83 FR 50132 - Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 2.160 Related to the Qualification and Registration Requirements for Associated Persons of a Member and To Delete Rule 2.150 Which is Obsolete

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 193 (October 4, 2018)

Page Range		50132-50140
FR Document		2018-21582
Federal Register, Volume 83 Issue 193 (Thursday, October 4, 2018)
[Federal Register Volume 83, Number 193 (Thursday, October 4, 2018)]
[Notices]
[Pages 50132-50140]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-21582]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84320; File No. SR-IEX-2018-19]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rule 2.160 Related to the Qualification and Registration Requirements 
for Associated Persons of a Member and To Delete Rule 2.150 Which is 
Obsolete

September 28, 2018.
    Pursuant to Section 19(b)(1)\1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on September 25, 2018, the Investors Exchange LLC (``IEX'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) under the Securities 
Exchange Act of 1934 (``Act''),\4\ and Rule 19b-4 thereunder,\5\ IEX is 
filing with the Commission a proposed rule change to amend IEX Rule 
2.160 to (i) harmonize IEX rules with certain Financial Industry 
Regulatory Authority, Inc. (``FINRA'') rules related to qualification 
and registration requirements for associated persons of a Member \6\ 
which are pending effectiveness; (ii) specify when associated persons 
of a Member are required to be registered with the Exchange; and (iii) 
delete Rule 2.150 related to a temporary membership application process 
and waive-in, which is obsolete. The Exchange has designated this rule 
change as ``non-controversial'' under Section 19(b)(3)(A) of the Act 
\7\ and provided the Commission with the notice required by Rule 19b-
4(f)(6) thereunder.\8\
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CRF 240.19b-4.
    \6\ ``Person Associated with a Member'' or ``Associated Person 
of a Member'' mean [sic] any partner, officer, director, or branch 
manager of a Member (or person occupying a similar status or 
performing similar functions), any person directly or indirectly 
controlling, controlled by, or under common control with such 
Member, or any employee of such Member, except that any person 
associated with a Member whose functions are solely clerical or 
ministerial shall not be included in the meaning of such term for 
purposes of these Rules. See IEX Rule 1.160(y). See also 15 U.S.C. 
78c(a)(18).
    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4.
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    The text of the proposed rule change is available at the Exchange's 
website at www.iextrading.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 the 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statement [sic] may be examined 
at the places specified in Item IV below. The self-regulatory 
organization 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 amend Rule 2.160 to (i) harmonize with 
certain FINRA rules related to qualification and registration 
requirements for associated persons of a Member which are pending 
effectiveness; (ii) specify when associated persons of a Member are 
required to be registered with the Exchange; and (iii) delete Rule 
2.150 related to a temporary membership application process and waive-
in, which is obsolete. Each proposed change is described below.

[[Page 50133]]

Qualification and Registration Requirements
    FINRA recently amended its rules relating to its qualification and 
registration requirements in a number of respects.\9\ These amended 
rules will be effective beginning on October 1, 2018. The Exchange is 
proposing several amendments to IEX rules with respect to membership 
and registration requirements to harmonize with such rule amendments in 
the FINRA Filing and FINRA's existing rules, as described below. The 
Exchange is proposing to adopt such harmonizing rule amendments and 
registration categories that it determined are relevant to its 
operations.\10\
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    \9\ See Securities Exchange Act Release No. 81098 (July 7, 
2017), 82 FR 32419 (July 13, 2017) (SR-FINRA-2017-007) (Approval 
Order) (the ``FINRA Filing'').
    \10\ The Exchange is not proposing to adopt provisions 
comparable to Supplementary Material .05, .06, or .11 [sic] to FINRA 
Rule 1210 because such provisions are not directly relevant to the 
Exchange's operations. The Exchange is also not proposing to adopt a 
provision comparable to Supplementary Material .07 to FINRA Rule 
1210 because comparable provisions are included in proposed Rule 
2.160(a) [sic]. In addition, the Exchange is not proposing to adopt 
the registration categories specified in FINRA Rule 1220(a)(5), (6), 
(8), (9), (10), (11), (12), (13) or (14) or in (b)(3), (5), (6), 
(7), (8), or (9) because such registration categories are not 
directly relevant to the Exchange's operations.
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    Rule 2.160, entitled ``Restrictions on Membership,'' sets forth 
various requirements applicable to Members and their associated 
persons, including registration requirements thereof. To make the title 
of the rule more descriptive of the current and proposed requirements 
set forth therein, the Exchange proposes to revise the title to 
``Registration Requirements and Restrictions on Membership.'' The 
Exchange believes that this title will more clearly direct Members, 
their associated persons and other market participants to the total 
scope of the rule.
    Rule 2.160(e) sets forth the requirement that no person shall 
become an associated person of a Member unless such person agrees:
    (1) To supply the Exchange with such information with respect to 
such person's relationships and dealings with the Member as may be 
specified by the Exchange;
    (2) to permit examination of such person's books and records by the 
Exchange to verify the accuracy of any information so supplied; and
    (3) to be regulated by the Exchange and to recognize that the 
Exchange is obligated to undertake to enforce compliance with the 
provisions of IEX Rules, the Operating Agreement, the interpretations 
and policies of the Exchange, and the provisions of the Act and the 
regulations thereunder.

The manner in which an associated person of a Member agrees to such 
terms is by registering with the Exchange. However, as described below, 
the Exchange is proposing amendments to Rule 2.160(m) to specify that 
certain categories of associated persons of a Member are not required 
to be registered with the Exchange because such persons' roles and 
responsibilities are unrelated to the Exchange's operations, and 
registration therefore serves no regulatory purpose. Accordingly, the 
Exchange is proposing to amend Rule 2.160(e) to specify which 
associated persons of a Member must be registered with the Exchange, 
and also to provide that a Member shall not register or maintain the 
registration of any associated person unless consistent with the 
requirements of Rule 2.160.
    Further, the Exchange is proposing to adopt Supplementary Material 
to Rule 2.160(e) governing permissive registrations and the status of 
persons serving in the Armed Forces of the United States, each based on 
provisions adopted by FINRA in the FINRA Filing that will be effective 
on October 1, 2018.\11\
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    \11\ See FINRA Rules 1210.02 and 1210.10. The Exchange is not 
including references to an admission fee, which is included in FINRA 
Rule 1210.10(b), in paragraph (b) of Supplementary Material .02 of 
Rule 2.160(e) since the Exchange does not charge an admission fee to 
Members.
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    As proposed, Supplementary Material .01 provides that a Member may 
make application for or maintain the registration as a representative 
or principal, pursuant to Rule 2.160, of any associated person of the 
Member and any individual engaged in the investment banking or 
securities business of a foreign securities affiliate or subsidiary of 
the Member. Individuals maintaining such permissive registrations shall 
be considered registered persons and subject to all IEX rules, to the 
extent relevant to their activities. Supplementary Material .01 also 
addresses Members' supervisory obligations with respect to associated 
persons with permissive registrations. As proposed, consistent with the 
requirements of Rule 5.110, Members shall have adequate supervisory 
systems and procedures reasonably designed to ensure that individuals 
with permissive registrations do not act outside the scope of their 
assigned functions. With respect to an individual who solely maintains 
a permissive registration(s), the individual's direct supervisor shall 
not be required to be a registered person. However, for purposes of 
compliance with Rule 5.110(a)(5), a Member shall assign a registered 
supervisor who shall be responsible for periodically contacting such 
individual's direct supervisor to verify that the individual is not 
acting outside the scope of his or her assigned functions. If such 
individual is permissively registered as a representative, the 
registered supervisor shall be registered as a representative or 
principal. If the individual is permissively registered as a principal, 
the registered supervisor shall be registered as a principal. Moreover, 
the registered supervisor of an individual who solely maintains a 
permissive registration(s) shall not be required to be registered in 
the same representative or principal registration category as the 
permissively-registered individual.
    As proposed, Supplementary Material .02 to Rule 2.160(e) addresses 
the status of current and former registered persons serving in active 
duty in the Armed Forces of the United States. With respect to a 
currently registered person of a Member who volunteers for or is called 
into active duty, paragraph (a) provides that after proper notification 
to the Exchange,\12\ such person shall be placed on inactive status and 
need not be re-registered by such Member upon his or her return to 
active employment with the Member. Such person shall remain eligible to 
receive transaction-related compensation, including continuing 
commissions. The employing Member also may allow such person to enter 
into an arrangement with another registered person of the Member to 
take over and service the person's accounts and to share transaction-
related compensation based upon the business generated by such 
accounts. However, because such persons are inactive, they may not 
perform any of the functions and responsibilities performed by a 
registered person. Further, the registered person shall not be required 
to complete either the Regulatory Element or Firm Element, as set forth 
in Rule 2.160(p), while such person remains inactive and registered 
with the Member with which he or she was registered at the beginning of 
active duty, regardless of whether the person returns to active 
employment with another Member upon completion of his or her active 
duty. The relief shall be provided only to a person registered

[[Page 50134]]

