth, has financial difficulties involving an amount that is more than five percent (5%) of the applicant’s net worth, or has a pattern of failure to pay just debts (whether or not such debts have been the subject of a bankruptcy action), is parallel to Nasdaq Rule 1014(b)(2)(D). Similarly, the Exchange’s basis for denial under General 3, Section 2(c)(2), regarding an Applicant unable satisfactorily to demonstrate a capacity to adhere to all applicable Exchange, SEC, the Clearing Corporation and Federal Reserve Board policies, rules and regulations, including those concerning record-keeping, reporting, finance and trading procedures, is parallel to Nasdaq Rule 1014(b)(2)(A). Finally, the provision under General 3, Section 2(c)(3), regarding an Applicant unable satisfactorily to demonstrate reasonably adequate systems capability and capacity, is parallel to Nasdaq Rule 1014(b)(2)(H). Furthermore, the Exchange believes that the provisions under Nasdaq Rule 1014(b)(2)(A), (B), and (C), which describe the basis for a decision regarding the Applicant’s inability to satisfy the Exchange and securities rules, previous violative conduct, and past or potential conduct inconsistent with just and equitable principles of PO 00000 Frm 00162 Fmt 4703 Sfmt 4703 5291 trade, provide the Exchange with greater authority than the one described under General 3, Section 2(d), which provides that when an Applicant is a subject of an investigation conducted by any SRO or government agency involving its fitness for becoming a Member, the Exchange need not act on the application until the matter has been resolved. The Exchange notes that current General 3, Section 2(e) and (f), which refer to the basis for membership denial as it relates to statutory disqualification, are substantially similar to Nasdaq Rule 1002(b)(1) and (2), which describe an Applicant’s ineligibility of certain persons for membership or association due to statutory disqualification. As stated above, the Exchange proposes to incorporate Nasdaq Rule 1002 in its entirety. Nasdaq Rule 1014(b)(3) provides that the Membership Department will not approve an Applicant unless the Applicant is a member of another registered securities exchange or association that is not registered solely under Section 6(g) or Section 15A(k) of the Act. This rule also provides that an Applicant that will transact business with the public must be a member of FINRA. This requirement exists in the Exchange’s rulebook in Options 10, Section 1 (‘‘Exchange Approval’’); however, to maintain harmonization of the rules, the Exchange proposes to incorporate by reference this same parallel rule. There are no proposed changes to rule text found in Exchange Options 10, Section 1 at this time. The Exchange proposes to incorporate by reference Nasdaq Rule 1014(c) to establish the time and content of a decision and the recourse available to an Applicant if the Membership Department fails to timely issue a decision on a membership application. Current Exchange General 3, Section 5(d), broadly prescribes that the Exchange will consider approval of the membership application, ‘‘unless there is just cause for delay.’’ Nasdaq Rule 1014(c) outlines this process in greater detail. The Nasdaq rule requires the Membership Department to serve a decision on the membership application within 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. Additionally, the rule allows the Membership Department and the Applicant the ability to agree to further extensions of the decision deadlines. Nasdaq Rule 1014(c) also provides that the decision will detail the reason(s) for the denial of membership E:\FR\FM\19JAN1.SGM 19JAN1 khammond on DSKJM1Z7X2PROD with NOTICES 5292 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Notices or the approval of the application subject to restrictions. This provision is similar to General 3, Section 5(e), which currently establishes that the Exchange will inform the Applicant of the grounds for disapproval of a membership application. Moreover, if the Membership Department fails to timely issue a decision, the rule prescribes that the Applicant may request the Exchange Board to direct the Membership Department to issue a decision. The rule further provides that the Exchange Board, within seven days, will direct the Membership Department to serve its decision or to show good cause for a time extension. If the Membership Department shows good cause, the Exchange Board may grant the Membership Department up to 45 days to issue the decision. Nasdaq Rule 1014(e) prescribes that service of the Membership Department’s decision shall be made pursuant to Nasdaq Rule 1012. Further, the rule provides that the decision shall become effective upon service and shall remain in effect during the pendency of any review until a decision constituting final action of the Exchange is issued under Rule 1015 or 1016, unless otherwise directed by the Exchange Review Council, the Exchange Board, or the Commission. Current Exchange General 3, Section 5(e) prescribes that a notice of the Exchange’s decision shall be provided to the Applicant but does not specify the manner of such notification. In addition, Exchange General 3, Section 5(h) indicates that once an Applicant’s membership becomes effective, the Exchange will promptly notify the Applicant of such decision. The Exchange believes that incorporating this rule by reference clarifies the process for serving the Membership Department’s decision on applications. Nasdaq Rules 1014(f) and (g), respectively, provide for the effectiveness of restrictions on an approved application and what constitutes final action in the Membership Department’s decision. Rule 1014(f) establishes that a restriction imposed under Rule 1014 shall remain in effect and bind the Applicant and all successors to the ownership or control of the Applicant unless (1) it is removed or modified by a decision constituting final action of the Exchange issued under Nasdaq Rules 1015, 1016, or 1017; or (2) stayed by the Exchange Review Council, the Exchange Board, or the Commission. Rule 1014(g) provides that unless the Applicant files a written request for a review under Rule 1015, the VerDate Sep<11>2014 19:19 Jan 17, 2021 Jkt 253001 Membership Department’s decision shall constitute final action by Nasdaq. Rule 1015 The Exchange proposes to incorporate by reference Nasdaq Rule 1015 in its entirety under its General 3 title. Nasdaq Rule 1015, subsections (a) through (j) are substantially similar to the current provisions concerning a review by the Exchange Review Council detailed in Exchange General 3, Section 2(g).15 Current Exchange General 3, Section 2(g) (formerly Exchange Rule 302(g)) was amended in 2018 16 to base the Exchange’s procedures on those set forth in Nasdaq and BX Rules 1015 and 1016 (which were identical to Nasdaq’s and now incorporate by reference the Nasdaq Membership rules 17). The Exchange believes that incorporating by reference Nasdaq Rule 1015 it will further the Exchange’s objective to provide uniformity and clarity to its rules by aligning them with the membership rules of the Nasdaq and BX exchanges. The Exchange proposes also to incorporate by reference Nasdaq Rule 1015(k) and (l) (respectively, ‘‘Ex Parte Communications’’ and ‘‘Recusal or Disqualification’’). Both paragraphs (k) and (l) were, respectively, previously located under Nasdaq Rule 1012(c) and (d) but were moved to their current location in the Nasdaq rulebook as the two provisions logically fit within the section of the membership rules that govern appeals of membership decisions.18 Nasdaq Rule 1015(k) 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. Nasdaq Rule 1015(l) 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 has no parallel provisions in its rulebook to Nasdaq Rule 1015(k) and (l). The Exchange believes that 15 The Exchange notes that, recently, Nasdaq adopted Rule 1015(f)(5) which provides for the Exchange Review Council to conduct its hearings via video conferencing. See Securities Exchange Act Release No. 34–90390 (November 10, 2020), 85 FR 73302 (November 17, 2020) (SR–NASDAQ–2020– 076). The Exchange has adopted an identical provision under General 3, Section 2(g)(6)(E). See Securities Exchange Act Release No. 34–90756 (December 21, 2020), 85 FR 85817 (December 29, 2020) (SR–ISE–2020–42). 16 See Securities Exchange Act Release No. 34– 83703 (July 25, 2018), 83 FR 36992 (July 31, 2018) (SR–ISE–2018–59). 17 See supra note 4. 18 See supra note 14. PO 00000 Frm 00163 Fmt 4703 Sfmt 4703 incorporating Rule 1015(k) and (l) by reference enhances the Exchange Review Council’s procedures and is in line with the Exchange’s goal of harmonizing its rules with those of the Nasdaq and BX exchanges. Rule 1016 Aside from their respective internal cross-references, the text in Nasdaq Rule 1016 and Exchange General 3, Section 2(h) (both entitled ‘‘Discretionary Review by the Exchange Board’’) are identical. The Exchange proposes to incorporate by reference Nasdaq Rule 1016 under its General 3 title. The Exchange believes that incorporating by reference this rule will further the Exchange’s objective to provide uniformity and clarity to its rules by aligning them with the membership rules of the Nasdaq and BX exchanges. Rule 1017 Nasdaq Rule 1017, ‘‘Application for Approval of Change in Ownership, Control, or Material Business Operations,’’ has no analogue rule in the Exchange’s current General 3 title. Incorporating Nasdaq Rule 1017 by reference in its entirety in the Exchange’s rules will enhance the Exchange’s ongoing regulatory oversight capabilities by clearly identifying events that would trigger the requirement for an approved Member to file an application with the Exchange. As stated below, Nasdaq Rule 1017 outlines in detail the circumstances that trigger the filing of an application pursuant to this rule. While the Exchange has no corresponding rule, it does have a similar process in place that it administers procedurally. For example, if an existing Electronic Access Member of the Exchange is seeking market maker status for the first time, the current Exchange process is to require that the Member submit an amended Exchange application along with relevant supplementary material. The Exchange believes that incorporating Nasdaq Rule 1017 by reference and harmonizing its process with that of Nasdaq and BX will improve its current practice by further streamlining its current practices. As stated previously, the objective is to eventually harmonize membership rules across all Affiliated Exchanges in order to advance uniformity within the membership rules and procedures. Nasdaq Rule 1017(a) prescribes the events that require Members to file applications with the Exchange. Paragraph (a) provides that a Member shall file an application for approval prior to effecting the following changes: (1) A merger of the Member with another Member; (2) a direct or indirect E:\FR\FM\19JAN1.SGM 19JAN1 khammond on DSKJM1Z7X2PROD with NOTICES Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Notices acquisition by the Member of another Member; (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; (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% or more of the equity or partnership capital; or (5) a material change in business operations, which consist of (A) removing or modifying a membership restriction; (B) acting as a dealer or a market maker for the first time; (C) adding business activities that require a higher minimum net capital under SEC Rule 15c3–1; or (D) adding business activities that would cause a proprietary trading firm no longer to meet the definition of that term contained in the Rule 1000 Series. Nasdaq Rule 1017(b), governs the filing and content of applications filed under Nasdaq Rule 1017. This Rule provides that the application should be filed with the Membership Department; if the Applicant seeks approval of change of ownership or control or a material change in the Member’s business operations, the application should (A) provide a detailed description of the proposed change, (B) provide a business plan, pro forma financials, an organizational chart, and written supervisory procedures reflecting the proposed change; and (C) if the application requests approval of a change in ownership or control, the application also shall include the names of the new owners, their percentage of ownership, and the sources of their funding for the purchase and recapitalization of the member. Furthermore, Nasdaq Rule 1017(b) provides that if the application requests the removal or modification of a membership restriction, the application also shall, (A) present facts showing that the circumstances that gave rise to the restriction have changed; and (B) state with specificity why the restriction should be modified or removed in light of the applicable bases for denial or standards for approval set forth in Nasdaq Rules 1014 or 1017 and the articulated rationale for the imposition of the restriction. Moreover, the Rule indicates that if the application requests approval of an increase in Associated Persons involved in sales, offices, or markets made, the application shall set forth the increases in such areas during the preceding 12 months. VerDate Sep<11>2014 19:19 Jan 17, 2021 Jkt 253001 Nasdaq Rule 1017(c) indicates when an application shall or may be filed. Specifically, the Rule provides that (1) an application for approval of a change in ownership or control shall be filed at least 30 days prior to such change; (2) that an application to remove or modify a membership restriction may be filed at any time (clarifying that an existing restriction shall remain in effect during the pendency of the proceeding); and that (3) an application for approval of a material change in business operations, other than the modification or removal of a restriction, may be filed at any time, but the Member may not effect such change until the conclusion of the proceeding, unless the Membership Department and the Member otherwise agree. Nasdaq Rule 1017(d) prescribes that an application will be deemed to be filed on the date when it is substantially complete, meaning the date on which the Membership Department receives from the Applicant all material documentation and information required under this Rule, and that the Membership Department will notify the Applicant in writing when the Membership Department deems the Applicant’s application to be substantially complete. Nasdaq Rule 1017(e) indicates that, pursuant to Nasdaq Rule 1013(a)(3), the Membership Department may treat an application filed under this Rule as having lapsed or it may reject such an application, except that the Membership Department may treat an application as having lapsed if it is not substantially complete for 30 days or more after the Applicant initiates it. Nasdaq Rule 1017(f) provides that the Membership Department, at any time before it serves its decision, may request additional information or documentation from the Applicant or from a third party in accordance with Nasdaq Rule 1013(a)(4). Nasdaq Rule 1017(g) establishes that a Membership Department’s decision shall be issued in accordance with Nasdaq Rule 1014, except that (1) In rendering a decision on an application submitted under the Rule that requests the modification or removal of a membership restriction, the Membership Department shall consider whether maintenance of the restriction is appropriate in light of: (A) The applicable bases for denial or standards for approval set forth in Nasdaq Rule 1014; (B) the circumstances that gave rise to the imposition of the restriction; (C) the Applicant’s operations since the