[Federal Register Volume 83, Number 147 (Tuesday, July 31, 2018)]
[Notices]
[Pages 37012-37020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-16272]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83704; File No. SR-GEMX-2018-24]


Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Align Existing 
Investigatory and Disciplinary Processes and Related Rules With the 
Investigatory and Disciplinary Processes and Associated Rules of Nasdaq 
BX, Inc.

July 25, 2018.
    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 July 12, 2018, Nasdaq GEMX, LLC (``GEMX'' 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.

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

[[Page 37013]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to align its existing investigatory and 
disciplinary processes and related rules with the investigatory and 
disciplinary processes and associated rules of Nasdaq BX, Inc. 
(``BX'').
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqgemx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to adopt new investigatory, disciplinary, and 
adjudicatory processes that are substantially the same as those of its 
sister exchange, BX. Specifically, the Exchange proposes to establish 
new Chapters 80 and 90 of its Rules \3\ and then incorporate by 
reference into those Chapters the BX Rule 8000 and 9000 Series,\4\ 
which set forth and govern the BX investigatory, disciplinary, and 
adjudicative processes.\5\ The Exchange also proposes to amend its By-
Laws to establish a new body to review disciplinary and certain other 
matters (the ``Exchange Review Council'') that is similar to the 
exchange review council that BX utilizes for such purposes.\6\ These 
proposals, when coupled with certain changes to the Exchange's other 
Rules, including Rules that govern appeals of the Exchange's membership 
and other decisions, will render the Exchange's investigative, 
disciplinary, and adjudicatory processes substantially the same as 
those, not only of BX, but also of other Nasdaq, Inc. exchanges.\7\ The 
proposal [sic] change will also further harmonize the work that the 
Financial Industry Regulatory Authority (``FINRA'') conducts for all 
these exchanges.
---------------------------------------------------------------------------

    \3\ The Exchange proposes to add Chapters 23-79 and Chapters 81-
89 to its Rules, but reserve such Chapters for future use.
    \4\ Citation herein to rules of the proposed Chapters 80 and 90 
will be preceded by the term ``BX Rule'' to reflect incorporation of 
the BX Rule 8000 and 9000 Series. References to current rules will 
be preceded by the term ``Existing Rule.''
    \5\ The Exchange proposes to separately request an exemption 
from the rule filing requirements of Section 19(b) of the Act for 
changes to Chapters 80 and 90 to the extent such rules are effected 
solely by virtue of a change to the BX Rule 8000 and 9000 Series.
    \6\ As discussed below, the Exchange Review Council will assume 
responsibilities that presently reside with the Business Conduct 
Committee (the ``BCC''). The Exchange also proposes to eliminate the 
BCC.
    \7\ The Exchange notes that the BX Rule 8000 and 9000 Series are 
substantially similar to corresponding rules of The Nasdaq Stock 
Market, LLC (``Nasdaq'') and Nasdaq PHLX, LLC (``Phlx''). Moreover, 
the Exchange notes that Nasdaq ISE, LLC and Nasdaq MRX, LLC will 
propose similar changes to their respective investigatory, 
disciplinary, and adjudicatory processes and associated rules that 
will render them substantially similar to those of BX.
---------------------------------------------------------------------------

    The Exchange's current investigatory, disciplinary, and 
adjudicatory processes are set forth in Chapters 15-17 of its Rules. 
Chapters 15-17 of the Exchange's Rules, in turn, incorporate by 
reference the investigatory, disciplinary, and adjudicatory processes 
of Nasdaq ISE, LLC (``Nasdaq ISE'') that are set forth in the 
corresponding chapters of the Nasdaq ISE rulebook. As part of a 
parallel Nasdaq ISE filing that also proposes to adopt the 
investigatory, disciplinary, and adjudicatory processes and rules of BX 
(and incorporate them by reference into new chapters 80 and 90 of the 
Nasdaq ISE rules), Nasdaq ISE proposes to eliminate chapters 15 and 17 
of its rules, and to largely eliminate chapter 16.\8\ These proposed 
changes to ISE chapters 15-17 will apply automatically to Chapters 15-
17 of the Exchange's Rules. Accordingly, reference should be made to 
SR-ISE-2018-59 for a detailed explanation of the proposed changes to 
Chapters 15-17 and the purposes of those changes. Likewise, reference 
should be made to SR-ISE-2018-59 for a detailed discussion of the BX 
Rule 8000 and 9000 Series, which will largely replace Chapters 15-17 
for both Nasdaq ISE and the Exchange. Lastly, reference should be made 
to SR-ISE-2018-59 for a discussion of proposed changes to certain other 
ISE rules that the Exchange also incorporates by reference and that are 
relevant to the Exchange's adoption of its new investigatory, 
disciplinary, and adjudicatory processes.\9\
---------------------------------------------------------------------------

    \8\ See SR-ISE-2018-59. Nasdaq ISE proposes to retain Rule 1600, 
which sets forth the general jurisdiction of the Exchange with 
respect to disciplinary matters. It also proposes to retain Existing 
Rule 1614(a), which sets forth its authority to impose fines of up 
to $2,500 for violations of the Exchange's Minor Rule Violation Plan 
(``MRVP'') and up to $5,000 for minor rule violations (other than 
those subject to an MRVP). Nasdaq ISE also proposes to retain 
Existing Rule 1614(d) (to be renumbered as Rule 1614(b)), which sets 
forth the Exchange's schedule of MRVP violations and minor rule 
violations and their associated fines.
    \9\ The proposed changes involve Nasdaq ISE Rules 410, 
413(b)(1), 1000, 1406, and 1800.
---------------------------------------------------------------------------

    The following is a discussion of proposed changes that are specific 
to the Rules of the Exchange and that are not otherwise addressed in or 
accomplished by the corresponding Nasdaq ISE filing. These changes 
include: (1) The elimination of the Exchange's BCC and its replacement 
with the Exchange Review Council; and (2) changes to Exchange Rules 
that are necessary to accommodate the new investigatory, disciplinary, 
and adjudicatory processes and rules and to harmonize those processes 
and rules with those of BX.

