[Federal Register Volume 87, Number 110 (Wednesday, June 8, 2022)]
[Notices]
[Pages 35034-35066]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-12170]



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Vol. 87

Wednesday,

No. 110

June 8, 2022

Part IV





Securities and Exchange Commission





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Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change To Adopt Investigation, 
Disciplinary, Sanction, and Other Procedural Rules Modeled on the Rules 
of the Exchange's Affiliates; Notice

  Federal Register / Vol. 87 , No. 110 / Wednesday, June 8, 2022 / 
Notices  

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95020; File No. SR-NYSECHX-2022-10]


Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Adopt 
Investigation, Disciplinary, Sanction, and Other Procedural Rules 
Modeled on the Rules of the Exchange's Affiliates

June 1, 2022.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on May 20, 2022, the NYSE Chicago, Inc. (``NYSE Chicago'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt investigation, disciplinary, 
sanction, and other procedural rules modeled on the rules of its 
affiliates, and to make certain conforming and technical changes. The 
proposed rule change is available on the Exchange's website at 
www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to adopt investigation, disciplinary, 
sanction, and other procedural rules modeled on the rules of its 
affiliates, and to make certain conforming and technical changes.
Background and General Description of Proposed Rule Change
    Beginning in 2013, each of the Exchange's affiliates have adopted 
rules relating to investigation, discipline, sanction, and other 
procedural rules based on the rules of the Financial Industry 
Regulatory Authority (``FINRA'').\4\ To facilitate rule harmonization 
among self-regulatory organizations (``SROs''), the Exchange proposes 
the NYSE Chicago Rule 10.8000 and 10.9000 Series based on the text of 
the NYSE Arca Rule 10.8000 and Rule 10.9000 Series, with certain 
changes, as described below.
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    \4\ In 2013, the Commission approved the New York Stock Exchange 
LLC's (``NYSE'') adoption of FINRA's disciplinary rules. See 
Securities Exchange Act Release No. 69045 (March 5, 2013), 78 FR 
15394 (March 11, 2013) (SR-NYSE-2013-02). In 2016, NYSE American LLC 
(``NYSE American'') adopted its Rule 8000 and Rule 9000 Series based 
on the NYSE and FINRA Rule 8000 and Rule 9000 Series. See Securities 
Exchange Act Release Nos. 77241 (February 26, 2016), 81 FR 11311 
(March 3, 2016) (SR-NYSEMKT-2016-30). In 2018, the Commission 
approved NYSE National, Inc.'s (``NYSE National'') adoption of the 
NYSE National Rule 10.8000 and Rule 10.9000 Series based on the NYSE 
American and FINRA Rule 8000 and Rule 9000 Series. See Securities 
Exchange Act Release No. 83289 (May 17, 2018), 83 FR 23968 (May 23, 
2018) (SR-NYSENat-2018-02). In 2019, NYSE Arca, Inc. (``NYSE Arca'') 
adopted the NYSE Arca Rule 10.8000 and 10.9000 Series based on the 
NYSE American Rule 8000 and Rule 9000 Series. See Securities 
Exchange Act Release No. 85639 (April 12, 2019), 84 FR 16346 (April 
18, 2019) (SR-NYSEArca-2019-15) (``NYSE Arca Notice'').
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    The Exchange notes that all but five Participants \5\ are already 
subject to similar rules by virtue of their membership in the NYSE, 
NYSE American, NYSE National, NYSE Arca, FINRA and/or the NASDAQ Stock 
Market LLC (``NASDAQ''), whose disciplinary rules are similar to 
FINRA's rules. The overwhelming majority of Exchange's Participant and 
Participant Firms are thus already subject to rules similar to the 
proposed rules described herein.
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    \5\ There are currently 66 Participants on the Exchange. The 
term ``Participant'' is defined in Article 1, Rule 1(s) to mean, 
among other things, any Participant Firm that holds a valid Trading 
Permit and that a Participant shall be considered a ``member'' of 
the Exchange for purposes of the Act. If a Participant is not a 
natural person, the Participant may also be referred to as a 
Participant Firm, but unless the context requires otherwise, the 
term Participant shall refer to an individual Participant and/or a 
Participant Firm. For the avoidance of doubt, this rule filing and 
the proposed disciplinary rules will use the phrase Participant and/
or Participant Firm.
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    Set forth below are (1) a description of the Exchange's current 
disciplinary rules (current Article 12, Rules 1-10, and Article 13); 
(2) a description of the proposed rule change and transition; (3) a 
more detailed description of the proposed rules with a comparison to 
the current rules; (4) a description of technical and conforming 
amendments; and (5) a description of current rules that will not be 
carried over into the proposed rule set and the reason(s) therefor.
Description of Current NYSE Chicago Article 12
    The Exchange's current rules governing disciplinary proceedings and 
appeals are set forth in Article 12 (Disciplinary Matters and Trial 
Proceedings Investigation and Charges) in Rules 1 through 10.
Article 12, Rule 1 (Investigation and Charges)
    Article 12, Rule 1 concerns investigations and the commencement of 
disciplinary actions by the Exchange.
    Article 12, Rule 1(a) governs investigations and the written report 
of investigative findings. Under Article 12, Rule 1(a), the staff of 
the Market Regulation Department has the authority to conduct 
investigations of any possible violation of any Exchange rule or any 
provision of the federal securities laws (or any rule thereunder) by 
any Participant, associated person \6\ thereof or any other person or 
organization subject to the jurisdiction of the Exchange. Except in 
emergency situations, Article 12, Rule 1(a) requires staff to prepare a 
written report of such investigation whenever seeking to institute a 
proceeding pursuant to Article 12, Rule 1(b)(1) to be presented to the 
Chief Regulatory Officer (``CRO'').
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    \6\ ``Associated Person'' has the meaning set forth in Section 
3(a)(21) of the Exchange Act. See Article 1, Rule 1(d). The term is 
sometimes capitalized in the Exchange's rules and will be 
capitalized herein.
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    Article 12, Rule 1(b)(1)-(2) govern written charges. Under Article 
12, Rule 1(b)(1), if in the CRO's judgment it appears from the written 
investigative report that any Participant, Associated Person thereof or 
any other person or organization subject to the Exchange's jurisdiction 
(the ``Respondent'') is violating or has violated any provision of the 
Bylaws, Exchange rules or of the federal securities laws or the 
regulations thereunder, the CRO shall direct staff to prepare and 
present written charges

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against the Respondent, except as otherwise provided in the Exchange's 
rules. The written charges must identify each Respondent and 
specifically state each Exchange rule or provision of the federal 
securities laws (or any rule thereunder) alleged to have been violated. 
Charges must be served upon a Respondent and filed with the Secretary 
of the Exchange (the ``Secretary'').
    Article 12, Rule 1(b)(2) provides that, in addition to the process 
set out in paragraph (1) above, the Board of Directors (the ``Board'') 
and the Executive Committee each have the authority to direct the CRO 
to authorize the institution of a disciplinary proceeding when, on 
information and belief, either the Board or the Committee is of the 
opinion that any Participant, Associated Person thereof or any other 
person or organization subject to the jurisdiction of the Exchange is 
violating or has violated any provision of the Bylaws or rules of the 
Exchange or of the federal securities laws or the regulations 
thereunder.
    Article 12, Rule 1(c) governs service of charges, orders, notices 
or any instrument on Respondents and provides that these may be served 
upon the Respondent either personally or by leaving same at his or its 
place of business during office hours or by deposit in the United 
States post office, postage prepaid via registered or certified mail 
with return receipt requested, addressed to the Respondent at the last 
business address given by the Respondent to the Exchange.
    The settlement procedure is set forth in Article 12, Rule 1(d). A 
Respondent can settle a proceeding instituted pursuant to Article 12, 
Rule 1, at any time by entering into a settlement agreement with the 
Exchange without admitting or denying the charges, except as to 
jurisdiction, which must be admitted. Under the rule, settlement 
agreements must include a waiver by the Respondent of all rights of 
appeal to the Executive Committee, the Board, Securities and Exchange 
Commission (the ``Commission''), and United States Court of Appeals or 
to otherwise challenge or contest the validity of the decision if the 
offer of settlement is accepted. The rule also requires settlement 
agreements to contain a proposed penalty to be imposed which must be 
reasonable under the circumstances and consistent with the seriousness 
of the alleged violations.
    All settlement agreements require CRO approval. Where the CRO 
rejects an offer of settlement, the offer of settlement is deemed 
withdrawn and will not be given consideration in the determination of 
the issues involved in the disciplinary proceeding. Moreover, the 
Respondent will be granted an additional 10-day period from the time of 
receipt of the non-acceptance of the offer to file any response 
required under Article 12, Rule 5(b), described below.
    Supplementary Material .01 to Article 12, Rule 1 provides that 
prior to making a report pursuant to paragraph (a) of Rule 1, the staff 
may notify the person(s) who is (are) the subject of the report of the 
general nature of the allegations and of the specific provisions of the 
Act, rules and regulations promulgated thereunder or constitutional 
provisions, by-laws or rules of the Exchange or any interpretation 
thereof or any resolution of the Board regulating the conduct of 
business on the Exchange, that appear to have been violated. Under the 
rule, the subject(s) may, within the time frame set forth in the notice 
from the staff, submit a written statement to the Exchange setting 
forth their interests and position in regard to the subject matter of 
the investigation. To assist a subject in preparing such a written 
statement he or she shall, upon request, have access to any documents 
and other materials in the investigative file of the Exchange that were 
furnished by him or her or his or her agents to the Exchange.
Article 12, Rule 2 (Summary Procedure)
    Article 12, Rule 2 sets forth the Exchange's summary procedure 
rules.
    Under Article 12, Rule 2(a), if in the CRO's judgment it appears 
from the investigation and report provided for in Article 12, Rule 1(a) 
that the Respondent committed a minor infraction of the Bylaws or Rules 
of the Exchange, the CRO may summarily censure the Respondent or impose 
a fine not in excess of $500 or both.
    Any fine imposed pursuant to subsection (a) of Article 12, Rule 2 
and not contested shall not be publicly reported, except as may be 
required by Rule 19d-1 under the Act, and as may be required by any 
other regulatory authority.
    Any contested fine will be publicly reported to the same extent 
that Exchange disciplinary proceedings will be publicly reported. In 
any action taken by the Exchange pursuant to Article 12, Rule 2, the 
person against whom a fine is imposed shall be served (as provided in 
Article 12, Rule 1(c)) with a written statement signed by the CRO or 
his designee, setting forth the
    (1) rule(s) or policy(ies) alleged to have been violated;
    (2) act or omission constituting each such violation;
    (3) fine imposed for each such violation;
    (4) date on which such action is taken; and
    (5) date on which such determination becomes final and such fine 
becomes due and payable to the Exchange, or on which such action must 
be contested as provided below.
    Any person against whom a minor fine is imposed under the Rule may 
contest the Exchange's determination by filing with the Secretary not 
later than 30 days after the service of the Notice of Fines, a written 
response meeting the requirements of an Answer as provided in Article 
12, Rule 4(b) at which point the matter shall become a ``Disciplinary 
Proceeding'' subject to the provisions of Article 12 applicable to 
disciplinary proceedings.
    Article 12, Rule 2(b)(1) governs collateral proceedings involving a 
Participant, partner, officer, registered employee or Associated Person 
that is suspended or expelled from any other securities exchange or any 
national securities association, or is suspended or barred from being 
associated with any member or member organization of such exchange or 
association, or is suspended or barred by any governmental securities 
agency from dealing in securities or being associated with any broker 
or dealer in securities. In those circumstances, the CRO may suspend or 
expel such person or organization as a Participant, partner, officer, 
registered employee or Associated Person. Pursuant to the Rule, no such 
suspension by the CRO may commence before or expire after the 
suspension imposed by such other exchange, association or agency, and 
no such expulsion may be imposed by the CRO unless such person or 
organization has been expelled or barred by such other exchange, 
association or agency. Finally, Article 12, Rule 2(b) does not preclude 
any proceeding against any Participant, partner, officer, registered 
employee or Associated Person under any other Rule of the Exchange.
    Under Article 12, Rule 2(b)(2), the procedure required by Article 
12, Rule 1 is inapplicable to contested proceedings under Article 12, 
Rule 2(b). A Respondent in a collateral proceeding, however, must be 
given not less than ten days' notice in writing that the Chief 
Executive Officer (``CEO'') will appoint a Hearing Officer pursuant to 
the provisions of Article 12, Rule 5 to conduct a hearing to determine 
whether or not to suspend or expel the Respondent as provided in 
Article 12, Rule 2(b).
    At such hearing, the respondent Participant or any respondent 
partner, officer, registered employee or associated person of a 
Participant Firm

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shall be afforded an opportunity to explain why it would be 
inappropriate for the Hearing Officer to accept the finding of such 
other exchange, association or agency or to suspend or expel the 
Respondent notwithstanding the suspension, expulsion or bar by such 
other exchange, association or agency. In the event that the Hearing 
Officer determines not to accept the finding by such other exchange, 
association or agency, he may order a proceeding under any other Rule 
of Article 12. In the event that the Respondent fails or refuses to 
appear before the Hearing Officer, the Hearing Officer may nevertheless 
determine the matter and suspend or expel the Respondent as provided in 
Article 12, Rule 2(b). A written notice of the result shall be served 
upon the Respondent in a manner provided by Article 12, Rule 1(c) and a 
copy shall be sent to each member of the Board.
    Any action by the Hearing Officer pursuant to Article 12, Rule 2(b) 
can be reviewed in accordance with the procedure specified in Article 
12, Rule 6. In the event no request for review is filed within 15 days 
after the Respondent is notified of the determination of the Hearing 
Officer, such determination shall become final and not subject to 
appeal at the Exchange.
    Under Article 12, Rule 2(b)(3), a Participant, partner, officer, 
registered employee or Associated Person may consent to the penalty or 
suspension or expulsion from the Exchange solely by reason of the 
imposition of the suspension, expulsion or bar by such other exchange, 
association or agency, and without either the separate determination of 
the Hearing Officer as provided above in Article 12, Rule 2(b)(2) or 
the procedure provided by Article 12, Rule 1. The required consent 
takes effect immediately and must be in writing, signed by the 
Respondent, and delivered to the Exchange not later than two business 
days after the Exchange gives the Respondent with written notice of a 
proceeding under Article 12, Rule 2(b).
Article 12, Rule 3 (Admission of Charges by Respondent)
    Article 12, Rule 3 governs admission of charges by a Respondent.
    Under Article 12, Rule 3(a), where a respondent makes a written 
admission of charges prepared and presented pursuant to Article 12 and 
waives his or its right to be heard on the penalty to be imposed, the 
CRO may determine and impose the penalty. The CRO's determination is 
final.
    Under Article 12, Rule 3(b), if a Respondent makes written 
admission of the charges and also makes a written request for a hearing 
on the penalty to be imposed, the CRO shall promptly order a hearing be 
conducted pursuant to the procedures set forth in Article 12, Rule 5 
that would be limited to such matters as are in extenuation or 
aggravation of the circumstances or as shall have material bearing on 
the penalty only. Under the Rule, the Respondent and the staff who 
investigated the charges shall be given an opportunity to be heard at 
such hearing conducted for the purpose of determining the penalty. A 
written notice of the result shall be served upon the Respondent in a 
manner provided by Rule 1(c) of this Article. Any penalty imposed under 
this paragraph may be reviewed pursuant to Rule 6 of this Article.
Article 12, Rule 4 (Hearing Procedure)
    Article 12, Rule 4 sets forth hearing procedures.
    Article 12, Rule 4(a) provides that, in the absence of a written 
admission by the Respondent or other settlement of charges pursuant to 
Article 12, Rule 1(d), a hearing of the charges before a Hearing 
Officer appointed by the CEO for the purpose of conducting the 
particular hearing shall be held.
    Subsection (b) governs the answer to charges, and provides that a 
written answer to the charges shall be filed by the Respondent with the 
Secretary (with copies to the Market Regulation Department) within 30 
days from the date of service of the charges or within such further 
time as the Hearing Officer may grant. The answer to the charges must 
specifically admit or deny each charge, and any charge not specifically 
denied is deemed to be admitted. Affirmative defenses must be asserted 
in the answer or deemed waived. If a Respondent fails to file an answer 
within the required timeframe, the allegations of the charging document 
are deemed admitted, and the Hearing Officer will hold a hearing to 
determine the appropriate sanctions.
    Subsection (c) sets forth prehearing procedure. Article 12, Rule 
4(c)(1) provides that the parties must exchange witness lists for the 
hearing no less than 30 days prior to the hearing. No person who is not 
identified on a witness list will be permitted to give evidence at the 
hearing, unless the party requesting the testimony of such witness 
shows good cause for failing to have previously included the person on 
the witness list and the party requesting the testimony of such witness 
can show that the failure to permit such testimony would result in 
undue hardship.
    Subsection (c)(2) provides that any party may request production of 
all or some of the documents \7\ that its adversary intends to 
introduce as evidence either in support of or to counter the charges 
Production requests for some of the documents to be introduced as 
evidence must reasonably specify which documents are to be produced, 
and the party making the request shall do so at least 45 days prior to 
the hearing and be responsible for paying all reasonable costs 
associated with the production of such documents.
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    \7\ For purposes of Article 12, Rule 4(c), the term 
``documents'' means a writing, drawing, graph, report, table, chart, 
photograph, video or audio recording, or any other data compilation, 
including data stored by computer, from which information can be 
obtained.
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    Further, the rule provides that all documents must be produced at 
least 30 days prior to the hearing. If a request is made to produce all 
or some of the documents that are intended to be introduced as evidence 
at the hearing, the party responding to the request will be precluded 
from introducing at the hearing any documents that were not produced in 
response to the request, unless (1) there is good cause shown for 
failing to produce the document(s) 30 days prior to the hearing, and 
(2) failure to permit introduction of such evidence would result in 
undue hardship.
    Upon request of any party, the Hearing Officer may shorten or 
lengthen the time periods for the exchange of witness lists or the 
production of documents.
    Subsection (d) governs the conduct of the hearing. Under Article 
12, Rule 4(d), the Hearing Officer must schedule the time and place at 
which the Hearing shall be held within 30 days of the filing of an 
answer by the Respondent.
    The rule further provides that formal rules of evidence do not 
apply in any part of any disciplinary proceedings, although the parties 
may stipulate as to the rules relating to the introduction of evidence 
at the hearing. Such stipulations must be in writing and filed with the 
Hearing Officer and the Secretary no less than 5 days prior to the 
scheduled date for the commencement of the hearing.
    The Respondent has the right to be present at the hearing and be 
permitted to examine and cross-examine all witnesses produced by the 
Exchange, and also to present testimony, defense or explanation. The 
rule affords the Market Regulation Department the right to produce 
witnesses and other evidence in support of the charges, cross-examine 
all witnesses produced

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by the Respondent, and introduce additional witnesses and evidence 
solely in rebuttal to the Respondent's evidence. The Respondent in turn 
has the right to cross-examine any rebuttal witnesses and enter 
additional evidence to counter any rebuttal evidence entered by the 
Exchange staff. Both parties have the right to make opening and closing 
oral arguments. The Market Regulation Department has the right to make 
a rebuttal oral argument after Respondent's opening and closing 
argument. Finally, Article 12, Rule 4(d) requires that a transcript of 
the testimony at the proceedings be made.
    Article 12, Rule 4(e) governs appointment of the Hearing Officer 
and requires that the Hearing Officer for each particular matter be 
selected by the CEO. Under the rule, prospective Hearing Officers must 
disclose to the Exchange their employment history for the past 10 
years, any past or current material business or other financial 
relationships with the Exchange or any members of the Exchange, and any 
other information deemed relevant by the Exchange. Disclosures relating 
to the particular Hearing Officer selected by the CEO must be provided 
to a Respondent upon request after the selection of the Hearing 
Officer. In selecting a Hearing Officer for a particular matter, the 
CEO should give reasonable consideration to the prospective Hearing 
Officer's professional competence and reputation, experience in the 
securities industry, familiarity with the subject matter involved, the 
absence of bias and any actual or perceived conflict of interest, and 
any other relevant factors.
    Article 12, Rule 4(f) governs the decision of the Hearing Officer. 
After considering the entire record, a Hearing Officer must prepare a 
written Order setting forth the determination as to whether the 
Respondent committed the violations alleged in the charging document or 
otherwise established at the Hearing and, if so, the sanction(s) to be 
imposed. The Hearing Officer must sign two copies of the written Order 
and deliver one signed copy to the Respondent and file the other with 
the Secretary (with copies to the Market Regulation Department).
    The rule requires the Order to make specific findings as to each 
charge brought by the Exchange and, where a violation is found, impose 
appropriate sanctions, including expulsion or suspension of a 
Participant's Trading Permit, the imposition of limitations on the 
activities, privileges, functions, and/or operations of a Participant 
or person associated with a Participant, the imposition of fine(s), 
censure, suspending or barring a person or organization from being 
associated with a Participant or any other fitting sanction. Absent the 
granting of an extension of time by either the Board or the Executive 
Committee for good cause shown, the Hearing Officer shall issue an 
Order within 90 days of the conclusion of the hearing.
    Article 12, Rule 4(g) governs a Respondent's right to counsel. 
Under Article 12, Rule 4(g), Respondent shall have the right to be 
represented by legal or other counsel at the Respondent's own expense 
except in the case of summary procedure under Article 12, Rule 2(a), 
Rule 3 or Rule 4(a), and under the Minor Rules Violation Plan 
(``MRVP'') of Article 12, Rule 8.\8\ The rule also provides that 
preparation of the charges and the presentation of evidence in support 
of charges is the responsibility of the Market Regulation Department 
and that Exchange counsel shall be counsel to the Hearing Officer. 
Pursuant to Article 12, Rule 4(g), Exchange counsel must not be an 
employee in the Market Regulation Department and must not have directly 
participated in any examination, investigation or decision associated 
with the initiation or conduct of the particular proceeding.
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    \8\ Article 12, Rule 4(g) mistakenly refers to the MRVP as being 
in Article 12, Rule 9 which, as noted below, is marked ``Reserved.'' 
See note 12 [sic], infra.
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    Article 12, Rule 4(h) governs the impartiality of Hearing Officer. 
The rule requires that when a Hearing Officer considers a disciplinary 
matter, he or she is expected to function impartially and independently 
of the staff members who prepared and prosecuted the charges. Under the 
rule, Exchange counsel may assist the Hearing Officer in preparing his 
written recommendations or judgments.
    Within 15 days of the appointment of the Hearing Officer, a 
Respondent may move for disqualification of the Hearing Officer based 
upon bias or conflict of interest. Motions to disqualify a Hearing 
Officer must be in writing, state with specificity the facts and 
circumstances giving rise to the alleged bias or conflict of interest, 
and filed with the Hearing Officer and the Secretary (with copies to 
the Market Regulation Department). The Exchange may file a brief in 
opposition to the Respondent's motion within 15 days of service. 
Article 12, Rule 4(h) requires the Hearing Officer to rule on such 
motions no later than 30 days from filing by the Respondent. Prior 
adverse rulings against the Respondent or his attorney in other matters 
do not, in and of themselves, constitute grounds for disqualification. 
If a Hearing Officer believes the Respondent has provided satisfactory 
evidence in support of the motion to disqualify, the Hearing Officer 
shall remove himself or herself and request the CEO to reassign the 
hearing to another Hearing Officer. If the Hearing Officer determines 
that the Respondent's grounds for disqualification are insufficient, 
the Hearing Office must deny the Respondent's motion for 
disqualification by setting forth the reasons for the denial in 
writing. The Hearing Officer will thereupon proceed with the hearing. 
Ruling by the Hearing Officer on motions to disqualify are not subject 
to interlocutory review.
Article 12, Rule 5 (Review)
    Article 12, Rule 5 governs review of penalties and decisions.
    Subsection (a) of Article 12, Rule 5 provides for review by the 
Judiciary Committee. The Judiciary Committee is governed by Article 2, 
Rule 3, which provides that whenever, in accordance with the Rules, a 
disciplinary matter is to be reviewed by a Judiciary Committee, the CEO 
shall appoint five disinterested Participants of the Exchange and/or 
general partners or officers of Participant Firms as a Judiciary 
Committee, for that purpose. A new Judiciary Committee is appointed to 
consider and determine each such matter. In the event of a vacancy on a 
Judiciary Committee after it has begun its proceedings, the remaining 
members appointed by the CEO shall complete consideration and 
disposition of the matter. Once a Judiciary Committee has determined 
the matter for which it was appointed and has notified the Secretary in 
writing of its decision, it shall be dissolved automatically.
    Under Article 12, Rule 5(a), a Respondent has 15 days from the date 
of service of notice of a penalty imposed under Article 12, Rule 2(b), 
Rule 4(b) or Rule 5 to demand a review of the penalty imposed. The 
Exchange in turn has 15 days from the date of service of notice of an 
Order under Article 12, Rule 2(b), Rule 4(b) \9\ or Rule 5 containing a 
decision with a finding that the Respondent did not commit any of the 
violations as alleged in the charging document or imposing a penalty 
that Exchange staff deems inadequate to demand a review thereof.
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    \9\ Article 12, Rule 5(a) mistakenly refers to an Order under 
Article 12, Rule 4(b). As discussed, Article 12, Rule 4(b) governs 
answers to charges. The Hearing Officer's decision is governed by 
subsection (f).
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    Demand for review shall be made in writing and filed with the 
Secretary, with copies to the opposing party. In the

