83 FR 50727 - Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Amendments To Rules Regarding Qualification, Registration and Continuing Education Applicable to Members and Member Organizations
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 195 (October 9, 2018)
Federal Register Volume 83, Issue 195 (October 9, 2018)
| Page Range | 50727-50736 | |
| FR Document | 2018-21781 |
[Federal Register Volume 83, Number 195 (Tuesday, October 9, 2018)] [Notices] [Pages 50727-50736] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-21781] [[Page 50727]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-84336; File No. SR-NYSE-2018-44] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Amendments To Rules Regarding Qualification, Registration and Continuing Education Applicable to Members and Member Organizations October 2, 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 27, 2018, New York Stock Exchange LLC (``NYSE'' 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. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 15 U.S.C. 78a. \3\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes amendments to the Exchange's rules regarding qualification, registration and continuing education requirements applicable to members or member organizations. To the extent the Exchange's rule proposal is intended to harmonize with Financial Regulatory Authority, Inc. (``FINRA'') rules and thus promote consistency within the securities industry, the Exchange is only adopting rules that are relevant to the Exchange's members or member organizations. The Exchange is not adopting registration categories that are not applicable to members or member organizations because members or member organizations do not engage in the type of business that would require such registration. As such, the Exchange is amending current Rule 345A regarding continuing education requirements to reflect the FINRA rule; adopting Commentary .60 to current Rule 345A regarding fingerprint information; adopting new Rule 1210 regarding registration requirements and related Commentary to new Rule 1210; adopting new Rule 1220 regarding registration categories \4\ and related Commentary to new Rule 1220; and adopting new Rule 1230 regarding associated persons exempt from registration and related Commentary to new Rule 1230. Each of these rule changes, which are [sic] described in more detail below, would become operative on October 1, 2018. The proposed rule change is available on the Exchange's website at www.nyse.com, at the principal office of the Exchange, and at the Commission's Public Reference Room. --------------------------------------------------------------------------- \4\ The relevant principal registration categories the Exchange proposes to adopt are (1) Principal; (2) General Securities Principal; (3) Compliance Officer; (4) Financial and Operations Principal and Introducing Broker-Dealer Financial and Operations Principal; (5) Securities Trader Principal; and (6) General Securities Sales Supervisor. The relevant representative registration categories the Exchange proposes to adopt are (1) Representative; (2) General Securities Representative; and (3) Securities Trader. --------------------------------------------------------------------------- II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend its qualification, registration, and continuing education requirements applicable to members or member organizations. The proposed amendments are intended to: (i) Provide transparency and clarity with respect to the Exchange's registration, qualification and examination requirements; (ii) amend its rules relating to categories of registration and respective qualification examinations required for ETP Holders that engage in trading activities on the Exchange; (iii) harmonize the Exchange's qualification, registration and examination rules with those of FINRA \5\ so as to promote uniform standards across the securities industry; and (iv) add new definitions of terms and make other conforming changes to enhance the comprehensiveness and clarity of the Exchange's rules.\6\ The proposed changes are discussed below. --------------------------------------------------------------------------- \5\ 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''). The Exchange notes that in order to maintain consistency with the FINRA Filing, the Exchange proposes to incorporate certain terms from the relevant FINRA rule into the Exchange's rule that may not be applicable to all member organizations. For example, while member organizations may not be engaged in ``investment banking'' activity, the Exchange proposes to adopt that term within these registration rules to conform them to the FINRA rules. \6\ The conforming changes the Exchange proposes would substitute the term ``member or member organization'' for ``member'' and the term ``Exchange'' for ``FINRA.'' --------------------------------------------------------------------------- A. Amendment to Rule 345, Commentary .10 Rule 345, Commentary .10, provides the definition of a Securities Trader as any person engaged in the purchase or sale of securities or other similar instruments for the account of a member organization with which such person is associated, as an employee or otherwise, and who does not transact any business with the public. With this proposed rule change, the Exchange proposes to adopt FINRA's definition of Securities Trader (as described below) and therefore, proposes to add a reference in Rule 345, Commentary .10 to Rule 2.1220(b)(3) [sic] as the appropriate rule in the Exchange's Rulebook where the definition of Securities Trader can be found. Further, Rule 345, Commentary .10, states that a Securities Trader must be registered as such on Web CRD and pass the Series 57 examination. Given the formulation of the Securities Industry Essentials (``SIE'') examination (discussed below) which all potential representative-level registrants would be required to pass, the Exchange proposes to amend the current rule to require that a Securities Trader must register as such on Web CRD and must pass both the SIE examination and the Series 57 examination. B. Amendments to Rule 345A--Continuing Education Requirements Rule 345A provides the continuing education requirements of registered persons \7\ subsequent to their initial qualification and registration with the Exchange, and includes a Regulatory Element and a Firm Element. The Regulatory Element applies to registered persons and consists of periodic computer-based training on regulatory, compliance, ethical, supervisory subjects and sales practice standards. [[Page 50728]] The Firm Element consists of at least an annual, member-developed and administered training programs [sic] designed to keep registered persons current regarding securities products, services and strategies offered by the member or member organization. --------------------------------------------------------------------------- \7\ For purposes of Rule 345A, the term ``registered person'' means any member, principal executive, registered representative, or other person registered or required to be registered under Exchange rules, but does not include any such person whose activities are limited solely to the transaction of business on the Floor with member or registered broker-dealers. See Rule 345A, Commentary .10. --------------------------------------------------------------------------- 1. Regulatory Element The Exchange proposes to amend Rule 345A(a) to provide, consistent with proposed Rule 2.1210 [sic], Commentary .08, that a waiver-eligible person would be subject to a Regulatory Element program that correlates to his or her most recent registration category, and that the content of the Regulatory Element would be based on the same cycle had the individual remain [sic] registered.\8\ The proposed amendment to Rule 345A(a) also provides that if a waiver-eligible person fails to complete the Regulatory Element during the prescribed time frames, he or she would lose waiver eligibility.\9\ --------------------------------------------------------------------------- \8\ The proposed change is substantially similar to that contained in FINRA Rule 1240(a)(1). \9\ The proposed change is substantially similar to that contained in FINRA Rule 1240(a)(2). --------------------------------------------------------------------------- Further, the Exchange proposes to amend Rule 345A(a) to provide that any person whose registration has been deemed inactive under the rule may not accept or solicit business or receive any compensation for the purchase or sale of securities. The proposed amendment provides, however, that such person may receive trail or residual commissions resulting from transactions completed before the inactive status, unless the member or member organization with which the person is associated has a policy prohibiting such trail or residual commissions.\10\ --------------------------------------------------------------------------- \10\ The proposed change is substantially similar to that contained in FINRA Rule 1240(a)(2). --------------------------------------------------------------------------- Additionally, under Rule 345A(a), a registered person is required to retake the Regulatory Element in the event that such person (i) is subject to any statutory disqualification as defined in Section 3(a)(39) of the Exchange Act; (ii) is subject to suspension or to the imposition of a fine of $5,000 or more for violation of any provision of any securities law or regulation, or any agreement with or rule or standard of conduct of any securities governmental agency, securities self-regulatory organization, or as imposed by any such regulatory or self-regulatory organization in connection with a disciplinary proceeding; or (iii) is ordered as a sanction in a disciplinary action to retake the Regulatory Element by any securities governmental agency or self-regulatory organization. The Exchange proposes to amend Rule 345A(a) to provide an exception to a waiver-eligible person from retaking the Regulatory Element and satisfy [sic] all of its requirements.\11\ --------------------------------------------------------------------------- \11\ The proposed change is substantially similar to that contained in FINRA Rule 1240(a)(3). --------------------------------------------------------------------------- 2. Firm Element Current Rule 345A(b) provides that programs used to implement a member's or member organization's training program must be appropriate for the business of the member or member organization and, at a minimum must cover specific matters concerning securities products, services, and strategies offered by the member or member organization. The Exchange proposes to amend the current rule to expand the minimum standard for such training programs by requiring that, at a minimum, a firm's training program must also cover training in ethics and professional responsibility.\12\ --------------------------------------------------------------------------- \12\ The proposed change is substantially similar to that contained in FINRA Rule 1240(b)(2). --------------------------------------------------------------------------- C. Proposed New Rule 345A--Commentary .60--Fingerprint Information \13\ --------------------------------------------------------------------------- \13\ The proposed rule is substantially similar to FINRA Rule 1010(d). --------------------------------------------------------------------------- The Exchange proposes to adopt new Rule 345A, Commentary .60, regarding the submission of fingerprint information by member organizations. As proposed, upon filing an electronic Form U4 on behalf of a person applying for registration, a member organization would be required to promptly submit fingerprint information for that person. If the member organization fails to submit the fingerprint information within 30 days after the Exchange receives the electronic Form U4, the person's registration shall be deemed inactive and the person would be required to immediately cease all activities requiring registration and would be prohibited from performing any duties and functioning in any capacity requiring registration. The proposed rule further provides allows [sic] the Exchange to administratively terminate a registration that is inactive for a period of two years. However, a person whose registration is administratively terminated may seek to reactivate his or her registration by reapplying for registration and meeting the qualification requirements under Exchange rules. D. Proposed New Rules 1210 Through 1230 As a general matter, FINRA administers qualification examinations that are designed to establish that persons associated with member organizations have attained specified levels of competence and knowledge. Over time, the examination program has increased in complexity to address the introduction of new products and functions, and related regulatory concerns and requirements. As a result, today, there are a large number of examinations, considerable content overlap across the representative-level examinations and requirements for individuals in various segments of the industry to pass multiple examinations. To address these issues, FINRA has formulated a general knowledge examination called the Securities Industry Essentials examination that all potential representative-level registrants would take.