with a Member and only while the person remains on active military 
duty. Further, the Member with which such person is registered shall 
promptly notify the Exchange in such manner as the Exchange may specify 
of such person's return to active employment with the Member.\13\
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    \12\ The Exchange will issue a Regulatory Circular upon 
effectiveness of this proposed rule change describing the manner in 
which Members should provide notice to the Exchange with respect to 
the status of their current and former registered persons serving in 
active duty in the Armed Forces of the United States.
    \13\ Id.
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    Paragraph (b) of proposed Commentary .02 addresses the status of a 
Member that is a sole proprietor who temporarily closes his or her 
business by reason of volunteering for or being called into active duty 
in the Armed Forces of the United States. As proposed, after proper 
notification to the Exchange,\14\ such person shall be placed on 
inactive status solely while the Member remains on active military 
duty. Further, the sole proprietor shall promptly notify the Exchange 
in such manner as the Exchange may specify \15\ of his or her return to 
active participation in the securities business of the Member relating 
to activity that occurs on the Exchange.
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    \14\ Id.
    \15\ Id.
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    Paragraph (c) of proposed Commentary .02 addresses the status of 
formerly registered persons, with respect to active military duty. 
Specifically, as proposed, the provision specifies that the lapse of 
such person's registrations shall be deferred (i.e., tolled) during the 
pendency of his or her active service in the Armed Forces of the United 
States, provided the Exchange is properly notified of the person's 
period of active military service within 90 days following his or her 
completion of active service or upon his or her re-registration with a 
Member, whichever occurs first.\16\ The deferral will terminate 90 days 
following the person's completion of active service in the Armed Forces 
of the United States. If a person placed on inactive status while 
serving in the Armed Forces of the United States ceases to be 
registered with a Member, the Exchange shall defer the lapse of 
registration requirements based on existing information in the CRD 
system, provided that the Exchange is properly notified \17\ of the 
person's period of active military service within two years following 
his or her completion of active service or upon his or her re- 
registration with a Member, whichever occurs first.\18\
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    \16\ Id.
    \17\ Id.
    \18\ The deferral shall terminate 90 days following the person's 
completion of active service in the Armed Forces of the United 
States. Accordingly, if such person does not re-register with a 
Member within 90 days following his or her completion of active 
service in the Armed Forces of the United States, the amount of time 
in which the person must become re-registered with a Member without 
being subject to a representative or principal qualification 
examination or the SIE shall consist of the standard two-year period 
for representative and principal qualification examinations or the 
standard four-year period for the SIE, whichever is applicable, as 
provided in Rule 2.160(o).
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    Rule 2.160(f) specifies that the Exchange may require the 
successful completion of a written proficiency examination to enable it 
to examine and verify that prospective Members and associated persons 
of Members have adequate training, experience, and competence to comply 
with IEX rules and policies of the Exchange. Rule 2.160(g) specifies 
that if the Exchange requires the completion of such proficiency 
examinations, it may waive such examinations in exceptional cases and 
where good cause is shown, upon written request of the applicant, and 
accept other standards as evidence of an applicant's 
qualifications.\19\ The Exchange is proposing to add Supplementary 
Material .01 to provide for a waiver of examinations for individuals 
working for a financial services industry affiliate of a Member,\20\ 
based on provisions adopted by FINRA in the FINRA Filing that will be 
effective on October 1, 2018.\21\ As proposed, the waiver is available 
upon request by a Member for an individual designated with the Exchange 
as working for a financial services industry affiliate of a Member if 
the following conditions are met: (a) prior to the individual's initial 
designation, the individual was registered as a representative or 
principal with the Exchange or FINRA for a total of five years within 
the most recent 10-year period, including for the most recent year with 
the Member that initially designated the individual; (b) the waiver 
request is made within seven years of the individual's initial 
designation; (c) the initial designation and any subsequent 
designation(s) were made concurrently with the filing of the 
individual's related Form U5; (d) the individual continuously worked 
for the financial services industry affiliate(s) of a Member since the 
individual's last Form U5 filing; (e) the individual has complied with 
the Regulatory Element of continuing education as specified in Rule 
2.160(a); and (f) the individual does not have any pending or adverse 
regulatory matters, or terminations, that are reportable on the Form 
U4, and has not otherwise been subject to a statutory disqualification 
as defined in Section 3(a)(39) of the Exchange Act while the individual 
was designated as eligible for a waiver.
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    \19\ Any such waiver is pursuant to IEX Rule Series 9.600.
    \20\ For purposes of the Supplementary Material, a ``financial 
services affiliate of a Member'' is a legal entity that controls, is 
controlled by or is under common control with a Member and is 
regulated by the SEC, CFTC, state securities authorities, federal or 
state banking authorities, state insurance authorities, or 
substantially equivalent foreign regulatory authorities.
    \21\ See FINRA Rule 1210.09.
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    Rule 2.160(h) specifies that the Exchange requires the General 
Securities Representative Examination (``Series 7'') or an equivalent 
foreign examination module approved by the Exchange in qualifying 
persons seeking registration as General Securities Representatives, 
including as Authorized Traders, on behalf of Members. For those 
persons seeking limited registration as Securities Traders as described 
in paragraph (k) below, the Exchange requires the Securities Traders 
Qualification Examination (``Series 57''). Rule 2.160(h) also provides 
that the Exchange uses the Uniform Application for Securities Industry 
Registration or Transfer (``Form U4'') as part of its procedure for 
registration and oversight of Member personnel. The Exchange proposes 
several changes to Rule 2.160(h). First, the Exchange proposes to amend 
Rule 2.160(h) to specify that before the registration of a qualifying 
person can be effective, such person shall pass the Securities Industry 
Essentials (``SIE'') examination \22\ and an appropriate registration 
qualification examination, as specified in Rule 2.160(h). The SIE is a 
new general knowledge examination that was adopted by FINRA in the 
FINRA Filing and will be effective on October 1, 2018. Going forward, 
representative-level registration will require successful completion of 
the SIE and a tailored, specialized knowledge examination for a 
person's particular registered role. The Exchange's proposed change 
aligns with changes to FINRA Rule 1210.03, which were included in the 
FINRA Filing and will be effective beginning on October 1, 2018. 
Conforming changes are also proposed to Rule 2.160(i) to reference the 
SIE with respect to representative-level prerequisites to the Series 14 
and 24 principal-level examinations. The Exchange also proposes to 
adopt Commentary .01 to Rule 2.160(h) to provide that any person who is 
in good standing as representatives with the Financial Conduct 
Authority in the United Kingdom or with a Canadian stock exchange or 
securities regulator

[[Page 50135]]

would be exempt from the requirement to pass the SIE, and thus would be 
required only to pass a specialized knowledge examination to register 
with the Exchange as a representative. FINRA has adopted a similar 
provision in the FINRA Filing and will be effective beginning on 
October 1, 2018.
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    \22\ Individuals who are registered with the Exchange, FINRA, or 
another national securities exchange as of October 1, 2018 will be 
considered to have passed the SIE.
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    The Exchange also proposes to amend Rule 2.160(h) to provide that 
any person associated with a Member whose trading activities are 
conducted principally on behalf of an investment company that is 
registered with the Commission pursuant to the Investment Company Act 
and that controls, is controlled by or is under common control, with 
the Member is not required to be registered with the Exchange as a 
Securities Trader. This proposed change is substantially similar to 
existing National Association of Securities Dealers, Inc. (``NASD'') 
Rule 1032(f) and FINRA Rule 1220(b)(4)(A), that was included in the 
FINRA Filing and will be effective on October 1, 2018.
    Rule 2.160(i) currently provides in part that a sole proprietorship 
Member is not required to register at least two Principals with the 
Exchange, and that the Exchange may waive the two-Principal requirement 
in situations that indicate conclusively that only one Principal 
associated with the Member should be required to be registered. Given 
that one-person Members may be organized in legal forms other than a 
sole proprietorship (such as a single-person limited liability 
company), the Exchange proposes to amend the reference to a ``sole 
proprietorship'' to a ``Member with only one associated person'' so 
that any Member with only one associated person is not subject to the 
two-Principal requirement. This proposed change is substantially 
similar to Supplementary Material .01 to FINRA Rule 1210 that was 
included in the FINRA Filing and will be effective on October 1, 2018.
    Rule 2.160(i) also specifies that the Exchange will accept the New 
York Stock Exchange Series 14 Compliance Examination in lieu of the 
Series 24 to satisfy the examination requirement for any person 
designated as a Chief Compliance Officer. The Exchange proposes to 
delete the phrase ``New York Stock Exchange'' since the Series 14 is 
now referred to as the Series 14 Compliance Official Examination.\23\
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    \23\ See Series 14 examination description on FINRA website 
available at: http://www.finra.org/industry/series14.
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    Further, the Exchange proposes to add Supplementary Material .01 
related to the requirements for registered persons functioning as 
principals for a limited period of up to 120 calendar days. The 
provision aligns with FINRA Rule 1210.04 and is designed to provide 
appropriate flexibility to a Member to designate any person currently 
registered, or who becomes registered, with the Member as a 
representative to function as a principal for a limited period, 
providing such person has at least 18 months of experience functioning 
as a registered representative within the five-year period immediately 
preceding the designation. As proposed, the provision applies to 
designations to any principal category, including those that are not 
subject to a representative-level prerequisite examination.\24\
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    \24\ Principal categories for the Exchange that do not have such 
a prerequisite are the Financial and Operations Principal, 
Compliance Official, and Introducing Broker-Dealer Financial and 
Operations Principal.
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    Rule 2.160(j) sets forth the requirements for designation and 
registration of a Financial/Operations Principal by a Member and 
relates to the requirements for a Member to designate a Financial/
Operations Principal, the Financial/Operations Principal's obligations, 
and examination requirements. The rule specifies that the Financial/
Operations Principal is required to successfully complete the Financial 
and Operations Principal Examination (``Series 27'') but that the 
Exchange may waive such requirement if a Member has otherwise satisfied 
the financial and operational requirements of its designated examining 
authority. With respect to an Exchange waiver, Rule 2.160(n) provides 
that an alternative acceptable examination to the Series 27 for a 
Financial/Operations Principal is any other examination acceptable to 
such Member's designated examining authority. The Exchange has provided 
waivers under these provisions for Members that operate as introducing 
broker-dealers when FINRA (as the Member's designated examining 
authority) has permitted the Member's Financial/Operations Principal to 
function as such based on successful completion of the Limited 
Principal--Introducing Broker-Dealer Financial and Operations Principal 
Examination (``Series 28'') under applicable FINRA Rules.\25\ FINRA 
Rule 1220(a)(4) (which was included in the FINRA Filing and will be 
effective on October 1, 2018) specifies that a FINRA member, other than 
a member operating pursuant to Exchange Act Rules 15c3-1(a)(1)(ii), 
(a)(2)(i) or (a)(8), may designate an Introducing Broker-Dealer 
Financial and Operations Principal (who must successfully complete the 
Series 27 or 28 examination) instead of a Financial and Operations 
Principal (who must successfully complete the Series 27 
examination).\26\ Currently, an IEX Member that is eligible to 
designate an Introducing Broker-Dealer Financial and Operations 
Principal under FINRA rules or the rules of another national securities 
exchange must request a waiver from the Exchange, pursuant to Rule 
2.160(j), so that its Financial/Operations Principal may successfully 
complete the Series 28 examination instead of the Series 27 
examination. Rule 2.160(j) specifies that the Exchange may waive the 
requirement that the Member's Financial/Operations Principal 
successfully complete the Series 27 examination if the Member has 
otherwise satisfied the financial and operational requirements of its 
designated examining authority. Pursuant to such waiver provisions, the 
Exchange has waived the Series 27 examination requirement for a 
Member's Financial/Operations Principal and accepted the Series 28 
examination. In order to simplify and provide additional clarity on the 
acceptable examination requirements for IEX Members' Financial/
Operations Principals, the Exchange proposes to amend Rule 2.160(j) to 
specifically describe when the Series 28 is an acceptable examination 
for a Member's Financial/Operations Principal. As proposed, the 
Exchange would replace the language regarding possible waiver of 
successful completion of the Series 27 examination with language 
providing that in the case of a Member that operates other than 
pursuant to Exchange Act Rule 15c3-1(a)(1)(ii), (a)(2)(i) or (a)(8), 
its Financial/Operations Principal must successfully complete either 
the Series 27 or Series 28 examination. Conforming amendments are also 
proposed to Rule 2.160(n).
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    \25\ See NASD Rule 1022(c).
    \26\ The Exchange notes that the term Financial/Operations 
Principal in IEX rules is synonymous with the term Financial and 
Operations Principal in FINRA rules. A Member may designate an 
Introducing Broker-Dealer Financial and Operations Principal as its 
Financial/Operations Principal if the firm is not a clearing firm 
and does not operate pursuant to Exchange Act Rule 15c3-1(a)(1)(ii), 
(a)(2)(i) or (a)(8).
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    The Exchange is proposing to amend Rule 2.160(o), which is 
currently reserved, to adopt rule provisions related to the 
circumstances under which registrations lapse and the SIE expires, 
aligning to FINRA Rule 1210.08 which was included in the FINRA Filing 
and will be effective on October 1, 2018. For purposes of this 
paragraph, an application shall not be considered to have been received 
by the Exchange