restriction was imposed; (D) any change in ownership or control or supervisors and principals; and (E) any new PO 00000 Frm 00164 Fmt 4703 Sfmt 4703 5293 evidence submitted in connection with the application. Furthermore, this Rule provides that the Membership Department shall serve a written decision on an application filed under this Rule in accordance with Nasdaq Rule 1013(c). Moreover, the Rule provides that in the event that a proposed change in ownership, control, or business operations by a Member requires such Member to become a member of FINRA, the Membership Department shall not be required to serve a written decision under this Rule until 10 business days after the Member becomes a FINRA member. Nasdaq Rule 1017(h) provides that service of the decision on the Applicant in accordance with Nasdaq Rule 1012. Moreover, the Rule indicates that the decision shall become effective upon service and shall remain in effect during the pendency of any review until a decision constituting final action of the Exchange is issued under Rules 1015 or 1016, unless otherwise directed by the Exchange Review Council, the Exchange Board, or the Commission. Nasdaq Rule 1017(i) indicates that an Applicant may file a written request for review of the Membership Department’s decision with the Exchange Review Council pursuant to Nasdaq Rule 1015, the rule further clarifies that the procedures set forth in Nasdaq Rule 1015 shall apply to such review, and the Exchange Review Council’s decision shall be subject to discretionary review by the Exchange Board pursuant to Nasdaq Rule 1016. If the Applicant does not file a request for a review, the Membership Department’s decision shall constitute final action by Nasdaq. Nasdaq Rule 1017(j) prescribes that the Membership Department shall modify or remove a restriction on its own initiative if the Membership Department determines such action is appropriate in light of the considerations set forth in paragraph (g)(1) of the Rule. The Membership Department shall notify the member in writing of the Membership Department’s determination and inform the member that it may apply for further modification or removal of a restriction by filing an application under paragraph Rule 1017(a). Rule 1018 Nasdaq Rule 1018, ‘‘Resignation, Reinstatement, Termination, and Transfer of Membership,’’ has no analogue rule in the Exchange’s current General 3 title. The Exchange proposes to incorporate the rule by reference under its General 3 title. Nasdaq Rule 1018 outlines the process for resignation, reinstatement, termination, E:\FR\FM\19JAN1.SGM 19JAN1 khammond on DSKJM1Z7X2PROD with NOTICES 5294 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Notices and transfers of memberships. Incorporating Nasdaq Rule 1018 by reference will eventually allow the Exchange to standardize the processing of these requests across all the Affiliated Exchanges. Nasdaq Rule 1018(a) provides that membership in Nasdaq may be voluntarily terminated only by formal resignation. Resignations of Members must be filed via electronic process or such other process as the Exchange may prescribe. Any Member may resign from Nasdaq at any time. Such resignation shall not take effect until all indebtedness due to Nasdaq from such Member shall have been paid in full and so long as any complaint or action is pending against the Member under the Rules. Nasdaq, however, may in its discretion declare a resignation effective at any time. Nasdaq Rule 1018(b) indicates that no Member may transfer its membership or any right arising therefrom; the membership of a corporation, partnership, or any other business organization that is a Member shall terminate upon its liquidation, dissolution, or winding up; and the membership of a sole proprietorship that is a Member shall terminate at death, provided that all obligations of membership under the Rules have been fulfilled. Moreover, the Rule provides that the consolidation, reorganization, merger, change of name, or similar change in any corporate Member shall not terminate the membership of such corporate Member, provided that the Exchange Member or surviving corporation, if any, shall be deemed a successor to the business of the corporate Member, and the Member or the surviving organization shall continue in the securities business, and shall possess the qualifications for membership in the Exchange. Furthermore, the death, change of name, withdrawal of any partner, the addition of any new partner, reorganization, consolidation, or any change in the legal structure of a partnership Member shall not terminate the membership of such partnership Member, provided that the Member or surviving organization, if any, shall be deemed a successor to the business of the partnership Member, and the Member or surviving organization shall possess the qualifications for membership in the Exchange. If the business of any predecessor Member is to be carried on by an organization deemed to be a successor organization by the Exchange, the membership of such predecessor Member shall be extended to the successor organization subject to the notice and application requirements of VerDate Sep<11>2014 19:19 Jan 17, 2021 Jkt 253001 the Rules and the right of the Exchange to place restrictions on the successor organization pursuant to the Rules; otherwise, any surviving organization shall be required to satisfy all of the membership application requirements of the Exchange’s Rules. Nasdaq Rule 1018(c) establishes that any membership or registration suspended or canceled under the Rules may be reinstated by the Exchange upon such terms and conditions as are permitted under the Act and the Exchange rules; provided, however, that any applicant for reinstatement of membership or registration shall possess the qualifications required for membership or registration in the Exchange. Rule 1019 Nasdaq Rule 1019 (‘‘Application to Commission for Review’’) has no analogue rule in the Exchange’s current General 3 title. Nasdaq Rule 1019 allows Applicants to request the Commission to review an Exchange final action, as provided under the Nasdaq Rule 1010 Series. Incorporating Nasdaq Rule 1019 by reference standardizes the process by which an Applicant may dispute any final action of the Exchange. Nasdaq Rule 1019 provides that a person aggrieved by a Nasdaq’s final action under Nasdaq Membership Rules may apply for review by the Commission pursuant to Section 19(d)(2) of the Act. The filing of an application for review shall not stay the effectiveness of a decision constituting final action of the Exchange, unless the Commission otherwise orders. Revised Membership Application As part of the harmonization of its membership rules and procedures with those of Nasdaq and BX, the Exchange is adopting a standardized BrokerDealer Membership Application (‘‘Membership Application’’). The Membership Application is submitted as Exhibit 3A of this proposed rule change with underlined changes concerning the ISE market. Each Exchange Membership Application will be accompanied by a ‘‘Membership Agreement’’ (submitted as Exhibit 3B of the attached), which should be signed by all applicants to membership with the Exchange. Conclusion The changes proposed herein will allow the Exchange to harmonize its membership rules and processes with those of Nasdaq and BX, and ultimately, with the other Affiliated Exchanges, which will eventually provide a uniform criteria across the Affiliated PO 00000 Frm 00165 Fmt 4703 Sfmt 4703 Exchanges for membership qualifications and a consistent process across the Affiliated Exchanges for processing membership applications. The proposal will also provide for full membership reciprocity between Nasdaq, BX, and the Exchange—and hopefully, in time, across all of the Affiliated Exchanges—so that a member of one Affiliated Exchange would receive expedited treatment in applying for membership on any other Affiliated Exchange. Similarly, harmonized membership rules and processes will benefit Exchange Applicants and Members by establishing consistent membership requirements and processes that must be followed to apply for membership on the Exchange. Moreover, as to the Exchange itself, the proposed changes described herein will render the Exchange’s membership rules and processes clearer, better organized, simpler, and easier to comply with. Again, such changes will provide benefits both to the Exchange’s Membership Department and to Exchange Applicants. The proposed membership rules and processes are substantially similar to the existing rules and process, and where there are differences between the new and old processes, the Exchange believes that the new process does not disadvantage its Members or Associated Persons. To the contrary, the Exchange believes that the new rules and processes will benefit all parties as it again provides greater clarity, simplicity, and efficiency than the retired rules and processes. Implementation To facilitate an orderly transition from the existing rules under the General 3 title and the Nasdaq Membership Rules to be incorporated by reference, 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 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 E:\FR\FM\19JAN1.SGM 19JAN1 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Notices 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. The Exchange notes that Nasdaq applied the same process described above to govern its transition to its amended membership rules. khammond on DSKJM1Z7X2PROD with NOTICES 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,19 in general, and furthers the objectives of Section 6(b)(5) and of the Act,20 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.21 As a general matter, the Exchange believes that its proposal to delete its existing membership rules, incorporate by reference the Nasdaq Membership Rules, and other related changes will promote a free and open market, and will benefit investors, the public, and the markets, because the new rules will be clearer, better organized, and simpler. 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 as shown in Nasdaq Rule 1014(a) that sets forth the basic authority of the Membership Department to approve, approve with conditions, or deny applications for membership before the Rule goes on to enumerate criteria for the Membership Department to apply when taking each of those actions; 19 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 21 15 U.S.C. 78f(b)(7). 20 15 VerDate Sep<11>2014 19:19 Jan 17, 2021 Jkt 253001 • Making the titles of the rules more accurate and descriptive (e.g., Nasdaq Rule 1014(b)); • Grouping logically-related provisions together in the rules (e.g., provisions governing resignation, termination, transfer, and reinstatement of membership) and recusals and disqualifications; • Clarifying when the Membership Department will deem an application to be filed (when the application is ‘‘substantially complete,’’ as set forth in Nasdaq Rule 1013(a)(2)) and by requiring the Membership 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 Nasdaq Rule 1013(b)); and The proposal will also make compliance with the membership rules simpler and less burdensome for Applicants and Members by, for example, doing the following: • Eliminating obsolete requirements to submit paper copies of Forms U–4 and BD or explain information listed on the forms where the Membership Department already has electronic access to the Forms and the information contained therein; • Permitting electronic filing of applications (Nasdaq Rule 1012(a)(1); • Allowing payment of application fees by means other than paper check (Nasdaq Rule 1013(a)(1)(C)); • Harmonizing disparate procedures under Nasdaq Rules 1013 and 1017 for filing, evaluating, and responding to initial membership applications and applications for approval of business changes; • Detailing the circumstances in which an Applicant may waive-into Exchange membership to include the Applicant’s membership in any of the affiliated exchanges and defining procedures for processing and responding to waive-in applications (Nasdaq Rule 1013(b)); 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 Membership Department decisions under these Rules or to request Board action to compel the Membership 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 PO 00000 Frm 00166 Fmt 4703 Sfmt 4703 5295 Section 6(b)(7) of the Act 22 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. Lastly, the proposed transition process is the same process that Nasdaq and BX implemented during its transition to new membership rules. 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, the Exchange’s membership process will be less burdensome for Applicants and Members and the Exchange will 22 15 E:\FR\FM\19JAN1.SGM U.S.C. 78f(b)(7). 19JAN1 5296 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Notices 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 23 and subparagraph (f)(6) of Rule 19b–4 thereunder.24 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 rule-comments@ sec.gov. Please include File Number SR– ISE–2020–43 on the subject line. khammond on DSKJM1Z7X2PROD with NOTICES Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549–1090. 23 15 U.S.C. 78s(b)(3)(A)(iii). 24 17 CFR 240.19b-4(f)(6). In addition, Rule 19b4(f)(6) requires a self-regulatory organization to 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. VerDate Sep<11>2014 21:56 Jan 17, 2021 Jkt 253001 All submissions should refer to File Number SR–ISE–2020–43. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–ISE–2020–43 and should be submitted on or before February 9, 2021. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.25 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–00948 Filed 1–15–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–90906; File No. SR– PEARL–2020–38] Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Amend the MIAX PEARL Fee Schedule January 12, 2021. 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 December 25 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00167 Fmt 4703 Sfmt 4703 31, 2020, MIAX PEARL, LLC (‘‘MIAX PEARL’’ 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 PEARL Fee Schedule (the ‘‘Fee Schedule’’) for the Exchange’s options market. The text of the proposed rule change is available on the Exchange’s website at https://www.miaxoptions.com/rulefilings/pearl at MIAX PEARL’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. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend the Add/Remove Tiered Rebates/Fees set forth in Section (1)(a) of the Fee Schedule that apply to the MIAX PEARL Market Maker 3 Origin, to: (i) Modify the volume threshold for the alternative Volume Criteria in Tier 2; and (ii) add a new, alternative Volume Criteria to Tier 3. Background The Exchange currently assesses transaction rebates and fees to all market participants which are based upon the total monthly volume 3 ‘‘Market Maker’’ means a Member registered with the Exchange for the purpose of making markets in options contracts traded on the Exchange and that is vested with the rights and responsibilities specified in Chapter VI of Exchange Rules. See the Definitions Section of the Fee Schedule. E:\FR\FM\19JAN1.SGM 19JAN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 86, Number 11 (Tuesday, January 19, 2021)]
[Notices]
[Pages 5284-5296]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-00948]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90903; File No. SR-ISE-2020-43]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Delete the 
Exchange Membership Rules and Incorporate by Reference the Membership 
Rules of The Nasdaq Stock Market LLC