Elimination of the Business Conduct Committee and Establishment of the 
Exchange Review Council

    The Exchange presently utilizes the BCC to help it enforce its 
Rules with respect to its members (``Members'') and persons associated 
with its members (``Associated Persons''). The BCC is a committee, 
established by the Board of Directors,\10\ whose enforcement 
jurisdiction includes the following: (1) Ordering investigations of 
possible Rule violations; (2) considering letters of consent in 
expedited disciplinary actions; (3) making its members available to 
serve on Hearing Panels that adjudicate formal disciplinary 
proceedings; (4) imposing sanctions on Members or Associated Persons in 
disciplinary proceedings; (5) reviewing Exchange actions involving 
minor rule violations; (6) appointing panels to conduct hearings and 
reviews of Exchange actions that deny membership or Member association 
privileges; and (7) generally overseeing all matters relating to the 
conduct of disciplinary hearings and hearings for review of Exchange 
decisions, and providing the Exchange with advice for improving 
disciplinary procedures.\11\
---------------------------------------------------------------------------

    \10\ See Resolution of the Board of Directors of the ISE Gemini 
Delegating Authority, dated July 30, 2013.
    \11\ See GEMX Business Conduct Committee Charter, as amended, 
May 1, 2003.
---------------------------------------------------------------------------

    The Exchange proposes to retire the BCC \12\ and to amend its By-
Laws to

[[Page 37014]]

establish in its place the Exchange Review Council. The amended By-Laws 
that the Exchange proposes to adopt in this regard are substantially 
the same as those that BX adopted to establish the BX Exchange Review 
Council.\13\ Thus, the By-Laws provide for the Exchange Review Council 
to have the same general structure and powers as does the BX Exchange 
Review Council.\14\ The proposed By-Laws will authorize the Exchange 
Review Council to adjudicate disciplinary actions and approve 
settlements thereof as well as make recommendations to the Board on 
certain policy matters and rule changes. Such policy functions of the 
Exchange Review Council render its jurisdiction broader than that of 
the BCC.
---------------------------------------------------------------------------

    \12\ In a February 4, 2016 resolution, the Exchange Board 
delegated its authority to the President of the Exchange to 
establish a BCC to, among other things, conduct disciplinary 
hearings under Chapter 16 of the Existing Rules and conduct other 
hearings and reviews as set forth in Chapter 17 of the Existing 
Rules. On February 1, 2017, the Board passed a resolution that both 
revoked the President's authority to establish a BCC and authorized 
the establishment of an Exchange Review Council, effective upon the 
date when this rule filing becomes operative.
    \13\ The BX by-laws differ from the proposed Exchange By-Laws 
because the BX by-laws have a different numbering convention from 
the Exchange's By-Laws and, in various places, the BX by-laws refer 
to a Listing and Hearing Review Council, which has no analogue with 
respect to the Exchange.
    \14\ The BX by-laws do not describe in detail the process of the 
proceedings over which the BX Exchange Review Council presides. 
However, Section 7.9 of the BX by-laws state [sic] that a quorum of 
three BX Exchange Review Council members is necessary to adjudicate 
appeals of determinations made under BX Rules 4612 (appeal of denial 
of registration as an Equities Market Maker), 4619 (review of denial 
of an excused withdrawal of Equities Market Maker quotation), 4620 
(appeal of denial of reinstatement of Equities Market Maker that 
accidentally withdraws), 11890 (appeal of clearly erroneous 
transaction determination), and BX Options Chapter V, Section 6 
(appeal of obvious error determination). See BX by-laws, Article 
VII, Section 9. The Exchange's Rules do not have analogues to BX 
Rules 4612, 4620, and 11890 and, as such, the corresponding 
provision of the Exchange's proposed By-Laws (Article VII, Section 
9) provides only that a quorum of three Exchange Review Council 
members is necessary for it to adjudicate appeals involving 
determinations made under Rules 720 (appeal of obvious error 
determination), 720A (appeal of determinations of erroneous trades 
due to system malfunctions and disruptions), and 804 (review of 
denial of an excused withdrawal of market maker quotation).
---------------------------------------------------------------------------

    Specifically, proposed Article VI, Section 1 of the proposed By-
Laws provides that the Exchange Review Council may be authorized to act 
for the Board with respect to: An appeal or review of a disciplinary 
proceeding, a statutory disqualification proceeding, or a membership 
proceeding; a review of an offer of settlement, a letter of acceptance, 
waiver, and consent, and a minor rule violation plan letter; the 
exercise of exemptive authority; and such other proceedings or actions 
as may be authorized by the Exchange rules. The Exchange Review Council 
also may consider and make recommendations to the Board on policy and 
rule changes relating to business and sales practices of Exchange 
Members and Associated Persons and enforcement policies, including 
policies with respect to fines and other sanctions. It may advise the 
Board on regulatory proposals and industry initiatives relating to 
quotations, execution, trade reporting, and trading practices and it 
may advise the Board in its administration of programs and systems for 
the surveillance and enforcement of rules governing Exchange Members' 
conduct and trading activities in the Exchange.
    Proposed Article VI, Section 2 states that the Exchange Review 
Council would consist of no fewer than eight and no more than 12 
members. The Exchange Review Council must include a number of Member 
Representative members \15\ that is equal to at least 20% of the total 
number of members of the Exchange Review Council. The number of Non-
Industry members,\16\ including at least three Public members,\17\ 
shall equal or exceed the sum of the number of Industry members \18\ 
and Member Representative members. As soon as practicable, following 
the appointment of members, the Exchange Review Council shall elect a 
Chair from among its members. The Chair shall have such powers and 
duties as may be determined from time to time by the Exchange Review 
Council. The Board, by resolution adopted by a majority of Directors 
then in office, may remove the Chair from such position at any time for 
refusal, failure, neglect, or inability to discharge the duties of 
Chair. No more than 50% of the members of the Exchange Review Council 
shall be engaged in market making activity or employed by an Exchange 
Member firm whose revenues from market making activity exceed 10 
percent of its total revenues.
---------------------------------------------------------------------------

    \15\ See n.20, infra.
    \16\ See id.
    \17\ See id.
    \18\ See id.
---------------------------------------------------------------------------

    Proposed Article VI, Section 3 requires the Exchange's Secretary to 
collect from each nominee for the office of member of the Exchange 
Review Council such information as is reasonably necessary to serve as 
the basis for a determination of the nominee's qualifications and 
classification as an Industry, Member Representative, Non-Industry, or 
Public member. The Secretary must also certify to the Nominating 
Committee or the Member Nominating Committee \19\ (as applicable) each 
nominee's qualifications and classification. After appointment to the 
Exchange Review Council, each member must update such information at 
least annually and upon request of the Exchange's Secretary, and must 
report immediately to the Secretary any change in such information.
---------------------------------------------------------------------------