[[Page 50136]]

if that application does not result in a registration. Rule 2.160(o) 
provides that a person who was last registered as a representative or 
principal two or more years immediately preceding the date of receipt 
by the Exchange of a new application as a representative or principal, 
shall be required to pass a representative and/or principal 
qualification examination appropriate to his or her category or 
registration as specified in paragraphs (h), (i), (j), (k), (l), and 
(n) of Rule 2.160. Further, any person who last passed the SIE or who 
was last registered as a representative, whichever occurred last, four 
or more years immediately preceding the date of receipt by the Exchange 
of a new application for registration as a representative, shall be 
required to pass the SIE in addition to a representative qualification 
examination appropriate to his or her category of registration as 
specified in paragraphs (h), (i), (j), (k), (l), and (n) of Rule 2.160. 
Additionally, any person whose registration has been revoked pursuant 
to Rule 8.310 shall be required to pass a principal or representative 
qualification examination appropriate to his or her category of 
registration as specified in paragraphs (h), (i), (j), (k), (l), and 
(n) of Rule 2.160 to be eligible for registration with the Exchange.
    Rule 2.160(p) specifies the Regulatory Element of the continuing 
education requirements for associated persons of a Member and aligns 
with the FINRA requirements for the particular registration category of 
the registered person. Exchange rules do not currently address the Firm 
Element continuing education requirements.\27\ The Exchange proposes to 
revise Rule 2.160(p) to harmonize with the amended continuing education 
requirements specified in FINRA Rule 1240, as included in the FINRA 
Filing that will be effective on October 1, 2018. As proposed, Rule 
2.160(p) will specify the required Continuing Education Regulatory 
Element and Firm Element. The Exchange is proposing several changes to 
Regulatory Element provisions. First, the Exchange proposes to add 
introductory text at the beginning of Rule 2.160(p) stating that ``this 
[rule] prescribes requirements regarding the continuing education of 
specified persons subsequent to their initial registration with the 
Exchange. The requirements shall consist of a Regulatory Element and a 
Firm Element as set forth below.'' The Exchange also proposes to add 
subparagraph (a) entitled ``Regulatory Element'' immediately after the 
new introductory text to delineate that the provisions that follow 
relate to the Regulatory Element. The Exchange also proposes several 
amendments to subparagraphs (a)(1), (2) and (3) to align with changes 
to FINRA Rule 1240.
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    \27\ The Exchange notes that the FINRA Firm Element requirement 
is only applicable to: (i) Persons registered with a FINRA member 
who have direct contact with customers in the conduct of the 
member's securities sales, trading, and investment banking 
activities; (ii) persons registered as an operations professional or 
research analyst; and (iii) their immediate supervisors. An Exchange 
Member with associated persons registered in each of the 
aforementioned categories would be conducting a customer business. 
The Exchange is not proposing to adopt similar language modifying 
the ``direct contact with customers'' language in FINRA's rule. Any 
Exchange Member with a customer business is required to be a FINRA 
member pursuant to Section 15(b)(8) of the Act. Thus any Exchange 
Member that is not a FINRA member would not be conducting a customer 
business and thus would not have any associated persons that meet 
the FINRA criteria to be subject to the FINRA Firm Element rule. 
Therefore, there is no gap in the application of the Firm Element 
requirement to Exchange Members and their associated persons.
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    Several changes are proposed to subparagraph (a)(1). First, in lieu 
of the current text describing persons subject to the continuing 
education requirements that refers to any ``Authorized Trader, 
Principal, or Financial/Operations Principal'' abbreviated as 
``Registered Representative,'' the language would be revised to refer 
to ``any associated person registered with the Exchange'' abbreviated 
as ``Registered Person'' to be simpler and more inclusive and 
descriptive, since not all registered persons listed are considered to 
be a Registered Representative. Conforming changes are proposed 
throughout the rule. Second, existing rule text in the first paragraph 
of subparagraph (a)(1) providing that ``no Member shall permit any . . 
. Registered Representative to continue to, and no Registered 
Representative shall continue to, perform duties as a Registered 
Representative on behalf of such Member, unless such person has 
complied with the continuing education requirements in this IEX Rule'' 
will be replaced with language aligned with language in FINRA Rule 
1240(a) and (5), providing that all registered persons, including any 
person who is permissively registered pursuant to Commentary .02 to 
Rule 2.160 and any person who is designated as eligible for a waiver 
pursuant to Commentary .01 to Rule 2.160(g), shall comply with the 
requirement to complete the Regulatory Element. Additionally, the 
Exchange proposes to add language at the end of subparagraph (a)(1) 
stating that the content of the Regulatory Element for a person 
designated as eligible for a waiver pursuant to Commentary .01 to Rule 
2.160(g) shall be determined based on the person's most recent 
registration status, and the Regulatory Element shall be completed 
based on the same cycle had the person remained registered.
    Subparagraph (p)(2) [sic] specifies the consequences to a 
Registered Person who fails to complete the Regulatory Element of the 
continuing education program within the prescribed time frames. 
Currently, the rule provides that such a person will have their [sic] 
registration deemed inactive until such time as the requirements of the 
program have been satisfied and shall cease all activities requiring 
registration. The Exchange proposes to amend the rule to codify 
existing FINRA guidance regarding the impact of failing to complete the 
Regulation Element on a Registered Person's activities and 
compensation.\28\ Specifically, as proposed, Rule 2.160(p)(2) [sic] 
provides that any person whose registration has been deemed inactive 
under the rule shall not be permitted to be registered in another 
registration category under Rule 2.160 with that Member or to be 
registered in any registration category under Rule 2.160 with another 
Member, until the person has satisfied the deficiency. This provision 
is comparable to FINRA Rule 1210.07 (which was included in the FINRA 
Filing and will be effective on October 1, 2018). Further, the Exchange 
proposes to add provisions that such a person may not accept or solicit 
business or receive any compensation for the purchase or sale of 
securities. However, such person may receive trail or residual 
commissions resulting from transactions completed before the inactive 
status, unless the Member with which such person is associated has a 
policy prohibiting such trail or residual commissions. This clarifying 
language is substantially similar to amendments to FINRA Rule 1240 
(which was included in the FINRA Filing and will be effective on 
October 1, 2018). In addition, the Exchange proposes to add language 
specifying that if a person designated as eligible for a waiver 
pursuant to Supplementary Material .01 to Rule 2.160(g) fails to 
complete the Regulatory Element within the prescribed time frames, the 
person shall no longer be eligible for such a waiver. The Exchange also 
proposes a conforming change to subparagraph (a)(3) with respect to the 
requirement to retake the Regulatory Element and satisfy all of its 
requirements in the event the person is subject to certain

[[Page 50137]]

specified disciplinary action. These provisions align with FINRA Rule 
1240.
---------------------------------------------------------------------------

    \28\ See, e.g., NASD Notice to Members 95-35 (May 1995).
---------------------------------------------------------------------------

    Additionally, the Exchange proposes to add subparagraphs (a)(5)-(7) 
to align with FINRA Rule 1240. As proposed, subparagraph (a)(5) is 
reserved. The corresponding part of FINRA Rule 1240 pertains to the 
definition of a ``Covered Person'' under FINRA rules, who is subject to 
the Regulatory Element. As discussed above, the Exchange is using the 
term ``Registered Person'' which is incorporated into subparagraph 
(a)(1).\29\ Subparagraph (a)(6) specifies that delivery of the 
Regulatory Element will be administered through web-based delivery or 
such other technological manner and format as specified [sic] by FINRA. 
Subparagraph (a)(7) requires designation and identification of the 
Regulatory Element Contact Person to FINRA on behalf of the Exchange 
and describes the role of such person to receive email notifications 
provided via CRD regarding Regulatory Element deadlines for Registered 
Persons subject to the Regulatory Element, including when such a person 
is deemed inactive for failure to complete the Regulatory Element.
---------------------------------------------------------------------------

    \29\ The term ``Registered Person'' in the Regulatory Element 
rule provisions has substantially the same meaning as FINRA's term 
``Covered Person'' except that FINRA excludes ``Foreign Associates'' 
from the term ``Covered Person.'' Foreign Associate is a 
discontinued FINRA registration category, as described in the FINRA 
Filing, and is not recognized by IEX rules. Accordingly, the 
Exchange does not believe it is necessary to exclude Foreign 
Associates from the definition of ``Registered Person.''
---------------------------------------------------------------------------

    The Exchange also proposes to add new subparagraph (b) to Rule 
2.160(p) to set forth the Firm Element requirements, which are 
substantially similar to FINRA Rule 1240(b) \30\ and consist of annual, 
Member-developed and administered training programs designed to enhance 
covered registered persons' securities knowledge, skill, and 
professionalism, taking into consideration the Member's size, 
organizational structure, and scope of business activities, as well as 
regulatory developments and the performance of covered registered 
persons in the Regulatory Element.\31\ If a Member's analysis 
establishes the need for supervisory training for persons with 
supervisory responsibilities, such training must be included in the 
Member's training plan.
---------------------------------------------------------------------------

    \30\ In setting forth the persons subject to the Firm Element, 
proposed Rule 2.160(b)(1) [sic] is limited to persons registered 
with a Member pursuant to Rule 2.160 who have direct contact with 
customers in the securities business of the Member relating to 
activity that occurs on the Exchange, and to their immediate 
supervisors. FINRA Rule 1240(b)(1) is broader in scope given FINRA's 
broader regulatory mandate.
    \31\ The definition of ``covered registered person'' under 
proposed Rule 2.160(p)(b) does not include Registered Options 
Professionals [sic] because that is not a registration category 
provided for in Exchange rules.
---------------------------------------------------------------------------

    As proposed, any person registered with a Member pursuant to Rule 
2.160 who has direct contact with customers \32\ in the securities 
business of the Member relating to activity that occurs on the 
Exchange, and the immediate supervisors of such persons, must take all 
appropriate and reasonable steps to participate in the Firm Element 
training as required by his or her Member. Subparagraph (b)(2)(B) sets 
forth the minimum standards for the Firm Element training programs. 
Such programs must be appropriate for the business of the Member and, 
at a minimum, must cover training in ethics and professional 
responsibility and the following matters concerning securities 
products, services and strategies offered by the Member: General 
investment features and associated risk factors; suitability and sales 
practice considerations; and applicable regulatory requirements. 
Further, a Member must administer its continuing education programs in 
accordance with its annual evaluation and written plan, and must 
maintain records documenting the content of the programs and completion 
of the programs by covered Registered Persons.\33\
---------------------------------------------------------------------------

    \32\ ``Customer'' means any natural person and any organization, 
other than another broker or dealer, executing securities 
transactions with or through a Member.
    \33\ The Exchange may also require a Member, individually or as 
part of a larger group, to provide specific training to its covered 
Registered Persons in such areas as the Exchange deems appropriate. 
See proposed Rule 2.160(p)(b)(4).
---------------------------------------------------------------------------

    Finally, the Exchange also proposes to correct a typographical 
error in the footnote numbering of the chart in Rule 2.160(n).
Exchange Registration Exceptions
    The Exchange is proposing to amend Rule 2.160(m), which is 
currently reserved, to specify that certain associated persons of a 
Member are not required to be registered with the Exchange, because 
such person's roles and responsibilities are unrelated to the 
Exchange's operations, and registration therefore serves no regulatory 
purpose. As proposed, the following categories of associated persons of 
a Member are not required to be registered with the Exchange:
    (1) Associated persons of a Member whose functions are solely and 
exclusively clerical or ministerial.
    (2) Associated persons of a Member whose functions are related 
solely and exclusively to:
    (A) Effecting transactions on the floor of a national securities 
exchange and who are appropriately registered with such exchange;
    (B) transactions in municipal securities;
    (C) transactions in commodities; or
    (D) transactions in securities futures, provided that any such 
person is appropriately registered with a registered futures 
association.
    (3) Associated persons of a Member that are restricted from 
accessing the Exchange and that do not engage in the securities 
business of the Member relating to activity that occurs on the 
Exchange.
    The Exchange notes that each proposed exception is based on 
existing exceptions in FINRA rules or those of other exchanges. The 
proposed exceptions in Rule 2.160(m)(1) and (2) are substantially 
similar to FINRA rules, and the exception in Rule 2.160(m)(3) is 
substantially similar to a CBOE [sic] Exchange, Inc. (``CBOE'') 
rule.\34\
---------------------------------------------------------------------------

    \34\ See current NASD Rule 1060, FINRA Rule 1230 (which is 
pending effectiveness), and CBOE [sic] Exchange, Inc. Rule 
3.6A(a)(2)(D).
---------------------------------------------------------------------------