January 12, 2021.
    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 December 29, 2020, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the 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.
---------------------------------------------------------------------------

    \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 delete the Exchange's membership rules 
currently under the General 3 title, incorporate by reference The 
Nasdaq Stock Market LLC's (``Nasdaq'') rules in the General 3 Rule 1000 
Series, and other related changes.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/ise/rules, 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

[[Page 5285]]

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
    General 3 of the Exchange's General Rules and Nasdaq's General 3, 
Rules 1000 Series prescribe the qualifications and procedures for 
applying for membership, respectively, on the Exchange and Nasdaq. The 
Exchange proposes to delete in their entirety the rules under its 
General 3 title, entitled ``Membership and Access,'' and incorporate by 
reference the Nasdaq General 3, Rules 1000 Series (the ``Nasdaq Rule 
1000 Series'' or ``Nasdaq Membership Rules'') as described below.\3\ 
The Exchange will also relocate the text under its rule General 3, 
Section 5(g) and place it under new Options 2A, Section 1(f) rule and 
General 3, Section 4(b) which will be placed under new Exchange General 
2, Section 11, as further described below.
---------------------------------------------------------------------------

    \3\ The Exchange will separately request an exemption from the 
rule filing requirements of Section 19(b) of the Act for changes to 
General 3 to the extent such rules are effected solely by virtue of 
a change to the Nasdaq Rule 1000 Series. The Exchange's proposed 
rule change will not become effective unless and until the 
Commission approves this exemption request.
---------------------------------------------------------------------------

    This proposal is part of the Exchange's plan to harmonize its 
membership rules with the membership rules of the Nasdaq and Nasdaq BX, 
Inc. (``BX'') exchanges.\4\ The Exchange notes that Nasdaq GEMX, LLC, 
Nasdaq MRX, LLC, and Nasdaq Phlx, LLC (``Phlx'') (together with Nasdaq 
and BX, the ``Affiliated Exchanges'') each plan to propose similar rule 
changes that will render their membership rules substantially similar 
to those of Nasdaq and BX. To account for any differences that may 
exist, the proposed introductory paragraphs list instances in which 
cross references in the Nasdaq Series 1000 Rules to other Nasdaq rules 
shall be read to refer instead to the Exchange Rules, and references to 
Nasdaq terms (whether or not defined) shall be read to refer to the 
Exchange-related meanings of those terms. For instance, references to 
defined terms ``Exchange'' or ``Nasdaq'' shall be read to refer to the 
Nasdaq ISE Exchange; ``Rule'' or ``Exchange Rule'' shall be read to 
refer to the Exchange Rules; the defined term ``Applicant'' in the 
Nasdaq Rule 1000 Series shall be read to refer to an Applicant to the 
Nasdaq ISE Exchange; the defined terms ``Board'' or ``Exchange Board'' 
in the Nasdaq Rule 1000 Series shall be read to refer to the Nasdaq ISE 
Board of Directors; the defined term ``Director'' in the Nasdaq Rule 
1000 Series shall be read to refer to a Director of the Board of the 
Nasdaq ISE Exchange; the defined term ``Exchange Review Council'' in 
the Nasdaq Rule 1000 Series shall be read to refer to the Nasdaq ISE 
Exchange Review Council; the defined term ``Subcommittee'' in the 
Nasdaq Rule 1000 Series shall be read to refer to a Subcommittee of the 
Nasdaq ISE Exchange Review Council; the defined term ``Interested 
Staff'' in the Nasdaq Rule 1000 Series shall be read to refer to 
Interested Staff of Nasdaq ISE; the defined term ``Member'' in the 
Nasdaq Rule 1000 Series shall be read to refer to a Nasdaq ISE Member 
who acts in its capacity as an Electronic Access Member, a Primary 
Market Maker, or a Competitive Market Maker (including a ``Foreign 
Member,'' as defined under Nasdaq General 9, Section 50); the defined 
term ``Associated Person'' shall be read to refer to a Nasdaq ISE 
Associated Person; the defined terms ``Exchange Membership Department'' 
or ``Membership Department'' shall be read to refer to the Nasdaq ISE 
Membership Department; and the defined term ``Exchange Regulation 
Department'' shall be read to refer to the Nasdaq ISE Regulation 
Department.
---------------------------------------------------------------------------

    \4\ The BX membership rules were previously amended to 
incorporate by reference Nasdaq's membership rules. See Securities 
Exchange Act Release No. 34-86425 (July 22, 2019), 84 FR 36139 (July 
26, 2019) (SR-BX-2019-022).
---------------------------------------------------------------------------

    Additionally, cross references in the Nasdaq Rule 1000 Series to 
``General 1 and Equity 1'' shall be read as references to Nasdaq ISE 
General 1, Section 1; cross references in the Nasdaq Rule 1000 Series 
to ``General 9, Section 20'' shall be read as references to Nasdaq ISE 
Options 10, Section 5(c)(2); cross references in the Nasdaq Rule 1000 
Series to ``General 9, Section 37'' shall be read as references to 
Nasdaq ISE Options 9, Section 21; and cross references to the ``General 
4, Rule 1200 Series'' shall be read as references to Nasdaq ISE General 
4, Section 1.\5\
---------------------------------------------------------------------------

    \5\ The Exchange notes that its General 4 title (entitled 
``Regulation'') currently incorporates by reference the rules 
contained in Nasdaq's General 4 title. See Securities Exchange Act 
Release No. 85728 (April 26, 2019), 84 FR 18892 (May 2, 2019) (SR-
ISE-2019-12).
---------------------------------------------------------------------------

    Finally, as explained below, the introductory paragraph will 
indicate that the Nasdaq Rule 1000 Series shall also apply to Nasdaq 
ISE Members who meet the requirements of a ``Foreign Member.''
    As compared to the Exchange's existing General 3, by virtue of 
incorporating by reference the Nasdaq Membership Rules into the 
Exchange's rulebook, the Exchange's membership rules will be organized 
in a more logical order. The incorporated rules will eliminate 
unnecessary or vague provisions that exist under the current General 3 
title, eliminate unnecessary complexity in the membership process, and 
otherwise streamline the Exchange's existing membership rules and their 
associated procedures.
Summary of Proposed Changes
    A comparison between the Exchange's existing General 3 and the 
Nasdaq Membership Rules is summarized below. As a general matter, in 
comparison to the Exchange's existing membership rules, the Nasdaq 
Membership Rules provide for more specific membership procedures and 
due process. Moreover, as described below, some of the Nasdaq Rule 1000 
Series rules have no analogue in the existing Exchange rules. Finally, 
as explained later, the Exchange will also relocate the text under its 
General 3, Section 5(g) rule and place it under new Options 2A, Section 
1(f) rule and General 3, Section 4(b) which will be relocated under new 
Exchange General 2, Section 11.
Rule 1001
    Nasdaq Rule 1001 states that Nasdaq and the Financial Industry 
Regulatory Authority (``FINRA'') are parties to a Regulatory Contract, 
pursuant to which FINRA has agreed to perform certain functions 
described in the Rule 1000 Series and the General 4, Rule 1200 Series 
on behalf of Nasdaq.\6\ Moreover, Nasdaq Rule 1001 provides that Nasdaq 
rules that refer to Nasdaq's Regulation Department, Nasdaq Regulation 
Department staff, Nasdaq staff, and Nasdaq departments should be 
understood as also referring to FINRA staff and FINRA departments 
acting on behalf of Nasdaq pursuant to the Regulatory Contract.
---------------------------------------------------------------------------

    \6\ Nasdaq's General 4, Section 1 (Registration, Qualification 
and Continuing Education) is currently incorporated by reference 
into the Exchange's General 4 title. See supra note 5.
---------------------------------------------------------------------------

    Nasdaq Rule 1001 also provides that, notwithstanding the fact that 
Nasdaq has entered into the Regulatory Contract with FINRA to perform 
some of Nasdaq's functions, Nasdaq shall retain ultimate legal 
responsibility for, and control of, such functions. In addition, the 
rule informs that Nasdaq has incorporated by reference certain FINRA 
rules and that Nasdaq members shall comply with those rules and

