[Federal Register Volume 83, Number 200 (Tuesday, October 16, 2018)]
[Notices]
[Pages 52287-52298]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22432]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84388; File No. SR-NYSEAMER-2018-46]


Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing and Immediate Effectiveness of Amendments to Rules Regarding 
Qualification, Registration and Continuing Education Applicable to 
Member Organizations, Equity Trading Permit Holders, and American 
Trading Permit Holders

October 10, 2018.
    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 September 27, 2018, NYSE American LLC (the ``Exchange'' 
or ``NYSE American'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been 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 amendments to the Exchange's rules regarding 
qualification, registration and continuing education requirements 
applicable to member organizations, Equity Trading Permit (``ETP'') 
Holders, and American Trading Permit (``ATP'') Holders. The Exchange's 
rule proposal is intended to harmonize its rules with Financial 
Regulatory Authority, Inc. (``FINRA'') rules and thus promote 
consistency within the securities industry, and therefore the Exchange 
is only adopting rules that are relevant to the Exchange's members and 
member organization and ETP Holders. The Exchange is not adopting 
registration categories that are not applicable to members and member 
organizations and ETP Holders because they do not engage in the type of 
business that would require such registration. As such, the Exchange is 
amending current Rules 341 and 341A of the Office Rules and Rules 2.4E 
and 2.21E of the Equities Rules regarding continuing education 
requirements to reflect the FINRA rule; adopting Commentary .06 to 
current Rule 341A regarding fingerprint information; adopting new Rule 
2.1210 regarding registration requirements and related Commentary to 
new Rule 2.1210; adopting new Rule 2.1220 regarding registration 
categories \4\ and related Commentary to new Rule 2.1220; and adopting 
new Rule 2.1230 regarding associated persons exempt from registration 
and related Commentary to new Rule 2.1230. Each of these rule changes, 
which are [sic] described in more detail below, would become operative 
on October 1, 2018. The proposed rule change is available on the 
Exchange's website at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.
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    \4\ The relevant principal registration categories the Exchange 
proposes to adopt are (1) Principal; (2) General Securities 
Principal; (3) Compliance Officer; (4) Financial and Operations 
Principal and Introducing Broker-Dealer Financial and Operations 
Principal; (5) Securities Trader Principal; (6) General Securities 
Sales Supervisor; and (7) Registered Options Principal. The relevant 
representative registration categories the Exchange proposes to 
adopt are (1) Representative; (2) General Securities Representative; 
and (3) Securities Trader.
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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 its qualification, registration, and 
continuing education requirements applicable to members and member 
organizations and ETP Holders. The proposed amendments are intended to: 
(i) Provide transparency and clarity with respect to the Exchange's 
registration, qualification and examination

[[Page 52288]]

requirements; (ii) amend its rules relating to categories of 
registration and respective qualification examinations required for 
member organizations and ETP Holders that engage in trading activities 
on the Exchange; (iii) harmonize the Exchange's qualification, 
registration and examination rules with those of FINRA \5\ so as to 
promote uniform standards across the securities industry; and (iv) add 
new definitions of terms and make other conforming changes to enhance 
the comprehensiveness and clarity of the Exchange's rules.\6\ The 
proposed changes are discussed below.
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    \5\ See Securities Exchange Act Release No. 81098 (July 7, 
2017), 82 FR 32419 (July 13, 2017) (SR-FINRA-2017-007) (Approval 
Order) (the ``FINRA Filing''). The Exchange notes that in order to 
maintain consistency with the FINRA Filing, the Exchange proposes to 
incorporate certain terms from the relevant FINRA rule into the 
Exchange's rule that may not be applicable to all member 
organizations or ETP Holders. For example, while member 
organizations or ETP Holders may not be engaged in ``investment 
banking'' activity, the Exchange proposes to adopt that term within 
these registration rules to conform them to the FINRA rules.
    \6\ The conforming changes the Exchange proposes would 
substitute the term ``member organization,'' ``ETP Holder'' or ``ATP 
Holder'' as applicable for ``member'' and the term ``Exchange'' for 
``FINRA.'' References to ``member organization'' as used in Exchange 
rules include ATP Holders, which are registered brokers or dealers 
approved to effect transactions on the Exchange's options 
marketplace. Under the Exchange's rules, an ATP Holder has the 
status as a ``member'' of the Exchange as that term is defined in 
Section 3 of the Act. See Rule 900.2NY(4) & (5).
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A. Amendments to Current Rule 341 of the Office Rules and Rule 2.4E of 
the Equities Rules \7\
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    \7\ The registration requirements set forth in the Office Rules 
are applicable to the NYSE Amex options market. The registration 
requirements for the NYSE equities market are set forth in the 
Equities Rules.
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    Current Rule 341 of the Office Rules requires registration, 
qualification and approval by the Exchange of registered 
representatives, securities lending representatives, Securities 
Traders, and a direct supervisor. Commentary .01(c) of current Rule 341 
provides the definition of a Securities Trader as any person engaged in 
the purchase or sale of securities or other similar instruments for the 
account of a member or member organization with which he is associated, 
as an employee or otherwise, and who does not transact any business 
with the public.
    The Exchange proposes to adopt FINRA's definition of Securities 
Trader (as described below) and, therefore, proposes to add a reference 
to Rule 2.1220(b)(3) as the appropriate rule in the Exchange's Rulebook 
where the definition of Securities Trader can be found. The Exchange 
also proposes to adopt rule text within the current rule that provides 
that a person registered as a Securities Trader would not be qualified 
to function in any other registration category unless he or she is also 
qualified and registered in such other registration category.\8\
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    \8\ The Exchange proposes the same changes to Commentary .03 of 
current Rule 2.21E, which provides the definition of a Securities 
Trader.
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    Current Commentary .01(d) of Rule 341 provides that a supervisor of 
registered representatives may satisfy the registration requirements 
under Commentary .01 by registering and qualifying as a General 
Securities Principal by passing the Series 7 and Series 24 
examinations. Consistent with the proposed restructuring of the 
representative-level examination proposed in the FINRA Filing, the 
Exchange proposes to amend current Commentary .01(d) to require such 
persons to also complete the Securities Industry Essentials (``SIE'') 
examination.
    Rule 2.4E of the Equities Rules currently requires traders of ETP 
Holders for which the Exchange is the Designated Examining Authority 
(``DEA'') to successfully complete the Series 7 Examination. The 
Exchange proposes to amend Rules 2.4E to require traders of ETP Holders 
for which the Exchange is the DEA to successfully complete the SIE 
examination in addition to the Series 7 Examination in order to satisfy 
the Exchange's registration requirement, consistent with the proposed 
restructuring of the representative-level examinations proposed in the 
FINRA Filing.
B. Amendments to Rule 341A of the Office Rules and Rule 2.21E--
Continuing Education Requirements
    Rule 341A of the Office Rules and Rule 2.21E provide the continuing 
education requirements of registered persons \9\ of a member or member 
organization or ETP Holder, respectively, subsequent to their initial 
qualification and registration with the Exchange, and includes a 
Regulatory Element and a Firm Element. The Regulatory Element applies 
to registered persons and consists of periodic computer-based training 
on regulatory, compliance, ethical, supervisory subjects and sales 
practice standards. The Firm Element consists of at least an annual, 
member-developed and administered training programs designed to keep 
registered persons current regarding securities products, services and 
strategies offered by the member.
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    \9\ For purposes of Rule 341A, the term ``registered person'' 
means any member, allied member, registered representative or other 
person registered or required to be registered under Exchange rules, 
but does not include any such person whose activities are limited 
solely to the transaction of business on the Floor with members or 
registered broker-dealers. See Rule 341A, Commentary .01. For 
purposes of Rule 2.21E, the term ``registered person'' means any ETP 
Holder, Allied Person thereof, registered representative or other 
person registered or required to be registered under the Rules of 
the Exchange. See Rule 2.21E, Commentary .01.
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1. Regulatory Element
    The Exchange proposes to amend Rules 341A(a) and 2.21E(d)(1) to 
provide, consistent with proposed Rule 2.1210, Commentary .08, that a 
waiver-eligible person would be subject to a Regulatory Element program 
that correlates to his or her most recent registration category, and 
that the content of the Regulatory Element would be based on the same 
cycle had the individual remain [sic] registered.\10\ The proposed 
amendment to Rules 341A(a) and 2.21E(d)(1) also provides that if a 
waiver-eligible person fails to complete the Regulatory Element during 
the prescribed time frames, he or she would lose waiver 
eligibility.\11\
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    \10\ The proposed change is substantially similar to that 
contained in FINRA Rule 1240(a)(1).
    \11\ The proposed change is substantially similar to that 
contained in FINRA Rule 1240(a)(2).
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    Further, the Exchange proposes to amend Rules 341A(a)(2) and 
2.21E(d)(1)(B) to provide that any person whose registration has been 
deemed inactive under the rule may not accept or solicit business or 
receive any compensation for the purchase or sale of securities. The 
proposed amendment provides, however, that such person may receive 
trail or residual commissions resulting from transactions completed 
before the inactive status, unless the member organization or ETP 
Holder, respectively, with which the person is associated has a policy 
prohibiting such trail or residual commissions.\12\
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    \12\ The proposed change is substantially similar to that 
contained in FINRA Rule 1240(a)(2).
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    Additionally, under Rules 341A(a)(3) and 2.21E(d)(1)(C), a 
registered person is required to retake the Regulatory Element in the 
event that such person (i) is subject to any statutory disqualification 
as defined in Section 3(a)(39) of the Exchange Act; (ii) is subject 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 (iii) is

