[Federal Register Volume 84, Number 196 (Wednesday, October 9, 2019)]
[Notices]
[Pages 54193-54195]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22013]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87212; File No. SR-NYSE-2019-44]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Granting Approval of a Proposed Rule Change, as Modified by Amendment
No. 1, To Add Certain Rules to the List of Minor Rule Violations in
Rule 9217, Delete Obsolete Rules, and Increase the Maximum Fine for
Minor Rule Violations
October 3, 2019.
I. Introduction
On August 8, 2019, New York Stock Exchange LLC (``NYSE'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to (1) add certain rules to the list of minor rule
violations in Rule 9217; (2) delete obsolete rules from Rule 9217; and
(3) increase the maximum fine for minor rule violations to $5,000 in
order to more closely align the Exchange's minor rule plan with that of
its affiliates. The proposed rule change was published for comment in
the Federal Register on August 22, 2019.\3\ On September 13, 2019, the
Exchange filed Amendment No. 1 to the proposed rule change.\4\ The
Commission received no comment letters on the proposed rule change.
This order grants approval of the proposed rule change, as modified by
Amendment No. 1.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 86696 (August 16,
2019), 84 FR 43836.
\4\ In Amendment No. 1, the Exchange: (1) Clarified that fines
exceeding $2,500 would not be eligible for quarterly reporting under
Commission Rule 19d-1(c) and (2) made technical and conforming
changes. Because the changes in Amendment No. 1 do not materially
alter the substance of the proposed rule change or raise unique or
novel regulatory issues, Amendment No. 1 is not subject to notice
and comment. Amendment No. 1 replaced and supercedes the original
filing in its entirety and is available at https://www.sec.gov/comments/sr-nyse-2019-44/srnyse201944-6120985-192149.pdf.
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II. Description of the Proposal, as Modified by Amendment No. 1
Rule 9217 sets forth the list of rules under which a member
organization or covered person may be subject to a fine under a minor
rule violation plan as described in proposed Rule 9216(b). The Exchange
proposes to add the following introductory paragraph to Rule 9217:
``Nothing in this Rule shall require the Exchange to impose a fine for
a violation of any rule under this Minor Rule Plan. If the Exchange
determines that any violation is not minor in nature, the Exchange may,
at its discretion, proceed under the Rule 9000 Series rather than under
this Rule.'' This language is based on NYSE Arca Rule 10.9217(d).
The Exchange proposes to add the following rules to the list of
rules in Rule 9217 eligible for disposition pursuant to a fine under
Rule 9216(b):
Rule 7.30 (Authorized Traders)
Rule 76 (``Crossing'' Orders)
Rule 103(a)(i) (Registration and Capital Requirements of DMM
Units)
Rule 1210 (Registration Requirements)
Rule 3110(a) and (b)(1) (Supervision)
The Exchange also proposes that all of the registration and other
requirements set forth in Rule 345 be eligible for a minor rule fine.
Rule 7.30 establishes requirements for member organizations
relating to Authorized Traders. The rule is based on NYSE Arca Rule
7.30-E (Authorized Traders), which is eligible for NYSE Arca's Minor
Rule Plan.\5\
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\5\ See Securities Exchange Act Release No. 81225 (July 27,
2017), 82 FR 36033, 36035 (August 2, 2017) (SR-NYSE-2017-35). See
also NYSE Arca Rule 10.12(i)(4) (NYSE Arca Rule 7.30-E); NYSE Arca
Rule 10.9217(f)(4). NYSE Arca Rule 10.12 is NYSE Arca's legacy minor
rule plan and applies only to matters for which a written statement
was served under Rule 10.12 prior to May 27, 2019; thereafter, Rules
10.9216(b) and 10.9217 apply. See generally NYSE Arca Rules 10.0
(preamble) and 10.9001.
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Rule 76 is substantially similar to NYSE American Rule 934NY(a)(1)
(Crossing) and NYSE Arca Rule 6.47-O(a)(1) (``Crossing'' Orders--OX),
which govern manual crosses on those respective exchanges' options
trading Floors. NYSE American Rule 934NY(a)(1) is eligible for NYSE
American's Minor Rule Plan, and NYSE Arca Rule 6.47-O(a)(1) is eligible
for NYSE Arca's Minor Rule Plan.\6\
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\6\ See NYSE American Rule 9217 (Rule 934NY); NYSE Arca Rules
10.12(h)(3) and 10.9217(e)(3). See note 5, supra.