    With respect to the proposed exception in Rule 2.160(m)(3), the 
Exchange believes that such individuals do not need to be registered 
with the Exchange because those individuals do not access the Exchange 
directly and do not engage in the securities business of the Member 
relating to activity that occurs on the Exchange. For example, suppose 
that Firm XYZ is an Exchange Member and a member of the Nasdaq Stock 
Market LLC (``Nasdaq''). Ms. ABC is an associated person of XYZ, 
assigned to XYZ's Nasdaq market maker ``desk'' which only sends orders 
to Nasdaq. Ms. ABC is subject to Nasdaq's registration and 
qualification requirements. Ms. ABC would not be required to separately 
register with the Exchange so long as Ms. ABC does not send orders 
directly to the Exchange through XYZ and not another Exchange 
Member.\35\
---------------------------------------------------------------------------

    \35\ For example, an order originating from XYZ's Nasdaq market 
maker desk may be routed to the Exchange by another Member.
---------------------------------------------------------------------------

    In addition, the Exchange proposes to add Supplementary Material 
.01 to clarify the registration requirements applicable to associated 
persons of a Member who accept customer orders, and the applicability 
to a determination of whether the functions of an associated person of 
a Member are solely and exclusively clerical or ministerial. As 
proposed, Supplementary Material .01 provides that the function of 
accepting customer orders is not considered a clerical or ministerial 
function. Each associated person of a Member who accepts

[[Page 50138]]

customer orders under any circumstances shall be registered in an 
appropriate registration category pursuant to Rule 2.160. However, an 
associated person of a Member shall not be considered to be accepting a 
customer order where occasionally, when an appropriately registered 
person is unavailable, such person transcribes order details submitted 
by a customer and the registered person contacts the customer to 
confirm the order details before entering the order. This clarification 
is substantially similar to Supplementary Material .01 to FINRA Rule 
1230 (which was included in the FINRA Filing and will be effective on 
October 1, 2018), and is designed to provide that acceptance of 
customer orders is appropriately overseen by a registered associated 
person of a Member.
    The Exchange also proposes a conforming amendment to Rule 2.160(e) 
to incorporate the registration exception.
Deletion of Obsolete Rule 2.150
    As approved by the Commission as part of the Exchange's Form 1 
application,\36\ Rule 2.150 provided a temporary Member Application and 
Waive-In Process that permitted current subscribers to the alternative 
trading system previously operated by the Exchange's affiliate, IEX 
Services, LLC, to apply to become a Member of the Exchange by 
submitting a ``waive-in application'' within ninety (90) days of 
approval of the Form 1 by the Commission. The Commission approved the 
Exchange's Form 1 application on June 17, 2016, meaning that waive-in 
applications must have been received by the Exchange on or prior to 
September 15, 2016. Accordingly, Rule 2.150 is obsolete, and the 
Exchange proposes to delete the rule.
---------------------------------------------------------------------------

    \36\ See Securities Exchange Act Release No. 34-78101 (June 17, 
2016), 81 FR 41141 (June 23, 2016) (File No. 10-222).
---------------------------------------------------------------------------

2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions of Section 6(b) of the Act \37\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \38\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
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. The Exchange also believes that the proposed rule 
change furthers the objectives of Section 6(c)(3)(B) of the Act,\39\ 
which authorizes the exchange to prescribe standards of training, 
experience and competence for persons associated with an IEX Member.
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 78f.
    \38\ 15 U.S.C. 78f(b)(5).
    \39\ 15 U.S.C. 78(c)(3)(B).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change overall will 
harmonize its membership and registration rules with FINRA rules,\40\ 
thus assisting Members and associated persons of Members in complying 
with those rules and thereby enhancing regulatory efficiency. In 
addition, the Exchange believes that providing greater harmonization 
between IEX and FINRA rules with a similar purpose will result in less 
burdensome and more efficient regulatory compliance for IEX Members 
that are subject to regulatory examination and oversight by FINRA 
pursuant to a regulatory services agreement between IEX and FINRA, and 
facilitate FINRA's performance of its regulatory functions for IEX 
under the regulatory services agreement, thereby removing impediments 
to and perfecting the mechanism of a free and open market and a 
national market system, consistent with the objectives of Section 
6(b)(5) of the Act.
---------------------------------------------------------------------------

    \40\ The Exchange is proposing to harmonize with those aspects 
of FINRA rules that IEX determined are relevant to its operations.
---------------------------------------------------------------------------

    As described in the Purpose section, the Exchange proposes various 
revisions to Rule 2.160, which sets forth the requirements applicable 
to Members and their associated persons, including registration 
requirements thereof. The Exchange believes that these proposed rule 
amendments are consistent with the public interest and the protection 
of investors. With respect to the revisions to the rule title, the 
Exchange believes that referencing registration requirements, as well 
as restrictions on membership, is a clearer description of the scope of 
the rule and will thereby enable Members, their associated persons, and 
other market participants to better identify such requirements in IEX 
rules. Similarly, the Exchange believes that adding text to paragraph 
(e) of Rule 2.160 to reference proposed changes to paragraph (m) 
regarding registration exemptions (as discussed further below) and 
impermissible registrations will help to assure that IEX's rules are 
clear regarding such requirements.
    The Exchange further believes that the addition of Supplementary 
Material .01 to Rule 2.160(e), to permit permissive registrations, is 
consistent with the Act in order to allow Members to develop a depth of 
associated persons with registrations to respond to unanticipated 
personnel changes and will encourage greater regulatory understanding. 
The Exchange also believes that the addition Supplementary .02 to Rule 
2.160(e) regarding the status of current and former registered persons 
serving in active duty in the Armed Forces of the United States is 
consistent with the Act because it provides a reasonable accommodation 
to such persons, who are engaged in efforts to protect and defend the 
United States, with an appropriate notification process to the 
Exchange, thereby removing impediments to and perfecting the mechanism 
of a free and open market and a national market system, consistent with 
the objectives of Section 6(b)(5) [sic] of the Act.
    Additionally, the Exchange believes it is consistent with the Act 
to provide an examination waiver for individuals working for a 
financial services industry affiliate of a Member, pursuant to 
Supplementary Material .02 to Rule 2.160(g), because it will provide 
appropriate flexibility to Members and their financial services 
industry affiliates in the management of their personnel, thereby 
removing impediments to and perfecting the mechanism of a free and open 
market and a national market system, consistent with the objectives of 
Section 6(b)(5 [sic] of the Act.
    The Exchange also believes that its proposed changes to Rule 
2.160(h) are consistent with the Act. Specifically, adoption of the SIE 
is designed to promote uniformity and consistency with FINRA's rules of 
similar purpose, thereby fostering cooperation and coordination with 
persons engaged in regulating and facilitating transactions in 
securities. In addition, the Exchange believes that it is consistent 
with the Act to not require Exchange registration as a Securities 
Trader for associated persons of a Member whose trading activities are 
conducted principally on behalf of an investment company affiliate of 
the Member, as described in the Purpose section. This exemption has 
been part of FINRA (and its predecessor, the NASD) rules applicable to 
the current Securities Trader examination as well as the predecessor 
Series 55 examination for many years, and recognizes that such traders 
are generally in the same position as ``buy-side'' professionals 
employed within investment companies, who would not be subject to the 
examination requirement.\41\
---------------------------------------------------------------------------

    \41\ See, e.g., NASD Notice to Members 98-17 and Securities 
Exchange Act Release No. 75783 (August 28, 2015), 80 FR 53369 
(September 03, 2015) (approving File No. SR-FINRA-2015-17).

---------------------------------------------------------------------------

[[Page 50139]]

    The Exchange also believes it is appropriate to provide an 
exemption from the SIE for any person who is in good standing as a 
representative with the Financial Conduct Authority in the United 
Kingdom or with a Canadian stock exchange or securities regulatory. The 
Exchange believes that there is sufficient overlap between the SIE and 
such foreign qualification requirements to permit them to act as 
exemptions to the SIE, and that the exemption provides appropriate 
flexibility to such persons, thereby removing impediments to and 
perfecting the mechanism of a free and open market and a national 
market system, consistent with the objectives of Section 6(b)(5 [sic] 
of the Act.
    With respect to the amendment to Rule 2.160(i) to revise the 
reference to ``sole proprietorship'' to a ``Member with only one 
associated person'' the Exchange believes that this change is 
consistent with the Act because it recognizes that one-person Members 
may be organized in legal forms other than a sole proprietorship, and 
thus provides fair and consistent regulatory requirements to all one-
person Members. Further, the Exchange believes that elimination of the 
reference to ``New York Stock Exchange'' with respect to the Series 14 
Compliance Official Examination is consistent with the Act because it 
will make the Exchange's rule in this respect accurate. The Exchange 
also believes that the addition of Supplementary Material .01 to Rule 
2.160(i) to provide for registered persons to function as principals 
for a limited period of time is consistent with the Act because it 
provides appropriate flexibility to Members, thereby removing 
impediments to and perfecting the mechanism of a free and open market 
and a national market system, consistent with the objectives of Section 
6(b)(5 [sic] of the Act.
    With respect to the amendment to Rules 2.160(j) and (n) to specify 
the circumstances under which the Series 28 would be an acceptable 
examination for a Member's Financial/Operations Principal, the Exchange 
believes that the proposed change will provide additional clarity to 
Members with respect to such examination requirements and also reduce 
the existing burden on impacted Members to request a waiver from the 
Exchange for an examination that has already been accepted by the 
Member's designated examining authority, thereby removing impediments 
to and perfecting the mechanism of a free and open market and a 
national market system, consistent with the objectives of Section 
6(b)(5) of the Act.
    With respect to the amendments to Rule 2.160(o) to add rule 
provisions regarding the circumstances under which registrations lapse 
and the SIE expires, the Exchange believes such amendments are 
consistent with the Act because they will align with FINRA rules of 
similar purpose, thereby fostering cooperation and coordination with 
persons engaged in regulating and facilitating transactions in 
securities.
    With respect to the proposed amendments to Rule 2.160(p) regarding 
continuing education requirements, the Exchange believes that the 
proposed changes are consistent with the Act and the public interest, 
because they will provide additional clarity and consistency to the 
rule provisions in several respects and also align with FINRA rules of 
similar purpose, thereby fostering cooperation and coordination with 
persons engaged in regulating and facilitating transactions in 
securities. First, the Exchange believes that the terminology change to 
collectively refer to a ``Registered Person'' rather than a 
``Registered Representative'' is more inclusive and descriptive of the 
categories of associated persons of a Member who are registered with 
the Exchange and subject to the continuing education requirements, 
thereby avoiding any potential confusion. Second, the Exchange believes 
that harmonizing with FINRA's continuing education requirements will 
promote uniformity in the application of the continuing education 
requirements for Registered Persons and thereby avoid any confusion on 
the part of IEX Members and their associated persons on what is 
required under IEX rules.
    The Exchange also believes that correcting the typographical error 
in the footnote numbering of the chart in Rule 2.160(n) is consistent 
with the Act because it will avoid any potential confusion regarding 
the chart and its footnotes.
    The Exchange believes that the proposed amendments to Rule 2.160(m) 
(and conforming amendment to Rule 2.160(e)) to specify that certain 
categories of associated persons of a Member are not required to be 
registered with the Exchange is consistent with the Act because such 
persons' roles and responsibilities are unrelated to the Exchange's 
operations, and registration therefore serves no regulatory purpose. 
Further, the Exchange believes that (except for floor members of 
another national securities exchange and associated persons restricted 
from accessing the Exchange and that do not engage in the securities 
business of the Member relating to activity that occurs on the 
Exchange) such persons would not be considered actively engaged in the 
securities business. With respect to persons registered as floor 
members on another national securities exchange and associated persons 
restricted from accessing the Exchange and that do not engage in the 
securities business of the Member relating to activity that occurs on 
the Exchange, the Exchange believes that requiring registration with 
IEX is not warranted since the associated person's activities are 
unrelated to activity that occurs on the Exchange. As discussed in the 
Purpose section, the proposed registration exemptions are substantially 
similar to existing registration exemptions in FINRA and CBOE [sic] 
rules, and thus do not raise any new or novel issues not already 
considered by the Commission. Thus, the Exchange believes that the 
proposed exemptions will remove impediments to and perfect the 
mechanism of a free and open market and a national market system, 
consistent with the objectives of Section 6(b)(5) of the Act.
    In addition, the Exchange believes that proposed Supplementary 
Material .01 to Rule 2.160(m) is consistent with the Act because it 
provides clarity on when the functions of an associated person are 
solely and exclusively clerical or ministerial, which also is 
consistent with the objectives of Section 6(b)(5) of the Act.
    Finally, the Exchange believes that deletion of Rule 2.150 is 
consistent with the Act because the rule is obsolete, as described in 
the Purpose section. Accordingly, deletion of the rule will remove any 
potential confusion among potential Members as to the membership 
application process.

