[Federal Register Volume 84, Number 144 (Friday, July 26, 2019)]
[Notices]
[Pages 36139-36149]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15871]



[[Page 36139]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86425; File No. SR-BX-2019-022]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Delete the 
Exchange's Existing Membership Rules and To Incorporate by Reference 
the Membership Rules of The Nasdaq Stock Exchange, LLC

July 22, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 10, 2019, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to incorporate by reference into the 
Exchange's rules the membership rules of The Nasdaq Stock Exchange, 
LLC.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqbx.cchwallstreet.com/, at the principal office 
of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange's Rule 1000 Series prescribes the qualifications and 
the procedures for applying for membership on the Exchange. The 
Exchange now proposes to delete and replace these rules, as described 
below.\3\
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    \3\ The Exchange proposes to separately request an exemption 
from the rule filing requirements of Section 19(b) of the Act for 
changes to the Rule 1000 Series to the extent such rules are 
effected solely by virtue of a change to the Nasdaq Rule 1000 
Series. The Exchange's proposed rule change will not become 
effective unless and until the Commission approves this exemption 
request.
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    The Exchange proposes to delete most of its existing Rule 1000 
Series rules (with certain exceptions identified below) and replace 
them with the membership rules of The Nasdaq Stock Market, LLC 
(``Nasdaq''), which exist in the Rule 1000 Series of the Nasdaq 
Rulebook (the ``Nasdaq Rule 1000 Series'' or the ``Nasdaq Membership 
Rules''). The Exchange proposes to incorporate the Nasdaq Membership 
Rules by reference into its own Rule 1000 Series.\4\ In a recent 
filing,\5\ Nasdaq amended its own Rule 1000 Series; immediately prior 
to Nasdaq's rule filing, the Nasdaq Rule 1000 Series was the same, in 
all material respects, as the Exchange's Rule 1000 Series. By 
incorporating by reference the revised Nasdaq Rule 1000 Series, the 
Exchange seeks to incorporate the changes that Nasdaq made to the 
Nasdaq Rule 1000 Series into the BX Rule 1000 Series.
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    \4\ The Exchange notes that Nasdaq ISE, LLC, Nasdaq GEMX, LLC, 
Nasdaq MRX, LLC, and Nasdaq PHLX, LLC (together with Nasdaq and 
Nasdaq BX, the ``Affiliated Exchanges'') each plan to propose 
similar changes to their respective membership processes and 
associated rules that will also render them the same or 
substantially similar to those of Nasdaq.
    \5\ See Securities Exchange Act Release No. 34-85513 (Apr. 4, 
2019), 84 FR 14429 (Apr. 10, 2019) (SR-NASDAQ-2019-022).
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    As compared to the Exchange's existing Rule 1000 Series, by virtue 
of incorporating by reference the Nasdaq Rule 1000 Series into 
Exchange's Rulebook, the Exchange's revised membership rules (the 
``Proposed Rule 1000 Series'' or the ``Proposed Rules'') will be 
organized in a more logical order. The Proposed Rule 1000 Series will 
eliminate duplicative provisions that exist in the existing Rule 1000 
Series, eliminate unnecessary complexity in the membership process, and 
otherwise streamline the existing membership rules and their associated 
procedures. The Proposed Rule 1000 Series will relax needlessly rigid 
deadlines that the rules prescribe for taking certain actions with 
respect to membership applications.\6\
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    \6\ The Exchange does not believe that any of the proposed 
changes will adversely impact the existing rights of prospective or 
existing Members or Associated Persons. Likewise, the Exchange does 
not believe that the proposed changes will compromise the ability of 
the Exchange or its Membership Department to scrutinize prospective 
or existing Members or Associated Persons.
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Summary of Proposed Changes
    A comparison between the Exchange's existing Rule 1000 Series and 
the Proposed Rule 1000 Series, is summarized below. For ease of 
comparison, this summary refers to the deletion of the existing Rule 
1000 Series and its replacement with the Proposed Rule 1000 Series, as 
incorporated by reference, as ``amendments'' to, ``restatements'' of, 
or ``moves'' of the existing rules. Exhibit 3A to this proposal 
compares the Exchange's existing Rule 1000 Series to the Nasdaq Rule 
1000 Series and shows the changes described below.
Rule 1001
    Existing Exchange Rule 1000 includes a reference to the fact that 
FINRA is in the process of consolidating certain NASD rules into a new 
FINRA rulebook, and that if a NASD rule that is incorporated by 
reference into a BX rule is transferred to the FINRA rulebook, then the 
BX rule will be construed to require Exchange members to comply with 
the FINRA rule, as it may be renumbered or amended. This same reference 
exists, not only in existing Rule 1000, but also IM-1002-4, 1012(j), 
and 1017(g). The Proposed Rule 1000 Series deletes these references in 
all of these Rules because they will no longer be necessary going 
forward. The Proposed Rule 1000 Series rules does not cite specific 
FINRA (or NASD) Rules.
Rule 1002
    Proposed Rule 1002 differs from the existing Exchange Rule 1000 in 
several respects. First, Proposed Rule 1002 deletes existing paragraph 
(c), which pertains to the payment by Members and Associated Persons of 
dues, fees, assessments and other charges, because the requirement of 
Members and Associated Persons to make such payments is set forth 
elsewhere in the Rules, such that existing paragraph (c) is 
unnecessary.\7\ The Proposed Rule 1000 Series also moves existing 
paragraph 1002(d), which governs the reinstatement of membership and 
registration, to a new Proposed Rule 1018 that will consolidate all 
provisions

[[Page 36140]]