[[Page 52289]]

ordered as a sanction in a disciplinary action to retake the Regulatory 
Element by any securities governmental agency or self-regulatory 
organization. The Exchange proposes to amend Rules 341A(a)(3) and 
2.21E(d)(1)(C) to provide an exception to a waiver-eligible person from 
retaking the Regulatory Element and satisfy [sic] all of its 
requirements.\13\
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    \13\ The proposed change is substantially similar to that 
contained in FINRA Rule 1240(a)(3).
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2. Firm Element
    Current Rules 341A(b)(2)(ii) and 2.21E(d)(2)(B) provides that 
programs used to implement a training program must be appropriate for 
the business of the member or member organization or ETP Holder and, at 
a minimum must cover specific matters concerning securities products, 
services, and strategies offered by the member organization or ETP 
Holder. Current Rules 341A(b)(2)(ii) and 2.21E(d)(2)(B) also provides 
that programs used to implement a member organization's or ETP Holder's 
training program must be appropriate for the business of the member 
organization or ETP Holder and, at a minimum must cover specific 
matters concerning securities products, services, and strategies 
offered by the member organization or ETP Holder. The Exchange proposes 
to amend both Rules 341A(b)(2)(ii) and 2.21E(d)(2)(B) to expand the 
minimum standard for such training programs by requiring that, at a 
minimum, a firm's training program must also cover training in ethics 
and professional responsibility.\14\
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    \14\ The proposed change is substantially similar to that 
contained in FINRA Rule 1240(b)(2).
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C. Additional Amendments to Current Rule 2.21E
    Rule 2.21E(b)(iii) provides that employees of ETP Holders seeking 
limited registration as Securities Traders must pass the Series 57 
examination. Given the formulation of the SIE examination which all 
potential representative-level registrants would be required to pass, 
the Exchange proposes to amend the current rule to require that a 
Securities Trader must register as such on Web CRD and must pass both 
the SIE examination and the Series 57 examination. The Exchange 
proposes the same change for Rule 2.4E, Commentary 03. Finally, Rule 
2.2E(c) provides that the Exchange may exempt an individual from the 
examination requirements if such individual has successfully completed 
comparable examinations such as the Series 7 Examination. Consistent 
with the proposed restructuring of the representative-level 
examinations proposed in the FINRA Filing, the Exchange proposes to add 
``and the Securities Industry Essentials Examination'' after the 
reference to the Series 7 Examination.
D. Proposed New Commentary .05 to Rule 341A \15\
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    \15\ The proposed rule is substantially similar to FINRA Rule 
1010(d).
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    The Exchange proposes to adopt a new Commentary .05 to Rule 341A 
regarding the submission of fingerprint information by member 
organizations or ETP Holders, respectively.\16\
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    \16\ Given its placement in the General Rules, the proposed 
fingerprinting requirements would apply to both the Exchange's 
options and equities marketplace. As noted, the term member 
organization includes ATP Holders.
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    As proposed, upon filing an electronic Form U4 on behalf of a 
person applying for registration, a member organization or ETP Holder, 
as applicable, would be required to promptly submit fingerprint 
information for that person. If the member organization or ETP Holder, 
as applicable, fails to submit the fingerprint information within 30 
days after the Exchange receives the electronic Form U4, the person's 
registration shall be deemed inactive and the person would be required 
to immediately cease all activities requiring registration and would be 
prohibited from performing any duties and functioning in any capacity 
requiring registration. The proposed rule further provides allows [sic] 
the Exchange to administratively terminate a registration that is 
inactive for a period of two years. However, a person whose 
registration is administratively terminated may seek to reactivate his 
or her registration by reapplying for registration and meeting the 
qualification requirements under Exchange rules.
E. Proposed New Rules 2.1210 Through 2.1230
    As a general matter, FINRA administers qualification examinations 
that are designed to establish that persons associated with member 
organizations and ETP Holders have attained specified levels of 
competence and knowledge. Over time, the examination program has 
increased in complexity to address the introduction of new products and 
functions, and related regulatory concerns and requirements. As a 
result, today, there are a large number of examinations, considerable 
content overlap across the representative-level examinations and 
requirements for individuals in various segments of the industry to 
pass multiple examinations. To address these issues, FINRA formulated 
the SIE as a general knowledge examination that all potential 
representative-level registrants would take.\17\
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    \17\ The SIE would assess basic product knowledge; the structure 
and function of the securities industry markets, regulatory agencies 
and their functions; and regulated and prohibited practices. In 
particular, the SIE will cover four major areas. The first, 
``Knowledge of Capital Markets,'' focuses on topics such as types of 
markets and offerings, broker-dealers and depositories, and economic 
cycles. The second, ``Understanding Products and Their Risks,'' 
covers securities products at a high level as well as associated 
investment risks. The third, ``Understanding Trading, Customer 
Accounts and Prohibited Activities,'' focuses on accounts, orders, 
settlement and prohibited activities. The final area, ``Overview of 
the Regulatory Framework,'' encompasses topics such as SROs, 
registration requirements and specified conduct rules.
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    The Exchange proposes to create a new Section 4A titled 
``Registration'' in its Office Rules to contain proposed Rules 2.1210 
through 2.1230. Each proposed rule is discussed below.
1. Proposed Rule 2.1210--Registration Requirements \18\
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    \18\ The proposed rule is substantially similar to FINRA Rule 
1210.
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    Proposed Rule 2.1210 provides that each person engaged in the 
investment banking or securities business of a member organization or 
ETP Holder must register with the Exchange as a representative or 
principal in each category of registration appropriate to his or her 
functions and responsibilities as specified in proposed Rule 2.1220, 
unless exempt from registration pursuant to proposed Rule 2.1230. 
Proposed Rule 2.1210 also provides that such person is not qualified to 
function in any registered capacity other than that for which the 
person is registered, unless otherwise stated in the rules.
2. Proposed Rule 2.1210, Commentary .01--Permissive Registrations \19\
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    \19\ The proposed rule is substantially similar to FINRA Rule 
1210.02.
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    The Exchange currently does not have a specific rule that provides 
for permissive registrations. With this proposed rule change, and to 
conform its rules to the FINRA rules, the Exchange proposes to adopt a 
specific rule regarding permissive registrations. Proposed Rule 2.1210, 
Commentary .01, allows any associated person to obtain and maintain any 
registration permitted by a member organization or ETP Holder. For 
instance, an associated person of an ETP Holder working solely in a 
clerical or ministerial capacity, such as in an administrative 
capacity, would be able to obtain and maintain a General Securities 
Representative registration with the ETP Holder. As another example, an 
associated person