\14\ Rule changes related to the adoption of the SIE and other proposed new rules are discussed below. --------------------------------------------------------------------------- \14\ 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. --------------------------------------------------------------------------- 1. Proposed Rule 1210--Registration Requirements \15\ --------------------------------------------------------------------------- \15\ The proposed rule is substantially similar to FINRA Rule 1210. --------------------------------------------------------------------------- Proposed Rule 1210 provides that each person engaged in the investment banking or securities business of a member organization must register with the Exchange as a representative or principal in each category of registration appropriate to his or her functions and responsibilities as specified in proposed Rule 1220, unless exempt from registration pursuant to proposed Rule 1230. Proposed Rule 1210 also provides that such person is not qualified to function in any registered capacity other than that for which the person is registered, unless otherwise stated in the rules. 2. Proposed Rule 1210, Commentary .01--Permissive Registrations \16\ --------------------------------------------------------------------------- \16\ The proposed rule is substantially similar to FINRA Rule 1210.02. --------------------------------------------------------------------------- The Exchange currently does not have a specific rule that provides for permissive registrations. With this proposed rule change, and to conform its rules to the FINRA rules, the Exchange proposes to adopt a specific rule regarding permissive registrations. [[Page 50729]] Proposed Rule 1210, Commentary .01, allows any associated person to obtain and maintain any registration permitted by a member organization. For instance, an associated person of a member organization working solely in a clerical or ministerial capacity would be able to obtain and maintain a General Securities Representative registration with the member organization. As another example, an associated person of a member organization who is registered, [sic] and functioning solely as a General Securities Representative would be able to obtain and maintain a General Securities Principal registration with the member organization. Further, proposed Rule 1210, Commentary .01, allows an individual engaged in the securities business of a foreign securities affiliate or subsidiary of a member organization to obtain and maintain any registration permitted by the member organization. The Exchange is proposing to permit the registration of such individuals for several reasons. First, a member organization may foresee a need to move a former representative or principal who has not been registered for two or more years back into a position that would require such person to be registered. Currently, such persons are required to requalify (or obtain a waiver of the applicable qualification examinations) and reapply for registration. Second, the proposed rule change would allow member organizations to develop a depth of associated persons with registrations in the event of unanticipated personnel changes. Finally, allowing registration in additional categories encourages greater regulatory understanding. Individuals maintaining a permissive registration under the proposed rule change would be considered registered persons and subject to all Exchange rules, to the extent relevant to their activities. Additionally, consistent with the requirements of the Exchange's supervision rules, member organizations would be required to 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, such as an individual working exclusively in an administrative capacity, the individual's day-to-day supervisor may be a non-registered person. However, for purposes of compliance with the Exchange's supervision rules, a member organization would be required to assign a registered supervisor who would be responsible for periodically contacting such individual's day-to-day 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 must be registered as a representative or principal. If the individual is permissively registered as a principal, the registered supervisor must be registered as a principal.\17\ --------------------------------------------------------------------------- \17\ In either case, the registered supervisor of an individual who solely maintains a permissive registration would not be required to be registered in the same representative or principal registration category as the permissively-registered individual. --------------------------------------------------------------------------- 3. Proposed Rule 1210, Commentary .02--Qualification Examinations and Waivers of Examinations \18\ --------------------------------------------------------------------------- \18\ The proposed rule is substantially similar to FINRA Rule 1210.03. --------------------------------------------------------------------------- Proposed Rule 1210, Commentary .02, provides that before the registration of a person as a representative can become effective under proposed Rule 1210, such person must pass the SIE and an appropriate representative-level qualification examination as specified in proposed Rule 1220.\19\ Proposed Rule 1210, Commentary .02, also provides that before the registration of a person as a principal can become effective under proposed Rule 1210, such person must pass an appropriate principal-level qualification examination as specified in proposed Rule 1220. --------------------------------------------------------------------------- \19\ Proposed Rule 1220 sets forth each registration category and applicable qualification examination for member organizations. --------------------------------------------------------------------------- Further, proposed Rule 1210, Commentary .02, provides that if a registered person's job functions change and he or she needs to become registered in another representative-level category, he or she would not need to pass the SIE again. Rather, the registered person would need to pass only the appropriate representative-level qualification examination. Moreover, proposed Rule 1210, Commentary .02, provides that all associated persons, such as associated persons whose functions are solely and exclusively clerical or ministerial, are eligible to take the SIE. Proposed Rule 1210, Commentary .02, also provides that individuals who are not associated persons of firms, such as members of the general public, are eligible to take the SIE. The Exchange believes that expanding the pool of individuals who are eligible to take the SIE would enable prospective securities industry professionals to demonstrate to prospective employers a basic level of knowledge prior to submitting a job application. Further, this approach would allow for more flexibility and career mobility within the securities industry. While all associated persons of firms as well as individuals who are not associated persons would be eligible to take the SIE pursuant to the proposed rule, passing the SIE alone would not qualify them for registration with the Exchange. Rather, to be eligible for registration with the Exchange, an individual must pass an applicable representative or principal qualification examination and complete the other requirements of the registration process. Proposed Rule 1210, Commentary .02, also provides that the Exchange may, in exceptional cases and where good cause is shown, pursuant to the Rule 9600 Series, waive the applicable qualification examination(s) and accept other standards as evidence of an applicant's qualifications for registration. The proposed rule further provides that the Exchange will only consider examination waiver requests submitted by a member organization for individuals associated with the member organization who are seeking registration in a representative- or principal-level registration category. Moreover, the proposed rule states that the Exchange will consider waivers of the SIE alone or the SIE and the representative- and principal-level examination(s) for such individuals. The Exchange would not consider a waiver of the SIE for non-associated persons or for associated persons who are not registering as representatives or principals. 4. Proposed Rule 1210, Commentary .03--Requirements for Registered Persons Functioning as Principals for a Limited Period \20\ --------------------------------------------------------------------------- \20\ The proposed rule is substantially similar to FINRA Rule 1210.04. --------------------------------------------------------------------------- Proposed Rule 1210, Commentary .03, provides that a member organization may designate any person currently registered, or who becomes registered, with the member organization as a representative to function as a principal for a limited period, provided that such person has at least 18 months of experience functioning as a registered representative with [sic] the five-year period immediately preceding the designation. The proposed rule is intended to ensure that representatives designated to function as principals for the limited period under the proposal have an appropriate level of registered representative experience. The proposed rule clarifies that the requirements of the rule apply to designations to any principal category, including those categories that are not subject to a [[Page 50730]] prerequisite representative-level registration requirement, such as the Financial and Operations Principal registration category.\21\ --------------------------------------------------------------------------- \21\ The Exchange notes that qualifying as a registered representative is a prerequisite to qualifying as a principal except with respect to the following principal-level registrations: (1) Compliance Official; (2) Financial and Operations Principal; and (3) Introducing Broker-Dealer Financial and Operations Principal. --------------------------------------------------------------------------- The proposed rule also clarifies that the individual must fulfill all applicable prerequisite registration, fee and examination requirements before his or her designation as a principal. Further, the proposed rule provides that in no event may such person function as a principal beyond the initial 120 calendar days without having successfully passed an appropriate principal qualification examination. The proposed rule also provides an exception to the experience requirement for principals who are designated by a member organization to function in other principal categories for a limited period. Specifically, the proposed rule states that a member organization may designate any person currently registered, or who becomes registered, with the member organization as a principal to function in another principal category for 120 calendar days before passing any applicable examinations. 