of the Rules relating to transfer, resignation, termination, and 
reinstatement of membership. Additionally, the Proposed Rule 1000 
Series consolidates and moves to Proposed Rule 1002, as newly-
renumbered paragraph (d), largely duplicative provisions relating to 
the registration of branch offices and the designation of offices of 
supervisory jurisdiction, which presently reside in Rule 1012(j) and 
IM-1002-4, respectively.\8\ Within the new paragraph (d), the Proposed 
Rule deletes language from existing Rule 1012(j)(1) that requires a 
Member to pay dues, fees, and charges associated with a branch office--
as that provision is superfluous for reasons discussed above. Under 
paragraph (d)(3)(A) of the Proposed Rule, the Exchange also simplifies 
the existing rules for determining compliance with branch office 
registration and supervisory office designation requirements. Whereas 
the existing processes--as set forth in existing Rule 1012(j) and IM-
1002-4--provide that Exchange Members that are also FINRA members are 
deemed to comply with the branch office and designated supervisory 
office requirements to the extent that they comply with NASD-1000-4 and 
Article IV, Section 8 of the NASD's By-Laws, the Proposed Rule 1000 
Series states that such Exchange Members are deemed to comply to the 
extent that they keep current Form BR, which contains the requisite 
information and which is accessible electronically to the Exchange. 
Members that are not FINRA members shall continue to submit to the 
Exchange a Branch Office Disclosure Form, as they have done 
previously.\9\
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    \7\ See Rule 9553.
    \8\ In subparagraph (d)(3)(B) of the Proposed Rule, the Exchange 
clarifies the existing rule text in Rule 1012(j) and IM-1002-4, 
which provide that Members that are not FINRA members shall 
designate offices of supervisory jurisdiction and branch offices by 
submitting to the Exchange a ``written filing'' to the Exchange ``in 
such form as the Exchange may prescribe.'' The Proposed Rule 
clarifies that this written filing is the ``Branch Office Disclosure 
Form.'' The Branch Office Disclosure Form is presently in use for 
this purpose and it is not a new form. Nevertheless, the Exchange 
believes that it will be helpful in the Rule to identify the 
specific form that must be filed rather than refer vaguely to a 
filing in such form as the Exchange may prescribe.
    \9\ The existing Rule states that Members that are not FINRA 
members shall designate offices of supervisory jurisdiction and 
branch offices by submitting to the Exchange ``a written filing in 
such form as the Exchange may prescribe.'' The form that the 
Exchange presently prescribes for this purpose is the Branch Office 
Disclosure Form. To improve clarity, the Proposed Rule identifies 
this form by name in the Rule. The Exchange proposes no substantive 
changes to this Form.
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    Existing Rule 1002(f) provides for broker-dealers who were approved 
as member organizations and associated persons of the Boston Stock 
Exchange prior to its acquisition by the Nasdaq OMX Group (now, Nasdaq, 
Inc.) (and its subsequent re-launching as Nasdaq BX) to have their 
status grandfathered into Nasdaq BX. The Proposed Rule 1000 Series does 
not have this provision; it is no longeris necessary given that Nasdaq 
acquired the Boston Stock Exchange and launched Nasdaq BX more than ten 
years ago. All grandfathered Boston Stock Exchange members and 
associated persons are duly accounted for in the Exchange's membership 
rolls.
    Lastly, the Proposed Rule 1000 Series moves IM-1002-1, which 
prohibits a Member or an Associated Person from filing with the 
Exchange misleading information in connection with membership or 
registration, and requires misleading information to be corrected, to 
Proposed Rule 1012 (General Application Provisions), where the Exchange 
believes it more logically fits.\10\
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    \10\ The Proposed Rule also amends the definition of a 
``Proprietary Trading Firm'' in paragraph (o) to make clear that 
such entities may be both Applicants and Members of the Exchange for 
purposes of the Rules.
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Rule 1011
    Proposed Rule 1011, which includes definitions for the Proposed 
Rule 1000 Series, defines the term ``Investment banking or securities 
business'' differently from existing Rule 1011 in that the Proposed 
Rule eliminates the reference to ``investment banking.'' The Exchange 
does not accept applications from firms that are engaged in the 
investment banking business but are not otherwise brokers or dealers in 
securities. The Exchange believes that references to the investment 
banking business in the existing Rule and elsewhere in the Exchange's 
membership rules are unintended errors.
    Whereas existing Rule 1011(g) includes the defined term ``material 
change in business operations,'' the Proposed Rule 1000 Series omits 
this definition and instead incorporates its substance into Proposed 
Rule 1017(a)(5), which is the only context in which it actually 
applies.
Rule 1012
    Existing Rule 1012, which is presently entitled ``General 
Provisions,'' differs from the proposed version of the Rule in several 
ways. Principally, the Proposed Rule limits its scope to include only 
general provisions relating to applications, and the title of the Rule 
reflects that narrowed scope (``General Application Provisions''). It 
also omits several existing provisions that are outside of this scope, 
including existing paragraphs (b) (lapses in applications), (c) (ex 
parte communications), (d) (recusals and disqualifications from 
membership appeal proceedings), (g) (resignation of Exchange Members), 
(i) (transfer and termination of Exchange membership), and (j) 
(registration of branch offices). As is discussed in further detail 
below, the Proposed Rule 1000 Series locates these provisions in other 
Rules to which they more logically relate. The Exchange does not 
believe that relocating these provisions as described will have any 
substantive effect.
    Rule 1012(a) is presently entitled ``Filing by Applicant or Service 
by the Exchange.'' Proposed Rule 1012(a) retitles the paragraph for 
clarity purposes as ``Instructions for Filing Application Materials 
with the Exchange and Requirements for Service of Documents by the 
Exchange.'' Whereas existing subparagraph (a)(1) presently permits an 
Applicant to file an application only by first-class mail, overnight 
courier, or hand delivery, the Proposed Rule modernizes this provision 
by allowing for electronic filing as well. In a new subparagraph 
(a)(3)(E) of the Proposed Rule, the Exchange states that service by 
electronic filing shall be deemed complete on the day of transmission, 
except that service or filing will not be deemed to have occurred if, 
subsequent to transmission, the serving or filing party receives notice 
that its attempted transmission was unsuccessful.
    Furthermore, Proposed Rule 1012 eliminates existing paragraph (f) 
(similarity of membership names) because the Exchange believes that it 
is unnecessary for it to monitor for similarities in the names of 
prospective Members given that FINRA, through WebCRD, and the SEC 
monitor this.
    Finally, the Proposed Rule 1000 Series relocates and restates IM-
1002-1 (regarding misleading information as to membership or 
registration) and the last paragraph of Rule 1013(a)(1) (requiring 
Members and Applicants to keep application materials current) to 
Proposed Rule 1012(c). Rather than state, as does IM-1002-1, that 
Applicants, Members, and Associated Persons shall not file false or 
misleading membership information with the Exchange, the Proposed Rule 
states in paragraph (c)(1) that they shall have an affirmative duty to 
ensure that their membership information is accurate, complete, and 
current at the time of filing. The Exchange believes that the proposed 
formulation is more

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comprehensive than the existing one.\11\ Likewise, rather than merely 
require, as does existing Rule 1013(a)(1), that Applicants shall keep 
current their application materials after filing them, the Proposed 
Rule, in paragraph (c)(2), more broadly requires Applicants, Members, 
and Associated Persons to ensure that their membership applications and 
supporting materials remain accurate, complete, and current at all 
times, by filing supplementary amendments with the Department, as is 
necessary. (The Proposed Rule omits the language in existing Rule 
1013(a)(1) that specifies that supplementary amendments shall be filed 
by electronic means insofar as Proposed Rule 1012(a) specifies the 
acceptable methods by which membership materials shall be filed with 
the Department.) \12\
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    \11\ The reformatted text of the Proposed Rule also omits the 
references in IM-1002-1 to registration decisions (which are now 
covered elsewhere in the Exchange's Rules).
    \12\ The language of existing Rule 1013(a)(1)(V), which provides 
that amendments to a membership application must be filed with the 
Exchange not later than 15 business days after a Member ``knew or 
should have known'' of the facts or circumstances giving rise to the 
need for the amendment, differs from the corresponding Proposed Rule 
1012(c), which provides that the amendment must be filed not later 
than 15 business days after a Member ``learns of'' the facts or 
circumstances giving rise to the amendment, The Exchange believes 
that this difference between the two provisions is immaterial.
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Rule 1013
    Proposed Rule 1013 is a substantial restatement of existing Rule 
1013, which sets forth procedures for filing applications for new 
membership on the Exchange.
    In paragraph (a) of Proposed Rule 1013, which describes the 
contents of new membership applications and procedures for filing, the 
Proposed Rule amends subparagraphs (a)(1)(A) and (B), which presently 
require an Applicant to file a copy of its current Form BD as well as 
an Exchange-approved fingerprint card for each Associated Person who 
will be subject to SEC Rule 17f-2.\13\ The corresponding subparagraphs 
in the Proposed Rule provide that the Applicant must provide copies of 
this Form and card only if the Exchange is not able to access them 
through the Central Registration Depository (``CRD'' or ``WebCRD'') or 
a similar source. The language in the Proposed Rule relieves Applicants 
of the burden of filing a Form or fingerprint cards that the Exchange 
can readily retrieve itself.
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    \13\ The existing provision exempts Applicants from filing 
fingerprint cards if it has already filed them with another self-
regulatory organization.
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    Whereas subparagraph (a)(1)(C) of the existing Rule requires an 
Applicant to provide a ``check'' for such fees as it may be required to 
pay under the Exchange's Rules, the corresponding provision of the 
Proposed Rule deletes the word ``check'' and replaces it with a more 
general term, ``payment,'' so as to afford an Applicant flexibility to 
pay the fee through additional means, such as wire transfer.
    Subparagraph (a)(1)(G) of the existing Rule requires disclosure of 
the Applicant's principal place of business and ``all other offices, if 
any, whether or not such offices would be required to be registered 
under the Equity Rules.'' The corresponding Proposed Rule clarifies 
this provision by specifying that it applies to ``branch'' offices. The 
Proposed Rule also omits the phrase ``whether or not such offices would 
be required to be registered under the Equity Rules,'' as the Exchange 
deems it unnecessary for the Applicant to list offices other than those 
that must be registered. Finally, the Proposed Rule states that an 
Applicant need not separately provide this branch office information to 
the Exchange to the extent that the information is otherwise available 
to the Exchange electronically through WebCRD or a similar source.
    Next, Proposed Rule 1013 consolidates subparagraphs (a)(1)(J) and 
(a)(1)(K) of the existing Rule. Whereas existing subparagraph (a)(1)(J) 
presently requires the Applicant to state whether it is currently or 
has been in the prior ten years the subject of certain investigations 
or disciplinary proceedings that have not been reported to the CRD, the 
corresponding provision in the Proposed Rule adds language--in 
subparagraph (a)(1)(K) of the existing Rule--which states that the 
obligation to disclose the Applicant's disciplinary history pertains, 
not only to the Applicant itself, but also ``any person listed on 
Schedule A of the Applicant's Form BD.'' \14\ Proposed Rule 1013 omits 
subparagraph (a)(1)(K), as it is duplicative of Proposed Rule 
1013(a)(1)(J).
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    \14\ Such persons listed on Form BD include the Applicant's 
direct owners (as that term is defined on Form BD), and certain 
partners, trusts and trustees, and limited liability company 
members, and executive officers of the Applicant.
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    Compared to subparagraph (a)(1)(N) of the existing Rule, which 
requires an Applicant to disclose how it complies with Rule 3011, the 
corresponding Proposed Rule clarifies that Rule 3011 requires Members 
to have anti-money laundering compliance programs.
    In subparagraph (a)(1)(P) of the Proposed Rule, the Exchange omits 
language that presently permits an Applicant to submit a Form U-4 for 
each person conducting and supervising the conduct of the Applicant's 
market making and other trading activities. The Proposed Rule omits the 
existing requirement that an Applicant submit a Form U-4 because the 
information that the Form contains is otherwise accessible to the 
Exchange through WebCRD, such that submission of the Form itself is 
unnecessary.
    In subparagraph (a)(1)(Q) of the Proposed Rule, the Exchange omits 
the requirement in the corresponding provision of the existing Rule 
that the Applicant provide to the Exchange a FINRA Entitlement Program 
agreement and Terms of Use and an Account Administration Entitlement 
Form, if not previously provided to FINRA. The Proposed Rule omits this 
requirement because the Exchange has determined that the requirement is 
unnecessary. Any Applicant for membership will have already completed 
and submitted this agreement and form prior to applying to the 
Exchange. The completion and submission of the agreement and form will 
be evident to the Exchange from the fact that FINRA has granted the 
Applicant access to WebCRD. The Exchange understands that completion of 
the Account Administration Entitlement Form is a prerequisite to the 
creation of a registered BD and receiving WebCRD access.
    The Proposed Rule amends subparagraphs (a)(1)(T), (U), and (V) of 
the existing Rule, which presently require an Applicant to submit to 
the Exchange an agreement to comply with the federal securities laws, 
the rules and regulations thereunder, the Exchange's Rules, and all 
rulings, orders, directions, decisions, and sanctions thereunder, as 
well as an agreement to pay such dues, assessments, and other charges 
in the manner and in the amount as the Exchange prescribes. The 
Proposed Rule prefaces these requirements with a more general 
requirement that an Applicant submit a duly executed copy of the 
Exchange's Membership Agreement. The Membership Agreement comprises the 
foregoing commitments, among others, and Applicants presently submit an 
executed copy of the Membership Agreement to satisfy existing 
subparagraphs (a)(1)(T) and (U). The Proposed Rule inserts the new 
language in subparagraph (a)(1)(T) and moves the language in existing 
subparagraphs (a)(1)(T) and (U) to new subparagraphs (a)(1)(T)(1) and 
(2). The Proposed Rule renumbers existing subparagraph (a)(1)(V) as 
subparagraph (a)(1)(U).
    The Proposed Rule omits existing subparagraph (a)(2) of the 
existing Rule, which presently requires an Applicant to submit uniform 
registration forms,

