81 FR 80140 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Cease and Desist Authority Rules

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 220 (November 15, 2016)

Page Range		80140-80146
FR Document		2016-27364
Federal Register, Volume 81 Issue 220 (Tuesday, November 15, 2016)
[Federal Register Volume 81, Number 220 (Tuesday, November 15, 2016)]
[Notices]
[Pages 80140-80146]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-27364]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79259; File No. SR-NASDAQ-2016-148]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Adopt Cease and Desist Authority Rules

November 8, 2016.
    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 October 27, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II 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 adopt Rules 9556 and 9800, which were 
previously adopted as a pilot the term of which has since expired, and 
to make related changes to the 9100, 9200, 9300, 9550, and 9800 Rule 
Series.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange is proposing to adopt new Rules 9556 and 9800, which 
were previously adopted as a pilot the term of which has since expired, 
and to make related changes to the 9100, 9200, 9300, 9550, and 9800 
Rule Series. In May 2003, the Commission approved, on a pilot basis, a 
rule change to adopt NASD Rules 9556 and 9800 that gave NASD, now known 
as FINRA, authority to issue temporary cease and desist orders and made 
explicit NASD's ability to impose permanent cease and desist orders as 
a remedy in disciplinary cases.\3\ Because NASD was, and now FINRA is, 
the Exchange's regulatory services provider and administers the 
Exchange's disciplinary program under contract, the Exchange seeks to 
maintain comparability between its disciplinary procedure rules and 
those of NASD and now FINRA. As a consequence, the Exchange adopted 
Rules 9556 and 9800 to mirror the then-NASD rules to operate as a pilot 
in conjunction with the related NASD pilot.\4\
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    \3\ See Securities Exchange Act Release No. 47925 (May 23, 2003) 
(File No. SR-NASD-98-80), 68 FR 33548 (June 4, 2003). See also 
Securities Exchange Act Release No. 51860 (June 16, 2005), 70 FR 
36427 (June 23, 2005) (SR-NASD-2005-061) (extending the pilot to 
June 23, 2007 and making non-substantive changes); and Securities 
Exchange Act Release No. 55819 (May 25, 2007), 72 FR 30895 (June 4, 
2007) (SR-NASD-2007-033) (extending the pilot to June 23, 2009 and 
making non-substantive changes).
    \4\ See Securities Exchange Act Release No. 53128 (January 13, 
2006), 71 FR 3550 (January 23, 2006). See also Securities Exchange 
Act Release No. 56120 (July 24, 2007), 72 FR 41561 (July 30, 2007) 
(SR-NASDAQ-2007-060) (extending the pilot to June 23, 2009 and 
making conforming changes); and Securities Exchange Act Release No. 
58069 (June 30, 2008), 73 FR 39360 (July 9, 2008) (SR-NASDAQ-2008-
054) (making non-substantive changes).
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    On June 23, 2009, the Exchange's Rule 9556 and 9800 pilot programs 
expired, at which time those rules and certain references thereto 
became obsolete, notwithstanding that they remained in the rulebook. 
The FINRA pilot program, however, continued and was approved on July 
14, 2009 on a permanent basis.\5\
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    \5\ Securities Exchange Act Release No. 60306 (July 14, 2009), 
74 FR 36292 (July 22, 2009) (SR-FINRA-2009-035). The Exchange notes 
that FINRA, in its rule change proposal to make its pilot program 
permanent, noted that it had used the authority under Rules 9556 and 
9800 sparingly. Id. at 36293.
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    Neither the Exchange nor FINRA, acting on behalf of the Exchange 
pursuant to agreement, have [sic] used the cease and desist authority 
under Rules 9556 and 9800 during the time that the rules were 
effective. Nonetheless, the Exchange believes that, in addition to 
maintaining similar disciplinary rules, adoption of Rules 9556 and 9800 
is important to the Exchange's disciplinary program. The authority 
under these rules will provide the Exchange and FINRA, operating on 
behalf of the Exchange, with a mechanism to take appropriate remedial 
action against a member or an associated person that has engaged (or is 
engaging) in violative conduct that could cause continuing harm to the 
investing public if not addressed expeditiously, such as dissipation or 
conversion of assets. It must be emphasized, however, that the cease 
and desist provisions contain numerous procedural protections for 
respondents to ensure that the proceedings are fair. Consequently, the 
Exchange believes that adoption of these rules is important to its 
regulatory program, notwithstanding that it anticipates exercising the 
authority provided by the rules sparingly.
    The Exchange is proposing to delete Rules 9556 and 9800 (and 
related references in other rules \6\) because the pilot period for 
these rules has expired rendering them void, and adopt new

[[Page 80141]]

Rules 9556 and 9800 (and related references in other rules) \7\ based 
on FINRA's analogous cease and desist rules, which include amendments 
to the former Nasdaq cease and desist rules to reflect changes that 
FINRA has made to its cease and desist rules in 2011 and 2015 after 
they were made permanent.\8\ The Exchange is also proposing to amend 
other Rules under the 9000 Series to incorporate changes that FINRA 
made to its analogous rules in 2015, as discussed below. These proposed 
changes include significant amendments made by FINRA to not only its 
Rules 9556 and 9800, but also to its 9100, 9200, 9300, 9550, and 9800 
Rule Series in 2015. Unless otherwise noted, Nasdaq is adopting the 
FINRA Rules with only minor changes to reflect the Exchange's committee 
structure and rules,\9\ as described below.
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    \6\ The Exchange is deleting text from related provisions of 
Rules 8310, IM-8310-3(c)(1), 9120(r), 9241(c), 9290, 9311(b), 
9312(b), and 9360 that also expired on June 23, 2009 and is 
inserting new text identical to what was deleted.
    \7\ As a consequence of the expiration of the pilot rendering 
the existing related rule text void, in certain cases the Exchange 
is deleting the void text and reinserting identical rule text 
thereafter so the text may have effect once again. For example, the 
Exchange is deleting Rule 8310(a)(6), concerning imposition of a 
temporary or permanent cease and desist order, and adopting a new 
Rule 8310(a)(6) identical to what was deleted.
    \8\ In 2013, FINRA consolidated the publication standards for 
expedited proceeding decisions, including under FINRA Rule 9556, in 
FINRA Rule 8313(a)(3) and consequently amended FINRA Rule 9556 to 
remove paragraph (h) ``Notice to Membership'' from the rule. See 
Securities Exchange Act Release No. 69825 (June 21, 2013), 78 FR 
38771 (June 27, 2013) (SR-FINRA-2013-018). The Exchange did not have 
such a provision in its Rule 9556. The Exchange's disclosure 
obligations are provided under IM-8310-3, including the Exchange's 
disclosure obligations related to expedited proceedings. See IM-
8310-3(c).
    \9\ The Exchange is replacing references to FINRA and FINRA 
staff with references to Nasdaq and Nasdaq staff, which are the 
appropriate analogous parties at Nasdaq. The Exchange is also 
replacing FINRA text that states ``Chief Executive Officer or such 
other senior officer as the Chief Executive Officer may designate'' 
with ``Chief Regulatory Officer,'' which is the Exchange officer 
vested with the authority described under the rules. For example, 
old Rules 9556(a) and 9860 vested authority with the Chief 
Regulatory Officer to authorize notice and initiation of 
proceedings, respectively, whereas the analogous FINRA rules 
authorize its Chief Executive Officer or such other senior officer 
as the Chief Executive Officer may designate instead. Last, the 
Exchange is adding clarifying language to Rule 9810 to make it clear 
that initiation of a proceeding must not only be authorized by 
FINRA's Chief Executive Officer or such other senior officer as the 
Chief Executive Officer may designate, but also Nasdaq's Chief 
Regulatory Officer. As a practical matter, the Chief Regulatory 
Officer must agree that such a proceeding should be brought pursuant 
to Nasdaq rules.
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2011 FINRA Rule Changes
    In 2011, FINRA amended Rules 9552(b), 9553(b), 9554(b), 9555(b), 
and 9556(b), all of which concern service of notice.\10\ Each of these 
rules concern [sic] the process followed when a person or entity 
subject to FINRA's jurisdiction fail [sic] to comply with various 
requirements under its rules. FINRA amended the rule provisions noted 
above to allow notice of failure to comply with a temporary or 
permanent cease and desist order to be served on counsel representing 
the member or person, or other person authorized to represent others 
under FINRA Rule 9141,\11\ when counsel or other person authorized to 
represent others under FINRA Rule 9141 agrees to accept service for the 
member or person.
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    \10\ Securities Exchange Act Release No. 60306 (January 4, 
2012), 77 FR 1524 (January 10, 2012) (SR-FINRA-2011-044). FINRA also 
amended other rules in the FINRA Rule 9000 Series not addressed in 
this filing. Id.
    \11\ FINRA Rule 9141, entitled ``Appearance and Practice; Notice 
of Appearance,'' provides, among other things, what is permissible 
in terms of representation before an Adjudicator. Exchange Rule 9141 
is consistent with FINRA Rule 9141.
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2015 FINRA Rule Changes
    In 2015, FINRA made significant changes to its temporary and 
permanent cease and desist rules.\12\ FINRA lowered the evidentiary 
standard to obtain a temporary cease and desist order, adopted a new 
expedited proceedings [sic] to address situations involving repeated 
violations of temporary or permanent cease and desist orders, and made 
a series of rule amendments to the temporary cease and desist order 
rules under FINRA Rule Series 9800, the expedited proceedings rules 
under FINRA Rule Series 9550,\13\ and FINRA's Code of Procedure (FINRA 
Rule Series 9000) that harmonize service provisions in temporary cease 
and desist proceedings and expedited proceedings, ease administrative 
burdens in temporary cease and desist proceedings, and clarify the 
process by which permanent cease and desist orders may be imposed.
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    \12\ Securities Exchange Act Release No. 75629 (August 6, 2015), 
80 FR 48379 (August 12, 2015) (SR-FINRA-2015-019).
    \13\ FINRA amended its Rule 9551 ``Failure to Comply with Public 
Communications Standards.'' Nasdaq does not have such a rule (Nasdaq 
Rule 9551 is held in reserve) and is thus not incorporating those 
changes. In a related change, the Exchange is also amending its Rule 
9559 to delete the references to Rule 9551, which were erroneously 
included in the rule.
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(i) Evidentiary Standard for Imposing a Temporary Cease and Desist 
Order
    FINRA amended FINRA Rule 9840(a)(1) to change the evidentiary 
standard applied by Hearing Panels in issuing a temporary cease and 
desist order. Specifically, FINRA changed the standard for issuing a 
temporary cease and desist order from ``by a preponderance of the 
evidence that the alleged violation specified in the notice has 
occurred'' to a ``showing of a likelihood of success on the merits.'' 
FINRA noted that it believed that the ``preponderance of the evidence'' 
standard set too high an evidentiary threshold for this critical 
investor-protection tool, and noted that it is the identical standard 
for proving a violation in the underlying disciplinary proceeding that 
must be pursued at the same time.\14\ Thus, to obtain a temporary cease 
and desist order--and thereby prevent the likely and significant 
dissipation or conversion of assets or other significant harm to 
investors--FINRA's prosecuting department had to make an evidentiary 
presentation in the temporary cease and desist proceeding that is 
similar in extent to its evidentiary presentation in the subsequent 
underlying disciplinary proceeding, but in an expedited manner.
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    \14\ See Securities Exchange Act Release No. 75333 (June 30, 
2015), 80 FR 38783 (July 7, 2015) (Notice of Filing File No. SR-
FINRA-2015-019) at 38784.
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    FINRA also made a corresponding amendment to FINRA Rule 9840(a)(2). 
Prior to the amendment, FINRA Rule 9840(a)(2) provided that a temporary 
cease and desist order shall be imposed if the Hearing Panel finds that 
the violative conduct or continuation thereof is likely to result in 
significant dissipation or conversion of assets or other significant 
harm to investors prior to the completion of the underlying proceeding. 
The 2015 rule change modified this requirement to apply to the 
``alleged'' violative conduct or continuation thereof, to be consistent 
with the proposed change to the evidentiary standard.
(ii) Failures To Comply With Temporary Cease and Desist Orders and 
Permanent Cease and Desist Orders (FINRA Rule 9556)
    FINRA also made amendments to FINRA Rule 9556, which sets forth 
expedited procedures for enforcing violations of FINRA-issued temporary 
and permanent cease and desist orders. FINRA was concerned that their 
[sic] existing expedited procedures may permit cease and desist orders 
to be circumvented without any real threat of a sanction.\15\ Thus, 
FINRA amended FINRA Rule 9556 to adopt a new paragraph (h) to permit 
its staff (with prior authorization from FINRA's Chief Executive 
Officer or other designated senior officer) to institute a new kind of 
expedited proceeding if the subject of a temporary or permanent cease 
and desist order fails to comply with that order and has previously 
been served with a notice under Rule 9556(a) for