5. Proposed Rule 1210, Commentary .04--Rules of Conduct for Taking Examinations and Confidentiality of Examinations \22\ --------------------------------------------------------------------------- \22\ The proposed rule is substantially similar to FINRA Rule 1210.05. --------------------------------------------------------------------------- Proposed Rule 1210, Commentary .04 states that associated persons taking the SIE would be subject to the SIE Rules of Conduct, and associated persons taking a representative or principal examination would be subject to the Rules of Conduct for representative and principal examinations. Pursuant to proposed Rule 1210, Commentary .04, a violation of the SIE Rules of Conduct or the Rules of Conduct for representative and principal examinations by an associated person would be deemed to be a violation of Rule 2010. Moreover, if an associated person is deemed to have violated the SIE Rules of Conduct or the Rules of Conduct for representative and principal examinations, the associated person may forfeit the results of the examination and may be subject to disciplinary action by the Exchange. Further, the proposed rule states that individuals taking the SIE who are not associated persons must agree to be subject to the SIE Rules of Conduct. Among other things, the SIE Rules of Conduct would require individuals to attest that they are not qualified to engage in the investment banking or securities business based on passing the SIE and would prohibit individuals from cheating on the examination or misrepresenting their qualifications to the public subsequent to passing the SIE. Moreover, non-associated persons may forfeit their SIE results and may be prohibited from retaking the SIE if the Exchange determines that they cheated on the SIE or that they misrepresented their qualifications to the public subsequent to passing the SIE. The proposed rule further notes that the Exchange considers all qualification examinations [sic] content to be highly confidential and that the removal of examination content from an examination center, reproduction, disclosure, receipt from or passing to any person, or use for study purposes of any portion of such qualification examination or any other use that would compromise the effectiveness of the examinations and the use in any manner and at any time of the questions or answers to the examinations is prohibited and would be deemed a violation of Rule 2010. 6. Proposed Rule 1210, Commentary .05--Waiting Periods for Retaking a Failed Examination \23\ --------------------------------------------------------------------------- \23\ The proposed rule is substantially similar to FINRA Rule 1210.06. --------------------------------------------------------------------------- Proposed Rule 1210, Commentary .05 provides that any person who fails a qualification examination may retake that examination after 30 calendar days from the date of the person's last attempt to pass that examination. The proposed rule further provides that if a person fails an examination three or more times in succession within a two-year period, he or she would be prohibited from retaking the examination either until a period of 180 calendar days from the date of the person's last attempt to pass it [sic]. These waiting periods would apply to the SIE and the representative- and principal-level examinations. Moreover, the proposed rule provides that non-associated persons taking the SIE must agree to be subject to the same waiting periods for retaking the SIE. 7. Proposed Rule 1210, Commentary .06--All Registered Persons Must Satisfy the Regulatory Element of Continuing Education \24\ --------------------------------------------------------------------------- \24\ The proposed rule is substantially similar to FINRA Rule 1210.07. --------------------------------------------------------------------------- Pursuant to Rule 345A, the CE requirements applicable to registered persons consist of a Regulatory Element \25\ and a Firm Element.\26\ The Regulatory Element applies to registered persons and must be completed within prescribed time frames.\27\ For purposes of the Regulatory Element, a registered person is any member, principal executive, registered representative, or other person registered or required to be registered under Exchange rules, but does not include any such person whose activities are limited solely to the transaction of business on the Floor with member [sic] or registered broker- dealers. The Firm Element consists of annual, member organization- developed and administered training programs designed to keep covered registered persons current regarding securities products, services and strategies offered by the member organization. For purposes of the Firm Element, the term covered registered persons means any person registered with a member organization who has direct contact with customers in the conduct of the member organization's securities sales, trading and investment banking activities and to the immediate supervisors of such persons. --------------------------------------------------------------------------- \25\ See Rule 345A(a). \26\ See Rule 345A(b). \27\ Pursuant to Rule 345A(a), each specified registered person is required to complete the Regulatory Element initially within 120 days after the person's second registration anniversary date and, thereafter, within 120 days after every third registration anniversary date. A registered person who has not completed the Regulatory Element program within the prescribed time frames will have his or her registrations deemed inactive and designated as ``CE inactive'' on the CRD system until such time as the requirements of the program have been satisfied. A CE inactive person is prohibited from performing, or being compensated for, any activities requiring registration, including supervision. Moreover, if a registered person is CE inactive for a two-year period, the Exchange will administratively terminate the person's registration status. The two-year period would be calculated from the date the person becomes CE inactive. In either case, such person must requalify (or obtain a waiver of the applicable qualification examination(s)) to be re- eligible for registration. --------------------------------------------------------------------------- The Exchange believes that all registered persons, regardless of their activities, should be subject to the Regulatory Element of the CE requirements so that they can keep their knowledge of the securities industry current. Therefore, the Exchange proposes to adopt Rule 1210, Commentary .06, to clarify that all registered persons, including those who solely maintain a permissive registration, are required to satisfy the Regulatory Element, as specified in Rule 345A(a). The Exchange is making corresponding changes to Rule 345A(a) [sic]. The Exchange is not proposing any changes to the Firm Element requirement at this time. Individuals [[Page 50731]] who have passed the SIE but not a representative- or principal-level examination and do not hold a registered position would not be subject to any CE requirements. Proposed Rule 1210, Commentary .06, also provides that a registered person of a member organization who becomes CE inactive would not be permitted to be registered in another registration category with the member organization or be registered in any registration category with another member organization, until the person has satisfied the Regulatory Element. 8. Proposed Rule 1210, Commentary .07--Lapse of Registration and Expiration of the SIE \28\ --------------------------------------------------------------------------- \28\ The proposed rule is substantially similar to FINRA Rule 1210.08. --------------------------------------------------------------------------- Proposed Rule 1210, Commentary .07, provides that any person who was last registered as a representative two or more years immediately preceding the date of receipt by the Exchange of a new application for registration as a representative is required to pass a qualification examination for representatives appropriate to the category of registration as specified in proposed Rule 1220(b). Proposed Rule 1210, Commentary .07, also sets forth that a passing result on the SIE would be valid for up to four years. Therefore, under the proposed rule change, an individual who passes the SIE and is an associated person of a member organization at the time would have up to four years from the date he or she passes the SIE to pass a representative-level examination to register as a representative with that member organization, or a subsequent member organization, without having to retake the SIE. In addition, an individual who passes the SIE and is not an associated person at the time would have up to four years from the date he or she passes the SIE to become an associated person of a member organization and pass a representative-level examination and register as a representative without having to retake the SIE. Moreover, an individual holding a representative-level registration who leaves the industry after the effective date of this proposed rule change would have up to four years to re-associate with a member organization and register as a representative without having to retake the SIE. However, the four-year expiration period in the proposed rule change extends only to the SIE, and not the representative- and principal-level registrations. The representative- and principal-level registrations would continue to be subject to a two-year expiration period as is the case today. Finally, proposed Rule 1210, Commentary .07, clarifies that, for purposes of the proposed rule, an application would not be considered to have been received by the Exchange if that application does not result in a registration. 9. Proposed Rule 1210, Commentary .08--Waiver of Examinations for Individuals Working for a Financial Services Industry Affiliate of a Member Organization \29\ --------------------------------------------------------------------------- \29\ The proposed rule is substantially similar to FINRA Rule 1210.09. --------------------------------------------------------------------------- Proposed Rule 1210, Commentary .08, provides the process for individuals working for a financial services industry affiliate of a member organization \30\ to terminate their registrations with the member organization and be granted a waiver of their requalification requirements upon re-registering with a member organization, provided the firm that is requesting the waiver and the individual satisfy the criteria for a Financial Services Affiliate (``FSA'') waiver. --------------------------------------------------------------------------- \30\ Proposed Rule 1210, Commentary .07 [sic], defines a ``financial services industry affiliate of a member organization'' as a legal entity that controls, is controlled by or is under common control with a member organization and is regulated by the SEC, CFTC, state securities authorities, federal or state banking authorities, state insurance authorities, or substantially equivalent foreign regulatory authorities. --------------------------------------------------------------------------- Under the proposed waiver process, the first time a registered person is designated as eligible for a waiver based on the FSA criteria, the member organization with which the individual is registered would notify the Exchange of the FSA designation. The member organization would concurrently file a full Form U5 terminating the individual's registration with the firm, which would also terminate the individual's other SRO and state registrations. To be eligible for initial designation as an FSA-eligible person by a member organization, an individual must have been registered for a total of five years within the most recent 10-year period prior to the designation, including for the most recent year with that member organization. An individual would have to satisfy these preconditions only for purposes of his or her initial designation as an FSA-eligible person, and not for any subsequent FSA designation(s). Thereafter, the individual would be eligible for a waiver for up to seven years from the date of initial designation,\31\ provided that the other conditions of the waiver, as described below, have been satisfied. Consequently, a member organization other than the member organization that initially designated an individual as an FSA-eligible person may request a waiver for the individual and more than one member organization may request a waiver for the individual during the seven-year period.