[[Page 5286]]

interpretations as if such rules and interpretations were part of 
Nasdaq's Rules.
    The Exchange is proposing to incorporate by reference Nasdaq Rule 
1001, which currently has no analogue rule under its membership rules. 
The language of Nasdaq Rule 1001 is applicable to the Exchange, as the 
Exchange is, similarly, a signatory of a Regulatory Contract with 
FINRA, pursuant to which FINRA has agreed to perform certain membership 
functions on its behalf, and also retains the ultimate legal 
responsibility for the performance of said functions. The Exchange 
believes that the incorporation by reference to Nasdaq Rule 1001 is not 
a substantive amendment to the Exchange rules.
Rule 1002
    Nasdaq Rule 1002, which will be incorporated by reference under the 
Exchange's General 3 title, describes the qualifications of Nasdaq 
members and associated persons, the registration of branch offices, and 
the designation of a Member's office of supervisory jurisdiction. The 
Exchange will adopt by incorporation the provisions of Nasdaq Rule 1002 
and delete those under current General 3, Section 1. The Exchange 
believes that incorporating by reference this rule will further the 
Exchange's objective to provide uniformity and clarity to its rules by 
aligning them with the membership rules of the Nasdaq and BX exchanges.
    Nasdaq Rule 1002(a) provides that any registered broker or dealer 
shall be eligible for membership in Nasdaq (except for those excluded 
under paragraph (b) of the rule); additionally, paragraph (a) provides 
that any person shall be eligible to become an Associated Person of a 
Member (except for those excluded under Rule 1002(b)). Rule 1002(a) is 
similar to General 3, Section 1(a) of the Exchange's membership rules 
to the extent that it describes that brokers or dealers may become 
Exchange members (``Members''). General 3, Section 1(a) provides that a 
Member may be a corporation, partnership, or limited liability company, 
and must be a registered broker-dealer and meet the qualifications for 
Exchange membership. The Exchange believes that incorporating by 
reference Nasdaq Rule 1002(a) expands upon Exchange General 3, Section 
1(a) by including an associated person of a Member (``Associated 
Person'') under this threshold requirement.
    The Exchange's General 3, Section 1(b) provides that a Member that 
does not maintain an office in the United States (``Foreign Member'') 
that is responsible for preparing and maintaining financial and other 
reports required to be filed with the Commission and with the Exchange 
must prepare such reports in English and in U.S. dollars, reimburse the 
Exchange for any expense incurred in examining the Member to the extent 
that such expense is in excess of the cost associated with examining a 
Member located within the continental United States, and ensure the 
availability of an individual who is fluent in English and 
knowledgeable in securities and financial matters to assist 
representatives of the Exchange during examinations. Nasdaq General 9, 
Section 50 is a Nasdaq rule substantially similar to the provisions in 
General 3, Section 1(b). In order to preserve the enumerated 
characteristics of a Foreign Member, which would otherwise be deleted 
from its Rulebook by incorporating by reference the Nasdaq Rule 1000 
Series, the Exchange proposes to include the text of its General 3, 
Section 1(b) under the General 3's introductory paragraph and indicate 
that the Nasdaq Membership Rules will also apply to the members who 
meet the Foreign Member requirements.
    Furthermore, General 3, Section 1(c) provides that every Member 
shall have as the principal purpose of being a Member the conduct of a 
public securities business, and that purpose shall be deemed to exist 
if and so long as: (1) The Member has qualified and acts in respect of 
its business on the Exchange in one or more of the following 
capacities: (i) An Electronic Access Member; (ii) a Primary Market 
Maker; or (iii) a Competitive Market Maker; and (2) all transactions 
effected by the Member are in compliance with Section 11(a) of the 
Exchange Act and the rules and regulations adopted thereunder. The 
Exchange believes that the membership qualifications described in this 
section are consistent with the eligibility criteria described in 
Nasdaq Rule 1002 and the disclosures and information provided by 
Applicant pursuant to Nasdaq Rule 1013. To account for the Exchange 
rights referenced in Section 1(c) (Electronic Access Member, Primary 
Market Maker, or Competitive Market Maker), as defined under the 
Exchange's Options 1, Section 1 provisions, the Exchange will also 
indicate in the proposed General 3 introductory paragraph that the 
defined term ``Member'' in the Nasdaq Rule 1000 Series shall be read to 
refer to a Nasdaq ISE Member who acts in its capacity as an Electronic 
Access Member, a Primary Market Maker, or a Competitive Market Maker. 
The Exchange notes that the rules related to a Primary Market Maker's 
and Competitive Market Maker's trading rights are not being impacted by 
this proposal. These rules are preserved and located in the Exchange's 
Options 2A title, ISE Market Maker Rights.
    Nasdaq Rule 1002(b)(1) establishes that subject to such exceptions 
as may be explicitly provided elsewhere in the Nasdaq rules, no 
registered broker or dealer shall be admitted to membership, and no 
Member shall be continued in membership, if such broker, dealer, or 
Member fails or ceases to satisfy the qualification requirements 
established by Nasdaq rules, or if such broker, dealer, or Member is or 
becomes subject to a statutory disqualification, or if such broker, 
dealer, or Member fails to file such forms as may be required in 
accordance with such process as Nasdaq may prescribe. Nasdaq Rule 
1002(b)(1) can be compared to the provision currently under Exchange's 
General 3, Section 2(b) that establishes that the Exchange may deny or 
condition the approval of a Member, or preclude or condition a person 
from becoming associated with a Member, for the same reasons that the 
Commission may deny or revoke a broker-dealer registration and for 
those reasons required or allowed under the Act. Furthermore, the 
requirement to comply with Nasdaq rules under Section (b)(1), is also 
consistent with the provision under Exchange General 3, Section 4(c) 
that states that every Member shall pledge to abide by the by-laws and 
rules of the Exchange, as amended from time to time, and by all Options 
Regulatory Alerts, notices, directives or decisions adopted pursuant to 
or made in accordance with the Exchange's by-laws and rules.
    Nasdaq Rule 1002(b)(2) establishes that, subject to such exceptions 
as may be explicitly provided elsewhere in Nasdaq rules, no person 
shall become associated with a Member, continue to be associated with a 
Member, or transfer association to another Member, if such person fails 
or ceases to satisfy the qualification requirements established by 
Nasdaq rules, or if such person is or becomes subject to a statutory 
disqualification; and no broker or dealer shall be admitted to 
membership, and no Member shall be continued in membership, if any 
person associated with it is ineligible to be an Associated Person 
under Nasdaq Membership Rules. Nasdaq Rule 1002(b)(2) is similar to the 
requirement that applies to Associated Persons under General 3, Section 
3(a) of the Exchange rules. The

[[Page 5287]]

Exchange's General 3, Section 3 rules enumerate conditions that apply 
to persons associated with Members of the Exchange. Exchange General 3, 
Section 3(a) provides that Associated Persons are bound by the 
Exchange's by-laws and rules and the rules of the Clearing Corporation 
and describes the circumstances concerning the barring of an Associated 
Person in such role. Exchange General 3, Sections 2(b), 3(a), and 4(c) 
are, substantially similar to the provisions of Nasdaq Rule 1002(b),\7\ 
which the Exchange proposes be incorporated by reference into its 
membership rules. The Exchange notes that General 3, Section 3(b) 
requires that Members file and keep current a list of its associated 
persons who are its executive officers, directors, principals, 
shareholders, and general partners. A Member's obligation to maintain 
updated information for their registered representatives or principals 
is prescribed under Nasdaq's General 4 title which was previously 
incorporated by reference into the Exchange rules,\8\ rendering 
Exchange General 3, Section 3(b) unnecessary.
---------------------------------------------------------------------------

    \7\ The Exchange notes that it will not relocate or carve-out 
this duplicative provision concerning The Options Clearing 
Corporation (``OCC''). Pursuant to the Exchange's Options 9, Section 
2 (``Adherence to Law''), Members are required to abide by the Act, 
the Exchange's by-laws, the rules of the Exchange, and OCC rules.
    \8\ See supra note 5.
---------------------------------------------------------------------------

    Exchange General 3, Section 3(c) provides that a claim of any 
Associated Person described in the first sentence of General 3, Section 
3(b) (i.e., a Member's executive officers, directors, principal 
shareholders, and general partners) against a Member shall be 
subordinate in right of payment of customers and other Members. This 
subordination rule was approved as part of the Exchange's Form 1 filing 
on February 24, 2000.\9\ At that time, Exchange members had equity 
ownership interest in the Exchange and the subordination language was 
relevant. In April of 2002, the Exchange demutualized, which ultimately 
resulted in Exchange members no longer having any equity ownership 
interest in ISE. As such, this language became obsolete.\10\ The 
Exchange proposes to delete this provision in its entirety.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 42455 (February 24, 
2000), 65 FR 11401 (March 2, 2000) (Order Granting Registration as a 
National Securities Exchange).
    \10\ See Securities Exchange Act Release No. 45803 (April 23, 
2002), 67 FR 21306 (April 30, 2002) (Order Approving Proposed Rule 
Change and Amendment No. 1 thereto by the International Securities 
Exchange LLC To Restructure From a Limited Liability Company to a 
Corporation).
---------------------------------------------------------------------------

    Nasdaq Rule 1002(c) establishes, as a condition to maintaining 
Nasdaq membership, that Members shall at all times maintain membership 
in a registered securities association or another registered exchange. 
Furthermore, the rule prescribes that Members that transact business 
with customers shall at all times be members of FINRA. The Exchange 
proposes to incorporate this rule by reference. Because the Exchange 
does not act in the capacity of a designated examining authority 
(``DEA''), like the Nasdaq and BX exchanges, it requires that all 
applicants for membership have an assigned DEA in place as a condition 
of its membership.
    Nasdaq Rule 1002(d) states that Nasdaq members are deemed to comply 
with Nasdaq's branch office registration requirements to the extent 
that they keep current a Uniform Branch Office Registration Form 
(``Form BR''), which contains the requisite information and which is 
accessible electronically to Nasdaq. Members that are not FINRA members 
shall continue to submit to Nasdaq a Branch Office Disclosure Form, as 
they have done previously. The Exchange proposes to incorporate by 
reference this rule, which is consistent with the provisions under the 
Exchange's Options 10, Section 5, entitled Branch Offices. The Exchange 
proposes that the cross-reference in Nasdaq Rule 1002(d)(2) to General 
9, Section 20 shall be read as a reference to Exchange Options 10, 
Section 5(c)(2).
Rule 1011
    Nasdaq Rule 1011 contains definitions applicable to the Nasdaq 
Membership Rules. Nasdaq Rule 1011 has no analogue rule in the existing 
Exchange's General 3 title. By incorporating by reference the Nasdaq 
definitions under Rule 1011, the Exchange believes it will further 
harmonize its rules with respect to the membership rules of Nasdaq and 
BX. The Exchange notes that the defined terms in Nasdaq Rule 1011, to 
be incorporated by reference into the Exchange's rules, are self-
contained and have no impact on ISE rules outside its membership rules. 
The terms ``Applicant,'' ``Department,'' ``Director,'' ``Interested 
Staff,'' ``Securities business,'' ``Exchange Board,'' ``principal place 
of business,'' ``registered broker or dealer,'' ``Representative,'' 
``sales practice event,'' ``Subcommittee,'' and ``statutory 
disqualification'' have not been defined in the Exchange's rulebook. 
The Exchange notes that the term ``associated person'' as defined in 
the Exchange's rulebook \11\ is substantially similar to the definition 
in Nasdaq General 1(b)(2). Relatedly, the term ``Proprietary Trading 
Firm'' as defined in Nasdaq Rule 1011(o) is substantially similar with 
the definition of ``proprietary trading'' as defined in the Exchange's 
rulebook.\12\ The Exchange proposes to adopt by incorporation the text 
of Nasdaq Rule 1011 in its entirety. The Exchange believes that 
incorporating by reference this rule will further the Exchange's 
objective to provide uniformity and clarity to its rules by aligning 
them with the membership rules of the Nasdaq and BX exchanges.
---------------------------------------------------------------------------

    \11\ Exchange General 1, Section 1(a)(1).
    \12\ Exchange Options 1, Section 1(a)(41)
---------------------------------------------------------------------------

Rule 1012
    Nasdaq Rule 1012 (``General Application Provisions'') provides a 
detailed outline of the requirements that an Applicant must follow in 
order to file an application for membership with Nasdaq. In contrast, 
the Exchange membership rules contain vague provisions describing the 
manner in which an application shall be submitted or how service shall 
be performed. The Exchange believes that Nasdaq Rule 1012 provides a 
more detailed set of instructions for Applicants, Members, and 
Associated Persons to submit materials and the requirements for service 
of documents. The Exchange believes that incorporating Rule 1012 by 
reference will further the Exchange's objective to provide uniformity 
and clarity to its rules by aligning them with the membership rules of 
the Nasdaq and BX exchanges.
    Nasdaq Rule 1012(a) provides that Applicants and Nasdaq Members may 
submit an application or other documents and information to Nasdaq by 
first-class mail, overnight courier, hand delivery, or by electronic 
means; this section also provides that Nasdaq shall serve a notice or 
decision issued under the Nasdaq Membership Rules by first-class mail 
or electronic means on the Applicant or Member or its counsel, unless a 
Nasdaq rule specifies a different method of service; finally, this 
section also details when service by Nasdaq or an Applicant shall be 
deemed complete. The Exchange membership rules contain no such 
provision. The Exchange believes that incorporating Nasdaq 1012(a) by 
reference improves its membership application process by adopting 
specific provisions regarding the manner of submission and service of 
documents.
    Nasdaq Rule 1012(b) provides a definition of the term ``calendar 
days'' and describes the manner in which times under the Nasdaq 
Membership Rule shall be computed. The Exchange