[[Page 36142]]

due to the fact that the information that these forms contain is 
readily accessible to the Exchange through WebCRD.
    Next, the Proposed Rule restates the Exchange's requirements and 
procedures for deeming applications to be filed, for dealing with 
incomplete applications, and for requesting additional information from 
an Applicant or a third party in connection with a pending application. 
The Proposed Rule restates these requirements and procedures to improve 
their clarity, to relax certain procedural deadlines that are 
needlessly rigid, and to provide additional due process to Applicants.
    First, in lieu of the omitted text in subparagraph (a)(2) of the 
existing Rule, the Proposed Rule includes a new provision, entitled 
``When an Application is Deemed to be Filed,'' which states expressly 
what is now only implied in existing Rule 1013--that the Department 
will deem an application to be filed on the date when it is 
``substantially complete,'' meaning the date on which the Department 
receives from the Applicant all material documentation and information 
required under Rule 1013. The Exchange believes that Applicants will 
benefit from this clarification, particularly because it affords the 
Department discretion to deem an application to be filed when it 
obtains sufficient information or documentation from the Applicant to 
enable the Department to commence processing the application. The new 
provision in the Proposed Rule also requires the Department to inform 
the Applicant in writing when the Exchange deems an application to be 
substantially complete so that there will be no ambiguity as to when 
the Department will begin to process the application.
    Second, the Proposed Rule omits existing subparagraph (a)(3), which 
presently governs the rejection of applications that are not 
substantially complete. In lieu of the omitted text, the Proposed Rule 
contains two new provisions that deal with lapses in applications that 
are not substantially complete, and the rejection of filed applications 
that remain or become incomplete after filing.
    Subparagraph (a)(3)(A) of the Proposed Rule, which governs lapses 
of applications, also replaces existing Rule 1012(b). This provision of 
the Proposed Rule states that if the Department does not deem an 
application to be substantially complete (and thereby filed, in 
accordance with proposed subparagraph (a)(2)) within 90 calendar days 
after an Applicant initiates it, then absent a showing of good cause by 
the Applicant, the Department may, at its discretion, deem the 
application to have lapsed without filing, such the Department will 
take no action in furtherance of the application. The Proposed Rule is 
conceptually different from existing Rule 1012(b). The Proposed Rule 
conceives of a lapsed application as one that an Applicant initiates 
but does not substantially complete even after a prolonged period of 
time, such that the Department treats it as having been abandoned prior 
to filing. Under existing Rule 1012(b), by contrast, the Exchange 
treats lapses more broadly as any unexcused failure of an Applicant to 
complete an application, to respond to the Department's requests for 
information or documents, to participate in a membership interview, or 
to file with the Exchange an executed membership agreement. As is 
discussed below, the Proposed Rule treats an Applicant's post-filing 
non-responsiveness to the Department's requirements as a basis for 
rejection of an application, not a lapse of an application, because 
once an application is deemed filed, the Department will begin to take 
action in furtherance of the application. Also unlike the existing 
Rule, the Proposed Rule provides that the Department merely has 
discretion to, but need not deem an application to have lapsed once it 
meets the requirements of the subparagraph. Moreover, the Proposed Rule 
requires that once the Department deems an application to have lapsed, 
then the Department must serve a written notice of that determination 
on the Applicant and refund any application fees that the Applicant 
paid to the Exchange (provided that the Exchange did not, in fact, take 
action in furtherance of the lapsed application). Finally, the Proposed 
Rule states that an Applicant that still wishes to apply for membership 
on the Exchange after receiving notice of a lapse in its application 
must submit a new application pursuant to these Rules and pay a new 
application fee for doing so, if applicable.
    Subparagraph (a)(3)(B) of the Proposed Rule governs the 
circumstances in which the Department may reject an application that it 
already has deemed to be ``substantially complete'' and thus filed. 
Specifically, the Proposed Rule states that if a pending application 
remains incomplete after filing, or becomes incomplete after filing due 
to the fact that the Applicant has not timely responded to the 
Department's request for supplemental information or documents, then 
the Department will serve notice on the Applicant of the nature of the 
incompleteness and afford the Applicant a reasonable time period in 
which to address it. If the Applicant fails to address the 
incompleteness within the time period that the Department prescribes in 
the notice, then, absent a showing of good cause by the Applicant, the 
Department may--but again it is not required to--deem the application 
to be rejected and it must serve written notice of any such 
determination upon the Applicant. The Proposed Rule states, moreover, 
that if the Department deems an application to be rejected, then the 
Applicant shall not be entitled to a refund of any fees that the 
Applicant may have paid in connection with its application so that the 
Exchange can recover its costs associated with processing the filed 
application prior to rejecting it. Finally, the Proposed Rule states 
that if an Applicant chooses to continue to pursue membership following 
a rejection of its application, then it must submit a new application 
and pay any associated fees that are required under the Rule.
    Third, the Proposed Rule restates subparagraph (a)(4) of the 
existing Rule, which governs requests made by the Department for 
additional information or documents during its consideration of an 
application. The Proposed Rule also restates and consolidates into 
subparagraph (a)(4) the provision of existing Rule 1013 that governs 
membership interviews and information pertinent to the application that 
the Department gathers from third party sources other than the 
Applicant (existing paragraph (b)). The Exchange believes that rules 
governing supplemental information and document requests, membership 
interviews, and third party information are related and should be 
consolidated into a single provision. Moreover, the Exchange notes that 
it does not, as a practical matter, opt to conduct formal membership 
interviews because it is more efficient and less onerous for all 
parties to instead engage in informal discussions when questions and 
concerns arise. Because the Exchange does not exercise its discretion 
to conduct formal interviews the Exchange believes that it is 
reasonable to eliminate the concept and the procedures that govern such 
interviews in the new subparagraph.
    In particular, the subparagraph, as restated in the Proposed Rule, 
provides that at any time before the Department serves its decision on 
a membership application,\15\ it may issue a request for