[[Page 80142]]

failure to comply with any provision of the same temporary or permanent 
cease and desist order. FINRA adopted the change to prevent a 
respondent from abusing the existing process by repeatedly violating a 
cease and desist order and curing that violation before the effective 
date of any FINRA Rule 9556 notice,\16\ without being subject to the 
immediate sanctions or review by the Office of Hearing Officers for a 
prolonged period. FINRA noted in its filing that the new FINRA Rule 
9556(h) proceeding differs from other FINRA Rule 9556 expedited 
proceedings in other respects that reflect the response that FINRA 
believes is warranted for situations involving repeated violations of 
temporary or permanent cease and desist orders.\17\ These differences 
include the following:
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    \15\ Id. at 38785.
    \16\ Under the then-current FINRA Rule 9556, if a member or 
person failed to comply with a temporary or permanent cease and 
desist order, FINRA staff (with prior authorization from FINRA's 
Chief Executive Officer or other designated senior officer) may have 
issued a notice stating that the failure to comply within seven days 
will result in a suspension or cancellation of membership or a 
suspension or bar from associating with any member and also would 
have stated what the respondent must do to avoid such action.
    \17\ See supra note 14 at 38785.
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     a FINRA Rule 9556(h) proceeding could be initiated only if 
the respondent has previously been served, under FINRA Rule 9556(a), 
with a notice for failing to comply with any provision of the same 
temporary or permanent cease and desist order;
     FINRA's prosecuting department would initiate a FINRA Rule 
9556(h) proceeding by filing a petition with FINRA's Office of Hearing 
Officers (and serving the respondent) that seeks the imposition of 
sanctions for the violation (rather than issuing a notice to the 
respondent);
     FINRA's prosecuting department would seek the imposition 
of any fitting sanction at the outset of the FINRA Rule 9556(h) 
proceeding (in contrast to other FINRA Rule 9556 expedited proceedings, 
where the recipient of a notice is not subject to the imposition of any 
fitting sanction unless such recipient opts for a hearing);
     a hearing is required in a FINRA Rule 9556(h) proceeding;
     the hearing for a FINRA Rule 9556(h) proceeding must be 
held in a condensed time frame (ten business days after a respondent is 
served the petition, versus other Rule 9556 proceedings which require a 
respondent to request a hearing within seven business days after 
service of a notice instituting a proceeding and require hearings to be 
held within 14 days after a request for a hearing is filed); \18\
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    \18\ See FINRA Rule 9559(f)(2) and (3); FINRA Rule 9556(e).
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     a FINRA Rule 9556(h) proceeding is presided over by a 
Hearing Officer,\19\ rather than a Hearing Panel; \20\ and
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    \19\ As defined by FINRA Rule 9120(r).
    \20\ As defined by FINRA Rule 9120(s). See FINRA Rule 9559(d)(1) 
and (2) for a description of the appointment and authority [sic] of 
a Hearing Officer and/or Hearing Panel in expedited proceedings.
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     the Hearing Officer may issue default decisions in FINRA 
Rule 9556(h) proceedings.\21\
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    \21\ See FINRA Rule 9559(m)(2).
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    Under amended FINRA Rule 9556(h)(4), the FINRA department that 
filed the petition can withdraw it without prejudice and shall be 
permitted to refile a petition based on allegations concerning the same 
facts and circumstances that are set forth in the withdrawn petition. 
FINRA noted that this provision provides it the flexibility to withdraw 
the petition where, for instance, the respondent evidences a good faith 
intent to comply with the temporary or permanent cease and desist order 
without the need to adjudicate the petition, while preserving FINRA's 
right to refile the petition if the respondent fails to do so.\22\
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    \22\ See supra note 14 at 38785.
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(iii) Service Provisions in Temporary Cease and Desist Proceedings and 
Expedited Proceedings
    FINRA also made the rules that govern service of documents in 
temporary cease and desist proceedings and the eight different types of 
expedited proceedings under the Rule 9550 Series more consistent.\23\ 
Prior to the changes, some provisions of these rules explicitly 
addressed service by facsimile and on counsel, while some did not. 
FINRA's amendments explicitly allow service by facsimile and on counsel 
across all temporary cease and desist and expedited proceedings, noting 
that doing so removed unnecessary burdens and inefficiencies. FINRA 
also amended its rules to permit service by email for all temporary 
cease and desist proceedings and expedited proceedings. FINRA noted 
that email service would allow parties to receive information quickly, 
which is particularly important in these types of proceedings, 
considering the short time frames involved.\24\ As part of the changes 
allowing service by email, FINRA also now requires duplicate service 
through some other means such as overnight courier or personal delivery 
and made changes to its Rule 9550 Series to reflect this requirement.
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    \23\ The Exchange notes that in SR-FINRA-2015-019 FINRA replaced 
references to ``contact questionnaires'' with reference to the 
``FINRA Contact System,'' FINRA's proprietary system that 
facilitates member firm reporting of key contacts to FINRA. Exchange 
members are required to use the FINRA Contact System to report to 
Nasdaq all contact information required by Nasdaq and update its 
required contact information promptly. See Rule 1160. Under the 
FINRA Rule 9550 Series, the rules cite Article 4, Section III of the 
FINRA By-Laws as the authority pursuant to which its members have an 
obligation to report required contact information to it via the 
FINRA Contact System, whereas the Exchange's authority is pursuant 
to Rule 1160, as noted above. Thus, the Exchange is instead 
referencing Rule 1160 in the Rule 9550 Series as the authority 
pursuant to which members have the reporting obligation.
    \24\ See supra note 14 at 38785-6.
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(iv) Clarifying FINRA's Authority to Impose Permanent Cease and Desist 
Orders
    FINRA clarified its rules concerning the process for imposing 
permanent cease and desist orders in disciplinary proceedings. FINRA 
noted that when it obtained the authority to impose temporary cease and 
desist orders, it also obtained the authority to impose permanent cease 
and desist orders.\25\ Thus, the clarifying changes were procedural in 
nature and did not reflect any change to FINRA's prior representations 
concerning the context in which it would seek permanent cease and 
desist orders.
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    \25\ See supra note 14 at 38786.
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(v) Administrative Changes to Temporary Cease and Desist Proceedings
    FINRA also expanded the pool of persons eligible to serve on 
hearing panels to include those who may serve on hearing panels for 
disciplinary matters, as provided under FINRA Rules 9231(b) and 
9559(d)(2).\26\ Specifically, FINRA amended its Rule 9820 to provide 
that the potential panelists for the Hearing Panels that preside over 
temporary cease and desist proceedings to [sic] include persons who 
currently serve or previously served on a District Committee; \27\ 
previously served on the

[[Page 80143]]

