[Federal Register Volume 76, Number 149 (Wednesday, August 3, 2011)]
[Notices]
[Pages 46860-46863]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-19647]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64988; File No. SR-NYSE-2011-36]


Self-Regulatory Organizations; New York Stock Exchange 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, New York Stock Exchange LLC (``NYSE'' or 
the ``Exchange'') 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 Rules 2 and 304.\4\ If the 
definition requirements under NYSE 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 Amex LLC has filed a companion rule filing to conform 
its Equities Rules to the changes proposed in this filing. See SR-
NYSEAmex-2011-54.
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    NYSE 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 Rule 2(d) further defines 
``person'' to include not only natural persons, but also

[[Page 46861]]

corporations, limited liability companies, partnerships, associations 
and other organized groups of persons. NYSE 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 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 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 Rules 304 and 311(a) require, with limited exceptions, that 
persons who meet the NYSE Rule 2(c) definition of an approved person 
must apply for approval by the Exchange as an approved person. NYSE 
Rule 304 further provides that no person may become or remain an 
approved 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-G 2 
and AD-G 3 (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 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 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 Rules 21, 22, 91, 92, 96, 98A, 
112, 304, 402, 422, 410A, 460, and 1301, so that the coverage of such 
rules remains the same following the proposed rule change. For example, 
Rule 21 seeks to eliminate conflicts of interests associated with 
reviewing decisions related to listing of securities at the Exchange. 
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 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 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

[[Page 46862]]

proposes to amend NYSE 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 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 Rule 304.\8\
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    \8\ The Exchange proposes to eliminate the text in current 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 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 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 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 replace the term ``allied member'' with ``principal executive'' in 
Rules 21, 22, 91, 96, 112, 304, 308, 410A, 422, 460, and 1301 and NYSE 
Rule Interpretation for Rule 304, delete ``allied member'' from Rule 
304A, and delete NYSE Rule Interpretation for Rule 304A entirely; the 
Exchange replaced the term ``allied member'' with the term ``principal 
executive'' in an earlier rule filing and the proposed amendments are 
consistent with the previous rule filing.\11\
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    \10\ Specifically, the Exchange proposes to clarify 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 Rule 476A, which addresses minor rule 
violations, to correct a citation to Rule 304.
    \11\ See Securities Exchange Act Release No. 58549 (September 
15, 2008), 73 FR 54444 (September 19, 2008) (SR-NYSE-2008-80).
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \12\ of 
the Act, in general, and furthers the objectives of Section 6(b)(5) 
\13\ 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 NYSE 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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    \12\ 15 U.S.C. 78f(b).
    \13\ 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-NYSE-2011-36 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-NYSE-2011-36. 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

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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 printing and viewing 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-
NYSE-2011-36 and should be submitted on or before August 24, 2011.


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-19647 Filed 8-2-11; 8:45 am]
BILLING CODE 8011-01-P