83 FR 50705 - Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rules Relating to Registration and Qualification Examinations Required for Participants That Engage in Trading Activities on the Exchange

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 195 (October 9, 2018)

[Federal Register Volume 83, Number 195 (Tuesday, October 9, 2018)]
[Notices]
[Pages 50705-50708]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-21787]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84338; File No. SR-BOX-2018-32]


Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Rules 
Relating to Registration and Qualification Examinations Required for 
Participants That Engage in Trading Activities on the Exchange

October 2, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 27, 2018, BOX Exchange LLC (the ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II below, which Items have been 
prepared by the self-regulatory organization. The Commission is 
publishing this notice to solicit comments on the proposed rule from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its rules relating to registration 
and respective qualification examinations required for Participants 
that engage in trading activities on the Exchange. The text of the 
proposed rule change is available from the principal office of the 
Exchange, at the Commission's Public Reference Room and also on the 
Exchange's internet website at http://boxoptions.com.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The SEC recently approved a proposed rule change to restructure the 
FINRA representative-level qualification examination program.\3\ The 
rule change, which will become effective on October 1, 2018, 
restructures the examination program into a more efficient format 
whereby all new representative-level applicants will be required to 
take a general knowledge examination (the Securities Industry 
Essentials Examination (``SIE'')) and a tailored, specialized knowledge 
examination (a revised representative-level qualification examination) 
for their particular registered role. Individuals are not required to 
be associated with an Exchange or any other self-regulatory 
organization (``SRO'') member to be eligible to take the SIE. However, 
passing the SIE alone will not qualify an individual for registration 
with the

[[Page 50706]]

Exchange. To be eligible for registration, an individual must also be 
associated with a firm, pass an appropriate qualification examination 
for a representative or principal and satisfy the other requirements 
relating to the registration process.
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    \3\ See Securities Exchange Act Release No. 81098 (July 7, 
2017), 82 FR 32419 (July 13, 2017) (Order Approving File No. SR-
FINRA-2017-007).
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    The SIE would assess basic product knowledge; the structure and 
function of the securities industry markets, regulatory agencies and 
their functions; and regulated and prohibited practices. In particular, 
the SIE will cover four major areas. The first, ``Knowledge of Capital 
Markets,'' focuses on topics such as types of markets and offerings, 
broker-dealers and depositories, and economic cycles. The second, 
``Understanding Products and Their Risks,'' covers securities products 
at a high level as well as associated investment risks. The third, 
``Understanding Trading, Customer Accounts and Prohibited Activities,'' 
focuses on accounts, orders, settlement and prohibited activities. The 
final area, ``Overview of the Regulatory Framework,'' encompasses 
topics such as SROs, registration requirements and specified conduct 
rules. It's anticipated that the SIE would include 75 scored questions 
plus an additional 10 unscored pretest questions. The passing score 
would be determined through methodologies compliant with testing 
industry standards used to develop examinations and set passing 
standards.
    The restructured program eliminates duplicative testing of general 
securities knowledge on the current representative-level qualification 
examinations by moving such content into the SIE. The SIE will test 
fundamental securities related knowledge, including knowledge of basic 
products, the structure and function of the securities industry, the 
regulatory agencies and their functions and regulated and prohibited 
practices, whereas the revised representative-level qualification 
examinations will test knowledge relevant to day-to-day activities, 
responsibilities and job functions of representatives. The SIE was 
developed in consultation with a committee of industry representatives 
and representatives of several other SROs. Each of the current 
representative-level examinations covers general securities knowledge, 
with the exception of the Research Analyst (Series 86 and 87) 
examinations.
    The Exchange proposes to require that effective October 1, 2018, 
new applicants seeking to register in a representative capacity with 
the Exchange must pass the SIE before their registrations can become 
effective. The Exchange proposes to make the requirement operative on 
October 1, 2018 to coincide with the effective date of FINRA's 
requirement.
    The Exchange notes that individuals who are registered as of 
October 1, 2018 are eligible to maintain their registrations without 
being subject to any additional requirements. Individuals who had been 
registered within the past two years prior to October 1, 2018, would 
also be eligible to maintain those registrations without being subject 
to any additional requirements, provided they register within two years 
from the date of their last registration. However, with respect to an 
individual who is not registered on the effective date of the proposed 
rule change but was registered within the past two years prior to the 
effective date of the proposed rule change, the individual's SIE status 
in the CRD system would be administratively terminated if such 
individual does not register with the Exchange within four years from 
the date of the individual's last registration. The Exchange also notes 
that consistent with IM-2040-2, the Exchange will consider waivers of 
the SIE alone or the SIE and the representative or principal-level 
examination(s) for Participants who are seeking registration in a 
representative-or principal-level registration category.\4\
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    \4\ Pursuant to a Regulatory Services Agreement between FINRA 
and BOX, FINRA provides BOX certain exam waiver services in 
responding to exam waiver requests from BOX Participants.
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    Lastly, the Exchange proposes to eliminate references in its rules 
to alternative foreign examination modules. Particularly, the Exchange 
notes that FINRA recently announced it was eliminating the United 
Kingdom Securities Representative and the Canadian Securities 
Representative registration categories, along with the respective 
associated exams (i.e., Series 17, Series 37 and Series 38).\5\ FINRA 
also stated that it intended to provide individuals who are associated 
persons of firms and who hold foreign registrations an alternative, 
more flexible, process to obtain an Exchange representative-level 
registration.\6\ The Exchange believes that there is sufficient overlap 
between the SIE and foreign qualification requirements to permit them 
to act as exemptions to the SIE. As such, the Exchange proposes to 
provide that individuals who are in good standing as representatives 
with the Financial Conduct Authority in the United Kingdom or with a 
Canadian stock exchange or securities regulator 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. The proposed approach would provide individuals 
with a United Kingdom or Canadian qualification more flexibility to 
obtain an Exchange representative-level registration. The Exchange 
notes that FINRA has adopted a similar rule.\7\
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    \5\ See Securities Exchange Act Release No. 81098 (July 7, 
2017), 82 FR 32419 (July 13, 2017) (Order Approving File No. SR-
FINRA-2017-007).
    \6\ Id.
    \7\ See Securities Exchange Act Release No. 81098 (July 7, 
2017), 82 FR 32419 (July 13, 2017) (Order Approving File No. SR-
FINRA-2017-007).
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    The Exchange also proposes to remove the last sentence from Rule 
2020(b)(1) and also remove Rule 2020(b)(3) and Rule 2020(c)(5) in their 
entirety. The Exchange is making these changes in order to conform to 
FINRA's rules regarding registration requirements.
    The Exchange proposes to make a non-substantive conforming changes 
to the term ``Form U-4'' and ``Form U-5'' throughout the BOX Rulebook. 
Specifically, BOX proposes to change the term ``Form U-4'' to ``Form 
U4'' and ``Form U-5'' to ``Form U5'' in order to conform to both the 
BOX Rules and FINRA rules.\8\ Lastly, the Exchange is proposing to 
amend BOX Rule 2020(d)(1) regarding Principal Status. Currently, the 
rule states that a representative whose duties are changed as to 
require registration as a Principal shall be allowed a period of 90 
calendar days following such change to pass the appropriate 
qualification examination. The Exchange proposes to change the number 
of calendar days from 90 to 120 in order to conform to FINRA's rules. 
Similarly, the Exchange proposes to change the number of calendar days 
from 90 to 120 in Rule 2020(d)(2) as well.
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    \8\ See FINRA Rule 1010(c).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\9\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \10\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to,

