[Federal Register Volume 76, Number 149 (Wednesday, August 3, 2011)]
[Notices]
[Pages 46863-46865]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-19646]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64987; File No. SR-NYSEAMEX-2011-54]


Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing of 
Proposed Rule Change Amending the Definition of Approved Person To 
Exclude Foreign Affiliates, Creating a New Definition of ``Foreign 
Securities Affiliate,'' Eliminating the Application Process for 
Approved Persons, and Making Related Technical and Conforming Changes

July 29, 2011.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on July 15, 2011, NYSE Amex LLC (the ``Exchange'' or ``NYSE 
Amex'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been substantially prepared by the 
self-regulatory organization. The Commission is publishing this notice 
to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the definition of approved person to 
exclude foreign affiliates, create a new definition of ``foreign 
securities affiliate,'' eliminate the application process for approved 
persons, and make related technical and conforming changes. The text of 
the proposed rule change is available at the Exchange, the Commission's 
Public Reference Room, and http://www.nyse.com.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the definition of approved person to 
exclude foreign affiliates, create a new definition of ``foreign 
securities affiliate,'' eliminate the application process for approved 
persons, and make related technical and conforming changes. Following 
approval of the proposed rule change, the Exchange will advise member 
organizations of the implementation date of the rule change via 
Information Memo.
Background
    The current rules governing the definition of and application 
process for an approved person are NYSE Amex Equities Rules 2 and 
304.\4\ If the definition requirements under NYSE Amex Equities Rule 2 
are met, then the person or entity has to apply to the Exchange for 
approval to register as an approved person. This requirement is 
intended to bring certain affiliates of Exchange member organizations 
within the Exchange's jurisdiction and to subject such affiliates' 
activities to Exchange rules to the extent their activities are related 
to the activities of the member organization.
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    \4\ NYSE has filed a companion rule filing to conform its 
Equities Rules to the changes proposed in this filing. See SR-NYSE-
2011-36.
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    NYSE Amex Equities Rule 2(c) defines the term ``approved person'' 
as ``a person, other than a member, principal executive or employee of 
a member organization, who controls a member organization or is engaged 
in a securities or kindred business that is controlled by or under 
common control with a member or member organization who has been 
approved by the Exchange as an approved person.'' NYSE Amex Equities 
Rule 2(d) further defines ``person'' to include not only natural 
persons, but also corporations, limited liability companies, 
partnerships, associations and other organized groups of persons. NYSE 
Amex Equities Rule 2(e) defines the term ``control'' to mean the power 
to direct or cause the direction of management or policies, whether 
through ownership of securities, by contract or otherwise, and creates 
a rebuttable presumption of control if the person has a right to vote 
25 percent or more of the voting securities, is entitled to receive 25 
percent or more of the net profits, or is a director, general partner, 
or principal executive of the member organization. NYSE Amex Equities 
Rule 2(f) defines ``engage in a securities or kindred business'' to 
mean transacting business as a broker or dealer in securities. Thus, 
the current definition of approved person includes a foreign affiliate 
of a member organization that is engaged in a broker-dealer business, 
but does not include, for example, a registered investment company. 
NYSE Amex Equities Rules 2A(e) and (f) further provide that the 
Exchange has jurisdiction after notice and a hearing to discipline 
approved persons in connection with the member organization's business 
and has jurisdiction over any and all other functions of approved 
persons in connection with the member organization's business in order 
for the Exchange to comply with its statutory obligation as a self-
regulatory organization (``SRO'').
    NYSE Amex Equities Rules 304 and 311(a) require, with limited 
exceptions, that persons who meet the NYSE Amex Equities Rule 2(c) 
definition of an approved person must apply for approval by the 
Exchange as an approved person. NYSE Amex Equities Rule 304 further 
provides that no person may become or remain an approved

[[Page 46864]]