[[Page 35038]]

event no request for review is filed within 15 days after the parties 
are notified of the Hearing Officer's determination, such determination 
becomes final and conclusive.
    Under Article 12, Rule 5(a), a Judiciary Committee appointed by the 
Board or the Executive Committee will review the terms of an Order 
under Article 12, Rule 2(b), Rule 4(b) or Rule 5. Under Article 12, 
Rule 5, the Judiciary Committee may not reverse, or modify, in whole or 
in part, the decision of the Hearing Officer under Article 12, Rule 
2(c), Rule 4(b) or Rule 5 if the factual conclusions in the decision 
are supported by substantial evidence and such decision is not 
arbitrary, capricious or an abuse of discretion. Modifications may 
include an increase or decrease of the penalty imposed. Unless the 
Judiciary Committee decides to open the record for the introduction of 
evidence to hear argument, such review shall be upon the factual record 
as certified to the Judiciary Committee by the Secretary.
    Under Article 12, Rule 5(a), both the Respondent and the Exchange 
staff have the right to file memoranda (not to exceed 25 pages, 
inclusive of attachments). The appellant must file its memorandum with 
the Secretary within 45 days of service of the notice of appeal, or 
within such other time as directed by the Executive Committee. The 
appellee must file its memorandum within 30 days of the filing of the 
appellant's memorandum, or within such other time as directed by the 
Executive Committee. In its sole discretion, the Judiciary Committee 
may hear oral argument by the parties. The decision of the Judiciary 
Committee must be in writing and address the principal arguments 
forwarded by the appellant and appellee. The decision of the Judiciary 
Committee will be the final decision of the Exchange, except as 
provided in Article 12, Rule 5(b), described below.
    Article 12, Rule 5(b) provides a process for review by the Board of 
matters subject to Judiciary Committee review under Rule 5(a). Article 
12, Rule 5(b) provides that, notwithstanding Article 12, Rule 5 (a), if 
the Judiciary Committee determines that a matter presented to it for 
review involves an issue of sufficient importance, it may request that 
the Board, rather than the Judiciary Committee, conduct the review. The 
Board may in its discretion determine to review any decision of the 
Judiciary Committee. Under Article 12, Rule 5(b), any review by the 
Board shall be upon the record as certified to the Board by the 
Secretary, and the Board may not reverse or modify any decision if the 
factual conclusions in the decision are supported by substantial 
evidence and such decision is not arbitrary, capricious or an abuse of 
discretion. The Board may also consider any memoranda submitted by the 
Respondent or Exchange staff to the Judiciary Committee pursuant to 
Article 12, Rule 5(a). The Board may, in its sole discretion, hear oral 
argument by the parties. Under the rule, modifications may include an 
increase or decrease of the penalty imposed on the Respondent. Any 
decision by the Board shall be the final decision of the Exchange.
Article 12, Rule 6 (Effective Date of Judgment)
    Article 12, Rule 6 governs the effective date of judgments. The 
rule provides that enforcement of any Orders or penalties imposed under 
Article 12 shall be stayed upon the filing of a notice of appeal under 
Article 12, Rule 6(a) pending the outcome of final review by a 
Judiciary Committee or the Board as provided for in Article 12 or until 
the decision otherwise becomes final, subject, however, to the power of 
the Hearing Officer to impose such limitations on the Respondent as are 
necessary or desirable, in the Hearing Officer's judgment, for the 
protection of the Respondent's customers, creditors or the Exchange or 
for the maintenance of just and equitable principles of trade.
Article 12, Rule 7 (Disciplinary Jurisdiction)
    Article 12, Rule 7 describes the Exchange's disciplinary 
jurisdiction.
    Article 12, Rule 7(a) provides that a Participant or a person 
associated with a Participant alleged to have violated or aided and 
abetted a violation of any provision of the Act, the rules and 
regulations promulgated thereunder, or any constitutional provisions 
by-law or rule of the Exchange or any interpretation thereof or 
resolution of the Board of the Exchange regulating the conduct of 
business on the Exchange is subject to the disciplinary jurisdiction of 
the Exchange and, after notice and opportunity for a hearing, may be 
appropriately disciplined by expulsion, suspension, limitation of 
activities, functions, and operations, fine, censure, being suspended 
or barred from being associated with a Participant or any other fitting 
sanction, in accordance with the provisions of these Rules.
    Subsection (b) of Article 12, Rule 7 provides that any Participant 
or person associated with a Participant shall continue to be subject to 
the disciplinary jurisdiction of the Exchange following such person's 
termination of their Trading Permit or association with a Participant 
with respect to any matter that occurred prior to such termination; 
provided that written notice of the commencement of an inquiry into 
such matters is given by the Exchange to such former Participant or 
Associated Person within one year of receipt by the Exchange of written 
notice of the termination of such person's status as a Participant or 
person associated with a Participant.
Rule 8 (Minor Rule Violations)
    Article 12, Rule 8 sets forth the Exchange's MRVP.\10\ Under 
Article 12, Rule 8, in lieu of commencing a ``disciplinary proceeding'' 
as that term is used in Article 12 of the Exchange's rules, the 
Exchange may, subject to the requirements set forth in this Rule, 
impose a censure or fine, not to exceed $5,000,\11\ on any Participant, 
Associated Person, or registered or non-registered employee of a 
Participant, for any violation of a rule of the Exchange, which 
violation the Exchange shall have determined is minor in nature.\12\ 
For

[[Page 35039]]

failures to comply with the Consolidated Audit Trail Compliance Rule 
requirements of the Rule 6.6800 Series, the Exchange may impose a minor 
rule violation fine of up to $2,500. For more serious violations, other 
disciplinary action may be sought.
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    \10\ The Exchange adopted its current MRVP in 1996. See 
Securities Exchange Act Release No. 37255 (May 30, 1996), 61 FR 
28918 (June 6, 1996) (SR-CHX-95-25) (Order). The original procedure 
authorizing the Exchange, in lieu of commencing disciplinary 
proceeding, to impose a fine, not to exceed $2,500, on any member, 
member organization, associated person or registered or 
nonregistered employee of a member or member organization for any 
violation of an Exchange rule which the Exchange determines to be 
minor in nature was contained in Article 12, Rule 9, now Article 12, 
Rule 8. The recommended dollar amounts for the first, second, third 
and subsequent violations, as calculated on a twelve-month rolling 
basis, of a rule designated as a minor rule violation was contained 
in a separate Recommended Fine Schedule in the Fee Schedule. See 
id., 61 FR at 28918-19 & n. 10.
    In 2011, the Exchange increased the maximum fine pursuant to the 
MRVP from $2,500 to $5,000 and also increased the recommended fines 
from $100/$500/$1000 for 1st, 2nd and 3rd tier fines, respectively, 
to $250/$750/$1500. The Exchange also recommended fines of $500/
$1000/$2500 for other, more serious trading rule violations (i.e., 
ones involving the potential for customer harm), as well as 
violations of the obligation to establish, maintain and enforce 
written supervisory procedures, and to provide information to the 
Exchange in connection with regulatory inquiries or other matters. 
Recommended fines of $1000/$2500/$5000 were reserved for Trading 
Ahead violations. The Exchange also expanded the rolling time period 
in which violations would result in escalation to the next highest 
tier from 12 to 24 months. See Securities Exchange Act Release No. 
64370 (April 29, 2011), 76 FR 25727, 25727 (May 5, 2011) (SR-CHX-
2011-07) (Notice); Securities Exchange Act Release 64686 (June 16, 
2011), 76 FR 36596 (June 22, 2011) (SR-CHX-2011-07) (Order).
    \11\ Proposed Rule 10.9217 would retain the Exchange's maximum 
$5,000 fine for minor rule violations under current Article 12, Rule 
8.
    \12\ As set forth in Article 12, Rule 8(f), the Exchange is not 
required to impose a censure or fine with respect to the violation 
of any rule or policy included in any such listing and the Exchange 
shall be free, whenever it determines that any violation is not 
minor in nature, to proceed under other provisions of Article 12 
rather than under Article 12, Rule 8.
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    Any censure or fine imposed pursuant to Article 12, Rule 8 and not 
contested shall not be publicly reported, except as may be required by 
Rule 19d-1 under the Act, and as may be required by any other 
regulatory authority. Any censure or fine that is contested may be 
publicly reported to the same extent that Exchange disciplinary 
proceedings may be publicly reported. Any fine imposed pursuant to 
Article 12, Rule 8 that (1) does not exceed $2,500 and (2) is not 
contested, shall be reported by the Exchange to the Securities and 
Exchange Commission on a periodic, rather than a current, basis, except 
as may otherwise be required by Act Rule 19d-1 and by any other 
regulatory authority. Under Article 12, Rule 8(b), the Chief 
Enforcement Counsel or CRO have the authority to impose a fine pursuant 
to the rule.
    Under Article 12, Rule 8(c), in any action taken by the Exchange 
pursuant to the rule, the person against whom a censure or fine is 
imposed shall be served as provided in Article 12, Rule 1(c) with a 
written statement, signed by an Exchange officer setting forth (1) the 
rule(s) or policy(ies) alleged to have been violated; (2) the act or 
omission constituting each violation; (3) the sanctions imposed for 
each violation; (4) the date on which such action is taken; and (5) the 
date on which such determination becomes final and such fine, if any, 
becomes due and payable to the Exchange, or on which such action must 
be contested as provided in paragraph (e) of Article 12, Rule 8, such 
date to be not less than 15 days after the date of service of the 
written statement. Pursuant to Article 12, Rule 8(d), if the person 
fined pursuant to the rule pays the fine, such payment is deemed a 
waiver of any right to a disciplinary proceeding under Article 12 and 
any right to review or appeal. Commentary .01 to Article 12, Rule 8 
provides that, with respect to subsection (d), a failure to pay a fine 
imposed Article 12, Rule 8 by the time it is due, without timely 
contesting the action upon which such fine was based pursuant to 
Article 12, Rule 8(e), shall be deemed a waiver by the person against 
whom the fine is imposed of such person's right to a disciplinary 
proceeding under Article 12 and any right to review or appeal.
    Under Article 12, Rule 8(e), any person censured or fined pursuant 
to the rule may contest such censure or fine by filing with the 
Secretary a written response meeting the requirements of an Answer as 
provided in Article 12, Rule 4(b) no later than the date by which such 
determination must be contested. The Secretary may deny the answer if 
such answer is untimely or the answer fails to meet the standards of 
Article 12, Rule 4(b). If the Secretary denies the answer without leave 
to amend and refile, the sanction imposed by the Exchange pursuant to 
Article 12, Rule 8(b) shall become final and the censure shall be 
imposed and/or fine become due and payable. Unless denied by the 
Secretary, an answer filed by Respondent is deemed accepted, at which 
point the matter shall become a ``Disciplinary Proceeding'' subject to 
the provisions of Article 12 applicable to disciplinary proceedings.
    Pursuant to Article 12, Rule 8(f), the Exchange must prepare and 
announce to its Participants from time to time a listing of the 
Exchange rules and policies as to which the Exchange may impose 
censures or fines as provided in this Rule that must also indicate the 
specific or recommended dollar amount that may be imposed as a fine 
hereunder with respect to any violation of such rule or policy, or may 
indicate the minimum and maximum dollar amount that may be imposed by 
the Exchange with respect to any such violation. In applying the 
Recommended Fine Schedule, the Exchange shall consider a violation as 
having occurred at the time that the underlying conduct of the 
Participant occurred. Nothing in Article 12, Rule 8 requires the 
Exchange to impose a censure or fine pursuant to this Rule with respect 
to the violation of any rule or policy included in any such listing and 
the Exchange shall be free, whenever it determines that any violation 
is not minor in nature, to proceed under other provisions of Article 12 
rather than under Rule 8. Under Article 12, Rule 8(g), any fine 
assessed under Rule 8 cannot be deemed to satisfy any damages or 
liability incurred from the violation.
    Finally, Article 12, Rule 8(h) sets forth the Exchange rules and 
policies that are subject to the MRVP.
Rule 10 (Pending Proceedings) 13
---------------------------------------------------------------------------

    \13\ Article 12, Rule 9 is marked ``Reserved.''
---------------------------------------------------------------------------

    Article 12, Rule 10 provides that the Exchange will report to the 
Central Registration Depository (``CRD'') the initiation of, and all 
significant changes in the status of, a formal disciplinary proceeding. 
For purposes of this rule, significant changes in the status of a 
pending formal disciplinary proceeding include, but are not limited to, 
issuance of a decision by the Hearing Officer the filing of an appeal 
to and/or the issuance of a decision by a Judiciary Committee or the 
Exchange's Board.
Article 13 (Suspension--Reinstatement)
    Article 13 addresses suspensions, and reinstatements.
    Article 13, Rule 1 governs automatic suspensions. Under the rule, a 
Participant failing to perform his or its contracts, or being 
insolvent, shall immediately inform the Secretary of the Exchange in 
writing that he or it is unable to perform his or its contracts or is 
insolvent. Such Participant's Trading Permit shall thereupon be 
suspended by the CEO and prompt notice of such suspension shall be 
given to all Participants. Such suspension shall continue until the 
Participant's Trading Permit is reinstated by the Board.
    Article 13, Rule 2 governs emergency suspensions. Under Article 13, 
Rule 2(a)(1), whenever it appears to the CRO (after verification and 
with such opportunity for comment by the Participant as the 
circumstances reasonably permit) that a Participant, or, with respect 
to Article 13, Rule 2(a)(1)(B), any Associated Person has:
     Failed to perform his or its contracts or is insolvent or 
is in such financial or operational condition or otherwise conducting 
his or its business in such a manner that he or it cannot be permitted 
to continue in business with safety to his or its customers or 
creditors or to the Exchange, including but not limited to, the 
reasonable belief that the Participant is violating and will continue 
to violate any provision of the Rules of the Exchange, the federal 
securities laws (or rules promulgated thereunder) or any condition or 
restriction imposed pursuant to the provisions of Article 7, Rule 3(d) 
or Article 7, Rule 8(a) (Article 13, Rule 2(a)(1)(A)); or
     failed to perform or is failing to perform any material 
responsibility imposed on the Participant as a result of its 
registration as an Institutional Broker or Market Maker (or an 
associated person thereof who is registered as an Institutional Broker 
Representative or Market Maker Authorized Trader, respectively) and, as 
a result, cannot be permitted to continue in business with safety to 
its customers or creditors or to the Exchange ((Article 13, Rule 
2(a)(1)(B)); or
     been and is expelled or suspended from any self-regulatory 
organization or barred or suspended from being associated with a member 
of any self-

[[Page 35040]]

regulatory organization (Article 13, Rule 2(a)(1)(C)),

the CRO may suspend such Participant Firm Trading Permit or such 
Participant's registration under Article 6 or limit or prohibit such 
Participant, Participant Firm's or associated person with respect to 
access to services offered by the Exchange, or limit or revoke such 
Participant's registration as Institutional Broker or Market Maker and 
if so suspended, revoked, limited or prohibited, prompt notice of 
action shall be given to all Participants and the written statement 
described below shall be provided to the person affected by the 
suspension, limitation or prohibition.
    Unless the CRO determines after further inquiry that lifting the 
suspension, revocation, limitation or prohibition without further 
proceedings is appropriate, such suspension, limitation, revocation or 
prohibition shall continue until the Participant Firm's Trading Permit, 
such Participant's registration or the access of the associated person 
is reinstated or terminated pursuant to the provisions of Article 13, 
Rule 3 or unless otherwise determined pursuant to Article 13, Rule 
2(b).
    Under Article 13, Rule 2(a)(2), whenever it appears to the CRO that 
a person who is not a Participant (after verification and with such 
opportunity for comment by the person as circumstances reasonably 
permit) does not meet the qualification requirements or prerequisites 
for access to services offered by the Exchange and such person cannot 
be permitted to continue to have such access with safety to investors, 
creditors, Participants or the Exchange, the CRO may limit or prohibit 
any person with respect to such access.
    Under Article 13, Rule 2(a)(3), the CRO shall, within two business 
days of taking action pursuant to Article 13, Rule 2 (whether with 
respect to a Participant, an associated person of a Participant or any 
other person), furnish such person with a written statement setting 
forth the reasons and specific grounds which constitute the basis for 
the action taken.
    Article 13, Rule 2(b) governs appeals of CRO action under Article 
13, Rule 2(a). Subsection (b) provides that, in the event the CRO takes 
any action pursuant to Article 13, Rule 2(a), any person named in such 
action shall have the right to appeal. Appeals pursuant to Article 13, 
Rule 2(b) shall be made by filing a written notice of appeal with the 
secretary of the Exchange within five days after notification of the 
action. The notice shall state with particularity the action complained 
of, the appellant's reasons for taking exception to the decision and 
the relief sought. Appeals filed under Article 13, Rule 2(b) are 
considered and decided by a panel appointed by the Board, composed of 
three Board members, at least two of whom shall be public members of 
the Board. No member of such panel shall have any direct or indirect 
interest in the matter presented before them which might preclude such 
member from rendering an objective and impartial determination. All 
appeals heard pursuant to Article 13, Rule 2(b) are expedited to the 
maximum extent possible and, in any event, shall be heard within ten 
days. Appellants are notified of the composition of the panel and the 
time, place and date when the panel will meet. Written materials in 
support of the appeal or requests to make an oral presentation shall be 
filed with the panel prior to the date when the panel will meet. The 
panel will grant requests for oral presentation. After consideration of 
the appeal, the panel shall, by vote of a majority of its members, 
affirm, reverse, or modify the action upon which the appeal was made. 
All decisions by the panel are final.
    Finally, under Article 13, Rule 2(c), any appeal from a decision of 
the CRO shall be made pursuant to the procedures set out in Article 15 
(Hearings and Reviews).
    Commentary .01 to Article 13, Rule 2 provide that any Exchange 
Officer designated by the CRO may suspend the trading privileges of a 
Participant on the Exchange's facilities pursuant to the provisions of 
Article 13, Rule 2 if a Qualified Clearing Agency refuses to act to 
clear and settle the trades of that Participant. The CRO must approve 
any such suspensions within two (2) days of the action. If the CRO does 
not approve the action taken, the suspension shall be immediately 
lifted as of the time of his or her decision or after the expiration of 
two days, whichever is earlier.
    Article 13, Rule 3 governs failure to obtain reinstatement and 
provides that if a Participant suspended under the provisions of 
Article 13, Rule 1 or Article 13, Rule 2(a) fails to obtain 
reinstatement within one year from the time of his or its suspension, 
or within such further time as the Board may grant, or fails to obtain 
reinstatement as hereinafter provided, his or its Trading Permit shall 
be terminated. Any person suspended under Article 13 may, at any time, 
be reinstated by the Board upon their own motion.
    Article 13, Rule 4 sets forth the procedure for reinstatement.
    Article 13, Rule 4(a) provides that when a Participant (or any 
Associated Person) suspended under the provisions of Article 13, Rule 1 
applies for reinstatement, he or it shall be investigated by the staff 
to determine if the circumstances which brought about the suspension 
have been corrected and if any specified requirements imposed as a 
condition of reinstatement have been met, prior to the consideration of 
the application by the Executive Committee.
    Article 13, Rule 4(b) provides that if the staff recommends that 
the applicant not be reinstated, the applicant shall be sent a 
statement of reasons therefore and may, within 15 days of the receipt 
thereof, file a request with the Executive Committee that it consider 
his or its application together with a written statement indicating why 
in his or its opinion the staff recommendation is in error or 
insufficient to preclude his or its reinstatement.
    Under Article 13, Rule 4(c), if the staff recommends that the 
applicant be reinstated or if the applicant files a request with the 
Executive Committee pursuant to Article 13, Rule 4(b), the Executive 
Committee shall consider and vote upon the application for 
reinstatement. An affirmative vote of two-thirds of the members of the 
Executive Committee present at the time of voting shall be required for 
reinstatement.
    Under Article 13, Rule 4(d), in the event the applicant does not 
receive two-thirds vote, he or it shall have the right to a hearing 
before the Executive Committee, conducted in accordance with procedures 
set forth in a notice of such hearing to be given to the applicant. 
Following the hearing, the Executive Committee shall again vote upon 
the applicant, a two-thirds vote of the members of the Executive 
Committee present at the time of voting being required for 
reinstatement. The applicant may petition the Board for review of any 
adverse determination made by the Executive Committee following a 
hearing, a two-thirds vote of the members of the Board present at the 
time of voting being required for reinstatement. The Board shall not 
reverse, modify or remand for further consideration any determination 
made by the Executive Committee if the factual conclusions in such 
determination are supported by substantial evidence and such 
determination is not arbitrary, capricious or an abuse of discretion.
    Finally, Article 13, Rule 5 governs termination of rights by 
suspension and provides that a Participant suspended under the 
provisions of Article 13 shall

[[Page 35041]]

be deemed not in good standing and shall be deprived during the term of 
his or its suspension of all rights and privileges of a holder of a 
Trading Permit, as provided in Article 3, Rule 2(b). The suspension of 
a Participant or any Associated Person thereof shall create a vacancy 
in any office or position held by him.
Proposed Rule Change
    The Exchange proposes the Rule 10.8000 Series (Investigations and 
Sanctions) and the Rule 10.9000 Series (Code of Procedure), which would 
be based on the text of the NYSE Arca Rule 10.8000 and 10.9000 Series. 
The Exchange proposes to include the new disciplinary rules in current 
Rule 10 that would be renamed ``Disciplinary Proceedings; Suspension, 
Cancellation and Reinstatement.''
    Unless otherwise specified below, the individual rules in the 
proposed Rule 10.8000 Series and Rule 10.9000 Series are based on the 
individual rules of the counterpart NYSE Arca Rule 10.8000 and 10.9000 
Series without any differences, except that the Exchange would:
     describe its own transition process in Article 12, Rule 10 
and in proposed Rules 10.8001, 10.8130(d), and 10.9001 as well as for 
Article 13, which governs suspension and reinstatement;
     use the terms ``Participant'' and ``Participant Firm,'' 
together or separately, as applicable, rather than ``ETP Holder,'' 
``OTP Holder'' and ``OTP Firm,'' consistent with the Exchange's other 
rules;
     define ``covered person'' in proposed Rule 10.9120 to mean 
an Associated Person \14\ and any other person subject to the 
jurisdiction of the Exchange. The NYSE Arca rule is similar except for 
the reference to Approved Persons, a registration category that has no 
direct analogue on the Exchange;
---------------------------------------------------------------------------

    \14\ See Article 1, Rule 1(d). See also id. at (d) & note 7 
[sic], supra.
---------------------------------------------------------------------------

     not utilize Floor-Based Panelists referenced in NYSE Arca 
Rules 9120(q), 9212(a)(2)(B), 9221(a)(3), 9231(b)(2) and (c)(2), and 
9232(c) because the Exchange does not have a trading floor;
     retain the text of the Exchange's currently applicable 
list of minor rule violations in proposed Rule 10.9217, move the 
Recommended Fine Schedule for minor rule violations from the Fee 
Schedule to proposed Rule 10.9217 and make certain corrections and 
additions; \15\
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    \15\ The Exchange has filed a separate notice and comment filing 
to adopt proposed Rules 9216(b) and 9217 and to move the Recommended 
Fine Schedule for minor rule violations from the Fee Schedule to 
proposed Rule 10.9217 and make certain amendments and corrections. 
See SR-NYSECHX-2022-08. These rules relating to minor rule 
violations would not be operative until approval of the Exchange's 
companion rule filing.
---------------------------------------------------------------------------

     adopt substantially the same appellate and call for review 
processes as its affiliate NYSE Arca except that the Exchange will not 
be adopting appeals panels as provided for in NYSE Arca Rule 3.3 (Board 
Committees) and NYSE Arca Rule 10.9310(b). NYSE Arca retained appeals 
panels from its legacy disciplinary rules. The Exchange does not have a 
similar current process; and
     make certain other technical and conforming changes as 
described below and herein.
    The Exchange also proposes to adopt the following rules in order to 
harmonize its rules with those of its affiliates, as described in 
detail below:\16\
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    \16\ The Exchange has filed a separate filing to adopt a new 
Rule 11.2210 governing communications with the public that would 
incorporate FINRA Rule 2210 by reference and rename and amend 
Article 8, Rule 13 governing advertising, promotion and 
telemarketing. See SR-NYSECHX-2022-09. The Exchange will also file a 
request with the Commission for an exemption under Section 36 of the 
Act from the rule filing requirements of Section 19(b) of the Act 
with respect to the incorporation by reference of proposed Rule 
11.2210 and to the extent Rule 11.2210 is effected solely by virtue 
of a change to cross-referenced FINRA rule. To the extent any rules 
in this proposed filing refer to Rule 11.2210, such rules would not 
be effective with respect to Rule 11.2210 until such separate filing 
is operative.
---------------------------------------------------------------------------

     A new Rule 11.21 governing disruptive quoting and trading 
activity modeled on NYSE Arca Rule 11.21; and
     a new Article 2, Rule 4 that would create a Committee for 
Review (``CFR'') as a sub-committee of the Regulatory Oversight 
Committee (``ROC'') that would replace the Judiciary Committee as the 
Exchange's appellate body reviewing disciplinary decisions on behalf of 
the Board under the proposed disciplinary rules.
    Finally, the Exchange proposes certain changes to Article 7, Rule 
12 governing non-payment of any debt for Trading Permit fees, fines, 
transaction fees, or other sums owing the Exchange or its subsidiaries, 
to reflect that failure to pay any fine, sanction or cost levied in 
connection with a disciplinary action would be governed by proposed 
Rule 10.8320.
    First, the heading of Article 7, Rule 12 would become ``Failure to 
Pay Fees.'' Second, the Exchange would replace ``any debt for Trading 
Permit fees, fines, transaction fees, or other sums owing the Exchange 
or its subsidiaries'' with ``a fee.'' For the avoidance of doubt, and 
consistent with the requirements of Article 15 (Hearings and Reviews), 
the Exchange would add text providing that Exchange actions under 
Article 7, Rule 12 would be subject to the procedural safeguards set 
forth in Article 15, which sets out the procedures to seek an 
opportunity to be heard and to appeal from non-disciplinary actions 
taken by the Exchange pursuant to its Rules. Amended Article 7, Rule 12 
would also specify that failure to pay any fine levied in connection 
with a disciplinary action shall be governed by proposed Rule 10.8320. 
Finally, the Exchange would remove ``pursuant to Article 12'' following 
``disciplinary proceedings.''
Transition
    Once the proposed rule change is effective, the Exchange intends to 
announce by Information Memorandum with at least 30 days advance notice 
the effective date of the new rules.\17\ To further facilitate an 
orderly transition from the current rules to the new rules, the 
Exchange proposes that matters already initiated under the current 
rules would be completed under such rules. The proposed transition is 
substantially the same as the NYSE Arca transition to its Rule 10.8000 
and 10.9000 Series.
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    \17\ The proposed Information Memorandum would be substantially 
the same as that published for NYSE Arca. See NYSE Arca Equities RB-
19-060 NYSE Arca Options RB-19-02 (April 26, 2019).
---------------------------------------------------------------------------

    Specifically, the Exchange proposes that current Article 12, whose 
coverage overlaps the proposed Rule 10.8000 and Rule 10.9000 Series, 
would continue to apply to an investigation or proceeding instituted 
under Article 12, Rule 1 prior to the effective date of the new rules 
and would continue to apply until such proceeding was final. Article 12 
would also continue to apply to any Participant, Participant Firm or 
person associated with a Participant or Participant Firm over whom the 
Exchange asserted jurisdiction by providing written notice of the 
commencement of an inquiry pursuant to Article 12, Rule 7(b) prior to 
the effective date of the new rules. In all other cases, the proposed 
Rule 10.8000 and Rule 10.9000 Series, as described below, would apply.
    Until the effective date, the Exchange could suspend from trading 
on the Exchange any Participant or Participant Firm that fails to pay 
any debt for Trading Permit fees, fines, transaction fees, or other 
sums owing the Exchange or its subsidiaries under current Article 7, 
Rule 12, which would remain in effect until payment was made. 
Thereafter, the Exchange would proceed against an individual or entity 
subject to its jurisdiction that failed to pay a fine, monetary 
sanction, or cost levied in connection with a disciplinary action under 
proposed Rule 10.8320.