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

    IEX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed amendments are 
intended to promote transparency in the Exchange's rules, and 
consistency with the rules of FINRA and other national securities 
exchanges with respect to the examination, qualification, and 
continuing education requirements applicable to Members and their 
associated persons. Accordingly, the Exchange does not believe that the 
proposed rule change imposes any burden on competition that is not 
necessary or appropriate in furtherance of such regulatory objectives. 
Further,

[[Page 50140]]

the proposed changes would apply to all Members and their associated 
persons in the same manner and therefore would not impose any 
unnecessary intramarket burdens. The Exchange also does not believe 
that the proposed rule change would impose any burden on intermarket 
competition since all national securities exchanges are expected to 
adopt similar rules with uniform standards for the qualification, 
registration and continuing education requirements.

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

    Written comments were neither solicited nor received.

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

    The Exchange has designated this rule filing as non-controversial 
under Section 19(b)(3)(A) \42\ of the Act and Rule 19b-4(f)(6) \43\ 
thereunder. Because the proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) \44\ of the Act and Rule 19b-
4(f)(6) \45\ thereunder.
---------------------------------------------------------------------------

    \42\ 15 U.S.C. 78s(b)(3)(A).
    \43\ 17 CFR 240.19b-4(f)(6).
    \44\ 15 U.S.C. 78s(b)(3)(A).
    \45\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \46\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\47\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so the proposed rule 
change may become operative on October 1, 2018. According to the 
Exchange, waiving the 30-day operative delay would allow the Exchange 
to harmonize its rules with FINRA as of the effective date of the FINRA 
Filing. The Commission notes that, as described in detail above, the 
Exchange's proposal does not raise any new or novel issues, as the 
Exchange is harmonizing its rules with FINRA and Cboe, and deleting 
obsolete text. Therefore, the Commission believes that waiving the 30-
day operative delay is consistent with the protection of investors and 
the public interest. Accordingly, the Commission hereby waives the 30-
day operative delay and designates the proposal operative on October 1, 
2018.\48\
---------------------------------------------------------------------------

    \46\ 17 CFR 240.19b-4(f)(6).
    \47\ 17 CFR 240.19b-4(f)(6)(iii).
    \48\ For purposes only of waving the 30-day operative delay, the 
Commission has considered the purposed 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 necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \49\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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-IEX-2018-19 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-IEX-2018-19. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-IEX-2018-19 and should be submitted on 
or before October 25, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\50\
---------------------------------------------------------------------------

    \50\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-21582 Filed 10-3-18; 8:45 am]
 BILLING CODE 8011-01-P
50132 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Notices

As noted above, the Exchange asserts IV. Conclusion are pending effectiveness; (ii) specify
that a lower tied hedge minimum It is therefore ordered, pursuant to when associated persons of a Member
eligibility size is appropriate for options Section 19(b)(2) of the Act,23 that the are required to be registered with the
on the Nasdaq 100 Index because the proposed rule change (SR–Phlx–2018– Exchange; and (iii) delete Rule 2.150
index value for NDX and NDXP is high 55) be, and hereby is, approved. related to a temporary membership
compared to the index values of other application process and waive-in, which
For the Commission, by the Division of
security instruments, adding that a size Trading and Markets, pursuant to delegated is obsolete. The Exchange has
of 50 contracts for NDX is still authority.24 designated this rule change as ‘‘non-
considered a large size order given Eduardo A. Aleman, controversial’’ under Section 19(b)(3)(A)
NDX’s higher notional value.19 To Assistant Secretary.
of the Act 7 and provided the
illustrate the high notional value of Commission with the notice required by
[FR Doc. 2018–21586 Filed 10–3–18; 8:45 am]
options on the Nasdaq 100 Index, Phlx Rule 19b–4(f)(6) thereunder.8
BILLING CODE 8011–01–P
stated that based on the index value, the The text of the proposed rule change
multiplier, and the premium value, the is available at the Exchange’s website at
current 500 minimum contract size SECURITIES AND EXCHANGE www.iextrading.com, at the principal
parameter would require an NDX COMMISSION office of the Exchange, and at the
options transaction with a premium of Commission’s Public Reference Room.
[Release No. 34–84320; File No. SR–IEX–
approximately $6.5 million in order to
2018–19] II. Self-Regulatory Organization’s
qualify for the rule’s tied hedge
exception.20 Statement of the Purpose of, and the
Self-Regulatory Organizations;
Statutory Basis for, the Proposed Rule
The Commission believes that the Investors Exchange LLC; Notice of
Change
reduced tied hedge eligibility size Filing and Immediate Effectiveness of
requirement of 50 contracts for options Proposed Rule Change To Amend Rule In its filing with the Commission, the
on the Nasdaq 100 Index is in line with 2.160 Related to the Qualification and self-regulatory organization included
the original intent of the provision, as it Registration Requirements for statements concerning the purpose of
will continue to be limited to larger Associated Persons of a Member and and basis for the proposed rule change
orders, given the relatively higher index To Delete Rule 2.150 Which is Obsolete and discussed any comments it received
value and notional value of NDX and September 28, 2018. on the proposed rule change. The text
NDXP.21 While the reduction in the Pursuant to Section 19(b)(1)1 of the of these statement [sic] may be
minimum size requirement may allow Securities Exchange Act of 1934 (the examined at the places specified in Item
more transactions to qualify for the tied ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 IV below. The self-regulatory
hedge exception, the Commission notice is hereby given that, on organization has prepared summaries,
believes that the proposed change is September 25, 2018, the Investors set forth in Sections A, B, and C below,
narrow in scope as it relates only to Exchange LLC (‘‘IEX’’ or the of the most significant aspects of such
options in NDX and NDXP and will ‘‘Exchange’’) filed with the Securities statements.
continue to provide only a limited and Exchange Commission (the A. Self-Regulatory Organization’s
exception for larger orders meeting the ‘‘Commission’’) the proposed rule Statement of the Purpose of, and the
conditions of the rule.22 change as described in Items I and II
Statutory Basis for, the Proposed Rule
The Commission also finds that the below, which Items have been prepared
Change
non-substantive changes to Phlx Rule by the self-regulatory organization. The
1066 are designed to protect investors Commission is publishing this notice to 1. Purpose
and the public interest by adding clarity solicit comments on the proposed rule
change from interested persons. The Exchange is proposing to amend
and transparency to the rules. Rule 2.160 to (i) harmonize with certain
For the reasons noted above, the I. Self-Regulatory Organization’s FINRA rules related to qualification and
Commission finds that the proposed Statement of the Terms of Substance of registration requirements for associated
rule change is consistent with the Act. the Proposed Rule Change persons of a Member which are pending
Pursuant to the provisions of Section effectiveness; (ii) specify when
19 See Notice, supra note 3, at 40798–99. 19(b)(1) under the Securities Exchange associated persons of a Member are
20 See Notice, supra note 3, at 40798. Act of 1934 (‘‘Act’’),4 and Rule 19b–4 required to be registered with the
21 See Notice, supra note 3, at 40798–99. The
thereunder,5 IEX is filing with the Exchange; and (iii) delete Rule 2.150
Commission also notes that the Exchange Commission a proposed rule change to
represented that it conducts surveillance in
related to a temporary membership
connection with anticipatory hedging. Specifically, amend IEX Rule 2.160 to (i) harmonize application process and waive-in, which
the Exchange represented that it conducts on-floor IEX rules with certain Financial is obsolete. Each proposed change is
surveillance to ensure both the stock and option Industry Regulatory Authority, Inc. described below.
components of the trade were exposed in open (‘‘FINRA’’) rules related to qualification
outcry and that the trading crowd had a reasonable
opportunity to participate in the transaction. The and registration requirements for partner, officer, director, or branch manager of a
Exchange asserted that it also conducts post-trade associated persons of a Member 6 which Member (or person occupying a similar status or
surveillance. The Exchange also noted that prior to performing similar functions), any person directly
entering tied hedge orders on behalf of customers, 23 15 U.S.C. 78s(b)(2). or indirectly controlling, controlled by, or under
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the member or member organization must deliver 24 17 common control with such Member, or any
CFR 200.30–3(a)(12).
to the customer a written notification informing the 1 15 U.S.C. 78s(b)(1).
employee of such Member, except that any person
customer that his order may be executed using the associated with a Member whose functions are
2 15 U.S.C. 78a.
Exchange’s tied hedge procedures. See Phlx Rule solely clerical or ministerial shall not be included
3 17 CFR 240.19b–4.
1064(d)(iii)(G). in the meaning of such term for purposes of these
22 The Commission notes that the Exchange 4 15 U.S.C. 78s(b)(1). Rules. See IEX Rule 1.160(y). See also 15 U.S.C.
represented that tied hedge transactions do not 5 17 CRF 240.19b–4. 78c(a)(18).
7 15 U.S.C. 78s(b)(3)(A).
occur with great frequency on the Exchange’s 6 ‘‘Person Associated with a Member’’ or

trading floor. Id. ‘‘Associated Person of a Member’’ mean [sic] any 8 17 CFR 240.19b–4.