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Rule 103(a)(1) provides that no member organization shall act as a
Designated Market Maker (``DMM'') unit in any security unless such
member organization is registered as a DMM unit in such security with
the Exchange and unless the Exchange has approved of the member
organization acting as a DMM unit and not withdrawn such approval. The
rule is substantially similar to NYSE Arca Rule 7.20-E(a) (Registration
of Market Makers) and NYSE National Rule 7.20 (Registration of Market
Makers), which similarly require that market makers on those exchanges
be registered in a security and that the registration has not been
suspended or cancelled. Both NYSE Arca Rule 7.20-E(a) and NYSE National
Rule 7.20 are eligible for minor rule fines.\7\
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\7\ See NYSE Arca Rules 10.12(i)(5) and 10.9217(f)(5); NYSE
National Rule 10.9217(d).
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Similarly, Rule 1210, which was adopted in October 2018,\8\ sets
forth the requirements for persons engaged in the investment banking or
securities business of a member organization to be registered with the
Exchange as a representative or principal in each category of
registration appropriate to his or her functions and responsibilities
as specified in Rule 1220. The Exchange proposes to add Rule 1210 to
the list of minor rules in Rule 9217. The Exchange states that having
the ability to issue a minor rule fine for failing to comply with the
registration requirements of Rule 1210 would be consistent with and
complement the Exchange's current ability to issue minor rule fines for
other registration violations (e.g., Rule 345).
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\8\ See Securities Exchange Act Release No. 84336 (October 2,
2018), 83 FR 50727 (October 9, 2018) (SR-NYSE-2018-44).
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Rule 3110 is the Exchange's supervision rule. The Exchange proposes
to add subsections (a) and (b)(1) of Rule 3110, governing failure of a
member organization to establish and maintain a supervisory system and
failure to establish, maintain, and enforce written supervisory
procedures, respectively, to Rule 9217. Failure to supervise
individuals and accounts is currently eligible for minor rule fines in
the rules of the Exchange's affiliate NYSE Arca.\9\
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\9\ See NYSE Arca Rules 11.18 (Supervision), 10.12(j)(8) and
10.9217(g)(8).
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Finally, Rule 345 sets forth certain employee registration,
approval and other exchange requirements, including the requirements
pertaining to the registration of a securities lending representative,
Securities Trader or direct supervisor thereof. Currently, the only
violation of Rule 345 that is eligible for a minor rule fine is failure
of a member organization to have individuals responsible and qualified
for the position of Securities Lending Supervisor. The Exchange
proposes that all of registration and other requirements set forth in
Rule 345 be
[[Page 54194]]
eligible for a minor rule fine. The proposed change would be consistent
with the practice on the Exchange's affiliates whose comparable rule is
eligible for a minor rule fine.\10\
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\10\ See, e.g., NYSE Arca Rules 2.24 (Registration--Employees of
ETP Holders), 10.12(j)(11) and 10.9217(g)(11). See also NYSE
National Rules 2.2 (Obligations of ETP Holders and the Exchange) and
10.9217(e).
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The Exchange proposes to delete the following rules from Rule 9217
as they are obsolete:
Rule 706, which was deleted in 2014.\11\
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\11\ See Securities Exchange Act Release No. 72916 (August 26,
2014), 79 FR 52094 (September 2, 2014) (SR-NYSE-2014-44).
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Rule 312(h), which is marked ``Reserved'' in the
Exchange's rules and was deleted in 2010.\12\
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\12\ See Securities Exchange Act Release No. 61557 (February 22,
2010), 75 FR 9472 (March 2, 2010) (SR-NYSE-2010-10). NYSE Rule
4110(c)(2), based on the comparable FINRA rule, incorporates Rule
312(h) in part. The Exchange is not proposing to add Rule 4110(c)(2)
to Rule 9217.
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Rule 382(a). Rule 382 is also marked ``Reserved'' and was
deleted in 2011.\13\
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\13\ See Securities Exchange Act Release No. 64888 (July 14,
2011), 76 FR 43368 (July 20, 2011) (SR-NYSE-2011-33). NYSE Rule
4311, based on the comparable FINRA rule, was based in part on NYSE
Rule 382. The Exchange is not proposing to add Rule 4311 to Rule
9217.
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Rule 791(c), which was also deleted in 2014.\14\
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\14\ See Release No. 72916, supra note 11, at 52094.