[[Page 52290]]

of an ETP Holder who is registered and functioning solely as a General 
Securities Representative would be able to obtain and maintain a 
General Securities Principal registration with the ETP Holder. Proposed 
Rule 2.1210, Commentary .01, would further allow an individual engaged 
in the securities business of a foreign securities affiliate or 
subsidiary of an ETP Holder to obtain and maintain any registration 
permitted by the ETP Holder.
    The Exchange is proposing to permit the registration of such 
individuals for several reasons. First, a member organization or ETP 
Holder may foresee a need to move a former representative or principal 
who has not been registered for two or more years back into a position 
that would require such person to be registered. Currently, such 
persons are required to requalify (or obtain a waiver of the applicable 
qualification examinations) and reapply for registration. Second, the 
proposed rule change would allow a member organization or ETP Holder to 
develop a depth of associated persons with registrations in the event 
of unanticipated personnel changes. Finally, allowing registration in 
additional categories encourages greater regulatory understanding.
    Individuals maintaining a permissive registration under the 
proposed rule change would be considered registered persons and subject 
to all Exchange rules, to the extent relevant to their activities. 
Additionally, consistent with the requirements of the Exchange's 
supervision rules, as proposed, a member organization or ETP Holder 
would be required to have adequate supervisory systems and procedures 
reasonably designed to ensure that individuals with permissive 
registrations do not act outside the scope of their assigned functions. 
With respect to an individual who solely maintains a permissive 
registration, such as an individual working exclusively in an 
administrative capacity, the individual's day-to-day supervisor may be 
a non-registered person. However, for purposes of compliance with the 
Exchange's supervision rules, a member organization or ETP Holder would 
be required to assign a registered supervisor who would be responsible 
for periodically contacting such individual's day-to-day supervisor to 
verify that the individual is not acting outside the scope of his or 
her assigned functions. If such individual is permissively registered 
as a representative, the registered supervisor must be registered as a 
representative or principal. If the individual is permissively 
registered as a principal, the registered supervisor must be registered 
as a principal.\20\
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    \20\ In either case, the registered supervisor of an individual 
who solely maintains a permissive registration would not be required 
to be registered in the same representative or principal 
registration category as the permissively-registered individual.
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3. Proposed Rule 2.1210, Commentary .02--Qualification Examinations and 
Waivers of Examinations \21\
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    \21\ The proposed rule is substantially similar to FINRA Rule 
1210.03.
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    Proposed Rule 2.1210, Commentary .02, provides that before the 
registration of a person as a representative can become effective under 
proposed Rule 2.1210, such person must pass the SIE and an appropriate 
representative-level qualification examination as specified in proposed 
Rule 2.1220.\22\ Proposed Rule 2.1210, Commentary .02, also provides 
that before the registration of a person as a principal can become 
effective under proposed Rule 2.1210, such person must pass an 
appropriate principal-level qualification examination as specified in 
proposed Rule 2.1220.
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    \22\ Proposed Rule 2.1220 sets forth each registration category 
and applicable qualification examination on the Exchange.
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    Further, proposed Rule 2.1210, Commentary .02, provides that if a 
registered person's job functions change and he or she needs to become 
registered in another representative-level category, he or she would 
not need to pass the SIE again. Rather, the registered person would 
need to pass only the appropriate representative-level qualification 
examination.
    Moreover, proposed Rule 2.1210, Commentary .02, provides that all 
associated persons, such as associated persons whose functions are 
solely and exclusively clerical or ministerial, are eligible to take 
the SIE. Proposed Rule 2.1210, Commentary .02, also provides that 
individuals who are not associated persons of firms, such as members of 
the general public, are eligible to take the SIE. The Exchange believes 
that expanding the pool of individuals who are eligible to take the SIE 
would enable prospective securities industry professionals to 
demonstrate to prospective employers a basic level of knowledge prior 
to submitting a job application. Further, this approach would allow for 
more flexibility and career mobility within the securities industry. 
While all associated persons of firms as well as individuals who are 
not associated persons would be eligible to take the SIE pursuant to 
the proposed rule, passing the SIE alone would not qualify them for 
registration with the Exchange. Rather, to be eligible for registration 
with the Exchange, an individual must pass an applicable representative 
or principal qualification examination and complete the other 
requirements of the registration process.
    Proposed Rule 2.1210, Commentary .02, also provides that the 
Exchange may, in exceptional cases and where good cause is shown, 
pursuant to the Rule 9600 Series, waive the applicable qualification 
examination(s) and accept other standards as evidence of an applicant's 
qualifications for registration. The proposed rule further provides 
that the Exchange will only consider examination waiver requests 
submitted by a member organization or ETP Holder for individuals 
associated with the a member organization or ETP Holder who are seeking 
registration in a representative- or principal-level registration 
category. Moreover, the proposed rule states that the Exchange will 
consider waivers of the SIE alone or the SIE and the representative- 
and principal-level examination(s) for such individuals. The Exchange 
would not consider a waiver of the SIE for non-associated persons or 
for associated persons who are not registering as representatives or 
principals.
4. Persons Functioning as Principals for a Limited Period \23\ Proposed 
Rule 2.1210, Commentary .03--Requirements for Registered
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    \23\ The proposed rule is substantially similar to FINRA Rule 
1210.04.
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    Proposed Rule 2.1210, Commentary .03, provides that a member 
organization or ETP Holder may designate any person currently 
registered, or who becomes registered, with the member organization or 
ETP Holder as a representative to function as a principal for a limited 
period, provided that such person has at least 18 months of experience 
functioning as a registered representative with [sic] the five-year 
period immediately preceding the designation. The proposed rule is 
intended to ensure that representatives designated to function as 
principals for the limited period under the proposal have an 
appropriate level of registered representative experience. The proposed 
rule clarifies that the requirements of the rule apply to designations 
to any principal category, including those categories that are not 
subject to a prerequisite representative-level registration 
requirement, such as the Financial and Operations Principal 
registration category.\24\
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    \24\ The Exchange notes that qualifying as a registered 
representative is a prerequisite to qualifying as a principal except 
with respect to the following principal-level registrations: (1) 
Compliance Official; (2) Financial and Operations Principal; and (3) 
Introducing Broker-Dealer Financial and Operations Principal.

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[[Page 52291]]