National Adjudicatory Council; \28\ previously served on a disciplinary 
subcommittee of the National Adjudicatory Council or the National 
Business Conduct Committee; \29\ previously served as a member of the 
Board of Directors of FINRA Regulation or of the Board of Governors of 
FINRA; or currently serve or previously served on a committee appointed 
or approved by the Board of Governors of FINRA, but do not serve 
currently on the National Adjudicatory Council or as a member of the 
Board of Directors of FINRA Regulation or of the Board of Governors of 
FINRA. The amendment to FINRA Rule 9820 also required that each 
panelist be associated with a member of FINRA or retired therefrom. 
FINRA noted that, while its Office of Hearing Officers has presided 
over only a limited number of temporary cease and desist proceedings, 
those experiences have revealed that the narrowly circumscribed set of 
potential panelists can impede the recruitment of Hearing Panel 
members, especially considering that the expedited nature of temporary 
cease and desist proceedings will already preclude many from being able 
to serve.\30\ FINRA also noted that it had concerns that the small pool 
of potential panelists will often make it difficult to recruit hearing 
panelists who can serve on both the temporary cease and desist 
proceeding and the subsequent underlying disciplinary proceeding, as 
well as any related expedited proceeding under FINRA Rule 9556.\31\
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    \26\ FINRA harmonized the categories of individuals eligible for 
appointment as a Hearing Panelist under FINRA Rule 9820 with FINRA 
Rule 9231(b) (providing that each panelist shall be associated with 
a member of FINRA or retired therefrom and that the pool of 
panelists for disciplinary proceedings includes current or previous 
members of District Committees, former members of the National 
Adjudicatory Council, past members of disciplinary subcommittees of 
the National Adjudicatory Council or the National Business Conduct 
Committee, past members of the Board of Directors of FINRA 
Regulation or past members of the Board of Governors of FINRA, and 
current or previous members of committees appointed or approved by 
the Board of Governors of FINRA); FINRA Rule 9559(d)(2) (providing 
for the same pool for FINRA Rule 9556 expedited proceedings).
    \27\ As defined by FINRA Rule 9120(g).
    \28\ See By-Laws of FINRA Regulation, Inc., Article V National 
Adjudicatory Council.
    \29\ The predecessor to the FINRA National Adjudicatory Council.
    \30\ See supra note 14 at 38786.
    \31\ Id.
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    The Exchange is proposing to, likewise, expand the categories of 
individuals eligible to participate as Hearing Panelists. Like FINRA, 
the Exchange is harmonizing the categories of eligible individuals with 
the criteria under Rules 9231(b) and 9559(d)(2).\32\ Thus, the Exchange 
is allowing the Chief Hearing Officer to select as a Panelist pursuant 
to proposed Rule 9820(a) a person who: Previously served on the 
Nasdaq's Review Council; \33\ previously served on a disciplinary 
subcommittee of the Nasdaq Review Council, including a Subcommittee, an 
Extended Proceeding Committee,\34\ or their predecessor subcommittees; 
previously served as a Director, but does not serve currently in that 
position; served on the FINRA National Adjudicatory Council or on a 
disciplinary subcommittee of the FINRA National Adjudicatory Council 
prior to the date that Nasdaq commenced operating as a national 
securities exchange; or is a FINRA Panelist approved by the Nasdaq 
Board at least annually, or is drawn from other sources the Board deems 
appropriate given the responsibilities of Panelists.
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    \32\ Like FINRA's Rule 9559(d)(2), Rule 9559(d)(2) provides for 
the same pool for Rule 9556 expedited proceedings) [sic]. Supra note 
26.
    \33\ See By-Laws of The Nasdaq Stock Market LLC, Article VI, 
Nasdaq Review Council.
    \34\ As defined by Rule 9120(n).
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    FINRA's proposed changes also eased other administrative burdens 
created by the shortened time frame of a temporary cease and desist 
proceeding. Those proposed changes were aimed at improving Hearing 
Panels' and parties' ability to prepare for hearings and giving Hearing 
Officers some needed flexibility. For example, under FINRA Rule 9830(a) 
prior to the 2015 amendments a Hearing Officer was not able to extend a 
hearing date in a temporary cease and desist proceeding unless all 
parties consented to the extension. The requirement to obtain the 
parties' consent was problematic in instances whereby the Office of 
Hearing Officers, rather than one of the parties, had a need for an 
extension, such as when it encounters difficulty in quickly appointing 
a Hearing Panel. To address this problem, FINRA amended its Rule 
9830(a) to allow hearing deadlines to be extended by the Chief Hearing 
Officer or Deputy Chief Hearing Officer for good cause shown.
    FINRA also made similar amendments to the process by which 
extensions are obtained to the deadlines for issuing decisions in 
temporary cease and desist proceedings and responding to requests to 
modify, set aside, limit, or suspend a temporary cease and desist 
order. Before the amendments to FINRA Rule 9840(a), the Hearing Panel's 
deadline for issuing its written decision could not be extended, even 
where there was good cause, without the consent of the parties. 
Likewise, prior to amending FINRA Rule 9850, a Hearing Panel's deadline 
for responding to an application to have a temporary cease and desist 
order modified, set aside, limited, or suspended could not be extended, 
even where there was a good cause, without the consent of the Parties. 
To allow a Hearing Panel some flexibility where there is a need for 
additional time to prepare its decision or respond to a FINRA Rule 9850 
request (e.g., when a member of the Hearing Panel becomes ill, where 
the temporary cease and desist proceeding is highly complex), FINRA 
amended FINRA Rules 9840(a) and 9850 to permit the deadlines for 
issuing decisions and responding to FINRA Rule 9850 applications to be 
extended by the Chief Hearing Officer or Deputy Chief Hearing Officer 
for good cause shown.
    To further address the burdens created by the short time frame of 
temporary cease and desist proceedings, FINRA amended its rules to: (i) 
Require FINRA's prosecuting department to file a memorandum of points 
and authorities with the notice initiating a temporary cease and desist 
proceeding; and (ii) permit the Hearing Officer to order a party to 
furnish to all other parties and the Hearing Panel such information as 
deemed appropriate, including any or all of the pre-hearing submissions 
described in FINRA Rule 9242(a). FINRA noted that requiring its 
prosecuting department to file a memorandum of points and authorities 
at the initiation of the proceeding provides more context to the 
allegations and set [sic] forth legal authorities on which the notice 
seeking a temporary cease and desist order is premised.\35\ FINRA 
believed that the change would, in turn, facilitate a more efficient 
process and improve the quality of the hearing through more thorough 
preparation, which are the same goals of the pre-hearing processes in 
FINRA disciplinary proceedings. FINRA also noted that requiring the 
filing of a memorandum of points and authorities at the initiation of a 
temporary cease and desist proceeding also enhances disclosure of the 
prosecuting department's allegations, which would inure to the benefit 
of the respondents and further increases the fairness of the 
proceeding.\36\ Last, FINRA noted that all of these objectives are 
served by authorizing Hearing Officers to order a party to furnish 
other pre-hearing submissions.\37\
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    \35\ See supra note 14 at 38787.
    \36\ Id.
    \37\ Id.
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    FINRA also proposed Rule 9840(e), which is a delivery requirement 
that requires a member firm that is the subject of a temporary cease 
and desist order to provide a copy of the order to its associated 
persons, within one business day of receiving it. Considering the 
significant nature of the harm that a temporary cease and desist order 
is aimed at stopping, FINRA believed that there is a heightened need to 
ensure that the persons who may act on behalf of the member firm are 
made aware of the contents of a temporary cease and desist order 
imposed against the member firm and the delivery requirement furthers 
that goal.\38\
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    \38\ Similarly, FINRA made related amendments to FINRA Rules 
9269, 9270, and 9840 to require that the Office of Hearing Officers, 
the Department of Enforcement, the Department of Market Regulation, 
or the General Counsel, as appropriate, disseminate default 
decisions, orders of acceptance of settlement, and temporary cease 
and desist orders to each member of FINRA with which a respondent is 
associated. FINRA noted that these dissemination requirements are 
intended to ensure that a respondent's member firm is made aware of 
the disciplinary history of its associated persons, regardless of 
the specific disciplinary procedure involved. See supra note 14 at 
38787, n. 15. FINRA also noted that the amendments are consistent 
with other FINRA Rules that already require the Office of Hearing 
Officers, the National Adjudicatory Council, or the Board of 
Governors of FINRA to provide copies of a decision issued by a 
Hearing Panel, an Extended Hearing Panel, the National Adjudicatory 
Council, or the Board of Governors of FINRA to each member firm with 
which a respondent is associated. Id.; see also FINRA Rules 9268(d), 
9349(c), 9351(e). The Exchange is adopting these amendments to Rules 
9269, 9270, and 9840.

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[[Page 80144]]