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Rules 352(b) and (c). Rule 352 is marked ``Reserved'' and
was deleted in 2009.\15\
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\15\ See Securities Exchange Act Release No. 61158 (December 11,
2009), 74 FR 67942 (December 21, 2009) (SR-NYSE-2009-123). Rule 352
was replaced by Rule 2150. Violations of Rule 2150(b) and (c) are
currently eligible for a minor rule fine under Rule 9217.
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Rule 392, which is also marked ``Reserved'' and was
deleted in 2009.\16\
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\16\ See Securities Exchange Act Release No. 59965 (May 21,
2009), 74 FR 25783 (May 29, 2009) (SR-NYSE-2009-25).
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Rule 410A, which was deleted in 2013.\17\
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\17\ See Securities Exchange Act Release No. 68678 (January 16,
2013), 78 FR 5213 (January 24, 2013) (SR-NYSE-2013-02) (Notice); see
also Securities Exchange Act Release No. 69045 (March 5, 2013), 78
FR 15394 (March 11, 2013) (SR-NYSE-2013-02) (Approval Order). Rule
410A was replaced by Rule 8211. Both rules were initially retained
in Rule 9217, but there is no longer any reason to retain Rule 410A
in Rule 9217.
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Rule 445(4), which is marked ``Reserved'' and was deleted
in 2009.\18\
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\18\ See Securities Exchange Act Release No. 61273 (December 31,
2009), 75 FR 1091 (January 8, 2010) (SR-NYSE-2009-134).
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The Exchange also proposes to correct a typographical error in Rule
9217. Rule 9217 refers to Rule 3010(a). The correct reference should be
to Rule 3110(a), the Exchange's supervision rule, which was added to
Rule 9217 in 2014.\19\
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\19\ See Securities Exchange Act Release No. 73554 (November 6,
2014), 79 FR 67508 (November 13, 2014) (SR-NYSE-2014-56).
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Eligible Fine Amounts
The maximum fine for minor rule violations under Rule 9216(b) is
currently $2,500. The maximum fine under the Exchange's legacy minor
rule plan set forth in Rule 476A previously was $5,000. In adopting its
current disciplinary rules in 2013, the Exchange stated that it was
appropriate to lower the maximum fine amount to achieve harmony with
the rules of the Financial Industry Regulatory Authority
(``FINRA'').\20\ The Exchange's affiliates NYSE American, NYSE National
and NYSE Arca, however, have since harmonized their disciplinary rules
with the Exchange and adopted or retained a $5,000 maximum fine for
minor rule violations.\21\ The Exchange accordingly proposes to adopt
the same maximum fine amount in order to harmonize the maximum fine
level with its affiliated exchanges. The Exchange also proposes to
adopt the same 24-month rolling period to calculate second and
subsequent fines as that used by its affiliated exchanges.
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\20\ See Release No. 68678, supra note 17, at 5226.
\21\ For instance, the maximum fine for minor rule violations
under NYSE Arca's legacy Minor Rule Plan set forth in Rule 10.12 is
$5,000. NYSE Arca retained the $5,000 maximum when it adopted its
new disciplinary rules. See NYSE Arca Rule 10.9217(a). See also NYSE
American Rule 9217 and NYSE National Rule 10.9217.
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To effectuate this change, the Exchange proposes to add the
following fine chart contained in Rule 476A, the Exchange's legacy rule
governing the imposition of minor rule fines, to Rule 9217: \22\
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\22\ When the Exchange adopted Rule 9217 as part of its adoption
of FINRA's disciplinary rules, the Exchange retained the list of
rules set forth in Rule 476A. See Release No. 69045, supra note 17,
at 15396. The Exchange did not retain the chart in Rule 476A
because, as noted above, the maximum fine under Rule 476A previously
was $5,000.
------------------------------------------------------------------------
Fine Amount Individual
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First Time Fined........................................ $1,000
Second Time Fined \**\.................................. 2,500
Subsequent Fines \**\................................... 5,000
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Fine Amount Member
Organization
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First Time Fined........................................ $2,500
Subsequent Fines \**\................................... 5,000
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** Within a ``rolling'' 24-month period.
As noted, rather than the 12-month rolling period in Rule 476A, the
Exchange proposes a 24-month ``rolling'' period from the date of the
violation in order to harmonize with its affiliates.\23\
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\23\ See NYSE Arca Rule 10.9217 (violations applied in a rolling
24-month period); NYSE American Rule 9217 (same).