\32\ --------------------------------------------------------------------------- \31\ Individuals would be eligible for a single, fixed seven- year period from the date of initial designation, and the period would not be tolled or renewed. \32\ The following examples illustrate this point: Example 1. Firm A designates an individual as an FSA-eligible person by notifying the Exchange and files a Form U5. The individual joins Firm A's financial services affiliate. Firm A does not submit a waiver request for the individual. After working for Firm A's financial services affiliate for three years, the individual directly joins Firm B's financial services affiliate for three years. Firm B then submits a waiver request to register the individual. Example 2. Same as Example 1, but the individual directly joins Firm B after working for Firm A's financial services affiliate, and Firm B submits a waiver request to register the individual at that point in time. Example 3. Firm A designates an individual as an FSA-eligible person by notifying the Exchange and files a Form U5. The individual joins Firm A's financial services affiliate for three years. Firm A then submits a waiver request to re-register the individual. After working for Firm A in a registered capacity for six months, Firm A re-designates the individual as an FSA-eligible person by notifying the Exchange and files a Form U5. The individual rejoins Firm A's financial services affiliate for two years, after which the individual directly joins Firm B's financial services affiliate for one year. Firm B then submits a waiver request to register the individual. Example 4. Same as Example 3, but the individual directly joins Firm B after the second period of working for Firm A's financial services affiliate, and Firm B submits a waiver request to register the individual at that point in time. --------------------------------------------------------------------------- An individual designated as an FSA-eligible person would be subject to the Regulatory Element of CE while working for a financial services industry affiliate of a member organization. The individual would be subject to a Regulatory Element program that correlates to his or her most recent registration category, and CE would be based on the same cycle had the individual remained registered. If the individual fails to complete the prescribed Regulatory Element during the 120-day window for taking the session, he or she would lose FSA eligibility (i.e., the individual would have the standard two-year period after termination to re-register without having to retake an examination). The Exchange is making corresponding changes to Rule 345A. Upon registering an FSA-eligible person, a firm would file a Form U4 and request the appropriate registration(s) for the individual. The firm would also submit an examination waiver request [[Page 50732]] to the Exchange,\33\ similar to the process used today for waiver requests, and it would represent that the individual is eligible for an FSA waiver based on the conditions set forth below. The Exchange would review the waiver request and make a determination of whether to grant the request within 30 calendar days of receiving the request. The Exchange would summarily grant the request if the following conditions are met: --------------------------------------------------------------------------- \33\ The Exchange would consider a waiver of the representative- level qualification examination(s), the principal-level qualification examination(s) and the SIE, as applicable. --------------------------------------------------------------------------- (1) Prior to the individual's initial designation as an FSA- eligible person, the individual was registered for a total of five years within the most recent 10-year period, including for the most recent year with the member organization that initially designated the individual as an FSA-eligible person; (2) The waiver request is made within seven years of the individual's initial designation as an FSA-eligible person by a member organization; (3) The initial designation and any subsequent designation(s) were made concurrently with the filing of the individual's related Form U5; (4) The individual continuously worked for the financial services affiliate(s) of a member organization since the last Form U5 filing; (5) The individual has complied with the Regulatory Element of CE; and (6) 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 while the individual was designated as an FSA-eligible person with a member organization. Following the Form U5 filing, an individual could move between the financial services affiliates of a member organization so long as the individual is continuously working for an affiliate. Further, a member organization could submit multiple waiver requests for the individual, provided that the waiver requests are made during the course of the seven-year period.\34\ An individual who has been designated as an FSA- eligible person by a member organization would not be able to take additional examinations to gain additional registrations while working for a financial services affiliate of a member organization. --------------------------------------------------------------------------- \34\ For example, if a member organization submits a waiver request for an FSA-eligible person who has been working for a financial services affiliate of the member organization for three years and re-registers the individual, the member organization could subsequently file a Form U5 and re-designate the individual as an FSA-eligible person. Moreover, if the individual works with a financial services affiliate of the member organization for another three years, the member organization could submit a second waiver request and re-register the individual upon returning to the member organization. --------------------------------------------------------------------------- 10. Proposed Rule 1210, Commentary .09--Status of Persons Serving in the Armed Forces of the United States \35\ --------------------------------------------------------------------------- \35\ The proposed rule is substantially similar to FINRA Rule 1210.10. --------------------------------------------------------------------------- Proposed Rule 1210, Commentary .09, provides specific relief to registered persons serving in the Armed Forces of the United States. Among other things, the proposed rule permits a registered person of a member organization who volunteers for or is called into active duty in the Armed Forces of the United States to be registered in an inactive status and remain eligible to receive ongoing transaction-related compensation. The proposed rule also includes specific provisions regarding the deferment of the lapse of registration requirements for formerly registered persons serving in the Armed Forces of the United States. The proposed rule further requires that the member organization with which such person is registered promptly notify the Exchange of such person's return to employment with the member organization. The proposed rule would require a member organization that is a sole proprietor to also similarly notify the Exchange of his or her return to participation in the investment banking or securities business. The proposed rule also provides that the Exchange would defer the lapse of the SIE for formerly registered persons serving in the Armed Forces of the United States. E. Proposed New Rule 1220--Registration Categories \36\ --------------------------------------------------------------------------- \36\ The Exchange is not adopting the following categories from the FINRA Filing because member organizations do not engage in the type of business that would require registration with the Exchange: Investment Banking Principal, Research Principal, Registered Options Principal, Government Securities Principal, Investment Company and Variable Contracts Products Principal, Direct Participation Programs Principal, Private Securities Offerings Principal, Supervisory Analyst, Operations Professional, Investment Banking Representative, Research Analyst, Investment Company and Variable Contracts Products Representative, Direct Participation Programs Representative, and Private Securities Offering Representative. The Exchange is also not adopting the following categories because the FINRA Filing eliminated them: Order Processing Assistant Representative, United Kingdom Securities Representative, Canadian Securities Representative, Options Representative, Corporate Securities Representative and Government Securities Representative. --------------------------------------------------------------------------- 1. Proposed Rule 1220(a)(1)--Principal As set forth in proposed Rule 1220(a)(1), for purposes of these registration rules, the term ``Principal'' [sic] to mean any Person Associated with a member organization actively engaged in the management of the member organization's securities business, including supervision, solicitation, conduct of the member organization's business, or the training of Authorized Traders and Persons Associated with a member organization for any of these functions. Such Persons include Sole Proprietors, Officers, Partners, and Directors of Corporations. For purposes of proposed Rule 1220(a)(1), the phrase ``actively engaged in the management of the member organization's securities business'' includes the management of, and the implementation of corporate policies related to, such business. The term also includes managerial decision-making authority with respect to the member organization's securities business and management-level responsibilities for supervising any aspect of such business, such as serving as a voting member of the member organization's executive, management or operations committee. 2. Proposed Rule 1220(a)(2)--General Securities Principal \37\ --------------------------------------------------------------------------- \37\ The proposed rule is substantially similar to FINRA Rule 1220(a)(2). --------------------------------------------------------------------------- Proposed Rule 1220(a)(2)(A) states that each principal as defined in proposed Rule 1220(a)(1) is required to register with the Exchange as a General Securities Principal, subject to the following exceptions. The proposed rule provides that if a principal's activities include the functions of a Compliance Officer, a Financial and Operations Principal (or an Introducing Broker-Dealer Financial and Operations Principal, as applicable), a Principal Financial Officer, a Principal Operations Officer, or a Securities Trader Principal, then the principal must appropriately register in one or more of these categories. Proposed Rule 1220(a)(2)(A) further provides that if a principal's activities are limited solely to the functions of a General Securities Sales Supervisor, then the principal may appropriately register in that category in lieu of registering as a General Securities Principal. Proposed Rule 1220(a)(2)(B) requires that an individual registering as a General Securities Principal satisfy the General Securities Representative prerequisite registration and pass the General Securities Principal qualification examination. Proposed Rule 1220(a)(2)(B) also clarifies that an individual may register as a General Securities Sales Supervisor and pass the [[Page 50733]] General Securities Sales Supervisor qualification examination in lieu of passing the General Securities Principal examination. As a general matter, the Exchange currently recognizes the Corporate Securities Representative but would no longer recognize this registration category given its elimination by FINRA. Proposed Rule 1220(a)(2)(B), however, provides that, subject to the lapse of registration provisions in proposed Rule 1210, Commentary .07, each person registered with the Exchange as a Corporate Securities Representative and a General Securities Principal on October 1, 2018 and each person who was registered with the Exchange as a Corporate Securities Representative and a General Securities Principal within two years prior to October 1, 2018 would be qualified to register as a General Securities Principal without having to take any additional qualification examinations, provided that such person's supervisory responsibilities in the investment banking and securities business of a member organization are limited to corporate securities activities of the member organization. The proposed rule further provides that all other individuals registering as General Securities Principals after October 1, 2018 shall, prior to or concurrent with such registration, become registered as a General Securities Representative and either (1) pass the General Securities Principal qualification examination; or (2) register as a General Securities Sales Supervisor and pass the General Securities Sales Supervisor qualification examination. 