    FINRA's rule change clarified the following additional three 
issues: (1) How settlements may be approved in temporary cease and 
desist proceedings; (2) which Hearing Panel has jurisdiction to preside 
over applications filed under FINRA Rule 9850 to modify, set aside, 
limit or suspend temporary cease and desist orders that are filed after 
a Hearing Panel has already been appointed in the underlying 
disciplinary proceeding; and (3) whether temporary and permanent cease 
and desist orders imposed against a firm also apply to successors of 
that firm.
    With respect to the first issue, new FINRA Rule 9810(c) established 
that, if the parties agree to the terms of a proposed temporary cease 
and desist order, the Hearing Officer has the authority to approve and 
issue the order. On the second issue, amended FINRA Rule 9850 provided 
that the Hearing Panel that presided over the temporary cease and 
desist order proceeding shall retain jurisdiction to review a FINRA 
Rule 9850 application unless at the time the application is filed a 
Hearing Panel has already been appointed in the underlying disciplinary 
proceeding commenced under FINRA Rule 9211, in which case the Hearing 
Panel appointed in the disciplinary proceeding has jurisdiction. As to 
the third issue, amended FINRA Rule 9840(b) and new Rule 9291(a) 
established that when a temporary or permanent cease and desist order 
is imposed against a member firm, it also applies to any successor of 
the member firm.
    Finally, FINRA amended certain provisions of FINRA Rule 9120. FINRA 
amended FINRA Rule 9120(s), ``Hearing Panel,'' to include an 
Adjudicator that is constituted under Rule 9231 to conduct a 
disciplinary proceeding governed by the Rule 9800 Series. The Exchange 
is adopting this amendment in its Rule 9120(s).
    FINRA also amended FINRA Rule 9120(t), ``Interested Staff,'' to: 
(1) Insert ``or petition'' under paragraph (2)(A) of the rule, thus 
expanding the definition to include FINRA staff that filed a petition 
in a proceeding under the Rule 9520 Series or Rule 9550 Series; and (2) 
include a new paragraph (4) to list FINRA staff that are defined as 
Interested Staff in a proceeding under the FINRA Rule 9800 Series. The 
Exchange is also adopting the amendment to its Rule 9120(t) 
``Interested Staff,'' but is expanding the definition to also include 
Nasdaq Regulation employees who directly participated in the 
authorization of the notice that initiates a temporary cease and desist 
proceeding, or directly participated in an examination, investigation, 
prosecution, or litigation related to a specific temporary cease and 
desist proceeding, under new paragraphs (t)(4)(C) and (D) of the rule.
    FINRA also amended FINRA Rule 9120(w), ``Panelists,'' to include 
references to Panelists in the Rule 9550 Series, and the Rule 9800 
Series within the definition provided by the rule. The Exchange is 
adopting this amendment in Rule 9120(z). FINRA also amended Rule 
9120(z) ``Respondent'' to define a Respondent in a proceeding governed 
by the Rule 9800 Series to mean a FINRA member or associated person 
that has been served a notice initiating a cease and desist proceeding. 
The Exchange is adopting this amendment in Rule 9120(bb) 
``Respondent.''
    The Exchange believes that the changes made by FINRA in 2011 and 
2015, as described above, improve the cease and desist authority as 
well as the service provisions. Consequently, the Exchange is proposing 
to adopt the changes, as described above, as its own.
Other Non-Substantive Changes
    The Exchange is also proposing to make other non-substantive 
changes to its rules to correct misuse of the word ``FINRA,'' which 
were introduced erroneously when the Exchange adopted the rules. 
Specifically, the Exchange is proposing to amend Rule 9555(g) to remove 
reference to FINRA and replace it with reference to Nasdaq to make 
clear that it is Nasdaq's departments that should be contacted. The 
Exchange is also replacing references to FINRA's rules under new Rule 
9810 with references to analogous rules of Nasdaq. Specifically, Nasdaq 
is replacing reference to FINRA Rule 2010 with reference to Nasdaq Rule 
2010A, reference to FINRA Rule 2020 with reference to Nasdaq Rule 2120, 
and FINRA Rule 4330 with reference to Nasdaq Rule 2150.\39\ The 
Exchange is also replacing the word ``FINRA'' with ``Nasdaq'' in 
adopting Rule 9840(d) to make it clear that the rule applies to Nasdaq 
members. The Exchange is proposing not to include the word ``FINRA'' 
prior to ``Rule 9211'' in adopting Rule 9850 to make it clear that the 
rule referenced is Nasdaq's rule, not FINRA's. Last, the Exchange is 
proposing to correct references to Nasdaq's rule concerning 
``Restrictions on Affiliation'' in Rules 9270(e) and (f)(1), and Rule 
9360. Specifically, Rules 9270(e) and (f)(1), and Rule 9360 erroneously 
reference Rule 2140 as providing the meaning of the term ``affiliate of 
Nasdaq.'' Rule 2160 is titled ``Restrictions on Affiliation'' and is 
the appropriate reference under Rules 9270(e) and (f)(1), and Rule 
9360, and accordingly the Exchange replacing references to Rule 2140 
with references to Rule 2160 under those rules.
---------------------------------------------------------------------------

    \39\ Nasdaq notes that the Nasdaq rules cited in new Rule 
9810(a) are the same as those that were cited under old Rule 
9810(a). Nasdaq further notes that under FINRA Rule 9810(a), FINRA 
cites to FINRA Rules 2010, 2020, and 4330. Nasdaq is replacing 
reference to the FINRA rules with reference to Nasdaq's analogous 
Rules 2010A, 2120, and 2150, as was the case in old Rule 9810(a). 
While the provisions of Nasdaq Rules 2010A and 2120 closely mirror 
FINRA Rules 2010 and 2020, Nasdaq Rule 2150 is significantly 
different than FINRA Rule 4330. FINRA Rule 4330 concerns the 
permissible use of customers' margin securities while Nasdaq Rule 
2150 requires a member and persons associated with a member to 
comply with FINRA's Rule 2150. FINRA Rule 2150 is titled ``Improper 
Use of Customers' Securities or Funds; Prohibition Against 
Guarantees and Sharing in Accounts'' and, among other things, 
prohibits members or persons associated with a member from making 
improper use of a customer's securities or funds, guaranteeing a 
customer against loss in connection with any securities transaction 
or in any securities account of such customer, and setting forth 
what is permissible in terms of sharing in profits and losses in a 
customer account. Nasdaq believes that Nasdaq Rule 2150 is the 
appropriate rule cite under new Rule 9810(a) for purposes of alleged 
violations concerning misuse or conversion of customer assets.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\40\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\41\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest.
---------------------------------------------------------------------------

    \40\ 15 U.S.C. 78f(b).
    \41\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange also believes that the proposed rule is consistent 
with Section 6(b)(6) of the Act,\42\ which requires the

[[Page 80145]]

rules of an exchange provide that its members be appropriately 
disciplined for violations of the Act as well as the rules and 
regulations thereunder, or 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.
---------------------------------------------------------------------------

    \42\ 15 U.S.C. 78f(b)(6).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is consistent 
with these provisions because the proposed changes are based on the 
cease and desist authority that FINRA has adopted, which the Exchange 
believes furthers the objectives of the Act by providing it with 
ability to stop violative conduct that is likely to cause dissipation 
or conversion of assets or other significant harm to investors, and on 
other changes to its related rules that clarify, harmonize, and improve 
its disciplinary process.
    The proposed rule change will improve the Exchange's capacity to 
enforce compliance with applicable laws and rules by its members and 
persons associated with members and improving [sic] the Exchange's 
capability to prevent fraudulent and manipulative acts and practices. 
Thus, this authority is a vitally important tool to have to protect 
market participants.
    The Exchange acknowledges that, when used, the cease and desist 
authority proposed herein would significantly impact a respondent. The 
Exchange, however, notes that the proposed rules incorporate numerous 
procedural protections for respondents to ensure that the proceedings 
initiated under these rules are fair, including notice and an 
opportunity to be heard before a neutral tribunal. Moreover, the 
Exchange anticipates using the authority provided by these rules 
sparingly.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The changes are being proposed 
to provide an important regulatory tool to the Exchange and FINRA, 
acting on its behalf, which will protect investors when violative 
conduct is being taken by a member or person associated with a member, 
and time is of the essence to prevent harm, or further harm, to 
investors.
    The proposed change does not impose a burden on competition among 
participants or other venues because it will only be used in 
circumstances where investor harm is imminent or is occurring. Thus, to 
the extent a burden on competition results from use of the authority 
provided by the proposed rules, such burden is necessary to protect 
investors, which is consistent with the purposes of the Act.

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, if consistent with 
the protection of investors and the public interest, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A)(iii) of the 
Act \43\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\44\
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \44\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative upon filing. The 
Exchange has stated that it is requesting this waiver so that the 
Exchange could apply, at the earliest time possible, the authority to 
issue temporary cease and desist orders and explicit authority to 
impose permanent cease and desist orders as a remedy in disciplinary 
cases. The Exchange explained that although it does not anticipate that 
it will be necessary to use this authority, when its cease and desist 
authority is needed, the Exchange must be able to move swiftly to 
prevent or stop investor harm. The Commission believes that waiving the 
30-day operative delay is consistent with the protection of investors 
and the public interest because this waiver will enable the Exchange to 
utilize the temporary or permanent cease and desist authority described 
herein without delay in the unlikely event that circumstances arise 
that warrant its use. For this reason, the Commission hereby waives the 
30-day operative delay and designates the proposed rule change as 
operative upon filing.\45\
---------------------------------------------------------------------------

    \45\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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-NASDAQ-2016-148 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-NASDAQ-2016-148. 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 such 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

[[Page 80146]]

submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NASDAQ-2016-148, and should be submitted on or before December 6, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\46\
---------------------------------------------------------------------------

    \46\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2016-27364 Filed 11-14-16; 8:45 am]
BILLING CODE 8011-01-P
80140 Federal Register / Vol. 81, No. 220 / Tuesday, November 15, 2016 / Notices