[[Page 35042]]

    As described above, Article 13, Rule 1 governs automatic 
suspensions by the CEO of the Exchange of Participants for failure to 
perform its contracts or being insolvent. Article 13, Rule 2 governing 
emergency regulatory suspensions by the CRO that overlap with the Rule 
10.9500 Series. The Exchange proposes that emergency suspensions under 
Article 13, Rule 2 would continue to apply to a proceeding for which 
the Exchange has issued a written notice or statement thereunder prior 
to the effective date of the new rules. Thereafter, the proposed Rule 
10.9500 Series would govern all emergency suspensions. Automatic 
suspensions under Article 13, Rule 1 would be unaffected by the 
proposed changes.
    When the transition is complete, the Exchange intends to submit a 
proposed rule change that would delete the provisions of Article 12 and 
Article 13 that are no longer necessary.
Jurisdiction
    The Exchange proposes a new Rule 2.0 titled ``Disciplinary 
Jurisdiction'' based on current Article 12, Rule 7, which describes the 
Exchange's current disciplinary jurisdiction.\18\ Proposed Rule 2.0(a) 
would be substantially the same as current Article 12, Rule 7(a) except 
that the Exchange would:
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    \18\ The new Rule 2.0 titled ``Rule 2.0. Disciplinary 
Jurisdiction'' would appear below ``Rule 2 Trading Permits.''
---------------------------------------------------------------------------

     add ``Participant Firm'' to the first sentence of the 
proposed rule to explicitly include such firms and persons associated 
with Participant Firms within the scope of the Exchange's jurisdiction;
     include the phrase ``or any other person or organization 
subject to the jurisdiction of the Exchange'' in that same first 
sentence of the proposed rule consistent with current Article 12, Rule 
1 and in order to explicitly include such persons or organizations 
within the scope of the Exchange's jurisdiction;
     omit the reference to ``constitutional provisions'' from 
the list of potential violations as moot since the Exchange no longer 
has a Constitution;
     conform the potential sanctions with NYSE Arca's Rule 
2.0(a), that exchange's comparable jurisdiction rule;
     replace the reference to ``these Rules'' with ``the Rule 
10.8000 and 10.9000 Series'' to add clarity and transparency;
     add the following sentence from NYSE Arca Rule 2.0 in 
order to harmonize the Exchange's rules with that of its affiliates and 
clarify the scope of the Exchange's disciplinary jurisdiction: ``A 
Participant or Participant Firm may be charged with any violation 
committed by its employees or other person associated with such 
Participant or Participant Firm, as though such violation were its 
own.''
    Proposed Rule 2.0(b) would be based on NYSE Arca Rule 2.0(b) and 
would provide that a Participant or Participant Firm that resigns or 
has its membership canceled or revoked, and a person who is no longer a 
covered person as defined in Rule 10.9120 or a covered person whose 
registration has been revoked or canceled, shall continue to be subject 
to the Exchange's disciplinary jurisdiction as set forth in proposed 
Rule 10.8130.
    Proposed Rule 2.0(c) would be based on NYSE Arca Rule 2.0(c). The 
proposed rule would provide that the Board may authorize any officer, 
on behalf of the Exchange, subject to the approval of the Board, to 
enter into one or more agreements with another self-regulatory 
organization to provide regulatory services to the Exchange to assist 
the Exchange in discharging its obligations under Section 6 and Section 
19(g) of the Act. The proposed rule would further provide that any 
action taken by another self-regulatory organization, or its employees 
or authorized agents, acting on behalf of the Exchange pursuant to a 
regulatory services agreement shall be deemed to be an action taken by 
the Exchange; provided, however, that nothing in this provision would 
affect the oversight of such other self-regulatory organization by the 
Commission. Finally, proposed Rule 2.0(c) would provide that, 
notwithstanding the fact that the Exchange may enter into one or more 
regulatory services agreements, the Exchange shall retain ultimate 
legal responsibility for, and control of, its self-regulatory 
responsibilities, and any such regulatory services agreement shall so 
provide.
    As proposed, Rule 2.0 would set forth the scope of the Exchange's 
disciplinary jurisdiction under the Rule 10.8000 and 10.9000 Series. As 
discussed below, proposed Rule 10.8130 would address the Exchange's 
retention of jurisdiction, and would enable the Exchange to generally 
retain jurisdiction to file a complaint against a Participant, 
Participant Firm or a covered person for two years after such status 
was terminated. Current Article 12 would continue to apply to any 
Participant, Participant Firm or covered person over whom the Exchange 
asserted jurisdiction by providing written notice of the commencement 
of an inquiry under Article 12, Rule 7(b) prior to the effective date.
    To continue the current coverage of the Exchange's disciplinary 
rules, the proposed rule change would use the terms ``Participant,'' 
``Participant Firm'' and ``covered person,'' which would be defined in 
proposed in Rule 10.9120 to mean an Associated Person \19\ and any 
other person subject to the jurisdiction of the Exchange, to describe 
the persons to which the proposed Rule 10.8000 and 10.9000 Series 
apply. The NYSE Arca rule is similar except for the reference to 
Approved Persons, a registration category that has no direct analogue 
on the Exchange.
---------------------------------------------------------------------------

    \19\ See Article 1, Rule 1(s). See also id. at (d) & note 6, 
supra.
---------------------------------------------------------------------------

Proposed Rule 10.8000 Series
    The Proposed Rule 10.8000 Series would address Investigations and 
Sanctions.
    Proposed Rule 10.8001 (Effective Date of Rule 10.8000 Series) would 
include the effective date of the proposed rule change for the Rule 
10.8000 Series, noting the exception for the retention of jurisdiction 
dates in proposed Rule 10.8130(d), as described below.
    The text of NYSE Arca Rules 10.8110 through 10.8330 would be 
adopted as Rules 10.8110 through 10.8330 with proposed changes to 
reflect the Exchange's membership and to update the cross-references in 
proposed Rule 10.8130(b)(1) to the rules governing termination of 
registration (Article 6, Rule 2; Article 16, Rule 1; and Article 17, 
Rule 1). Proposed Rule 10.8100 (General Provisions) would include 
proposed Rules 10.8110 through 10.8130.\20\
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    \20\ NYSE Arca Rules 10.8212, 10.8213, and 10.8312 are marked 
``Reserved'' in the NYSE Arca's rulebook. As such, to maintain 
consistency with NYSE Arca's rule numbering, the Exchange has 
designated proposed Rules 10.8212, 10.8213, and 10.8312 as 
``Reserved.''
---------------------------------------------------------------------------

    Proposed Rule 10.8110 (Availability of Rules for Customers) would 
require Participants and Participant Firms to make available a current 
copy of the Exchange's rules for examination by customers upon request. 
Although there is no comparable requirement in the current Rules, the 
Exchange's rules are currently available on the Exchange's website.\21\
---------------------------------------------------------------------------

    \21\ The rules are available at https://nysechicago.wolterskluwer.cloud/rules.
---------------------------------------------------------------------------

    Proposed Rule 10.8120 (Definitions) would provide cross-references 
to definitions of the terms ``Adjudicator,'' ``covered person,'' and 
``Regulatory Staff'' in proposed Rule 10.9120. Proposed Rule 10.8120 is 
technical in nature.
    Proposed Rule 10.8130 (Retention of Jurisdiction) would set forth 
retention of

[[Page 35043]]

jurisdiction provisions that are substantially the same as NYSE Arca 
Rule 10.8130, except for (1) references to reflect the Exchange's 
membership, (2) the cross-references in paragraph (b)(1) and (d), and 
(3) clarifying in paragraph (d) for purposes of the transition Article 
12 would continue to apply to a Participant, Participant Firm or 
covered person over whom the Exchange asserted jurisdiction by 
providing written notice of the commencement of an inquiry pursuant to 
Article 12, Rule 7(b) prior to the effective date of the new 
disciplinary rules.
    Generally, subject to proposed Rule 10.8130(d), under the proposed 
rule change, the Exchange would retain jurisdiction to file a complaint 
against a Participant, Participant Firm or a covered person for two 
years after such Participant's, Participant Firm's or covered person's 
status is terminated. This differs from current Article 12, Rule 7(b), 
which provides that jurisdiction is retained if a written notice of the 
commencement of an inquiry into such matters is given by the Exchange 
to the former Participant or Associated Person within one year of 
receipt by the Exchange of written notice of the termination of such 
person's status as Participant or person associated with a Participant. 
The Exchange believes that the period under the proposed rule is 
appropriate because it will harmonize the Exchange's rule with NYSE 
Arca's rule.
    Proposed Rule 10.8200 (Investigations) would set forth the 
following rules. Proposed Rule 10.8210 (Provision of Information and 
Testimony and Inspection and Copying of Books) would set forth 
procedures for the provision of information and testimony and 
inspection and copying of books by the Exchange.
    Proposed Rule 10.8210(a) would require Participant, Participant 
Firm or a covered person to provide information and testimony and 
permit the inspection of books, records, and accounts for the purpose 
of an investigation, complaint, examination, or proceeding authorized 
by the Exchange's rules. As noted above, under proposed Rule 10.8130, 
the Exchange would retain jurisdiction over a Participant, Participant 
Firm or a covered person to file a complaint or otherwise initiate a 
proceeding for two years after such Participant's, Participant Firm's 
or covered person's status is terminated; as such, the Exchange can 
continue to obtain information and testimony during such period and 
thereafter if a complaint or proceeding is timely filed. The Exchange's 
current Article 6, Rule 9(a) similarly provides that a Participant or 
partner, officer, director or other person associated with a 
Participant or other person or entity subject to the jurisdiction of 
the Exchange that fails to submit requested documents or information to 
the Exchange is subject to formal disciplinary action.
    Under current Article 6, Rules 9(b), no Participant, or partner, 
officer, director or other person associated with a Participant or 
other person or entity subject to the jurisdiction of the Exchange 
shall refuse to appear and testify before another exchange or self-
regulatory organization in connection with a regulatory investigation, 
examination or disciplinary proceeding or refuse to furnish documentary 
materials or other information or otherwise impede or delay such 
investigation, examination or disciplinary proceeding if the Exchange 
requests such information or testimony in connection with an inquiry 
resulting from an agreement entered into by the Exchange pursuant to 
Article 6, Rule 9(c). The requirements of current Article 6, Rule 9(b) 
shall apply regardless of whether the Exchange has itself initiated a 
formal investigation or disciplinary proceeding. Proposed Rule 
10.8210(b) provides Exchange staff may exercise the authority set forth 
in 10.8210(a) for the purpose of an investigation, complaint, 
examination, or proceeding conducted by another domestic or foreign 
self-regulatory organization, association, securities or contract 
market, or regulator of such markets with which the Exchange has 
entered into an agreement providing for the exchange of information and 
other forms of material assistance solely for market surveillance, 
investigative, enforcement, or other regulatory purposes. The Exchange 
believes that adopting the proposed rule is appropriate because it will 
harmonize the Exchange's rules with its affiliate's rules with respect 
to jurisdiction and obtaining books and records from Participants, 
Participant Firms and persons associated with Participants and 
Participant Firms. The Exchange accordingly proposes to delete the text 
of current Article 6, Rules 9(a) and (b).
    Finally, proposed Rule 10.8210(a) would provide that, in performing 
the functions of investigation, complaint, examination, or proceeding 
authorized by Exchange rules, the CRO and Regulatory Staff would 
function independently of the commercial interests of the Exchange and 
the commercial interests of Participants and Participant Firms. The 
proposed rule would further provide that no member of the Board or non-
Regulatory Staff may interfere with or attempt to influence the process 
or resolution of any pending investigation or disciplinary proceeding, 
to proposed Rule 10.8210(a). The proposed language is based on NYSE 
Arca Rule 10.8210(a) with no substantive changes. The Exchange does not 
have a comparable rule and believes that adopting the proposed rule is 
appropriate because it will harmonize the Exchange's rule with NYSE 
Arca's rule in the important area of regulatory independence.\22\
---------------------------------------------------------------------------

    \22\ As noted below, the last sentence of proposed Rule 
10.8210(a) will also be added to proposed Rule 10.9110(a).
---------------------------------------------------------------------------

    Proposed Rule 10.8210(b)(2) would authorize Exchange staff to enter 
into regulatory cooperation agreements with a domestic federal agency 
or subdivision thereof, a foreign regulator, or a domestic or foreign 
SRO. Under current Article 6, Rule 9(c), the Exchange may enter into 
agreements with domestic and foreign SROs, but it does not cover 
domestic agencies and foreign regulators. As such, the Exchange would 
delete the text of current Article 6, Rule 9(c). The remainder of 
Article 6, Rule 9, consisting of interpretations and policies in 
Commentaries .01 and .02, would be deleted as well.
    The remainder of proposed Rule 10.8210 would set forth certain 
procedures for investigations. Proposed Rule 10.8210(c) would require 
Participants, Participant Firms and covered person to comply with 
information requests under the Rule.
    Proposed Rule 10.8210(d) would provide that a notice under this 
Rule would be deemed received by the Participant, Participant Firm or 
covered person (including a currently or formerly registered person) to 
whom it is directed by mailing or otherwise transmitting the notice to 
the last known business address of the Participant or Participant Firm, 
or the last known residential address of the covered person as 
reflected in the Central Registration Depository (``CRD''). With 
respect to a person who is currently associated with a Participant or 
Participant Firm in an unregistered capacity, a notice under this Rule 
would be deemed received by the person by mailing or otherwise 
transmitting the notice to the last known business address of the 
Participant or Participant Firm as reflected in CRD. With respect to a 
person subject to the Exchange's jurisdiction who was formerly 
associated with a Participant or Participant Firm in an unregistered 
capacity, a notice under the proposed

[[Page 35044]]

Rule would be deemed received by the person upon personal service, as 
set forth in Rule 10.9134(a)(1).
    If the Adjudicator or Exchange staff responsible for mailing or 
otherwise transmitting the notice to the Participant, Participant Firm 
or covered person had actual knowledge that the address in CRD is out 
of date or inaccurate, then a copy of the notice would be mailed or 
otherwise transmitted to: (1) the last known business address of the 
Participant or Participant Firm or the last known residential address 
of the covered person as reflected in CRD; and (2) any other more 
current address of the Participant, Participant Firm or covered person 
known to the Adjudicator or Exchange staff responsible for mailing or 
otherwise transmitting the notice. If the Adjudicator or Exchange staff 
responsible for mailing or otherwise transmitting the notice to the 
Participant, Participant Firm or covered person knew that the such 
person or entity was represented by counsel regarding the 
investigation, complaint, examination, or proceeding that is the 
subject of the notice, then the notice would be served upon counsel by 
mailing or otherwise transmitting the notice to the counsel in lieu of 
such person or entity, and any notice served upon counsel would be 
deemed received by the person or entity.
    Current Article 12, Rule 1(c) governs service of charges, orders, 
notices or any instrument on Respondents and provides that these may be 
served upon a Participant, Associated Person thereof or any other 
person or organization subject to the jurisdiction of the Exchange 
(defined as the ``Respondent'') either personally or by leaving same at 
his or its place of business during office hours or by deposit in the 
United States post office, postage prepaid via registered or certified 
mail with return receipt requested, addressed to the Respondent at the 
last business address given by the Respondent to the Exchange. The 
changes to proposed Rule 10.8210(d) would harmonize service of process 
across affiliated exchanges.
    Proposed Rule 10.8210(e) would provide that in carrying out its 
responsibilities under this Rule, the Exchange may, as appropriate, 
establish programs for the submission of information to the Exchange on 
a regular basis through a direct or indirect electronic interface 
between the Exchange and Participants and Participant Firms.
    Proposed Rule 10.8210(f) would permit a witness to inspect the 
official transcript of the witness's own testimony, and permit a person 
who has submitted documentary evidence or testimony in an Exchange 
investigation to obtain a copy of the person's documentary evidence or 
the transcript of the person's testimony under certain circumstances.
    Finally, proposed Rule 10.8210(g) would require any Participant, 
Participant Firm or covered person who in response to a request 
pursuant to this Rule provided the requested information on a portable 
media device to ensure that such information was encrypted. The 
Exchange's current rules do not contain comparable provisions.
    Commentary .01 to proposed Rule 10.8210 would require Participants, 
Participant Firms or covered persons to provide Exchange staff and 
adjudicators with requested books, records and accounts. In specifying 
the books, records and accounts `` `of such Participant or covered 
person,' '' proposed paragraph (a) of the rule refers to books, records 
and accounts that the broker-dealer or its covered persons makes or 
keeps relating to its operation as a broker-dealer or relating to the 
person's association with the Participant or Participant Firm. This 
includes but is not limited to records relating to an Exchange 
investigation of outside business activities, private securities 
transactions or possible violations of just and equitable principles of 
trade, as well as other Exchange rules and the federal securities laws. 
It does not ordinarily include books and records that are in the 
possession, custody or control of a Participant, Participant Firm or 
covered person, but whose bona fide ownership is held by an independent 
third party and the records are unrelated to the business of the 
Participant, Participant Firm or covered person. The rule would 
require, however, that a Participant, Participant Firm or covered 
person must make available its books, records or accounts when these 
books, records or accounts are in the possession of another person or 
entity, such as a professional service provider, but the a Participant, 
Participant Firm or covered person controls or has a right to demand 
them. The Exchange's current rules do not contain comparable 
provisions. The Exchange believes that the additional specificity would 
provide better notice to persons subject to its jurisdiction.
    Proposed Rule 10.8211 (Automated Submission of Trading Data 
Requested by the Exchange) would set forth the procedures for 
electronic blue sheets. Because FINRA now performs surveillance 
functions based on the information gathered as a result of these rules, 
the Exchange believes that its procedures for electronic blue sheets 
should be harmonized with FINRA and across affiliated exchanges that 
have adopted the FINRA rule. Proposed Rule 10.8211 is substantially the 
same as NYSE Arca Rule 10.8211 except for references reflecting the 
Exchange's membership.
    Proposed Rule 10.8300 (Sanctions) would set forth the following 
rules.
    Proposed Rule 10.8310 (Sanctions for Violation of the Rules) would 
set forth the range of sanctions that could be imposed in connection 
with disciplinary actions under the proposed rule change. Such 
sanctions would include censure, fine, suspension, revocation, bar, 
expulsion, or any other fitting sanction. These sanctions are 
substantially the same as the permitted sanctions set forth in current 
Article 12, Rule 7(a), which are expulsion; suspension; limitation of 
activities, functions and operations; fine; censure; being suspended or 
barred from being associated with a Participant; or any other fitting 
sanction. Although there is some difference between the text of the 
current and proposed rules, the Exchange believes that in practice the 
range of sanctions is the same due to the inclusion in both rules of 
the general category ``any other fitting sanction.''
    Proposed Rule 10.8310 would also permit the Exchange to impose a 
temporary or permanent cease and desist order against a Participant, 
Participant Firm or covered person. Under proposed Rule 10.8310, each 
party to a proceeding resulting in a sanction is deemed to have 
assented to the imposition of the sanction unless such party files a 
written application for review or relief pursuant to the Rule 10.9000 
Series.
    Proposed Rule 10.8311 (Effect of a Suspension, Revocation, 
Cancellation, Bar or Other Disqualification) would provide in 
subsection (a) that if a person is subject to a suspension, revocation, 
or cancellation of registration, bar from association with a 
Participant or Participant Firm or other disqualification, a 
Participant or Participant Firm shall not allow such person to be 
associated with it in any capacity that is inconsistent with the 
sanction imposed or disqualified status, including a clerical or 
ministerial capacity. The proposed rule further provides that a 
Participant or Participant Firm shall not pay or credit to any person 
subject to a sanction or disqualification, during the period of the 
sanction or disqualification or any period thereafter, any salary, 
commission, profit, or any other remuneration that the person might 
accrue during the period of the sanction

[[Page 35045]]

or disqualification. However, a Participant or Participant Firm may 
make payments or credits to a person subject to a sanction that are 
consistent with the scope of activities permitted under the sanction 
where the sanction solely limits a covered person from conducting 
specified activities (such as a suspension from acting in a principal 
capacity) or a disqualified person has been approved (or is otherwise 
permitted pursuant to Exchange rules and the federal securities laws) 
to associate with a Participant or Participant Firm.
    Proposed Rule 10.8311(b) would provide that, notwithstanding 
proposed paragraph (a), a Participant or Participant Firm may pay to a 
person that is subject to a sanction or disqualification described in 
Rule 10.8311(a), any remuneration pursuant to an insurance or medical 
plan, indemnity agreement relating to legal fees, or as required by an 
arbitration award or court judgment. Proposed Commentary 01 of the Rule 
clarified that, notwithstanding the Rule, a Participant or Participant 
Firm may pay or credit to a person that is the subject of a sanction or 
disqualification, salary, commission, profit or any other remuneration 
that the Participant or Participant Firm can evidence accrued to the 
person prior to the effective date of such sanction or 
disqualification; provided, however, the Participant or Participant 
Firm may not pay any salary, commission, profit or any other 
remuneration that accrued to the person that relates to or results from 
the activity giving rise to the sanction or disqualification, and any 
such payment or credit must comply with applicable federal securities 
laws.
    The Exchange does not currently have similar rule that broadly 
describes the effect of a suspension, revocation, cancellation, bar or 
other disqualification.
    Proposed Rule 10.8313 (Release of Disciplinary Complaints, 
Decisions and Other Information) would provide, in part, that the 
Exchange would publish all final disciplinary decisions issued under 
the proposed Rule 10.9000 Series, other than minor rule violations, on 
its website. The Exchange does not have a comparable rule.
    Proposed Rule 10.8320 (Payment of Fines, Other Monetary Sanctions, 
or Costs; Summary Action for Failure to Pay) would govern payment of 
fines and other monetary sanctions or costs and provide for a summary 
action for failure to pay by a Participant, Participant Firm or covered 
person.
    Proposed Rule 10.8320(a) would provide that all fines and other 
monetary sanctions shall be paid to the Treasurer of the Exchange.
    Proposed Rule 10.8320(b) and (c) would permit the Exchange, after 
seven days' notice in writing, to summarily suspend or expel from 
membership a Participant or Participant Firm or revoke the registration 
of a covered person for failure to pay a fine or other monetary 
sanction imposed pursuant to proposed Rule 10.8310 or a cost imposed 
pursuant to proposed Rule 10.8330 when such fine, monetary sanction, or 
cost becomes finally due and payable. As noted above, under current 
Article 7, Rule 12, a Participant or Participant Firm can be suspended 
for failing to pay a fine within 60 days, after written notice, until 
payment is made. If payment is not made within six months after such 
suspension, the Participant's status as a Participant may be terminated 
by the CEO on at least 10 days' written notice mailed to the 
Participant or Participant Firm at the address last registered with the 
Exchange. As NYSE Arca explained in connection with its Rule 10.8320, 
FINRA's rules do not set forth a notice period but, as a matter of 
practice, FINRA typically provides a respondent at least 30 days to pay 
a fine after the conclusion of a proceeding. As NYSE Arca reasoned, a 
30-day period, along with the seven days' notice provided under Rule 
10.8320, provides respondents with an adequate amount of time to pay a 
fine and avoid any further sanction by the Exchange.\23\ The Exchange 
proposes to follow the same reasoning for its proposed Rule 10.8320.
---------------------------------------------------------------------------

    \23\ See NYSE Arca Notice, 84 FR at 16360. NYSE and NYSE 
American put forth similar arguments. See Securities Exchange Act 
Release Nos. 68678 (January 16, 2013), 78 FR 5213, 5222 (January 24, 
2013) (SR-NYSE-2013-02) (Notice); 2016 Notice, 81 FR at 11321.
---------------------------------------------------------------------------

    For clarity regarding the transition, proposed Rule 8320(d) would 
provide that the Exchange may exercise the authority set forth in Rules 
8320(b) and (c) with respect to non-payment of a fine, monetary 
sanction, or cost assessed in a disciplinary action initiated under 
Article 12 for which a decision was issued on or after the transition 
date.
    Proposed Rule 10.8330 (Costs of Proceedings) would provide that a 
disciplined Participant, Participant Firm or covered person may be 
assessed the costs of a proceeding, which are determined by the 
Adjudicator. The Exchange believes that Adjudicators should have the 
discretion to assess costs as they deem appropriate. The Exchange does 
not have a comparable rule.\24\
---------------------------------------------------------------------------

    \24\ Rule 13.4 requires a Participant or Associated Person who 
does not prevail in a lawsuit or other legal proceeding against the 
Exchange or any of its Directors, officers, committee members, 
employees or agents, and related to the business of the Exchange, to 
pay the Exchange all reasonable expenses, including attorneys' fees, 
incurred in the defense of such proceeding, but only where such 
expenses exceed $50,000. This provision is by its terms inapplicable 
to, among other things, disciplinary proceedings.
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Proposed Rule 10.9000 Series
    The proposed Rule 10.9000 Series would set forth the Code of 
Procedure.
Proposed Rules 10.9001 Through 10.9120
    Proposed Rule 10.9001 (Effective Date of Rule 10.9000 Series) would 
set forth the effective date of the Rule 10.9000 Series, noting the 
transitional provisions described above. The text of proposed Rule 
10.9001 would include similar introductory text as that proposed for 
Rules 10.8001. While the transition would be structured in 
substantially the same manner as NYSE Arca's transition, the Exchange's 
proposed text would differ from NYSE Arca Rule 10.9001 due to 
differences in terminology and cross-references. As noted above, 
Article 12 would apply only to an investigation or proceeding 
instituted under Article 12, Rule 1 prior to the effective date of the 
proposed disciplinary rules and would continue to apply until such 
proceeding is final. Article 12 would also continue to apply to any 
Participant, Participant Firm or covered person over whom the Exchange 
asserted jurisdiction by providing written notice of the commencement 
of an inquiry under Article 12, Rule 7(b) prior to the effective date 
of the proposed disciplinary rules.
    Proposed Rule 10.9100 (Application and Purpose) would set forth the 
following rules.
    Proposed Rule 10.9110 (Application) would state the types of 
proceedings to which the proposed Rule 10.9000 Series would apply (each 
of which is described below) and the rights, duties, and obligations of 
Participants, Participant Firms or covered persons, and would set forth 
the defined terms and cross-references. The proposed rule would also 
provide that, in performing the functions under the Rule 10.9000 
Series, the CRO and Regulatory Staff shall function independently of 
the commercial interests of the Exchange and the commercial interests 
of the Participants and Participant Firms. The Exchange does not have a 
comparable rule.
    Proposed Rule 10.9120 (Definitions) would set forth definitions 
applicable to the Rule 10.9000 Series. The definitions are 
substantially the same as the definitions set forth in NYSE Arca Rule

[[Page 35046]]