person unless such person meets the standards prescribed in the 
Exchange's rules, and it prescribes the process that an applicant must 
follow to become an approved person. Among other things, this process 
involves submission to the Exchange of a completed Form AP-1 (in the 
case of a corporation or other legal entity) or Forms AD-G2 and AD-G3 
(in the case of a natural person, collectively referred to as ``AD-
G''), and other pertinent information regarding the candidate for 
approval. By executing the Form AP-1 or AD-G, as applicable, the 
approved person affirmatively consents to the Exchange's jurisdiction.
Proposed Rule Change
    The Exchange proposes to amend the definition of approved person to 
exclude certain foreign affiliates because the Exchange believes that 
the current definition is overbroad and it is unnecessary to assert 
jurisdiction over a foreign affiliate of a member organization that 
does not control a member organization. The Exchange notes that 
excluding such foreign affiliates from its jurisdiction would be 
consistent with Rule 19g2-1 under the Securities Exchange Act of 1934, 
as amended (the ``Act''), which provides that an exchange is not 
required to enforce compliance with its rules against certain persons; 
\5\ the Exchange has not identified a rule of any other SRO that 
asserts jurisdiction over a foreign affiliate under common control with 
a member of that SRO. As such, the Exchange proposes to amend the 
definition of approved person so that it would include any person, 
other than a member, principal executive or employee of a member 
organization, who controls a member organization, is engaged in a 
securities or kindred business that is controlled by a member or member 
organization, or is a U.S. registered broker-dealer under common 
control with a member organization.
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    \5\ See 17 CFR 240.19g2-1. Under Rule 19g2-1, a national 
securities exchange is not required to enforce compliance, within 
the meaning of Section 19(g) of the Act, with the Act and the rules 
and regulations thereunder, with respect to persons associated with 
a member, other than securities persons or persons who control a 
member. Under Rule 19g2-1(b)(1), a ``securities person'' is defined 
as a ``person who is a general partner or officer (or person 
occupying a similar status or performing similar functions) or 
employee of a member; provided, however, that a registered broker or 
dealer which controls, is controlled by, or is under common control 
with, the member and the general partners and officers (and persons 
occupying similar status or performing similar functions) and 
employees of such a registered broker or dealer shall be securities 
persons if they effect, directly or indirectly, transactions in 
securities through the member by use of facilities maintained or 
supervised by such exchange or association.'' A foreign broker-
dealer not registered in the United States that is under common 
control with an NYSE Amex member organization and that is not a 
general partner or officer (or person occupying similar status or 
performing similar functions) or employee of a member, falls outside 
of the definition of ``securities person.''
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    By changing the definition of approved person to exclude certain 
foreign affiliates, the Exchange does not intend to eliminate controls 
in Exchange rules related to potential conflicts of interest associated 
with having a foreign affiliate under common control with a member 
organization. Accordingly, the Exchange proposes to add a new defined 
term to NYSE Amex Equities Rule 2, ``foreign securities affiliate,'' 
which includes foreign persons not registered as a broker dealer in the 
United States that are in a securities or kindred business and that are 
under common control with a member organization. The Exchange proposes 
to insert the term ``foreign securities affiliate'' in NYSE Amex 
Equities Rules 22, 91, 92, 96, 98A, 112, 304, 402, 410A, 422, and 460, 
so that the coverage of such rules remains the same following the 
proposed rule change. For example, NYSE Amex Equities Rule 22 seeks to 
eliminate conflicts of interests relating to personal interests. By 
including the proposed new definition of ``foreign securities 
affiliates,'' the scope of the rule remains unchanged, notwithstanding 
the proposed new definition of ``approved persons'' to exclude foreign 
affiliates under common control with a member organization.
    The Exchange also proposes to amend its rules to remove the 
requirement that the Exchange affirmatively approve each application to 
become an approved person. If a person meets the definition of an 
approved person, as proposed, the Exchange will obtain jurisdiction by 
consent as described below. The Exchange believes that the current 
application process requires the submission of a substantial amount of 
information and documents related to member organization affiliates 
that is unnecessary to carry out the Exchange's regulatory 
responsibilities. In particular, because the Exchange is no longer the 
Designated Examining Authority (``DEA'') for Exchange member 
organizations,\6\ the Exchange does not believe that it needs to engage 
in a detailed financial review of approved persons of its member 
organization applicants. The Exchange further notes that other SROs do 
not require that such persons undergo such an application and approval 
process.\7\ The Exchange, therefore, proposes to remove all references 
to an approval process and the submission of an application for such 
approval from NYSE Amex Equities Rules 2, 304, 308, and 311. The 
Exchange also would eliminate use of the Forms AP-1 and AD-G.
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    \6\ Prospective member organization applicants must be either a 
member of FINRA or, if the applicant does not transact business with 
public customers or conduct business on the Floor of the Exchange, a 
member of another registered securities exchange, before being 
approved as an Exchange member organization. See NYSE Amex Equities 
Rule 2(b)(i). Generally, FINRA or the other exchange already is, or 
will be, designated as the DEA under SEC Rule 17d-1 and the Exchange 
will not be designated as such. Currently, the Exchange is not the 
DEA for any of its member organizations, but if it were designated 
as the DEA, the Exchange has retained FINRA to perform services 
related to meeting the Exchange's DEA responsibilities for a member 
organization.
    \7\ For example, the rules of FINRA and The NASDAQ Stock Market, 
Inc. do not impose application and approval requirements on member 
affiliates. See also note 9, infra.
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    Nevertheless, the Exchange's jurisdiction over approved persons in 
accordance with the revised definition would remain. Thus, the Exchange 
proposes to amend NYSE Amex Equities Rule 304 to provide specifically 
that a member organization would be required to identify all of its 
foreign securities affiliates and approved persons to the Exchange and 
each such approved person would be required to consent to the 
Exchange's jurisdiction, which is consistent with the obligations 
currently imposed on approved persons. The provisions of the current 
NYSE Amex Equities Rule 304(e)(2)-(4) that require an approved person 
to agree to (i) Inform the Exchange of any statutory disqualification 
of the approved person under Section 3(a)(39) of the Act, (ii) abide by 
the Rules of the Exchange relating to approved persons, and (iii) 
permit examination by the Exchange, or any person designated by it, of 
its books and records to verify the accuracy of the information 
required to be supplied under Exchange Rules, would be retained in 
proposed Amex Equities Rule 304.\8\
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    \8\ The Exchange proposes to eliminate the text in current NYSE 
Amex Equities Rule 304(e)(1), which requires an approved person to 
supply information concerning its relationship with the member 
organization. This provision relates to information required to be 
submitted on Form AP-1 or AD-G, and as such it is not necessary to 
retain it in proposed NYSE Amex Equities Rule 304.
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    The focus on identification of affiliates and approved persons by 
each member organization and consent to jurisdiction by each approved 
person, instead of review and approval of applications by the Exchange, 
would make the entire process more efficient while maintaining 
appropriate regulatory standards. The proposed rule change would remove 
unnecessary paperwork in the process while holding each member 
organization accountable