[[Page 36143]]

additional information or documents--either from the Applicant or from 
a third party--if the Department deems such information or 
documentation to be necessary to clarify, verify, or supplement the 
application materials. The Proposed Rule states that the Department may 
request that the information or documentation be provided in writing or 
through an in-person or telephonic interview. The Proposed Rule 
furthermore states that the Department shall serve its request in 
writing. The Proposed Rule states that the Department must afford the 
recipient a reasonable amount of time within which to respond to the 
request \16\ and that the failure of an Applicant to respond within the 
allotted time may serve as a basis for the Department to reject an 
application under subparagraph (a)(3)(B), described above. Finally, the 
Proposed Rule for the first time affords the Applicant due process in 
the event that the Department obtains information or documentation 
about the Applicant from a third party that the Department reasonably 
believes could adversely impact its decision on an application.\17\ In 
such a circumstance, the Proposed Rule requires the Department to 
promptly inform the Applicant in writing and describe the third party 
information or documentation that the Department obtained. The 
Department must also afford the Applicant a reasonable opportunity to 
discuss with it or object to the Department's use of the third party 
information or documentation in its application decision prior to the 
Department rendering the decision.
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    \15\ The restated provision of the Proposed Rule eliminates the 
requirement in the existing Rule that the Department must serve an 
initial supplemental request for information or documents within 15 
business days after an application is deemed to be filed. The 
Exchange finds no good reason to distinguish in the rule between an 
``initial'' and a subsequent supplemental Departmental request or to 
impose a specific deadline for the Department to issue any such 
requests; the Department has a shared interest with the Applicant in 
issuing supplemental requests expeditiously such that no artificial 
deadline is necessary.
    \16\ Rather than impose a minimum time period for a response, 
the Proposed Rule requires only that the Department prescribe a 
reasonable deadline for a response. The Exchange believes that the 
appropriate response period will vary depending upon the nature of 
the information or documentation requested. Moreover, the Exchange 
again believes that the Department and the Applicant have a shared 
interest in ensuring that the Applicant has adequate time to respond 
to a request.
    \17\ The Department may consult third parties, such as other 
SROs of which an Applicant is or was a member previously, to obtain 
additional information about or to confirm aspects of an application 
or the Applicant's character or history. The Department might also 
consult third party services to investigate or verify the 
Applicant's financial condition or history.
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    Fourth, the Proposed Rule 1000 Series includes a new Rule 1013(b), 
entitled ``Special Application Procedures,'' which restates and expands 
upon the special application procedures set forth in subparagraph 
(a)(5) of the existing Rule 1013. Presently, subparagraph (a)(5)(A) 
states that when an Applicant is applying for FINRA membership and 
Exchange membership at the same time, then the Exchange will wait to 
process the application until the applicant becomes a FINRA member.\18\ 
Presently, subparagraph (a)(5)(C) states that expedited application 
procedures will apply to Applicants that are already members of FINRA 
and Nasdaq, or Nasdaq PHLX LLC. The Proposed Rule omits subparagraph 
(a)(5)(A) and (B) because the Exchange believes that these provision 
add little value, especially in light of other changes that the 
Exchange adopted in the Proposed Rules. Likewise, the Proposed Rule 
omits subparagraph (a)(5)(C) because it has become outdated in that it 
does not provide expedited application procedures for Applicants that 
are members of the Exchange's other affiliates; this provision also 
does not explain what an ``expedited'' application process entails.
---------------------------------------------------------------------------

    \18\ Existing subparagraph (a)(5)(B) also specifies that 
Applicants that are already members of another registered securities 
association or exchange must submit a regular application form.
---------------------------------------------------------------------------

    In lieu of the existing subparagraph (a)(5), the Proposed Rule 
includes two types of special applications in Rule 1013(b). First, 
Proposed Rule 1013(b)(1) prescribes a special application process for 
Applicants that are already FINRA members. Specifically, the Proposed 
Rule states that such an Applicant will have the option to ``waive-in'' 
to become an Exchange Member and to register with the Exchange all 
persons associated with it whose registrations FINRA has approved (in 
categories recognized by the Exchange's rules). The Proposed Rule 
defines the term ``waive-in'' to mean that the Department will rely 
substantially upon FINRA's prior determination to approve the Applicant 
for FINRA membership when the Department evaluates the Applicant for 
Exchange membership. That is, the Department will normally permit a 
FINRA member to waive-into Exchange membership without conducting an 
independent examination of the Applicant's qualifications for 
membership on the Exchange, provided that the Department is not 
otherwise aware of any basis set forth in Rule 1014 to deny or 
condition approval of the application.
    Procedurally, the Proposed Rule states that a FINRA member that 
wishes to waive-into Exchange membership must do so by submitting to 
the Department an application form (the standard application form 
contains an option to select waive-in membership) and an executed 
Exchange Membership Agreement. The Department, in turn, will act upon a 
duly submitted waive-in application within a reasonable time frame not 
to exceed 20 days from submission of the application, unless the 
Department and the Applicant agree to a longer time frame for issuing a 
decision.\19\ If the Department fails to issue a decision on a waive-in 
application within the prescribed time frame, then the Applicant may 
petition the Exchange's Board of Directors to force the Department to 
act, as set forth in Rule 1014(c)(3). Finally, the Proposed Rule states 
that a decision issued under this provision shall have the same 
effectiveness as set forth in Rule 1014 and shall be subject to review 
as set forth in Rules 1015 and 1016.
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    \19\ The Proposed Rule prescribes this time frame to accommodate 
FINRA, which will review waive-in applications on behalf of the 
Exchange to verify that the Applicants are FINRA members in good 
standing. As a practical matter, the Exchange expects to act on 
waive-in applications prior to the 20 day deadline.
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    The second special application process, which is set forth in 
Proposed Rule 1013(b)(2), permits Applicants for Exchange membership 
that are already approved members of one or more of the Affiliated 
Exchanges to waive-into the Exchange membership. In this context, 
``waive-in'' means that the Department will rely substantially upon an 
Affiliated Exchange's prior determination to approve the Applicant for 
membership on the Affiliated Exchange when the Department evaluates the 
Applicant for Exchange membership. The procedures in the Proposed Rule 
for an Applicant to submit a waive-in application under this provision 
and for the Department to issue a decision based upon such an 
application are identical to the procedures described above for FINRA 
members that seek to waive-into Exchange membership. The Exchange 
amends its application form to reflect the fact that Applicants may 
waive-into membership on the Exchange based upon their membership on 
any of the other five Affiliated Exchanges.
Rule 1014
    In several respects, Proposed Rule 1014 differs from the existing 
Rule, which governs the issuance of membership application decisions by 
the Department.
    First, to improve clarity, the Proposed Rule is reorganized 
relative to the existing Rule. Rather than begin the

[[Page 36144]]