10.9120, except that (1) references would reflect the Exchange's 
membership, and (2) the Exchange would not define ``Floor-Based 
Panelist'' in proposed subsection (q) because the Exchange does not 
have a trading floor. The Exchange would therefore designate paragraph 
(q) as ``Reserved.'' In order to maintain the same sequence as NYSE 
Arca Rule 10.9120, paragraphs (b), (i) and (n) of the proposed rule 
would also be marked ``Reserved.''
Proposed Rules 10.9130 Through 10.9138
    Proposed Rule 10.9130 (Service; Filing of Papers) would govern the 
service of a complaint or other procedural documents under the Rules.
    Proposed Rule 10.9131 (Service of Complaint) would set forth the 
requirements for serving a complaint or document initiating a 
proceeding. Proposed Rule 10.9132 (Service of Orders, Notices, and 
Decisions by Adjudicator) would cover the service of orders, notices, 
and decisions by an Adjudicator. Proposed Rule 10.9133 (Service of 
Papers Other Than Complaints, Orders, Notices, or Decisions) would 
govern the service of papers other than complaints, orders, notices, or 
decisions. Proposed Rule 10.9134 (Methods of, Procedures for Service) 
would describe the methods of service and the procedures for service. 
Proposed Rule 10.9135 (Filing of Papers with Adjudicator: Procedure) 
would set forth the procedure for filing papers with an Adjudicator. 
Proposed Rule 10.9136 (Filing of Papers: Form) would govern the form of 
papers filed in connection with any proceeding under the proposed Rule 
10.9200 and 10.9300 Series. Proposed Rule 10.9137 (Filing of Papers: 
Signature Requirement and Effect) would state the requirements for and 
the effect of a signature in connection with the filing of papers. 
Finally, proposed Rule 10.9138 (Computation of Time) would establish 
the computation of time.
    With respect to service of process, under proposed Rule 10.9134, 
papers served on a natural person could be served at the natural 
person's residential address, as reflected in CRD, if applicable. When 
a Party or other person responsible for serving such person had actual 
knowledge that the natural person's CRD address was out of date, 
duplicate copies would be required to be served on the natural person 
at the natural person's last known residential address and the business 
address in CRD of the entity with which the natural person is employed 
or affiliated. Papers could also be served at the business address of 
the entity with which the natural person is employed or affiliated, as 
reflected in CRD, or at a business address, such as a branch office, at 
which the natural person is employed or at which the natural person is 
physically present during a normal business day. The Hearing Officer 
could waive the requirement of serving documents (other than 
complaints) at the addresses listed in CRD if there were evidence that 
these addresses were no longer valid and there was a more current 
address available. If a natural person were represented by counsel or a 
representative, papers served on the natural person, excluding a 
complaint or a document initiating a proceeding, would be required to 
be served on the counsel or representative.
    Similarly, under proposed Rule 10.9134, papers served on an entity 
would be required to be made by service on an officer, a partner of a 
partnership, a managing or general agent, a contact employee as set 
forth on Form BD, or any other agent authorized by appointment or by 
law to accept service. Such papers would be required to be served at 
the entity's business address as reflected in CRD, if applicable; 
provided, however, that when the Party or other person responsible for 
serving such entity had actual knowledge that an entity's CRD address 
was out of date, duplicate copies would be required to be served at the 
entity's last known address. If an entity were represented by counsel 
or a representative, papers served on such entity, excluding a 
complaint or document initiating a proceeding, would be required to be 
served on such counsel or representative.
    By comparison, current Article 12, Rule 1(c), which governs service 
of charges, orders, notices or any instrument on Respondents, is less 
detailed. As noted, it provides that these may be served upon the 
Respondent either personally or by leaving same at his or its place of 
business during office hours or by deposit in the United States post 
office, postage prepaid via registered or certified mail with return 
receipt requested, addressed to the Respondent at the last business 
address given by the Respondent to the Exchange. The Exchange believes 
that the more detailed procedures for service of process in proposed 
Rules 10.9130 through 10.9138 would increase the likelihood of 
successful service of process while providing appropriate due process 
protections to its Participants, Participant Firms and persons 
associated with Participants and Participant Firms.
Proposed Rules 10.9140 Through 10.9148
    Proposed Rule 10.9140 (Proceedings) would contain various rules 
relating to the conduct of disciplinary proceedings.
    Proposed Rule 10.9141 (Appearance and Practice; Notice of 
Appearance) would govern appearances in a proceeding, notices of 
appearance, and representation. Proposed Rule 10.9141 would permit a 
Respondent to represent himself or herself, or be represented by an 
attorney at law admitted to practice before the highest court of any 
state of the United States, the District of Columbia, or any 
commonwealth, territory, or possession of the United States. The 
proposed rule also permits a partnership to be represented by a partner 
and a corporation, trust, or association to be represented by an 
officer of such entity. Proposed Rule 10.9141 requires an attorney or 
representative to file a notice of appearance. Current Article 12, Rule 
4(g) is more general; it permits a Respondent to be represented by 
counsel but do not require a notice of appearance.
    Proposed Rule 10.9142 (Withdrawal by Attorney or Representative) 
would require an attorney or representative to file a motion to 
withdraw. The Exchange currently does not have a comparable rule.
    Subsection (a) of proposed Rule 10.9143 (Ex Parte Communications) 
would prohibit certain ex parte communications with an Adjudicator or 
Exchange employee. The Exchange does not have a comparable rule.
    Under proposed Rule 10.9143(b), an Adjudicator participating in a 
decision with respect to a proceeding, or an Exchange employee 
participating or advising in the decision of an Adjudicator, who 
received, made, or knowingly caused to be made a communication 
prohibited by the rule would be required to place in the record of the 
proceeding (1) all such written communications, (2) memoranda stating 
the substance of all such oral communications, and (3) all written 
responses and memoranda stating the substance of all oral responses to 
all such communications.
    Under proposed Rule 10.9143(c), upon receipt of a prohibited 
communication made or knowingly caused to be made by any Party, any 
counsel or representative to a Party, or any Interested Staff, the 
Exchange or an Adjudicator may order the Party responsible for the 
communication, or the Party who may benefit from the ex parte 
communication made, to show cause why the Party's claim or interest

[[Page 35047]]

in the proceeding should not be dismissed, denied, disregarded, or 
otherwise adversely affected by reason of such ex parte communication. 
All participants in a proceeding could respond to any allegations or 
contentions contained in a prohibited ex parte communication placed in 
the record, and such responses would be placed in the record.
    Under proposed Rule 10.9143(d), in a disciplinary proceeding 
governed by the Rule 10.9200 Series and the Rule 10.9300 Series, the 
prohibitions of the rule would apply beginning with the authorization 
of a complaint as provided in Rule 10.9211, unless the person 
responsible for the communication had knowledge that the complaint 
would be authorized, in which case the prohibitions would apply 
beginning at the time of his or her acquisition of such knowledge.
    Under proposed Rule 10.9143(e), there would be a waiver of the ex 
parte prohibition in the case of an offer of settlement; letter of 
acceptance, waiver, and consent; or minor rule violation letter.
    Proposed Rule 10.9144 (Separation of Functions) would establish the 
separation of functions for Interested Staff and Adjudicators and 
provide for waivers. The Exchange currently does not have a comparable 
rule.
    Proposed Rule 10.9145 (Rules of Evidence; Official Notice) would 
provide that formal rules of evidence would not apply in any proceeding 
brought under the proposed Rule 10.9000 Series. The proposed rule would 
also provide that in a proceeding governed by the Rule 10.9000 Series, 
an Adjudicator may take official notice of such matters as might be 
judicially noticed by a court, or of other matters within the 
specialized knowledge of the Exchange as an expert body, and that 
before an Adjudicator proposes to take official notice of a matter, it 
shall permit a Party the opportunity to oppose or otherwise comment 
upon the proposal to take official notice. Current Article 12, Rule 
4(d) also provides that formal rules of evidence do not apply. The 
Exchange's rules do not currently contain a comparable provision to 
proposed Rule 10.9145(b) governing official notice.
    Proposed Rule 10.9146 (Motions) would govern motions a Party may 
make and requirements for responses and formatting. A Party would be 
permitted to make written and oral motions, although an Adjudicator 
could require that a motion be in writing. An opposition to a written 
motion generally would have to be filed within 14 days, but the moving 
party would have no right to reply, unless an Adjudicator so permits, 
in which case such reply generally would be due within five days. 
Proposed Rule 10.9146 also would permit a Party, a person who is the 
owner, subject, or creator of a Document subject to production under 
proposed Rule 10.8210 or any other rule which may be introduced as 
evidence in a disciplinary proceeding, or a witness who testifies at a 
hearing in a disciplinary proceeding, to move for a protective order. 
Article 12, Rule 4 governing hearing procedure does not contain the 
same level of detail. The Exchange believes that the more detailed 
provisions of the proposed rule would provide additional specificity 
and clarity regarding motions to all Parties to a proceeding. Proposed 
Rule 10.9146 is substantially the same as NYSE Arca Rule 10.9146.
    Proposed Rule 10.9147 (Rulings On Procedural Matters) would provide 
that Adjudicators may rule on procedural matters. The Exchange does not 
have a comparable rule. Current Article 12, Rule 4 provides that a 
Hearing Officer is appointed for the purpose of conducting a hearing 
and describes the conduct of a hearing but does not contain an explicit 
statement regarding the Hearing Officer's full authority to rule on a 
procedural motion and any other procedural or administrative matter 
arising during the course of a proceeding.
    Finally, proposed Rule 10.9148 (Interlocutory Review) would 
generally prohibit interlocutory review, except as provided in proposed 
Rule 10.9280 for contemptuous conduct. The Exchange currently does not 
have a comparable rule. Current Article 12, Rule 4(h) provides that 
motion to disqualify a Hearing Officer is not subject to interlocutory 
review.
Proposed Rules 10.9150 Through 10.9222
    Proposed Rule 10.9150 would provide that a representative can be 
excluded by an Adjudicator for unethical or improper conduct. The 
proposed Rule is identical to NYSE Arca Rule 10.9150. The Exchange 
currently does not have a comparable rule.
Proposed Rule 10.9160 (Recusal or Disqualification)
    Proposed Rule 10.9160 would provide that no person may act as an 
Adjudicator if he or she has a conflict of interest or bias, or 
circumstances exist where his or her fairness could reasonably be 
questioned. In such case, the person must recuse himself or herself, or 
may be disqualified. The proposed rule would cover the recusal or 
disqualification of an Adjudicator, the Chair of the Board, or a 
Director. Disqualification of a Director or the Chair of the Board 
would be governed by proposed Rule 10.9160(a). Disqualification of a 
Panelist would be governed by Rule 10.9234 while disqualification of a 
Hearing Officer would be governed by Rule 10.9233.\25\ The Exchange 
currently does not have a strictly comparable rule. Article 12, Rule 
4(h) requires a Hearing Officer to function impartially and 
independently of the staff members who prepared and prosecuted the 
charges and provides for a process for a respondent to make a motion 
for disqualification of the Hearing Officer based upon bias or conflict 
of interest. Unlike proposed Rule 10.9160, the Exchange's current rule 
does not explicitly require recusal in the event of a conflict of 
interest or bias, or other circumstance where a Hearing Officer's 
fairness might reasonably be questioned. The Exchange's current Article 
12, Rule 4(h) is also limited to Hearing Officers and there is no 
comparable recusal or disqualification procedure described in Article 
12, Rule 5, governing reviews of penalties and decisions. The Exchange 
believes that the broader text of the proposed rule, applying the same 
prohibition against bias and a procedure for disqualification at all 
levels of review, would help to increase the fairness of and 
consistency in its proceedings.
---------------------------------------------------------------------------

    \25\ See proposed Rules 10.9160(e) & (f).
---------------------------------------------------------------------------

    Proposed Rules 10.9160(b), (c), and (d) are designated as 
``Reserved'' to maintain consistency with NYSE Arca's rule numbering.
Proposed Rules 10.9200 Through 10.9217
    Proposed Rule 10.9200 (Disciplinary Proceedings) would cover 
disciplinary proceedings. Proposed Rule 10.9211 (Authorization of 
Complaint) would permit Enforcement to request the authorization from 
the CRO to issue a complaint against any Participant, Participant Firm 
and covered persons of a Participant or Participant Firm, thereby 
commencing a disciplinary proceeding. Under Article 12, Rule 1(b)(1), 
if in the CRO's judgment it appears from the written investigative 
report that any Participant, Participant Firm or Associated Person is 
violating or has violated any provision of the Bylaws, Exchange rules 
or of the federal securities laws or the regulations thereunder, the 
CRO directs staff to prepare and present written charges against the 
Respondent.

[[Page 35048]]

    Proposed Rule 10.9212 (Complaint Issuance--Requirements, Service, 
Amendment, Withdrawal, and Docketing) would set forth the requirements 
of the complaint, amendments to the complaint, withdrawal of the 
complaint, and service of the complaint. The proposed rule also 
requires the Office of Hearing Officers to promptly record each 
complaint filed with it in the Exchange's disciplinary proceeding 
docket, and record in the disciplinary proceeding docket each event, 
filing, and change in the status of a disciplinary proceeding. Current 
Article 12, Rule 1(b) does not contain a comparable detail. Further, 
under the proposed rule, the form of the complaint would be more 
prescribed than under current Article 12, Rule 1(b). For example, 
current Article 12, Rule 1(b) does not provide for withdrawal of a 
complaint.
    Proposed Rule 10.9213 (Assignment of Hearing Officer and 
Appointment of Panelists to Hearing Panel or Extended Hearing Panel) 
would provide for the appointment of a Hearing Officer and Panelists by 
the Chief Hearing Officer. As defined in proposed Rule 10.9120(r), 
``Hearing Officer'' means a FINRA employee who is an attorney and who 
is appointed by the Chief Hearing Officer to act in an adjudicative 
role and fulfill various adjudicative responsibilities and duties 
described in the Rule 10.9200 Series regarding disciplinary 
proceedings, the Rule 10.9550 Series regarding expedited proceedings, 
and the Rule 10.9800 Series regarding temporary cease and desist 
proceedings brought against Participants, Participant Firms and covered 
persons. Under current Article 12, Rule 4(a), the CEO appoints a 
hearing officer to hear the matter. Although Article 12, Rule 4(e) 
describes the vetting process for Hearing Officers under the current 
rules, they are appointed by the CEO that includes an assessment of 
professional competence and reputation, experience in the securities 
industry, familiarity with the subject matter involved, and the absence 
of bias and any actual or perceived conflict of interest, among other 
things, there is no requirement that the Hearing Officer be an 
attorney. The Exchange's current process also does not provide for the 
appointment of panelists to adjudicate a disciplinary matter. The 
Exchange believes that the participation of professional Hearing 
Officers, which is a long-standing practice of other SROs, would add 
legal and administrative expertise to the disciplinary process, and 
would enhance the dispassionate application of the rules, promote 
fairness in the disciplinary process, and help ensure that complex or 
contentious cases are managed effectively.\26\ The use of Panelists 
would help to ensure that market expertise and judgment would continue 
to be brought to bear on the disciplinary process.\27\
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    \26\ See Securities Exchange Act Release No. 38545 (April 24, 
1997), 62 FR 25226, 25249-50 (May 8, 1997) (SR-NASD-97-28).
    \27\ See id. & discussion of proposed Rule 10.9232, infra.
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    Proposed Rule 10.9214 (Consolidation or Severance of Disciplinary 
Proceedings) would permit the Chief Hearing Officer to sever or 
consolidate two or more disciplinary proceedings under certain 
circumstances and permit a Party to move for such action under certain 
circumstances. The Exchange currently does not have a comparable rule.
    Proposed Rule 10.9215 (Answer to Complaint) would set forth 
requirements for answering a complaint, including form, service, 
notice, content, affirmative defenses, motions for a more definite 
statement, amendments and extensions of time to answer amended 
complaints, default, and timing. A written answer to charges under 
current Article 12, Rule 4(b) is due 30 days after service of the 
Compliant, while under the proposed rule it would be due 25 days after 
service. The proposed rule also allows for an extension of time for 
good cause shown, while the current rule provides that the time to 
answer can be extended by such further time as the Hearing Officer may 
grant. Both the current and proposed rules treat charges as admitted if 
no answer is filed, but the proposed rule would require that the 
Respondent receive a second notice concerning the consequences of 
failing to answer.
Minor Rule Fines and Process
    As noted above, the Exchange has filed a separate notice and 
comment filing to adopt proposed Rules 9216(b) and 9217 and move the 
Recommended Fine Schedule for minor rule violations from the Fee 
Schedule to proposed Rule 10.9217.\28\ The rules relating to minor rule 
violations described herein would not be operative until approval of 
the Exchange's companion rule filing.
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    \28\ See SR-NYSECHX-2022-08.
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Proposed Rule 10.9216(a)
    Subsection (a) of proposed Rule 10.9216 (Acceptance, Waiver, and 
Consent; Procedure for Imposition of Fines for Minor Violation(s) of 
Rules) would establish the acceptance, waiver, and consent (``AWC'') 
procedures by which a Respondent, prior to the issuance of a complaint, 
could execute a letter accepting a finding of violation, consenting to 
the imposition of sanctions, and agreeing to waive such Respondent's 
right to a hearing, appeal, and certain other procedures.\29\
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    \29\ Proposed Rule 10.9270 would address settlement procedures 
after the issuance of a complaint.
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    The CRO would be authorized to accept or reject an AWC. If the AWC 
were accepted by the CRO, it would be deemed final and constitute the 
complaint, answer and decision in the matter 10 days after the AWC is 
sent to each Exchange Director and each member of the CFR, unless 
review by the Board is requested pursuant to proposed Rule 
10.9310(a)(1)(B)(i).\30\ If the AWC were rejected by the CRO, the 
Exchange would be permitted to take any other appropriate disciplinary 
action with respect to the alleged violation or violations. If the 
letter were rejected, the Participant, Participant Firm or covered 
person would not be prejudiced by the execution of the AWC and such 
document could not be introduced into evidence in connection with the 
determination of the issues set forth in any complaint or in any other 
proceeding. Under proposed Rule 10.9310(a)(1)(B)(ii) discussed below, 
any Party may require a review by the Exchange Board of any rejection 
by the CRO of an AWC letter under Rule 10.9216 or an offer of 
settlement determined to be uncontested before a hearing on the merits 
has begun under Rule 10.9270(f), by filing with the Secretary of the 
Exchange a written request therefor, which states the basis and reasons 
for such review, within 25 days after notification pursuant to Rule 
10.9216(a)(3) or Rule 10.9270(h).
---------------------------------------------------------------------------

    \30\ In 2020, NYSE Arca shortened the time period before an AWC 
under NYSE Arca Rule 10.9216 and an uncontested offer of settlement 
under NYSE Arca Rule 10.9270(f) become final as well as the 
corresponding time period to request review of these settlements 
under NYSE Arca Rule 10.9310 from 25 days to 10 days. See Securities 
Exchange Act Release No. 90678 (December 15, 2020), 85 FR 83136 
(December 21, 2020) (SR-SR-NYSEARCA-2020-111) (Notice). The 
Exchange's proposes to omit certain transition language added to the 
NYSE Arca Rules 10.9216(a)(4), 10.9270(f)(3), and 
10.9310(a)(1)(B)(i) relating to the applicability of the legacy 25 
day time period in its proposed version of these rules.
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    The Exchange notes that the AWC process is substantially similar to 
the Exchange's current process for settlements prior to a hearing on 
the merits under Article 12, Rule 1(d). The Exchange believes that the 
proposed process provides appropriate controls to assure consistency 
and protect against aberrant settlements. Specifically, the CRO would 
be reviewing all proposed

[[Page 35049]]

AWCs. The Exchange believes that when both Parties to a proceeding 
agree to a settlement, a review by the CRO would be sufficient and it 
is not necessary to bring such matters to an Adjudicator. The Exchange 
believes that the CRO can provide objectivity and an appropriate check 
and balance to the settlement process, particularly in light of the 
call for review process set forth in proposed Rule 10.9310.
Proposed Rule 10.9216(b)
    As set forth in the companion notice and comment filing to adopt 
proposed Rules 9216(b) and 9217,\31\ subsection (b) of proposed Rule 
10.9216 (Acceptance, Waiver, and Consent; Procedure for Imposition of 
Fines for Minor Violation(s) of Rules) would set forth the procedure 
for the imposition of fine for minor rule violations under the 
Exchange's new disciplinary rules based on NYSE Arca Rule 10.9216(b).
---------------------------------------------------------------------------

    \31\ See SR-NYSECHX-2022-08.
---------------------------------------------------------------------------

    Proposed Rule 10.9216(b)(1) would provide that, notwithstanding 
proposed Rule 10.9211, the Exchange may, subject to the requirements 
set forth in paragraphs (b)(2) through (b)(4), impose a fine in 
accordance with the fine amounts and fine levels set forth in proposed 
Rule 10.9217 and/or a censure on any Participant, Participant Firm or 
covered person with respect to any rule listed in Rule 10.9217. If 
Enforcement has reason to believe a violation has occurred and if the 
Participant, Participant Firm or covered person does not dispute the 
violation, Enforcement may prepare and request that the Participant, 
Participant Firm or covered person execute a minor rule violation 
letter accepting a finding of violation, consenting to the imposition 
of sanctions, and agreeing to waive such Participant's, Participant 
Firm's or covered person's right to a hearing before a Hearing Panel 
or, if applicable, an Extended Hearing Panel, and any right of review 
by the Exchange Board of Directors (``Board''), the Commission, and the 
courts, or to otherwise challenge the validity of the letter, if the 
letter is accepted. The letter would describe the act or practice 
engaged in or omitted, the rule, regulation, or statutory provision 
violated, and the sanction or sanctions to be imposed. Unless the 
letter states otherwise, the effective date of any sanction(s) imposed 
would be a date to be determined by Regulatory Staff.
    Proposed Rule 10.9216(b)(2)(A)(i) would provide that if a 
Participant, Participant Firm or covered person submits an executed 
minor rule violation letter, the submission of such a letter by the 
Participant, Participant Firm or covered person also waives any right 
to claim bias or prejudgment of the CRO, the Board, Counsel to the 
Board, or any Director, in connection with such person's or body's 
participation in discussions regarding the terms and conditions of the 
minor rule violation letter or other consideration of the minor rule 
violation letter, including acceptance or rejection of such minor rule 
violation letter.
    Proposed Rule 10.9216(b)(2)(A)(ii) would provide that if a 
Participant, Participant Firm or covered person submits an executed 
minor rule violation letter, by the submission such Participant, 
Participant Firm or covered person also waives any right to claim that 
a person violated the ex parte prohibitions of proposed Rule 10.9143 or 
the separation of functions prohibitions of proposed Rule 10.9144, in 
connection with such person's or body's participation in discussions 
regarding the terms and conditions of the minor rule violation letter 
or other consideration of the minor rule violation letter, including 
acceptance or rejection of such minor rule violation letter.\32\
---------------------------------------------------------------------------

    \32\ Rule 10.9143 (Ex Parte Communications) would prohibit 
certain ex parte communications. Proposed 10.9144 (Separation of 
Functions) would establish separation of functions and provide for 
waivers.
---------------------------------------------------------------------------

    Proposed Rule 10.9216(b)(2)(B) would provide that if a minor rule 
violation letter is rejected, the Participant, Participant Firm or 
covered person would be bound by the waivers made under proposed 
paragraphs (b)(1) and (b)(2)(A) for conduct by persons or bodies 
occurring during the period beginning on the date the minor rule 
violation letter was executed and submitted and ending upon the 
rejection of the minor rule violation letter.
    Proposed Rule 10.9216(b)(3) would provide that if the Participant, 
Participant Firm or covered person executes the minor rule violation 
letter, it would be submitted to the CRO. The CRO, on behalf of the SRO 
Board, may accept or reject such letter.
    Proposed Rule 10.9216(b)(4) would provide that if the letter is 
accepted by the CRO, it would be deemed final and that any fine imposed 
pursuant to the proposed Rule and not contested would not be publicly 
reported, except as may be required by Rule 19d-1 under the Act, and as 
may be required by any other regulatory authority.
    Proposed Rule 10.9216(b)(4) would further provide that if the 
letter is rejected by the CRO, the Exchange may take any other 
appropriate disciplinary action with respect to the alleged violation 
or violations. Subsection (b)(4) would also provide that if the letter 
is rejected, the Participant, Participant Firm or covered person would 
not be prejudiced by the execution of the minor rule violation letter 
under proposed paragraph (b)(1) and that the letter may not be 
introduced into evidence in connection with the determination of the 
issues set forth in any complaint or in any other proceeding.
    As noted above, proposed Rule 10.9216(b) is substantially the same 
as NYSE Arca Rule 10.9216(b).
Proposed Rule 10.9217
    As set forth in the companion notice and comment filing to adopt 
proposed Rules 9216(b) and 9217,\33\ the Exchange also proposes to 
adopt Rule 10.9217 based on NYSE Arca Rule 10.9217, which would be 
titled ``Violations Appropriate for Disposition Under Rule 
10.9216(b)''.
---------------------------------------------------------------------------

    \33\ See SR-NYSECHX-2022-08.
---------------------------------------------------------------------------

    Proposed Rule 10.9217(a) would provide that any Participant, 
Participant Firm or covered person may be subject to a fine, not to 
exceed $5,000,\34\ under Rule 10.9216(b) with respect to any rules 
listed below and that the fine amounts and fine levels set forth below 
would apply to the fines imposed.
---------------------------------------------------------------------------

    \34\ See note 10, supra.
---------------------------------------------------------------------------

    Proposed Rule 10.9217(b) would provide that Regulatory Staff 
designated by the Exchange would have the authority to impose a fine 
pursuant to the proposed Rule.
    Proposed Rule 10.9217(c) would provide that any person or 
organization found in violation of a minor rule would not be required 
to report such violation on SEC Form BD or Form U-4 if the sanction 
imposed consists of a fine not exceeding $2,500 and the sanctioned 
person or organization has not sought an adjudication, including a 
hearing, or otherwise exhausted the administrative remedies available 
with respect to the matter. Subsection (c) would further provide that 
any fine imposed in excess of $2,500 would be subject to current rather 
than quarterly reporting to the Commission pursuant to Rule 19d-1 under 
the Act.
    Proposed Rule 10.9217(d) would provide that nothing in the proposed 
Rule would require the Exchange to impose a fine for a violation of any 
rule under this Minor Rule Plan and that if the Exchange determines 
that any violation is not minor in nature, the Exchange may, at its 
discretion, proceed under the proposed Rule 10.9000 Series

