80 FR 71903 - Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Establish the Securities Trader and Securities Trader Principal Registration Categories and To Retire Other Registration Categories

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 221 (November 17, 2015)

[Federal Register Volume 80, Number 221 (Tuesday, November 17, 2015)]
[Notices]
[Pages 71903-71906]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-29213]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76414; File No. SR-Phlx-2015-92]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Establish 
the Securities Trader and Securities Trader Principal Registration 
Categories and To Retire Other Registration Categories

November 10, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 4, 2015, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II, 
and III, below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to establish the Securities Trader and 
Securities Trader Principal registration categories and to retire the 
Proprietary Trader and Proprietary Trader Principal registration 
categories. Phlx will announce the effective date of the proposed rule 
change in a Trader Alert. The Exchange is also amending its rules to 
establish the Series 57 examination as the appropriate qualification 
examination for Securities Traders and deleting the rule referring to 
the S501 continuing education program currently applicable to 
Proprietary Traders.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

[[Page 71904]]

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

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

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

1. Purpose
    The Exchange is proposing to replace the Proprietary Trader 
registration category and Proprietary Trader qualification examination 
(Series 56) with the Securities Trader Registration Category and the 
Securities Trader qualification examination (Series 57) in its 
registration rules relating to securities trading activity. It is also 
proposing to replace the Proprietary Trader Principal registration 
category with the Securities Trader Principal registration category. 
This filing is, in all material respects, based upon SR-FINRA-2015-017, 
which was recently approved by the Commission.\3\
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    \3\ See Securities Exchange Act Release No. 75783 (August 28, 
2015), 80 FR 53369 (September 3, 2015) (approving SR-FINRA-2015-017) 
referred to herein as the ``FINRA Amendments''. According to the 
approval order, FINRA's expected effective date for the FINRA 
Amendments is January 4, 2016.
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I. Phlx's Securities Trader Registration Category
    Currently, under Exchange Rule 613, except members whose activities 
are limited to the Exchange's options trading floor and who are 
registered pursuant to Rule 620(a) \4\ as well as associated persons 
whose activities are limited to the Exchange's options trading floor 
and are registered pursuant to Rule 620(b) \5\, all persons engaged or 
to be engaged in the investment banking or securities business of a 
member organization who are to function as representatives \6\ must 
register as such with the Exchange through WebCRD under PHLX in the 
category of registration appropriate to the function to be performed as 
specified in Rule 613(e). Rule 613(e) provides that individuals 
required to register with the Exchange as a General Securities 
Representative must pass the Series 7 examination before such 
registration may become effective.
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    \4\ Pursuant to Exchange Rule 620(a), each Floor Broker, 
Specialist and Registered Options Trader on the Exchange trading 
floor must be registered as ``Member Exchange'' (``ME'') under 
``PHLX'' on Form U4, pursuant to Rule 616. In addition, each Floor 
Broker, Specialist and Registered Options Trader must successfully 
complete the appropriate floor trading examination(s), if prescribed 
by the Exchange, in addition to requirements imposed by other 
Exchange Rules. The Exchange may also require periodic examinations 
due to changes in trading rules, products or automated systems. The 
registration rule changes proposed herein will not apply to the 
trading floor entities covered by Rule 620(a).
    \5\ Pursuant to Exchange Rule 620(b), all trading floor 
personnel, including clerks, interns, stock execution clerks and any 
other associated persons, of a member organization not required to 
register pursuant to Rule 620(a) must be registered as [sic] ``Floor 
Employee'' (``FE'') under ``PHLX'' on Form U4, pursuant to Rule 616. 
The Exchange may require successful completion by such persons of an 
examination, in addition to requirements imposed by other Exchange 
Rules. The Exchange may also require periodic examinations of such 
persons due to changes in trading rules, products or automated 
systems. The registration rule changes proposed herein will not 
apply to the trading floor personnel covered by Rule 620(b).
    \6\ Exchange Rule 1(cc) defines ``representative'' as a member 
or an associated person of a registered broker or dealer, including 
assistant officers other than principals, who is engaged in the 
investment banking or securities business for the member 
organization including the functions of supervision, solicitation or 
conduct of business in securities or who is engaged in the training 
of persons associated with a broker or dealer for any of these 
functions. The rule also states that, to the extent required by the 
provisions of Rule 613, all representatives are required to be 
registered with the Exchange.
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    In 2012, the Exchange adopted the Proprietary Trader registration 
category as an alternative to the General Securities Representative 
registration category.\7\ The Proprietary Trader registration category 
is an available alternative to General Securities Representative 
registration for members and persons associated with member 
organizations who are engaged solely in proprietary trading, market 
making or effecting transactions on behalf of a broker-dealer account. 
Individuals registering in the Proprietary Trader registration category 
must pass the Series 56 examination and are not required to pass the 
Series 7 examination. Individuals who qualify for registration as 
Proprietary Traders are not required to do so if they register as 
General Securities Representatives.
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    \7\ See Securities Exchange Act Release No. 66840 (April 20, 
2012), 77 FR 25003 (April 26, 2012) (SR-Phlx-2012-23).
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    The Exchange now proposes to amend Rule 613(f) by deleting the 
Proprietary Trader registration category and replacing it with a new 
requirement that each person associated with a member who is included 
within the definition of a representative as defined in Rule 1(cc) must 
register with the Exchange as a Securities Trader if, with respect to 
transactions in equity, preferred or convertible debt securities, or 
foreign currency options on the Exchange, such person is engaged in 
proprietary trading, the execution of transactions on an agency basis, 
or the direct supervision of such activities, other than any person 
associated with a member whose trading activities are conducted 
principally on behalf of an investment company that is registered with 
the Commission pursuant to the Investment Company Act of 1940 and that 
controls, is controlled by or is under common control, with the member 
(an ``investment company firm''). The proposed language requires 
applicants to pass an appropriate Qualification Examination for 
Securities Trader (the Series 57 examination) before registering in the 
new Securities Trader category. It also provides that a person 
registered as a Securities Trader shall not be qualified to function in 
any other registration category, unless he or she is also qualified and 
registered in such other registration category.
    A reference to paragraph (f) is being added to Rule 613(a) to make 
clear that representatives who are required to register shall register 
in the category of registration appropriate to the function to be 
performed as specified in paragraph (e) or (f). Additionally, the 
Exchange is deleting from Rule 613(a) the general requirement that 
before a representative's registration may become effective, they [sic] 
shall pass the Series 7 examination. The Series 7 requirement continues 
to apply to candidates for General Securities Representative 
registration, however, pursuant to Rule 613(e). Proposed paragraph (f) 
provides that candidates for Securities Trader registration must pass 
the Series 57 examination. They will not, however, be required to pass 
the Series 7 in order to register as Securities Traders.
    A person registered as a Proprietary Trader in the Central 
Registration Depository (CRD[supreg]) system on the effective date of 
the proposed rule change will be grandfathered as a Securities Trader 
without having to take any additional examinations and without having 
to take any other actions. In addition, individuals who were registered 
as a Proprietary Trader in the CRD system prior to the effective date 
of the proposed rule change will be eligible to register as Securities 
Traders without having to take any additional examinations, provided 
that no more than two years have passed between the date they were last 
registered as a

