[Federal Register Volume 81, Number 11 (Tuesday, January 19, 2016)]
[Notices]
[Pages 2925-2928]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-00786]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76875; File No. SR-BX-2016-002]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Section (a)(6) of Rule 1120 (Continuing Education Requirements)

 January 12, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that, on January 7, 2016, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 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 section (a)(6) of Rule 1120 
(Continuing Education Requirements) to provide for web-based delivery 
of the Exchange's continuing education (``CE'') program. The proposed 
rule change would phase out the current option of completing the 
Regulatory Element in a test center, and eliminates the rule providing 
for in-house delivery of the Regulatory Element of the CE program. The 
amendments will delete the current text of Rule 1120(a)(6) (In-Firm 
Delivery of the Regulatory Element). The Exchange's proposal is 
materially similar to a recent FINRA filing to amend FINRA Rule 1250, 
which was recently approved by the Securities and Exchange Commission 
(``SEC'' or ``Commission'').\3\
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    \3\ See Securities Exchange Act Release No. 75581 (July 31, 
2015), 80 FR 47018 (August 6, 2015) (Order Approving a Proposed Rule 
Change to Provide a Web-based Delivery Method for Completing the 
Regulatory Element of the Continuing Education Requirements) (SR-
FINRA-2015-015). See also Securities Exchange Act Release No. 76107 
(October 8, 2015), 80 FR 62139 (October 15, 2015) (Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change Relating to 
Delivery of the Regulatory Element of the Exchange's Continuing 
Education Program) (SR-CBOE-2015-084).
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxbx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The CE requirements under Rule 1120 consist of a Regulatory Element 
\4\ and a Firm Element.\5\ The Regulatory Element applies to all 
registered persons \6\ and consists of periodic computer-based training 
on regulatory, compliance, ethical, and supervisory subjects and sales 
practice standards, which must be completed within prescribed 
timeframes.\7\ In addition, a registered person is required to retake 
the Regulatory Element in the event that such person (A) is subject to 
any statutory disqualification as defined in Section 3(a)(39) of the 
Act; (B) is subject

[[Page 2926]]