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50134 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Notices

with a Member and only while the Rule 2.160(f) specifies that the Rule 2.160(a); and (f) the individual
person remains on active military duty. Exchange may require the successful does not have any pending or adverse
Further, the Member with which such completion of a written proficiency regulatory matters, or terminations, that
person is registered shall promptly examination to enable it to examine and are reportable on the Form U4, and has
notify the Exchange in such manner as verify that prospective Members and not otherwise been subject to a statutory
the Exchange may specify of such associated persons of Members have disqualification as defined in Section
person’s return to active employment adequate training, experience, and 3(a)(39) of the Exchange Act while the
with the Member.13 competence to comply with IEX rules individual was designated as eligible for
Paragraph (b) of proposed and policies of the Exchange. Rule a waiver.
Commentary .02 addresses the status of 2.160(g) specifies that if the Exchange Rule 2.160(h) specifies that the
a Member that is a sole proprietor who requires the completion of such Exchange requires the General
temporarily closes his or her business proficiency examinations, it may waive Securities Representative Examination
by reason of volunteering for or being such examinations in exceptional cases (‘‘Series 7’’) or an equivalent foreign
called into active duty in the Armed and where good cause is shown, upon examination module approved by the
Forces of the United States. As written request of the applicant, and Exchange in qualifying persons seeking
proposed, after proper notification to accept other standards as evidence of an registration as General Securities
the Exchange,14 such person shall be applicant’s qualifications.19 The Representatives, including as
placed on inactive status solely while Exchange is proposing to add Authorized Traders, on behalf of
the Member remains on active military Supplementary Material .01 to provide Members. For those persons seeking
duty. Further, the sole proprietor shall for a waiver of examinations for limited registration as Securities Traders
promptly notify the Exchange in such individuals working for a financial as described in paragraph (k) below, the
manner as the Exchange may specify 15 services industry affiliate of a Exchange requires the Securities
of his or her return to active Member,20 based on provisions adopted Traders Qualification Examination
participation in the securities business by FINRA in the FINRA Filing that will (‘‘Series 57’’). Rule 2.160(h) also
of the Member relating to activity that be effective on October 1, 2018.21 As provides that the Exchange uses the
occurs on the Exchange. proposed, the waiver is available upon Uniform Application for Securities
Paragraph (c) of proposed request by a Member for an individual Industry Registration or Transfer (‘‘Form
Commentary .02 addresses the status of designated with the Exchange as U4’’) as part of its procedure for
formerly registered persons, with working for a financial services industry registration and oversight of Member
respect to active military duty. affiliate of a Member if the following personnel. The Exchange proposes
Specifically, as proposed, the provision conditions are met: (a) prior to the several changes to Rule 2.160(h). First,
specifies that the lapse of such person’s individual’s initial designation, the the Exchange proposes to amend Rule
registrations shall be deferred (i.e., individual was registered as a 2.160(h) to specify that before the
tolled) during the pendency of his or her representative or principal with the registration of a qualifying person can
active service in the Armed Forces of Exchange or FINRA for a total of five be effective, such person shall pass the
the United States, provided the years within the most recent 10-year Securities Industry Essentials (‘‘SIE’’)
Exchange is properly notified of the period, including for the most recent examination 22 and an appropriate
person’s period of active military year with the Member that initially registration qualification examination,
service within 90 days following his or designated the individual; (b) the waiver as specified in Rule 2.160(h). The SIE is
her completion of active service or upon request is made within seven years of a new general knowledge examination
his or her re-registration with a Member, the individual’s initial designation; (c) that was adopted by FINRA in the
whichever occurs first.16 The deferral the initial designation and any FINRA Filing and will be effective on
will terminate 90 days following the subsequent designation(s) were made October 1, 2018. Going forward,
person’s completion of active service in concurrently with the filing of the representative-level registration will
the Armed Forces of the United States. individual’s related Form U5; (d) the require successful completion of the SIE
If a person placed on inactive status individual continuously worked for the and a tailored, specialized knowledge
while serving in the Armed Forces of financial services industry affiliate(s) of examination for a person’s particular
the United States ceases to be registered a Member since the individual’s last registered role. The Exchange’s
with a Member, the Exchange shall Form U5 filing; (e) the individual has proposed change aligns with changes to
defer the lapse of registration complied with the Regulatory Element FINRA Rule 1210.03, which were
requirements based on existing of continuing education as specified in included in the FINRA Filing and will
information in the CRD system, be effective beginning on October 1,
provided that the Exchange is properly active service in the Armed Forces of the United 2018. Conforming changes are also
notified 17 of the person’s period of States, the amount of time in which the person
proposed to Rule 2.160(i) to reference
active military service within two years must become re-registered with a Member without
being subject to a representative or principal the SIE with respect to representative-
following his or her completion of qualification examination or the SIE shall consist of level prerequisites to the Series 14 and
active service or upon his or her re- the standard two-year period for representative and 24 principal-level examinations. The
registration with a Member, whichever principal qualification examinations or the standard
Exchange also proposes to adopt
occurs first.18 four-year period for the SIE, whichever is
applicable, as provided in Rule 2.160(o). Commentary .01 to Rule 2.160(h) to
19 Any such waiver is pursuant to IEX Rule Series provide that any person who is in good
13 Id.
14 Id.
9.600. standing as representatives with the
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20 For purposes of the Supplementary Material, a
15 Id.
Financial Conduct Authority in the
‘‘financial services affiliate of a Member’’ is a legal
16 Id.
entity that controls, is controlled by or is under
United Kingdom or with a Canadian
17 Id. common control with a Member and is regulated by stock exchange or securities regulator
18 The deferral shall terminate 90 days following the SEC, CFTC, state securities authorities, federal
the person’s completion of active service in the or state banking authorities, state insurance 22 Individuals who are registered with the

Armed Forces of the United States. Accordingly, if authorities, or substantially equivalent foreign Exchange, FINRA, or another national securities
such person does not re-register with a Member regulatory authorities. exchange as of October 1, 2018 will be considered
within 90 days following his or her completion of 21 See FINRA Rule 1210.09. to have passed the SIE.

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50136 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Notices

if that application does not result in a As proposed, Rule 2.160(p) will specify Rule 2.160(g) shall be determined based
registration. Rule 2.160(o) provides that the required Continuing Education on the person’s most recent registration
a person who was last registered as a Regulatory Element and Firm Element. status, and the Regulatory Element shall
representative or principal two or more The Exchange is proposing several be completed based on the same cycle
years immediately preceding the date of changes to Regulatory Element had the person remained registered.
receipt by the Exchange of a new provisions. First, the Exchange proposes Subparagraph (p)(2) [sic] specifies the
application as a representative or to add introductory text at the beginning consequences to a Registered Person
principal, shall be required to pass a of Rule 2.160(p) stating that ‘‘this [rule] who fails to complete the Regulatory
representative and/or principal prescribes requirements regarding the Element of the continuing education
qualification examination appropriate to continuing education of specified program within the prescribed time
his or her category or registration as persons subsequent to their initial frames. Currently, the rule provides that
specified in paragraphs (h), (i), (j), (k), registration with the Exchange. The such a person will have their [sic]
(l), and (n) of Rule 2.160. Further, any requirements shall consist of a registration deemed inactive until such
person who last passed the SIE or who Regulatory Element and a Firm Element time as the requirements of the program
was last registered as a representative, as set forth below.’’ The Exchange also have been satisfied and shall cease all
whichever occurred last, four or more proposes to add subparagraph (a) activities requiring registration. The
years immediately preceding the date of entitled ‘‘Regulatory Element’’ Exchange proposes to amend the rule to
receipt by the Exchange of a new immediately after the new introductory codify existing FINRA guidance
application for registration as a text to delineate that the provisions that regarding the impact of failing to
representative, shall be required to pass follow relate to the Regulatory Element. complete the Regulation Element on a
the SIE in addition to a representative The Exchange also proposes several Registered Person’s activities and
qualification examination appropriate to amendments to subparagraphs (a)(1), (2) compensation.28 Specifically, as
his or her category of registration as and (3) to align with changes to FINRA proposed, Rule 2.160(p)(2) [sic]
specified in paragraphs (h), (i), (j), (k), Rule 1240. provides that any person whose
(l), and (n) of Rule 2.160. Additionally, Several changes are proposed to registration has been deemed inactive
any person whose registration has been subparagraph (a)(1). First, in lieu of the
revoked pursuant to Rule 8.310 shall be under the rule shall not be permitted to
current text describing persons subject be registered in another registration
required to pass a principal or
to the continuing education category under Rule 2.160 with that
representative qualification examination
requirements that refers to any Member or to be registered in any
appropriate to his or her category of
‘‘Authorized Trader, Principal, or registration category under Rule 2.160
registration as specified in paragraphs
Financial/Operations Principal’’ with another Member, until the person
(h), (i), (j), (k), (l), and (n) of Rule 2.160
abbreviated as ‘‘Registered has satisfied the deficiency. This
to be eligible for registration with the
Representative,’’ the language would be provision is comparable to FINRA Rule
Exchange.
revised to refer to ‘‘any associated 1210.07 (which was included in the
Rule 2.160(p) specifies the Regulatory
person registered with the Exchange’’ FINRA Filing and will be effective on
Element of the continuing education
abbreviated as ‘‘Registered Person’’ to be October 1, 2018). Further, the Exchange
requirements for associated persons of a
simpler and more inclusive and proposes to add provisions that such a
Member and aligns with the FINRA
descriptive, since not all registered person may not accept or solicit
requirements for the particular
persons listed are considered to be a business or receive any compensation
registration category of the registered
Registered Representative. Conforming for the purchase or sale of securities.
person. Exchange rules do not currently
changes are proposed throughout the However, such person may receive trail
address the Firm Element continuing
rule. Second, existing rule text in the or residual commissions resulting from
education requirements.27 The
first paragraph of subparagraph (a)(1) transactions completed before the
Exchange proposes to revise Rule
providing that ‘‘no Member shall permit inactive status, unless the Member with
2.160(p) to harmonize with the
any . . . Registered Representative to which such person is associated has a
amended continuing education
continue to, and no Registered policy prohibiting such trail or residual
requirements specified in FINRA Rule
Representative shall continue to, commissions. This clarifying language is
1240, as included in the FINRA Filing
perform duties as a Registered substantially similar to amendments to
that will be effective on October 1, 2018.
Representative on behalf of such FINRA Rule 1240 (which was included
27 The Exchange notes that the FINRA Firm Member, unless such person has in the FINRA Filing and will be
Element requirement is only applicable to: (i) complied with the continuing education effective on October 1, 2018). In
Persons registered with a FINRA member who have requirements in this IEX Rule’’ will be addition, the Exchange proposes to add
direct contact with customers in the conduct of the replaced with language aligned with language specifying that if a person
member’s securities sales, trading, and investment
banking activities; (ii) persons registered as an
language in FINRA Rule 1240(a) and (5), designated as eligible for a waiver
operations professional or research analyst; and (iii) providing that all registered persons, pursuant to Supplementary Material .01
their immediate supervisors. An Exchange Member including any person who is to Rule 2.160(g) fails to complete the
with associated persons registered in each of the permissively registered pursuant to Regulatory Element within the
aforementioned categories would be conducting a
customer business. The Exchange is not proposing
Commentary .02 to Rule 2.160 and any prescribed time frames, the person shall
to adopt similar language modifying the ‘‘direct person who is designated as eligible for no longer be eligible for such a waiver.
contact with customers’’ language in FINRA’s rule. a waiver pursuant to Commentary .01 to The Exchange also proposes a
Any Exchange Member with a customer business is Rule 2.160(g), shall comply with the conforming change to subparagraph
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required to be a FINRA member pursuant to Section
15(b)(8) of the Act. Thus any Exchange Member that
requirement to complete the Regulatory (a)(3) with respect to the requirement to
is not a FINRA member would not be conducting Element. Additionally, the Exchange retake the Regulatory Element and
a customer business and thus would not have any proposes to add language at the end of satisfy all of its requirements in the
associated persons that meet the FINRA criteria to subparagraph (a)(1) stating that the event the person is subject to certain
be subject to the FINRA Firm Element rule.
Therefore, there is no gap in the application of the
content of the Regulatory Element for a
Firm Element requirement to Exchange Members person designated as eligible for a 28 See, e.g., NASD Notice to Members 95–35 (May

and their associated persons. waiver pursuant to Commentary .01 to 1995).