[[Page 71905]]

representative and the date they register as a Securities Trader.
    Persons registered in the new category would be subject to the 
continuing education requirements of Rule 640. The Exchange proposes to 
amend Rule 640 by removing the option for Series 56 registered persons 
to participate in the S501 Series 56 Proprietary Trader continuing 
education program in order to satisfy the Regulatory Element. The S501 
Series 56 Proprietary Trader continuing education program is being 
phased out along with the Series 56 Proprietary Trader qualification 
examination. As a result, effective January 4, 2016, the S501 Series 56 
Proprietary Trader continuing education program for Series 56 
registered persons will cease to exist. In place of the S501 Series 56 
Proprietary Trader continuing education program for Series 56 
registered persons, the Exchange proposes that Series 57 registered 
persons be permitted to enroll in the S101 General Program for Series 7 
and all other registered persons.\8\
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    \8\ The Commission notes that amended Rule 640(a)(1) would 
require Series 57 registered persons to take the S101 General 
Program. See Rule 640(a)(1).
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II. Securities Trader Principal Registration Category
    Currently, under Rule 612(a), each member and person associated 
with a member organization to which Rule 611 \9\ applies and who is 
included within the definition of Principal in Rule 611, and each 
person designated as a Chief Compliance Officer on Schedule A of Form 
BD of a member organization to which Rule 611 applies, must register 
with the Exchange as a General Securities Principal and pass the Series 
24 examination before such registration may become effective, unless 
such person's activities are so limited as to qualify such person for 
one or more of the limited categories of Principal registration 
specified in the rule. In 2012, the Exchange adopted, as a corollary to 
the Proprietary Trader representative registration category, a new Rule 
612(e) Proprietary Trader Principal registration category. Under Rule 
612(e), individuals required to register as Principal may register with 
the Exchange as a [sic] Proprietary Trader Principal if (A) his or her 
supervisory responsibilities in the investment banking and securities 
business are limited to the activities of a member organization that 
involve proprietary trading, market making and effecting transactions 
on behalf of broker-dealers; (B) he or she is registered pursuant to 
Exchange Rules as a Proprietary Trader; and (C) he or she is qualified 
to be so registered by passing the Series 24 examination. A person 
registered in the Proprietary Trader Principal category solely on the 
basis of having passed the Series 24 examination for that category may 
not function in a Principal capacity with responsibility over any area 
of business activity other than proprietary trading, market making and 
effecting transactions on behalf of broker-dealers as set forth in Rule 
612(e)(i)(A).
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    \9\ Rule 611 provides that all persons engaged or to be engaged 
in the investment banking or securities business of a member 
organization who are to function as Principals shall be registered 
as such with the Exchange through WebCRD in the category of 
registration appropriate to the function to be performed as 
specified in the rule. It also defines ``Principal'' as including 
sole proprietors, officers, partners, managers of offices of 
supervisory jurisdiction, and corporate directors, in each case 
associated with a member organization who are actively engaged in 
the management of the member organization's investment banking or 
securities business, including supervision, solicitation, conduct of 
business or the training of persons associated with a member 
organization for any of these functions.
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    In consultation with FINRA and other exchanges, the Exchange is now 
proposing to retire the Proprietary Trader Principal category. 
Accordingly, it is deleting Rule 612(e) in its entirety. In its place, 
the Exchange is adopting proposed Rule 612(e), which adds a new 
Securities Trader Principal registration category. Under the proposed 
rule each person associated with a member who is included within the 
definition of principal in Rule 611(b) and who will have supervisory 
responsibility over the securities trading activities described in Rule 
613(f) must become qualified and registered as a Securities Trader 
Principal. The proposed rule change should allow Phlx to more easily 
track principals with supervisory responsibility over securities 
trading activities.
    To qualify for registration as a Securities Trader Principal, a 
candidate would first be required to qualify and register as a 
Securities Trader under Rule 613(f) and pass the General Securities 
Principal qualification examination. A person who is qualified and 
registered as a Securities Trader Principal under the proposed rule 
would only have supervisory responsibility over the securities trading 
activities specified in Rule 613(f), unless such person were separately 
qualified and registered in another appropriate principal registration 
category, such as the General Securities Principal registration 