to suspension or to the imposition of a fine of $5,000 or more for 
violation of any provision of any securities law or regulation, or any 
agreement with or rule or standard of conduct of any securities 
governmental agency, securities self-regulatory organization, or as 
imposed by any such regulatory or self-regulatory organization in 
connection with a disciplinary proceeding; or (C) is ordered as a 
sanction in a disciplinary action to retake the Regulatory Element by 
any securities governmental agency or self-regulatory organization. 
Rule 1120(a)(1) provides that the following Regulatory Elements 
administered by FINRA shall be required: The S201 Supervisor Program 
for registered principals and supervisors, the S501 Series 56 
Proprietary Trader continuing education program for Series 56 
registered persons, and the S101 General Program for Series 7 and all 
other registered persons. Currently, the rules state that Regulatory 
Element may be administered or in-firm subject to specified 
procedures.\8\ The Regulatory Element may also be administered in a 
test center.
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    \4\ See Rule 1120(a) (Regulatory Element).
    \5\ See Rule 1120(b) (Firm Element).
    \6\ For purposes of the Regulatory Element, a ``registered 
person'' means any person registered with the Exchange as a 
representative, principal, or assistant representative pursuant to 
the Rule 1020, 1030 and 1110 Series. See Rule 1120(a)(5).
    \7\ Pursuant to Rule 1120(a)(1), each registered person shall 
complete the Regulatory Element of the continuing education program 
beginning with the occurrence of their second registration 
anniversary date and every three years thereafter, or as otherwise 
prescribed by the Exchange. On each occasion, the Regulatory Element 
must be completed within 120 days after the person's registration 
anniversary date. A person's initial registration date, also known 
as the ``base date'', shall establish the cycle of anniversary dates 
for purposes of the Rule. The content of the Regulatory Element of 
the program shall be determined by the Exchange and shall be 
appropriate to either the registered representative or principal 
status of the person subject to the Rule.
    \8\ Pursuant to Rule 1120(a)(6), Exchange Members that are also 
FINRA members are currently permitted to administer the continuing 
education Regulatory Element program to their registered persons by 
instituting an in-firm program to the extent such program has been 
deemed acceptable to FINRA in accordance with NASD Rule 1120(a)(6). 
(The Exchange notes that NASD Rule 1120 has previously been 
superseded by FINRA Rule 1250 which FINRA has amended, as discussed 
above, to delete the in-firm CE option on a phased basis.) Rule 
1120(a)(6) provides that the Exchange and FINRA are parties to the 
Regulatory Contract pursuant to which FINRA has agreed to perform 
certain functions on behalf of the Exchange. Therefore, Exchange 
members are complying with Exchange Rule 1120(a)(6) by complying 
with NASD Rule 1250. In addition, functions performed by FINRA, 
FINRA departments, and FINRA staff under Rule 1120(a)(6) are being 
performed by FINRA on behalf of the Exchange. Exchange Members that 
are not FINRA members are not permitted to institute in-firm 
delivery of the Regulatory Element program.
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    The Firm Element consists of annual, member-developed and 
administered training programs for covered registered persons,\9\ which 
must be appropriate for the business of the member and, at a minimum, 
must cover the following matters concerning securities products, 
services and strategies offered by the member: (i) General investment 
features and associated risk factors; (ii) suitability and sales 
practice considerations; and (iii) applicable regulatory requirements.
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    \9\ Under Rule 1120(b)(1) (Persons Subject to the Firm Element), 
a ``covered registered person'' means any person registered with a 
member who has direct contact with customers in the conduct of the 
member's securities sales, trading and investment banking 
activities, and to the immediate supervisors of such persons.
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    Today, most registered persons complete the Regulatory Element in a 
test center rather than in-firm. Given the advances in Web-based 
technology, the Exchange believes that there is diminishing utility in 
the test center and in-firm delivery methods. Moreover, according to 
FINRA,\10\ registered persons have raised concerns with the test center 
delivery method because of the travel involved, the limited time 
currently available to complete a Regulatory Element session \11\ and 
the use of rigorous security measures at test centers, which are 
appropriate for taking qualification examinations but onerous for a CE 
program.\12\ Also, according to FINRA, the test center is expensive to 
operate.\13\
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    \10\ FINRA is currently responsible for the operation of the 
test centers used for test center delivery method of the Regulatory 
Element.
    \11\ The current session time is three-and-a-half hours.
    \12\ See Securities Exchange Act Release No. 75154 (June 11, 
2015), 80 FR 34777 (June 17, 2015) (Notice of Filing of a Proposed 
Rule Change To Provide a Web-Based Delivery Method for Completing 
the Regulatory Element of the Continuing Education Requirements) 
(SR-FINRA-2015-015).
    \13\ Id. at 34779.
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    In response to the issues noted above, FINRA engaged in extensive 
outreach with the industry and completed a pilot of a Web-based 
delivery system for administering the Regulatory Element.\14\ According 
to FINRA, the proposed Web-based system performed well during the pilot 
in terms of both performance and accessibility.\15\ FINRA also received 
positive feedback from firms and the individual pilot participants.\16\ 
FINRA noted that among other things, pilot participants appreciated the 
expanded time to focus on the provided learning materials without the 
pressure of a timed session and the ability to resume or complete their 
session from where they left off.\17\
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    \14\ Id.
    \15\ Id.
    \16\ Id.
    \17\ Id.
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Proposal
    Based on the recent amendments to FINRA Rule 1250,\18\ the Exchange 
proposes to amend Rule 1120(a)(6) to provide for a Web-based delivery 
method for completing the Regulatory Element. Specifically, the 
Exchange proposes to amend Rule 1120(a)(6) to provide that the 
continuing education Regulatory Element set forth in paragraph (a) of 
Rule 1120(a) will be administered through Web-based delivery or such 
other technological manner and format as specified by the Exchange. 
Should the Exchange determine to administer the Regulatory Element 
through a delivery mechanism other than Web-based delivery, however, 
the Exchange would notify the Commission and would need to file a 
further rule change with the Commission.
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    \18\ See FINRA Rule 1250 (Continuing Education Requirements). 
See also Securities Exchange Act Release No. 75581 (July 31, 2015) 
80 FR 47018 (August 6, 2015) (Order Approving a Proposed Rule Change 
to Provide a Web-based Delivery Method for Completing the Regulatory 
Element of the Continuing Education Requirements) (SR-FINRA-2015-
015).
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    The first phase of the Web-based delivery system was launched 
October 1, 2015 and includes the Regulatory Element of the S201 
Supervisor Program for registered principals and supervisors. The 
second phase of the Web-based delivery system was launched January 4, 
2016 and includes the Regulatory Element of the S101 General Program 
for Series 7 and all other registered persons, including, but not 
limited to Securities Traders.
    The Exchange is proposing to phase out test-center delivery by no 
later than six months after January 4, 2016. Registered persons will 
continue to have the option of completing the Regulatory Element in a 
test center, but they will be required to use the Web-based system 
after the test-center delivery is phased out.\19\
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    \19\ The Exchange has recently filed a separate proposed rule 
change, SR-BX-2015-090, to amend Rule 7003, Registration and 
Processing Fees, to reduce the cost for the CE Regulatory Element 
from $100 to $55 if administered by Web-delivery. Fees for 
completing the CE Regulatory Element at a test center will remain 
$100.
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    Further, the Exchange is deleting the current language in Rule 
1120(a)(6) relating to in-firm delivery of the CE Regulatory Element. 
The proposed Web-based delivery method will provide registered persons 
the flexibility to complete the Regulatory Element at a location of 
their choosing, including their private residence, at any time during 
their 120-day window for completion of the Regulatory Element.\20\
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    \20\ Although the proposed rule change provides flexibility, 
firms may choose to impose their own conditions based on their 
supervisory and compliance needs. For instance, a firm that wishes 
to have registered persons complete CE on the firm's premises can do 
so by having the registered person access Web-based CE from a firm 
device and location. Moreover, firms would have to update their 
written policies and procedures regarding the Regulatory Element to 
reflect the transition to Web-based CE and communicate the update to 
registered persons.
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    The Exchange notes that the Web-based format will include 
safeguards to authenticate the identity of the CE candidate. For 
instance, prior to commencing a Web-based session, the candidate will 
be asked to provide a portion of their [sic] SSN (either first five or 
last four digits) and their [sic]