    The proposed rule also clarifies that the individual must fulfill 
all applicable prerequisite registration, fee and examination 
requirements before his or her designation as a principal. Further, the 
proposed rule provides that in no event may such person function as a 
principal beyond the initial 120 calendar days without having 
successfully passed an appropriate principal qualification examination. 
The proposed rule also provides an exception to the experience 
requirement for principals who are designated by a member organization 
or ETP Holder to function in other principal categories for a limited 
period. Specifically, the proposed rule states that a member 
organization or ETP Holder may designate any person currently 
registered, or who becomes registered, with the ETP Holder as a 
principal to function in another principal category for 120 calendar 
days before passing any applicable examinations.
5. Proposed Rule 2.1210, Commentary .04--Rules of Conduct for Taking 
Examinations and Confidentiality of Examinations \25\
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    \25\ The proposed rule is substantially similar to FINRA Rule 
1210.05.
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    Proposed Rule 2.1210, Commentary .04 states that associated persons 
taking the SIE would be subject to the SIE Rules of Conduct, and 
associated persons taking a representative or principal examination 
would be subject to the Rules of Conduct for representative and 
principal examinations. Pursuant to proposed Rule 2.1210, Commentary 
.04, a violation of the SIE Rules of Conduct or the Rules of Conduct 
for representative and principal examinations by an associated person 
would be deemed to be a violation of Rules 16 and 2010--Equities. 
Moreover, if an associated person is deemed to have violated the SIE 
Rules of Conduct or the Rules of Conduct for representative and 
principal examinations, the associated person may forfeit the results 
of the examination and may be subject to disciplinary action by the 
Exchange.
    Further, the proposed rule states that individuals taking the SIE 
who are not associated persons must agree to be subject to the SIE 
Rules of Conduct. Among other things, the SIE Rules of Conduct would 
require individuals to attest that they are not qualified to engage in 
the investment banking or securities business based on passing the SIE 
and would prohibit individuals from cheating on the examination or 
misrepresenting their qualifications to the public subsequent to 
passing the SIE. Moreover, non-associated persons may forfeit their SIE 
results and may be prohibited from retaking the SIE if the Exchange 
determines that they cheated on the SIE or that they misrepresented 
their qualifications to the public subsequent to passing the SIE.
    The proposed rule further notes that the Exchange considers all 
qualification examinations [sic] content to be highly confidential and 
that the removal of examination content from an examination center, 
reproduction, disclosure, receipt from or passing to any person, or use 
for study purposes of any portion of such qualification examination or 
any other use that would compromise the effectiveness of the 
examinations and the use in any manner and at any time of the questions 
or answers to the examinations is prohibited and would be deemed a 
violation of Rules 16 and 2010--Equities.
6. Proposed Rule 2.1210, Commentary .05--Waiting Periods for Retaking a 
Failed Examination \26\
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    \26\ The proposed rule is substantially similar to FINRA Rule 
1210.06.
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    Proposed Rule 2.1210, Commentary .05 provides that any person who 
fails a qualification examination may retake that examination after 30 
calendar days from the date of the person's last attempt to pass that 
examination. The proposed rule further provides that if a person fails 
an examination three or more times in succession within a two-year 
period, he or she would be prohibited from retaking the examination 
either until a period of 180 calendar days from the date of the 
person's last attempt to pass it [sic]. These waiting periods would 
apply to the SIE and the representative- and principal-level 
examinations. Moreover, the proposed rule provides that non-associated 
persons taking the SIE must agree to be subject to the same waiting 
periods for retaking the SIE.
7. Proposed Rule 2.1210, Commentary .06--All Registered Persons Must 
Satisfy the Regulatory Element of Continuing Education \27\
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    \27\ The proposed rule is substantially similar to FINRA Rule 
1210.07.
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    Pursuant to Rule 341A of the Office Rules and Rule 2.21E, the CE 
requirements applicable to registered persons consist of a Regulatory 
Element \28\ and a Firm Element.\29\ The Regulatory Element applies to 
registered persons and must be completed within prescribed time 
frames.\30\ The Firm Element consists of annual, a member organization 
or ETP Holder-developed and administered training programs designed to 
keep covered registered persons current regarding securities products, 
services and strategies offered by the member organization or ETP 
Holder. For purposes of the Firm Element, the term covered registered 
persons means any registered Securities Trader and any registered 
person who has direct contact with customers in the conduct of the a 
member organization's or ETP Holder's securities sales, trading and 
investment banking activities and to the immediate supervisors of such 
persons.
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    \28\ See Rules 341A(a) and 2.21E(d)(1).
    \29\ See Rules 341A(b) and 2.21E(d)(2).
    \30\ Pursuant to 341A(a) and 2.21E(d)(1), each specified 
registered person is required to complete the Regulatory Element 
initially within 120 days after the person's second registration 
anniversary date and, thereafter, within 120 days after every third 
registration anniversary date. A registered person who has not 
completed the Regulatory Element program within the prescribed time 
frames will have his or her registrations deemed inactive and 
designated as ``CE inactive'' on the CRD system until such time as 
the requirements of the program have been satisfied. A CE inactive 
person is prohibited from performing, or being compensated for, any 
activities requiring registration, including supervision. Moreover, 
if a registered person is CE inactive for a two-year period, the 
Exchange will administratively terminate the person's registration 
status. The two-year period would be calculated from the date the 
person becomes CE inactive. In either case, such person must 
requalify (or obtain a waiver of the applicable qualification 
examination(s)) to be re-eligible for registration.
---------------------------------------------------------------------------

    The Exchange believes that all registered persons, regardless of 
their activities, should be subject to the Regulatory Element of the CE 
requirements so that they can keep their knowledge of the securities 
industry current. Therefore, the Exchange proposes to adopt Rule 
2.1210, Commentary .06, to clarify that all registered persons, 
including those who solely maintain a permissive registration, are 
required to satisfy the Regulatory Element, as specified in Rules 
341A(a) and 2.21E(d)(1). The Exchange is making corresponding changes 
to Rule 341A and Rule 2.21E. The Exchange is not proposing any changes 
to the Firm Element requirement at this time. Individuals who have 
passed the SIE but not a representative- or principal-level examination 
and do not hold a registered position would not be subject to any CE 
requirements.
    Proposed Rule 2.1210, Commentary .06, also provides that a 
registered person of a member organization or ETP Holder who becomes CE 
inactive would not be permitted to be registered in another 
registration category with the a member organization or ETP Holder or 
be registered in any registration category

[[Page 52292]]

with another a member organization or ETP Holder, until the person has 
satisfied the Regulatory Element.
8. Proposed Rule 2.1210, Commentary .07--Lapse of Registration and 
Expiration of the SIE \31\
---------------------------------------------------------------------------

    \31\ The proposed rule is substantially similar to FINRA Rule 
1210.08.
---------------------------------------------------------------------------

    Proposed Rule 2.1210, Commentary .07, provides that any person who 
was last registered as a representative two or more years immediately 
preceding the date of receipt by the Exchange of a new application for 
registration as a representative is required to pass a qualification 
examination for representatives appropriate to the category of 
registration as specified in proposed Rule 2.1220(b). Proposed Rule 
2.1210, Commentary .07, also sets forth that a passing result on the 
SIE would be valid for up to four years. Therefore, under the proposed 
rule change, an individual who passes the SIE and is an associated 
person of a member organization or ETP Holder at the time would have up 
to four years from the date he or she passes the SIE to pass a 
representative-level examination to register as a representative with 
that member organization or ETP Holder, or a subsequent member 
organization or ETP Holder, without having to retake the SIE. In 
addition, an individual who passes the SIE and is not an associated 
person at the time would have up to four years from the date he or she 
passes the SIE to become an associated person of a member organization 
or ETP Holder and pass a representative-level examination and register 
as a representative without having to retake the SIE.
    Moreover, an individual holding a representative-level registration 
who leaves the industry after the effective date of this proposed rule 
change would have up to four years to reassociate with a member 
organization or ETP Holder and register as a representative without 
having to retake the SIE. However, the four-year expiration period in 
the proposed rule change extends only to the SIE, and not the 
representative- and principal-level registrations. The representative- 
and principal-level registrations would continue to be subject to a 
two-year expiration period as is the case today.
    Finally, proposed Rule 2.1210, Commentary .07, clarifies that, for 
purposes of the proposed rule, an application would not be considered 
to have been received by the Exchange if that application does not 
result in a registration.
9. Proposed Rule 2.1210, Commentary .08--Waiver of Examinations for 
Individuals Working for a Financial Services Industry Affiliate of a 
Member Organization or ETP Holder \32\
---------------------------------------------------------------------------

    \32\ The proposed rule is substantially similar to FINRA Rule 
1210.09.
---------------------------------------------------------------------------

    Proposed Rule 2.1210, Commentary .08, provides the process for 
individuals working for a financial services industry affiliate of a 
member organization or ETP Holder \33\ to terminate their registrations 
with the member organization or ETP Holder and be granted a waiver of 
their requalification requirements upon re-registering with a member 
organization or ETP Holder, provided the firm that is requesting the 
waiver and the individual satisfy the criteria for a Financial Services 
Affiliate (``FSA'') waiver.
---------------------------------------------------------------------------

    \33\ Proposed Rule 2.1210, Commentary .07 [sic], defines a 
``financial services industry affiliate of a member organization or 
ETP Holder'' as a legal entity that controls, is controlled by or is 
under common control with a member organization or ETP Holder and is 
regulated by the SEC, CFTC, state securities authorities, federal or 
state banking authorities, state insurance authorities, or 
substantially equivalent foreign regulatory authorities.
---------------------------------------------------------------------------

    Under the proposed waiver process, the first time a registered 
person is designated as eligible for a waiver based on the FSA 
criteria, the member organization or ETP Holder with which the 
individual is registered would notify the Exchange of the FSA 
designation. The member organization or ETP Holder would concurrently 
file a full Form U5 terminating the individual's registration with the 
firm, which would also terminate the individual's other SRO and state 
registrations. To be eligible for initial designation as an FSA-
eligible person by a member organization or ETP Holder, an individual 
must have been registered for a total of five years within the most 
recent 10-year period prior to the designation, including for the most 
recent year with that member organization or ETP Holder. An individual 
would have to satisfy these preconditions only for purposes of his or 
her initial designation as an FSA-eligible person, and not for any 
subsequent FSA designation(s). Thereafter, the individual would be 
eligible for a waiver for up to seven years from the date of initial 
designation,\34\ provided that the other conditions of the waiver, as 
described below, have been satisfied. Consequently, a member 
organization or ETP Holder other than the member organization or ETP 
Holder that initially designated an individual as an FSA-eligible 
person may request a waiver for the individual and more than one member 
organization or ETP Holder may request a waiver for the individual 
during the seven-year period.\35\
---------------------------------------------------------------------------