    \19\ The terms ``Nominating Committee'' and ``Member Nominating 
Committee'' are defined in Exchange By-Laws, Article I.
---------------------------------------------------------------------------

    Proposed Article VI, Section 4 provides that Exchange Review 
Council members shall serve three-year terms, or until a successor is 
duly appointed and qualified, except in the event of earlier 
termination from office by reason by death, resignation, removal, 
disqualification, or other reason. Members are term limited out after 
two consecutive terms. Proposed Article VI, Section 5 sets forth the 
procedures for resigning as a member of the Exchange Review Council and 
provides that an Exchange Review Council member may resign at any time 
upon written notice to the Board. Under proposed Article VI, Section 6, 
any member of the Exchange Review Council may be removed from office at 
any time for refusal, failure, neglect, or inability to discharge the 
duties of such office by majority vote of the Board.
    Under proposed Article VI, Section 7, an Exchange Review Council 
member would be disqualified and removed immediately upon a 
determination by the Board, by a majority vote, (a) that the member no 
longer satisfies the classification (Industry, Member Representative, 
Non-Industry, or Public) for which the member was elected; and (b) that 
the member's continued service as such would violate the compositional 
requirements of the Exchange Review Council set forth in Article VI, 
Section 2. If the term of office of an Exchange Review Council member 
terminates under this Section, and the remaining term of office of such 
member at the time of termination is not more than six months, during 
the period of vacancy the Exchange Review Council shall not be deemed 
to be in violation of Article VI, Section 2 by virtue of such vacancy. 
Proposed Article VI, Section 8 contains provisions for the filling of 
vacancies on the Exchange Review Council and states that if a position 
on the Exchange Review Council becomes vacant, the Nominating Committee 
or the Member Nominating Committee (as applicable) shall nominate, and 
the Board shall appoint a person satisfying the qualifications for the 
position as provided in Article VI, Section 2 to fill

[[Page 37015]]

such vacancy, except that if the remaining term of office for the 
vacant position is not more than six months, no replacement shall be 
required.
    Proposed Article VI, Section 9 provides that a quorum of the 
Exchange Review Council will consist of a majority of its members, 
including not less than 50% of its Non-Industry members and one Member 
Representative member. Proposed Article VI, Section 10 contains 
provisions related to the meetings of the Exchange Review Council.
    Under proposed Article VI, Section 11, the Exchange Review Council 
is required to establish a Review Subcommittee to determine whether 
disciplinary and membership proceedings decisions should be called for 
review by the Exchange Review Council under the disciplinary and 
membership rules to be proposed for the Exchange. The Review 
Subcommittee shall be composed of no fewer than two and no more than 
four members of the Exchange Review Council. The number of Non-Industry 
members of the Review Subcommittee shall equal or exceed the sum of the 
number of Industry members and Member Representative members of the 
Review Subcommittee, and the subcommittee must include at least one 
Member Representative member. At all meetings of the Review 
Subcommittee, a quorum for the transaction of business shall consist of 
not less than 50 percent of the members of the Review Subcommittee, 
including not less than 50 percent of the Non-Industry members of the 
Review Subcommittee and one Member Representative member of the Review 
Subcommittee.\20\
---------------------------------------------------------------------------

    \20\ In addition to adding Article VI to the By-Laws, the 
Exchange proposes to make changes to other articles of the By-Laws 
to accommodate the existence of the Exchange Review Council. For 
example, the Exchange proposes to amend Article I, which defines the 
terms that the Exchange uses in the By-Laws, to provide that the 
terms ``Industry member,'' ``Member representative member,'' ``Non-
industry member,'' and ``Public member'' mean, in part, members of 
the Exchange Review Council. The Exchange also proposes to amend 
Article III, Section 6, to add a new subsection (a) that directs the 
Board to appoint an Exchange Review Council, as provided in Article 
VI. It also proposes to amend Article III, Section 6(b) to state 
that the Nominating Committee and the Member Nominating Committee of 
the Board shall have responsibility for nominating members of the 
Exchange Review Council. Finally, the Exchange proposes to amend 
Sections 7 and 8 of Article III, which deal with Director conflicts-
of-interest/self-interested transactions and Director compensation, 
respectively, to ensure that the restrictions and benefits that 
these provisions provide apply to Exchange Review Council members.
---------------------------------------------------------------------------

    The BX Rules implement the foregoing responsibilities of the 
Exchange Review Council by establishing various procedures to govern 
its reviews. As the Exchange describes in further detail below, the 
Exchange proposes to transfer to the Exchange Review Council (or panels 
thereof) certain responsibilities currently vested in other Exchange 
committees or the Board. For example, pursuant to Existing Rule 720, an 
Obvious Error Panel (``OEP'') is presently responsible for reviewing 
determinations regarding obvious and catastrophic errors. Pursuant to 
Existing Rule 720A, a ``Review Panel'' is responsible for reviewing 
determinations to nullify or adjust transactions that arise from system 
disruptions and malfunctions. The Exchange is proposing to eliminate 
the OEP and the Review Panel and to transfer their responsibilities to 
a panel of the new Exchange Review Council, which corresponds to the 
practice of BX. Subject to Chapter 90, the Exchange also proposes to 
transfer responsibility to the Exchange Review Council to review 
denials or conditions imposed upon those that seek to become or remain 
a Member of the Exchange or become or remain associated with a Member 
of the Exchange, as set forth in Existing Rule 303.\21\ In addition, 
the Exchange proposes to amend Existing Rule 804 to provide for the 
Exchange Review Council to review determinations regarding temporary 
withdrawals of quotations, which are not reviewable under the Existing 
Rules. The Exchange notes that BX vests in its Exchange Review Council 
responsibility for reviewing similar types of matters.\22\
---------------------------------------------------------------------------

    \21\ The Exchange notes that it proposes to establish procedures 
in Existing Rule 303 to govern the review by the Exchange Review 
Council of adverse membership and association determinations. The 
Exchange proposes to base these procedures upon those set forth BX 
Rules 1015 and 1016.
    \22\ See Securities Exchange Act Release No. 72149 (May 12, 
2014), 79 FR 28564 (May 16, 2014) (SR-BX-2014-024).
---------------------------------------------------------------------------