[[Page 2927]]

date of birth. This information will only be used for matching data in 
FINRA's Web-CRD system. The Web CE system will discard this information 
after the matching process. Further, before commencing a Web-based 
session, each candidate will be required to agree to the Rules of 
Conduct for Web-based delivery. Among other things, the Rules of 
Conduct will require each candidate to attest that he or she is in fact 
the person who is taking the Web-based session. The Rules of Conduct 
will also require that each candidate agree that the Regulatory Element 
content is intellectual property and that the content cannot be copied 
or redistributed by any means. If the Exchange discovers that a 
candidate has violated the Rules of Conduct, the candidate will forfeit 
the results of the Web-based session and may be subject to disciplinary 
action by the Exchange. Violation of the Rules of Conduct will be 
considered conduct inconsistent with high standards of commercial honor 
and just and equitable principles of trade, in violation of Rule 2110, 
Standards of Commercial Honor and Principles of Trade. The Exchange is 
not proposing any changes to the Firm Element requirements under Rule 
1120(b).
 2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \21\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \22\ 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. Additionally, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \23\ requirement that the rules 
of an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers and Section 6(c)(3) \24\ of the 
Act, which authorizes the Exchange to, among other things, prescribe 
standards of financial responsibility or operational capability and 
standards of training, experience and competence for its members and 
persons associated with members.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
    \23\ 15 U.S.C. 78f(b)(5).
    \24\ 15 U.S.C. 78f(c)(3).
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    In particular, the Exchange believes that the proposed rule change 
will improve members' compliance efforts and will allow registered 
persons to spend a greater amount of time on the review of CE materials 
and potentially achieve better learning outcomes, which will in turn 
enhance investor protection. Further, while the proposed rule change 
will provide more flexibility to members and registered persons, it 
will maintain the integrity of the Regulatory Element of the CE program 
and the CE program in general.

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. The Exchange notes that the 
proposed rule change is specifically intended to reduce the burden on 
firms while preserving the integrity of the CE program. As described 
above, the Web-based delivery method will provide registered persons 
the flexibility to complete the Regulatory Element at any location that 
they choose. Further, Web-based delivery is efficient and offers 
significant cost savings over test-center and in-firm deliveries. With 
respect to the authentication process for Web-based delivery, the CE 
candidate's personal identifying information will be masked and will be 
submitted to FINRA through a secure, encrypted, network. The personal 
identifying information submitted via the Web-based system will be used 
for authentication purposes only--the information will not be stored in 
the Web-based system.

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 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, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \25\ and Rule 19b-4(f)(6) 
thereunder.\26\
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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of 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.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative upon filing. The 
Exchange states the Exchange believes that the proposed rule change 
will improve members' compliance efforts and will allow registered 
persons to spend more time on the review of CE materials and 
potentially achieve better learning outcomes, which will in turn 
enhance investor protection. In addition, waiving the operative delay 
will make BX's rules consistent with those of the other exchanges. For 
these reasons, the Commission believes that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. Therefore, the Commission designates the proposed rule 
change to be operative upon filing.\27\
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    \27\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BX-2016-002 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-BX-2016-002. 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

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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, 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; 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-BX-2016-002 and should be 
submitted on or before February 9, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-00786 Filed 1-15-16; 8:45 am]
 BILLING CODE 8011-01-P