[[Page 5288]]

membership rules contain no such provision. The Exchange believes that 
adopting this rule by incorporation will provide further clarity to the 
calculation of times under its membership rules.
    Nasdaq Rule 1012(c) describes a(n) Applicant's, Member's, and 
Associated Person's duty to ensure that the information they provide to 
Nasdaq at the time of the filing is accurate, complete, and current. 
Moreover, this provision requires that Applicant's, Member's, and 
Associated Person's shall ensure that membership applications and 
supporting materials filed with Nasdaq remain accurate, complete, and 
current at all times by filing supplementary amendments, which must be 
filed within 15 business days of their learning of the facts or 
circumstances giving rise to the need for an amendment. Furthermore, 
this section requires that Applicants, Members, and Associated Persons 
promptly notify Nasdaq, in writing, of any material adverse change in 
their financial condition. The Exchange membership rules contain no 
such provision. The Exchange believes that incorporating Nasdaq 1012(c) 
by reference improves its membership rules by adopting provisions 
concerning a Member's duty to ensure the accuracy, completeness, and 
current nature of membership information.
    Exchange General 3, Section 4(b) states that every Member shall 
report to the Exchange all contact information required by the Exchange 
via the FINRA Contact System. Section 4(b) also requires Exchange 
Members to update their contact information promptly when necessary, 
but in no event later than 30 days following any change, and within 17 
business days after the end of each calendar year; furthermore, it 
requires members to comply with any request for such information by the 
Exchange within 15 days or any longer period agreed upon with Exchange 
staff. The Exchange proposes the relocation of this provision, with 
minor lettering changes, to Exchange General 2 title (``Organization 
and Administration'') under new Section 11, entitled Contact 
Information Requirements. Exchange General 3, Section 4(b) is 
substantially similar to the rule text in both Nasdaq's and BX's 
General 2, Section 11.
    As previously stated, the Exchange proposes to adopt by 
incorporation the text of Nasdaq Rule 1012 in its entirety, as the 
rule's provisions provide clear instructions concerning the submission 
of membership applications and other materials; the requirements for 
service of documents; and the Applicants', Members', and Associated 
Persons' duty to ensure that the information filed with the Exchange is 
up to date.
Rule 1013
    Nasdaq Rule 1013 sets forth the procedure for filing applications 
for new membership on the Exchange. The Exchange proposes to 
incorporate Nasdaq Rule 1013 by reference under its General 3 title. 
The Exchange is adopting Nasdaq Rule 1013 as it expands upon and 
provides clarity to the procedure in the Exchange's General 3, Section 
5. The Exchange believes that incorporating Rule 1013 by reference will 
further the Exchange's objective to provide uniformity and clarity to 
its rules by aligning them with the membership rules of the Nasdaq and 
BX exchanges.
    Nasdaq Rule 1013(a) describes in detail the membership application 
process. Subsection (a)(1) (``Where to File; Contents''), provides that 
an application shall include (A) a copy of the Applicant's current Form 
BD, if not otherwise available to Nasdaq electronically through the 
Central Registration Depository (``CRD''); (B) an original Nasdaq-
approved fingerprint card for each Associated Person who will be 
subject to SEC Rule 17f-2 and for whom a fingerprint card has not been 
filed with another self-regulatory organization (SRO), if such 
fingerprints are not otherwise available electronically to Nasdaq 
through CRD; (C) payment for such fee as may be required under the 
Rules; (D) a description of the Applicant's proposed trading activities 
on Nasdaq, such as the types of securities it will trade, whether it 
will be a market maker, or an order entry firm, and/or engage in block 
trading activities, and the extent to which the Applicant is conducting 
such activities as a member of other SROs; (E) a copy of the 
Applicant's most recent audited financial statements and a description 
of any material changes in the Applicant's financial condition since 
the date of the financial statements; (F) an organizational chart; (G) 
the intended location of the Applicant's principal place of business 
and all other branch offices, if any, and the names of the persons who 
will be in charge of each office; (H) a description of the 
communications and operational systems the Applicant will employ to 
conduct business and the plans and procedures the Applicant will employ 
to ensure business continuity, including: system capacity to handle the 
anticipated level of usage; contingency plans in the event of systems 
or other technological or communications problems or failures; system 
redundancies; disaster recovery plans; and system security; (I) a copy 
of any decision or order by a federal or state authority or SRO taking 
permanent or temporary adverse action with respect to a registration or 
licensing determination regarding the Applicant or an Associated 
Person; (J) a statement indicating whether the Applicant or any person 
listed on Schedule A of the Applicant's Form BD is currently, or has 
been in the last ten years, the subject of any investigation or 
disciplinary proceeding conducted by any SRO, the foreign equivalent of 
a SRO, a foreign or international securities exchange, a contract 
market designated pursuant to the Commodity Exchange Act (``CEA'') or 
any substantially equivalent foreign statute or regulation, a futures 
association registered under the CEA or any substantially similar 
foreign statute or regulation, the Commission or any other 
``appropriate regulatory agency'' (as defined in the Act), the 
Commodity Futures Trading Commission, or any state financial regulatory 
agency regarding the Applicant's activities that has not been reported 
to the CRD, together with all relevant details, including any sanctions 
imposed; (K) a statement indicating whether any person listed on 
Schedule A of the Applicant's Form BD is currently, or has been in the 
last ten years, the subject of any investigation or disciplinary 
proceeding conducted by any SRO, the foreign equivalent of an SRO, a 
foreign or international securities exchange, a contract market 
designated pursuant to the CEA or any substantially equivalent foreign 
statute or regulation, a futures association registered under the CEA 
or any substantially similar foreign statute or regulation, the 
Commission or any other ``appropriate regulatory agency'', the CFTC, or 
any state financial regulatory agency regarding the Applicant's 
activities that has not been reported to the CRD, together with all 
relevant details, including any sanctions imposed; (L) a copy of any 
contract or agreement with another broker-dealer, a bank, a clearing 
entity, a service bureau or a similar entity to provide the Applicant 
with services regarding the execution or clearance and settlement of 
transactions effected on Nasdaq; (M) if the Applicant proposes to make 
markets on Nasdaq, a description of the source and amount of 
Applicant's capital to support its market making activities on Nasdaq, 
and the source of any additional capital that may become necessary; (N) 
a description of the financial controls to be employed by the Applicant 
with respect to anti-money laundering compliance rules as set forth in 
General 9, Section 37; (O) a copy of

[[Page 5289]]

the Applicant's written supervisory procedures with respect to the 
activities identified in paragraph (a)(1)(D); (P) a list of the persons 
conducting the Applicant's market making and other trading activities, 
and a list of the persons responsible for such persons' supervision, 
together with the CRD numbers; (R) a copy of the Applicant's most 
recent ``FOCUS Report'' (Form X-17A-5) filed with the SEC pursuant to 
SEC Rule 17a-5; (S) all examination reports and corresponding responses 
regarding the Applicant for the previous two years from the SROs of 
which it is a member; (T) a copy of Nasdaq's Membership Agreement, duly 
executed by the Applicant, which includes, among other things: (1) An 
agreement to comply with the federal securities laws, the rules and 
regulations thereunder, Nasdaq rules, and all rulings, orders, 
directions, and decisions issued and sanctions imposed under Nasdaq 
rules; (2) an agreement to pay such dues, assessments, and other 
charges in the manner and amount as from time to time shall be fixed 
pursuant to Nasdaq rules; and (U) such other reasonable information 
with respect to the Applicant as Nasdaq may require.
    In contrast, current General 3, Section 2(a) states simply that to 
become a Member of the Exchange an Applicant must seek approval in the 
form and manner prescribed by the Exchange. Relatedly, General 3, 
Section 4(a) provides a short list of documents that Applicants and 
Members may submit with their application for membership with the 
Exchange. Section 4(a) states that Members and Applicants shall file 
with (and be subject to review by) the Exchange, at a minimum, their 
partnership agreements and any subsequent amendments, in the case of 
partnerships; articles of incorporation, by-laws and their amendments, 
in the case of corporations; the articles of organization and operating 
agreements and their respective amendments, in the case of limited 
liability companies; and any lease agreements that Members may be 
subject to.\13\ The paragraph further provides that no action or 
failure by the Exchange to act shall be construed to mean that the 
Exchange has in any way passed on the investment merits of or approved 
the submitted document. The Exchange believes that deleting General 3, 
Section 4(a) is appropriate because the Exchange's current rule is 
ambiguous while Nasdaq Rule 1013(a)(1), which will be incorporated by 
reference, lists in detail all of the supplementary application 
materials required for submission by an Applicant. Incorporating this 
provision by reference will further standardize the Exchange's 
membership application process.
---------------------------------------------------------------------------

    \13\ Concerning the lease agreements referenced in Section 4(a), 
the Exchange also believes it unnecessary to preserve this text for 
purposes of the General 3 amendments. The lease agreements are fully 
described in Options 2A, Section 4. (``Leasing Memberships'') in the 
Exchange's rulebook.
---------------------------------------------------------------------------

    Exchange's General 3, Section 5(a) provides that to become a Member 
of the Exchange an Applicant shall file an application, which must be 
accompanied by a non-refundable application fee. The Exchange proposes 
to delete Section 5(a) because the provisions in this section are 
already included in Nasdaq Rule 1013, New Member Application which is 
being incorporated by reference.
    The Exchange also believes that the provision under General 3, 
Section 5(c) that indicates that an applicant must be approved by the 
Exchange to perform in at least one of the recognized capacities of a 
Member as stated in General 3, Section 1(c) (discussed above when 
describing the incorporation by reference of Nasdaq Rule 1002) is 
substantially similar to the language contained in Nasdaq Rule 
1013(a)(1)(D).
    Nasdaq Rule 1013(a)(2) provides that the Membership Department will 
deem an application to be filed on the date when it is substantially 
complete, meaning the date on which the Membership Department receives 
from the Applicant all material documentation and information required 
under Rule 1013. This rule also provides that Nasdaq will notify the 
Applicant in writing when it deems the Applicant's application to be 
substantially complete. The Exchange's General 3, Section 5(d) contains 
a parallel, although brief, provision when describing the completion of 
the application process (``Upon completion of the application process, 
the Exchange shall consider whether to approve the application, unless 
there is just cause for delay'').
    Nasdaq Rule 1013(a)(3) provides the procedure concerning incomplete 
applications (including the conditions necessary for the refund of 
application fees); and the request for additional documents or 
supporting information. Specifically, Nasdaq Rule 1013(a)(3)(A) 
(``Lapse of Applications that are not Substantially Complete'') 
provides that if an application that was initiated under 1013 is not 
deemed to be substantially complete by the Membership Department within 
90 calendar days after an Applicant initiates it, then absent a showing 
of good cause by the Applicant, the Membership Department may, at its 
discretion, deem the application to have lapsed without filing, and the 
Membership Department will take no action in furtherance of the 
application. If the Membership Department deems an application to have 
lapsed, then the Membership Department shall serve a written notice of 
that determination on the Applicant. If an Applicant still wishes to 
apply for membership on Nasdaq after receiving notice of a lapse in its 
application, then the Applicant will be required to submit a new 
application pursuant to Nasdaq Membership Rules and pay a new 
application fee for doing so, if applicable. The Membership Department 
will refund fees that an Applicant has paid to the Nasdaq in connection 
with a lapsed application, in accordance with Nasdaq rules regarding 
fees, provided that the Nasdaq has not proceeded to process the 
application at the time it lapses. The rule also provides that, for 
purposes of Rule 1013(a)(3)(A), the Membership Department will deem an 
application to be not ``substantially complete'' if the Applicant fails 
to submit to the Membership Department materially important information 
or documentation that is required or requested under these Rules.
    Nasdaq Rule 1013(a)(3)(B) (``Rejection of Filed Applications that 
Remain or Become Incomplete After Filing'') provides that if an 
application that was initiated under Rule 1013 is substantially 
complete and thus is deemed to be filed with Nasdaq under Rule 
1013(a)(2), but the application nevertheless remains or becomes 
incomplete with respect to any required or requested information or 
documentation, then the Membership Department shall serve written 
notice to the Applicant of such incompleteness and describe the missing 
information or documentation. If the Applicant fails to submit to 
Nasdaq the missing information or documentation within a reasonable 
period after it receives a notice of incompleteness, then absent a 
showing of good cause by the Applicant, the Membership Department may, 
at its discretion, reject the application. If the Membership Department 
rejects an application on the basis of incompleteness, then the 
Membership Department shall serve a written notice on the Applicant of 
the Membership Department's determination and the reasons therefor. 
Nasdaq shall not refund the application fees that an Applicant has paid 
to Nasdaq in connection with an application that Nasdaq rejects. If the 
Applicant determines to continue to seek membership on Nasdaq, then the 
Applicant shall submit a new