[[Page 35050]]

rather than under proposed Rule 10.9217.
    The next section would be titled ``List of Rule Violations and 
Fines Applicable Thereto'' and would provide that any Participant, 
Participant Firm or covered person may be subject to a fine under 
proposed Rule 10.9216(b) with respect to any rules listed below.
    Proposed Rule 10.9217(e) would be titled ``Exchange Rules and 
Policies subject to a Minor Rule Violation'' and would set forth the 
list of rules under which a Participant, Participant Firm or covered 
person may be subject to a fine under a minor rule violation letter as 
described in proposed Rule 10.9216(b). The Exchange would retain the 
list of rules currently set forth in Article 12, Rule 8(h) under the 
existing headings for ``Reporting and Record Retention Violations'' and 
``Minor Trading Rule Violations'' with the following additions and 
changes.
    First, the Exchange would add subsection (b) of Article 6, Rule 2 
(Registration and Approval of Participant Personnel) to proposed Rule 
10.9217(e)(13).
    Article 6, Rule 2 currently sets forth certain employee 
registration, approval and other exchange requirements. Specifically, 
Article 6, Rule 2(a) governs registration of representatives, as 
defined in Article 6, Rule 14(b)(1), with the Exchange and is currently 
eligible for a minor rule fine under Article 12, Rule 8(h). Article 6, 
Rule 2(b) provides for the registration of principals, as defined in 
Article 6, Rule 14(a)(1). The Exchange proposes that the registration 
requirements of principals set forth in Article 6, Rule 2(b) be 
eligible for a minor rule fine. The proposed change would be consistent 
with the practice on the Exchange's affiliates whose comparable rule 
requiring the registration of principals is eligible for a minor rule 
fine.\35\
---------------------------------------------------------------------------

    \35\ See, e.g., NYSE National Rules 2.2(c) (Obligations of ETP 
Holders and the Exchange) and 10.9217(f). The entirety of NYSE 
National Rule 2.2 is eligible for minor rule treatment; registration 
of principals under NYSE Nationals' rules is governed by subsection 
(c).
---------------------------------------------------------------------------

    Second, the Exchange would add subsections (a) and (b) of Article 
6, Rule 5 (Supervision of Representatives and Branch and Resident 
Offices) to proposed Rule 10.9217(e)(14). As discussed below, the 
Exchange's current minor rule incorrectly references Article 6, Rule 
5(b) for violations relating to written supervisory procedures. The 
correct reference should be to Article 6, Rule 5(c), which the Exchange 
proposes to retain as proposed Rule 10.9217(e)(15).
    Article 6, Rule 5(a) (Adherence to Law) provides that no 
Participant shall engage in conduct in violation of the Act, as 
amended, rules or regulations thereunder, the Bylaws or the Rules of 
the Exchange, or any written interpretation thereof and that every 
Participant is responsible for reasonably supervising its associated 
persons to prevent such violations. The requirement to reasonably 
supervise individuals to ensure compliance with applicable laws, rules 
and regulations, is currently eligible for minor rule fines in the 
rules of the Exchange's affiliate NYSE Arca.\36\
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    \36\ See NYSE Arca Rule 11.18(a) (Supervision) and 
10.9217(g)(8).
---------------------------------------------------------------------------

    Article 6, Rule 5(b) (Designation of persons with supervisory 
authority) provides that each Participant Firm must designate a 
principal executive officer, general partner or managing partner to 
hold overall authority and responsibility for the firm's internal 
supervision and compliance with securities laws and regulations. This 
designated supervisor may formally delegate his or her supervisory 
duties and authority to other persons within the firm. The Rule further 
provides that Participants must maintain, for a period of not less than 
six years (the first two years in an easily accessible place), records 
of the names of all persons who are designated as supervisory personnel 
and the dates for which those designations are effective. In the 
absence of such designation by a Participant Firm, the Firm's General 
Partner(s), President, Chief Executive Officer or other principal 
executive officer shall be deemed to be responsible for a Firm's 
internal supervision and compliance function. In addition, each 
Participant Firm shall designate and specifically identify to the 
Exchange on Schedule A of Form BD one or more principals to serve as a 
Chief Compliance Officer. The requirement in Article 6, Rule 5(b) to 
designate and specifically identify persons with supervisory 
responsibility is currently eligible for minor rule fines in the rules 
of the Exchange's affiliate NYSE Arca.\37\ The Exchange accordingly 
proposes to permit minor rule fines for violations of Article 6, Rule 
5(b).
---------------------------------------------------------------------------

    \37\ See NYSE Arca Rule 11.18(b)(2) & (4) (Supervision) and 
10.9217(g)(8).
---------------------------------------------------------------------------

    As noted, Article 12, Rule 8(h)(1)(N) of the Exchange's current 
minor rule plan makes failure to establish, maintain and enforce 
written supervisory procedures under Article 6, Rule 5(b) eligible for 
a minor rule fine. However, as described above Article 6, Rule 5(b) 
relates to the designation of persons with supervisory authority and 
not written supervisory procedures, which is governed by Article 6, 
Rule 5(c). In 2011, Article 12, Rule 8 was amended to include, among 
other things, new reporting and recordkeeping provisions, which 
included ``written supervisory procedures (Article 6, Rule 5(b)).'' 
\38\ At the time, Article 6, Rule 5(b) was titled ``Written supervisory 
procedures'' and contained the text of current subsection (c). In 2013, 
the Exchange filed to amend Article 6, Rule 5. As part of that filing, 
subsection (a), which was titled ``Designation of persons with 
supervisory authority,'' became new subsection (b), and old subsection 
(b), which was titled ``Written supervisory procedures,'' became 
current subsection (c).\39\ The Exchange did not, however, update 
Article 12, Rule 8 to reflect that Article 6, Rule 5(b) had become 
Article 6, Rule 5(c). The Exchange proposes to make that correction in 
the text of proposed Rule 10.9217(e)(15). The Exchange notes that the 
requirement to establish, maintain and enforce written procedures is 
also currently eligible for minor rule fines in the rules of the 
Exchange's affiliate NYSE Arca.\40\
---------------------------------------------------------------------------

    \38\ See Securities Exchange Act Release No. 64370 (April 29, 
2011), 76 FR 25727, 25727 (May 5, 2011) (SR-CHX-2011-07) (Notice); 
Securities Exchange Act Release 64686 (June 16, 2011), 76 FR 36596 
(June 22, 2011) (SR-CHX-2011-07) (Order). See generally note 10, 
supra.
    \39\ See Securities Exchange Act Release No. 70597 (October 2, 
2013), 78 FR 62728, 62732 (October 22, 2013) (SR-CHX-2013-14) 
(Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change).
    \40\ See NYSE Arca Rule 11.18(c) (Supervision) and 
10.9217(g)(8).
---------------------------------------------------------------------------

    Finally, the Exchange proposes a new subsection (f) titled 
``Recommended Fine Schedule'' that would reproduce the current 
Recommended Fine Schedule from the Fee Schedule with the following 
changes and corrections. The Recommended Fine Schedule in the Fee 
Schedule would be deleted:
     The Exchange would add a new sub-heading titled 
``Reporting and Record Retention Violations'' \41\ that would set forth 
the corresponding fines for first, second and third and subsequent 
violations for the rules set forth under the heading ``Reporting and 
Record Retention Violations'' in proposed Rule 10.9217(e).
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    \41\ Immediately before the new sub-heading, the Exchange would 
include the following text based on NYSE Arca Rule 10.9217: ``These 
fines are intended to apply to minor violations. For more serious 
violations, other disciplinary action may be sought.''
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     The first 12 entries as well as entries 16 through 23 
would be reproduced without change from the current Recommended Fine 
Schedule in the Fee Schedule.

[[Page 35051]]

     Item 13 would be ``Registration and Approval of 
Participant Personnel (Article 6, Rule 2(a) & (b)''. The proposed 
first, second and third level fines for violations of Article 6, Rule 
2(b) of $250 for the first violation, $750 for the second violation and 
$1,500 for the third and subsequent violations would be the same as 
those in the Exchange's current Recommended Fine Schedule in the Fee 
Schedule for violations of Article 6, Rule 2(a).
     Items 14 and 15--``Failure to Comply with Supervision 
Requirements (Article 6, Rule 5(a) & (b))'' and ``Written Supervisory 
Procedures (Article 6, Rule 5(c)),'' respectively--would be added to 
proposed Rule 10.9271(f) consistent with the changes to proposed Rule 
10.9217(e)(14) and (15) described above. The proposed first, second and 
third level fines for violations of Article 6, Rule 5(a) and (b) in 
proposed Rule 10.9217(e)(14) and Article 6, Rule 5(c) in proposed Rule 
10.9217(e)(15) would be $500 for the first violation, $1,000 for the 
second violation and $2,500 for the third and subsequent violations. 
These fine levels would be the same as the current fines in the 
Recommended Fine Schedule in the Fee Schedule for violations of Article 
6, Rule 5(b).
     Finally, item 24 would be ``Consolidated Audit Compliance 
Rule (Rule 6.6800 Series).'' The corresponding fine ``Up to $2,500.00'' 
would be transposed from current Article 12, Rule 8 to new footnote ** 
following ``Rule 6.6800 Series.'' \42\ The Exchange would also add the 
current text from Article 12, Rule 8(a) providing that ``For failures 
to comply with the Consolidated Audit Trail Compliance Rule 
requirements of the Rule 6.6800 Series, the Exchange may impose a minor 
rule violation fine of up to $2,500. For more serious violations, other 
disciplinary action may be sought'' to new footnote **.
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    \42\ In 2020, the Exchange added the Consolidated Audit Trail 
(``CAT'') industry member compliance rules to the list of minor rule 
violations in Article 12, Rule 8 and the corresponding fine up to 
$2,500. At the time, the Exchange inadvertently did not amend the 
Recommended Fine Schedule in the Fee Schedule. See Securities 
Exchange Act Release No. 89410 (July 28, 2020), 85 FR 46741 (August 
3, 2020) (SR-CHX-2020-21).
---------------------------------------------------------------------------

     The Exchange would add a new second sub-heading titled 
``Minor Trading Rule Violations'' that would set forth the 
corresponding fines for first, second and third and subsequent 
violations for the 11 rules set forth under the heading ``Minor Trading 
Rule Violations'' in proposed Rule 10.9217(e), with the following 
changes and corrections:
    [cir] The entry for ``Failure to clear the Matching System (Article 
20, Rule 7)'' and corresponding fines would not be included. This rule 
was deleted from Article 12, Rule 8 8(h)(2)(F) in 2019 as part of the 
transition of trading on the Exchange to the Pillar trading platform 
but the Exchange inadvertently failed to update the Recommended Fine 
Schedule in the Fee Schedule.\43\
---------------------------------------------------------------------------

    \43\ See Securities Exchange Act Release No. 87264 (October 9, 
2019), 84 FR 55345, 55349 (October 16, 2019) (SR-CHX-2019-08).
---------------------------------------------------------------------------

    [cir] The Exchange would include ``Short Sales (Rule 7.16)'' as 
item 10. Rule 7.16 was added to Article 12, Rule 8 in 2019 as part of 
the transition of trading on the Exchange to the Pillar trading 
platform but the Exchange inadvertently failed to update the 
Recommended Fine Schedule in the Fee Schedule.\44\ The proposed first, 
second and third level fines for violations of Rule 7.16 of $500 for 
the first violation, $1,000 for the second violation and $2,500 for the 
third and subsequent violations are the same as those in NYSE Arca Rule 
10.9217(i)(1)1. for violations of NYSE Arca Rule 7.16-E.\45\
---------------------------------------------------------------------------

    \44\ See id.
    \45\ See NYSE Arca Rule 7.16-E (Short Sales) & 10.9217(i)(1)1.
---------------------------------------------------------------------------

    [cir] Finally, the Exchange would include ``Failure to comply with 
Authorized Trader requirements (Rule 7.30)'' as item 11. Rule 7.30 was 
also added to Article 12, Rule 8 as part of the transition to Pillar in 
2019 but the Exchange inadvertently failed to update the Recommended 
Fine Schedule in the Fee Schedule.\46\ The proposed first, second and 
third level fines for violations of Rule 7.30 of $1,000 for the first 
violation, $2,500 for the second violation and $3,500 for the third and 
subsequent violations are the same as those in NYSE Arca Rule 
10.9217(i)(1)5. for violations of NYSE Arca Rule 7.30-E.\47\
---------------------------------------------------------------------------

    \46\ See Securities Exchange Act Release No. 87264 (October 9, 
2019), 84 FR 55345, 55349 (October 16, 2019) (SR-CHX-2019-08).
    \47\ See NYSE Arca Rule 7.30-E (Authorized Traders) & 
10.9217(i)(1)5.
---------------------------------------------------------------------------

    As noted, proposed subsection (a) of proposed Rule 10.9217 is 
substantially the same as NYSE Arca Rule 10.9217(a) except for changes 
reflecting the Exchange's membership. The Exchange proposes that a fine 
thereunder would not exceed $5,000 (the amount reflected in current 
Article 12, Rule 8).\48\
---------------------------------------------------------------------------

    \48\ See note 10, supra.
---------------------------------------------------------------------------

    Proposed subsections (b), (c) and (d) are also substantially the 
same as NYSE Arca Rule 10.9217(b), (c) and (d) with the only changes 
reflecting the Exchange's membership.
    Unlike current Article 12, Rule 8(e) described above, proposed Rule 
10.9216(b) and Rule 10.9217 would not permit a Respondent to contest a 
minor rule violation letter. Rather, as proposed, if the Respondent 
rejects the minor rule violation letter, then a complaint must be filed 
under proposed Rule 10.9211, and the minor rule violation letter may 
not be introduced into evidence.\49\ The Exchange believes the proposed 
rule is appropriate because it will harmonize the Exchange's minor rule 
violation process with its affiliates' rules.
---------------------------------------------------------------------------

    \49\ See proposed Rule 10.9216(b)(4).
---------------------------------------------------------------------------

Proposed Rule 10.9220 (Request for Hearing; Extensions of Time, 
Postponements, Adjournments)
    Proposed Rule 10.9220 would set forth the following rules.
    Proposed Rules 10.9221 (Request for Hearing) and 10.9222 
(Extensions of Time, Postponements, and Adjournments) would describe 
the process for a Respondent to request a hearing; the notice of a 
hearing; timing considerations; and the authority of a Hearing Officer, 
Hearing Panel or Extended Hearing Panel to order a hearing. Proposed 
Rule 10.9221 provides that a Hearing Officer generally must provide at 
least 28 days' notice of the hearing. Current Article 12, Rule 4 
governing hearing procedures does not provide for a respondent to 
request a hearing. Rather, Article 12, Rule 4(d) provides that within 
30 days of the filing of a respondent's answer, the Hearing Officer 
will schedule the time and place at which the Hearing shall be held. 
Similarly, current Article 12, Rule 4 also does not provide for 
extensions of time, postponements, and adjournments like proposed Rule 
10.9222.
Proposed Rules 10.9230 Through 10.9235
    Proposed Rule 10.9231 (Appointment by the Chief Hearing Officer of 
Hearing Panel or Extended Hearing Panel or Replacement Hearing Officer) 
would govern appointment of a Hearing Panel or Extended Hearing Panel, 
and would also govern appointment of a replacement Hearing Officer and 
the designation of an observer to a Hearing Panel or an Extended 
Hearing Panel. As proposed, under proposed Rule 10.9231(a) the Exchange 
would rely on FINRA's Chief Hearing Officer to appoint a Hearing Panel 
or an Extended Hearing Panel to conduct disciplinary proceedings and 
issue a decision. The Chief Hearing Officer and the Hearing Officers 
would all be FINRA employees. Under proposed Rule 10.9231(b), a Hearing 
Panel would be composed of a

[[Page 35052]]

Hearing Officer and two Panelists, except as provided in paragraph (e) 
and in proposed Rule 10.9234(a), (c), (d), or (e). The Hearing Officer 
would serve as the chair of the Hearing Panel. The Chief Hearing 
Officer would appoint Panelists pursuant to the criteria in proposed 
Rule 10.9232.\50\ The proposed procedure would differ from the current 
procedure under Article 12, Rule 4(e) where the Exchange CEO appoints a 
Hearing Officer to conduct a hearing but the rule does not provide for 
the appointment of panelist.
---------------------------------------------------------------------------

    \50\ NYSE Arca Rule 10.9231(b)(1) incorrectly states that the 
Hearing Officer would appoint the Panelists pursuant to the criteria 
of Rule 10.9232. The rules adopted by the Exchange's other 
affiliates contain the same error. See NYSE Rule 9231(b)(1); NYSE 
American Rule 9231(b)(1); NYSE National Rule 10.9231(b)(1). The 
Exchange understands that its affiliates will submit separate rule 
filing to conform their version of proposed Rule 10.9231(b)(1).
---------------------------------------------------------------------------

    Proposed Rule 10.9231(c) describes Extended Hearing Panels. As 
proposed, upon consideration of the complexity of the issues involved, 
the probable length of the hearing, or other factors that the Chief 
Hearing Officer deems material, the Chief Hearing Officer may determine 
that a matter shall be designated an Extended Hearing, and that such 
matter shall be considered by an Extended Hearing Panel. The Extended 
Hearing Panel shall be composed of a Hearing Officer and two Panelists, 
except as provided in proposed Rule 10.9234(a), (c), (d), or (e). The 
Hearing Officer would serve as the chair of the Extended Hearing Panel. 
The Chief Hearing Officer would have discretion to compensate any or 
all Panelists of an Extended Hearing Panel at the rate then in effect 
for FINRA arbitrators. The Chief Hearing Officer shall select as a 
Panelist a person who meets the criteria set forth in Rule 10.9232.
    Proposed Rule 10.9231(d) provides for the appointment of an 
observer. As proposed, a person who is qualified to serve as a Panelist 
may be designated by the Chief Hearing Officer to serve as an observer 
to a Hearing Panel or an Extended Hearing Panel. If the Chief Hearing 
Officer designates more than two people to serve as observers to a 
Hearing Panel or an Extended Hearing Panel, the Chief Hearing Officer 
would obtain the consent of the Parties. An observer may attend any 
hearing of a disciplinary proceeding and observe the proceeding, but 
may not vote or participate in any other manner in the hearing or the 
deliberations of the Hearing Panel or the Extended Hearing Panel, or 
participate in the administration of the disciplinary proceeding.
    Proposed Rule 10.9231(e) provides for the appointment of a 
replacement Hearing Officer. As proposed, in the event that a Hearing 
Officer withdraws, is incapacitated, or otherwise is unable to continue 
service after being appointed, the Chief Hearing Officer shall appoint 
a replacement Hearing Officer. To ensure fairness to the parties and 
expedite completion of the proceeding when a replacement Hearing 
Officer is appointed after the hearing has commenced, the proposed Rule 
provides that a replacement Hearing Officer would have the discretion 
to (1) allow the Hearing Panelists to resolve the issues in the 
proceeding and issue a decision without the participation of the 
replacement Hearing Officer in the decision. The replacement Hearing 
Officer may advise the Hearing Panelists regarding legal issues, and 
shall exercise the powers of the Hearing Officer under Rule 10.9235(a), 
including preparing and signing the decision on behalf of the Hearing 
Panel, in accordance with Rule 10.9268; or (2) certify familiarity with 
the record and participate in the resolution of the issues in the case 
and in the issuance of the decision. In exercising this power, the 
replacement Hearing Officer may recall any witness before the Hearing 
Panel.
    Proposed Rule 10.9231(c)-(e) would be substantially the same as 
NYSE Arca Rule 10.9231 except that the proposed rule would not provide 
for the selection of a Floor-Based Panelist because the Exchange does 
not have a trading floor.
    Proposed Rule 10.9232 (Criteria for Selection of Panelists and 
Replacement Panelists) would set forth the criteria for the selection 
of Panelists and Replacement Panelists. Proposed Rule 10.9232 would be 
substantially the same as NYSE Arca Rule 10.9232. As is the case under 
the NYSE Arca Rule, Panelists would be required to be persons of 
integrity and judgment and, other than the Hearing Officer, would be a 
member of the Exchange hearing board. Moreover, at least one Panelist 
would be engaged in securities activities differing from that of the 
Respondent or, if retired, was so engaged in differing activities at 
the time of retirement. Proposed Rule 10.9232 would also provide that 
the Exchange Board would from time to time appoint a hearing board to 
be composed of such number of permit holders of the Exchange that are 
not members of the Exchange Board and registered employees and 
nonregistered employees of Participants and Participant Firms. In order 
to have the largest number of potential Panelists available, the 
proposed Rule would further provide that former Participants and 
registered and non-registered employees of Participants and Participant 
Firms who have retired from the securities industry may be appointed to 
the hearing board. The Exchange believes that there are well-qualified 
persons, in particular retirees, who would be valuable members of the 
hearing board. The members of the hearing board would also be appointed 
annually and would serve at the pleasure of the Exchange Board. As 
reflected in Article 12, Rule 4, Exchange hearings are currently 
conducted by a Hearing Officer appointed by the CEO acting alone.
    Finally, proposed Rule 10.9232 would include Panelist selection 
criteria, which would be expertise, absence of any conflict of interest 
or bias or any appearance thereof, availability, and the frequency with 
which a person has served as a Panelist in the last two years, favoring 
the selection of a person as a Panelist who has never served or who has 
served infrequently as a Panelist during the period. Article 12, Rule 4 
contains similar provisions with respect to Hearing Officers appointed 
by the CEO.
    Proposed Rules 10.9233 (Hearing Panel or Extended Hearing Panel: 
Recusal and Disqualification of Hearing Officers) and 10.9234 (Hearing 
Panel or Extended Hearing Panel: Recusal and Disqualification of 
Panelists) would establish the processes for recusal and 
disqualification of Hearing Officers or Panelists.
    Under proposed Rule 10.9233(a), if at any time a Hearing Officer 
determines that he or she has a conflict of interest or bias or 
circumstances otherwise exist where his or her fairness might 
reasonably be questioned, the Hearing Officer would notify the Chief 
Hearing Officer and the Chief Hearing Officer would issue and serve on 
the Parties a notice stating that the Hearing Officer has withdrawn 
from the matter. In the event that a Hearing Officer withdraws, is 
incapacitated, or otherwise is unable to continue service after being 
appointed, the Chief Hearing Officer would appoint a replacement 
Hearing Officer. In such a case, the replacement Hearing Officer would 
proceed according to proposed Rule 10.9231(e).
    Proposed Rule 10.9233(b) governs motions for disqualification. 
Under the proposed Rule, a Party may move for the disqualification of a 
Hearing Officer. Such a motion must be based upon a reasonable, good 
faith belief that a conflict of interest or bias exists or 
circumstances otherwise exist where the Hearing Officer's fairness 
might reasonably be questioned, and must be accompanied by an affidavit 
setting forth in detail the facts alleged to

[[Page 35053]]

constitute grounds for disqualification, and the dates on which the 
Party learned of those facts. Under the proposed Rule, such motions 
shall be filed not later than 15 days after the later of (1) when the 
Party learned of the facts believed to constitute the disqualification; 
or (2) when the Party was notified of the assignment of the Hearing 
Officer.
    Finally, proposed Rule 10.9233(c) describes the disposition of a 
disqualification motion. Under the proposed Rule, a motion for 
disqualification of a Hearing Officer shall be decided by the Chief 
Hearing Officer who shall promptly investigate whether disqualification 
is required and issue a written ruling on the motion. In the event of a 
disqualification of the Hearing Officer, the Chief Hearing Officer 
shall appoint a replacement Hearing Officer.
    Proposed Rule 10.9234 sets forth similar procedures for the recusal 
of panelists on a Hearing Panel and Extended Hearing Panel. Under 
proposed Rule 10.9234(a), if at any time a Panelist of a Hearing Panel 
or an Extended Hearing Panel determines that he or she has a conflict 
of interest or bias or circumstances otherwise exist where his or her 
fairness might reasonably be questioned, the Panelist must notify the 
Hearing Officer and the Hearing Officer would issue and serve on the 
Parties a notice stating that the Panelist has withdrawn from the 
matter. In the event that a Panelist withdraws, is incapacitated, or 
otherwise is unable to continue service after being appointed, the 
Chief Hearing Officer may, in the exercise of discretion, determine 
whether to appoint a replacement Panelist. In the event that both 
Panelists withdraw, are incapacitated, or otherwise are unable to 
continue service after being appointed, the proposed Rule permits the 
Chief Hearing Officer to appoint two replacement Panelists.
    Proposed Rule 10.9234(b) provides that a Party may file a motion to 
disqualify a Panelist of a Hearing Panel or an Extended Hearing Panel. 
Such a motion must be based upon a reasonable, good faith belief that a 
conflict of interest or bias exists or circumstances otherwise exist 
where the Panelist's fairness might reasonably be questioned, and shall 
be accompanied by an affidavit setting forth in detail the facts 
alleged to constitute grounds for disqualification, and the dates on 
which the Party learned of those facts. As proposed, such motions shall 
be filed not later than 15 days after the later of (1) when the Party 
learned of the facts believed to constitute the disqualification; or 
(2) when the Party was notified of the appointment of the Panelist. As 
proposed, the Chief Hearing Officer may order the disqualification of a 
Panelist of a Hearing Panel or an Extended Hearing Panel if the Chief 
Hearing Officer determines that a conflict of interest or bias exists 
or circumstances otherwise exist where the Panelist's fairness might 
reasonably be questioned, and shall state the facts constituting the 
grounds for disqualification.
    Under proposed Rule 10.9234(c), if a Party files a motion to 
disqualify a Panelist of a Hearing Panel or an Extended Hearing Panel, 
the Hearing Officer shall promptly investigate whether disqualification 
is required and shall issue a written ruling on the motion. In the 
event a Panelist is disqualified, the Chief Hearing Officer may, in the 
exercise of discretion, appoint a replacement Panelist.
    Under subsection (d) of proposed Rule 10.9234, if a Party files a 
motion to disqualify both Panelists of a Hearing Panel or an Extended 
Hearing Panel, the Hearing Officer shall promptly investigate whether 
disqualification is required and issue a written ruling on the motion. 
I n the event one Panelist is disqualified, the Chief Hearing Officer 
may, in the exercise of discretion, appoint a replacement Panelist. In 
the event both Panelists are disqualified, the Chief Hearing Officer 
will promptly appoint two persons as replacement Panelists.
    Under proposed Rule 10.9234(e), if a Party files a motion to 
disqualify both Panelists of a Hearing Panel or an Extended Hearing 
Panel and the Hearing Officer, the Chief Hearing Officer shall promptly 
investigate whether disqualification is required and issue a written 
ruling on the motion. Under the proposed Rule, in the event a Panelist 
is disqualified, the Chief Hearing Officer may, in the exercise of 
discretion, appoint a replacement Panelist. In the event both Panelists 
are disqualified, the Chief Hearing Officer shall promptly appoint two 
persons as replacement Panelists. In the event a Hearing Officer and a 
Panelist are disqualified, the Chief Hearing Officer shall promptly 
appoint a replacement Hearing Officer. In the event both Panelists and 
the Hearing Officer are disqualified, the Chief Hearing Officer shall 
promptly appoint a replacement Hearing Officer and two persons as 
replacement Panelists.
    Finally, proposed subsection (f) would provide that if a Chief 
Hearing Officer appoints a replacement Panelist by operation of the 
proposed Rule, the Chief Hearing Officer would do so using the criteria 
set forth in Rule 10.9232.
    Current Article 12, Rule 4(h) does not address recusal of a Hearing 
Officer but does permit a party to move for disqualification of the 
Hearing Officer within 15 days of the appointment of the Hearing 
Officer based upon bias or conflict of interest. The proposed Rule is 
broader and permits recusal as well as motions for disqualification. 
Moreover, the proposed Rule permits motions for disqualification not 
later than 15 days after the later of (1) when the Party learned of the 
facts believed to constitute the disqualification, or (2) when the 
Party was notified of the assignment of the Hearing Officer or the 
appointment of the Panelist, respectively. The Exchange's current rule 
permits motions to disqualify based upon bias or conflict of interest 
within 15 days of the appointment of the Hearing Officer.
    Proposed Rule 10.9235 (Hearing Officer Authority) would set forth 
the Hearing Officer's duties and authority in detail. The Exchange does 
not have a comparable rule.
Proposed Rules 10.9240 Through 10.9242
    Proposed Rule 10.9240 would set forth the following rules.
    Proposed Rules 10.9241 (Pre-hearing Conference) and 10.9242 (Pre-
hearing Submission) would govern the substantive and procedural 
requirements for pre-hearing conferences and pre-hearing submissions. 
Proposed Rule 10.9242 would also prohibit former Regulatory Staff, 
within a period of one year immediately following termination of 
employment with the Exchange or FINRA, from providing expert testimony 
on behalf of any other person in any proceeding under the Rule 10.9000 
Series. Nothing in the proposed Rule would prohibit former Regulatory 
Staff from testifying as a witness on behalf of the Exchange or FINRA. 
As noted above, current Article 12, Rule 4 gives the Hearing Officer 
general authority in procedural matters, but there are no specific 
provisions in the current Rules relating to pre-hearing conferences and 
submissions.
Proposed Rules 10.9250 Through 10.9253
    Proposed Rule 10.9250 (Discovery) through 10.9253 would address 
discovery, including the requirements and limitations relating to the 
inspection and copying of documents in the possession of Exchange 
staff, requests for information and limitations on such requests, and 
the production of witness statements and any harmless