Other Conforming Rule Changes

    The Exchange proposes to amend or delete certain other Existing 
Rules, which are either not needed, duplicated elsewhere, or reference 
the deleted Existing Rules. Below is a description of the specific 
changes the Exchange proposes to make to its Existing Rules.
    Existing Rule 100 provides definitions for purposes of the Existing 
Rules. The Exchange is proposing to amend this Existing Rule to include 
definitions for several new terms. For example, the proposed Rules will 
define the new term ``Code of Procedure'' as the procedural rules 
contained in Chapter 90. The Exchange also defines the new term 
``Exchange Review Council,'' which is largely copied from BX Rule 
0120(m). The Exchange notes that item (6) of the new definition differs 
from the BX item (6) in that it cites the analogous rules of the 
Exchange, which have different rule numbers. Finally, the Exchange 
proposes to amend the definition of ``SEC'' so that it also includes 
the word ``Commission.''
    Existing Rule 206 concerns the consequences of a Member's or an 
Associated Person's failure to pay dues, fees and other charges. The 
Exchange proposes to delete this Existing Rule in favor of BX Rule 
9553, which is more comprehensive than the Existing Rule and differs 
from it in several respects. Existing Rule 206 provides that instances 
of nonpayment shall be reported to the Exchange's Chief Executive 
Officer and President when they are 30 days past due, and that the 
Chief Executive Officer and President thereafter shall provide 
reasonable notice to the delinquent Member that continued non-payment 
will result in suspension of trading privileges. An Associated Person 
that fails to pay may be suspended from association with a Member. By 
contrast, BX Rule 9553 states that the Exchange's Regulation 
Department, within an unspecified period of time period [sic] after the 
onset of a delinquency, may issue a written notice to the delinquent 
Member or Associated Person that failure to comply within 21 days of 
service of the notice will result in suspension or cancellation of 
membership or suspension or bar of association with a Member, as 
applicable. BX Rule 9553 also provides for detailed provisions for 
serving such notice, a provision for requesting a hearing with respect 
to such a notice, a provision declaring the effectiveness of such 
notices (21 days after service) when no hearing is requested, and a 
means to request termination of a suspension, which may be granted for 
good cause shown.
    Existing Rule 303 sets forth circumstances in which the Exchange 
may deny or condition approval of membership applications or 
applications to associate with Members. Existing Rule 303(c) also sets 
forth circumstances in which the Exchange may determine not to permit a 
Member or Associated Person from continuing their [sic] membership or 
association with a Member, including because they become [sic] subject 
to [sic] statutory disqualification under the Act. Existing Rule 303(f) 
furthermore permits a Member or Associated Person that becomes subject 
to [sic] statutory disqualification under the Act to apply to the 
Exchange to continue as a Member or as an Associated Person, within 30 
days of becoming subject to the statutory disqualification. Existing

[[Page 37016]]

Rule 303(g) states that, subject to the summary suspension rules in 
Chapter 15, any applicant for membership or association with a Member 
whose application is denied or conditioned or who is not permitted to 
continue as a Member or Associated Person may appeal such 
determinations under Chapter 17 of the Existing Rules.
    The Exchange proposes to modify Existing Rule 303(f) so that it 
refers to new and more robust procedures, set forth in the BX Rule 9520 
series, by which a Member or an Associated Person may obtain relief 
from disqualification or ineligibility determinations (BX Rule 9522).
    The Exchange also proposes to amend Existing Rule 303(g), which 
states that subject to Chapter 15, the BCC may review, in part, 
Exchange determinations to deny membership or association with a Member 
pursuant to Chapter 17 of the Existing Rules. The Exchange proposes to 
re-assign responsibility for these reviews from the BCC to the Exchange 
Review Council and replace the review process presently set forth in 
Chapter 17 of the Existing Rules with processes that are substantially 
the same as those set forth in BX Rules 1015 and 1016. Specifically, 
the proposed amendments to Exchange Rule 303(g) state that, subject to 
Chapter 90, the Exchange Review Council will have jurisdiction to 
review these decisions. Proposed Rule 303(g) states that anyone whose 
application for membership on the Exchange, association with an 
Exchange Member, or whose continuing membership or association is 
denied or conditioned by the Exchange's Membership Department, may file 
a written request for review by the Exchange Review Council within 25 
days after service of the Exchange's decision.\23\ The request must 
state specifically why the applicant believes that the Membership 
Department's decision is inconsistent with the permissible bases for 
denial set forth in Rule 303, or otherwise should be set aside and 
state whether a hearing is requested.\24\ The request will be heard by 
a Subcommittee appointed by the Exchange Review Council or the Review 
Subcommittee composed of two or more persons who are either current or 
past members of the Council or former Directors of the Exchange.\25\ If 
a hearing is requested or directed, it must be held within 45 days 
after the request for review is filed with the Exchange or service of 
the notice by the Subcommittee.\26\ Applicants and the Membership 
Department may be represented by counsel at the hearing and formal 
rules of evidence will not apply during the hearing.\27\ The 
Subcommittee must present a recommended decision in writing to the 
Exchange Review Council within 60 days after the date of the hearing, 
and not later than seven days before the meeting of the Exchange Review 
Council at which the proceeding shall be considered.\28\ The Exchange 
Review Council must issue a proposed written decision that affirms, 
modifies, or reverses the Membership Department's decision, or remands 
the proceedings with instructions and provide the proposed decision to 
the Exchange Board.\29\ If the Exchange Board does not call the 
decision for review, it shall become final. If the Exchange Review 
Council does not serve its final written decision within the time 
period prescribed by Rule 303(g)(10)(C), then the Applicant may file a 
written request with the Exchange Board for the Board to direct the 
Exchange Review Council to issue its decision immediately or show good 
cause why it needs additional time to issue its decision.\30\ Proposed 
Rule 303(h), which mirrors BX Rule 1016, grants the Exchange Board 
discretion, at the request of a Director, to review decisions of the 
Exchange Review Council.\31\
---------------------------------------------------------------------------