communications relating to the I. Self-Regulatory Organization’s procedure rules and those of NASD and
proposed rule change between the Statement of the Terms of Substance of now FINRA. As a consequence, the
Commission and any person, other than the Proposed Rule Change Exchange adopted Rules 9556 and 9800
those that may be withheld from the The Exchange proposes to adopt to mirror the then-NASD rules to
public in accordance with the Rules 9556 and 9800, which were operate as a pilot in conjunction with
provisions of 5 U.S.C. 552, will be previously adopted as a pilot the term the related NASD pilot.4
available for Web site viewing and of which has since expired, and to make On June 23, 2009, the Exchange’s Rule
printing in the Commission’s Public related changes to the 9100, 9200, 9300, 9556 and 9800 pilot programs expired,
9550, and 9800 Rule Series. at which time those rules and certain
Reference Room, 100 F Street NE.,
The text of the proposed rule change references thereto became obsolete,
Washington, DC 20549, on official
is available on the Exchange’s Web site notwithstanding that they remained in
business days between the hours of the rulebook. The FINRA pilot program,
10:00 a.m. and 3:00 p.m. Copies of the at http://nasdaq.cchwallstreet.com, at
the principal office of the Exchange, and however, continued and was approved
filing also will be available for on July 14, 2009 on a permanent basis.5
inspection and copying at the principal at the Commission’s Public Reference
Neither the Exchange nor FINRA,
office of the Exchange. All comments Room.
acting on behalf of the Exchange
received will be posted without change; II. Self-Regulatory Organization’s pursuant to agreement, have [sic] used
the Commission does not edit personal Statement of the Purpose of, and the cease and desist authority under
identifying information from Statutory Basis for, the Proposed Rule Rules 9556 and 9800 during the time
submissions. You should submit only Change that the rules were effective.
information that you wish to make In its filing with the Commission, the Nonetheless, the Exchange believes that,
available publicly. All submissions Exchange included statements in addition to maintaining similar
should refer to File Number SR– concerning the purpose of and basis for disciplinary rules, adoption of Rules
NASDAQ–2016–153 and should be the proposed rule change and discussed 9556 and 9800 is important to the
submitted on or before December 6, any comments it received on the Exchange’s disciplinary program. The
2016. proposed rule change. The text of these authority under these rules will provide
statements may be examined at the the Exchange and FINRA, operating on
For the Commission, by the Division of behalf of the Exchange, with a
Trading and Markets, pursuant to delegated places specified in Item IV below. The
Exchange has prepared summaries, set mechanism to take appropriate remedial
authority.10 action against a member or an
forth in sections A, B, and C below, of
Brent J. Fields, associated person that has engaged (or is
the most significant aspects of such
Secretary. statements. engaging) in violative conduct that
[FR Doc. 2016–27375 Filed 11–14–16; 8:45 am] could cause continuing harm to the
A. Self-Regulatory Organization’s investing public if not addressed
BILLING CODE 8011–01–P
Statement of the Purpose of, and the expeditiously, such as dissipation or
Statutory Basis for, the Proposed Rule conversion of assets. It must be
SECURITIES AND EXCHANGE Change emphasized, however, that the cease
COMMISSION 1. Purpose and desist provisions contain numerous
procedural protections for respondents
The Exchange is proposing to adopt to ensure that the proceedings are fair.
[Release No. 34–79259; File No. SR– new Rules 9556 and 9800, which were Consequently, the Exchange believes
NASDAQ–2016–148] previously adopted as a pilot the term that adoption of these rules is important
of which has since expired, and to make to its regulatory program,
Self-Regulatory Organizations; The related changes to the 9100, 9200, 9300, notwithstanding that it anticipates
NASDAQ Stock Market LLC; Notice of 9550, and 9800 Rule Series. In May exercising the authority provided by the
Filing and Immediate Effectiveness of 2003, the Commission approved, on a rules sparingly.
Proposed Rule Change To Adopt pilot basis, a rule change to adopt NASD The Exchange is proposing to delete
Cease and Desist Authority Rules Rules 9556 and 9800 that gave NASD, Rules 9556 and 9800 (and related
now known as FINRA, authority to issue references in other rules 6) because the
November 8, 2016.
temporary cease and desist orders and pilot period for these rules has expired
Pursuant to Section 19(b)(1) of the made explicit NASD’s ability to impose rendering them void, and adopt new
Securities Exchange Act of 1934 permanent cease and desist orders as a
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 remedy in disciplinary cases.3 Because 4 See Securities Exchange Act Release No. 53128

NASD was, and now FINRA is, the (January 13, 2006), 71 FR 3550 (January 23, 2006).
notice is hereby given that on October See also Securities Exchange Act Release No. 56120
27, 2016, The NASDAQ Stock Market Exchange’s regulatory services provider (July 24, 2007), 72 FR 41561 (July 30, 2007) (SR–
LLC (‘‘Nasdaq’’ or the ‘‘Exchange’’) filed and administers the Exchange’s NASDAQ–2007–060) (extending the pilot to June
with the Securities and Exchange disciplinary program under contract, the 23, 2009 and making conforming changes); and
Exchange seeks to maintain Securities Exchange Act Release No. 58069 (June
Commission (‘‘Commission’’) the 30, 2008), 73 FR 39360 (July 9, 2008) (SR–
proposed rule change as described in comparability between its disciplinary NASDAQ–2008–054) (making non-substantive
Items I and II below, which Items have changes).
3 See Securities Exchange Act Release No. 47925 5 Securities Exchange Act Release No. 60306 (July
been prepared by the Exchange. The (May 23, 2003) (File No. SR–NASD–98–80), 68 FR 14, 2009), 74 FR 36292 (July 22, 2009) (SR–FINRA–
mstockstill on DSK3G9T082PROD with NOTICES

Commission is publishing this notice to 33548 (June 4, 2003). See also Securities Exchange 2009–035). The Exchange notes that FINRA, in its
solicit comments on the proposed rule Act Release No. 51860 (June 16, 2005), 70 FR 36427 rule change proposal to make its pilot program
(June 23, 2005) (SR–NASD–2005–061) (extending permanent, noted that it had used the authority
change from interested persons. the pilot to June 23, 2007 and making non- under Rules 9556 and 9800 sparingly. Id. at 36293.
substantive changes); and Securities Exchange Act 6 The Exchange is deleting text from related

10 17
Release No. 55819 (May 25, 2007), 72 FR 30895 provisions of Rules 8310, IM–8310–3(c)(1), 9120(r),
CFR 200.30–3(a)(12).
(June 4, 2007) (SR–NASD–2007–033) (extending the 9241(c), 9290, 9311(b), 9312(b), and 9360 that also
1 15 U.S.C. 78s(b)(1). pilot to June 23, 2009 and making non-substantive expired on June 23, 2009 and is inserting new text
2 17 CFR 240.19b–4. changes). identical to what was deleted.

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Federal Register / Vol. 81, No. 220 / Tuesday, November 15, 2016 / Notices 80141

Rules 9556 and 9800 (and related [sic] the process followed when a has occurred’’ to a ‘‘showing of a
references in other rules) 7 based on person or entity subject to FINRA’s likelihood of success on the merits.’’
FINRA’s analogous cease and desist jurisdiction fail [sic] to comply with FINRA noted that it believed that the
rules, which include amendments to the various requirements under its rules. ‘‘preponderance of the evidence’’
former Nasdaq cease and desist rules to FINRA amended the rule provisions standard set too high an evidentiary
reflect changes that FINRA has made to noted above to allow notice of failure to threshold for this critical investor-
its cease and desist rules in 2011 and comply with a temporary or permanent protection tool, and noted that it is the
2015 after they were made permanent.8 cease and desist order to be served on identical standard for proving a
The Exchange is also proposing to counsel representing the member or violation in the underlying disciplinary
amend other Rules under the 9000 person, or other person authorized to proceeding that must be pursued at the
Series to incorporate changes that represent others under FINRA Rule same time.14 Thus, to obtain a
FINRA made to its analogous rules in 9141,11 when counsel or other person temporary cease and desist order—and
2015, as discussed below. These authorized to represent others under thereby prevent the likely and
proposed changes include significant FINRA Rule 9141 agrees to accept significant dissipation or conversion of
amendments made by FINRA to not service for the member or person. assets or other significant harm to
only its Rules 9556 and 9800, but also investors—FINRA’s prosecuting
to its 9100, 9200, 9300, 9550, and 9800 2015 FINRA Rule Changes
department had to make an evidentiary
Rule Series in 2015. Unless otherwise In 2015, FINRA made significant presentation in the temporary cease and
noted, Nasdaq is adopting the FINRA changes to its temporary and permanent desist proceeding that is similar in
Rules with only minor changes to reflect cease and desist rules.12 FINRA lowered extent to its evidentiary presentation in
the Exchange’s committee structure and the evidentiary standard to obtain a the subsequent underlying disciplinary
rules,9 as described below. temporary cease and desist order, proceeding, but in an expedited manner.
adopted a new expedited proceedings FINRA also made a corresponding
2011 FINRA Rule Changes
[sic] to address situations involving amendment to FINRA Rule 9840(a)(2).
In 2011, FINRA amended Rules repeated violations of temporary or Prior to the amendment, FINRA Rule
9552(b), 9553(b), 9554(b), 9555(b), and permanent cease and desist orders, and 9840(a)(2) provided that a temporary
9556(b), all of which concern service of made a series of rule amendments to the cease and desist order shall be imposed
notice.10 Each of these rules concern temporary cease and desist order rules if the Hearing Panel finds that the
under FINRA Rule Series 9800, the violative conduct or continuation
7 As a consequence of the expiration of the pilot
expedited proceedings rules under thereof is likely to result in significant
rendering the existing related rule text void, in
certain cases the Exchange is deleting the void text FINRA Rule Series 9550,13 and FINRA’s dissipation or conversion of assets or
and reinserting identical rule text thereafter so the Code of Procedure (FINRA Rule Series other significant harm to investors prior
text may have effect once again. For example, the 9000) that harmonize service provisions to the completion of the underlying
Exchange is deleting Rule 8310(a)(6), concerning in temporary cease and desist
imposition of a temporary or permanent cease and
proceeding. The 2015 rule change
desist order, and adopting a new Rule 8310(a)(6) proceedings and expedited proceedings, modified this requirement to apply to
identical to what was deleted. ease administrative burdens in the ‘‘alleged’’ violative conduct or
8 In 2013, FINRA consolidated the publication temporary cease and desist proceedings, continuation thereof, to be consistent
standards for expedited proceeding decisions, and clarify the process by which with the proposed change to the
including under FINRA Rule 9556, in FINRA Rule
8313(a)(3) and consequently amended FINRA Rule
permanent cease and desist orders may evidentiary standard.
9556 to remove paragraph (h) ‘‘Notice to be imposed.
Membership’’ from the rule. See Securities
(ii) Failures To Comply With Temporary
Exchange Act Release No. 69825 (June 21, 2013), 78
(i) Evidentiary Standard for Imposing a Cease and Desist Orders and Permanent
FR 38771 (June 27, 2013) (SR–FINRA–2013–018). Temporary Cease and Desist Order Cease and Desist Orders (FINRA Rule
The Exchange did not have such a provision in its 9556)
Rule 9556. The Exchange’s disclosure obligations
FINRA amended FINRA Rule
are provided under IM–8310–3, including the 9840(a)(1) to change the evidentiary FINRA also made amendments to
Exchange’s disclosure obligations related to standard applied by Hearing Panels in FINRA Rule 9556, which sets forth
expedited proceedings. See IM–8310–3(c). issuing a temporary cease and desist
9 The Exchange is replacing references to FINRA
expedited procedures for enforcing
order. Specifically, FINRA changed the violations of FINRA-issued temporary
and FINRA staff with references to Nasdaq and
Nasdaq staff, which are the appropriate analogous standard for issuing a temporary cease and permanent cease and desist orders.
parties at Nasdaq. The Exchange is also replacing and desist order from ‘‘by a FINRA was concerned that their [sic]
FINRA text that states ‘‘Chief Executive Officer or preponderance of the evidence that the existing expedited procedures may
such other senior officer as the Chief Executive alleged violation specified in the notice
Officer may designate’’ with ‘‘Chief Regulatory permit cease and desist orders to be
Officer,’’ which is the Exchange officer vested with circumvented without any real threat of
the authority described under the rules. For (SR–FINRA–2011–044). FINRA also amended other a sanction.15 Thus, FINRA amended
example, old Rules 9556(a) and 9860 vested rules in the FINRA Rule 9000 Series not addressed
in this filing. Id. FINRA Rule 9556 to adopt a new
authority with the Chief Regulatory Officer to
authorize notice and initiation of proceedings, 11 FINRA Rule 9141, entitled ‘‘Appearance and paragraph (h) to permit its staff (with
respectively, whereas the analogous FINRA rules Practice; Notice of Appearance,’’ provides, among prior authorization from FINRA’s Chief
authorize its Chief Executive Officer or such other other things, what is permissible in terms of Executive Officer or other designated
senior officer as the Chief Executive Officer may representation before an Adjudicator. Exchange
Rule 9141 is consistent with FINRA Rule 9141.
senior officer) to institute a new kind of
designate instead. Last, the Exchange is adding
clarifying language to Rule 9810 to make it clear 12 Securities Exchange Act Release No. 75629 expedited proceeding if the subject of a
that initiation of a proceeding must not only be (August 6, 2015), 80 FR 48379 (August 12, 2015) temporary or permanent cease and
mstockstill on DSK3G9T082PROD with NOTICES