[[Page 35054]]

error relating to the production of such witness statements.
    Proposed Rule 10.9251 (Inspection and Copying of Documents in 
Possession of Staff) would require Enforcement to make available to a 
Respondent any documents prepared or obtained in connection with the 
investigation that led to the proceedings, except that certain 
privileged or other internal documents, such as examination or 
inspection reports or documents that would reveal an examination, 
investigation, or enforcement technique or confidential source, or 
documents that are prohibited from disclosure under federal law, are 
not required to be made available. A Hearing Officer may require that a 
withheld document list be prepared. Proposed Rule 10.9251 also sets 
forth procedures for inspection and copying of produced documents. In 
addition, if a Document required to be made available to a Respondent 
pursuant to the proposed Rule was not made available by Enforcement, no 
rehearing or amended decision of a proceeding already heard or decided 
would be required unless the Respondent establishes that the failure to 
make the Document available was not harmless error. The Hearing 
Officer, or, upon review under proposed Rule 10.9310, the Exchange 
Board, would determine whether the failure to make the document 
available was not harmless error, applying applicable Exchange, FINRA, 
SEC, and federal judicial precedent. The proposed Rule would not 
establish any preference for Exchange versus other precedent in this 
respect; rather the Adjudicators could determine in their discretion 
what precedent to apply. The Exchange's current rules do not include a 
comparable provision.
    Under proposed Rule 10.9252 (Requests for Information), a 
Respondent could request that the Exchange invoke proposed Rule 10.8210 
to compel the production of Documents or testimony at the hearing if 
the Respondent can show that certain standards are met, e.g., that the 
information sought is relevant, material, and non-cumulative. Under 
proposed Rule 10.9253 (Production of Witness Statements), a Respondent 
could file a motion to obtain certain witness statements. Current 
Article 12, Rule 4(c)(2) permits any party to request production of all 
or some of the documents that its adversary intends to introduce as 
evidence either in support of or to counter the charges but does not 
specify that such production can be compelled. Rather, under Article 
12, Rule 4(c)(2), a party responding to a request to produce all or 
some of the documents that are intended to be introduced as evidence at 
the hearing will be precluded from introducing at the hearing any 
documents that were not produced in response to the request, unless 
there is good cause shown for failing to produce the document(s) 30 
days prior to the hearing and the failure to permit the introduction of 
such evidence would result in undue hardship to the party requesting to 
introduce such document.
Proposed Rules 10.9260 Through 10.9269
    Proposed Rules 10.9260 (Hearing and Decision) through 10.9269 would 
govern hearings and decisions.
    Proposed Rule 10.9261 (Evidence and Procedure in Hearing) would 
generally require the Parties to submit copies of documentary evidence 
and the names of the witnesses each Party intends to present at the 
hearing no later than 10 days before the hearing. Current Article 12, 
Rule 4(c) (1) requires the parties to exchange a list of witnesses that 
they each plan to call to testify at the hearing no less than 30 days 
prior to the hearing. The proposed Rule would also provide that if a 
hearing is held, a Party shall be entitled to be heard in person, by 
counsel, or by the Party's representative. The Exchange's current rule 
does not include such an explicit provision. Finally, under the 
proposed rule, a Party, for good cause shown, may seek to submit any 
additional evidence at the hearing as the Hearing Officer, in his or 
her discretion, determines may be relevant and necessary for a complete 
record. The Exchange's current rules do not contain a comparable 
provision. Under Article 12, Rule 4(d), the Market Regulation 
Department and the Respondent can introduce additional witnesses and 
evidence solely in rebuttal to the respondent's evidence.\51\
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    \51\ In 2020, NYSE Arca filed to harmonize Rules 10.9261 and 
10.9830 with certain changes by FINRA that temporarily granted the 
Chief or Deputy Chief Hearing Officer the authority to order that 
hearings be conducted by video conference if warranted by public 
health risks posed by in-person hearings during the ongoing COVID-19 
pandemic. See Securities Exchange Act Release No. 90088 (October 5, 
2020), 85 FR 64186 (October 9, 2020) (SR-NYSEArca-2020-85). The 
expiration of the temporary amendments to NYSE Arca Rules 10.9261 
and 10.9830 have been extended to July 31, 2022. See Securities 
Exchange Act Release No. 94663 (April 11, 2022), 87 FR 22587 (April 
15, 2022) (SR-NYSEArca-2022-18). NYSE, NYSE American and NYSE 
National made similar filings. The amended NYSE Arca rules will 
revert back to their original state at the conclusion of the 
temporary relief period and any extension thereof. See 87 FR at 
22588, n.5 The Exchange does not propose to incorporate these 
temporary amendments to NYSE Arca Rule 10.9261 and 10.9830 into the 
proposed rule text and will evaluate the need for such temporary 
relief once the current rule filing is operative.
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    Proposed Rule 10.9262 (Testimony) would require persons subject to 
the Exchange's jurisdiction to testify under oath or affirmation at a 
hearing. The Exchange's current rules do not contain comparable 
provisions.
    Proposed Rule 10.9263 (Evidence: Admissibility) would authorize the 
Hearing Officer to exclude irrelevant, immaterial, or unduly 
repetitious or prejudicial evidence and permit a Party to object to the 
admission of evidence. Under the proposed Rule, objections to the 
admission or exclusion of evidence would be made on the record and 
would succinctly state the grounds relied upon; excluded material would 
be deemed a supplemental document and would be attached to the record 
and retained under proposed Rule 10.9267. The Exchange's current rules 
do not contain a comparable provision.
    Proposed Rule 10.9264 (Motion for Summary Disposition) would allow 
Parties to file a motion for summary disposition under certain 
circumstances and would describe the procedures for filing and ruling 
on such motion. Under current Article 12, Rule 4, the Hearing Officer 
regulates the hearing, but the Rule does not specifically provide for 
motions for summary disposition.
    Proposed Rule 10.9265 (Record of Hearing) would require that the 
hearing be recorded by a court reporter, that a transcript be prepared 
and made available for purchase, and that a Party or a witness be 
permitted to seek a correction of the transcript from the Hearing 
Officer. Current Article 12, Rule 4(d) provides generally that the 
Exchange must make a transcript of the hearing.
    Proposed Rule 10.9266 (Proposed Findings of Fact, Conclusions of 
Law, and Post-Hearing Briefs) would authorize the Hearing Officer to 
require a post-hearing brief or proposed findings of fact and 
conclusions of law and would outline the form and timing for such 
submissions. There is no comparable current rule, although the Hearing 
Officer generally regulates the conduct of a hearing under Article 12, 
Rule 4.
    Proposed Rule 10.9267 (Record; Supplemental Documents Attached to 
Record; Retention) would detail the required contents of the hearing 
record and the treatment of any supplemental documents attached to the 
record. The Exchange's current rules do not contain a similar 
provision.
    Proposed Rule 10.9268 (Decision of Hearing Panel or Extended 
Hearing Panel) would set forth the timing and

[[Page 35055]]

the contents of a decision of the Hearing Panel or Extended Hearing 
Panel and the procedures for a dissenting opinion, service of the 
decision, and any requests for review. Under proposed Rule 10.9268, the 
decision would be issued within 60 days after the final date allowed 
for filing proposed findings of fact, conclusions of law, and post-
hearing briefs, or by a date established at the discretion of the Chief 
Hearing Officer. Under current Article 12, Rule 4(f), a decision must 
be issued within 90 days after the conclusion of the hearing. The 
Exchange believes that the shorter period of time is appropriate to 
allow the Hearing Panel or Extended Hearing Panel adequate time to 
reach its decision and agree on the text of the decision and would not 
prejudice any Party.\52\
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    \52\ Under the proposed rule, a dissenting opinion must be 
served within 65 days after such final date. The Exchange does not 
have a comparable current rule.
---------------------------------------------------------------------------

    The Exchange proposes to include text providing that a disciplinary 
decision concerning an affiliate of the Exchange as such term is 
defined in Rule 12b-2 under the Act would not be subject to review 
under proposed Rule 10.9310 but instead would be treated as a final 
disciplinary action subject to SEC review. The Exchange does not 
believe that an appeal by an affiliate to the Exchange Board is 
appropriate, but rather such affiliate should be permitted to appeal 
directly to the SEC. The proposed text is identical to NYSE Arca Rule 
10.9268(e)(2).
    The proposed Rule would further provide that, unless otherwise 
provided in the majority decision issued under proposed Rule 
10.9268(a), a sanction (other than a bar or an expulsion) specified in 
a decision constituting final disciplinary action of the Exchange for 
purposes of Act Rule 19d-1(c)(1) would become effective on a date to be 
determined by the Exchange, and a bar or an expulsion specified in a 
decision would become effective immediately upon the decision becoming 
the final disciplinary action of the Exchange for purposes of Act Rule 
19d-1(c)(1).
    Finally, proposed Rule 10.9269 (Default Decisions) would establish 
the process for the issuance and review of default decisions by a 
Hearing Officer when a Respondent fails to timely answer a complaint or 
fails to appear at a pre-hearing conference or hearing where due notice 
has been provided. A Party may, for good cause shown, file a motion to 
set aside a default decision. Under Article 12, Rule 4(b), if a 
Respondent fails to file an answer within the required timeframe, the 
allegations of the charging document are deemed admitted and the 
Hearing Officer will hold a hearing to determine the appropriate 
sanctions. Under Article 12, Rule 5(a), a party can request review by 
the Judiciary Committee of such default decision. Proposed Rule 10.9269 
would provide a robust process for the issuance and content of default 
decisions.
Proposed Rule 10.9270 (Settlement Procedure)
    Proposed Rule 10.9270 would provide for a settlement procedure for 
a Respondent who has been notified that a proceeding has been 
instituted against him or her. The proposed settlement procedure is 
similar to the settlement procedures in current Article 12, Rule 1(d), 
except that the Exchange's rule does not distinguish between contested 
and uncontested settlements.
    Under proposed Rule 10.9270(a), a Respondent notified of the 
institution of a disciplinary proceeding could make a written offer of 
settlement at any time, but the proposal would not stay the proceeding 
unless otherwise decided by the Hearing Officer. If a Respondent 
proposes an offer of settlement after the hearing on the merits has 
begun, the making of an offer of settlement shall not stay the 
proceeding, unless otherwise decided by the Hearing Panel or, if 
applicable, the Extended Hearing Panel. Current Article 12, Rule 1(d) 
does not explicitly provide that a proceeding is not stayed.
    Under proposed Rule 10.9270(b), a Respondent making an offer of 
settlement would also be required to do so in conformity with the 
provisions of the proposed Rule and would be prohibited from making a 
frivolous settlement offer or one that was inconsistent with the 
seriousness of the violations. Current Article 12, Rule 1(d) does not 
contain a similar prohibition.
    Proposed Rule 10.9270(c) would provide that an offer of settlement 
shall be in writing and signed by the person making the offer, and, if 
the person is represented by counsel or a representative, signed also 
by the counsel or representative. Under the proposed Rule, the offer of 
settlement should contain in reasonable detail the required content of 
the proposal, which would include, among other things, a statement 
consenting to findings of fact and violations, a description of the 
proposed sanction and the effective date of any sanction(s) imposed, or 
a statement that the effective date of the sanction(s) will be a date 
to be determined by Regulatory Staff. Current Article 12, Rule 1(d) is 
not as detailed but specifies that the settlement agreement must admit 
jurisdiction and contain a proposed penalty that must be reasonable and 
consistent with the seriousness of the alleged violations.
    Proposed Rule 10.9270(d) would provide that submission of a 
settlement offer waives a Respondent's right to a hearing, to claim 
bias or ex parte communication violations, any right to claim that a 
person or body violated the ex parte prohibitions of proposed Rule 
10.9143 or the separation of functions prohibitions of proposed Rule 
10.9144, and the right to review by the Board, the Commission, or the 
courts. Under current Article 12, Rule 1(d), settlement agreements must 
include a waiver by the respondent of all rights of appeal to the 
Executive Committee, Board, the Commission and United States Court of 
Appeals or to otherwise challenge or contest the validity of the 
decision if the offer of settlement is accepted.
    Proposed Rule 10.9270(e) would address contested settlement offers. 
Under the proposed rule, if a Respondent made an offer of settlement 
and Enforcement opposed it, the offer of settlement would be contested 
and thereby deemed rejected, and thus the proceeding would continue to 
completion under the proposed Rule 10.9200 Series. The contested offer 
of settlement would not be transmitted to the Office of Hearing 
Officers, CRO, or Hearing Panel or Extended Hearing Panel, and would 
not constitute a part of the record in any proceeding against the 
Respondent making the offer. Current Article 12, Rule 1(d) does not 
contain a comparable provision. The Exchange believes that its proposed 
rule would encourage Respondents to make reasonable offers of 
settlement that would be acceptable to Enforcement.
    Proposed Rule 10.9270(f) and (h) would address uncontested 
settlement offers. Under the proposed rule, if a hearing on the merits 
had not begun, the CRO could accept the settlement offer; if a hearing 
on the merits had begun, the Hearing Panel or Extended Hearing Panel 
could accept the settlement offer.\53\ If they did not, the offer would 
be deemed withdrawn and the matter would proceed under the proposed 
Rule 10.9200 Series and the settlement offer would not be part of the 
record. Under current Article 12, Rule 1(d), where an offer of 
settlement is rejected by the CRO, the offer of settlement shall be 
deemed withdrawn and it will not be given consideration in the

[[Page 35056]]

determination of the issues involved in the disciplinary proceeding.
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    \53\ The CRO, Hearing Panel, or Extended Hearing Panel, as 
applicable, would consider Exchange precedent or such other 
precedent as it deemed appropriate in determining whether to accept 
the settlement offer.
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    As described below, if the offer of settlement were accepted by the 
CRO, Hearing Panel or Extended Hearing Panel, it would become final 10 
days after being sent, together with an order of acceptance, to each 
Director and each member of the CFR, unless review by the Exchange 
Board is required pursuant to proposed Rule 10.9310(a)(1)(A) or (B). 
The Exchange anticipates that the required acceptance by the CRO, 
Hearing Panel, or Extended Hearing Panel would help ensure objectivity 
and consistency among offers of settlement that are issued. The 
proposed rule change would also allow an offer of settlement to be 
called for review by the Exchange Board. The Exchange believes that 
this review mechanism provides an additional, appropriate check and 
balance to the proposed settlement process.
    Proposed Rule 10.9270(g) would provide that the proceeding under 
the proposed rule would conclude as of the date the order of acceptance 
is final, and the order of acceptance would constitute final 
disciplinary action of the Exchange. The sanction would take effect as 
set forth in the order.
    Proposed Rule 10.9270(i) would address disciplinary proceedings 
with multiple Respondents and permit settlement offers to be accepted 
or rejected as to any one or all of such Respondents. Current Article 
12, Rule 1(d) does not contain similar authorizations.
    Proposed Rule 10.9270(j) would provide that a Respondent may not be 
prejudiced by a rejected offer of settlement nor may it be introduced 
into evidence. Current Article 12, Rule 1(d) contains a substantially 
similar provision.
Proposed Rule 10.9280 (Contemptuous Conduct)
    Proposed Rule 10.9280 would set forth sanctions for contemptuous 
conduct by a Party or attorney or other representative, which may 
include exclusion from a hearing or conference, and would set forth a 
process for reviewing such exclusions. The proposed Rule would also 
provide for adjournments in the event an exclusion is upheld to allow 
for the retention of new counsel or selection of a new representative, 
and would set forth the criteria for determining whether to grant an 
adjournment and the length of an adjournment.
    The Chief Hearing Officer would review exclusions. The Exchange 
believes that Respondents and their attorneys and representatives would 
have adequate procedural protections with a review by the Chief Hearing 
Officer. The Exchange's current rules do not have similar procedures 
addressing contemptuous conduct.
Proposed Rule 10.9290 (Expedited Disciplinary Proceedings)
    Under proposed Rule 10.9290, for any disciplinary proceeding, the 
subject matter of which also is subject to a temporary cease and desist 
proceeding initiated pursuant to proposed Rule 10.9810 or a temporary 
cease and desist order, hearings would be required to be held and 
decisions rendered at the earliest possible time. The proposed Rule is 
identical to NYSE Arca Rule 10.9290. The Exchange does not currently 
have a similar rule.
    Proposed Rule 10.9291 (Permanent Cease and Desist Orders) would 
govern the content, scope, form and delivery requirements of permanent 
cease and desist orders. Under proposed Rule 10.9291(a), when a 
decision issued under proposed Rule 10.9268 or proposed Rule 10.9269 or 
an order of acceptance issued under proposed Rule 10.9270 imposes a 
permanent cease and desist order, the decision shall: Order a 
Respondent (and any successor of a Respondent, where the Respondent is 
a Participant or Participant Firm) to cease and desist permanently from 
violating a specific rule or statutory provision; set forth the 
violation; and describe in reasonable detail the act or acts the 
Respondent (and any successor of a Respondent, where the Respondent is 
a Participant or Participant Firm) shall take or refrain from taking. 
The proposed Rule would also require Respondents that are a Participant 
or Participant Firm to deliver a copy of a permanent cease and desist 
order, within one business day of receiving it, to its covered persons. 
With the exception of conforming changes reflecting the Exchange's 
membership, the text of the proposed Rule is substantially same as NYSE 
Arca Rule 10.9291. The Exchange currently does not have a similar rule.
Proposed Rules 10.9300 Through 10.9310
    The Exchange's appellate and call for review processes would be set 
forth in the Rule 10.9300 Series (Review of Disciplinary Proceeding by 
Exchange Board) and would be substantially the same as the current NYSE 
Arca process.
    Proposed Rule 10.9310 (Review by Exchange Board of Directors) would 
provide for one review at the Board of Directors level, and discontinue 
the current practice under Article 12, Rule 5 whereby a decision by the 
Judiciary Committee is the final decision of the Exchange under 
subsection (a) except where the Board in its discretion determines to 
review a Judiciary Committee decision, as provided for in subsection 
(b). Under proposed Rule 10.9310(b), upon review, and with the advice 
of the CFR, the Board may, by the affirmative vote of a majority of the 
Board then in office, sustain any determination or penalty imposed, 
(including the terms of any permanent cease and desist order), or both, 
modify or reverse any such determination, and increase, decrease or 
eliminate any such penalty, or impose any penalty permitted under the 
Exchange's rules, as it deems appropriate. Unless the Board otherwise 
specifically directs, the determination and penalty, if any, of the 
Board after review shall be final and conclusive subject to the 
provisions for review of the Act. The Exchange believes that the 
proposed appellate review process would be fair and efficient and 
harmonize the Exchange's appellate process with the process of the 
Exchange's affiliates who have adopted similar disciplinary rules.
    Under proposed Rule 10.9310(a)(1)(A), any Party, any Director, and 
any member of the CFR could require a review by the Exchange Board of 
any determination or penalty, or both, imposed by a Hearing Panel or 
Extended Hearing Panel under the proposed Rule 10.9200 Series, except 
that none of the aforementioned persons could request a review by the 
Exchange Board of a decision concerning an affiliate of the Exchange as 
that term is defined in Rule 12b-2 under the Act. Under current Article 
12, Rule 5, there is no similar call for review process; only a 
Respondent or the Exchange may request review and that review is 
conducted by the Judiciary Committee, subject to the exceptions in 
Article 12, Rule 5(b).
    Moreover, under proposed Rule 10.9310(a)(1)(A), a request for 
review would be made by filing with the Secretary a written request 
stating the basis and reasons for such review, within 25 days after 
notice of the determination and/or penalty was served upon the 
Respondent. However, any request for review of an offer of settlement 
determined to be uncontested after a hearing on the merits has begun 
under proposed Rule 10.9270(f) that has been accepted by a Hearing 
Panel or Extended Hearing Panel would be governed by Rule 
10.9310(a)(1)(B)(i). The Secretary of the Exchange would give notice of 
any such request for review to the Parties.
    Under proposed Rule 10.9310(a)(1)(B)(i), any Director and any

[[Page 35057]]

member of the CFR could require a review by the Board of any 
determination or penalty, or both, imposed in connection with an AWC 
under Rule 10.9216 or an offer of settlement determined to be 
uncontested before a hearing on the merits has begun under Rule 
10.9270(f), except for a determination or penalty concerning an 
Exchange affiliate as defined in Rule 12b-2 under the Act. Under the 
proposed rule, a request for review shall be made by filing with the 
Secretary of the Exchange a written request therefor, which states the 
basis and reasons for such review, within 10 days after a letter of 
acceptance, waiver, and consent or an offer of settlement has been sent 
to each Director and each member of the CFR pursuant to proposed Rule 
0.9216(a)(4) or Rule 10.9270(f)(3). The Secretary would give notice of 
any such request for review to the Parties.
    Under proposed Rule 10.9310(a)(1)(B)(ii), any Party could require a 
review by the Exchange Board of any rejection by the CRO of a letter of 
acceptance, waiver, and consent under Rule 10.9216 or an offer of 
settlement determined to be uncontested before a hearing on the merits 
has begun under Rule 10.9270(f), except that no Party may request Board 
review of a rejection of an AWC or an offer of settlement concerning an 
Exchange affiliate as defined in Rule 12b-2 under the Act. As proposed, 
a request for review shall be made by filing with the Secretary a 
written request stating the basis and reasons for such review within 25 
days after notification pursuant to proposed Rule 10.9216(a)(3) or Rule 
10.9270(h) that a letter of acceptance, waiver, and consent, or an 
uncontested offer of settlement or an order of acceptance is not 
accepted by the CRO. The Secretary would provide notice of any such 
request for review to the Parties.
    Under current Article 12, Rule 5(a), the parties have 15 days from 
the date of service of notice of a decision, while under Article 12, 
Rule 5(b) the Board has no time period in which to request 
discretionary review of a Judiciary Committee decision. The proposed 
rule would apply a longer period to requests to review of contested 
determinations.
    Under proposed Rule 10.9310(a)(2), the Secretary would direct the 
Office of Hearing Officers to complete and transmit a record of the 
disciplinary proceeding in accordance with Rule 10.9267. Within 21 days 
after the Secretary gives notice of a request for review to the 
Parties, or at such later time as the Secretary could designate, the 
Office of Hearing Officers would assemble and prepare an index to the 
record, transmit the record and the index to the Secretary, and serve 
copies of the index upon all Parties. The Hearing Officer who 
participated in the disciplinary proceeding, or the Chief Hearing 
Officer, would certify that the record transmitted to the Secretary was 
complete. Under Article 12, Rule 5(a), unless the Judiciary Committee 
decides to open the record for the introduction of evidence to hear 
argument, its review must be based on the factual record as certified 
to the Judiciary Committee by the Secretary and Board review of matters 
as provided in Article 12, Rule 5(b) must be upon the record as 
certified to the Board by the Secretary.
    Under proposed Rule 10.9310(b), review by the Exchange Board would 
be based on oral arguments and written briefs and limited to 
consideration of the record before the Hearing Panel or Extended 
Hearing Panel. Under current Article 12, Rule 5, the Judiciary 
Committee has the discretion but is not required to hear oral argument. 
Moreover, the Judiciary Committee is not bound by the factual record as 
certified by the Secretary but can open the record for the introduction 
of evidence to hear argument.
    Proposed Rule 10.9310(b) further provides that, upon review, and 
with the advice of the CFR, the Board, by the affirmative vote of a 
majority of the Exchange Board then in office, could sustain any 
determination or penalty imposed, (including the terms of any permanent 
cease and desist order), or both, could modify or reverse any such 
determination, and could increase, decrease or eliminate any such 
penalty, or impose any penalty permitted under the Exchange's rules, as 
it deems appropriate. Unless the Board otherwise specifically directs, 
its determination and penalty, if any, after review shall be final and 
conclusive subject to the provisions for review of the Act.
    As noted above, the Exchange would discontinue the current practice 
under Article 12, Rule 5 whereby a decision by the Judiciary Committee 
is a final decision of the Exchange except where the Board determines 
to review the Judiciary Committee's decision on a discretionary basis. 
As proposed, under Rule 10.9310(b), the Board's determination, with the 
advice of the CFR, if any, would be final and conclusive subject to the 
provisions for review of the Act unless the Board specifically directs 
otherwise. In addition, NYSE Arca Rule 10.9310(b) permits the CFR to 
appoint an Appeals Panel to conduct a review and make a recommendation 
to the CFR. NYSE Arca retained appeals panels from its legacy 
disciplinary rules. The Exchange does not currently have a similar 
process and does not propose to follow NYSE Arca on this point. 
Proposed Rule 10.9310(b) accordingly omits a comparable provision.
    Under proposed Rule 10.9310(c), notwithstanding the foregoing, if 
either Party upon review applied to the Exchange Board for leave to 
adduce additional evidence, and showed to the satisfaction of the 
Exchange Board that the additional evidence was material and that there 
were reasonable grounds for failure to adduce it before the Hearing 
Panel or Extended Hearing Panel, the Exchange Board could remand the 
case for further proceedings, in whatever manner and on whatever 
conditions the Exchange Board considered appropriate. Article 12, Rule 
5 does not contain a remand provision.
    Under proposed Rule 10.9310(d), notwithstanding any other 
provisions of the proposed Rule 10.9000 Series, the CEO could not 
require a review by the Exchange Board under this rule and would be 
recused from deliberations and actions of the Exchange Board with 
respect to such matters. Current Article 12, Rule 5 does not have a 
comparable provision.
Proposed Rules 10.9500 Through 10.9527
    The proposed Rule 10.9500 Series (Other Proceedings) would relate 
to other proceedings under the Exchange Rules.
    The proposed Rule 10.9520 Series would set forth procedures for a 
covered person to become or remain associated with a Participant or 
Participant Firm notwithstanding the existence of a statutory 
disqualification as defined in Section 3(a)(39) of the Act, and for a 
Participant, Participant Firm or covered person to obtain relief from 
the eligibility or qualification requirements of the Exchange's Rules, 
which the proposed rule refers to as ``eligibility proceedings.'' The 
proposed rules are substantially similar to the NYSE Arca Rule 10.9520 
Series.
    Proposed Rule 10.9521 (Purpose and Definitions) would add certain 
definitions relating to eligibility proceedings that are not currently 
part of the Exchange's definitions, including ``Application,'' 
``disqualified Participant,'' ``disqualified Participant Firm,'' 
``disqualified person,'' ``sponsoring Participant,'' and ``sponsoring 
Participant Firm.''
    Proposed Rule 10.9522 (Initiation of Eligibility Proceeding; Member 
Regulation Consideration) would govern the initiation of an eligibility 
proceeding by the Exchange and the obligation for