    \34\ Individuals would be eligible for a single, fixed seven-
year period from the date of initial designation, and the period 
would not be tolled or renewed.
    \35\ The following examples illustrate this point: Example 1. 
Firm A designates an individual as an FSA-eligible person by 
notifying the Exchange and files a Form U5. The individual joins 
Firm A's financial services affiliate. Firm A does not submit a 
waiver request for the individual. After working for Firm A's 
financial services affiliate for three years, the individual 
directly joins Firm B's financial services affiliate for three 
years. Firm B then submits a waiver request to register the 
individual. Example 2. Same as Example 1, but the individual 
directly joins Firm B after working for Firm A's financial services 
affiliate, and Firm B submits a waiver request to register the 
individual at that point in time. Example 3. Firm A designates an 
individual as an FSA-eligible person by notifying the Exchange and 
files a Form U5. The individual joins Firm A's financial services 
affiliate for three years. Firm A then submits a waiver request to 
re-register the individual. After working for Firm A in a registered 
capacity for six months, Firm A re-designates the individual as an 
FSA-eligible person by notifying the Exchange and files a Form U5. 
The individual rejoins Firm A's financial services affiliate for two 
years, after which the individual directly joins Firm B's financial 
services affiliate for one year. Firm B then submits a waiver 
request to register the individual. Example 4. Same as Example 3, 
but the individual directly joins Firm B after the second period of 
working for Firm A's financial services affiliate, and Firm B 
submits a waiver request to register the individual at that point in 
time.
---------------------------------------------------------------------------

    An individual designated as an FSA-eligible person would be subject 
to the Regulatory Element of CE while working for a financial services 
industry affiliate of a member organization or ETP Holder. The 
individual would be subject to a Regulatory Element program that 
correlates to his or her most recent registration category, and CE 
would be based on the same cycle had the individual remained 
registered. If the individual fails to complete the prescribed 
Regulatory Element during the 120-day window for taking the session, he 
or she would lose FSA eligibility (i.e., the individual would have the 
standard two-year period after termination to re-register without 
having to retake an examination). The Exchange is making corresponding 
changes to Rules 341A and 2.21E.
    Upon registering an FSA-eligible person, a firm would file a Form 
U4 and request the appropriate registration(s) for the individual. The 
firm would also submit an examination waiver request to the 
Exchange,\36\ similar to the process used today for waiver requests, 
and it would represent that the individual is eligible for an FSA 
waiver based on the conditions set forth below. The Exchange would 
review the waiver

[[Page 52293]]

request and make a determination of whether to grant the request within 
30 calendar days of receiving the request. The Exchange would summarily 
grant the request if the following conditions are met:
---------------------------------------------------------------------------

    \36\ The Exchange would consider a waiver of the representative-
level qualification examination(s), the principal-level 
qualification examination(s) and the SIE, as applicable.
---------------------------------------------------------------------------

    (1) Prior to the individual's initial designation as an FSA-
eligible person, the individual was registered for a total of five 
years within the most recent 10-year period, including for the most 
recent year with the member organization or ETP Holder that initially 
designated the individual as an FSA-eligible person;
    (2) The waiver request is made within seven years of the 
individual's initial designation as an FSA-eligible person by a member 
organization or ETP Holder;
    (3) The initial designation and any subsequent designation(s) were 
made concurrently with the filing of the individual's related Form U5;
    (4) The individual continuously worked for the financial services 
affiliate(s) of a member organization or ETP Holder since the last Form 
U5 filing;
    (5) The individual has complied with the Regulatory Element of CE; 
and
    (6) The individual does not have any pending or adverse regulatory 
matters, or terminations, that are reportable on the Form U4, and has 
not otherwise been subject to a statutory disqualification while the 
individual was designated as an FSA-eligible person with a member 
organization or ETP Holder.
    Following the Form U5 filing, an individual could move between the 
financial services affiliates of a member organization or ETP Holder so 
long as the individual is continuously working for an affiliate. 
Further, an ETP Holder could submit multiple waiver requests for the 
individual, provided that the waiver requests are made during the 
course of the seven-year period.\37\ An individual who has been 
designated as an FSA-eligible person by a member organization or ETP 
Holder would not be able to take additional examinations to gain 
additional registrations while working for a financial services 
affiliate of a member organization or ETP Holder.
---------------------------------------------------------------------------

    \37\ For example, if a member organization or ETP Holder submits 
a waiver request for an FSA-eligible person who has been working for 
a financial services affiliate of the member organization or ETP 
Holder for three years and re-registers the individual, the member 
organization or ETP Holder could subsequently file a Form U5 and re-
designate the individual as an FSA-eligible person. Moreover, if the 
individual works with a financial services affiliate of the member 
organization or ETP Holder for another three years, the member 
organization or ETP Holder could submit a second waiver request and 
re-register the individual upon returning to the member organization 
or ETP Holder.
---------------------------------------------------------------------------

10. Proposed Rule 2.1210, Commentary .09--Status of Persons Serving in 
the Armed Forces of the United States \38\
---------------------------------------------------------------------------

    \38\ The proposed rule is substantially similar to FINRA Rule 
1210.10.
---------------------------------------------------------------------------

    Proposed Rule 2.1210, Commentary .09 provides specific relief to 
registered persons serving in the Armed Forces of the United States. 
Among other things, the proposed rule permits a registered person of a 
member organization or ETP Holder who volunteers for or is called into 
active duty in the Armed Forces of the United States to be registered 
in an inactive status and remain eligible to receive ongoing 
transaction-related compensation. The proposed rule also includes 
specific provisions regarding the deferment of the lapse of 
registration requirements for formerly registered persons serving in 
the Armed Forces of the United States. The proposed rule further 
requires that a member organization or ETP Holder with which such 
person is registered promptly notify the Exchange of such person's 
return to employment with a member organization or ETP Holder. The 
proposed rule would require a member organization or ETP Holder that is 
a sole proprietor to also similarly notify the Exchange of his or her 
return to participation in the investment banking or securities 
business. The proposed rule also provides that the Exchange would defer 
the lapse of the SIE for formerly registered persons serving in the 
Armed Forces of the United States.
F. Proposed New Rule 2.1220--Registration Categories \39\
---------------------------------------------------------------------------

    \39\ The Exchange is not adopting the following categories from 
the FINRA Filing because member organizations or ETP Holders do not 
engage in the type of business that would require registration with 
the Exchange: Investment Banking Principal, Research Principal, 
Government Securities Principal, Investment Company and Variable 
Contracts Products Principal, Direct Participation Programs 
Principal, Private Securities Offerings Principal, Supervisory 
Analyst, Operations Professional, Investment Banking Representative, 
Research Analyst, Investment Company and Variable Contracts Products 
Representative, Direct Participation Programs Representative, and 
Private Securities Offering Representative. The Exchange is also not 
adopting the following categories because the FINRA Filing 
eliminated them: Order Processing Assistant Representative, United 
Kingdom Securities Representative, Canadian Securities 
Representative, Options Representative, Corporate Securities 
Representative and Government Securities Representative.
---------------------------------------------------------------------------

