[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.
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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\
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\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.
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\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.
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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\
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\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.
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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:
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\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