[[Page 35058]]

a Participant or Participant Firm to file an application or, for 
matters set forth in proposed Rule 10.9522(e)(1), a written request for 
relief if the Participant or Participant Firm determines prior to 
receiving a notice under Rule 10.9522(a) that (1) it has become a 
disqualified Participant or Participant Firm; (2) a person associated 
with such Participant or Participant Firm or whose association is 
proposed by an applicant for membership under Exchange rules has become 
a disqualified person; or (3) the Participant or Participant Firm or 
applicant for membership under Exchange rules wishes to sponsor the 
association of a covered person who is a disqualified person. The 
proposed rule also contains provisions governing withdrawal of an 
application or written request for relief as well as the application of 
the prohibitions against ex parte communications set forth in Rule 
10.9143 to the Rule 10.9520 Series.
    Finally, the proposed rule describes the matters that may be 
approved by the Department of Member Regulation (``Member Regulation'') 
without the filing of an application and after filing an application, 
and the rights of a disqualified Participant or Participant Firm, 
Sponsoring Participant or Participant Firm, Disqualified Person, and 
Member Regulation where Member Regulation does not approve a written 
request for relief from the eligibility requirements pursuant to 
proposed Rule 10.9522(e)(1) or an application pursuant to proposed Rule 
10.9522(e)(2).
    Proposed Rule 10.9523 (Acceptance of Member Regulation 
Recommendations and Supervisory Plans by Consent Pursuant to Exchange 
Act Rule 19h-1) would generally allow Member Regulation to recommend a 
supervisory plan to which a disqualified Participant or Participant 
Firm, or sponsoring Participant or Participant Firm and/or disqualified 
person, as the case may be, could consent and by doing so, waive the 
right to hearing or appeal if the plan is accepted and the right to 
claim bias or prejudgment, prohibited ex parte communications or the 
separation of functions prohibitions.
    Specifically, under subsection (a), which would apply to all 
disqualifications except those arising solely from findings or orders 
specified in Section 15(b)(4)(D), (E) or (H) of the Act or arising 
under Section 3(a)(39)(E) of the Act, a disqualified Participant or 
Participant Firm, sponsoring Participant or Participant Firm, and/or 
disqualified person (the ``Disqualified Person''), would execute a 
letter consenting to the imposition of the supervisory plan. By 
submitting such a letter, the Disqualified Person waive the right to a 
hearing before a Hearing Panel and any right of appeal to the Exchange 
Board, the Commission, and the courts, or otherwise challenge the 
validity of the supervisory plan, if the supervisory plan is accepted; 
any right to claim bias or prejudgment by Member Regulation, the CRO, 
the Board, or any member of the Board, in connection with such person's 
or body's participation in discussions regarding the terms and 
conditions of Member Regulation's recommendation or the supervisory 
plan, or other consideration of the recommendation or supervisory plan, 
including acceptance or rejection of such recommendation or supervisory 
plan; and any right to claim that a person violated the ex parte 
prohibitions of proposed Rule 10.9143 or the separation of functions 
prohibitions of proposed Rule 10.9144, in connection with such person's 
or body's participation in discussions regarding the terms and 
conditions of the recommendation or supervisory plan, or other 
consideration of the recommendation or supervisory plan, including 
acceptance or rejection of such recommendation or supervisory plan.
    If a recommendation or supervisory plan is rejected, the 
Disqualified Person would be bound by the waivers made under proposed 
paragraph (a)(1) for conduct by persons or bodies occurring during the 
period beginning on the date the supervisory plan was submitted and 
ending upon the rejection of the supervisory plan and would have the 
right to proceed under the proposed rule and proposed Rule 10.9524, as 
applicable. Under subsection (a), if a Disqualified Person executes a 
letter consenting to the supervisory plan, such letter would be 
submitted to the CRO by Member Regulation with a proposed Notice under 
Act Rule 19h-1, where required. The CRO may accept or reject Member 
Regulation's recommendation and the supervisory plan. If accepted, the 
recommendation and supervisory plan would be deemed final and, where 
required, the proposed Notice under Rule 19h-1 of the Act would be 
filed by the Exchange. If rejected by the CRO, the Exchange would be 
able to take any other appropriate action with respect to the 
Disqualified Person. The Disqualified Person would not be prejudiced by 
the execution of the letter consenting to the supervisory plan, and the 
letter could not be introduced into evidence in any proceeding.
    Under subsection (b), which would apply to disqualifications 
arising solely from findings or orders specified in Section 
15(b)(4)(D), (E) or (H) of the Act or arising under Section 3(a)(39)(E) 
of the Act, in approving an application under proposed Rule 
10.9522(e)(2)(F), Member Regulation would be authorized to accept the 
membership or continued membership of a Disqualified Person or the 
association or continuing association of a Disqualified Person pursuant 
to a supervisory plan where the Disqualified Person would consent to 
the imposition of the supervisory plan. The Disqualified Person would 
execute a letter consenting to the imposition of the supervisory plan 
and Member Regulation would prepare a proposed Notice under Rule 19h-1 
of the Act where required to be filed by the Exchange.
    By submitting an executed letter consenting to a supervisory plan, 
a Disqualified Person would waive the right of appeal to the Board, the 
Commission, and the courts, or otherwise challenge the validity of the 
supervisory plan, if the supervisory plan is accepted; any right to 
claim bias or prejudgment by Member Regulation or the CRO in connection 
with such person's or body's participation in discussions regarding the 
terms and conditions of Member Regulation's recommended supervisory 
plan, or other consideration of the supervisory plan, including 
acceptance or rejection of such recommendation or supervisory plan; and 
any right to claim that a person violated the ex parte prohibitions of 
proposed Rule 10.9143 or the separation of functions prohibitions of 
proposed Rule 10.9144, in connection with such person's or body's 
participation in discussions regarding the terms and conditions of the 
supervisory plan, or other consideration of the supervisory plan, 
including acceptance or rejection of such supervisory plan. If the 
supervisory plan is rejected, the Disqualified Person would be bound by 
the waivers made under proposed paragraph (b)(1) for conduct by persons 
or bodies occurring during the period beginning on the date the 
supervisory plan was submitted and ending upon the rejection of the 
supervisory plan and would have the right to proceed under proposed 
Rule 10.9524 (Exchange Board Consideration), which would allow a 
request for review by the applicant to the Exchange Board. Proposed 
Rule 10.9527 would provide that a filing of an application for review 
would not stay the effectiveness of final action by the Exchange unless 
the Commission otherwise ordered. To maintain consistency with NYSE 
Arca's rule numbering, proposed Rules 10.9525 and 10.9526 would be 
designated ``Reserved.''

[[Page 35059]]

Proposed Rules 10.9550 Through 10.9559
    Proposed Rules 10.9550 through 10.9559 would govern expedited 
proceedings.
    Under proposed Rule 10.9551 (Failure to Comply with Public 
Communication Standards Pursuant to FINRA Rule 2210 as Incorporated by 
Reference in Rule 11.2210), Regulatory Staff could issue a written 
notice requiring a Participant or Participant Firm to file 
communications with FINRA's Advertising Regulation Department at least 
10 days prior to use if the staff determined that the Participant or 
Participant Firm had departed from the standards of proposed Rule 
11.2210 (Communications with the Public).\54\ The notice would state 
the specific grounds and include the factual basis for the action as 
well as the effective date. The Participant or Participant Firm could 
file a written request for a hearing with the Office of Hearing 
Officers pursuant to proposed Rule 10.9559. A Participant or 
Participant Firm would be required to set forth with specificity any 
and all defenses to the action in its request for a hearing. Pursuant 
to proposed Rules 10.8310(a) and 10.9559(n), a Hearing Officer or, if 
applicable, Hearing Panel, could approve, modify or withdraw any and 
all sanctions or limitations imposed by the staff's notice, and impose 
any other fitting sanction. A Participant or Participant Firm subject 
to a pre-use filing requirement also could file a written request for 
modification or termination of the requirement. FINRA Rule 2210 
proposed to be incorporated by reference in proposed Rule 11.2210 
references the procedures in FINRA Rules 9551 and 9559, which are 
substantially the same as proposed Rules 10.9551 and 10.9559.
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    \54\ The Exchange has filed a separate filing to adopt a new 
Rule 11.2210 governing communications with the public that would 
incorporate FINRA Rule 2210 by reference and rename and amend 
Article 8, Rule 13 governing advertising, promotion and 
telemarketing. See note 17 [sic], supra. Accordingly, proposed Rule 
10.9551 would not be operative until approval of the Exchange's 
companion rule filing.
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    Under proposed Rule 10.9552 (Failure to Provide Information or Keep 
Information Current) would establish procedures in the event that a 
Participant, Participant Firm or covered person failed to provide any 
information, report, material, data, or testimony requested or required 
to be filed under the Exchange's rules, or failed to keep its 
membership application or supporting documents current. In the event of 
the foregoing, under proposed Rule 10.9552, the Participant, 
Participant Firm or covered person could be suspended if corrective 
action were not taken within 21 days after service of notice. A 
Participant, Participant Firm or covered person served with a notice 
could request a hearing within the 21-day period. A Participant, 
Participant Firm or covered person subject to a suspension could file a 
written request for termination of the suspension on the ground of full 
compliance. A Participant, Participant Firm or covered person suspended 
under the proposed rule that failed to request termination of the 
suspension within three months of issuance of the original notice of 
suspension would automatically be expelled or barred.\55\ Proposed Rule 
10.9552 is substantially the same as its NYSE Arca counterpart except 
for references reflecting the Exchange's membership. Under the 
Exchange's current rules, there is no procedure that relates to failure 
to keep a membership application or supporting documents current. Under 
current Article 6, Rule 9(a), a Participant or partner, officer, 
director or other person associated with a Participant or other person 
or entity subject to the jurisdiction of the Exchange that fails to 
submit requested documents or information to the Exchange is subject to 
formal disciplinary action. The Exchange's current rules do not 
authorize an expedited proceeding against persons who fail to submit 
documents or information.
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    \55\ The Exchange believes that the provision for automatic 
expulsion or bar after three months is consistent with Section 6 of 
the Act because the Respondent would have ample notice and 
opportunity to be heard under proposed Rule 10.9552, the proposed 
rule is substantially the same as NYSE Arca's and FINRA's 
counterpart rules, and the Commission has upheld at least one bar 
under a prior version of FINRA's rule. See, e.g., Dennis A. Pearson, 
Jr., Securities Exchange Act Rel. Nos. 54913 (December 11, 2006) 
(dismissing application for review by associated person barred under 
NASD Rule 9552(h)) and 55597A (April 6, 2007) (denying motion for 
reconsideration).
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    Proposed Rule 10.9554 (Failure to Comply with an Arbitration Award 
or Related Settlement or an Order of Restitution or Settlement 
Providing for Restitution) \56\ would contain similar procedures and 
consequences as proposed Rule 10.9552 relating to a failure to comply 
with an arbitration award or related settlement or an Exchange order of 
restitution or Exchange settlement agreement providing for restitution. 
Under proposed Rule 10.9554, if a Participant, Participant Firm or 
covered person fails to comply with an arbitration award or a 
settlement agreement related to an arbitration or mediation under the 
Exchange's rules, or an Exchange order of restitution or Exchange 
settlement agreement providing for restitution, Regulatory Staff could 
provide written notice to such Participant, Participant Firm or covered 
person stating that the failure to comply within 21 days of service of 
the notice will result in a suspension or cancellation of membership or 
a suspension from associating with any Participant or Participant Firm. 
Proposed Rule 10.9554 is substantially the same as NYSE Arca Rule 
10.9554 except for references reflecting the Exchange's membership. The 
Exchange lacks a comparable rule setting forth a uniform notice period 
and specific procedures to be followed in the event of suspension or 
cancellation.
---------------------------------------------------------------------------

    \56\ Proposed Rule 10.9553 would be designated ``Reserved'' to 
maintain consistency with NYSE Arca's rule numbering.
---------------------------------------------------------------------------

    Current Article 14, Rule 1(e) simply provides that any Participant, 
or covered person who fails to honor an arbitration award can be 
subject to disciplinary proceedings in accordance with Article 12. To 
add clarity to the Exchange's rules, the Exchange would delete the 
phrase ``in accordance with Article 12'' following ``disciplinary 
proceedings'' in Article 14, Rule 1(e).
    Proposed Rule 10.9555 (Failure to Meet the Eligibility or 
Qualification Standards or Prerequisites for Access to Services) would 
govern the failure to meet the eligibility or qualification standards 
or prerequisites for access to services offered by the Exchange. Under 
proposed Rule 10.9555, if a Participant, Participant Firm or covered 
person did not meet the eligibility or qualification standards set 
forth in the Exchange's rules, Exchange staff could provide written 
notice to such Participant, Participant Firm or covered person that the 
failure to become eligible or qualified will result in a suspension or 
cancellation of membership or a suspension or bar from associating with 
any Participant or Participant Firm. Similarly, if a Participant, 
Participant Firm or covered person did not meet the prerequisites for 
access to services offered by the Exchange or a Participant or 
Participant Firm thereof or could not be permitted to continue to have 
access to services offered by the Exchange or a Participant or 
Participant Firm thereof with safety to investors, creditors, 
Participant, Participant Firms or the Exchange, Exchange staff could 
provide written notice to such Participant, Participant Firm or covered 
person limiting or prohibiting access to services offered by the 
Exchange or a Participant or Participant Firm thereof. The limitation, 
prohibition, suspension, cancellation, or bar referenced in the notice 
would become effective 14 days after service of the notice except that 
the

[[Page 35060]]

effective date for a notice of a limitation or prohibition on access to 
services offered by the Exchange or a Participant, or Participant Firm 
thereof with respect to services to which the Participant, Participant 
Firm or covered person does not have access would be upon service of 
the notice.
    Proposed Rule 10.9556 (Failure to Comply with Temporary and 
Permanent Cease and Desist Orders) would provide procedures and set 
forth consequences for a failure to comply with temporary and permanent 
cease and desist orders issued under the Rule 10.9200, 10.9300 or 
10.9800 Series. The Exchange does not currently have rules governing 
cease and desist orders or that sets forth procedures and consequences 
for a failure to comply with a cease and desist order. The proposed 
rule is the substantially the same as NYSE Arca Rule 10.9556 except for 
references reflecting the Exchange's membership.
    Proposed Rule 10.9557 (Procedures for Regulating Activities Under 
Article 7, Rules 3 or 8 Regarding a Participant or Participant Firm 
Experiencing Financial or Operational Difficulties) would allow the 
Exchange to issue a notice directing a Participant or Participant Firm 
comply with the provisions of Article 7, Rule 3 (Net Capital and 
Aggregate Indebtedness) or Article 7, Rule 8 (Operational Capability) 
or otherwise directing it to restrict its business activities. Article 
7, Rule 3 establishes minimum net capital requirements and Article 7, 
Rule 8 governs the operational capability of Participants and 
Participant Firms. Article 7, Rule 3 and Rule 8 provide that the 
Exchange can take certain actions when it appears that a Participant 
Firm is unable or unwilling to comply with the requirements set forth 
in those rules. Proposed Rule 10.9557 would govern the process to be 
followed when the Exchange determines to take the prescribed actions 
under Article 7, Rules 3 and 8. Except for these rule references and 
references to reflect the Exchange's membership, the proposed rule is 
otherwise substantially the same as NYSE Arca Rule 10.9557.
    The requirements and/or restrictions imposed by a notice issued and 
served under the proposed Rule would be immediately effective, except 
that a timely request for a hearing would stay the effective date for 
ten business days after service of the notice or until the Office of 
Hearing Officers issues a written order under proposed Rule 
10.9559(o)(4)(A) (whichever period is less), unless the Exchange's CRO 
(or such other senior officer as the CRO may designate) determines that 
such a stay cannot be permitted with safety to investors, creditors or 
other Participants or Participant Firms. Such a determination by the 
Exchange's CRO (or such other senior officer as the CRO may designate) 
would not be appealable and an extension of the stay period would not 
be permitted. Under the proposed Rule, where a timely request for a 
hearing stays the action for ten business days after service of the 
notice or until the Office of Hearing Officers issues a written order 
under Rule 10.9559(o)(4)(A) (whichever period is less), the notice 
would not be deemed to have taken effect during that entire period. Any 
requirements and/or restrictions imposed by an effective notice would 
remain in effect unless Exchange staff removes or reduces the 
requirements and/or restrictions pursuant to a letter of withdrawal of 
the notice issued as set forth in proposed Rule 10.9557(g)(2).
    Proposed Rule 10.9558 (Summary Proceedings for Actions Authorized 
by Section 6(d)(3) of the Exchange Act) would allow the Exchange's CRO 
to provide written authorization to Exchange staff to issue a written 
notice for a summary proceeding for an action authorized by Section 
6(d)(3) of the Act. The list of proceedings in the proposed Rule would 
track the types of proceedings currently provided for in Article 13, 
Rule 2(a), which governs summary proceedings in accordance with Section 
6(d)(3) of the Act. The Exchange does not have a rule comparable to 
NYSE Arca Rule 11.2(a)-(f), hence the Exchange will not include a 
subsection (4) to proposed Rule 10.9558(a).
    The notice issued under the proposed Rule would be immediately 
effective; a Participant, Participant Firm or covered person would have 
seven days to request a hearing. As noted, emergency proceedings are 
currently authorized under Article 13, Rule 2(a)(1), under which the 
Exchange has authority to, in part, (i) suspend a Participant or 
Participant Firm or Associated Person that is expelled or suspended by 
another SRO or an Associated Person that is barred or suspended from 
being associated with a member of an SRO; (ii) suspend a Participant, 
Participant Firm, or any other covered person who is in financial or 
operating difficulty; or (iii) limit or prohibit any person with 
respect to access to Exchange services in certain circumstances. 
Article 13, Rule 2(b) provides that any person subject to an action 
under Article 13, Rule 2(a) has five days after notification of the 
action to file a written notice of appeal with the secretary of the 
Exchange. The Exchange would retain the seven day period in NYSE Arca 
Rule 10.9558 in order to harmonize with its affiliates. The Exchange 
believes that the seven day period to request a hearing is not 
unreasonable given the summary nature of the action. The proposed rule 
is substantially the same as its NYSE Arca counterpart except for 
references reflecting the Exchange's membership and the reference to 
NYSE Arca Rule 11.2(a)-(f), which has no counterpart on the Exchange.
    Proposed Rule 10.9559 (Hearing Procedures for Expedited Proceedings 
Under the Rule 10.9550 Series) would set forth uniform hearing 
procedures for all expedited proceedings under the proposed Rule 
10.9550 Series. Currently, emergency suspensions under Article 13, Rule 
2 utilize the Article 15 rules, which are used for hearings and appeals 
from certain decisions made by the Exchange pursuant to the Rules. The 
proposed rule is substantially the same as its NYSE Arca counterpart 
except for references reflecting the Exchange's membership.
    Proposed Rule 10.9560 (Expedited Suspension Proceeding) would set 
forth procedures for issuing suspension orders, immediately prohibiting 
a Participant, Participant Firm or covered person from conducting 
continued disruptive quoting and trading activity on the Exchange and 
would also provide the Exchange the authority to order a Participant, 
Participant Firm or covered person to cease and desist from providing 
access to the Exchange to a client that is conducting disruptive 
quoting and trading activity. The proposed Rule is substantially the 
same as NYSE Arca Rule 10.9560 except for changes reflecting the 
Exchange's membership.
    Proposed Rule 10.9560(a)(1) provides that, with the prior written 
authorization of the CRO or such other senior officers as the CRO may 
designate, Enforcement may initiate an expedited suspension proceeding 
with respect to alleged violations of Rule 11.21 (Disruptive Quoting 
and Trading Activity Prohibited).\57\ Proposed Rule 10.9560(a) would 
also set forth the requirements for notice and service ((a)(2)), and 
the content of such notice ((a)(3)) pursuant to the Rule.
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    \57\ As discussed below, the Exchange proposes to adopt a new 
Rule 11.21 prohibiting disruptive quoting and trading activity.
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    Proposed Rule 10.9560(b) would govern the appointment of a Hearing 
Panel as well as potential disqualification or recusal of Hearing 
Officers or Panelists. The proposed provision is consistent with 
proposed Rule 10.9231(b) and (c), which govern

[[Page 35061]]

the appointment of a Hearing Panel or Extended Hearing Panel to conduct 
disciplinary proceedings, and proposed Rules 10.9233 (Hearing Panel or 
Extended Hearing Panel: Recusal and Disqualification of Hearing 
Officers) and 10.9234 (Hearing Panel or Extended Hearing Panel: Recusal 
and Disqualification of Panelists), which would establish the processes 
for recusal and disqualification of Hearing Officers or Panelists. 
Proposed Rule 10.9233 provides for a Hearing Officer to be recused in 
the event he or she has a conflict of interest or bias or other 
circumstances exist where his or her fairness might reasonably be 
questioned. In addition to recusal initiated by such a Hearing Officer, 
a party to the proceeding would be permitted to file a motion to 
disqualify a Hearing Officer. This is similar to the requirements under 
proposed Rule 10.9234 for Panelists. However, due to the compressed 
schedule pursuant to which the process would operate under Rule 
10.9560, the proposed rule would require such motion to be filed no 
later than 5 days after the announcement of the Hearing Panel and the 
Exchange's brief in opposition to such motion would be required to be 
filed no later than 5 days after service thereof.
    Under proposed Rule 10.9560(c)(1), the hearing would be held not 
later than 15 days after service of the notice initiating the 
suspension proceeding, unless otherwise extended by the Hearing Officer 
with the consent of the Parties for good cause shown. In the event of a 
recusal or disqualification of a Hearing Officer or Panelist, the 
hearing shall be held not later than five days after a replacement 
Hearing Officer or Panelist is appointed. Under proposed Rule 
10.9560(c)(2), a notice of date, time, and place of the hearing shall 
be served on the Parties not later than seven days before the hearing, 
unless otherwise ordered by the Hearing Officer. Under the proposed 
Rule, service shall be made by personal service or overnight commercial 
courier and the notice shall be effective upon service.
    Proposed Rule 10.9560(c) would also govern how the hearing is 
conducted, including the authority of Hearing Officers ((c)(3)), 
witnesses ((c)(4)), additional information that may be required by the 
Hearing Panel ((c)(5)), the requirement that a transcript of the 
proceeding be created and details related to such transcript ((c)(6)), 
and details regarding the creation and maintenance of the record of the 
proceeding ((c)(7)). Proposed Rule 10.9560(c)(8) would also provide 
that if a Respondent fails to appear at a hearing for which it has 
notice, the allegations in the notice and accompanying declaration may 
be deemed admitted, and the Hearing Panel may issue a suspension order 
without further proceedings.
    Finally, as proposed, if Enforcement fails to appear at a hearing 
for which it has notice, the Hearing Panel may order that the 
suspension proceeding be dismissed.
    Under proposed Rule 10.9560(d)(1), the Hearing Panel would be 
required to issue a written decision stating whether a suspension order 
would be imposed. The Hearing Panel would be required to issue the 
decision not later than 10 days after receipt of the hearing 
transcript, unless otherwise extended by the Hearing Officer with the 
consent of the Parties for good cause shown. The proposed Rule would 
state that a suspension order shall be imposed if the Hearing Panel 
finds by a preponderance of the evidence that the alleged violation 
specified in the notice has occurred and that the violative conduct or 
continuation thereof is likely to result in significant market 
disruption or other significant harm to investors.
    Proposed Rule 10.9560(d)(2) would also describe the content, scope 
and form of a suspension order. As proposed, under proposed Rule 
10.9560(d)(2)(A), a suspension order shall be limited to ordering a 
Respondent to cease and desist from violating Rule 11.21, and/or to 
ordering a Respondent to cease and desist from providing access to the 
Exchange to a client of Respondent that is causing violations of Rule 
11.21. Under proposed Rule 10.9560(d)(2)(B), a suspension order shall 
also set forth the alleged violation and the significant market 
disruption or other significant harm to investors that is likely to 
result without the issuance of an order. The order shall describe in 
reasonable detail the act or acts the Respondent is to take or refrain 
from taking, and suspend such Respondent unless and until such action 
is taken or refrained from ((d)(2)(C)). Finally, the order shall 
include the date and hour of its issuance ((d)(2)(D)). As proposed, 
under proposed paragraph (d)(3), a suspension order would remain 
effective and enforceable unless modified, set aside, limited, or 
revoked pursuant to proposed paragraph (e), as described below. 
Finally, paragraph (d)(4) would require service of the Hearing Panel's 
decision and any suspension order by personal service or overnight 
commercial courier.
    Proposed Rule 10.9560(e) would provide that at any time after the 
Respondent is served with a suspension order, a Party could apply to 
the Hearing Panel to have the order modified, set aside, limited, or 
revoked. The filing of an application to have a suspension order 
modified, set aside, limited, or revoked under the proposed Rule would 
not stay the effectiveness of the suspension order.
    For example, if a suspension order suspends Respondent unless and 
until Respondent ceases and desists providing access to the Exchange to 
a client of Respondent, and after the order is entered the Respondent 
complies, the Hearing Panel can modify the order to lift the suspension 
portion of the order while keeping in place the cease and desist 
portion of the order. With its broad modification powers, the Hearing 
Panel also maintains the discretion to impose conditions upon the 
removal of a suspension--for example, the Hearing Panel could modify an 
order to lift the suspension portion of the order in the event a 
Respondent complies with the cease and desist portion of the order but 
additionally order that the suspension will be re-imposed if Respondent 
violates the cease and desist provisions of the modified order in the 
future. The Hearing Panel generally would be required to respond to the 
request in writing within 10 days after receipt of the request. An 
application to modify, set aside, limit or revoke a suspension order 
would not stay the effectiveness of the suspension order.
    Proposed Rule 10.9560(f) would describe the call for review process 
by the Exchange Board. Specifically, the proposed Rule would provide 
that if there is no pending application to the Hearing Panel to have a 
suspension order modified, set aside, limited, or revoked, the Board, 
in accordance with proposed Rule 10.9310 (Review by Exchange Board), 
may call for review the Hearing Panel decision on whether to issue a 
suspension order. Further, the proposed Rule would provide that a call 
for review by the Exchange Board shall not stay the effectiveness of a 
suspension order.
    Finally, proposed Rule 10.9560(g) would generally provide that 
sanctions issued under proposed Rule 10.9560 would constitute final and 
immediately effective disciplinary sanctions imposed by the Exchange, 
and that the right to have any action under the Rule reviewed by the 
Commission would be governed by Section 19 of the Act. The filing of an 
application for review would not stay the effectiveness of a suspension 
order unless the Commission otherwise ordered.