1. Proposed Rule 2.1220(a)(1)--Principal
    As set forth in proposed Rule 2.1220(a)(1), for purposes of these 
registration rules, the term ``Principal'' means any Person Associated 
with a member organization or ETP Holder actively engaged in the 
management of the member organization's or ETP Holder's securities 
business, including supervision, solicitation, conduct of the member 
organization's or ETP Holder's business, or the training of Authorized 
Traders and Persons Associated with a member organization or ETP Holder 
for any of these functions. Such Persons include, among other, Sole 
Proprietors, Officers, Partners, and Directors of Corporations.
    For purposes of proposed Rule 1220(a)(1), the phrase ``actively 
engaged in the management of the member organization's or ETP Holder's 
securities business'' includes the management of, and the 
implementation of corporate policies related to, such business. The 
term also includes managerial decision-making authority with respect to 
a member organization's or ETP Holder's securities business and 
management-level responsibilities for supervising any aspect of such 
business, such as serving as a voting member of the a member 
organization's or ETP Holder's executive, management or operations 
committee.
2. Proposed Rule 2.1220(a)(2)--General Securities Principal \40\
---------------------------------------------------------------------------

    \40\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(2).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(a)(2)(A) states that each principal as defined 
in proposed Rule 2.1220(a)(1) is required to register with the Exchange 
as a General Securities Principal, subject to the following exceptions. 
The proposed rule provides that if a principal's activities include the 
functions of a Compliance Officer, a Financial and Operations Principal 
(or an Introducing Broker-Dealer Financial and Operations Principal, as 
applicable), a Principal Financial Officer, a Principal Operations 
Officer, a Securities Trader Principal, or a Registered Options 
Principal then the principal must appropriately register in one or more 
of these categories.
    Proposed Rule 2.1220(a)(2)(A) further provides that if a 
principal's activities are limited solely to the functions of a General 
Securities Sales Supervisor, then the principal may appropriately 
register in that category in lieu of registering as a General 
Securities Principal.
    Proposed Rule 2.1220(a)(2)(B) requires that an individual 
registering as a General Securities Principal satisfy the General 
Securities Representative prerequisite registration and pass the 
General Securities Principal qualification examination. Proposed Rule 
2.1220(a)(2)(B) also clarifies that an

[[Page 52294]]

individual may register as a General Securities Sales Supervisor and 
pass the General Securities Sales Supervisor qualification examination 
in lieu of passing the General Securities Principal examination.
    As a general matter, the Exchange currently recognizes the 
Corporate Securities Representative but would no longer recognize this 
registration category given its elimination by FINRA. Proposed Rule 
2.1220(a)(2)(B), however, provides that, subject to the lapse of 
registration provisions in proposed Rule 2.1210, Commentary .07, each 
person registered with the Exchange as a Corporate Securities 
Representative and a General Securities Principal on October 1, 2018 
and each person who was registered with the Exchange as a Corporate 
Securities Representative and a General Securities Principal within two 
years prior to October 1, 2018 would be qualified to register as a 
General Securities Principal without having to take any additional 
qualification examinations, provided that such person's supervisory 
responsibilities in the investment banking and securities business of a 
member organization or ETP Holder are limited to corporate securities 
activities of a member organization or ETP Holder. The proposed rule 
further provides that all other individuals registering as General 
Securities Principals after October 1, 2018 shall, prior to or 
concurrent with such registration, become registered as a General 
Securities Representative and either (1) pass the General Securities 
Principal qualification examination; or (2) register as a General 
Securities Sales Supervisor and pass the General Securities Sales 
Supervisor qualification examination.
3. Proposed Rule 2.1220(a)(3)--Compliance Officer \41\
---------------------------------------------------------------------------

    \41\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(3).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(a)(3) establishes a Compliance Officer 
registration category and requires all persons designated as CCOs on 
Schedule A of Form BD to register as Compliance Officers, subject to an 
exception for member organizations or ETP Holders engaged in limited 
investment banking or securities business. The proposed rule only 
addresses the registration requirements for CCOs. However, consistent 
with proposed Rule 2.1210, Commentary .01 relating to permissive 
registrations, a firm may allow other associated persons to register as 
Compliance Officers. Chief Compliance Officers at ATP Holders, who are 
currently not subject to a registration requirement, would be excluded 
from the requirements of the proposed rule.
    In addition, the Exchange is proposing to provide CCOs of firms 
that engage in limited investment banking or securities business with 
greater flexibility to satisfy the qualification requirements for CCOs. 
Specifically, proposed Rule 2.1220(a)(3) set forth the following 
qualification requirements for Compliance Officer registration:
     Subject to the lapse of registration provisions in 
proposed Rule 2.1210, Commentary .07, each person registered with the 
Exchange as a General Securities Representative and a General 
Securities Principal on October 1, 2018 and each person who was 
registered with the Exchange as a General Securities Representative and 
a General Securities Principal within two years prior to October 1, 
2018 would be qualified to register as Compliance Officers without 
having to take any additional examinations. In addition, subject to the 
lapse of registration provisions in proposed Rule 2.1210, Commentary 
.07, individuals registered as Compliance Officials in the CRD system 
on October 1, 2018 and individuals who were registered as such within 
two years prior to October 1, 2018 would also be qualified to register 
as Compliance Officers without having to take any additional 
examinations; [sic]
     All other individuals registering as Compliance Officers 
after October 1, 2018 would have to: (1) Satisfy the General Securities 
Representative prerequisite registration and pass the General 
Securities Principal qualification examination; or (2) pass the 
Compliance Official qualification examination.
     An individual designated as a CCO on Schedule A of Form BD 
of a member organization or ETP Holder that is engaged in limited 
investment banking or securities business may be registered in a 
principal category under proposed Rule 2.1220(a) that corresponds to 
the limited scope of the A member organization's or ETP Holder's 
business.
4. Proposed Rule 2.1220(a)(4)--Financial and Operation Principal and 
Introducing Broker-Dealer Financial and Operations Principal \42\
---------------------------------------------------------------------------

    \42\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(4).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(a)(4) provides that each principal who is 
responsible for the financial and operational management of a member 
organization or ETP Holder that has a minimum net capital requirement 
of $250,000 under SEA Rules 15c3-1(a)(1)(ii) and 15c3-1(a)(2)(i), or a 
member organization or ETP Holder that has a minimum net capital 
requirement of $150,000 under SEA Rule 15c-3-1(a)(8) must be designated 
as a Financial and Operations Principal. In addition, proposed Rule 
2.1220(a)(4) provides that a principal who is responsible for the 
financial and operational management of a member organization or ETP 
Holder that is subject to the net capital requirements of SEA Rule 
15c3-1, other than a member organization or ETP Holder that is subject 
to the net capital requirements of SEA Rules 15c3-1(a)(1)(ii), 
(a)(2)(i) or (a)(8), must be designated and registered as either a 
Financial and Operations Principal or an Introducing Broker-Dealer 
Financial and Operations Principal. Financial and Operations Principals 
and Introducing Broker-Dealer Financial and Operation Principals are 
not subject to a prerequisite representative registration, but they 
must pass the Financial and Operations Principal or Introducing Broker-
Dealer Financial and Operations Principal examination, as applicable.
    Additionally, proposed Rule 2.1220(a)(4)(B) requires a member 
organization or ETP Holder to designate a Principal Financial Officer 
with primary responsibility for the day-to-day operations of the 
business, including overseeing the receipt and delivery of securities 
and funds, safeguarding customer and firm assets, calculation and 
collection of margin from customers and processing dividend receivable 
and payables and reorganization redemptions and those books and records 
related to such activities. Further, the proposed rule requires that a 
firm's Principal Financial Officer and Principal Operations Officer 
qualify and register as Financial and Operations Principals or 
Introducing Broker-Dealer Financial and Operations Principals, as 
applicable.
    Because the financial and operational activities of member 
organizations or ETP Holders that neither self-clear nor provide 
clearing services are more limited, such member organizations or ETP 
Holders may designate the same person as the Principal Financial 
Officer, Principal Operations Officer and Financial and Operations 
Principal or Introducing Broker-Dealer Financial and Operations 
Principal (that is, such member organizations or ETP Holders are not 
required to designate different persons to function in these 
capacities).
    Given the level of financial and operational responsibility at 
clearing and self-clearing members, the Exchange believes that it is 
necessary for such member organizations or ETP

[[Page 52295]]

Holders to designate separate persons to function as Principal 
Financial Officer and Principal Operations Officer. Such persons may 
also carry out the other responsibilities of a Financial and Operations 
Principal, such as supervision of individuals engaged in financial and 
operational activities. In addition, the proposed rule provides that a 
clearing or self-clearing member organization or ETP Holder that is 
limited in size and resources may request a waiver of the requirement 
to designate separate persons to function as Principal Financial 
Officer and Principal Operations Officer.
5. Proposed Rule 2.1220(a)(5)--Securities Trader Principal \43\
---------------------------------------------------------------------------