[[Page 5290]]

application and pay a new application fee in accordance with Nasdaq 
rules.
    The Exchange currently contains two provisions related to the 
lapsing of its membership applications. Pursuant to General 3, Section 
5(f), if the membership application process is not completed within six 
(6) months of the filing of the application form and payment of the 
appropriate fee, the application shall be deemed to be automatically 
withdrawn. The Exchange plans to replace General 3, Section 5(f) by 
incorporating by reference Rule 1013(a)(3) which provides well-defined 
processes for the treatment of applications that become stale or result 
in the Applicant's failure to pursue membership by not responding to 
requests for additional information.
    The second rule describing the lapsing of an application is 
currently located under the Exchange's General 3, Section 5(g). Section 
5(g) is specific to Applicants who are seeking approval as either a 
Competitive Market Maker or a Primary Market Maker on the Exchange, 
either of which require the Applicant to purchase or lease trading 
rights. This provision establishes that approved Applicants must become 
effective Members within 90 days of the date of approval by owning or 
leasing a membership or else the approval will expire (unless the 
Exchange grants an extension). Because this rule specifically relates 
to the requirement for Market Makers to promptly secure their trading 
rights, the Exchange believes that it will be better situated under the 
Options 2A, Section 1 (``Market Maker Rights'') title. The Exchange 
thus proposes to relocate the rule text in General 3, Section 5(g) and 
create new subsection Options 2A, Section 1(f) in the Exchange's 
rulebook (the Exchange will make some minor style changes to the rule 
text to facilitate its reading). The Exchange intends to preserve the 
rules related to Competitive Market Makers and Primary Market Makers in 
Options 2A due to the unique nature of this structure. As stated above, 
the Exchange is not amending this structure nor the process by which 
Exchange Members secure and exercise Market Maker trading rights.
    Nasdaq Rule 1013(a)(4) (``Requests by the Department for Additional 
Documents or Information from the Applicant or from Third Parties'') 
establishes that (A) at any time before the Membership Department 
serves its decision as to an application for new membership in Nasdaq, 
the Membership Department may serve a written request for additional 
information or documentation, from the Applicant or from a third party, 
if the Membership Department deems such information or documentation to 
be necessary to clarify, verify, or supplement the application 
materials. The Membership Department may, at its discretion, request 
that the Applicant or the third party provide the requested information 
or documentation in writing or through an in-person or telephonic 
interview. In the written request, the Membership Department shall 
afford the Applicant or the third party a reasonable period of time 
within which to respond to the request; moreover, (B) in the event that 
the Membership Department obtains information or documentation about an 
Applicant from a third party that the Membership Department reasonably 
believes could adversely impact its decision on an application, then 
the Membership Department shall promptly inform the Applicant in 
writing and provide the Applicant with a description of the information 
or a copy of the documentation that the Membership Department obtained, 
where appropriate under the circumstances. Prior to rendering an 
application decision on the basis of information or documentation 
obtained from a third party source, the Membership Department shall 
afford the Applicant with a reasonable opportunity to discuss or to 
otherwise address the information or documentation that the Membership 
Department obtained from the third party.
    The provisions under the Nasdaq Rule 1013(a)(4) are similar to the 
Exchange's General 3, Section 4(a), to the extent that they describe 
the Exchange's authority to request additional documents or information 
from the Applicant or Member. Relatedly, General 3, Section (d) also 
provides the Exchange with authority to request Associated Persons to 
provide additional information or testimony. The Exchange believes that 
incorporating by reference Nasdaq Rule 1013(a)(4) into its membership 
rules will provide a greater degree of detail concerning the Exchange's 
discretion and authority to request additional information.
    Nasdaq Rule 1013(b)(1) sets forth the procedure that allows an 
Applicant who is a FINRA member 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). This section defines the term ``waive-in'' to mean 
that the Membership Department will rely substantially upon FINRA's 
prior determination to approve the Applicant for FINRA membership when 
the Membership Department evaluates the Applicant for Exchange 
membership. That is, the Membership 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 Membership Department is 
not otherwise aware of any basis set forth in Nasdaq Rule 1014 to deny 
or condition approval of the application.
    The second special application process, which is set forth in 
Nasdaq 1013(b)(2), permits Applicants for Nasdaq membership that are 
already approved members of one or more of the affiliated exchanges to 
waive-into Nasdaq. In this context, ``waive-in'' means that the 
Membership Department will rely substantially upon an affiliated 
exchange's prior determination to approve the Applicant for Nasdaq 
membership. The procedures in Nasdaq Rule 1013(b)(2) for an Applicant 
to submit a waive-in application under this provision and for the 
Membership 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 Nasdaq membership. Applicants who meet 
the criteria for this waive-in review process have already demonstrated 
their ability to meet membership standards on one or more of the 
affiliated exchanges which eliminates the need for a full review.
    Nasdaq Rule 1013(b) (``Special Application Procedures'') was 
adopted by Nasdaq to expedite the membership application process of 
Applicants who were already members of FINRA or members of one of the 
affiliated exchanges. The Special Application Procedures also include 
updated provisions requiring compliance with Nasdaq's anti-money 
laundering rules.\14\ The Exchange proposes to adopt by incorporation 
these same provisions to facilitate Applicants who meet the rule 
requirements. The adoption of this rule will offer members of FINRA, 
Nasdaq, and BX the option to apply for membership on the Exchange 
through an expedited membership application process.
---------------------------------------------------------------------------

    \14\ See Securities Exchange Act Release No. 34-85513 (April 4, 
2019), 84 FR 14429 (April 10, 2019) (SR-NASDAQ-2019-022).
---------------------------------------------------------------------------

    Current Exchange rules do not allow this expedited process. 
However, today, this concept does exist in both GEMX and MRX General 3, 
Section 5. Both GEMX and MRX rules afford an Exchange member in good 
standing the ability to become a GEMX or MRX

[[Page 5291]]

member of the same category without application. The Exchange believes 
that incorporating by reference Nasdaq's waive-in provisions will 
further the Exchange's objective to provide uniformity and clarity to 
its rules by aligning its membership application process with the 
Nasdaq and BX exchanges.
Rule 1014
    Nasdaq Rule 1014 (``Department Decision'') describes the Membership 
Department's process for the issuance of a decision. The Exchange 
proposes to incorporate by reference Nasdaq Rule 1014 in its entirety 
as it provides a more organized, detailed, and logical description of 
the procedure currently described in General 3, Section 2 (in addition 
to the grounds for approval or disapproval referenced in General 3, 
Section 5(d) and (e)). Incorporating Nasdaq Rule 1014 by reference in 
the Exchange's rules will improve the membership application and 
decision making process by better defining the Membership Department's 
authority and obligations, describing the basis for approval, 
conditional approval or denial of an application. Further, the Exchange 
believes that this proposed change provides consistency in the 
treatment of Exchange Applicants. Nasdaq Rule 1014(a) describes the 
Membership Department's authority 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, investor protection, or other regulatory) 
concern; or (2) that mirror a restriction placed upon the Applicant by 
FINRA or an affiliated exchange.
    Nasdaq Rule 1014(b), entitled ``Bases for Approval, Conditional 
Approval, or Denial,'' provides that the Membership Department will 
approve, grant conditional approval, or deny a membership application 
filed under Nasdaq Rules 1013 and 1017 by an Applicant that is not, and 
is not required to become, a FINRA member. Nasdaq Rule 1014(b)(1) 
indicates that the Membership Department may deny or condition 
membership approval for the same reasons that the Commission may deny 
or revoke a broker or dealer's registration; this Nasdaq Rule parallels 
existing General 3, Section 2(b), which describes the Exchange's 
authority to deny an application for the same reasons that the SEC may 
deny or revoke a broker-dealer registration and for those reasons 
required or allowed under the Act.
    Nasdaq Rule 1014(b)(2) enumerates the reasons for denial or 
conditional approval of a membership application in the cases when the 
Applicant (A) is unable to satisfactorily demonstrate its capacity to 
adhere to the Exchange and Commission rules; (B) has previously 
violated, and there is a reasonable likelihood that such Applicant will 
again engage in violative acts or practices, of any Exchange or 
Commission policies, rules, and regulations; (C) has engaged in acts or 
practices inconsistent with just and equitable principles of trade, and 
there is a reasonable likelihood that such Applicant will again engage 
in violative acts or practices, of any Exchange or Commission policies, 
rules, and regulations; (D) is not in compliance with the Commission's 
net capital rule or has financial difficulties greater than 5% of their 
net worth; (E) has been itself, or is the successor to an entity 
subject to a bankruptcy, proceeding, receivership, or arrangement for 
the benefit of creditors within the past 3 years; (F) has engaged in an 
established pattern of failure to pay just debts; (G) does not hold 
required licenses or registrations; or (H) is unable to satisfactorily 
demonstrate reasonably adequate systems capacity and capability.
    The Exchange notes that the basis for denial listed under its 
General 3, Section 2(c)(1), regarding an Applicant who has a negative 
net worth, has financial difficulties involving an amount that is more 
than five percent (5%) of the applicant's net worth, or has a pattern 
of failure to pay just debts (whether or not such debts have been the 
subject of a bankruptcy action), is parallel to Nasdaq Rule 
1014(b)(2)(D). Similarly, the Exchange's basis for denial under General 
3, Section 2(c)(2), regarding an Applicant unable satisfactorily to 
demonstrate a capacity to adhere to all applicable Exchange, SEC, the 
Clearing Corporation and Federal Reserve Board policies, rules and 
regulations, including those concerning record-keeping, reporting, 
finance and trading procedures, is parallel to Nasdaq Rule 
1014(b)(2)(A). Finally, the provision under General 3, Section 2(c)(3), 
regarding an Applicant unable satisfactorily to demonstrate reasonably 
adequate systems capability and capacity, is parallel to Nasdaq Rule 
1014(b)(2)(H).
    Furthermore, the Exchange believes that the provisions under Nasdaq 
Rule 1014(b)(2)(A), (B), and (C), which describe the basis for a 
decision regarding the Applicant's inability to satisfy the Exchange 
and securities rules, previous violative conduct, and past or potential 
conduct inconsistent with just and equitable principles of trade, 
provide the Exchange with greater authority than the one described 
under General 3, Section 2(d), which provides that when an Applicant is 
a subject of an investigation conducted by any SRO or government agency 
involving its fitness for becoming a Member, the Exchange need not act 
on the application until the matter has been resolved.
    The Exchange notes that current General 3, Section 2(e) and (f), 
which refer to the basis for membership denial as it relates to 
statutory disqualification, are substantially similar to Nasdaq Rule 
1002(b)(1) and (2), which describe an Applicant's ineligibility of 
certain persons for membership or association due to statutory 
disqualification. As stated above, the Exchange proposes to incorporate 
Nasdaq Rule 1002 in its entirety.
    Nasdaq Rule 1014(b)(3) provides that the Membership Department will 
not approve an Applicant unless the Applicant is a member of another 
registered securities exchange or association that is not registered 
solely under Section 6(g) or Section 15A(k) of the Act. This rule also 
provides that an Applicant that will transact business with the public 
must be a member of FINRA. This requirement exists in the Exchange's 
rulebook in Options 10, Section 1 (``Exchange Approval''); however, to 
maintain harmonization of the rules, the Exchange proposes to 
incorporate by reference this same parallel rule. There are no proposed 
changes to rule text found in Exchange Options 10, Section 1 at this 
time.
    The Exchange proposes to incorporate by reference Nasdaq Rule 
1014(c) to establish the time and content of a decision and the 
recourse available to an Applicant if the Membership Department fails 
to timely issue a decision on a membership application. Current 
Exchange General 3, Section 5(d), broadly prescribes that the Exchange 
will consider approval of the membership application, ``unless there is 
just cause for delay.'' Nasdaq Rule 1014(c) outlines this process in 
greater detail. The Nasdaq rule requires the Membership Department to 
serve a decision on the membership application within 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. Additionally, the rule 
allows the Membership Department and the Applicant the ability to agree 
to further extensions of the decision deadlines. Nasdaq Rule 1014(c) 
also provides that the decision will detail the reason(s) for the 
denial of membership