authorized by FINRA’s Chief Executive Officer or (SR–FINRA–2015–019). desist order fails to comply with that
such other senior officer as the Chief Executive 13 FINRA amended its Rule 9551 ‘‘Failure to
order and has previously been served
Officer may designate, but also Nasdaq’s Chief Comply with Public Communications Standards.’’
Regulatory Officer. As a practical matter, the Chief Nasdaq does not have such a rule (Nasdaq Rule
with a notice under Rule 9556(a) for
Regulatory Officer must agree that such a 9551 is held in reserve) and is thus not
proceeding should be brought pursuant to Nasdaq 14 See Securities Exchange Act Release No. 75333
incorporating those changes. In a related change,
rules. the Exchange is also amending its Rule 9559 to (June 30, 2015), 80 FR 38783 (July 7, 2015) (Notice
10 Securities Exchange Act Release No. 60306 delete the references to Rule 9551, which were of Filing File No. SR–FINRA–2015–019) at 38784.
(January 4, 2012), 77 FR 1524 (January 10, 2012) erroneously included in the rule. 15 Id. at 38785.

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failure to comply with any provision of hearings to be held within 14 days after service by email for all temporary cease
the same temporary or permanent cease a request for a hearing is filed); 18 and desist proceedings and expedited
and desist order. FINRA adopted the • a FINRA Rule 9556(h) proceeding is proceedings. FINRA noted that email
change to prevent a respondent from presided over by a Hearing Officer,19 service would allow parties to receive
abusing the existing process by rather than a Hearing Panel; 20 and information quickly, which is
repeatedly violating a cease and desist • the Hearing Officer may issue particularly important in these types of
order and curing that violation before default decisions in FINRA Rule 9556(h) proceedings, considering the short time
the effective date of any FINRA Rule proceedings.21 frames involved.24 As part of the
9556 notice,16 without being subject to Under amended FINRA Rule changes allowing service by email,
the immediate sanctions or review by 9556(h)(4), the FINRA department that FINRA also now requires duplicate
the Office of Hearing Officers for a filed the petition can withdraw it service through some other means such
prolonged period. FINRA noted in its without prejudice and shall be as overnight courier or personal delivery
filing that the new FINRA Rule 9556(h) permitted to refile a petition based on and made changes to its Rule 9550
proceeding differs from other FINRA allegations concerning the same facts Series to reflect this requirement.
Rule 9556 expedited proceedings in and circumstances that are set forth in
the withdrawn petition. FINRA noted (iv) Clarifying FINRA’s Authority to
other respects that reflect the response
that this provision provides it the Impose Permanent Cease and Desist
that FINRA believes is warranted for
flexibility to withdraw the petition Orders
situations involving repeated violations
of temporary or permanent cease and where, for instance, the respondent FINRA clarified its rules concerning
desist orders.17 These differences evidences a good faith intent to comply the process for imposing permanent
include the following: with the temporary or permanent cease cease and desist orders in disciplinary
and desist order without the need to proceedings. FINRA noted that when it
• a FINRA Rule 9556(h) proceeding adjudicate the petition, while preserving
could be initiated only if the respondent obtained the authority to impose
FINRA’s right to refile the petition if the temporary cease and desist orders, it
has previously been served, under respondent fails to do so.22
FINRA Rule 9556(a), with a notice for also obtained the authority to impose
failing to comply with any provision of (iii) Service Provisions in Temporary permanent cease and desist orders.25
the same temporary or permanent cease Cease and Desist Proceedings and Thus, the clarifying changes were
and desist order; Expedited Proceedings procedural in nature and did not reflect
any change to FINRA’s prior
• FINRA’s prosecuting department FINRA also made the rules that
govern service of documents in representations concerning the context
would initiate a FINRA Rule 9556(h)
temporary cease and desist proceedings in which it would seek permanent cease
proceeding by filing a petition with
and the eight different types of and desist orders.
FINRA’s Office of Hearing Officers (and
serving the respondent) that seeks the expedited proceedings under the Rule (v) Administrative Changes to
imposition of sanctions for the violation 9550 Series more consistent.23 Prior to Temporary Cease and Desist
(rather than issuing a notice to the the changes, some provisions of these Proceedings
respondent); rules explicitly addressed service by
facsimile and on counsel, while some FINRA also expanded the pool of
• FINRA’s prosecuting department persons eligible to serve on hearing
did not. FINRA’s amendments explicitly
would seek the imposition of any fitting panels to include those who may serve
allow service by facsimile and on
sanction at the outset of the FINRA Rule on hearing panels for disciplinary
counsel across all temporary cease and
9556(h) proceeding (in contrast to other matters, as provided under FINRA Rules
desist and expedited proceedings,
FINRA Rule 9556 expedited 9231(b) and 9559(d)(2).26 Specifically,
noting that doing so removed
proceedings, where the recipient of a FINRA amended its Rule 9820 to
unnecessary burdens and inefficiencies.
notice is not subject to the imposition of provide that the potential panelists for
FINRA also amended its rules to permit
any fitting sanction unless such the Hearing Panels that preside over
recipient opts for a hearing); 18 See FINRA Rule 9559(f)(2) and (3); FINRA Rule temporary cease and desist proceedings
• a hearing is required in a FINRA 9556(e). to [sic] include persons who currently
19 As defined by FINRA Rule 9120(r).
Rule 9556(h) proceeding; serve or previously served on a District
20 As defined by FINRA Rule 9120(s). See FINRA
• the hearing for a FINRA Rule Rule 9559(d)(1) and (2) for a description of the
Committee; 27 previously served on the
9556(h) proceeding must be held in a appointment and authority [sic] of a Hearing Officer
condensed time frame (ten business and/or Hearing Panel in expedited proceedings. 24 See supra note 14 at 38785–6.
21 See FINRA Rule 9559(m)(2). 25 See supra note 14 at 38786.
days after a respondent is served the
22 See supra note 14 at 38785. 26 FINRA harmonized the categories of
petition, versus other Rule 9556 23 The Exchange notes that in SR–FINRA–2015– individuals eligible for appointment as a Hearing
proceedings which require a respondent 019 FINRA replaced references to ‘‘contact Panelist under FINRA Rule 9820 with FINRA Rule
to request a hearing within seven questionnaires’’ with reference to the ‘‘FINRA 9231(b) (providing that each panelist shall be
business days after service of a notice Contact System,’’ FINRA’s proprietary system that associated with a member of FINRA or retired
instituting a proceeding and require facilitates member firm reporting of key contacts to therefrom and that the pool of panelists for
FINRA. Exchange members are required to use the disciplinary proceedings includes current or
FINRA Contact System to report to Nasdaq all previous members of District Committees, former
16 Under the then-current FINRA Rule 9556, if a members of the National Adjudicatory Council, past
contact information required by Nasdaq and update
member or person failed to comply with a its required contact information promptly. See Rule members of disciplinary subcommittees of the
temporary or permanent cease and desist order, 1160. Under the FINRA Rule 9550 Series, the rules National Adjudicatory Council or the National
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FINRA staff (with prior authorization from FINRA’s cite Article 4, Section III of the FINRA By-Laws as Business Conduct Committee, past members of the
Chief Executive Officer or other designated senior the authority pursuant to which its members have Board of Directors of FINRA Regulation or past
officer) may have issued a notice stating that the an obligation to report required contact information members of the Board of Governors of FINRA, and
failure to comply within seven days will result in to it via the FINRA Contact System, whereas the current or previous members of committees
a suspension or cancellation of membership or a Exchange’s authority is pursuant to Rule 1160, as appointed or approved by the Board of Governors
suspension or bar from associating with any noted above. Thus, the Exchange is instead of FINRA); FINRA Rule 9559(d)(2) (providing for
member and also would have stated what the referencing Rule 1160 in the Rule 9550 Series as the the same pool for FINRA Rule 9556 expedited
respondent must do to avoid such action. authority pursuant to which members have the proceedings).
17 See supra note 14 at 38785. reporting obligation. 27 As defined by FINRA Rule 9120(g).