[[Page 35062]]

Proposed Rule 10.9600 Series (Procedures for Exemptions)
    The Exchange proposes to adopt a new Rule 10.9600 Series, which 
would provide procedures for exemptions.
    Under proposed Rule 10.9610 (Application), a Participant or 
Participant Firm could seek exemptive relief as permitted under 
proposed Rule 10.8211 (Automated Submission of Trading Data Requested 
by the Exchange) or proposed Rule 11.2210 (Communications with the 
Public) \58\ by filing a written application with the appropriate 
department or staff of the Exchange and provide a copy of the 
application to the CRO.\59\
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    \58\ As previously noted, the Exchange has filed a separate 
filing to adopt a new Rule 11.2210 governing communications with the 
public that would incorporate FINRA Rule 2210 by reference and 
rename and amend Article 8, Rule 13 governing advertising, promotion 
and telemarketing. See note 17, supra. Accordingly, proposed Rule 
10.9610 would not be operative with respect to proposed Rule 11.2210 
until approval of the Exchange's companion rule filing.
    \59\ Exchange rules providing for exemptive relief would be the 
two proposed rules governing communications with the public and the 
submission of automated trading data. The Exchange does not have a 
rule analogous to NYSE Arca Rule 2.5. Except for references to 
Exchange rules specifying exemptions and references to reflect the 
Exchange's membership, the proposed rule is otherwise substantially 
the same as NYSE Arca Rule 10.9610.
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    Under proposed Rule 10.9620 (Decision), after considering the 
application, the Exchange staff would be required to issue a written 
decision setting forth its findings and conclusions. The decision would 
be served on the Applicant \60\ pursuant to proposed Rules 10.9132 and 
10.9134. After the decision is served on the Applicant, the application 
and decision may be publicly available. Under proposed Rule 10.9630 
(Appeal), an Applicant that wished to appeal the decision would be 
required to file a written notice of appeal with the Exchange's CRO 
within 15 days after service of the decision.
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    \60\ Under proposed Rule 10.9610(c), a Participant or 
Participant Firm that files an application under Rule 10.9610 would 
be referred to as an ``Applicant'' thereafter in the proposed Rule 
10.9600 Series.
---------------------------------------------------------------------------

    Under proposed Rule 10.9630(e), the CRO would affirm, modify, or 
reverse the decision issued under proposed Rule 10.9620 and issue a 
written decision setting forth his or her findings and conclusions and 
serve the decision on the Applicant. The decision would be served 
pursuant to proposed Rules 10.9132 and 10.9134, would be effective upon 
service, and would constitute final action of the Exchange. The 
Exchange does not have a comparable rule.
Proposed Rule 10.9700 Series
    To maintain consistency with NYSE Arca's rule numbering 
conventions, the Rule 10.9700 Series would be marked ``Reserved.''
Proposed Rule 10.9800 Series (Temporary Cease and Desist Orders)
    The Exchange proposes a new Rule 10.9800 Series to set forth 
procedures for issuing temporary cease and desist orders. The Exchange 
does not currently have a comparable rule. Except for cross-references 
to Exchange rules and references reflecting the Exchange's membership, 
the proposed Rule 10.9800 Series is substantially the same as the NYSE 
Arca Rule 10.9800 Series.
    Under proposed Rule 10.9810 (Initiation of Proceeding), with the 
prior written authorization of the Exchange's CRO or such other senior 
officers as the CRO may designate, Enforcement may initiate a temporary 
cease and desist proceeding with respect to alleged violations of 
Section 10(b) of the Act and Rule 10b-5 thereunder; Exchange Act Rules 
15g-1 through 15g-9; Article 9, Rule 2 (if the alleged violation is 
unauthorized trading, or misuse or conversion of customer assets, or 
based on violations of Section 17(a) of the Securities Act); and 
Article 9, Rules 9, 10 11 and 12, which prohibit a variety of 
manipulative activity, by serving a notice (as described in proposed 
Rule 10.9810(b)) on a Participant, Participant Firm or covered person 
or upon counsel or other person authorized to represent others under 
Rule 10.9141, and filing a copy thereof with the Office of Hearing 
Officers. The notice issued under the proposed Rule would be effective 
when service is complete. Proposed Rule 10.9810(c) would provide that 
if the parties agree to the terms of the proposed temporary cease and 
desist order, the Hearing Officer shall have the authority to approve 
and issue the order. Finally, proposed Rule 10.9810(d) would provide 
that if Enforcement has not issued a complaint under Rule 10.9211 
relating to the subject matter of the temporary cease and desist 
proceeding and alleging violations of the rule or statutory provision 
specified in the notice described in proposed paragraph (b), 
Enforcement shall serve and file such a complaint with the notice 
initiating the temporary cease and desist proceeding. Service of the 
complaint can be made in accordance with the service provisions in 
proposed Rule 10.9810(a). The proposed rule is substantially the same 
as its NYSE Arca counterpart except for references reflecting the 
Exchange's membership and the underlying rule references.\61\ The 
Exchange does not have a comparable rule.
---------------------------------------------------------------------------

    \61\ NYSE Arca Rule 10.9810 references Section 10(b) of the Act 
and Rule 10b-5 thereunder and Exchange Act Rules 15g-1 through 15g-
9. Article 9, Rule 2 is the Exchange's equivalent to NYSE Arca Rules 
9.2010-E and 9.2020-E.
---------------------------------------------------------------------------

    Proposed Rule 10.9820 (Appointment of Hearing Officer and Hearing 
Panel) would govern the appointment of a Hearing Officer and Panelists.
    Under proposed Rule 10.9830 (Hearing), the hearing would be held 
not later than 15 days after service of the notice and filing 
initiating the temporary cease and desist proceeding, unless otherwise 
extended by the Chief Hearing Officer or Deputy Chief Hearing Officer 
for good cause shown. Proposed Rule 10.9830 would govern how the 
hearing was conducted.
    Under proposed Rule 10.9840 (Issuance of Temporary Cease and Desist 
Order by Hearing Panel), the Hearing Panel would be authorized to issue 
a written decision stating whether a temporary cease and desist order 
would be imposed. The Hearing Panel would be required to issue the 
decision not later than ten days after receipt of the hearing 
transcript, unless otherwise extended by the Chief Hearing Officer or 
Deputy Chief Hearing Officer for good cause shown.
    Under proposed Rule 10.9850 (Review by Hearing Panel), at any time 
after the Office of Hearing Officers served the Respondent with a 
temporary cease and desist order, a Party could apply to the Hearing 
Panel to have the order modified, set aside, limited, or suspended. The 
Hearing Panel generally would be required to respond to the request in 
writing within ten days after receipt of the request unless extended by 
the Chief Hearing Officer or Deputy Chief Hearing Officer for good 
cause shown. Proposed Rule 10.9860 (Violation of Temporary Cease and 
Desist Orders) would authorize the initiation of a suspension or 
cancellation of a Respondent's association or membership or any fitting 
sanction under proposed Rule 10.9556 if the Respondent violated a 
temporary cease and desist order.
    Finally, proposed Rule 10.9870 (Application to SEC for Review) 
would provide that temporary cease and desist orders issued under the 
proposed Rule 10.9800 Series would constitute final and immediately 
effective disciplinary sanctions imposed by the Exchange, and that the 
right to have any action under this rule series reviewed by the 
Commission would be governed by Section 19 of the Act. The filing of an 
application for review would not stay

[[Page 35063]]

the effectiveness of the temporary cease and desist order, unless the 
Commission otherwise ordered.
Proposed Rule 11.21 (Disruptive Quoting and Trading Activity 
Prohibited)
    The Exchange proposes new Rule 11.21 based on NYSE Arca Rule 11.21, 
NYSE American Rule 5220--Equities, and NYSE Rule 5220, which in turn 
are modeled on Commentary .03 to FINRA Rule 5210, that defines and 
prohibits two types of disruptive quoting and trading activity on the 
Exchange. The Exchange proposes to include this rule under Rule 11 
because it is a business conduct trading practices rule.
    Proposed Rule 11.21(a) would prohibit Participant, Participant 
Firms and covered persons from engaging in or facilitating disruptive 
quoting and trading activity on the Exchange, as described in proposed 
Rule 11.21(b)(1) and (2), including acting in concert with other 
persons to effect such activity. The Exchange believes that it is 
necessary to extend the prohibition to situations when persons are 
acting in concert to avoid a potential loophole where disruptive 
quoting and trading activity is simply split between several brokers or 
customers. The Exchange also believes that, with respect to persons 
acting in concert perpetrating an abusive scheme, it is important that 
the Exchange have authority to act against the parties perpetrating the 
abusive scheme, whether it is one person or multiple persons.
    Proposed Rule 11.21(c) would provide that, unless otherwise 
indicated, the descriptions of disruptive quoting and trading activity 
do not require the facts to occur in a specific order in order for the 
Rule to apply. For instance, with respect to the pattern defined in 
proposed Rule 11.21(b)(1)(A)-(D), it is of no consequence whether a 
party first enters Displayed Orders and then Contra-side Orders or 
vice-versa. However, as proposed, it is required for supply and demand 
to change following the entry of the Displayed Orders.
    The Exchange believes that the proposed descriptions of disruptive 
quoting and trading activity articulated in the rule are consistent 
with the activities that have been identified and described in the 
client access cases described in the NYSE American notice and with the 
rules of other SROs.\62\
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    \62\ See, e.g., BZX Rule 12.15; NASDAQ General 9, Section 53. 
See also Securities Exchange Release No. 80804 (May 30, 2017), 82 FR 
25887, 25888-25890 (June 5, 2017) (SR-NYSEMKT-2017-25) (Notice of 
filing discussing matters involving Biremis Corp. and Hold Brothers 
On-Line Investment Services, Inc.).
---------------------------------------------------------------------------

Proposed Article 2, Rule 4 (CFR)
    The Exchange proposes to create a CFR as a sub-committee of the 
ROC.\63\ As proposed, the CFR would replace the Judiciary Committee as 
the Exchange's appellate body reviewing disciplinary decisions on 
behalf of the Board. The Judiciary Committee would retain the 
responsibility for reviewing disciplinary decisions under the legacy 
disciplinary rules. To effectuate this change, ``initiated pursuant to 
Article 12, Rule 1'' would be added to the first sentence of Article 2, 
Rule 3 governing the Judiciary Committee.
---------------------------------------------------------------------------

    \63\ The composition and responsibilities of the ROC are 
described in the Second Amended and Restated CHX Bylaws (``Exchange 
Bylaws''), available here https://www.nyse.com/publicdocs/nyse/regulation/nyse/NYSE_Chicago_Second_Amended_and_Restated_Bylaws.pdf. 
The ROC consists of at least three members, each of whom shall be a 
Public Director of the Exchange.
---------------------------------------------------------------------------

    As proposed, upon the effective date of the proposed disciplinary 
rules, the CFR would be responsible for reviewing disciplinary 
decisions and acting in an advisory capacity to the Board with respect 
to disciplinary matters. The current Judiciary Committee is limited to 
reviewing disciplinary decisions and does not act in an advisory 
capacity to the Board. The Exchange proposes that the CFR, like the 
current NYSE Arca CFR, would also advise the Board with respect to 
disciplinary matters. Unlike the NYSE Arca CFR, the Exchange does not 
propose that the CFR would review determinations to limit or prohibit 
the continued listing of an issuer's securities on the Exchange or act 
in an advisory capacity to the Board with respect to the listing and 
delisting of securities because the Exchange is not a listing 
market.\64\ Further, the Exchange does not propose to permit the CFR to 
appoint a CFR Appeals Panel as on NYSE Arca.\65\ As noted above, NYSE 
Arca retained appeals panels from its legacy disciplinary rules and the 
Exchange does not a similar current process.
---------------------------------------------------------------------------

    \64\ See NYSE Arca Rule 3.3(a)(2)(A).
    \65\ See, e.g., NYSE Arca Rule 3.3(a)(2)(B).
---------------------------------------------------------------------------

    Similar to NYSE Arca, the Exchange's proposed CFR would be composed 
of Non-Affiliated Director(s) and the Public Directors of the Exchange. 
As per the Exchange Bylaws, ``Non-Affiliated Directors'' are 
individuals nominated by the trading permit holders who are permitted 
to trade on the Exchange's facilities for the trading of equities that 
are securities as covered by the Act.\66\ ``Public Directors'' are 
persons from the public and will not be, or be affiliated with, a 
broker-dealer in securities or employed by, or involved in any material 
business relationship with, the Exchange or its affiliates.\67\ The 
Exchange believes that member participation on the proposed CFR would 
be sufficient to provide for the fair representation of members in the 
administration of the affairs of the Exchange, including the 
disciplinary process, consistent with Section 6(b)(3) of the Act.\68\
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    \66\ See Exchange Bylaws, Art. II, Sec. 2(a).
    \67\ See id.
    \68\ 15 U.S.C. 78f(b)(3).
---------------------------------------------------------------------------

    By establishing the CFR, the Exchange would make its appellate 
process consistent with that of NYSE Arca and its other affiliates, all 
of which have established a CFR as a subcommittee of the respective 
affiliate's ROC.\69\ Like its affiliates, proposed Article 2, Rule 4 
would provide that, subject to the proposed Rule 10.9000 Series, 
decisions of the proposed CFR would be subject to Board review. As 
proposed, the decision of the Board would constitute the final action 
of the Exchange, unless such Board remands the proceedings.
---------------------------------------------------------------------------

    \69\ See, e.g., NYSE Arca Rule 3.3(a)(2)(A). See generally 
Thirteenth Amended and Restated Operating Agreement of the NYSE, 
Section 2.03(h)(iii); Twelfth Amended and Restated Operating 
Agreement of NYSE American, Section 2.03(h)(iii); and Sixth Amended 
and Re-Stated Bylaws of NYSE National, Section 5.8.
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    Current Article 2, Rule 4 (Committee Quorum) would become new 
Article 2, Rule 5.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\70\ in general, and furthers the objectives of Section 6(b)(5) of 
the Act,\71\ in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, and to remove impediments to and perfect the mechanism of a 
free and open market and a national market system. In addition, the 
Exchange believes that the proposed rule furthers the objectives of 
Section 6(b)(7) of the Act,\72\ in particular, in that it provides fair 
procedures for the disciplining of members \73\ and persons associated 
with members, the denial of membership to any person seeking membership 
therein, the barring of any person from becoming associated with a 
member thereof, and

[[Page 35064]]

the prohibition or limitation by the Exchange of any person with 
respect to access to services offered by the Exchange or a member 
thereof. In addition, the Exchange believes that the proposed rule 
change furthers the objectives of Section 6(b)(3) of the Act,\74\ in 
particular, in that it supports the fair representation of members in 
the administration of the Exchange's affairs.
---------------------------------------------------------------------------

    \70\ 15 U.S.C. 78f(b).
    \71\ 15 U.S.C. 78f(b)(5).
    \72\ 15 U.S.C. 78f(b)(7).
    \73\ The Exchange's equivalent to the term ``member'' in this 
context is ``Participant'' and ``Participant Firm.''
    \74\ 15 U.S.C. 78f(b)(3).
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    The proposed changes will provide greater harmonization among SROs 
resulting in less burdensome and more efficient regulatory compliance 
for common members of the Exchange, the Exchange's affiliates, and 
FINRA. As previously noted, the proposed rule text is substantially the 
same as the NYSE Arca disciplinary rules, which were in turn modeled on 
the FINRA rules. The proposed rule change will enhance the Exchange's 
ability to have a direct and meaningful impact on the end-to-end 
quality of its regulatory program, from detection and investigation of 
potential violations through the efficient initiation and completion of 
disciplinary measures where appropriate. As such, the proposed rule 
change would foster cooperation and coordination with persons engaged 
in facilitating transactions in securities and would remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system. In this regard, the Exchange believes that amending 
Article 7, Rule 12 so that failure to pay any fine, sanction or cost 
levied in connection with a disciplinary action would be governed by 
proposed Rule 10.8320 would further harmonize the Exchange's rules with 
its affiliates that have adopted the substantially similar version of 
proposed Rule 10.8320. Similarly, the Exchange believes that adopting a 
new jurisdiction rule based on the Exchange's current jurisdiction rule 
Article 12, Rule 7 that incorporates substantially similar provisions 
based on NYSE Arca's jurisdiction Rule 2.0 would also further harmonize 
the Exchange's disciplinary rules with its affiliates.
    The Exchange believes that the proposed processes for settling 
disciplinary matters both before and after the issuance of a complaint 
are fair and reasonable. While such proposed rules differ from certain 
aspects of the Exchange's current settlement processes, the Exchange 
believes that the proposed rule change, like the settlement process 
adopted by NYSE Arca, provides adequate procedural protections to all 
Parties and promotes efficiency.
    Similarly, the Exchange believes that adopting its affiliates' 
appellate procedures would be fair and efficient and create consistency 
with its affiliates' practices. The proposed rule change would provide 
individual directors with the opportunity to call a case for review. 
Currently, in addition to the parties, only the Board may order review 
of a decision. Adopting the appellate rules of the Exchange's 
affiliates would also apply a uniform period to all requests for review 
of a disciplinary determination or penalty.
    Subject to a separate notice and comment filing, the Exchange would 
retain its list of minor rule violations with certain technical and 
conforming amendments, while adopting its affiliates' and FINRA's 
process for imposing minor rule violation fines.\75\ In addition, as 
set forth in the Exchange's companion filing and herein, the Exchange 
believes that adding certain rules to its list of eligible minor rule 
violations based on the rules of its affiliate will strengthen the 
Exchange's ability to carry out its oversight and enforcement 
responsibilities in cases where full disciplinary proceedings are 
unwarranted in view of the minor nature of the particular violation.
---------------------------------------------------------------------------

    \75\ See NYSE Arca Rule 10.9216(b), NYSE Rule 9216(b), & NYSE 
American Rule 9216(b). See also generally FINRA Rule 9216(b). See 
generally SR-NYSECHX-2022-08.
---------------------------------------------------------------------------

    Specifically, the proposed additions are designed to prevent 
fraudulent and manipulative acts and practices because it will provide 
the Exchange the ability to issue a minor rule fine for violations of 
its rules governing general registration and supervision requirements 
in situations where a more formal disciplinary action may not be 
warranted or appropriate. As provided for in proposed Rule 10.9217(d), 
nothing in proposed Rule 10.9217 would require the Exchange to impose a 
minor rule fine for a violation of any eligible rule and that if the 
Exchange determines that any violation is not minor in nature, the 
Exchange may, at its discretion, proceed with formal disciplinary 
action rather than under proposed Rule 10.9217.
    The Exchange also believes that adding rules based on the rules of 
its affiliate to its list of eligible minor rule violations would 
promote fairness and consistency in the marketplace by permitting the 
Exchange to issue a minor rule fine for violations of substantially 
similar rules that are eligible for minor rule treatment on the 
Exchange's affiliate, thereby harmonizing minor rule plan fines across 
affiliated exchanges for the same conduct. As noted above, Article 6, 
Rule 2(b), 5(a) and 5(b) are substantially similar to NYSE National and 
NYSE Arca rules of similar purpose, which are each separately eligible 
for a minor rule fine under the respective market's version of proposed 
Rule 10.9217.\76\
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    \76\ See text accompanying notes 35-37, supra.
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    Further, the Exchange believes that the proposed additions to its 
list of rules eligible for minor rule fines based on the rules of its 
affiliate are consistent with Section 6(b)(6) of the Act,\77\ 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. As 
noted, the proposed rule change would provide the Exchange ability to 
sanction minor or technical violations pursuant to the Exchange's rules 
and would increase the amounts of fines in order for the Exchange to 
better deter violative activity and to harmonize its rules with that of 
its affiliates.
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    \77\ 15 U.S.C. 78f(b)(6).
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    The Exchange believes that moving the Recommended Fine Schedule for 
minor rule violations from the Fee Schedule to proposed Rule 10.9217 
and removing it from the Fee Schedule would add clarity and 
transparency to the Exchange's rules by reflecting the recommended 
fines for minor rule violations in the same place in the Exchange's 
rules. Similarly, updating the Recommended Fine Schedule to delete 
obsolete rules and add recommended fines for rules that were added to 
the list of minor rules but inadvertently omitted from the Recommended 
Fine Schedule would also add clarity and transparency to the Exchange's 
rules. The Exchange believes that adding such clarifying language would 
also be consistent with the public interest and the protection of 
investors because investors will not be harmed and in fact would 
benefit from increased transparency, thereby reducing potential 
confusion.
    Further, the Exchange believes that adding recommended fines for 
Rule 7.16 and Rule 7.30 that were inadvertently omitted from the 
current Recommended Fine Schedule based on the fines for the same rules 
set forth in the rules of its affiliate would promote fairness and 
consistency in the marketplace by permitting the Exchange to issue a 
minor rule fine for violations of substantially similar rules that are

[[Page 35065]]

eligible for minor rule treatment on the Exchange's affiliate, thereby 
harmonizing minor rule plan fines across affiliated exchanges for the 
same conduct. As noted above, the proposed first, second and third 
level fines for violations of Rule 7.16 are the same as those in NYSE 
Arca Rule 10.9217(i)(1)1. for violations of NYSE Arca Rule 7.16-E, and 
the proposed first, second and third level fines for violations of Rule 
7.30 are the same as those in NYSE Arca Rule 10.9217(i)(1)5. for 
violations of NYSE Arca Rule 7.30-E.\78\
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    \78\ See text accompanying notes 44-47, supra.
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    The Exchange also believes that the proposed changes are designed 
to provide a fair procedure for the disciplining of members and persons 
associated with members consistent with Sections 6(b)(7) and 6(d) of 
the Act.\79\ Proposed Rules 10.9216(b) and 10.9217 would not preclude a 
Participant, Participant Firm or covered person from contesting an 
alleged violation and receiving a hearing on the matter with the same 
procedural rights through a litigated disciplinary proceeding.
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    \79\ 15 U.S.C. 78f(b)(7) & 78f(d).
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    In addition, the Exchange believes that its proposed transition 
plan would allow for a more orderly and less burdensome transition for 
the Exchange's permit holders. The proposed delayed implementation of 
the new rule set would provide a clear demarcation between matters that 
would proceed under the new rules and those that would be completed 
under the legacy rules.
    The Exchange believes adopting a new Article 2, Rule 4 to establish 
a CFR as a sub-committee of the ROC, complies with Section 6(b)(7) of 
the Act,\80\ which requires that the rules of a national securities 
exchange provide a fair procedure for the disciplining of members and 
persons associated with members. The members of the Exchange's ROC are 
all Public Directors of the Exchange Board, thereby ensuring that the 
ROC is comprised of independent members. In addition, the Exchange 
believes that participation on the proposed CFR by Non-Affiliated 
Directors would be sufficient to provide for the fair representation of 
members in the administration of the affairs of the Exchange, including 
rulemaking and the disciplinary process, consistent with Section 
6(b)(3) of the Act.\81\ In addition, the Exchange believes that having 
the CFR serve in the advisory capacity is consistent with and 
facilitates a governance and regulatory structure that furthers the 
objectives of Section 6(b)(5) of the Act.\82\
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    \80\ 15 U.S.C. 78f(b)(7).
    \81\ 15 U.S.C. 78f(b)(3).
    \82\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that proposed Rule 11.21 (Disruptive Quoting 
and Trading Activity Prohibited), which is modeled on NYSE American 
Rule 5220--Equities, NYSE Rule 5220, and NYSE Arca Rule 11.21, which in 
turn are modeled on Commentary .03 to FINRA Rule 5210, would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system by harmonizing the Exchange's rules with those 
of other SROs, including its affiliated exchanges.
    In addition, the Exchange believes that the proposed rule change is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, and to protect 
investors and the public interest by providing the Exchange with 
authority to prohibit specified disruptive quoting and trading activity 
on the Exchange. More specifically, the Exchange believes that the 
proposed rule is consistent with the public interest and the protection 
of investors and otherwise furthers the purposes of the Act because the 
proposal strengthens the Exchange's ability to carry out its oversight 
and enforcement responsibilities as an SRO in cases where awaiting the 
conclusion of a full disciplinary proceeding is unsuitable in view of 
the potential harm to other member organization and their customers. 
The Exchange notes that if this type of conduct is allowed to continue 
on the Exchange, the Exchange's reputation could be harmed because it 
may appear to the public that the Exchange is not acting to address the 
behavior. The proposed expedited process would enable the Exchange to 
address the behavior with greater speed. For the same reasons, the 
Exchange believes that the proposal is consistent with Sections 6(b)(1) 
and 6(b)(6) of the Act,\83\ which require that the rules of an exchange 
enforce compliance with, and provide appropriate discipline for, 
violations of the Commission and Exchange rules.
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    \83\ 15 U.S.C. 78f(b)(1) & (b)(6).
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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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
not intended to address competitive issues, but is rather designed to 
(i) provide greater harmonization among Exchange, NYSE Arca, NYSE, NYSE 
American, and FINRA rules of similar purpose for investigations and 
disciplinary matters; and (ii) enhance the quality of the Exchange's 
regulatory program, from detection of violations through disciplinary 
actions, resulting in less burdensome and more efficient regulatory 
compliance and facilitating performance of regulatory functions. In 
addition, the proposed rule change will provide the Exchange with 
necessary means to enforce against violations of manipulative quoting 
and trading activity in an expedited manner, while providing 
Participants, Participant Firms and covered person with the necessary 
due process. The Exchange believes that it is important for all 
exchanges to be able to take similar action to enforce its rules 
against manipulative conduct thereby leaving no exchange prey to such 
conduct.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \84\ and Rule 19b-
4(f)(6) thereunder.\85\
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    \84\ 15 U.S.C. 78s(b)(3)(A).
    \85\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of 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

[[Page 35066]]

change 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-NYSECHX-2022-10 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-NYSECHX-2022-10. 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-NYSECHX-2022-10 and should be submitted 
on or before June 29, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\86\
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    \86\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-12170 Filed 6-7-22; 8:45 am]
BILLING CODE 8011-01-P