[[Page 5292]]

or the approval of the application subject to restrictions. This 
provision is similar to General 3, Section 5(e), which currently 
establishes that the Exchange will inform the Applicant of the grounds 
for disapproval of a membership application. Moreover, if the 
Membership Department fails to timely issue a decision, the rule 
prescribes that the Applicant may request the Exchange Board to direct 
the Membership Department to issue a decision. The rule further 
provides that the Exchange Board, within seven days, will direct the 
Membership Department to serve its decision or to show good cause for a 
time extension. If the Membership Department shows good cause, the 
Exchange Board may grant the Membership Department up to 45 days to 
issue the decision.
    Nasdaq Rule 1014(e) prescribes that service of the Membership 
Department's decision shall be made pursuant to Nasdaq Rule 1012. 
Further, the rule provides that the decision shall become effective 
upon service and shall remain in effect during the pendency of any 
review until a decision constituting final action of the Exchange is 
issued under Rule 1015 or 1016, unless otherwise directed by the 
Exchange Review Council, the Exchange Board, or the Commission. Current 
Exchange General 3, Section 5(e) prescribes that a notice of the 
Exchange's decision shall be provided to the Applicant but does not 
specify the manner of such notification. In addition, Exchange General 
3, Section 5(h) indicates that once an Applicant's membership becomes 
effective, the Exchange will promptly notify the Applicant of such 
decision. The Exchange believes that incorporating this rule by 
reference clarifies the process for serving the Membership Department's 
decision on applications.
    Nasdaq Rules 1014(f) and (g), respectively, provide for the 
effectiveness of restrictions on an approved application and what 
constitutes final action in the Membership Department's decision. Rule 
1014(f) establishes that a restriction imposed under Rule 1014 shall 
remain in effect and bind the Applicant and all successors to the 
ownership or control of the Applicant unless (1) it is removed or 
modified by a decision constituting final action of the Exchange issued 
under Nasdaq Rules 1015, 1016, or 1017; or (2) stayed by the Exchange 
Review Council, the Exchange Board, or the Commission. Rule 1014(g) 
provides that unless the Applicant files a written request for a review 
under Rule 1015, the Membership Department's decision shall constitute 
final action by Nasdaq.
Rule 1015
    The Exchange proposes to incorporate by reference Nasdaq Rule 1015 
in its entirety under its General 3 title. Nasdaq Rule 1015, 
subsections (a) through (j) are substantially similar to the current 
provisions concerning a review by the Exchange Review Council detailed 
in Exchange General 3, Section 2(g).\15\
---------------------------------------------------------------------------

    \15\ The Exchange notes that, recently, Nasdaq adopted Rule 
1015(f)(5) which provides for the Exchange Review Council to conduct 
its hearings via video conferencing. See Securities Exchange Act 
Release No. 34-90390 (November 10, 2020), 85 FR 73302 (November 17, 
2020) (SR-NASDAQ-2020-076). The Exchange has adopted an identical 
provision under General 3, Section 2(g)(6)(E). See Securities 
Exchange Act Release No. 34-90756 (December 21, 2020), 85 FR 85817 
(December 29, 2020) (SR-ISE-2020-42).
---------------------------------------------------------------------------

    Current Exchange General 3, Section 2(g) (formerly Exchange Rule 
302(g)) was amended in 2018 \16\ to base the Exchange's procedures on 
those set forth in Nasdaq and BX Rules 1015 and 1016 (which were 
identical to Nasdaq's and now incorporate by reference the Nasdaq 
Membership rules \17\). The Exchange believes that incorporating by 
reference Nasdaq Rule 1015 it will further the Exchange's objective to 
provide uniformity and clarity to its rules by aligning them with the 
membership rules of the Nasdaq and BX exchanges.
---------------------------------------------------------------------------

    \16\ See Securities Exchange Act Release No. 34-83703 (July 25, 
2018), 83 FR 36992 (July 31, 2018) (SR-ISE-2018-59).
    \17\ See supra note 4.
---------------------------------------------------------------------------

    The Exchange proposes also to incorporate by reference Nasdaq Rule 
1015(k) and (l) (respectively, ``Ex Parte Communications'' and 
``Recusal or Disqualification''). Both paragraphs (k) and (l) were, 
respectively, previously located under Nasdaq Rule 1012(c) and (d) but 
were moved to their current location in the Nasdaq rulebook as the two 
provisions logically fit within the section of the membership rules 
that govern appeals of membership decisions.\18\ Nasdaq Rule 1015(k) 
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. Nasdaq Rule 1015(l) 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 has no parallel 
provisions in its rulebook to Nasdaq Rule 1015(k) and (l). The Exchange 
believes that incorporating Rule 1015(k) and (l) by reference enhances 
the Exchange Review Council's procedures and is in line with the 
Exchange's goal of harmonizing its rules with those of the Nasdaq and 
BX exchanges.
---------------------------------------------------------------------------

    \18\ See supra note 14.
---------------------------------------------------------------------------

Rule 1016
    Aside from their respective internal cross-references, the text in 
Nasdaq Rule 1016 and Exchange General 3, Section 2(h) (both entitled 
``Discretionary Review by the Exchange Board'') are identical. The 
Exchange proposes to incorporate by reference Nasdaq Rule 1016 under 
its General 3 title. The Exchange believes that incorporating by 
reference this rule will further the Exchange's objective to provide 
uniformity and clarity to its rules by aligning them with the 
membership rules of the Nasdaq and BX exchanges.
Rule 1017
    Nasdaq Rule 1017, ``Application for Approval of Change in 
Ownership, Control, or Material Business Operations,'' has no analogue 
rule in the Exchange's current General 3 title. Incorporating Nasdaq 
Rule 1017 by reference in its entirety in the Exchange's rules will 
enhance the Exchange's ongoing regulatory oversight capabilities by 
clearly identifying events that would trigger the requirement for an 
approved Member to file an application with the Exchange. As stated 
below, Nasdaq Rule 1017 outlines in detail the circumstances that 
trigger the filing of an application pursuant to this rule. While the 
Exchange has no corresponding rule, it does have a similar process in 
place that it administers procedurally. For example, if an existing 
Electronic Access Member of the Exchange is seeking market maker status 
for the first time, the current Exchange process is to require that the 
Member submit an amended Exchange application along with relevant 
supplementary material. The Exchange believes that incorporating Nasdaq 
Rule 1017 by reference and harmonizing its process with that of Nasdaq 
and BX will improve its current practice by further streamlining its 
current practices. As stated previously, the objective is to eventually 
harmonize membership rules across all Affiliated Exchanges in order to 
advance uniformity within the membership rules and procedures.
    Nasdaq Rule 1017(a) prescribes the events that require Members to 
file applications with the Exchange. Paragraph (a) provides that a 
Member shall file an application for approval prior to effecting the 
following changes: (1) A merger of the Member with another Member; (2) 
a direct or indirect

[[Page 5293]]