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80144 Federal Register / Vol. 81, No. 220 / Tuesday, November 15, 2016 / Notices

FINRA’s rule change clarified the adopting this amendment in its Rule FINRA Rule 4330 with reference to
following additional three issues: (1) 9120(s). Nasdaq Rule 2150.39 The Exchange is
How settlements may be approved in FINRA also amended FINRA Rule also replacing the word ‘‘FINRA’’ with
temporary cease and desist proceedings; 9120(t), ‘‘Interested Staff,’’ to: (1) Insert ‘‘Nasdaq’’ in adopting Rule 9840(d) to
(2) which Hearing Panel has jurisdiction ‘‘or petition’’ under paragraph (2)(A) of make it clear that the rule applies to
to preside over applications filed under the rule, thus expanding the definition Nasdaq members. The Exchange is
FINRA Rule 9850 to modify, set aside, to include FINRA staff that filed a proposing not to include the word
limit or suspend temporary cease and petition in a proceeding under the Rule ‘‘FINRA’’ prior to ‘‘Rule 9211’’ in
desist orders that are filed after a 9520 Series or Rule 9550 Series; and (2) adopting Rule 9850 to make it clear that
Hearing Panel has already been include a new paragraph (4) to list the rule referenced is Nasdaq’s rule, not
appointed in the underlying FINRA staff that are defined as FINRA’s. Last, the Exchange is
disciplinary proceeding; and (3) Interested Staff in a proceeding under proposing to correct references to
whether temporary and permanent the FINRA Rule 9800 Series. The Nasdaq’s rule concerning ‘‘Restrictions
cease and desist orders imposed against Exchange is also adopting the on Affiliation’’ in Rules 9270(e) and
a firm also apply to successors of that amendment to its Rule 9120(t) (f)(1), and Rule 9360. Specifically, Rules
firm. ‘‘Interested Staff,’’ but is expanding the 9270(e) and (f)(1), and Rule 9360
With respect to the first issue, new definition to also include Nasdaq erroneously reference Rule 2140 as
FINRA Rule 9810(c) established that, if Regulation employees who directly providing the meaning of the term
the parties agree to the terms of a participated in the authorization of the ‘‘affiliate of Nasdaq.’’ Rule 2160 is titled
proposed temporary cease and desist notice that initiates a temporary cease ‘‘Restrictions on Affiliation’’ and is the
order, the Hearing Officer has the and desist proceeding, or directly appropriate reference under Rules
authority to approve and issue the participated in an examination, 9270(e) and (f)(1), and Rule 9360, and
order. On the second issue, amended investigation, prosecution, or litigation accordingly the Exchange replacing
FINRA Rule 9850 provided that the related to a specific temporary cease and references to Rule 2140 with references
Hearing Panel that presided over the desist proceeding, under new to Rule 2160 under those rules.
temporary cease and desist order paragraphs (t)(4)(C) and (D) of the rule.
FINRA also amended FINRA Rule 2. Statutory Basis
proceeding shall retain jurisdiction to
review a FINRA Rule 9850 application 9120(w), ‘‘Panelists,’’ to include The Exchange believes that its
unless at the time the application is references to Panelists in the Rule 9550 proposal is consistent with Section 6(b)
filed a Hearing Panel has already been Series, and the Rule 9800 Series within of the Act,40 in general, and furthers the
appointed in the underlying the definition provided by the rule. The objectives of Section 6(b)(5) of the Act,41
disciplinary proceeding commenced Exchange is adopting this amendment in particular, in that it is designed to
under FINRA Rule 9211, in which case in Rule 9120(z). FINRA also amended promote just and equitable principles of
the Hearing Panel appointed in the Rule 9120(z) ‘‘Respondent’’ to define a trade, to remove impediments to and
disciplinary proceeding has jurisdiction. Respondent in a proceeding governed perfect the mechanism of a free and
As to the third issue, amended FINRA by the Rule 9800 Series to mean a open market and a national market
Rule 9840(b) and new Rule 9291(a) FINRA member or associated person system, and, in general to protect
established that when a temporary or that has been served a notice initiating investors and the public interest.
permanent cease and desist order is a cease and desist proceeding. The The Exchange also believes that the
imposed against a member firm, it also Exchange is adopting this amendment proposed rule is consistent with Section
applies to any successor of the member in Rule 9120(bb) ‘‘Respondent.’’ 6(b)(6) of the Act,42 which requires the
firm. The Exchange believes that the
Finally, FINRA amended certain changes made by FINRA in 2011 and 39 Nasdaq notes that the Nasdaq rules cited in

2015, as described above, improve the new Rule 9810(a) are the same as those that were
provisions of FINRA Rule 9120. FINRA cited under old Rule 9810(a). Nasdaq further notes
amended FINRA Rule 9120(s), ‘‘Hearing cease and desist authority as well as the that under FINRA Rule 9810(a), FINRA cites to
Panel,’’ to include an Adjudicator that is service provisions. Consequently, the FINRA Rules 2010, 2020, and 4330. Nasdaq is
constituted under Rule 9231 to conduct Exchange is proposing to adopt the replacing reference to the FINRA rules with
changes, as described above, as its own. reference to Nasdaq’s analogous Rules 2010A, 2120,
a disciplinary proceeding governed by and 2150, as was the case in old Rule 9810(a).
the Rule 9800 Series. The Exchange is Other Non-Substantive Changes While the provisions of Nasdaq Rules 2010A and
2120 closely mirror FINRA Rules 2010 and 2020,
the Office of Hearing Officers, the Department of
The Exchange is also proposing to Nasdaq Rule 2150 is significantly different than
Enforcement, the Department of Market Regulation, make other non-substantive changes to FINRA Rule 4330. FINRA Rule 4330 concerns the
or the General Counsel, as appropriate, disseminate its rules to correct misuse of the word permissible use of customers’ margin securities
default decisions, orders of acceptance of while Nasdaq Rule 2150 requires a member and
‘‘FINRA,’’ which were introduced persons associated with a member to comply with
settlement, and temporary cease and desist orders
to each member of FINRA with which a respondent
erroneously when the Exchange adopted FINRA’s Rule 2150. FINRA Rule 2150 is titled
is associated. FINRA noted that these dissemination the rules. Specifically, the Exchange is ‘‘Improper Use of Customers’ Securities or Funds;
requirements are intended to ensure that a proposing to amend Rule 9555(g) to Prohibition Against Guarantees and Sharing in
respondent’s member firm is made aware of the Accounts’’ and, among other things, prohibits
remove reference to FINRA and replace members or persons associated with a member from
disciplinary history of its associated persons,
regardless of the specific disciplinary procedure
it with reference to Nasdaq to make making improper use of a customer’s securities or
involved. See supra note 14 at 38787, n. 15. FINRA clear that it is Nasdaq’s departments funds, guaranteeing a customer against loss in
also noted that the amendments are consistent with that should be contacted. The Exchange connection with any securities transaction or in any
other FINRA Rules that already require the Office securities account of such customer, and setting
is also replacing references to FINRA’s
mstockstill on DSK3G9T082PROD with NOTICES

of Hearing Officers, the National Adjudicatory forth what is permissible in terms of sharing in
Council, or the Board of Governors of FINRA to
rules under new Rule 9810 with profits and losses in a customer account. Nasdaq
provide copies of a decision issued by a Hearing references to analogous rules of Nasdaq. believes that Nasdaq Rule 2150 is the appropriate
Panel, an Extended Hearing Panel, the National Specifically, Nasdaq is replacing rule cite under new Rule 9810(a) for purposes of
Adjudicatory Council, or the Board of Governors of alleged violations concerning misuse or conversion
reference to FINRA Rule 2010 with of customer assets.
FINRA to each member firm with which a
respondent is associated. Id.; see also FINRA Rules
reference to Nasdaq Rule 2010A, 40 15 U.S.C. 78f(b).

9268(d), 9349(c), 9351(e). The Exchange is adopting reference to FINRA Rule 2020 with 41 15 U.S.C. 78f(b)(5).

these amendments to Rules 9269, 9270, and 9840. reference to Nasdaq Rule 2120, and 42 15 U.S.C. 78f(b)(6).

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Federal Register / Vol. 81, No. 220 / Tuesday, November 15, 2016 / Notices 80145

rules of an exchange provide that its occurring. Thus, to the extent a burden At any time within 60 days of the
members be appropriately disciplined on competition results from use of the filing of the proposed rule change, the
for violations of the Act as well as the authority provided by the proposed Commission summarily may
rules and regulations thereunder, or the rules, such burden is necessary to temporarily suspend such rule change if
rules of the Exchange, by expulsion, protect investors, which is consistent it appears to the Commission that such
suspension, limitation of activities, with the purposes of the Act. action is: (i) Necessary or appropriate in
functions, and operations, fine, censure, the public interest; (ii) for the protection
being suspended or barred from being C. Self-Regulatory Organization’s of investors; or (iii) otherwise in
associated with a member, or any other Statement on Comments on the furtherance of the purposes of the Act.
fitting sanction. Proposed Rule Change Received From If the Commission takes such action, the
The Exchange believes that the Members, Participants, or Others Commission shall institute proceedings
proposed rule change is consistent with No written comments were either to determine whether the proposed rule
these provisions because the proposed solicited or received. should be approved or disapproved.
changes are based on the cease and
desist authority that FINRA has III. Date of Effectiveness of the IV. Solicitation of Comments
adopted, which the Exchange believes Proposed Rule Change and Timing for Interested persons are invited to
furthers the objectives of the Act by Commission Action submit written data, views, and
providing it with ability to stop Because the foregoing proposed rule arguments concerning the foregoing,
violative conduct that is likely to cause change does not: (i) Significantly affect including whether the proposed rule
dissipation or conversion of assets or the protection of investors or the public change is consistent with the Act.
other significant harm to investors, and interest; (ii) impose any significant Comments may be submitted by any of
on other changes to its related rules that burden on competition; and (iii) become the following methods:
clarify, harmonize, and improve its operative for 30 days from the date on Electronic Comments
disciplinary process. which it was filed, or such shorter time
The proposed rule change will as the Commission may designate, if • Use the Commission’s Internet
improve the Exchange’s capacity to comment form (http://www.sec.gov/
consistent with the protection of
enforce compliance with applicable rules/sro.shtml); or
investors and the public interest, the
laws and rules by its members and • Send an email to rule-comments@
proposed rule change has become sec.gov. Please include File Number SR–
persons associated with members and effective pursuant to Section
improving [sic] the Exchange’s NASDAQ–2016–148 on the subject line.
19(b)(3)(A)(iii) of the Act 43 and
capability to prevent fraudulent and subparagraph (f)(6) of Rule 19b–4 Paper Comments
manipulative acts and practices. Thus, thereunder.44 • Send paper comments in triplicate
this authority is a vitally important tool The Exchange has asked the to Brent J. Fields, Secretary, Securities
to have to protect market participants. Commission to waive the 30-day
The Exchange acknowledges that, and Exchange Commission, 100 F Street
operative delay so that the proposal may NE., Washington, DC 20549–1090.
when used, the cease and desist become operative upon filing. The
authority proposed herein would All submissions should refer to File
Exchange has stated that it is requesting Number SR–NASDAQ–2016–148. This
significantly impact a respondent. The this waiver so that the Exchange could
Exchange, however, notes that the file number should be included on the
apply, at the earliest time possible, the subject line if email is used. To help the
proposed rules incorporate numerous authority to issue temporary cease and
procedural protections for respondents Commission process and review your
desist orders and explicit authority to comments more efficiently, please use
to ensure that the proceedings initiated impose permanent cease and desist
under these rules are fair, including only one method. The Commission will
orders as a remedy in disciplinary cases. post all comments on the Commission’s
notice and an opportunity to be heard The Exchange explained that although it
before a neutral tribunal. Moreover, the Internet Web site (http://www.sec.gov/
does not anticipate that it will be rules/sro.shtml). Copies of the
Exchange anticipates using the authority necessary to use this authority, when its
provided by these rules sparingly. submission, all subsequent
cease and desist authority is needed, the amendments, all written statements
B. Self-Regulatory Organization’s Exchange must be able to move swiftly with respect to the proposed rule
Statement on Burden on Competition to prevent or stop investor harm. The change that are filed with the
The Exchange does not believe that Commission believes that waiving the Commission, and all written
the proposed rule change will impose 30-day operative delay is consistent communications relating to the
any burden on competition not with the protection of investors and the proposed rule change between the
necessary or appropriate in furtherance public interest because this waiver will Commission and any person, other than
of the purposes of the Act. The changes enable the Exchange to utilize the those that may be withheld from the
are being proposed to provide an temporary or permanent cease and public in accordance with the
important regulatory tool to the desist authority described herein provisions of 5 U.S.C. 552, will be
Exchange and FINRA, acting on its without delay in the unlikely event that available for Web site viewing and
behalf, which will protect investors circumstances arise that warrant its use. printing in the Commission’s Public
when violative conduct is being taken For this reason, the Commission hereby Reference Room, 100 F Street NE.,
by a member or person associated with waives the 30-day operative delay and Washington, DC 20549 on official
a member, and time is of the essence to designates the proposed rule change as business days between the hours of
mstockstill on DSK3G9T082PROD with NOTICES