Rule with a paragraph that describes the bases for the Department to 
issue a decision on an application, as is the case presently, the 
Proposed Rule begins with a paragraph (a) entitled ``Authority of 
Department to Approve, Approve with Restrictions, or Deny an 
Application.'' This new paragraph sets forth the general authority of 
the Department to act on an application by approving it, denying it, or 
approving it subject to restrictions: (1) That are reasonably designed 
to address a specific (financial, operational, supervisory, 
disciplinary, investigatory, or other regulatory) concern; or (2) that 
mirror a restriction placed upon the Applicant by FINRA or an 
Affiliated Exchange. It incorporates elements of what is now Rule 
1014(b) (which the Exchange proposes to delete going forward).
    Second, the Proposed Rule renumbers existing paragraph (a) as new 
paragraph (b). This paragraph is retitled ``Bases for Approval, 
Conditional Approval, or Denial'' but otherwise is the same.
    Third, as noted above, existing paragraph (b) is omitted from the 
Proposed Rule.
    Fourth, the Proposed Rule amends paragraph (c), which prescribes 
the time period within which the Department must issue and serve a 
written decision on a membership application. Presently, the provision 
requires the Department to serve a written decision within 15 business 
days after the Applicant concludes its membership interview (if any) or 
files all of its required information or documents, whichever is later. 
The Proposed Rule relaxes this requirement by stating that the 
Department must respond in a reasonable time period, not to exceed 45 
(calendar) days after the Applicant files and provides to the Exchange 
all required and requested information or documents in connection with 
the application, unless the Department and the Applicant agree to 
further extend the decision deadline.\20\ The Proposed Rule includes 
these amendments because the Exchange adjudges the existing timeframe 
to be needlessly short and inflexible. In certain instances where the 
Department has outstanding questions or concerns associated with an 
application, the existing Rule may force the parties to rush to address 
outstanding questions and resolve outstanding issues. The Proposed Rule 
allows for such questions and issues to be addressed with less time 
pressure involved. The Exchange notes that it does not intend for the 
Proposed Rule to routinely lengthen the Department's timeframe for 
serving application decisions. Under the existing Rule, the Exchange 
typically issues decisions far in advance of the 15 business day 
deadline and the Exchange expects that it will continue to do so in 
most instances. Indeed, the Exchange has a self-interest in issuing 
decisions as soon as is possible. The 45 day decision period in the 
Proposed Rule is merely intended to allow for the parties to have 
flexibility in unusual circumstances.
---------------------------------------------------------------------------

    \20\ The Proposed Rule also contains conforming amendments to 
Rule 1014(c)(3), which addresses failures of the Department to serve 
a decision within the prescribed time frame.
---------------------------------------------------------------------------

    Fifth, the Proposed Rule omits existing paragraph (d), which states 
that a decision by the Department to approve an application is 
contingent upon the Applicant filing with the Department an executed 
written membership agreement that contains the Applicant's agreement to 
abide by any restriction specified in the Department's decision and to 
obtain the Department's approval prior to undertaking a change in 
ownership, control, or business operations, or prior to modifying or 
removing a membership restriction. The Proposed Rule omits this 
provision because, as explained above, the Exchange expressly requires, 
in Proposed Rule 1013, that an Applicant must file a duly executed copy 
of the Membership Agreement as part of its application. The existing 
Membership Agreement contains the undertakings described in existing 
paragraph (d). Accordingly, existing paragraph (d) is superfluous.
Rule 1015
    The Proposed Rule 1000 Series amends existing Rule 1015, which 
states that the Department's membership decisions are subject to review 
by the Exchange Review Council. Specifically, the Proposed Rule 1000 
Series moves from existing Rule 1012(c) to Proposed Rule 1015(k) a 
provision that prohibits ex parte communications involving membership 
decisions subject to review among certain Exchange staff, members of 
the Exchange Review Council, members of a Subcommittee of the Council, 
and the Board of Directors. Similarly, the Proposed Rule 1000 Series 
moves from existing Rule 1012(d) to Proposed Rule 1015(l) a provision 
that governs the recusal and disqualification of a member of the 
Exchange Review Council, a Subcommittee thereof, or the Board of 
Directors from participating in a review of a membership decision. The 
Proposed Rule 1000 Series moves these provisions because the Exchange 
believes that they fit logically within the section of the membership 
rules that govern appeals of membership decisions. The Proposed Rules 
contain no substantive changes to these provisions \21\ and the 
Exchange does not believe that moving them will have any substantive 
effect.
---------------------------------------------------------------------------

    \21\ The Proposed Rule omits the requirement in existing Rule 
1015(a) that an applicant file a request for review ``by first-class 
mail.'' Proposed Rule 1012(a) now provides for a more modern array 
of filing options that includes electronic submission.
---------------------------------------------------------------------------

Rule 1017
    The Proposed Rule 1000 Series contains substantial changes to 
existing Rule 1017, which requires Members to obtain approval prior to 
effecting a change in ownership, control, or business operations. These 
changes are generally intended to streamline and simplify the existing 
Rule, which the Exchange believes are unnecessary onerous and complex. 
As much as possible, the Proposed Rule applies the same procedures to 
these applications for approval as it does to its applications for 
membership under Proposed Rules 1013 and 1014.
    The first difference between the existing and Proposed Rule 1017 
concerns Rule 1017(a), which presently defines the events that require 
Members to file applications. The existing paragraph states that a 
Member shall file an application for approval prior to effecting the 
following changes: (1) A merger of the Member with another Member 
(unless both are members or the surviving member will continue to be a 
member of the New York Stock Exchange (``NYSE'')); (2) a direct or 
indirect acquisition by the Member of another Member (unless the 
acquiring Member is a member of the NYSE); (3) direct or indirect 
acquisitions or transfers of 25% or more in the aggregate of the 
Member's assets or any asset, business line or line of operations that 
generates revenues comprising 25% or more in the aggregate of the 
Member's earnings measured on a rolling 36 month basis (unless both the 
seller and acquirer are members of the NYSE); (4) a change in the 
equity ownership or partnership capital of the Member that results in 
one person or entity directly or indirectly owning or controlling 25 
percent or more of the equity or partnership capital; or (5) a 
``material change in business operations.'' Existing Rule 1011(g), in 
turn, defines a ``material change in business operations'' to mean, 
among other things: (1) Removing or modifying a membership restriction; 
(2) acting as a dealer for the first time; (3) market making for the 
first time on the Exchange (except when the member's market making has 
been approved

[[Page 36145]]

previously by FINRA or Nasdaq); (4) adding business activities that 
require higher minimum net capital under SEC Rule 15c3-1; and (5) 
adding business activities that would cause a proprietary trading firm 
no longer to meet the definition of that term contained in the rule.
    For ease of reference, the Proposed Rule 1000 Series incorporates 
into Proposed Rule 1017(a)(5) the definition of a ``material change in 
business operations'' rather than define it separately in Rule 1011(g). 
The Proposed Rule 1000 Series also takes the existing exclusion from 
that definition--excluding first time market makers on the Exchange 
whose market making activities have been approved previously by FINRA 
or Nasdaq--and applies it more broadly to all of Rule 1017(a). That is, 
none of the changes enumerated in Proposed Rule 1017(a) require prior 
Departmental approval to the extent that the Member's Designated 
Examining Authority (``DEA''), or an Affiliated Exchange, has approved 
the change previously in accordance with their respective rules and 
provided that the Member provides written evidence to the Department of 
such prior approval. The Exchange believes that this is prudent because 
in all instances in which a Member's DEA or any Affiliated Exchange 
\22\ have already approved a change, the Exchange can be reasonably 
confident that such prior approval would be consistent with its own 
judgment on the matter, such that no purpose would be served in 
requiring the Department to independently approve the same change.\23\ 
The Proposed Rule 1000 Series also eases burdens on Members that wish 
to make changes to their businesses and which presently require 
multiple approvals to do so. The Exchange notes that in the Proposed 
Rules, it retains authority to require approval of a proposed change 
where the nature, terms, or conditions of the change have altered since 
the Member's DEA or an Affiliated Exchange approved it.
---------------------------------------------------------------------------

    \22\ Exchange notes that the existing Rule is under-inclusive in 
that it does not account for prior approvals granted by all of the 
Affiliated Exchanges. The Exchange believes that there is no 
reasonable basis for it to defer to a prior approval granted by 
Nasdaq and to not do the same with respect to prior approvals 
granted by the other Affiliated Exchanges.
    \23\ Proposed Rule 1017(a) eliminates exceptions relating to 
NYSE membership. The Exchange believes that this proposal is 
reasonable insofar as the NYSE's rules may, at times, diverge with 
those of the Exchange. Going forward, the Exchange feels more 
confident deferring to the prior judgment of a Member's DEA or of an 
Affiliated Exchange as to the specific change event at issue than it 
does to the mere fact that a Member or its counterparty in a 
business transaction are NYSE members.
---------------------------------------------------------------------------