    \23\ See proposed Rule 303(g)(1). The Exchange notes that the 
deadline for filing petitions for BCC review of an Exchange action 
under Existing Rule 1701(a) is 30 days from the date of such action. 
The Existing Rules pertaining to membership do not reference or 
define the terms ``Membership Department'' or ``Department.'' As 
part of this proposal, the Exchange proposes to amend Rule 303(g) to 
specify that the Exchange's Membership Department--rather than 
simply the ``Exchange''--makes determinations as to whether to 
grant, deny, or conditionally grant applications for membership or 
association or to continue as a Member or an Associated Person.
    \24\ See proposed Rule 303(g)(1).
    \25\ See proposed Rule 303(g)(4). The Exchange notes that 
Existing Rule 1702 provides for review by a BCC panel composed of 
two or more of its members.
    \26\ See proposed Rule 303(g)(6)(A).
    \27\ See proposed Rule 303(g)(6)(B) & (C). Unlike Existing Rule 
1703, proposed Rule 303(g) does not provide for intervention in 
proceedings by interested non-parties.
    \28\ See proposed Rule 303(g)(9).
    \29\ See proposed Rule 303(g)(10)(A).
    \30\ See proposed Rule 303(g)(10)(D).
    \31\ Unlike Existing Rule 1704, proposed Rule 303(h) does not 
authorize the applicant or the President of the Exchange to request 
that the Board review the decision of the Exchange Review Council.
---------------------------------------------------------------------------

    Existing Rule 307(b) requires Members to file with the Exchange and 
keep current their addresses at which notices may be served. The 
Exchange proposes to amend this Existing Rule to incorporate the 
language set forth in BX Rule 1160. Rather than merely requiring 
Members to provide the Exchange with their current address, the 
proposed amendment more broadly requires Members to report to the 
Exchange, through the FINRA Contact System, all of their contact 
information, including their mailing addresses, email addresses, 
facsimile numbers, and other information. It also requires members to 
update such contact information in the FINRA System within 30 days of 
any changes thereto, and to generally verify that such information 
remains accurate within 17 business days after the end of each calendar 
year. This proposed amendment to the Existing Rule will ensure that the 
Exchange has available to it multiple means of contacting its Members, 
including for purposes of serving the notices specified in the BX Rule 
9550 series by email or by facsimile. The Exchange proposes, in its 
introduction to Chapter 90, to state that cross references in the BX 
Rule 9000 Series to BX Rule 1160 should be read instead to refer to 
Exchange Rule 307(b), as modified herein.
    To maintain consistency with the BX Rules, the Exchange also 
proposes to eliminate Existing Rule 307(d), which requires Members to 
maintain a current copy of the Exchange's governing documents and Rules 
in an accessible place and make them available for examination by 
customers, and to replace it with BX Rule 8110, which is materially 
equivalent.
    Existing Rule 308 requires a Member to notify the Exchange upon its 
adoption of a plan of liquidation or dissolution. The Existing Rule 
also provides that upon receipt of such notice, the Member's trading 
privileges may be suspended in accordance with Chapter 15 of the 
Existing Rules. The Exchange proposes to replace this reference to 
Chapter 15 with a reference to BX Rule 9558. Again, no analogue to this 
proposal exists in the BX rules insofar as those rules do not expressly 
address suspensions for such reasons or reviews of suspension 
determinations. Nevertheless, the Exchange believes that the process 
set forth in BX Rule 9558 is most appropriate for reviewing suspension 
determinations in these circumstances given that they already apply in 
circumstances where a Member is experiencing extreme financial or 
operating difficulty such that the Exchange determines that the Member 
cannot safely continue to do business on the Exchange.
    The Supplementary Material to Existing Rule 306 concerns the 
Exchange's authority to waive the applicable qualification examination 
requirements and accept other standards as evidence of an applicant's 
qualifications for registration. The

[[Page 37017]]

Exchange is amending this Rule to specify that such requests are 
handled pursuant to the BX Rule 9600 Series process. The BX Rule 9600 
Series concerns the procedures for requesting exemptions, and the 
appeal of adverse decisions regarding an exemptive request. The 
Exchange notes that the proposed revisions will render the text of the 
Supplementary Material to Existing Rule 306 consistent with BX Rule 
1070(d).
    Existing Rule 720 concerns obvious and catastrophic errors. 
Existing Rule 720(k) currently references the OEP as the body 
responsible for reviewing determinations made by Options Exchange 
Officials pursuant to the Rule and it sets forth procedures to govern 
OEP review proceedings. In light of the fact that the OEP's 
responsibilities will be incorporated into those of the Exchange Review 
Council,\32\ the amendments to the Rule remove references to the OEP 
and replaces [sic] them with references to a panel of the Exchange 
Review Council. The amended Rule also includes language grafted from 
the BX Rules prescribing the composition of panels convened for 
purposes of these reviews.\33\
---------------------------------------------------------------------------

    \32\ See proposed Rule 100(a)(21A).
    \33\ See BX Options Rules Ch. V, Sec. 6(l).
---------------------------------------------------------------------------

    Existing Rule 720A also provides for reviews by a ``Review Panel'' 
of decisions nullifying or adjusting transactions arising out of system 
disruptions or malfunctions. The Exchange proposes to eliminate the 
Review Panel in the Exchange's Rules and transfer its responsibility to 
a panel of the Exchange Review Council. The new Rule also includes 
language grafted from the BX Rules prescribing the composition of 
Exchange Review Council panels convened for purposes of these 
reviews.\34\
---------------------------------------------------------------------------

    \34\ See id.
---------------------------------------------------------------------------

    Existing Rule 804 permits a Primary Market Maker to apply to the 
Exchange to withdraw temporarily from its Primary Market Maker status 
in an options class. The Existing Rule does not presently authorize 
reviews of Exchange determinations to deny requests for temporary 
withdrawals or to impose conditions on the reentry of quotations. 
However, BX Rule 4619(f) does provide for such reviews. To provide 
consistency, the Exchange proposes to amend Existing Rule 804(f) to 
state that the Exchange Review Council will have authority conduct such 
reviews.
    As discussed above, Chapter 16 of the Exchange's Rules incorporates 
by reference Chapter 16 of the ISE rules. However, Chapter 16 of the 
Exchange's Rules contains an introductory paragraph that references the 
incorporation by reference and provides instructions for cross-
references. The Exchange proposes to delete the last line of this 
introductory paragraph, which specifies that a reference in the ISE 
Rule 1615 to Nasdaq ISE's contract with FINRA shall be read to refer to 
the Exchange's contract with FINRA. The Exchange proposes to delete 
this sentence because Nasdaq ISE is proposing to delete its Rule 1615, 
such that this sentence will no longer be necessary. The Exchange also 
proposes to change the title of Chapter 16 from ``Discipline'' to 
``Disciplinary Jurisdiction and Minor Rule Violation Fines'' so that it 
conforms to the new title of Chapter 16 of the Nasdaq ISE Rules and to 
the content of that Chapter that Nasdaq ISE proposes to revise.\35\
---------------------------------------------------------------------------