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Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Notices 50137

specified disciplinary action. These supervisory training for persons with (A) Effecting transactions on the floor
provisions align with FINRA Rule 1240. supervisory responsibilities, such of a national securities exchange and
Additionally, the Exchange proposes training must be included in the who are appropriately registered with
to add subparagraphs (a)(5)–(7) to align Member’s training plan. such exchange;
with FINRA Rule 1240. As proposed, As proposed, any person registered (B) transactions in municipal
subparagraph (a)(5) is reserved. The with a Member pursuant to Rule 2.160 securities;
corresponding part of FINRA Rule 1240 who has direct contact with (C) transactions in commodities; or
pertains to the definition of a ‘‘Covered customers 32 in the securities business of (D) transactions in securities futures,
Person’’ under FINRA rules, who is the Member relating to activity that provided that any such person is
subject to the Regulatory Element. As occurs on the Exchange, and the appropriately registered with a
discussed above, the Exchange is using immediate supervisors of such persons, registered futures association.
the term ‘‘Registered Person’’ which is must take all appropriate and reasonable (3) Associated persons of a Member
incorporated into subparagraph (a)(1).29 steps to participate in the Firm Element that are restricted from accessing the
Subparagraph (a)(6) specifies that training as required by his or her Exchange and that do not engage in the
delivery of the Regulatory Element will Member. Subparagraph (b)(2)(B) sets securities business of the Member
be administered through web-based forth the minimum standards for the relating to activity that occurs on the
delivery or such other technological Firm Element training programs. Such Exchange.
manner and format as specified [sic] by The Exchange notes that each
programs must be appropriate for the
proposed exception is based on existing
FINRA. Subparagraph (a)(7) requires business of the Member and, at a
exceptions in FINRA rules or those of
designation and identification of the minimum, must cover training in ethics
other exchanges. The proposed
Regulatory Element Contact Person to and professional responsibility and the
exceptions in Rule 2.160(m)(1) and (2)
FINRA on behalf of the Exchange and following matters concerning securities
are substantially similar to FINRA rules,
describes the role of such person to products, services and strategies offered and the exception in Rule 2.160(m)(3) is
receive email notifications provided via by the Member: General investment substantially similar to a CBOE [sic]
CRD regarding Regulatory Element features and associated risk factors; Exchange, Inc. (‘‘CBOE’’) rule.34
deadlines for Registered Persons subject suitability and sales practice With respect to the proposed
to the Regulatory Element, including considerations; and applicable exception in Rule 2.160(m)(3), the
when such a person is deemed inactive regulatory requirements. Further, a Exchange believes that such individuals
for failure to complete the Regulatory Member must administer its continuing do not need to be registered with the
Element. education programs in accordance with Exchange because those individuals do
The Exchange also proposes to add its annual evaluation and written plan, not access the Exchange directly and do
new subparagraph (b) to Rule 2.160(p) and must maintain records documenting not engage in the securities business of
to set forth the Firm Element the content of the programs and the Member relating to activity that
requirements, which are substantially completion of the programs by covered occurs on the Exchange. For example,
similar to FINRA Rule 1240(b) 30 and Registered Persons.33 suppose that Firm XYZ is an Exchange
consist of annual, Member-developed Finally, the Exchange also proposes to Member and a member of the Nasdaq
and administered training programs correct a typographical error in the Stock Market LLC (‘‘Nasdaq’’). Ms. ABC
designed to enhance covered registered footnote numbering of the chart in Rule is an associated person of XYZ, assigned
persons’ securities knowledge, skill, and 2.160(n). to XYZ’s Nasdaq market maker ‘‘desk’’
professionalism, taking into which only sends orders to Nasdaq. Ms.
consideration the Member’s size, Exchange Registration Exceptions
ABC is subject to Nasdaq’s registration
organizational structure, and scope of The Exchange is proposing to amend and qualification requirements. Ms.
business activities, as well as regulatory Rule 2.160(m), which is currently ABC would not be required to
developments and the performance of reserved, to specify that certain separately register with the Exchange so
covered registered persons in the associated persons of a Member are not long as Ms. ABC does not send orders
Regulatory Element.31 If a Member’s required to be registered with the directly to the Exchange through XYZ
analysis establishes the need for Exchange, because such person’s roles and not another Exchange Member.35
and responsibilities are unrelated to the In addition, the Exchange proposes to
29 The term ‘‘Registered Person’’ in the Regulatory Exchange’s operations, and registration add Supplementary Material .01 to
Element rule provisions has substantially the same therefore serves no regulatory purpose.
meaning as FINRA’s term ‘‘Covered Person’’ except clarify the registration requirements
that FINRA excludes ‘‘Foreign Associates’’ from the
As proposed, the following categories of applicable to associated persons of a
term ‘‘Covered Person.’’ Foreign Associate is a associated persons of a Member are not Member who accept customer orders,
discontinued FINRA registration category, as required to be registered with the and the applicability to a determination
described in the FINRA Filing, and is not Exchange:
recognized by IEX rules. Accordingly, the Exchange of whether the functions of an
does not believe it is necessary to exclude Foreign
(1) Associated persons of a Member associated person of a Member are
Associates from the definition of ‘‘Registered whose functions are solely and solely and exclusively clerical or
Person.’’ exclusively clerical or ministerial. ministerial. As proposed,
30 In setting forth the persons subject to the Firm
(2) Associated persons of a Member Supplementary Material .01 provides
Element, proposed Rule 2.160(b)(1) [sic] is limited whose functions are related solely and
to persons registered with a Member pursuant to that the function of accepting customer
Rule 2.160 who have direct contact with customers exclusively to: orders is not considered a clerical or
in the securities business of the Member relating to ministerial function. Each associated
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activity that occurs on the Exchange, and to their 32 ‘‘Customer’’ means any natural person and any

immediate supervisors. FINRA Rule 1240(b)(1) is organization, other than another broker or dealer, person of a Member who accepts
broader in scope given FINRA’s broader regulatory executing securities transactions with or through a
mandate. Member. 34 See current NASD Rule 1060, FINRA Rule 1230
31 The definition of ‘‘covered registered person’’ 33 The Exchange may also require a Member, (which is pending effectiveness), and CBOE [sic]
under proposed Rule 2.160(p)(b) does not include individually or as part of a larger group, to provide Exchange, Inc. Rule 3.6A(a)(2)(D).
Registered Options Professionals [sic] because that specific training to its covered Registered Persons 35 For example, an order originating from XYZ’s

is not a registration category provided for in in such areas as the Exchange deems appropriate. Nasdaq market maker desk may be routed to the
Exchange rules. See proposed Rule 2.160(p)(b)(4). Exchange by another Member.

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50138 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Notices

customer orders under any proposed rule change furthers the registrations to respond to unanticipated
circumstances shall be registered in an objectives of Section 6(c)(3)(B) of the personnel changes and will encourage
appropriate registration category Act,39 which authorizes the exchange to greater regulatory understanding. The
pursuant to Rule 2.160. However, an prescribe standards of training, Exchange also believes that the addition
associated person of a Member shall not experience and competence for persons Supplementary .02 to Rule 2.160(e)
be considered to be accepting a associated with an IEX Member. regarding the status of current and
customer order where occasionally, The Exchange believes that the former registered persons serving in
when an appropriately registered person proposed rule change overall will active duty in the Armed Forces of the
is unavailable, such person transcribes harmonize its membership and United States is consistent with the Act
order details submitted by a customer registration rules with FINRA rules,40 because it provides a reasonable
and the registered person contacts the thus assisting Members and associated accommodation to such persons, who
customer to confirm the order details persons of Members in complying with are engaged in efforts to protect and
before entering the order. This those rules and thereby enhancing defend the United States, with an
clarification is substantially similar to regulatory efficiency. In addition, the appropriate notification process to the
Supplementary Material .01 to FINRA Exchange believes that providing greater Exchange, thereby removing
Rule 1230 (which was included in the harmonization between IEX and FINRA impediments to and perfecting the
FINRA Filing and will be effective on rules with a similar purpose will result mechanism of a free and open market
October 1, 2018), and is designed to in less burdensome and more efficient and a national market system, consistent
provide that acceptance of customer regulatory compliance for IEX Members with the objectives of Section 6(b)(5)
orders is appropriately overseen by a that are subject to regulatory [sic] of the Act.
registered associated person of a examination and oversight by FINRA Additionally, the Exchange believes it
Member. pursuant to a regulatory services is consistent with the Act to provide an
The Exchange also proposes a agreement between IEX and FINRA, and examination waiver for individuals
conforming amendment to Rule 2.160(e) facilitate FINRA’s performance of its
to incorporate the registration working for a financial services industry
regulatory functions for IEX under the affiliate of a Member, pursuant to
exception. regulatory services agreement, thereby Supplementary Material .02 to Rule
Deletion of Obsolete Rule 2.150 removing impediments to and 2.160(g), because it will provide
perfecting the mechanism of a free and appropriate flexibility to Members and
As approved by the Commission as open market and a national market
part of the Exchange’s Form 1 their financial services industry
system, consistent with the objectives of affiliates in the management of their
application,36 Rule 2.150 provided a Section 6(b)(5) of the Act.
temporary Member Application and personnel, thereby removing
As described in the Purpose section, impediments to and perfecting the
Waive-In Process that permitted current the Exchange proposes various revisions
subscribers to the alternative trading mechanism of a free and open market
to Rule 2.160, which sets forth the and a national market system, consistent
system previously operated by the requirements applicable to Members
Exchange’s affiliate, IEX Services, LLC, with the objectives of Section 6(b)(5
and their associated persons, including [sic] of the Act.
to apply to become a Member of the registration requirements thereof. The
Exchange by submitting a ‘‘waive-in Exchange believes that these proposed The Exchange also believes that its
application’’ within ninety (90) days of rule amendments are consistent with proposed changes to Rule 2.160(h) are
approval of the Form 1 by the consistent with the Act. Specifically,
the public interest and the protection of
Commission. The Commission approved adoption of the SIE is designed to
investors. With respect to the revisions
the Exchange’s Form 1 application on promote uniformity and consistency
to the rule title, the Exchange believes
June 17, 2016, meaning that waive-in with FINRA’s rules of similar purpose,
that referencing registration
applications must have been received by thereby fostering cooperation and
requirements, as well as restrictions on
the Exchange on or prior to September coordination with persons engaged in
membership, is a clearer description of
15, 2016. Accordingly, Rule 2.150 is regulating and facilitating transactions
the scope of the rule and will thereby
obsolete, and the Exchange proposes to in securities. In addition, the Exchange
enable Members, their associated
delete the rule. believes that it is consistent with the
persons, and other market participants
2. Statutory Basis to better identify such requirements in Act to not require Exchange registration
IEX rules. Similarly, the Exchange as a Securities Trader for associated
IEX believes that the proposed rule persons of a Member whose trading
change is consistent with the provisions believes that adding text to paragraph
(e) of Rule 2.160 to reference proposed activities are conducted principally on
of Section 6(b) of the Act 37 in general, behalf of an investment company
and furthers the objectives of Section changes to paragraph (m) regarding
registration exemptions (as discussed affiliate of the Member, as described in
6(b)(5) of the Act 38 in particular, in that the Purpose section. This exemption has
it is designed to prevent fraudulent and further below) and impermissible
registrations will help to assure that been part of FINRA (and its predecessor,
manipulative acts and practices, to
IEX’s rules are clear regarding such the NASD) rules applicable to the
promote just and equitable principles of
requirements. current Securities Trader examination
trade, to remove impediments to and
The Exchange further believes that the as well as the predecessor Series 55
perfect the mechanism of a free and
addition of Supplementary Material .01 examination for many years, and
open market and a national market
to Rule 2.160(e), to permit permissive recognizes that such traders are
system, and, in general, to protect
generally in the same position as ‘‘buy-
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investors and the public interest. The registrations, is consistent with the Act
in order to allow Members to develop a side’’ professionals employed within
Exchange also believes that the
depth of associated persons with investment companies, who would not
36 See Securities Exchange Act Release No. 34– be subject to the examination
78101 (June 17, 2016), 81 FR 41141 (June 23, 2016) 39 15 U.S.C. 78(c)(3)(B). requirement.41
(File No. 10–222). 40 The Exchange is proposing to harmonize with
37 15 U.S.C. 78f.
those aspects of FINRA rules that IEX determined 41 See, e.g., NASD Notice to Members 98–17 and
38 15 U.S.C. 78f(b)(5). are relevant to its operations. Securities Exchange Act Release No. 75783 (August

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Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Notices 50139