    \43\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(7).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(a)(5) requires that a principal responsible 
for supervising the securities trading activities specified in proposed 
Rule 2.1220(b)(3) register as a Securities Trader Principal. The 
proposed rule requires that individuals registering as Securities 
Trader Principals must be registered as Securities Traders and pass the 
General Securities Principal qualification examination.
6. Proposed Rule 2.1220(a)(6)--General Securities Sales Supervisor \44\
---------------------------------------------------------------------------

    \44\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(10).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(a)(6) provides that a principal may register 
with the Exchange as a General Securities Sales Supervisor if his or 
her supervisory responsibilities in the investment banking or 
securities business of a member organization or ETP Holder are limited 
to the securities sales activities of a member organization or ETP 
Holder, including the approval of customer accounts, training of sales 
and sales supervisory personnel and the maintenance of records of 
original entry or ledger accounts of a member organization or ETP 
Holder required to be maintained in branch offices by Exchange Act 
record-keeping rules.
    A person registering as a General Securities Sales Supervisor must 
satisfy the General Securities Representative prerequisite registration 
and pass the General Securities Sales Supervisor examinations.\45\ 
Moreover, a General Securities Sales Supervisor is precluded from 
performing any of the following activities: (1) Supervision of the 
origination and structuring of underwritings; (2) supervision of 
market-making commitments; (3) supervision of the custody of firm or 
customer funds or securities for purposes of SEA Rule 15c3-3; or (4) 
supervision of overall compliance with financial responsibility rules.
---------------------------------------------------------------------------

    \45\ An individual may also register as a General Securities 
Sales Supervisor by passing a combination of other principal-level 
examinations.
---------------------------------------------------------------------------

7. Proposed Rule 2.1220(a)(7)--Registered Options Principal \46\
---------------------------------------------------------------------------

    \46\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(8).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(a)(7) provides that each ATP Holder engaged in 
options transactions with the public have at least one Registered 
Options Principal. The proposed rule further requires that a principal 
responsible for supervising an ATP Holder's options sales practices 
with the public, including a person designated pursuant to Rule 
11.18(b)(2) register with the Exchange as a Registered Options 
Principal, unless such principal's options activities are limited 
solely to those activities that may be supervised by a General 
Securities Sales Supervisor, in which case, such person may register as 
a General Securities Sales Supervisor in lieu of registering as a 
Registered Options Principal.
    Proposed Rule 2.1220(a)(7)(B) further provides that, subject to the 
lapse of registration provisions in proposed Rule 2.1210, Commentary 
.07, each person registered with the Exchange as a Registered Options 
Principal on October 1, 2018 and each person who was registered with 
the Exchange as a Registered Options Principal within two years prior 
to October 1, 2018 would be qualified to register as a Registered 
Options Principal without having to pass any additional qualification 
examinations. The proposed rule further provides that all other 
individuals registering as Registered Options Principals after October 
1, 2018 shall, prior to or concurrent with such registration, become 
registered as a General Securities Representative and pass the 
Registered Options Principal qualification examination.
8. Proposed Rule 2.1220(b)(1)--Representative \47\
---------------------------------------------------------------------------

    \47\ The proposed rule is substantially similar to FINRA Rule 
1220(b)(1).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(b)(1) defines a representative as any person 
associated with a member organization or ETP Holder, including 
assistant officers other than principals, who is engaged in the a 
member organization's or ETP Holder's investment banking or securities 
business, such as supervision, solicitation, conduct of business in 
securities or the training of persons associated with a member 
organization or ETP Holder for any of these functions.
9. Proposed Rule 2.1220(b)(2)--General Securities Representative \48\
---------------------------------------------------------------------------

    \48\ The proposed rule is substantially similar to FINRA Rule 
1220(b)(2).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(b)(2)(A) states that each representative as 
defined in proposed Rule 2.1220(b)(1) is required to register with the 
Exchange as a General Securities Representative, subject to the 
following exceptions. The proposed rule provides that if a 
representative's activities include the function of a Securities 
Trader, then the representative must appropriately register in that 
category.
    The proposed rule further provides that, subject to the lapse of 
registration provisions in proposed Rule 2.1210, Commentary .07, each 
person registered with the Exchange as a General Securities 
Representative on October 1, 2018 and each person who was registered 
with the Exchange as a General Securities Representative within two 
years prior to October 1, 2018 would be qualified to register as a 
General Securities Representative without having to take any additional 
qualification examinations. Additionally, the proposed rule would 
require that individuals registering as General Securities 
Representatives after October 1, 2018 shall, prior to or concurrent 
with such registration, pass the SIE and the General Securities 
Representative examination.
10. Proposed Rule 2.1220(b)(3)--Securities Trader \49\
---------------------------------------------------------------------------

    \49\ The proposed rule is substantially similar to FINRA Rule 
1220(b)(4).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(b)(3) provides that each representative as 
defined in proposed Rule 2.1220(b)(1) is required to register as a 
Securities Trader if, with respect to transactions in equity (including 
equity options), preferred or convertible debt securities, such person 
is engaged in proprietary trading, the execution of transactions on an 
agency basis, or the direct supervision of such activities. The 
proposed rule provides an exception from the registration requirement 
for any associated person of a member organization or ETP Holder whose 
trading activities are conducted primarily on behalf of an investment 
company that is registered with the SEC pursuant to the Investment 
Company Act and that controls, is controlled by, or is under common 
control with a member organization or ETP Holder. The Exchange proposes 
to adopt FINRA's definition of Securities Trader in proposed Rule 
2.1220(b)(3) in order

[[Page 52296]]

to align the text of the rule to that adopted by FINRA and other 
exchanges.\50\
---------------------------------------------------------------------------

    \50\ See e.g., MIAX International Stock Exchange, LLC Rule 
203(d).
---------------------------------------------------------------------------

    The proposed rule also requires that associated persons primarily 
responsible for the design, development or significant modification of 
algorithmic trading strategies (or responsible for the day-to-day 
supervision or direction of such activities) register as Securities 
Traders. Individuals registering as Securities Traders must pass the 
SIE and the Securities Trader examination.
    Finally, the proposed rule provides that, subject to the lapse of 
registration provisions in proposed Rule 2.1210, Commentary .07, each 
person registered with the Exchange as a Securities Trader on October 
1, 2018 and each person who was registered with the Exchange as a 
Securities Trader within two years prior to October 1, 2018 would be 
qualified to register as a Securities Trader without having to take any 
additional qualification examinations. Additionally, the proposed rule 
would require that individuals registering as Securities Traders after 
October 1, 2018 shall, prior to or concurrent with such registration, 
pass the SIE and the Securities Trader qualification examination.
11. Proposed Rule 2.1220, Commentary .01--Foreign Registrations \51\
---------------------------------------------------------------------------