acquisition by the Member of another Member; (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; (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% or more of the equity or partnership capital; or (5) a material 
change in business operations, which consist of (A) removing or 
modifying a membership restriction; (B) acting as a dealer or a market 
maker for the first time; (C) adding business activities that require a 
higher minimum net capital under SEC Rule 15c3-1; or (D) adding 
business activities that would cause a proprietary trading firm no 
longer to meet the definition of that term contained in the Rule 1000 
Series.
    Nasdaq Rule 1017(b), governs the filing and content of applications 
filed under Nasdaq Rule 1017. This Rule provides that the application 
should be filed with the Membership Department; if the Applicant seeks 
approval of change of ownership or control or a material change in the 
Member's business operations, the application should (A) provide a 
detailed description of the proposed change, (B) provide a business 
plan, pro forma financials, an organizational chart, and written 
supervisory procedures reflecting the proposed change; and (C) if the 
application requests approval of a change in ownership or control, the 
application also shall include the names of the new owners, their 
percentage of ownership, and the sources of their funding for the 
purchase and recapitalization of the member.
    Furthermore, Nasdaq Rule 1017(b) provides that if the application 
requests the removal or modification of a membership restriction, the 
application also shall, (A) present facts showing that the 
circumstances that gave rise to the restriction have changed; and (B) 
state with specificity why the restriction should be modified or 
removed in light of the applicable bases for denial or standards for 
approval set forth in Nasdaq Rules 1014 or 1017 and the articulated 
rationale for the imposition of the restriction. Moreover, the Rule 
indicates that if the application requests approval of an increase in 
Associated Persons involved in sales, offices, or markets made, the 
application shall set forth the increases in such areas during the 
preceding 12 months.
    Nasdaq Rule 1017(c) indicates when an application shall or may be 
filed. Specifically, the Rule provides that (1) an application for 
approval of a change in ownership or control shall be filed at least 30 
days prior to such change; (2) that an application to remove or modify 
a membership restriction may be filed at any time (clarifying that an 
existing restriction shall remain in effect during the pendency of the 
proceeding); and that (3) an application for approval of a material 
change in business operations, other than the modification or removal 
of a restriction, may be filed at any time, but the Member may not 
effect such change until the conclusion of the proceeding, unless the 
Membership Department and the Member otherwise agree.
    Nasdaq Rule 1017(d) prescribes that an application will be deemed 
to be filed on the date when it is substantially complete, meaning the 
date on which the Membership Department receives from the Applicant all 
material documentation and information required under this Rule, and 
that the Membership Department will notify the Applicant in writing 
when the Membership Department deems the Applicant's application to be 
substantially complete.
    Nasdaq Rule 1017(e) indicates that, pursuant to Nasdaq Rule 
1013(a)(3), the Membership Department may treat an application filed 
under this Rule as having lapsed or it may reject such an application, 
except that the Membership Department may treat an application as 
having lapsed if it is not substantially complete for 30 days or more 
after the Applicant initiates it.
    Nasdaq Rule 1017(f) provides that the Membership Department, at any 
time before it serves its decision, may request additional information 
or documentation from the Applicant or from a third party in accordance 
with Nasdaq Rule 1013(a)(4).
    Nasdaq Rule 1017(g) establishes that a Membership Department's 
decision shall be issued in accordance with Nasdaq Rule 1014, except 
that (1) In rendering a decision on an application submitted under the 
Rule that requests the modification or removal of a membership 
restriction, the Membership Department shall consider whether 
maintenance of the restriction is appropriate in light of: (A) The 
applicable bases for denial or standards for approval set forth in 
Nasdaq Rule 1014; (B) the circumstances that gave rise to the 
imposition of the restriction; (C) the Applicant's operations since the 
restriction was imposed; (D) any change in ownership or control or 
supervisors and principals; and (E) any new evidence submitted in 
connection with the application. Furthermore, this Rule provides that 
the Membership Department shall serve a written decision on an 
application filed under this Rule in accordance with Nasdaq Rule 
1013(c). Moreover, the Rule provides that in the event that a proposed 
change in ownership, control, or business operations by a Member 
requires such Member to become a member of FINRA, the Membership 
Department shall not be required to serve a written decision under this 
Rule until 10 business days after the Member becomes a FINRA member.
    Nasdaq Rule 1017(h) provides that service of the decision on the 
Applicant in accordance with Nasdaq Rule 1012. Moreover, the Rule 
indicates that the decision shall become effective upon service and 
shall remain in effect during the pendency of any review until a 
decision constituting final action of the Exchange is issued under 
Rules 1015 or 1016, unless otherwise directed by the Exchange Review 
Council, the Exchange Board, or the Commission.
    Nasdaq Rule 1017(i) indicates that an Applicant may file a written 
request for review of the Membership Department's decision with the 
Exchange Review Council pursuant to Nasdaq Rule 1015, the rule further 
clarifies that the procedures set forth in Nasdaq Rule 1015 shall apply 
to such review, and the Exchange Review Council's decision shall be 
subject to discretionary review by the Exchange Board pursuant to 
Nasdaq Rule 1016. If the Applicant does not file a request for a 
review, the Membership Department's decision shall constitute final 
action by Nasdaq.
    Nasdaq Rule 1017(j) prescribes that the Membership Department shall 
modify or remove a restriction on its own initiative if the Membership 
Department determines such action is appropriate in light of the 
considerations set forth in paragraph (g)(1) of the Rule. The 
Membership Department shall notify the member in writing of the 
Membership Department's determination and inform the member that it may 
apply for further modification or removal of a restriction by filing an 
application under paragraph Rule 1017(a).
Rule 1018
    Nasdaq Rule 1018, ``Resignation, Reinstatement, Termination, and 
Transfer of Membership,'' has no analogue rule in the Exchange's 
current General 3 title. The Exchange proposes to incorporate the rule 
by reference under its General 3 title. Nasdaq Rule 1018 outlines the 
process for resignation, reinstatement, termination,

[[Page 5294]]

and transfers of memberships. Incorporating Nasdaq Rule 1018 by 
reference will eventually allow the Exchange to standardize the 
processing of these requests across all the Affiliated Exchanges.
    Nasdaq Rule 1018(a) provides that membership in Nasdaq may be 
voluntarily terminated only by formal resignation. Resignations of 
Members must be filed via electronic process or such other process as 
the Exchange may prescribe. Any Member may resign from Nasdaq at any 
time. Such resignation shall not take effect until all indebtedness due 
to Nasdaq from such Member shall have been paid in full and so long as 
any complaint or action is pending against the Member under the Rules. 
Nasdaq, however, may in its discretion declare a resignation effective 
at any time.
    Nasdaq Rule 1018(b) indicates that no Member may transfer its 
membership or any right arising therefrom; the membership of a 
corporation, partnership, or any other business organization that is a 
Member shall terminate upon its liquidation, dissolution, or winding 
up; and the membership of a sole proprietorship that is a Member shall 
terminate at death, provided that all obligations of membership under 
the Rules have been fulfilled. Moreover, the Rule provides that the 
consolidation, reorganization, merger, change of name, or similar 
change in any corporate Member shall not terminate the membership of 
such corporate Member, provided that the Exchange Member or surviving 
corporation, if any, shall be deemed a successor to the business of the 
corporate Member, and the Member or the surviving organization shall 
continue in the securities business, and shall possess the 
qualifications for membership in the Exchange. Furthermore, the death, 
change of name, withdrawal of any partner, the addition of any new 
partner, reorganization, consolidation, or any change in the legal 
structure of a partnership Member shall not terminate the membership of 
such partnership Member, provided that the Member or surviving 
organization, if any, shall be deemed a successor to the business of 
the partnership Member, and the Member or surviving organization shall 
possess the qualifications for membership in the Exchange. If the 
business of any predecessor Member is to be carried on by an 
organization deemed to be a successor organization by the Exchange, the 
membership of such predecessor Member shall be extended to the 
successor organization subject to the notice and application 
requirements of the Rules and the right of the Exchange to place 
restrictions on the successor organization pursuant to the Rules; 
otherwise, any surviving organization shall be required to satisfy all 
of the membership application requirements of the Exchange's Rules.
    Nasdaq Rule 1018(c) establishes that any membership or registration 
suspended or canceled under the Rules may be reinstated by the Exchange 
upon such terms and conditions as are permitted under the Act and the 
Exchange rules; provided, however, that any applicant for reinstatement 
of membership or registration shall possess the qualifications required 
for membership or registration in the Exchange.
Rule 1019
    Nasdaq Rule 1019 (``Application to Commission for Review'') has no 
analogue rule in the Exchange's current General 3 title. Nasdaq Rule 
1019 allows Applicants to request the Commission to review an Exchange 
final action, as provided under the Nasdaq Rule 1010 Series. 
Incorporating Nasdaq Rule 1019 by reference standardizes the process by 
which an Applicant may dispute any final action of the Exchange.
    Nasdaq Rule 1019 provides that a person aggrieved by a Nasdaq's 
final action under Nasdaq Membership Rules may apply for review by the 
Commission pursuant to Section 19(d)(2) of the Act. The filing of an 
application for review shall not stay the effectiveness of a decision 
constituting final action of the Exchange, unless the Commission 
otherwise orders.
Revised Membership Application
    As part of the harmonization of its membership rules and procedures 
with those of Nasdaq and BX, the Exchange is adopting a standardized 
Broker-Dealer Membership Application (``Membership Application''). The 
Membership Application is submitted as Exhibit 3A of this proposed rule 
change with underlined changes concerning the ISE market. Each Exchange 
Membership Application will be accompanied by a ``Membership 
Agreement'' (submitted as Exhibit 3B of the attached), which should be 
signed by all applicants to membership with the Exchange.
Conclusion
    The changes proposed herein will allow the Exchange to harmonize 
its membership rules and processes with those of Nasdaq and BX, and 
ultimately, with the other Affiliated Exchanges, which will eventually 
provide a uniform criteria across the Affiliated Exchanges for 
membership qualifications and a consistent process across the 
Affiliated Exchanges for processing membership applications. The 
proposal will also provide for full membership reciprocity between 
Nasdaq, BX, and the Exchange--and hopefully, in time, across all of the 
Affiliated Exchanges--so that a member of one Affiliated Exchange would 
receive expedited treatment in applying for membership on any other 
Affiliated Exchange. Similarly, harmonized membership rules and 
processes will benefit Exchange Applicants and Members by establishing 
consistent membership requirements and processes that must be followed 
to apply for membership on the Exchange.
    Moreover, as to the Exchange itself, the proposed changes described 
herein will render the Exchange's membership rules and processes 
clearer, better organized, simpler, and easier to comply with. Again, 
such changes will provide benefits both to the Exchange's Membership 
Department and to Exchange Applicants.
    The proposed membership rules and processes are substantially 
similar to the existing rules and process, and where there are 
differences between the new and old processes, the Exchange believes 
that the new process does not disadvantage its Members or Associated 
Persons. To the contrary, the Exchange believes that the new rules and 
processes will benefit all parties as it again provides greater 
clarity, simplicity, and efficiency than the retired rules and 
processes.
Implementation
    To facilitate an orderly transition from the existing rules under 
the General 3 title and the Nasdaq Membership Rules to be incorporated 
by reference, 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 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

[[Page 5295]]

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.
    The Exchange notes that Nasdaq applied the same process described 
above to govern its transition to its amended membership rules.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\19\ in general, and furthers the objectives of Section 
6(b)(5) and of the Act,\20\ 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.\21\
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
    \21\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

    As a general matter, the Exchange believes that its proposal to 
delete its existing membership rules, incorporate by reference the 
Nasdaq Membership Rules, and other related changes will promote a free 
and open market, and will benefit investors, the public, and the 
markets, because the new rules will be clearer, better organized, and 
simpler.
    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 as shown in Nasdaq 
Rule 1014(a) that sets forth the basic authority of the Membership 
Department to approve, approve with conditions, or deny applications 
for membership before the Rule goes on to enumerate criteria for the 
Membership Department to apply when taking each of those actions;
     Making the titles of the rules more accurate and 
descriptive (e.g., Nasdaq Rule 1014(b));
     Grouping logically-related provisions together in the 
rules (e.g., provisions governing resignation, termination, transfer, 
and reinstatement of membership) and recusals and disqualifications;
     Clarifying when the Membership Department will deem an 
application to be filed (when the application is ``substantially 
complete,'' as set forth in Nasdaq Rule 1013(a)(2)) and by requiring 
the Membership 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 
Nasdaq Rule 1013(b)); and
    The proposal will also make compliance with the membership rules 
simpler and less burdensome for Applicants and Members by, for example, 
doing the following:
     Eliminating obsolete requirements to submit paper copies 
of Forms U-4 and BD or explain information listed on the forms where 
the Membership Department already has electronic access to the Forms 
and the information contained therein;
     Permitting electronic filing of applications (Nasdaq Rule 
1012(a)(1);
     Allowing payment of application fees by means other than 
paper check (Nasdaq Rule 1013(a)(1)(C));
     Harmonizing disparate procedures under Nasdaq Rules 1013 
and 1017 for filing, evaluating, and responding to initial membership 
applications and applications for approval of business changes;
     Detailing the circumstances in which an Applicant may 
waive-into Exchange membership to include the Applicant's membership in 
any of the affiliated exchanges and defining procedures for processing 
and responding to waive-in applications (Nasdaq Rule 1013(b));
    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 
Membership Department decisions under these Rules or to request Board 
action to compel the Membership 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 \22\ 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. Lastly, the proposed 
transition process is the same process that Nasdaq and BX implemented 
during its transition to new membership rules.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

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, the Exchange's membership process 
will be less burdensome for Applicants and Members and the Exchange 
will

[[Page 5296]]

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 \23\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\24\
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \24\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to 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.
---------------------------------------------------------------------------

    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-ISE-2020-43 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-ISE-2020-43. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-ISE-2020-43 and should be submitted on 
or before February 9, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
---------------------------------------------------------------------------

    \25\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-00948 Filed 1-15-21; 8:45 am]
BILLING CODE 8011-01-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.