3. Proposed Rule 1220(a)(3)--Compliance Officer \38\ --------------------------------------------------------------------------- \38\ The proposed rule is substantially similar to FINRA Rule 1220(a)(3). --------------------------------------------------------------------------- Proposed Rule 1220(a)(3) establishes a Compliance Officer registration category and requires all persons designated as CCOs on Schedule A of Form BD to register as Compliance Officers, subject to an exception for member organizations engaged in limited investment banking or securities business. The proposed rule only addresses the registration requirements for CCOs. However, consistent with proposed Rule 1210, Commentary .01 relating to permissive registrations, a firm may allow other associated persons to register as Compliance Officers. In addition, the Exchange is proposing to provide CCOs of firms that engage in limited investment banking or securities business with greater flexibility to satisfy the qualification requirements for CCOs. Specifically, proposed Rule 1220(a)(3) set forth the following qualification requirements for Compliance Officer registration:Subject to the lapse of registration provisions in proposed Rule 1210, Commentary .07, each person registered with the Exchange as a General Securities Representative and a General Securities Principal on October 1, 2018 and each person who was registered with the Exchange as a General Securities Representative and a General Securities Principal within two years prior to October 1, 2018 would be qualified to register as Compliance Officers without having to take any additional examinations. In addition, subject to the lapse of registration provisions in proposed Rule 1210, Commentary .07, individuals registered as Compliance Officials in the CRD system on October 1, 2018 and individuals who were registered as such within two years prior to October 1, 2018 would also be qualified to register as Compliance Officers without having to take any additional examinations; [sic] All other individuals registering as Compliance Officers after October 1, 2018 would have to: (1) Satisfy the General Securities Representative prerequisite registration and pass the General Securities Principal qualification examination; or (2) pass the Compliance Official qualification examination. An individual designated as a CCO on Schedule A of Form BD of an ETP Holder [sic] that is engaged in limited investment banking or securities business may be registered in a principal category under proposed Rule 1220(a) that corresponds to the limited scope of the member organization's business. 4. Proposed Rule 1220(a)(4)--Financial and Operation Principal and Introducing Broker-Dealer Financial and Operations Principal \39\ --------------------------------------------------------------------------- \39\ The proposed rule is substantially similar to FINRA Rule 1220(a)(4). --------------------------------------------------------------------------- Proposed Rule 1220(a)(4) provides that each principal who is responsible for the financial and operational management of a member organization that has a minimum net capital requirement of $250,000 under SEA Rules 15c3-1(a)(1)(ii) and 15c3-1(a)(2)(i), or a member organization that has a minimum net capital requirement of $150,000 under SEA Rule 15c3-1(a)(8) must be designated as a Financial and Operations Principal. In addition, proposed Rule 1220(a)(4) provides that a principal who is responsible for the financial and operational management of a member organization that is subject to the net capital requirements of SEA Rule 15c3-1, other than a member organization that is subject to the net capital requirements of SEA Rules 15c3- 1(a)(1)(ii), (a)(2)(i) or (a)(8), must be designated and registered as either a Financial and Operations Principal or an Introducing Broker- Dealer Financial and Operations Principal. Financial and Operations Principals and Introducing Broker-Dealer Financial and Operation Principals are not subject to a prerequisite representative registration, but they must pass the Financial and Operations Principal or Introducing Broker-Dealer Financial and Operations Principal examination, as applicable. Additionally, proposed Rule 1220(a)(4)(B) requires a member organization to designate a Principal Financial Officer with primary responsibility for the day-to-day operations of the business, including overseeing the receipt and delivery of securities and funds, safeguarding customer and firm assets, calculation and collection of margin from customers and processing dividend receivable and payables and reorganization redemptions and those books and records related to such activities. Further, the proposed rule requires that a firm's Principal Financial Officer and Principal Operations Officer qualify and register as Financial and Operations Principals or Introducing Broker-Dealer Financial and Operations Principals, as applicable. Because the financial and operational activities of member organizations that neither self-clear nor provide clearing services are more limited, such member organizations may designate the same person as the Principal Financial Officer, Principal Operations Officer and Financial and Operations Principal or Introducing Broker-Dealer Financial and Operations Principal (that is, such member organizations are not required to designate different persons to function in these capacities). Given the level of financial and operational responsibility at clearing and self-clearing members, the Exchange believes that it is necessary for such member organizations to designate separate persons to function as Principal Financial Officer and Principal Operations Officer. Such persons may also carry out the other responsibilities of a Financial and Operations Principal, such as supervision of individuals engaged in financial and operational activities. In addition, the proposed rule provides that a clearing or self-clearing member organization that is limited in size and [[Page 50734]] resources may request a waiver of the requirement to designate separate persons to function as Principal Financial Officer and Principal Operations Officer. 5. Proposed Rule 1220(a)(5)--Securities Trader Principal \40\ --------------------------------------------------------------------------- \40\ The proposed rule is substantially similar to FINRA Rule 1220(a)(7). --------------------------------------------------------------------------- Proposed Rule 1220(a)(5) requires that a principal responsible for supervising the securities trading activities specified in proposed Rule 1220(b)(3) register as a Securities Trader Principal. The proposed rule requires that individuals registering as Securities Trader Principals must be registered as Securities Traders and pass the General Securities Principal qualification examination. 6. Proposed Rule 1220(a)(6)--General Securities Sales Supervisor \41\ --------------------------------------------------------------------------- \41\ The proposed rule is substantially similar to FINRA Rule 1220(a)(10). --------------------------------------------------------------------------- Proposed Rule 1220(a)(6) provides that a principal may register with the Exchange as a General Securities Sales Supervisor if his or her supervisory responsibilities in the investment banking or securities business of a member organization are limited to the securities sales activities of the member organization, including the approval or customer accounts, training of sales and sales supervisory personnel and the maintenance of records of original entry or ledger accounts of the member organization required to be maintained in branch offices by Exchange Act record-keeping rules. A person registering as a General Securities Sales Supervisor must satisfy the General Securities Representative prerequisite registration and pass the General Securities Sales Supervisor examinations.\42\ Moreover, a General Securities Sales Supervisor is precluded from performing any of the following activities: (1) Supervision of the origination and structuring of underwritings; (2) supervision of market-making commitments; (3) supervision of the custody of firm or customer funds or securities for purposes of SEA Rule 15c3-3; or (4) supervision of overall compliance with financial responsibility rules. --------------------------------------------------------------------------- \42\ An individual may also register as a General Securities Sales Supervisor by passing a combination of other principal-level examinations. --------------------------------------------------------------------------- 7. Proposed Rule 1220(b)(1)--Representative \43\ --------------------------------------------------------------------------- \43\ The proposed rule is substantially similar to FINRA Rule 1220(b)(1). --------------------------------------------------------------------------- Proposed Rule 1220(b)(1) defines a representative as any person associated with a member organization, including assistant officers other than principals, who is engaged in the member organization's investment banking or securities business, such as supervision, solicitation, conduct of business in securities or the training of persons associated with a member organizations for any of these functions. 8. Proposed Rule 1220(b)(2)--General Securities Representative \44\ --------------------------------------------------------------------------- \44\ The proposed rule is substantially similar to FINRA Rule 1220(b)(2). --------------------------------------------------------------------------- Proposed Rule 1220(b)(2)(A) states that each representative as defined in proposed Rule 1220(b)(1) is required to register with the Exchange as a General Securities Representative, subject to the following exceptions. The proposed rule provides that if a representative's activities include the function of a Securities Trader, then the representative must appropriately register in that category. The proposed rule further provides that, subject to the lapse of registration provisions in proposed Rule 1210, Commentary .07, each person registered with the Exchange as a General Securities Representative on October 1, 2018 and each person who was registered with the Exchange as a General Securities Representative within two years prior to October 1, 2018 would be qualified to register as a General Securities Representative without having to take any additional qualification examinations. Additionally, the proposed rule would require that individuals registering as General Securities Representatives after October 1, 2018 shall, prior to or concurrent with such registration, pass the SIE and the General Securities Representative examination. 9. Proposed Rule 1220(b)(3)--Securities Trader \45\ --------------------------------------------------------------------------- \45\ The proposed rule is substantially similar to FINRA Rule 1220(b)(4). --------------------------------------------------------------------------- Proposed Rule 1220(b)(3) provides that each representative as defined in proposed Rule 1220(b)(1) is required to register as a Securities Trader if, with respect to transactions in equity (including equity options), preferred or convertible debt securities, such person is engaged in proprietary trading, the execution of transactions on an agency basis, or the direct supervision of such activities. The proposed rule provides an exception from the registration requirement for any associated person of a member organization whose trading activities are conducted primarily on behalf of an investment company that is registered with the SEC pursuant to the Investment Company Act and that controls, is controlled by, or is under common control with a member organization. The Exchange proposes to adopt FINRA's definition of Securities Trader in proposed Rule 1220(b)(3) in order to align the text of the rule to that adopted by FINRA and other exchanges.