category. Finally, a registered General Securities Principal would not 
be qualified to supervise the securities trading activities described 
in Rule 613(f), unless such person also qualified and registered as a 
Securities Trader under Rule 613(f) by passing the Securities Trader 
qualification examination and registering as a Securities Trader 
Principal.
    A person registered as a Proprietary Trader Principal or as a 
Limited Principal-Registered Options Principal (``Limited Options 
Principal'') \10\ in the CRD system on the effective date of the 
proposed rule change will be eligible to register as a Securities 
Trader Principal without having to take any additional examinations. An 
individual who was registered as a Proprietary Trader Principal in the 
CRD system prior to the effective date of the proposed rule change will 
also be eligible to register as a Securities Trader Principal without 
having to take any additional examinations, provided that no more than 
two years have passed between the date they [sic] were last registered 
as a principal and the date they [sic] register as a Securities Trader 
Principal. Members, however, will be required to affirmatively register 
persons transitioning to the proposed registration category as 
Securities Trader Principals on or after the effective date of the 
proposed rule change.
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    \10\ Currently, under Rule 612(d), a Principal may register with 
the Exchange as a Limited Principal--Registered Options Principal 
(``Limited Options Principal'') if (A) his or her supervisory 
responsibilities in the investment banking and securities business 
are limited exclusively to the options activities of a member 
organization, (B) he or she is registered pursuant to Exchange Rules 
as a General Securities Representative, and (C) he or she is 
qualified to be so registered by passing the Series 4 examination. A 
person registered in the Limited Options Principal category solely 
on the basis of having passed the Series 4 examination for Limited 
Principal--Registered Options Principal may not function in a 
Principal capacity with responsibility over any area of business 
activity other than the options activities of a member organization. 
The Exchange proposes to permit Limited Options Principals who are 
functioning in a principal capacity at a member organization for 
which the Exchange is the designated examining authority on the 
effective date of this proposed rule change to register as 
Securities Trader Principals without having to take any additional 
examinations in order to minimize disruption to firms when the 
Securities Trader registration category becomes effective. The 
Exchange will waive the Series 24 examination requirement for these 
individuals so that they may be registered as Securities Trader 
Principals.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \11\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \12\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market

[[Page 71906]]

system, and, in general to protect investors and the public interest. 
The Exchange believes that the requirements of the Securities Trader 
and Securities Trader Principal registration categories, as well as the 
new Securities Trader qualification examination, should help ensure 
that proprietary traders and the principals who supervise proprietary 
traders and proprietary trading are, and will continue to be, properly 
trained and qualified to perform their functions which should protect 
investors and the public interest.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Implementation of the proposed 
changes to Phlx's registration rules in coordination with the FINRA 
Amendments does not present any competitive issues, but rather is 
designed to provide less burdensome and more efficient regulatory 
compliance for members and enhance the ability of the Exchange to 
fairly and efficiently regulate members, which will further enhance 
competition. Additionally, the proposed rule change should not affect 
intramarket competition because all similarly situated representatives 
and principals will be required to complete the same qualification 
examinations and maintain the same registrations. Finally, the proposed 
rule change does not impose any additional examination burdens on 
persons who are already registered. There is no obligation to take the 
proposed Series 57 examination in order to continue in their present 
duties, so the proposed rule change is not expected to disadvantage 
current registered persons relative to new entrants in this regard.

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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \13\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(a)(iii).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-Phlx-2015-92 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Phlx-2015-92. 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 Web site (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 Web site 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; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly.
    All submissions should refer to File Number SR-Phlx-2015-92 and 
should be submitted on or before December 8, 2015.
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    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-29213 Filed 11-16-15; 8:45 am]
 BILLING CODE 8011-01-P