The Exchange also believes it is mechanism of a free and open market accessing the Exchange and that do not
appropriate to provide an exemption and a national market system, consistent engage in the securities business of the
from the SIE for any person who is in with the objectives of Section 6(b)(5) of Member relating to activity that occurs
good standing as a representative with the Act. on the Exchange) such persons would
the Financial Conduct Authority in the With respect to the amendments to not be considered actively engaged in
United Kingdom or with a Canadian Rule 2.160(o) to add rule provisions the securities business. With respect to
stock exchange or securities regulatory. regarding the circumstances under persons registered as floor members on
The Exchange believes that there is which registrations lapse and the SIE another national securities exchange
sufficient overlap between the SIE and expires, the Exchange believes such and associated persons restricted from
such foreign qualification requirements amendments are consistent with the Act accessing the Exchange and that do not
to permit them to act as exemptions to because they will align with FINRA engage in the securities business of the
the SIE, and that the exemption rules of similar purpose, thereby Member relating to activity that occurs
provides appropriate flexibility to such fostering cooperation and coordination on the Exchange, the Exchange believes
persons, thereby removing impediments with persons engaged in regulating and that requiring registration with IEX is
to and perfecting the mechanism of a facilitating transactions in securities. not warranted since the associated
free and open market and a national With respect to the proposed person’s activities are unrelated to
market system, consistent with the amendments to Rule 2.160(p) regarding activity that occurs on the Exchange. As
objectives of Section 6(b)(5 [sic] of the continuing education requirements, the discussed in the Purpose section, the
Act. Exchange believes that the proposed proposed registration exemptions are
With respect to the amendment to changes are consistent with the Act and substantially similar to existing
Rule 2.160(i) to revise the reference to the public interest, because they will registration exemptions in FINRA and
‘‘sole proprietorship’’ to a ‘‘Member provide additional clarity and CBOE [sic] rules, and thus do not raise
with only one associated person’’ the consistency to the rule provisions in any new or novel issues not already
Exchange believes that this change is several respects and also align with considered by the Commission. Thus,
consistent with the Act because it FINRA rules of similar purpose, thereby the Exchange believes that the proposed
recognizes that one-person Members fostering cooperation and coordination exemptions will remove impediments to
may be organized in legal forms other with persons engaged in regulating and and perfect the mechanism of a free and
than a sole proprietorship, and thus facilitating transactions in securities. open market and a national market
provides fair and consistent regulatory First, the Exchange believes that the system, consistent with the objectives of
requirements to all one-person terminology change to collectively refer Section 6(b)(5) of the Act.
Members. Further, the Exchange to a ‘‘Registered Person’’ rather than a In addition, the Exchange believes
believes that elimination of the ‘‘Registered Representative’’ is more that proposed Supplementary Material
reference to ‘‘New York Stock inclusive and descriptive of the .01 to Rule 2.160(m) is consistent with
Exchange’’ with respect to the Series 14 categories of associated persons of a the Act because it provides clarity on
Compliance Official Examination is Member who are registered with the when the functions of an associated
consistent with the Act because it will Exchange and subject to the continuing person are solely and exclusively
make the Exchange’s rule in this respect education requirements, thereby clerical or ministerial, which also is
accurate. The Exchange also believes avoiding any potential confusion. consistent with the objectives of Section
that the addition of Supplementary Second, the Exchange believes that 6(b)(5) of the Act.
Material .01 to Rule 2.160(i) to provide harmonizing with FINRA’s continuing Finally, the Exchange believes that
for registered persons to function as education requirements will promote deletion of Rule 2.150 is consistent with
principals for a limited period of time uniformity in the application of the the Act because the rule is obsolete, as
is consistent with the Act because it continuing education requirements for described in the Purpose section.
provides appropriate flexibility to Registered Persons and thereby avoid Accordingly, deletion of the rule will
Members, thereby removing any confusion on the part of IEX remove any potential confusion among
impediments to and perfecting the Members and their associated persons potential Members as to the
mechanism of a free and open market on what is required under IEX rules. membership application process.
and a national market system, consistent The Exchange also believes that
correcting the typographical error in the B. Self-Regulatory Organization’s
with the objectives of Section 6(b)(5 Statement on Burden on Competition
[sic] of the Act. footnote numbering of the chart in Rule
With respect to the amendment to 2.160(n) is consistent with the Act IEX does not believe that the
Rules 2.160(j) and (n) to specify the because it will avoid any potential proposed rule change will result in any
circumstances under which the Series confusion regarding the chart and its burden on competition that is not
28 would be an acceptable examination footnotes. necessary or appropriate in furtherance
for a Member’s Financial/Operations The Exchange believes that the of the purposes of the Act. The
Principal, the Exchange believes that the proposed amendments to Rule 2.160(m) proposed amendments are intended to
proposed change will provide (and conforming amendment to Rule promote transparency in the Exchange’s
additional clarity to Members with 2.160(e)) to specify that certain rules, and consistency with the rules of
respect to such examination categories of associated persons of a FINRA and other national securities
requirements and also reduce the Member are not required to be registered exchanges with respect to the
existing burden on impacted Members with the Exchange is consistent with the examination, qualification, and
to request a waiver from the Exchange Act because such persons’ roles and continuing education requirements
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for an examination that has already been responsibilities are unrelated to the applicable to Members and their
accepted by the Member’s designated Exchange’s operations, and registration associated persons. Accordingly, the
examining authority, thereby removing therefore serves no regulatory purpose. Exchange does not believe that the
impediments to and perfecting the Further, the Exchange believes that proposed rule change imposes any
(except for floor members of another burden on competition that is not
28, 2015), 80 FR 53369 (September 03, 2015) national securities exchange and necessary or appropriate in furtherance
(approving File No. SR–FINRA–2015–17). associated persons restricted from of such regulatory objectives. Further,

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50140 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Notices

the proposed changes would apply to all The Commission notes that, as with respect to the proposed rule
Members and their associated persons described in detail above, the change that are filed with the
in the same manner and therefore would Exchange’s proposal does not raise any Commission, and all written
not impose any unnecessary intramarket new or novel issues, as the Exchange is communications relating to the
burdens. The Exchange also does not harmonizing its rules with FINRA and proposed rule change between the
believe that the proposed rule change Cboe, and deleting obsolete text. Commission and any person, other than
would impose any burden on Therefore, the Commission believes that those that may be withheld from the
intermarket competition since all waiving the 30-day operative delay is public in accordance with the
national securities exchanges are consistent with the protection of provisions of 5 U.S.C. 552, will be
expected to adopt similar rules with investors and the public interest. available for website viewing and
uniform standards for the qualification, Accordingly, the Commission hereby printing in the Commission’s Public
registration and continuing education waives the 30-day operative delay and Reference Room, 100 F Street NE,
requirements. designates the proposal operative on Washington, DC 20549, on official
October 1, 2018.48 business days between the hours of
C. Self-Regulatory Organization’s At any time within 60 days of the
Statement on Comments on the 10:00 a.m. and 3:00 p.m. Copies of the
filing of the proposed rule change, the filing also will be available for
Proposed Rule Change Received From Commission summarily may
Members, Participants, or Others inspection and copying at the principal
temporarily suspend such rule change if office of the Exchange. All comments
Written comments were neither it appears to the Commission that such received will be posted without change.
solicited nor received. action is necessary or appropriate in the Persons submitting comments are
III. Date of Effectiveness of the public interest, for the protection of cautioned that we do not redact or edit
Proposed Rule Change and Timing for investors, or otherwise in furtherance of personal identifying information from
Commission Action the purposes of the Act. If the comment submissions. You should
Commission takes such action, the submit only information that you wish
The Exchange has designated this rule Commission shall institute proceedings
filing as non-controversial under to make available publicly. All
under Section 19(b)(2)(B) 49 of the Act to submissions should refer to File
Section 19(b)(3)(A) 42 of the Act and determine whether the proposed rule
Rule 19b–4(f)(6) 43 thereunder. Because Number SR–IEX–2018–19 and should
change should be approved or be submitted on or before October 25,
the proposed rule change does not: (i) disapproved.
Significantly affect the protection of 2018.
investors or the public interest; (ii) IV. Solicitation of Comments For the Commission, by the Division of
impose any significant burden on Interested persons are invited to Trading and Markets, pursuant to delegated
competition; and (iii) become operative submit written data, views and authority.50
for 30 days from the date on which it arguments concerning the foregoing, Eduardo A. Aleman,
was filed, or such shorter time as the including whether the proposed rule Assistant Secretary.
Commission may designate, it has change is consistent with the Act. [FR Doc. 2018–21582 Filed 10–3–18; 8:45 am]
become effective pursuant to Section Comments may be submitted by any of BILLING CODE 8011–01–P
19(b)(3)(A) 44 of the Act and Rule 19b– the following methods:
4(f)(6) 45 thereunder. Electronic Comments
A proposed rule change filed under SMALL BUSINESS ADMINISTRATION
Rule 19b–4(f)(6) 46 normally does not • Use the Commission’s internet
become operative prior to 30 days after comment form (http://www.sec.gov/ [Disaster Declaration #15698 and #15699;
the date of the filing. However, pursuant rules/sro.shtml); or South Carolina Disaster Number SC–00054]
to Rule 19b–4(f)(6)(iii),47 the • Send an email to rule-comments@
Commission may designate a shorter sec.gov. Please include File Number SR– Presidential Declaration Amendment of
time if such action is consistent with the IEX–2018–19 on the subject line. a Major Disaster for the State of South
protection of investors and the public Carolina
Paper Comments
interest. The Exchange has asked the
• Send paper comments in triplicate AGENCY: U.S. Small Business
Commission to waive the 30-day Administration.
to Secretary, Securities and Exchange
operative delay so the proposed rule
Commission, 100 F Street NE, ACTION: Amendment 2.
change may become operative on
Washington, DC 20549–1090.
October 1, 2018. According to the SUMMARY: This is an amendment of the
Exchange, waiving the 30-day operative All submissions should refer to File
Number SR–IEX–2018–19. This file Presidential declaration of a major
delay would allow the Exchange to disaster for the State of South Carolina
harmonize its rules with FINRA as of number should be included on the
subject line if email is used. To help the (FEMA–4394–DR), dated 09/21/2018.
the effective date of the FINRA Filing. Incident: Hurricane Florence.
Commission process and review your
comments more efficiently, please use Incident Period: 09/08/2018 and
42 15 U.S.C. 78s(b)(3)(A).
43 17 only one method. The Commission will continuing.
CFR 240.19b–4(f)(6).
44 15 U.S.C. 78s(b)(3)(A). post all comments on the Commission’s DATES: Issued on 09/26/2018.
45 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– internet website (http://www.sec.gov/ Physical Loan Application Deadline
4(f)(6)(iii) requires the Exchange to give the rules/sro.shtml). Copies of the Date: 11/20/2018.
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Commission written notice of the Exchange’s intent
to file the proposed rule change, along with a brief
submission, all subsequent Economic Injury (EIDL) Loan
description and text of the proposed rule change, amendments, all written statements Application Deadline Date: 06/21/2019.
at least five business days prior to the date of filing ADDRESSES: Submit completed loan
of the proposed rule change, or such shorter time 48 For purposes only of waving the 30-day
as designated by the Commission. The Exchange
applications to: U.S. Small Business
operative delay, the Commission has considered the
has satisfied this requirement. purposed rule’s impact on efficiency, competition, Administration, Processing and
46 17 CFR 240.19b–4(f)(6). and capital formation. See 15 U.S.C. 78c(f).
47 17 CFR 240.19b–4(f)(6)(iii). 49 15 U.S.C. 78s(b)(2)(B). 50 17 CFR 200.30–3(a)(12).

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Document Created: 2018-10-04 02:03:05
Document Modified: 2018-10-04 02:03:05
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		83 FR 50132