\46\ --------------------------------------------------------------------------- \46\ See e.g., MIAX International Stock Exchange, LLC Rule 203(d). --------------------------------------------------------------------------- The proposed rule also requires that associated persons primarily responsible for the design, development or significant modification of algorithmic trading strategies (or responsible for the day-to-day supervision or direction of such activities) register as Securities Traders. Individuals registering as Securities Traders must pass the SIE and the Securities Trader examination. Finally, the proposed rule provides that, subject to the lapse of registration provisions in proposed Rule 1210, Commentary .07, each person registered with the Exchange as a Securities Trader on October 1, 2018 and each person who was registered with the Exchange as a Securities Trader within two years prior to October 1, 2018 would be qualified to register as a Securities Trader without having to take any additional qualification examinations. Additionally, the proposed rule would require that individuals registering as Securities Traders after October 1, 2018 shall, prior to or concurrent with such registration, pass the SIE and the Securities Trader qualification examination. 10. Proposed Rule 1220, Commentary .01--Foreign Registrations \47\ --------------------------------------------------------------------------- \47\ The proposed rule is substantially similar to FINRA Rule 1220.01 and 1220.06. --------------------------------------------------------------------------- Proposed Rule 1220, Commentary .01, states 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 a representative- level registration. Additionally, proposed Rule 1220, Commentary .01, provides that, subject to the lapse of registration provisions in Rule 1210, Commentary .07, each person who is registered with the Exchange as a United Kingdom Securities Representative or a Canada [[Page 50735]] Securities Representative on October 1, 2018 and each person who was registered with the Exchange in such categories within two years prior to October 1, 2018 would be eligible to maintain such registrations with the Exchange. However, if persons registered in such categories subsequently terminate such registration(s) with the Exchange and the registration remains terminated for two or more years, they would not be eligible to re-register in such categories. 11. Proposed Rule 1220, Commentary .02--Additional Qualification Requirements for Persons Engaged in Security Futures \48\ --------------------------------------------------------------------------- \48\ The proposed rule is substantially similar to FINRA Rule 1220.02. --------------------------------------------------------------------------- Proposed Rule 1220, Commentary .02, states that each person who is registered with the Exchange as a General Securities Representative, United Kingdom Securities Representative, Canada Securities Representative, or General Securities Sales Supervisor shall be eligible to engage in security futures activities as a representative or principal, as applicable, provided that such individual completes a Firm Element program as set forth in Rule 345A(b) that addresses security futures products before such person engages in security futures activities.\49\ --------------------------------------------------------------------------- \49\ FINRA Rule 1220.02 also includes Options Representative and Registered Options Principal registration categories. NYSE does not trade options and member organizations therefore would not be required to register with the Exchange in those categories and therefore the Exchange is not adopting those categories within proposed Rule 1220, Commentary .03 [sic]. --------------------------------------------------------------------------- 12. Proposed Rule 1220, Commentary .03--Scope of General Securities Sales Supervisor Registration Category \50\ --------------------------------------------------------------------------- \50\ The proposed rule is substantially similar to FINRA Rule 1220.04. --------------------------------------------------------------------------- Proposed Rule 1220, Commentary .03, explains the purpose of the General Securities Sales Supervisor registration category. The General Securities Sales Supervisor category is an alternate category of registration designed to lessen the qualification burdens on principals of general securities firms who supervise sales. Without this category of limited registration, such principals would be required to separately qualify pursuant to the rules of FINRA, the MSRB, and the options exchanges. While persons may continue to separately qualify with all relevant self-regulatory organizations, the General Securities Sales Supervisor examination permits qualification as a supervisor of sales of all securities through one registration category. Persons registered as General Securities Sales Supervisors may also qualify in any other category of principal registration. Persons who are already qualified in one or more categories of principal registration may supervise sales activities of all securities by also qualifying as General Securities Sales Supervisors. The proposed rule further provides that any person required to be registered as a principal who supervises sales activities in corporate, municipal and option securities, investment company products, variable contracts, and security futures (subject to the requirements of Rule 1220, Commentary .02) may be registered solely as a General Securities Sales Supervisor. In addition to branch office managers, other persons such as regional and national sales managers may also be registered solely as General Securities Sales Supervisors as long as they supervise only sales activities. F. Proposed New Rule 1230--Associated Persons Exempt From Registration \51\ --------------------------------------------------------------------------- \51\ The proposed rule is substantially similar to FINRA Rule 1230. --------------------------------------------------------------------------- Proposed Rule 1230 provides an exemption from registration with the Exchange for certain associated persons. Specifically, the proposed rule provides that persons associated with a member organization whose functions are solely and exclusively clerical or ministerial would be exempt from registration.\52\ --------------------------------------------------------------------------- \52\ FINRA Rule 1230 provides an exemption from registration with FINRA to persons associated with a FINRA member whose functions are solely and exclusively clerical or ministerial and persons associated with a FINRA member whose functions are related solely and exclusively to (i) effecting transactions on the floor of a national securities exchange and who are appropriately registered with such exchange; (ii) effecting transactions in municipal securities; (iii) effecting transactions in commodities; or (iv) effecting transactions in security futures, provided that any such person is registered with a registered futures association. Member organizations do not solely and exclusively engage in any of the foregoing transactions and therefore the Exchange is not adopting that portion of FINRA Rule 1230. --------------------------------------------------------------------------- 1. Proposed Rule 1230, Commentary .01--Registration Requirements for Associated Persons Who Accept Customer Orders \53\ --------------------------------------------------------------------------- \53\ The proposed rule is substantially similar to FINRA Rule 1230.01. --------------------------------------------------------------------------- Proposed Rule 1230, Commentary .01, clarifies that the function of accepting customer orders is not considered clerical or ministerial and that associated persons who accept customer orders under any circumstances are required to be appropriately registered. However, the proposed rule provides that an associated person is not accepting a customer order where occasionally, when an appropriately registered person is unavailable, the associated person transcribes the order details and the registered person contacts the customer to confirm the order details before entering the order. 2. Statutory Basis The proposed rule change is consistent with Section 6(b) of the Securities Exchange Act of 1934 (the ``Act''),\54\ in general, and furthers the objectives of Section 6(b)(5),\55\ in particular, because it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in 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. --------------------------------------------------------------------------- \54\ 15 U.S.C. 78f(b). \55\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Exchange believes that the proposed rule change will streamline, and bring consistency and uniformity to, the registration rules, which will, in turn, assist member organizations and their associated persons in complying with these rules and improve regulatory efficiency. The proposed rule change will also improve the efficiency of the examination program, without compromising the qualification standards. In addition, the proposed rule change will expand the scope of permissive registrations, which, among other things, will allow member organizations to develop a depth of associated persons with registrations to respond to unanticipated personnel changes and will encourage greater regulatory understanding. Further, the proposed rule change will provide a more streamlined and effective waiver process for individuals working for a financial services industry affiliate of a member organization, and it will require such individuals to maintain specified levels of competence and knowledge while working in areas ancillary to the investment banking and securities business. Finally, the Exchange believes that, with the introduction of the SIE and expansion of the pool of individuals who are eligible to take the SIE, the proposed rule change 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. [[Page 50736]] B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed amendments are intended to promote transparency in the Exchange's rules, and consistency with the rules of other SROs with respect to the examination, qualification, and continuing education requirements applicable to member organizations and their registered personnel. The Exchange believes that in that regard that any burden on competition would be clearly outweighed by the important regulatory goal of ensuring clear and consistent requirements applicable across SROs, avoiding duplication, and mitigating any risk of SROs implementing different standards in these important areas. Further, the Exchange does not believe that the proposed amendments will affect competition among securities markets since all SROs are expected to adopt similar rules with uniform standards for 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 No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act \56\ and Rule 19b- 4(f)(6) thereunder. --------------------------------------------------------------------------- \56\ 15 U.S.C. 78s(b)(3)(A). --------------------------------------------------------------------------- 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) \57\ 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.\58\ 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.\59\ --------------------------------------------------------------------------- \57\ 17 CFR 240.19b-4(f)(6)(iii). \58\ See supra note 5. \59\ 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). --------------------------------------------------------------------------- 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-NYSE-2018-44 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-NYSE-2018-44. 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-NYSE-2018-44 and should be submitted on or before October 30, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\60\ Eduardo A. Aleman, Assistant Secretary. --------------------------------------------------------------------------- \60\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- [FR Doc. 2018-21781 Filed 10-5-18; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 83, No. 195 / Tuesday, October 9, 2018 / Notices 50727
SECURITIES AND EXCHANGE Commentary to new Rule 1220; and uniform standards across the securities
COMMISSION adopting new Rule 1230 regarding industry; and (iv) add new definitions of
associated persons exempt from terms and make other conforming
[Release No. 34–84336; File No. SR–NYSE–
registration and related Commentary to changes to enhance the
2018–44]
new Rule 1230. Each of these rule comprehensiveness and clarity of the
Self-Regulatory Organizations; New changes, which are [sic] described in Exchange’s rules.6 The proposed
York Stock Exchange LLC; Notice of more detail below, would become changes are discussed below.