[[Page 46865]]

for identifying to the Exchange its affiliates and approved persons. 
The remaining jurisdictional requirements for approved persons would 
enable the Exchange to continue to pursue matters involving or 
affecting its member organizations.\9\
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    \9\ The Exchange notes that FINRA is in the process of 
harmonizing legacy NASD and NYSE Amex Equities Rules, and has 
published a proposal to harmonize membership rules. See FINRA 
Regulatory Notice 10-01. While FINRA has proposed that a member firm 
be required to provide certain information about affiliates, FINRA 
has not proposed to adopt the approved person definition or 
application process, or assert jurisdiction over such persons. When 
FINRA completes that harmonization process for the membership rules, 
the Exchange will consider whether further amendments to its 
approved person rules are advisable. Until such time, the Exchange 
believes that the narrowing of the approved person definition and 
the elimination of the approved person application process will 
remove unnecessary complexities and excessive informational 
requirements and thereby reduce burdens on membership applicants and 
member organizations while still maintaining high regulatory 
standards consistent with the Act.
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    The Exchange also proposes to make technical and conforming changes 
to other rules that reference the approved person application 
process.\10\ The Exchange further proposes to make technical amendments 
to correct an error in the spelling of ``principal executive,'' which 
is spelled ``principle executive'' in NYSE Amex Rule 476A and NYSE Amex 
Equities Rules 308, 410A, 422, and 460; the Exchange replaced the term 
``allied member'' with the term ``principal executive'' in an earlier 
rule filing at which time some of the NYSE Amex Rules contained the 
improper spelling.\11\ In addition, the Exchange proposes to delete 
``principle executive'' from NYSE Amex Equities Rules 304 and 304A for 
consistency with similar amendments to NYSE Rules 304 and 304A.\12\
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    \10\ Specifically, the Exchange proposes to clarify NYSE Amex 
Equities Rule 98A, which provides that no issuer, or partner or 
subsidiary thereof, may become an approved person of a Designated 
Market Maker unit that is registered in the stock of that issuer. 
Because an entity is an approved person by virtue of status, as 
described above, the Exchange proposes to clarify the meaning of the 
Rule by amending it to provide that a DMM unit may not be registered 
in a stock of an issuer, or a partner or subsidiary thereof, if such 
entity is an approved person of the DMM unit's member organization. 
Finally, the Exchange proposes to amend NYSE Amex Rule 476A, which 
addresses minor rule violations, to correct a citation to NYSE Amex 
Equities Rule 304.
    \11\ See Securities Exchange Act Release No. 58549 (September 
15, 2008), 73 FR 54444 (September 19, 2008) (SR-NYSE-2008-80).
    \12\ See SR-NYSE-2011-36.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \13\ of 
the Act, in general, and furthers the objectives of Section 6(b)(5) 
\14\ in particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest. More specifically, the Exchange believes that the 
proposed approved person definition and consent to jurisdiction process 
would remove unnecessary complexities and excessive informational 
requirements and create a more efficient and less burdensome process 
for membership applicants and member organizations while maintaining 
appropriate regulatory standards. As such, the proposed rule change 
would contribute to removing impediments to and perfecting the 
mechanism of a free and open market and a national market system.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) As the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-NYSEAMEX-2011-54 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEAMEX-2011-54. This 
file number should be included on the subject line if e-mail 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 Web site (http://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 Web site 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street, NE., Washington, DC 20549-1090. Copies of the filing will also 
be available for inspection and copying at the NYSE's principal office 
and on its Internet Web site at http://www.nyse.com. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEAMEX-2011-54 and should 
be submitted on or before August 24, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-19646 Filed 8-2-11; 8:45 am]
BILLING CODE 8011-01-P