    \35\ See SR-ISE-2018-59.
---------------------------------------------------------------------------

Proposed Introductory Paragraphs to Chapters 80 and 90

    The Exchange proposes to include introductory paragraphs to both 
Chapters 80 and 90 which state that they incorporate by reference the 
BX Rule 8000 and 9000 Series, respectively, and that such BX Rules 
shall be applicable to Exchange Members, Associated Persons, and other 
persons subject to the Exchange's jurisdiction.
    These proposed introductory paragraphs also list instances in which 
cross references in the BX Rule 8000 and 9000 Series to other BX rules 
should be read to refer instead to the Exchange Rules, and references 
to defined BX terms shall be read to refer to the Exchange-related 
meanings of those terms. For example, references in both the BX Rule 
8000 and 9000 Series to the following defined terms shall be read to 
refer to the Exchange-specific meanings of those terms: ``Exchange'' or 
``Nasdaq BX'' shall be read to refer to the Exchange; ``Rule'' or ``BX 
Rule'' shall be read to refer to the Exchange Rules; ``Board'' or 
``Exchange Board'' shall be read to refer to the Exchange Board of 
Directors; ``Member'' shall be read to refer to an Exchange Member; 
``Associated Person'' shall be read to refer to an Exchange Associated 
Person; ``BX Regulatory Department'' or ``Regulation Department'' shall 
be read to refer to the Exchange's Regulatory Department; ``BX 
Regulation'' shall be read to refer to Exchange Regulation; ``Chief 
Regulatory Officer'' shall be read to refer to the Chief Regulatory 
Officer of the Exchange; and ``Equity Rule'' shall be read to refer to 
an Exchange Rule.
    Additionally, the proposed introduction to Chapter 80 states that 
cross references in the BX Rule 8000 Series to the term ``Rule 0120'' 
shall be read to refer to Exchange Rule 100 and cross references in the 
BX Rule 8000 Series to ``Rule 1015'' shall be read to refer to Exchange 
Rule 303. Similarly, the proposed introduction to Chapter 90 states 
that cross-references in the BX Rule 9000 Series to the following terms 
shall be read to refer to the following Exchange Rules: ``Rule 0120'' 
shall be read to refer to Exchange Rule 100; ``Rule 1013'' shall be 
read to refer to Exchange Rules 302 and 307; ``Rule 1070'' shall be 
read to refer to the Supplementary Material to Exchange Rule 306; 
``Rule 1160'' shall be read to refer to Exchange Rule 307(b); ``Equity 
Rule 2110'' shall be read to refer to Exchange Rule 400; ``Equity Rule 
2120'' shall be read to refer to Exchange Rule 405; ``Rule 2140'' shall 
be read to refer to Exchange Rule 309; ``Equity Rule 2150'' shall be 
read to refer to Exchange Rules Chapter 6; ``Rule 2170'' shall be read 
to refer to Exchange Rule 403; ``Rule 4110A'' shall be read to refer to 
Exchange Rules Chapter 13; ``Rule 4120A'' shall be read to refer to 
Exchange Rules Chapter 13; ``Rule 10000 Series'' shall be read to refer 
to Exchange Rules Chapter 18; and ``Chapter III, Section 16'' shall be 
read to refer to Exchange Rule 403.
    Finally, the introduction to Chapter 90 states that BX IM-9216 in 
the BX Rules shall not apply to the Exchange, its Members, Associated 
Persons, or other persons subject to the jurisdiction of the Exchange 
and that instead, references to BX IM-9216 shall be read to refer to 
Exchange Rule 1614(b). Similarly, the introduction states that the 
procedures set forth in BX Rule 9216(b) and 9143(e)(3), which govern 
the handling of violations of rules subject to the MRVP (``MRVP 
violations'') and the issuance of MRVP violation letters, shall also 
apply to the Exchange's handling of other violations of Rules listed in 
Rule 1614(b) that are not subject to the MRVP (``minor rule 
violations'') and the issuance of minor rule violation letters, except 
that the Exchange shall promptly report any final disciplinary action 
to the Commission, in accordance with SEC Rule 19d-1(c)(1). These 
proposed references are necessary to account for Nasdaq ISE's proposed 
revisions to Chapter 16 of its rules, which will retain the Exchange's 
existing authority to impose fines of up to $2,500 for MRVP violations 
and up to $5,000 for minor rule violations, as well as the Exchange's 
existing fine schedule for

[[Page 37018]]

such violations, which will be set forth in Rule 1614(b).

Conclusion

    The changes proposed herein will allow the Exchange to harmonize 
its investigatory and disciplinary processes with the processes of BX, 
thus providing a uniform process for the investigation and discipline 
of Members and Associated Persons across all of the Nasdaq, Inc. 
exchanges, as administered by FINRA pursuant to Regulatory Services 
Agreements. Harmonizing the investigatory and disciplinary processes of 
all of the Nasdaq, Inc. exchanges will bring efficiency to FINRA's 
administration of its responsibilities under the RSAs because the 
process [sic] it must follow are nearly identical, and are all based on 
the process that FINRA follows. Harmonized processes will bring 
consistency to investigations and adjudication of rule violations, and 
will reduce the number of disciplinary processes and requirements with 
which Members and Associated Persons, as well as their counsel, must be 
familiar.
    The Exchange believes that the new investigatory and disciplinary 
processes are substantially similar to the existing 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 
process will benefit all parties as it provides greater detail and 
specificity than the retired Rules, and that it is consequently more 
transparent.
    The Exchange intends to announce the operative date of the new 
Rules at least 30 days in advance via a regulatory alert.\36\ To 
facilitate an orderly transition from the Existing Rules to the new 
Rules, the Exchange is proposing to apply the Existing Rules to all 
Letters of Consent \37\ that the Chief Regulatory Officer of the 
Exchange has approved and which are pending approval of the BCC prior 
to the operative date. The Exchange also will apply the Existing Rules 
to any matter for which, prior to the operative date, the Exchange has 
provided notice to a subject of its determination to impose an MRVP 
violation fine or a minor rule violation fine whereby the subject may 
yet or has contested the determination pursuant to Existing Rule 
1614(a). In terms of formal disciplinary matters, any matter that has 
been approved for the issuance of a statement of charges \38\ by the 
CRO will continue under the Existing Rules. Moreover, any appeal of a 
matter that is pending before an OEP pursuant to Existing Rule 720, a 
Review Panel pursuant to Existing Rule 720A, or the BCC pursuant to 
Existing Rule 303 will continue under the Existing Rules. As a 
consequence of this transition process, the Exchange will retain the 
BCC, the OEP, the Review Panel, and the existing processes during the 
transition period until such time that there are no longer any matters 
proceeding under the Existing Rules. To facilitate this transition 
process, the Exchange will retain a transitional Rulebook that will 
contain the Exchange's Rules as they are at the time of 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 and there are no longer 
any Members, Associated Persons, or other persons subject to the 
existing disciplinary processes, the Exchange will remove the 
transitional Rulebook from its public rules website.
---------------------------------------------------------------------------