Filing and Immediate Effectiveness of operative on October 1, 2018. The
A. Amendment to Rule 345,
Amendments To Rules Regarding proposed rule change is available on the
Commentary .10
Qualification, Registration and Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and Rule 345, Commentary .10, provides
Continuing Education Applicable to
at the Commission’s Public Reference the definition of a Securities Trader as
Members and Member Organizations
Room. any person engaged in the purchase or
October 2, 2018. sale of securities or other similar
II. Self-Regulatory Organization’s instruments for the account of a member
Pursuant to Section 19(b)(1) 1 of the Statement of the Purpose of, and
Securities Exchange Act of 1934 (the organization with which such person is
Statutory Basis for, the Proposed Rule associated, as an employee or otherwise,
‘‘Act’’) 2 and Rule 19b–4 thereunder,3 Change
notice is hereby given that on and who does not transact any business
September 27, 2018, New York Stock In its filing with the Commission, the with the public. With this proposed rule
Exchange LLC (‘‘NYSE’’ or the self-regulatory organization included change, the Exchange proposes to adopt
‘‘Exchange’’) filed with the Securities statements concerning the purpose of, FINRA’s definition of Securities Trader
and Exchange Commission (the and basis for, the proposed rule change (as described below) and therefore,
‘‘Commission’’) the proposed rule and discussed any comments it received proposes to add a reference in Rule 345,
change as described in Items I and II on the proposed rule change. The text Commentary .10 to Rule 2.1220(b)(3)
below, which Items have been prepared of those statements may be examined at [sic] as the appropriate rule in the
by the self-regulatory organization. The the places specified in Item IV below. Exchange’s Rulebook where the
Commission is publishing this notice to The Exchange has prepared summaries, definition of Securities Trader can be
solicit comments on the proposed rule set forth in sections A, B, and C below, found.
change from interested persons. of the most significant parts of such Further, Rule 345, Commentary .10,
statements. states that a Securities Trader must be
I. Self-Regulatory Organization’s registered as such on Web CRD and pass
Statement of the Terms of Substance of A. Self-Regulatory Organization’s the Series 57 examination. Given the
the Proposed Rule Change Statement of the Purpose of, and the formulation of the Securities Industry
Statutory Basis for, the Proposed Rule Essentials (‘‘SIE’’) examination
The Exchange proposes amendments Change
to the Exchange’s rules regarding (discussed below) which all potential
qualification, registration and 1. Purpose representative-level registrants would be
continuing education requirements The Exchange proposes to amend its required to pass, the Exchange proposes
applicable to members or member qualification, registration, and to amend the current rule to require that
organizations. To the extent the continuing education requirements a Securities Trader must register as such
Exchange’s rule proposal is intended to applicable to members or member on Web CRD and must pass both the SIE
harmonize with Financial Regulatory organizations. The proposed examination and the Series 57
Authority, Inc. (‘‘FINRA’’) rules and amendments are intended to: (i) Provide examination.
thus promote consistency within the transparency and clarity with respect to B. Amendments to Rule 345A—
securities industry, the Exchange is only the Exchange’s registration, Continuing Education Requirements
adopting rules that are relevant to the qualification and examination Rule 345A provides the continuing
Exchange’s members or member requirements; (ii) amend its rules education requirements of registered
organizations. The Exchange is not relating to categories of registration and persons 7 subsequent to their initial
adopting registration categories that are respective qualification examinations qualification and registration with the
not applicable to members or member required for ETP Holders that engage in Exchange, and includes a Regulatory
organizations because members or trading activities on the Exchange; (iii) Element and a Firm Element. The
member organizations do not engage in harmonize the Exchange’s qualification, Regulatory Element applies to registered
the type of business that would require registration and examination rules with persons and consists of periodic
such registration. As such, the Exchange those of FINRA 5 so as to promote computer-based training on regulatory,
is amending current Rule 345A compliance, ethical, supervisory
regarding continuing education General Securities Principal; (3) Compliance
Officer; (4) Financial and Operations Principal and subjects and sales practice standards.
requirements to reflect the FINRA rule; Introducing Broker-Dealer Financial and Operations
adopting Commentary .60 to current Principal; (5) Securities Trader Principal; and (6) banking’’ activity, the Exchange proposes to adopt
Rule 345A regarding fingerprint General Securities Sales Supervisor. The relevant that term within these registration rules to conform
information; adopting new Rule 1210 representative registration categories the Exchange them to the FINRA rules.
proposes to adopt are (1) Representative; (2) General 6 The conforming changes the Exchange proposes
regarding registration requirements and Securities Representative; and (3) Securities Trader. would substitute the term ‘‘member or member
related Commentary to new Rule 1210; 5 See Securities Exchange Act Release No. 81098 organization’’ for ‘‘member’’ and the term
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adopting new Rule 1220 regarding (July 7, 2017), 82 FR 32419 (July 13, 2017) (SR– ‘‘Exchange’’ for ‘‘FINRA.’’
registration categories 4 and related FINRA–2017–007) (Approval Order) (the ‘‘FINRA 7 For purposes of Rule 345A, the term ‘‘registered
Filing’’). The Exchange notes that in order to person’’ means any member, principal executive,
1 15
maintain consistency with the FINRA Filing, the registered representative, or other person registered
U.S.C. 78s(b)(1). Exchange proposes to incorporate certain terms or required to be registered under Exchange rules,
2 15 U.S.C. 78a. from the relevant FINRA rule into the Exchange’s but does not include any such person whose
3 17 CFR 240.19b–4.
rule that may not be applicable to all member activities are limited solely to the transaction of
4 The relevant principal registration categories the organizations. For example, while member business on the Floor with member or registered
Exchange proposes to adopt are (1) Principal; (2) organizations may not be engaged in ‘‘investment broker-dealers. See Rule 345A, Commentary .10.
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The Firm Element consists of at least an waiver-eligible person from retaking the levels of competence and knowledge.
annual, member-developed and Regulatory Element and satisfy [sic] all Over time, the examination program has
administered training programs [sic] of its requirements.11 increased in complexity to address the
designed to keep registered persons introduction of new products and
2. Firm Element
current regarding securities products, functions, and related regulatory
services and strategies offered by the Current Rule 345A(b) provides that concerns and requirements. As a result,
member or member organization. programs used to implement a member’s today, there are a large number of
or member organization’s training examinations, considerable content
1. Regulatory Element program must be appropriate for the overlap across the representative-level
The Exchange proposes to amend business of the member or member examinations and requirements for
Rule 345A(a) to provide, consistent with organization and, at a minimum must individuals in various segments of the
proposed Rule 2.1210 [sic], Commentary cover specific matters concerning industry to pass multiple examinations.