[[Page 50707]]

and facilitating transactions in securities, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest. Additionally, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \11\ requirement that the rules 
of an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ Id.
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    The Exchange believes that the proposed rule change will improve 
the efficiency of the Exchange's examination requirements, without 
compromising the qualification standards, by eliminating duplicative 
testing of general securities knowledge on examinations. FINRA has 
indicated that the SIE was developed in an effort to adopt an 
examination that would assess basic product knowledge; the structure 
and function of the securities industry markets, regulatory agencies 
and their functions; and regulated and prohibited practices. The 
Exchange also notes that the introduction of the SIE and expansion of 
the pool of individuals who are eligible to take the SIE, has the 
potential of enhancing the pool of prospective securities industry 
professionals by introducing them to securities laws, rules and 
regulations and appropriate conduct before they join the industry in a 
registered capacity. Lastly, the Exchange notes adopting the SIE 
requirement is consistent with the requirement recently adopted by 
FINRA.\12\
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    \12\ See Securities Exchange Act Release No. 81098 (July 7, 
2017), 82 FR 32419 (July 13, 2017) (Order Approving File No. SR-
FINRA-2017-007).
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    The Exchange believes that the changes to the term ``Form U4'' and 
``Form U5'' are reasonable as the changes will conform to FINRA's rules 
and reduce investor confusion. The Exchange also believes that removing 
and amending certain language from Rule 2020(b)(1), Rule 2020(b)(3), 
Rule 2020(c)(5) and Rule 2020(d)(1) is reasonable as the changes 
conform to FINRA's rules regarding registration requirements and will 
reduce investor confusion.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the proposed rule change, which harmonizes its rules with recent rule 
changes adopted by FINRA and which is being filed in conjunction with 
similar filings by the other national securities exchanges, will reduce 
the regulatory burden placed on market participants engaged in trading 
activities across different markets. The Exchange believes that the 
harmonization of these registration requirements across the various 
markets will reduce burdens on competition by removing impediments to 
participation in the national market system and promoting competition 
among participants across the multiple national securities exchanges.

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

    The Exchange has neither solicited nor received comments on the 
proposed rule change.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \13\ and Rule 19b-
4(f)(6) thereunder.
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    \13\ 15 U.S.C. 78s(b)(3)(A).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days from the date of filing. However, Rule 
19b-4(f)(6)(iii) \14\ permits the Commission to 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 that the proposal may become operative on 
October 1, 2018 to coincide with the effective date of FINRA's proposed 
rule change on which the proposal is based.\15\ The waiver of the 
operative delay would make the Exchange's qualification requirements 
consistent with those of FINRA, as of October 1, 2018. Therefore, the 
Commission believes that the waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest and 
hereby waives the 30-day operative delay and designates the proposal 
operative on October 1, 2018.\16\
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    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ See supra note 3.
    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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-BOX-2018-32 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-BOX-2018-32. 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

[[Page 50708]]

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-BOX-2018-32 and should be 
submitted on or before October 30, 2018.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-21787 Filed 10-5-18; 8:45 am]
 BILLING CODE 8011-01-P