    Next, the Proposed Rule 1000 Series makes several organizational 
and clarifying amendments to existing Rule 1017(b), which governs the 
filing and content of applications filed under Rule 1017. to the 
Proposed Rule prefaces subparagraph (b)(2)--which presently states 
vaguely that the ``application'' shall contain certain items--with 
language clarifying that the provision pertains to applications for 
approval of a change in ownership or control or a material change in 
the business operations of a member. It also breaks out the last 
sentence of (b)(2) into new subparagraphs (2)(A) and (2)(B). 
Furthermore, the Proposed Rule contains clarifying changes in (2)(A) 
(specifying that a description of a ``change in ownership, control, or 
business operations'' means a ``proposed'' change in ownership, 
control, or ``material'' business operations) and (2)(B) (specifying 
that the Member must ``attach'' rather than ``include'' a business 
plan, pro forma financials, an organizational chart, and written 
supervisory procedures relating to the ``proposed'' change). Finally, 
the Proposed Rule renumbers the remainder of the existing Rule.
    Proposed Rule 1017(c) is more limited in its scope than is existing 
Rule 1017(c). Specifically, the proposed Rule omits from subparagraph 
(c)(1) the ability of a Member to effect a change in ownership or 
control prior to receiving approval from the Department and the ability 
of the Department to impose interim restrictions on the Member pending 
final Department approval. The Exchange believes that the concepts of 
interim changes and restrictions are overly complex, potentially 
disruptive, and ultimately unnecessary given the short time frames that 
the Rules prescribe for the Department to act on applications.\24\ 
Additionally, the Exchange notes that in its experience reviewing 
applications under Rule 1017, these provisions never have been invoked. 
Finally, the Proposed Rule changes the title of this provision to 
reflect the omission of the foregoing. Whereas now, the title is 
``Effecting Change and Imposition of Interim Restrictions,'' the 
Proposed Rule is entitled ``When Applications Shall or May Be Filed.''
---------------------------------------------------------------------------

    \24\ The Exchange also notes that FINRA is also publicly 
contemplating eliminating the concept of allowing its members to 
effect business changes on an interim basis. See FINRA, Regulatory 
Notice 18-23: Membership Application Proceedings (Request for Public 
Comment), Attachment B (July 26, 2018), available at http://www.finra.org/sites/default/files/Attachment-B_Regulatory-Notice-18-23.pdf.
---------------------------------------------------------------------------

    Existing paragraphs (d), (e), and (f) of Rule 1017, prescribe 
standards for rejecting applications that are not substantially 
complete, authorize the Department to serve a request for additional 
documents and information, and permit the Department to conduct 
interviews of Applicants, respectively. Proposed Rule 1017 omits these 
provisions and replaces them with provisions that are more consistent 
with Proposed Rule 1013(a)(2), (3), and (4). That is, Proposed Rule 
1017(d) states that the Department will deem an application to be filed 
on the date when it is substantially complete, meaning the date on 
which the Department receives from the Applicant all material 
documentation and information required under the Rule. It also requires 
the Department to inform the Applicant in writing when the Department 
deems an application to be substantially complete. Proposed Rule 
1017(d) states that the Department may treat an application filed under 
this Rule as having lapsed, and the Department may reject an 
application filed under this Rule, in accordance with Proposed Rule 
1013(a)(3), except that the Department may treat an application as 
having lapsed if it is not substantially complete for 30 days or more 
after the applicant initiates it.\25\ Finally, Proposed Rule 1017(f) 
states that at any time before the Department serves its decision on an 
application filed under Rule 1017, the Department may request 
additional information or documentation from the Applicant or from a 
third party in accordance with Rule 1013(a)(4).\26\
---------------------------------------------------------------------------

    \25\ The Exchange notes that this 30 day time period for deeming 
an application to have lapsed derives from existing Rule 1017(d).
    \26\ As stated previously, circumstances where the Department 
may consult a third party include to seek additional information 
about or to verify aspects of an application. For example, the 
Department may consult another SRO to verify the financial status or 
prior disciplinary history of a Member's prospective new ownership.
---------------------------------------------------------------------------

    Existing Rule 1017(g) prescribes a complex system for the 
Department to issue decisions in response to applications filed under 
Rule 1017. For example, it differentiates between decisions issued with 
respect to Members that are and are not FINRA members (or required to 
be FINRA members). With respect to Members that are FINRA members, the 
Rule requires the Department to consider whether the Applicant and its 
Associated Persons meet the standards set forth in NASD (FINRA) Rule 
1014(a). It also prescribes specific criteria for issuing decisions 
where the Applicant seeks a

[[Page 36146]]

modification or removal of a membership restriction. The Exchange 
believes that this complex system is unnecessary and can be simplified 
considerably, particularly in light of the proposal described above to 
exempt a Member from obtaining the Exchange's approval to effect a 
change in ownership or control or a material change in its business 
operations when FINRA has already approved the change previously. That 
is, there is no reason for the Exchange to make an independent 
assessment of whether the proposed change complies with FINRA rules if 
FINRA has already made that determination.
    In lieu of the existing provisions, Proposed Rule 1017 states that 
the Department will render a decision on an application filed under 
Rule 1017 in accordance with the standards set forth in Rule 1014, 
except with respect to applications to modify or remove a membership 
restriction, in which case the Department will consider the factors 
presently set forth in existing Rule 1017(g)(1)(D) (Proposed Rule 1017 
renumbers this provision as subparagraph (g)(1)).
    Additionally, in lieu of existing Rule 1017(g)(2), which requires 
the Department to serve a written decision on an application filed 
under Rule 1017 within 30 (calendar days) after conclusion of a 
membership interview or the filing of additional information or 
documents (whichever is later), Proposed Rule 1017 states that the 
Department will serve a written decision in accordance with Rule 
1013(c).\27\ The Proposed Rule 1000 Series makes this change to 
1017(g)(2) for the same reasons that it discussed above with respect to 
Rule 1013(c).
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    \27\ The Exchange notes that the cross-reference to Rule 1013(c) 
in the Proposed Rules also addresses the Applicant's rights in the 
event that the Department does not serve it with a timely written 
decision. Accordingly, the Proposed Rule omits existing subparagraph 
(g)(3), which covers the same topic.
---------------------------------------------------------------------------

    Finally, the Proposed Rule 1000 Series omits existing Rule 1017(k). 
This provision presently states that if an application for approval of 
a change in ownership lapses or is denied and all appeals are exhausted 
or waived, the Member must, within 60 days, submit a new application, 
unwind the transaction, or file a Form BDW. It also provides for the 
Department to shorten or lengthen the 60 day period under certain 
circumstances. Due to the fact that the Exchange--as explained 
previously--will eliminate the ability of a Member to effect a change 
in ownership while its application for Departmental approval is 
pending, this provision is no longer be necessary. That is, there will 
be no interim change in ownership that will need to be unwound or 
otherwise addressed if the Department denies an application or it 
lapses.
Rule 1018
    The Proposed Rule 1000 Series consolidates within Proposed Rule 
1018, which is reserved under the existing Rules, existing provisions 
of the Rules pertaining to the resignation of members (existing Rule 
1012(g), transfer of membership (existing Rule 1012(i)(1)), termination 
of membership (existing Rule 1012(i)(2)), and reinstatement of 
membership (existing Rule 1002(d)). The Exchange believes that these 
provisions are logically related and belong together in a single Rule. 
Proposed Rule 1018 maintains the substance of these consolidated 
provisions unchanged from their existing state, except that 
resignations no longer require a 30 day time period to become 
effective. Also, the provision on reinstatement applies to membership 
only and not to registration, which is covered separately in the 
Exchange's Rules.
Other Miscellaneous Changes
    The Proposed Rule 1000 Series contains other non-substantive 
differences from the existing Rule 1000 Series, as follows. Where the 
existing Rules refer specifically to ``Nasdaq BX'' or ``BX,'' the 
Proposed Rules replace such references with more general term 
``Exchange.'' This difference makes it easier in the future to 
harmonize the Exchange's membership rules with those of the other 
Affiliated Exchanges. The Proposed Rule 1000 Series also updates 
obsolete references to the ``NASD'' to reflect the fact that the NASD 
is now known as ``FINRA.'' Finally, where applicable, the Proposed Rule 
1000 Series renumbers the Rules and updates or corrects cross-
references.
Proposed Introductory Paragraph to the BX Rule 1000 Series
    The Exchange proposes to include an introductory paragraph to the 
BX Rule 1000 Series which states that it incorporates by reference the 
Nasdaq Rule 1000 Series (other than Nasdaq Rules 1031, 1050, 1090, 
1130, 1150, 1160, and 1170),\28\ and that such Nasdaq Rules shall be 
applicable to Exchange Members, Associated Persons, and other persons 
subject to the Exchange's jurisdiction.
---------------------------------------------------------------------------