    \36\ The Exchange notes that the proposed changes will not 
become operative unless and until the Commission approves the 
Exchange's request, which it has filed pursuant to Section 36 of the 
Exchange Act and SEC Rule 0-12 thereunder, for an exemption from the 
rule filing requirements of Section 19(b) of the Exchange Act as to 
changes to Chapters 80 and 90 that are effected solely by virtue of 
a change to the BX Rule 8000 or 9000 Series.
    \37\ A ``Letter of Consent'' is a means by which the Exchange 
may consensually address a violation of its Rules without resort to 
the formal disciplinary process. See Existing Rule 1603.
    \38\ A ``statement of charges'' is formal disciplinary 
complaint. See Existing Rule 1604.
---------------------------------------------------------------------------

    The Exchange furthermore notes that it expects the transition from 
the BCC to the Exchange Review Council to be smooth given that it 
expects to nominate the existing (and shared) membership of the BX, 
Nasdaq, and Phlx Review Councils to also become members of the Exchange 
Review Council.\39\ The Exchange does not expect that any existing 
members of the BCC will be nominated to become members of the Exchange 
Review Council; however, the Exchange will ensure that, in advance of 
the operative day, the members of the Exchange Review Council will 
familiarize themselves with the Rules and procedures of the Exchange so 
that they will be prepared to fulfill their responsibilities.
---------------------------------------------------------------------------

    \39\ The Exchange anticipates that the members of the Exchange 
Review Council will serve in a manner that is consistent with their 
tenures on the Nasdaq, BX, and Phlx review councils. That is, to the 
extent that the tenure of a member of these other review councils is 
due to expire on a particular date, then the same expiration date 
will apply to that member's tenure on the Exchange Review Council. 
All terms for members on the Exchange Review Council will comply 
with Article VI, Section 4 of the proposed By-Laws.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\40\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\41\ 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, and are [sic] not designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \40\ 15 U.S.C. 78f(b).
    \41\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange also believes that the proposal is consistent with 
Section 6(b)(6) of the Act,\42\ which requires that the rules of an 
exchange provide that its members be appropriately disciplined for 
violations of the Act as well as the rules and regulations thereunder, 
or the rules of the Exchange, by expulsion, suspension, limitation of 
activities, functions, and operations, fine, censure, being suspended 
or barred from being associated with a member, or any other fitting 
sanction.
---------------------------------------------------------------------------

    \42\ 15 U.S.C. 78f(b)(6).
---------------------------------------------------------------------------

    First, the Exchange's proposals are consistent with the Act to 
[sic] make miscellaneous changes to the Existing Rules to account for 
the adoption of the BX Rule 8000 and 9000 Series and the replacement of 
the BCC with the Exchange Review Council. For example, subject to 
Chapter 90, proposed changes to Rule 303 re-assign responsibility to 
the Exchange Review Council to review decisions of the Exchange's 
Membership Department to deny or condition applications for membership 
and association with Exchange Members and to deny or condition 
continuing membership or association. The proposal also establishes a 
new process by which the Exchange Review Council will adjudicate such 
reviews. The Exchange believes that these proposed changes to the 
Existing Rules are consistent with the Act because the new adjudicatory 
processes that the Exchange proposes to adopt in place of its existing 
processes are substantially similar to those that BX already utilizes. 
Moreover, the Exchange believes that the proposed processes will 
facilitate prompt, appropriate, and fair adjudications, consistent with 
the Act.
    Second, the Exchange's proposals are consistent with the Act to 
[sic] make minor updates, corrections, and conforming amendments to the 
Exchange's Rules because they are necessary to ensure that the 
Exchange's

[[Page 37019]]

cross-references and terminology remain current and accurate.
    Third, the proposed rule change is necessary to ensure that the 
Exchange maintains a disciplinary process, in accordance with Section 
6(b)(5) and (6) of the Act,\43\ once Nasdaq ISE deletes its 
disciplinary rules from chapters 15-17 of the Nasdaq ISE rulebook, 
which the Exchange presently incorporates by reference. The proposed 
rule change will also ensure that going forward, the Exchange's 
disciplinary rules will continue to exist in harmony with those of 
Nasdaq ISE. As noted earlier, Nasdaq ISE is similarly proposing to 
incorporate by reference the BX Rule 8000 and 9000 Series into new 
chapters 80 and 90 of its rulebook as to well make similar conforming 
changes to its other rules.
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 78f(b)(5)-(6).
---------------------------------------------------------------------------