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In order to add clarity to the Exchange's rules, the Exchange also
proposes to add a paragraph immediately before the proposed chart based
on NYSE Arca Rule 10.9217(h) that sets forth how the beginning and end
of the 24-month rolling period is to be determined. Except for
references that reflect the Exchange's membership and use of the phrase
``minor rule violation plan letter'' rather than ``Notice of Minor Rule
Plan Fine,'' the paragraph is substantially the same as NYSE Arca Rule
10.9217(h).\24\
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\24\ As discussed above, the Exchange is not required to impose
a fine for a violation under its Minor Rule Plan. Instead, the
Exchange may, at its discretion, bring formal disciplinary action
against a member or associated person that has violated its rules.
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In order to further harmonize the Exchange's rules with those if
its affiliates, and because a fine of $5,000 would exceed the maximum
amount in Rule 19d-1(c)(2) under the Act for a minor rule plan,\25\ the
Exchange proposes to change the titles of Rules 9216 and 9217.
Specifically, the phrase ``Plan Pursuant to SEA Rule 19d-1(c)(2)''
would be replaced with ``Procedure for Imposition of Fines for Minor
Violation(s) of Rules'' in the title of Rule 9216. The same phrase in
Rule 9217 would be replaced with ``Rule 9216(b).'' The titles of both
rules would thereby be the same as the titles of NYSE Arca Rules
10.9216 and 10.9217 and NYSE National Rules 10.9216 and 10.9217,
respectively. The Exchange proposes to make similar conforming changes
to Rule 9216(b)(1) by removing references to ``SEA Rule 19d-1(c)(2)''
and the maximum fine level of $2,500, and by adding language specifying
that the Exchange may impose a fine in accordance with the fine amounts
and fine levels set forth in Rule 9217.
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\25\ 17 CFR 240.19d-1(c)(2). The Exchange recognizes that fines
exceeding $2,500 would not be eligible for quarterly reporting under
Commission Rule 19d-1(c). Fines that do not exceed $2,500 would
continue to be reported quarterly in compliance with Commission Rule
19d-1(c).
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\26\ In particular, the
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Commission finds that the proposed rule change is consistent with
Section 6(b)(5) of the Act,\27\ which requires, among other things,
that the rules of a national securities exchange be 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. The Commission further believes that
the proposed amendments to Rule 9217 are consistent with Section
6(b)(6) of the Act,\28\ which provides that members and persons
associated with members shall be appropriately disciplined for
violation of the provisions of the rules of the exchange, by expulsion,
suspension, limitation of activities, functions, and operations, fine,
censure, being suspended or barred from being associated with a member,
or any other fitting sanction.
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\26\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\27\ 15 U.S.C. 78f(b)(5).
\28\ 15 U.S.C. 78f(b)(6).
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The Commission believes that Rule 9216(b) is an effective way to
discipline a member for a minor violation of a rule. The Commission
finds that the Exchange's proposal to add rules to Rule 9217 is
consistent with the Act because it may help the Exchange's ability to
carry out its oversight and enforcement responsibilities in cases where
full disciplinary proceedings may not be warranted. The Commission also
believes that the Exchange's proposal to delete obsolete rules is also
consistent with the Act because it will clarify the Exchange's rule
book. Finally, the Commission believes that the Exchange's proposed
fine schedule is appropriate. The Commission notes that the proposed
fine schedule aligns with the fine schedules of the Exchange's
affiliates.
In approving the propose rule change, the Commission in no way
minimizes the importance of compliance with the Exchange's rules and
all other rules subject to fines under Rule 9216(b). The Commission
believes that a violation of any self regulatory organzation's rules,
as well as Commission rules, is a serious matter. However, Rule 9216(b)
provides a reasonable means of addressing rule violations that may not
rise to the level of requiring formal disciplinary proceedings, while
providing greater flexibility in handling certain violations. The
Commission expects that the Exchange will continue to conduct
surveillance with due diligence and make a determination based on its
findings, on a case-by-case basis, whether a fine of more or less than
the recommended amount is appropriate for a violation under Rule
9216(b) or whether a violation requires formal disciplinary action.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\29\ that the proposed rule change (SR-NYSE-2019-044), as modified
by Amendment No. 1, be, and hereby is, approved.
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\29\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22013 Filed 10-8-19; 8:45 am]
BILLING CODE 8011-01-P