prevent harm, or further harm, to operative upon filing.45 10:00 a.m. and 3:00 p.m. Copies of such
investors. filing also will be available for
43 15 U.S.C. 78s(b)(3)(A)(iii).
The proposed change does not impose inspection and copying at the principal
44 17 CFR 240.19b–4(f)(6).
a burden on competition among 45 For purposes only of waiving the 30-day
office of the Exchange. All comments
participants or other venues because it operative delay, the Commission has considered the
received will be posted without change;
will only be used in circumstances proposed rule’s impact on efficiency, competition, the Commission does not edit personal
where investor harm is imminent or is and capital formation. See 15 U.S.C. 78c(f). identifying information from

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80146 Federal Register / Vol. 81, No. 220 / Tuesday, November 15, 2016 / Notices

submissions. You should submit only Commission pursuant to Section 6(a) of concerning the purpose of and basis for
information that you wish to make the Act,3 and CBOE Futures Exchange, the proposed rule change and discussed
available publicly. All submissions LLC (‘‘CBOE Futures,’’ and together any comments it received on the
should refer to File Number SR– with CBOE and C2, the ‘‘CBOE proposed rule change. The text of these
NASDAQ–2016–148, and should be Exchanges’’), a national securities statements may be examined at the
submitted on or before December 6, exchange that lists or trades security- places specified in Item IV below. The
2016. futures products notice-registered with Exchange has prepared summaries, set
For the Commission, by the Division of the Commission pursuant to Section forth in Sections A, B, and C below, of
Trading and Markets, pursuant to delegated 6(g) of the Act.4 the most significant parts of such
authority.46 Upon completion of the mergers statements.
Brent J. Fields, described below that effectuate the
Transaction (the ‘‘Closing’’), the A. Self-Regulatory Organization’s
Secretary. Statement of the Purpose of, and the
[FR Doc. 2016–27364 Filed 11–14–16; 8:45 am]
business of BGM will be carried on by
CBOE V. CBOE V, rather than BGM, will Statutory Basis for, the Proposed Rule
BILLING CODE 8011–01–P
be the direct parent company of Direct Change
Edge LLC (‘‘Direct Edge’’), which is the 1. Purpose
SECURITIES AND EXCHANGE direct parent company of the Exchange.
As a result, CBOE Holdings will become The Exchange submits this Proposed
COMMISSION Rule Change to seek the Commission’s
the ultimate parent company of Direct
[Release No. 34–79265; File No. SR– Edge and of the Exchange. approval of the organizational and
BatsEDGA–2016–24] To effectuate the Transaction, the governance documents of the Exchange
Exchange seeks to obtain the and its current and proposed future
Self-Regulatory Organizations; Bats Commission’s approval of: (i) The parent companies, and related actions
EDGA Exchange, Inc.; Notice of Filing resolutions of BGM’s board of directors that are necessary in connection with
of a Proposed Rule Change in (the ‘‘BGM Board’’) waiving certain the Closing of the Transaction, as
Connection With the Proposed provisions of the Amended and Restated described below.
Corporate Transaction Involving Bats Certificate of Incorporation of BGM (the Other than as described herein and set
Global Markets, Inc. and CBOE forth in Exhibits 5A through 5H, the
‘‘BGM Charter’’) and making certain
Holdings, Inc. Exchange will continue to conduct its
related determinations regarding CBOE
November 8, 2016. Holdings and the impact of the regulated activities (including operating
Pursuant to Section 19(b)(1) of the Transaction on the Exchange (the and regulating its market and members)
Securities Exchange Act of 1934 (the ‘‘Resolutions’’); (ii) the CBOE Holdings in the manner currently conducted, and
‘‘Act’’),1 and Rule 19b–4 thereunder,2 Second Amended and Restated will not make any changes to its
notice is hereby given that on November Certificate of Incorporation (the ‘‘CBOE regulated activities in connection with
2, 2016, Bats EDGA Exchange, Inc. (the Holdings Charter’’) and the CBOE the Transaction. Except as set forth in
‘‘Exchange’’ or ‘‘EDGA’’) filed with the Holdings Third Amended and Restated this Proposed Rule Change, the
Securities and Exchange Commission Bylaws (the ‘‘CBOE Holdings Bylaws’’); Exchange is not proposing any
(‘‘Commission’’) the proposed rule (iii) the Certificate of Formation of amendments to its trading and
change as described in Items I, II and III CBOE V (the ‘‘CBOE V Certificate’’) and regulatory rules at this time. If the
below, which Items have been prepared the Limited Liability Company Exchange determines to make any such
by the Exchange. The Commission is Operating Agreement of CBOE V (the changes, it will seek the approval of the
publishing this notice to solicit ‘‘CBOE V Operating Agreement’’); (iv) Commission to the extent required by
comments on the proposed rule change the proposed amendments to the the Act, and the Commission’s rules
from interested persons. Amended and Restated Limited thereunder, and the Rules of the
Liability Company Operating Agreement Exchange.
I. Self-Regulatory Organization’s
of Direct Edge (the ‘‘Direct Edge 1. Current Corporate Structures
Statement of the Terms of Substance of
Operating Agreement’’); (v) the
the Proposed Rule Change The Exchange, Bats BZX Exchange,
proposed amendments to the Fifth
The Exchange filed a proposed rule Amended and Restated Bylaws of the Inc. (‘‘BZX’’), Bats BYX Exchange, Inc.
change (the ‘‘Proposed Rule Change’’) in Exchange (the ‘‘Exchange Bylaws’’); and (‘‘BYX’’) and Bats EDGX Exchange, Inc.
connection with the proposed corporate (vi) the proposed amendments to EDGA (‘‘EDGX,’’ and together with the
transaction (the ‘‘Transaction’’), as Rules 2.3, 2.10 and 2.12 (the ‘‘Exchange Exchange, BZX and BYX, the ‘‘Bats
described in more detail below, Rules’’). Exchanges’’) are each Delaware
involving its ultimate parent company, The text of the proposed rule change corporations that are national securities
Bats Global Markets, Inc. (‘‘BGM’’), is available at the Exchange’s Web site exchanges registered with the
CBOE Holdings, Inc. (‘‘CBOE at www.batstrading.com, at the Commission pursuant to Section 6(a) of
Holdings’’), and two wholly owned principal office of the Exchange, and at the Act.5
subsidiaries of CBOE Holdings, CBOE the Commission’s Public Reference The Exchange and EDGX are each
Corporation and CBOE V, LLC (‘‘CBOE Room. direct, wholly owned subsidiaries of
V’’). CBOE Holdings is the parent Direct Edge, a Delaware limited liability
company of Chicago Board Options II. Self-Regulatory Organization’s company that is a direct, wholly owned
Statement of the Purpose of, and
mstockstill on DSK3G9T082PROD with NOTICES

Exchange, Incorporated (‘‘CBOE’’) and subsidiary of BGM. BZX and BYX are
C2 Options Exchange, Incorporated Statutory Basis for, the Proposed Rule direct, wholly owned subsidiaries of
(‘‘C2’’), each a national securities Change Bats Global Markets Holdings, Inc.
exchange registered with the In its filing with the Commission, the (‘‘BGM Holdings’’), a Delaware
Exchange included statements corporation that is a direct, wholly
46 17 CFR 200.30–3(a)(12). owned subsidiary of BGM. In addition
1 15 U.S.C. 78S(b)(1). 3 15 U.S.C. 78f(a).
2 17 CFR 240.19b–4. 4 15 U.S.C. 78f(g). 5 15 U.S.C. 78f(a).

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Document Created: 2016-11-15 00:48:25
Document Modified: 2016-11-15 00:48:25
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		81 FR 80140