    \51\ The proposed rule is substantially similar to FINRA Rule 
1220.01 and 1220.06.
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    Proposed Rule 2.1220, Commentary .01, states that individuals who 
are in good standing as representatives with the Financial Conduct 
Authority in the United Kingdom or with a Canadian stock exchange or 
securities regulator would be exempt from the requirement to pass the 
SIE, and thus would be required only to pass a specialized knowledge 
examination to register with the Exchange as a representative. The 
proposed approach would provide individuals with a United Kingdom or 
Canadian qualification more flexibility to obtain a representative-
level registration. Additionally, proposed Rule 2.1220, Commentary .01, 
provides that, subject to the lapse of registration provisions in Rule 
2.1210, Commentary .07, each person who is registered with the Exchange 
as a United Kingdom Securities Representative or a Canada Securities 
Representative on October 1, 2018 and each person who was registered 
with the Exchange in such categories within two years prior to October 
1, 2018 would be eligible to maintain such registrations with the 
Exchange. However, if persons registered in such categories 
subsequently terminate such registration(s) with the Exchange and the 
registration remains terminated for two or more years, they would not 
be eligible to re-register in such categories.
12. Proposed Rule 2.1220, Commentary .02--Additional Qualification 
Requirements for Persons Engaged in Security Futures \52\
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    \52\ The proposed rule is substantially similar to FINRA Rule 
1220.02.
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    Proposed Rule 2.1220, Commentary .02, states that each person who 
is registered with the Exchange as a General Securities Representative, 
United Kingdom Securities Representative, Canada Securities 
Representative, Options Representative, Registered Options Principal or 
General Securities Sales Supervisor shall be eligible to engage in 
security futures activities as a representative or principal, as 
applicable, provided that such individual completes a Firm Element 
program as set forth in Rule 341A(b) for member organizations and Rule 
2.21E(d)(2) for ETP Holders that addresses security futures products 
before such person engages in security futures activities.
13. Proposed Rule 2.1220, Commentary .03--Scope of General Securities 
Sales Supervisor Registration Category \53\
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    \53\ The proposed rule is substantially similar to FINRA Rule 
1220.04.
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    Proposed Rule 2.1220, Commentary .03, explains the purpose of the 
General Securities Sales Supervisor registration category. The General 
Securities Sales Supervisor category is an alternate category of 
registration designed to lessen the qualification burdens on principals 
of general securities firms who supervise sales. Without this category 
of limited registration, such principals would be required to 
separately qualify pursuant to the rules of FINRA, the MSRB, the NYSE 
and the options exchanges. While persons may continue to separately 
qualify with all relevant self-regulatory organizations, the General 
Securities Sales Supervisor examination permits qualification as a 
supervisor of sales of all securities through one registration 
category. Persons registered as General Securities Sales Supervisors 
may also qualify in any other category of principal registration. 
Persons who are already qualified in one or more categories of 
principal registration may supervise sales activities of all securities 
by also qualifying as General Securities Sales Supervisors.
    The proposed rule further provides that any person required to be 
registered as a principal who supervises sales activities in corporate, 
municipal and option securities, investment company products, variable 
contracts, and security futures (subject to the requirements of Rule 
2.1220, Commentary .02) may be registered solely as a General 
Securities Sales Supervisor. In addition to branch office managers, 
other persons such as regional and national sales managers may also be 
registered solely as General Securities Sales Supervisors as long as 
they supervise only sales activities.
14. Proposed Rule 2.1220, Commentary .04--ATP Holders With One 
Registered Options Principal \54\
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    \54\ The proposed rule is substantially similar to FINRA Rule 
1220.03.
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    Proposed Rule 2.1220, Commentary .03, requires that an ATP Holder 
that has one Registered Options Principal promptly notify the Exchange 
and agree to specified conditions if such person is terminated, 
resigns, becomes incapacitated or is otherwise unable to perform his or 
her duties.
G. Proposed New Rule 2.1230--Associated Persons Exempt From 
Registration \55\
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    \55\ The proposed rule is substantially similar to FINRA Rule 
1230.
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    Proposed Rule 2.1230 provides an exemption from registration with 
the Exchange for certain associated persons. Specifically, the proposed 
rule provides that persons associated with a member organization or ETP 
Holder whose functions are solely and exclusively clerical or 
ministerial would be exempt from registration.\56\
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    \56\ FINRA Rule 1230 also provides an exemption from 
registration with FINRA to persons associated with a FINRA member 
whose functions are solely and exclusively clerical or ministerial 
and persons associated with a FINRA member whose functions are 
related solely and exclusively to (i) effecting transactions on the 
floor of a national securities exchange and who are appropriately 
registered with such exchange; (ii) effecting transactions in 
municipal securities; (iii) effecting transactions in commodities; 
or (iv) effecting transactions in security futures, provided that 
any such person is registered with a registered futures association. 
Member organizations or ETP Holders do not solely and exclusively 
engage in any of the foregoing transactions and therefore the 
Exchange is not adopting that portion of FINRA Rule 1230.
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1. Proposed Rule 2.1230, Commentary .01--Registration Requirements for 
Associated Persons Who Accept Customer Orders \57\
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    \57\ The proposed rule is substantially similar to FINRA Rule 
1230.01.
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    Proposed Rule 2.1230, Commentary .01, clarifies that the function 
of accepting customer orders is not

[[Page 52297]]

considered clerical or ministerial and that associated persons who 
accept customer orders under any circumstances are required to be 
appropriately registered. However, the proposed rule provides that an 
associated person is not accepting a customer order where occasionally, 
when an appropriately registered person is unavailable, the associated 
person transcribes the order details and the registered person contacts 
the customer to confirm the order details before entering the order.
F. Proposed Amendments to Rules 920, 921NY, 921.1NY, 930NY and 931NY of 
the Options Rules
    Finally, consistent with the proposed restructuring of the 
representative-level examinations proposed in the FINRA Filing, the 
Exchange proposes to add ``and the Securities Industry Essentials 
Examination'' following the reference to the Series 7 Examination in 
Commentary .06 to Rules 920 and in 930NY(b)(1)(A) of the Options Rules 
and following the reference to the Series 57 Examination in Rules 
921NY(a), 921.1NY(b)(2) and 931NY(a) of the Options Rules.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\58\ in general, and 
furthers the objectives of Section 6(b)(5),\59\ in particular, because 
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.
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    \58\ 15 U.S.C. 78f(b).
    \59\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change will 
streamline, and bring consistency and uniformity to, the registration 
rules, which will, in turn, assist member organizations or ETP Holders 
and their associated persons in complying with these rules and improve 
regulatory efficiency. The proposed rule change will also improve the 
efficiency of the examination program, without compromising the 
qualification standards. In addition, the proposed rule change will 
expand the scope of permissive registrations, which, among other 
things, will allow member organizations or ETP Holders to develop a 
depth of associated persons with registrations to respond to 
unanticipated personnel changes and will encourage greater regulatory 
understanding. Further, the proposed rule change will provide a more 
streamlined and effective waiver process for individuals working for a 
financial services industry affiliate of a member organization or ETP 
Holder, and it will require such individuals to maintain specified 
levels of competence and knowledge while working in areas ancillary to 
the investment banking and securities business.
    Finally, the Exchange believes that, with the introduction of the 
SIE and expansion of the pool of individuals who are eligible to take 
the SIE, the proposed rule change has the potential of enhancing the 
pool of prospective securities industry professionals by introducing 
them to securities laws, rules and regulations and appropriate conduct 
before they join the industry in a registered capacity.

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 proposed amendments are 
intended to promote transparency in the Exchange's rules, and 
consistency with the rules of other SROs with respect to the 
examination, qualification, and continuing education requirements 
applicable to member organizations or ETP Holders and their registered 
personnel. The Exchange believes that in that regard that any burden on 
competition would be clearly outweighed by the important regulatory 
goal of ensuring clear and consistent requirements applicable across 
SROs, avoiding duplication, and mitigating any risk of SROs 
implementing different standards in these important areas.
    Further, the Exchange does not believe that the proposed amendments 
will affect competition among securities markets since all SROs are 
expected to adopt similar rules with uniform standards for 
qualification, registration and continuing education requirements.

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

    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) of the Act \60\ and Rule 19b-
4(f)(6) thereunder.
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    \60\ 15 U.S.C. 78s(b)(3)(A).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days from the date of filing. However, Rule 
19b-4(f)(6)(iii) \61\ permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange has asked the Commission to waive the 
30-day operative delay so that the proposal may become operative on 
October 1, 2018 to coincide with the effective date of FINRA's proposed 
rule change on which the proposal is based.\62\ The waiver of the 
operative delay would make the Exchange's qualification requirements 
consistent with those of FINRA, as of October 1, 2018. Therefore, the 
Commission believes that the waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest and 
hereby waives the 30-day operative delay and designates the proposal 
operative on October 1, 2018.\63\
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    \61\ 17 CFR 240.19b-4(f)(6)(iii).
    \62\ See supra note 5.
    \63\ 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.

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:

[[Page 52298]]

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-NYSEAMER-2018-46 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEAMER-2018-46. 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-NYSEAMER-2018-46 and should be submitted 
on or before November 6, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\64\
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    \64\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22432 Filed 10-15-18; 8:45 am]
 BILLING CODE 8011-01-P