    The Exchange believes that harmonizing its investigative, 
disciplinary, and adjudicatory processes with those of BX will reduce 
the burden on Members and Associated Persons that are also members of 
BX, Nasdaq, Phlx, and/or FINRA. The Exchange notes that all of its 
Members are also members of BX, Nasdaq, Phlx, and/or FINRA. BX, Nasdaq, 
Phlx, and FINRA already have in place investigative, disciplinary, and 
adjudicatory processes that are the same or similar to those that the 
Exchange proposes to incorporate by reference.
    As discussed above, the Exchange believes that the proposed Rules 
will benefit all parties involved in the Exchange's disciplinary and 
adjudicatory processes as they will include greater detail and 
specificity than do the Existing Rules. The proposal will render the 
Exchange's investigatory, disciplinary, and adjudicatory processes more 
transparent than the Existing Rules.
    The Exchange also believes that adopting an Exchange Review Council 
is consistent with the Act because the Council's mandate is to, among 
other things, ensure consistent and fair application of the Exchange 
rules pertaining to discipline of Members and Associated Persons. The 
Exchange Review Council will be a body appointed by the Exchange Board 
of Directors and composed of representatives of the securities industry 
as well as persons from outside the securities industry. The broad 
membership of the new Exchange Review Council will ensure that the 
decisions and guidance it provides will be fair and balanced. The 
Exchange Review Council will be similar in structure and function to 
the BX exchange review council. In addition to reviewing appeals of 
disciplinary actions, the Exchange Review Council will also have 
jurisdiction to review membership decisions (proposed Rule 303), and 
appeals regarding limitations placed on Members or their employees that 
are subject to a statutory disqualification (BX Rule 9524). 
Additionally, the Exchange Review Council may consider and make 
recommendations to the Board on policy and rule changes relating to 
business and sales practices of Exchange Members and Associated 
Persons, and enforcement policies, including policies with respect to 
fines and other sanctions. Thus, the Exchange Review Council will 
provide the Exchange and market participants with a fair and impartial 
body overseeing disciplinary matters, as well as the rules and policies 
concerning the disciplinary process. For these reasons, the Exchange 
believes that adoption of the Exchange Review Council is consistent 
with the Act.
    The Exchange believes that eliminating the BCC, the OEP (as 
provided for under Existing Rule 720), and the Review Panel (as 
provided for under Existing Rule 720A) is consistent with Sections 
6(b)(5) and 6(b)(6) of the Act,\44\ because the Exchange Review Council 
and the New Hearing Panels will assume the responsibilities of the BCC 
and the Panels. In particular, the functions of the current Hearing 
Panels of the BCC (``Current Hearing Panels'')--which include 
adjudicating disciplinary actions--will be handled by new Hearing 
Panels, which FINRA's Office of Hearing Officers (``OHO'') shall 
convene (``New Hearing Panels'').\45\ Going forward, the BCC's (and the 
CRO's) responsibility for approving settlements will be assumed by the 
Exchange Review Council and, in certain instances, FINRA's Office of 
Disciplinary Affairs (the ``ODA'').\46\ The BCC's responsibilities for 
hearing appeals of Exchange decisions on membership or association with 
a Member will be assumed by the Exchange Review Council. The 
responsibilities of the OEP and the Review Panel to hear appeals of 
Exchange determinations to nullify or adjust transactions that involve 
obvious errors or that result from system disruptions and malfunctions 
also will be assumed by the Exchange Review Council. The Exchange 
believes that the proposal will provide for the Exchange Review 
Council, the New Hearing Panels, and the ODA to execute the 
responsibilities of the BCC and the Panels in a manner that the 
Commission, within the context of the BX Rules, has already deemed to 
be consistent with the Act.\47\ For example, the Exchange proposes to 
replace its existing process for handling appeals of membership 
decisions, as set forth in Existing Rule 303 and Chapter 17, with a 
process that BX already employs in BX Rules 1015 and 1016. Moreover, 
Exchange Members and Associated Persons will already be familiar with 
the proposed responsibilities and procedures of the Exchange Review 
Council, the New Hearing Panels, and the ODA from their experiences as 
members of BX and other SROs whose rules provide for similar 
assignments of responsibilities and processes.
---------------------------------------------------------------------------

    \44\ Id.
    \45\ The OHO is an office within FINRA that is independent of 
the FINRA enforcement function and not involved in investigating or 
litigating cases.
    \46\ Pursuant to BX Rule 9270, proposed settlements must be 
submitted to and accepted by the Exchange Review Council, except 
that proposed settlements involving an affiliate of the Exchange 
must be reviewed by the ODA. Like the OHO, the ODA is an office 
within FINRA that is independent of the FINRA enforcement function 
and not involved in investigating or litigating cases.
    \47\ See Securities Exchange Act Release No. 34-59154 (Dec. 23, 
2008), 73 FR 80468 (Dec. 31, 2008) (SR-BSE-2008-048).
---------------------------------------------------------------------------

    The Exchange believes that its proposal furthers the objectives of 
Section 6(b)(7) of the Act \48\ in that it is designed to provide a 
fair procedure for the disciplining of Members and Associated Persons, 
the denial of membership to any person seeking membership therein, the 
barring of any person from becoming associated with a Member thereof, 
and the prohibition or limitation by the Exchange of any person with 
respect to access to services offered by the Exchange or a Member 
thereof. Specifically, the Exchange believes that the proposed 
investigatory, disciplinary, and adjudicatory processes are consistent 
with Section 6(b)(7) of the Act \49\ because they are based on the 
existing processes used by BX. The BX processes are well-established as 
consistent with the Act.\50\
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 78f(b)(7).
    \49\ Id.
    \50\ See n.46, supra.
---------------------------------------------------------------------------

    Last, the Exchange believes that its proposal to phase-in the 
implementation of the new investigatory, disciplinary, and adjudicatory 
processes is consistent with Section 6(b)(7) \51\ of the Act because 
both the current and proposed processes are consistent with the Act, 
providing fair procedures for investigating, disciplining, and 
adjudicating the rights of Members and Associated Persons. The Exchange 
is proposing to provide advanced notice of the implementation date of 
the new processes, and will apply the new

[[Page 37020]]

processes to new matters that are initiated on or after that 
implementation date. Any matters initiated prior to the implementation 
date will be completed using the current processes. As a consequence, 
the Exchange will delete the applicable portions of Chapters 15-17 from 
the Exchange's Rulebook, but it will maintain a transitional Rulebook 
on the Exchange's public rules website (http://http://nasdaqgemx.cchwallstreet.com/), which will contain the Exchange Rules 
as they are at the time of filing this rule change.\52\ These 
transitional Rules will apply exclusively to the matters initiated 
prior to the implementation date. Upon conclusion of the last 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.
---------------------------------------------------------------------------

    \51\ 15 U.S.C. 78f(b)(7).
    \52\ The posting of the transitional rules on the public rules 
website will make it clear what disciplinary proceedings are 
governed by the transitional rules (i.e., matters initiated prior to 
the implementation date).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended 
[sic]. The proposed rule change is not intended to address competitive 
issues, but it should reduce burdens on Members, [sic] and Associated 
Persons. Specifically and as described in detail above, the Exchange 
believes that this change will bring efficiency and consistency in 
application of the investigative, disciplinary, and adjudicatory 
processes, thereby reducing the burden on Members and Associated 
Persons who are also members of BX and the other Nasdaq, Inc. 
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 \53\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\54\
---------------------------------------------------------------------------

    \53\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \54\ 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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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-GEMX-2018-24 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-GEMX-2018-24. 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 (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 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-GEMX-2018-24 and should be submitted on 
or before August 21, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\55\
---------------------------------------------------------------------------

    \55\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-16272 Filed 7-30-18; 8:45 am]
BILLING CODE 8011-01-P