    \28\ The Exchange notes that these rules, both for BX and 
Nasdaq, are separate from the membership rules. The proposal will 
not supplant or amend BX Rules 1031, 1050, 1090, 1130, 1150, 1160, 
or 1170.
---------------------------------------------------------------------------

    These proposed introductory paragraphs also list instances in which 
cross references in the Nasdaq Rule 1000 Series to other Nasdaq rules 
should be read to refer instead to the Exchange rules, and references 
to defined Nasdaq terms shall be read to refer to the Exchange-related 
meanings of those terms. For example, references in the Nasdaq Rule 
1000 Series to the following defined terms shall be read to refer to 
the Exchange-specific meanings of those terms: ``Exchange'' or 
``Nasdaq'' shall be read to refer to the Nasdaq BX Exchange; ``Rule'' 
or ``Exchange Rule'' shall be read to refer to the Exchange Rules; the 
defined term ``Applicant'' in the Nasdaq Rule 1000 Series shall be read 
to refer to an Applicant to the Nasdaq BX Exchange; the defined terms 
``Board'' or ``Exchange Board'' in the Nasdaq Rule 1000 Series shall be 
read to refer to the Nasdaq BX Board of Directors; the defined term 
``Director'' in the Nasdaq Rule 1000 Series shall be read to refer to a 
Director of the Board of the Nasdaq BX Exchange; the defined term 
``Exchange Review Council'' in the Nasdaq Rule 1000 Series shall be 
read to refer to the Nasdaq BX Exchange Review Council; the defined 
term ``Subcommittee'' in the Nasdaq Rule 1000 Series shall be read to 
refer to a Subcommittee of the Nasdaq BX Exchange Review Council; the 
defined term ``Interested Staff'' in the Nasdaq Rule 1000 Series shall 
be read to refer to Interested Staff of Nasdaq BX; the defined term 
``Member'' in the Nasdaq Rule 1000 Series shall be read to refer to a 
Nasdaq BX Member; the defined term ``Associated Person'' shall be read 
to refer to a Nasdaq BX Associated Person; the defined terms ``Exchange 
Membership Department'' or ``Membership Department'' shall be read to 
refer to the Nasdaq BX Membership Department; and the defined term 
``Exchange Regulation Department'' shall be read to refer to the Nasdaq 
BX Regulation Department.
    Additionally, the proposed introduction to the BX Rule 1000 Series 
states that cross references in the Nasdaq Rule 1000 Series to ``Rule 
0120'' shall refer to Nasdaq BX Rule 0120, cross references in the 
Nasdaq Rule 1000 Series to Rule 3010 shall refer to Nasdaq BX Rule 
3010; cross references in the Nasdaq Rule 1000 Series to Rule 3011 
shall refer to Nasdaq BX Rule 3011; and cross references to ``General 
4, Section 1.1200 Series'' shall be read to refer to the Nasdaq BX Rule 
1200 Series.

[[Page 36147]]

Conclusion
    The changes proposed herein will allow the Exchange to harmonize 
its membership rules and processes with those of Nasdaq and, 
ultimately, with the other Affiliated Exchanges,\29\ thus providing a 
uniform criteria across the Affiliated Exchanges for membership 
qualifications and a uniform process across the Affiliated Exchanges 
for processing membership applications. The proposal will also provide 
for full membership reciprocity between Nasdaq and the Exchange--and 
hopefully, in time, across all of the Affiliated Exchanges--so that a 
member of one Affiliated Exchange would receive expedited treatment in 
applying for membership on any other Affiliated Exchange. Harmonizing 
the membership rules and processes of the Affiliated Exchanges will 
render administration of the Affiliated Exchanges' responsibilities 
more efficient in that the Membership Department will only need to 
administer a single set of criteria and processes, rather than six sets 
thereof. Similarly, harmonized membership rules and processes will 
benefit Exchange Applicants and Members by reducing the number of 
requirements that must be met and the processes that must be followed 
to apply for membership on the Affiliated Exchanges.
---------------------------------------------------------------------------

    \29\ See n.4, supra.
---------------------------------------------------------------------------

    Moreover, as to the Exchange itself, the proposed changes described 
herein will render the Exchange's membership rules and processes 
clearer, better organized, simpler, and easier to comply with. Again, 
such changes will provide benefits both to the Exchange's Membership 
Department and to Exchange Applicants.
    The proposed membership rules and processes are substantially 
similar to the existing rules and process, and where there are 
differences between the new and old processes, the Exchange believes 
that the new process does not disadvantage its Members or Associated 
Persons. To the contrary, the Exchange believes that the new rules and 
processes will benefit all parties as it again provides greater 
clarity, simplicity, and efficiency than the retired rules and 
processes.
Implementation
    To facilitate an orderly transition from the existing Rule 1000 
Series to the Proposed Rule 1000 Series, the Exchange is proposing to 
apply the existing Rules to all applications which have been submitted 
to the Exchange (including applications that are not yet complete) and 
are pending approval prior to the operative date. The Exchange also 
will apply the existing Rules to any appeal of an Exchange membership 
decision or any request for the Board to direct action on an 
application pending before the Exchange Review Council, the Board, or 
the Commission, as applicable. As a consequence of this transition 
process, the Exchange will retain the existing processes during the 
transition period until such time that there are no longer any 
applications or matters proceeding under the existing rules. To 
facilitate this transition process, the Exchange will retain a 
transitional Rulebook that will contain the Exchange's membership rules 
as they are at the time that this proposal is filed with the 
Commission. This transitional Rulebook will apply only to matters 
initiated prior to the operational date of the changes proposed herein 
and it will be posted to the Exchange's public rules website. When the 
transition is complete, the Exchange will remove the transitional 
Rulebook from its public rules website.
    The Exchange will announce and explain this transition process in a 
regulatory alert.
    The Exchange notes that Nasdaq applied the same process described 
above to govern its transition to its amended membership rules.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\30\ in general, and furthers the objectives of Section 
6(b)(5) and of the Act,\31\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest. It is also consistent with Section 6(b)(7) of the Act in that 
it provides for a fair procedure for denying Exchange membership to any 
person who seeks it, barring any person from becoming associated with 
an Exchange Member, and prohibiting or limiting any person with respect 
to access to services offered by the Exchange or a Member thereof.\32\
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78f(b).
    \31\ 15 U.S.C. 78f(b)(5).
    \32\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

    As a general matter, the Exchange believes that its proposal to 
delete its existing membership rules and incorporate by reference the 
Nasdaq Membership Rules will promote a free and open market, and will 
benefit investors, the public, and the markets, because the new rules 
will be clearer, better organized, and simpler.
    The proposal is just and equitable because it will render the 
Exchange's membership rules easier for Applicants and Members to read 
and understand, including by doing the following:
     Establishing a ``roadmap'' paragraph in proposed Rule 
1014(a) that sets forth the basic authority of the Department to 
approve, approve with conditions, or deny applications for membership 
before the Rule goes on to enumerate criteria for the Department to 
apply when taking each of those actions;
     Making the titles of the rules more accurate and 
descriptive (e.g., Proposed Rule 1014(b) (amending the existing title 
``Bases for Denial'' to also include bases for approval and conditional 
approval to make it more accurate and complete));
     Grouping logically-related provisions together in the 
Rules (e.g., provisions governing resignation, termination, transfer, 
and reinstatement of membership (moving them from Rule 1002(d) and 
1012(g) and (i) to Proposed Rule 1018); provisions relating to ex parte 
communications (existing Rule 1012(c)) and recusals and 
disqualifications (existing Rule 1012(d) (moving them into Proposed 
Rule 1015, which governs reviews of membership decisions));
     Rationalizing and consolidating provisions that presently 
govern lapses and rejections of applications, including by making 
clearer conceptual distinctions between lapses (i.e., applications that 
are not substantially complete and which the Department may deem to be 
abandoned, such that the Department will refund any application fees 
paid by the Applicant) and rejections (i.e., applications that the 
Department deemed to be filed but which it refuses to act upon due to 
lingering incompleteness, in which case the Department will not refund 
application fees paid to it), and by consolidating Rules 1012(b) and 
1013(a)(3) into Proposed Rule 1013(a)(3)(A) and (B);
     Consolidating overlapping provisions that govern the 
registration of branch offices and office of supervisory jurisdiction 
into a single provision (consolidating Rule 1012(j) and IM-1002-4 into 
Proposed Rule 1002(d));
     Omitting from the Proposed Rule references in existing 
Rule 1002(c), Rule 1012(j), and Rule 1013(a)(1)(U) to the obligation of 
Members (and their branch offices) to pay fees, charges, dues, and 
assessments to the Exchange insofar as those obligations are 
duplicative of Rule 9553;

[[Page 36148]]

     Converting IM-1002-1 and IM-1002-4 into rule text in the 
Proposed Rule 1000 Series;
     Clarifying when the Membership Department will deem an 
application to be filed (when the application is ``substantially 
complete,'' as set forth in Proposed Rule 1013(a)(2)) and by requiring 
the Department to notify an Applicant in writing of the filing date;
     Clarifying what the Exchange means when it states that an 
Applicant may ``waive-in'' to Exchange membership (as set forth in 
Proposed Rule 1013(b)); and
     Updating obsolete cross-references throughout the Rules 
from NASD to FINRA.
    The proposal will also make compliance with the membership rules 
simpler and less burdensome for Applicants and Members by doing the 
following:
     Eliminating obsolete requirements to submit paper copies 
of Forms U-4 and BD or explain information listed on the forms (Rule 
1013(a)(1)(A), (J), (K), and (P) and Rule 1013(a)(2)) where the 
Department already has electronic access to the Forms and the 
information contained therein;
     Permitting electronic filing of applications (proposed 
Rule 1012(a)(1);
     Allowing payment of application fees by means other than 
paper check (Proposed Rule 1013(a)(1)(C));
     Relaxing deadlines that needlessly rush the process of 
responding to the Department's questions and concerns about an 
application \33\ or that force the Department to render a decision when 
the Applicant is not ready for the Department to do so; \34\
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    \33\ Rather than require an Applicant to file a response to a 
supplemental request for documents or information within 15 business 
days, Proposed Rule 1013(a)(3) states that the Applicant must 
respond within a ``reasonable period of time'' to be prescribed by 
the Department. Even then, Rule 1013(a)(3)(B) states that the 
Department must serve upon the Applicant a notice of incompleteness 
if it fails to respond to a supplemental request and then afford the 
Applicant an additional reasonable time period to remedy the failure 
before it may reject the Applicant's application.
    \34\ Rather than require the Department to serve a written 
decision within 15 business days, Proposed Rule 1014(c) states that 
it must issue a decision within a reasonable period of time, not to 
exceed 45 calendar days after the application is filed and complete, 
unless the parties agree to a later date. The Exchange does not 
intend for this change to result in the Department routinely issuing 
decisions later than it does presently. The Exchange presently 
issues decisions, in most instances, well in advance of the current 
15 business day deadline and it has a self-interest in continuing to 
do so whenever possible. However, the Exchange believes that it is 
in the interest of Applicants for the Department to have discretion 
to respond at a later time in the event that the Applicant needs to 
address or resolve outstanding questions or concerns associated with 
its application.
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     Eliminating formal membership interviews and procedures 
related thereto, which the Exchange has not utilized historically (Rule 
1013(b)); \35\
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    \35\ The elimination of the formal membership interview process 
will have no practical effect on the membership process insofar as 
the Department otherwise has authority to request additional 
information from the Applicant. Under Proposed Rule 1014(a)(4), this 
authority may include a request for the Applicant to provide 
information or documents in-person or by telephone. In other words, 
the Department will retain authority to conduct an informal 
interview of the Applicant.
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     Harmonizing disparate procedures under Rules 1013 and 1017 
for filing, evaluating, and responding to initial membership 
applications and applications for approval of business changes, 
including by streamlining the Rule 1017 procedures;
     Broadening the circumstances in which an Applicant may 
waive-into Exchange membership to include the Applicant's membership in 
any of the Affiliated Exchanges \36\ and defining procedures for 
processing and responding to waive-in applications (Proposed Rule 
1013(b));
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    \36\ As noted above, the Exchange believes that it is reasonable 
to permit reciprocity in membership among all of the Affiliated 
Exchanges. The Exchange believes that there is no reasonable basis 
for it to defer to a prior approval granted by Nasdaq and to not do 
the same with respect to prior approvals granted by the other 
Affiliated Exchanges.
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     Narrowing the circumstances in which a Member must obtain 
prior Department approval before effecting a change in ownership, 
control, or material business operations by excluding changes for which 
a Member has obtained prior approval from the Member's DEA, or an 
Affiliated Exchange (Proposed Rule 1017(a)); \37\
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    \37\ As is discussed above, the Exchange believes that deference 
to prior approvals of a proposed business change made by an 
Affiliated Exchange or the Exchange's DEA is reasonable because the 
judgment of these entities on such matters is likely to be the same 
as that which the Exchange would itself employ. The Exchange 
assesses that any marginal benefit that might be gained from it 
applying its own independent judgment outweighs the burden to 
Applicants of obtaining multiple approvals for the same proposed 
change. The Exchange notes that it will require a Member to obtain 
approval for such a change if the nature, terms, or conditions of 
the proposed change have altered since its DEA or an Affiliated 
Exchange approved it.
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     Eliminating the unused, unnecessary, and potentially 
disruptive ability of Members, pursuant to Rule 1017(c), to effect 
ownership changes on an interim basis while an application for 
Department approval is pending; and
     Eliminating the 30 day waiting period for Members that 
seek to resign their memberships under proposed Rule 1018(a).
    In sum, the foregoing changes will update, rationalize, and 
streamline the Exchange's membership rules and processes, all to the 
benefit of Applicants and Members. Moreover, these changes will not 
adversely impact the rights of Applicants or Members to appeal adverse 
Departmental decisions under these Rules or to request Board action to 
compel the Department to render decisions on applications.
    Last, the Exchange believes that its proposal to phase-in the 
implementation of the new membership rules and processes is consistent 
with Section 6(b)(7) of the Act \38\ because both the current and 
proposed processes provide fair procedures for granting and denying 
applications for becoming an Exchange Member, becoming an Associated 
Person, and making material changes to the business operations of a 
Member. The Exchange is proposing to provide advanced notice of the 
implementation date of the new processes, and will apply the new 
processes to new applications, appeals, and requests for Board action 
that are initiated on or after that implementation date. Any 
application, appeal, or request for Board action initiated prior to the 
implementation date will be completed using the current processes. As a 
consequence, the Exchange will maintain a transitional Rulebook on the 
Exchange's public rules website which will contain the Exchange Rules 
as they are at the time of filing this rule change. These transitional 
rules will apply exclusively to applications, appeals, and requests for 
Board action initiated prior to the implementation date. Upon 
conclusion of the last decision on a matter to which the transitional 
rules apply, the Exchange will remove the defunct transitional rules 
from its public rules website. Thus, the transition will be conducted 
in a fair, orderly, and transparent manner. Lastly, the proposed 
transition process is the same process that Nasdaq implemented during 
its transition to new membership rules.
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    \38\ 15 U.S.C. 78f(b)(7).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange does not expect 
that its proposed changes to the membership rules will have any 
competitive impact on its existing or prospective membership. The 
proposed changes will apply equally to all similarly situated 
Applicants and Members and they will confer no relative advantage or

[[Page 36149]]

disadvantage upon any category of Exchange Applicant or Member. 
Moreover, the Exchange does not expect that its proposal will have an 
adverse impact on competition among exchanges for members; to the 
contrary, the Exchange hopes that by clarifying, reorganizing, and 
streamlining its membership rules, and by making the Exchange's 
membership process less burdensome for Applicants and Members, the 
Exchange will improve its competitive standing relative to other 
exchanges.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \39\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\40\
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    \39\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \40\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BX-2019-022 on the subject line.

Paper Comments

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

    All submissions should refer to File Number SR-BX-2019-022. 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-BX-2019-022, and should be submitted on 
or before August 16, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
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    \41\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-15871 Filed 7-25-19; 8:45 am]
 BILLING CODE 8011-01-P