.08, that a waiver-eligible person would securities products, services, and To address these issues, FINRA has
be subject to a Regulatory Element strategies offered by the member or formulated a general knowledge
program that correlates to his or her member organization. The Exchange examination called the Securities
most recent registration category, and proposes to amend the current rule to Industry Essentials examination that all
that the content of the Regulatory expand the minimum standard for such potential representative-level registrants
Element would be based on the same training programs by requiring that, at a would take.14 Rule changes related to
cycle had the individual remain [sic] minimum, a firm’s training program the adoption of the SIE and other
registered.8 The proposed amendment must also cover training in ethics and proposed new rules are discussed
to Rule 345A(a) also provides that if a professional responsibility.12 below.
waiver-eligible person fails to complete
C. Proposed New Rule 345A— 1. Proposed Rule 1210—Registration
the Regulatory Element during the
Commentary .60—Fingerprint Requirements 15
prescribed time frames, he or she would
Information 13
lose waiver eligibility.9 Proposed Rule 1210 provides that
Further, the Exchange proposes to The Exchange proposes to adopt new each person engaged in the investment
amend Rule 345A(a) to provide that any Rule 345A, Commentary .60, regarding banking or securities business of a
person whose registration has been the submission of fingerprint member organization must register with
deemed inactive under the rule may not information by member organizations. the Exchange as a representative or
accept or solicit business or receive any As proposed, upon filing an electronic principal in each category of registration
compensation for the purchase or sale of Form U4 on behalf of a person applying appropriate to his or her functions and
securities. The proposed amendment for registration, a member organization responsibilities as specified in proposed
provides, however, that such person would be required to promptly submit Rule 1220, unless exempt from
may receive trail or residual fingerprint information for that person. registration pursuant to proposed Rule
commissions resulting from transactions If the member organization fails to 1230. Proposed Rule 1210 also provides
completed before the inactive status, submit the fingerprint information that such person is not qualified to
unless the member or member within 30 days after the Exchange function in any registered capacity other
organization with which the person is receives the electronic Form U4, the than that for which the person is
associated has a policy prohibiting such person’s registration shall be deemed registered, unless otherwise stated in
trail or residual commissions.10 inactive and the person would be the rules.
Additionally, under Rule 345A(a), a required to immediately cease all
registered person is required to retake activities requiring registration and 2. Proposed Rule 1210, Commentary
the Regulatory Element in the event that would be prohibited from performing .01—Permissive Registrations 16
such person (i) is subject to any any duties and functioning in any The Exchange currently does not have
statutory disqualification as defined in capacity requiring registration. The a specific rule that provides for
Section 3(a)(39) of the Exchange Act; (ii) proposed rule further provides allows permissive registrations. With this
is subject to suspension or to the [sic] the Exchange to administratively proposed rule change, and to conform
imposition of a fine of $5,000 or more terminate a registration that is inactive its rules to the FINRA rules, the
for violation of any provision of any for a period of two years. However, a Exchange proposes to adopt a specific
securities law or regulation, or any person whose registration is rule regarding permissive registrations.
agreement with or rule or standard of administratively terminated may seek to
conduct of any securities governmental reactivate his or her registration by 14 The SIE would assess basic product knowledge;
agency, securities self-regulatory reapplying for registration and meeting the structure and function of the securities industry
markets, regulatory agencies and their functions;
organization, or as imposed by any such the qualification requirements under and regulated and prohibited practices. In
regulatory or self-regulatory Exchange rules. particular, the SIE will cover four major areas. The
organization in connection with a first, ‘‘Knowledge of Capital Markets,’’ focuses on
disciplinary proceeding; or (iii) is D. Proposed New Rules 1210 Through topics such as types of markets and offerings,
ordered as a sanction in a disciplinary 1230 broker-dealers and depositories, and economic
cycles. The second, ‘‘Understanding Products and
action to retake the Regulatory Element As a general matter, FINRA Their Risks,’’ covers securities products at a high
by any securities governmental agency administers qualification examinations level as well as associated investment risks. The
or self-regulatory organization. The that are designed to establish that third, ‘‘Understanding Trading, Customer Accounts
Exchange proposes to amend Rule persons associated with member and Prohibited Activities,’’ focuses on accounts,
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orders, settlement and prohibited activities. The
345A(a) to provide an exception to a organizations have attained specified final area, ‘‘Overview of the Regulatory
Framework,’’ encompasses topics such as SROs,
8 The proposed change is substantially similar to 11 The proposed change is substantially similar to registration requirements and specified conduct
that contained in FINRA Rule 1240(a)(1). that contained in FINRA Rule 1240(a)(3). rules.
9 The proposed change is substantially similar to 12 The proposed change is substantially similar to 15 The proposed rule is substantially similar to
that contained in FINRA Rule 1240(a)(2). that contained in FINRA Rule 1240(b)(2). FINRA Rule 1210.
10 The proposed change is substantially similar to 13 The proposed rule is substantially similar to 16 The proposed rule is substantially similar to
that contained in FINRA Rule 1240(a)(2). FINRA Rule 1010(d). FINRA Rule 1210.02.
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Proposed Rule 1210, Commentary .01, would be responsible for periodically would allow for more flexibility and
allows any associated person to obtain contacting such individual’s day-to-day career mobility within the securities
and maintain any registration permitted supervisor to verify that the individual industry. While all associated persons of
by a member organization. For instance, is not acting outside the scope of his or firms as well as individuals who are not
an associated person of a member her assigned functions. If such associated persons would be eligible to
organization working solely in a clerical individual is permissively registered as take the SIE pursuant to the proposed
or ministerial capacity would be able to a representative, the registered rule, passing the SIE alone would not
obtain and maintain a General supervisor must be registered as a qualify them for registration with the
Securities Representative registration representative or principal. If the Exchange. Rather, to be eligible for
with the member organization. As individual is permissively registered as registration with the Exchange, an
another example, an associated person a principal, the registered supervisor individual must pass an applicable
of a member organization who is must be registered as a principal.17 representative or principal qualification
registered, [sic] and functioning solely examination and complete the other
as a General Securities Representative 3. Proposed Rule 1210, Commentary requirements of the registration process.
would be able to obtain and maintain a .02—Qualification Examinations and Proposed Rule 1210, Commentary .02,
General Securities Principal registration Waivers of Examinations 18 also provides that the Exchange may, in
with the member organization. Further, Proposed Rule 1210, Commentary .02, exceptional cases and where good cause
proposed Rule 1210, Commentary .01, provides that before the registration of a is shown, pursuant to the Rule 9600
allows an individual engaged in the person as a representative can become Series, waive the applicable
securities business of a foreign effective under proposed Rule 1210, qualification examination(s) and accept
securities affiliate or subsidiary of a such person must pass the SIE and an other standards as evidence of an
member organization to obtain and appropriate representative-level applicant’s qualifications for
maintain any registration permitted by qualification examination as specified registration. The proposed rule further
the member organization. in proposed Rule 1220.19 Proposed Rule provides that the Exchange will only
The Exchange is proposing to permit 1210, Commentary .02, also provides consider examination waiver requests
the registration of such individuals for that before the registration of a person submitted by a member organization for
several reasons. First, a member as a principal can become effective individuals associated with the member
organization may foresee a need to move under proposed Rule 1210, such person organization who are seeking
a former representative or principal who must pass an appropriate principal-level registration in a representative- or
has not been registered for two or more qualification examination as specified principal-level registration category.
years back into a position that would in proposed Rule 1220. Moreover, the proposed rule states that
require such person to be registered. Further, proposed Rule 1210, the Exchange will consider waivers of
Currently, such persons are required to Commentary .02, provides that if a the SIE alone or the SIE and the
requalify (or obtain a waiver of the registered person’s job functions change representative- and principal-level
applicable qualification examinations) and he or she needs to become examination(s) for such individuals.
and reapply for registration. Second, the registered in another representative- The Exchange would not consider a
proposed rule change would allow level category, he or she would not need waiver of the SIE for non-associated
member organizations to develop a to pass the SIE again. Rather, the persons or for associated persons who
depth of associated persons with registered person would need to pass are not registering as representatives or
registrations in the event of only the appropriate representative- principals.
unanticipated personnel changes. level qualification examination.
Finally, allowing registration in 4. Proposed Rule 1210, Commentary
Moreover, proposed Rule 1210, .03—Requirements for Registered
additional categories encourages greater Commentary .02, provides that all
regulatory understanding. Persons Functioning as Principals for a
associated persons, such as associated Limited Period 20
Individuals maintaining a permissive
persons whose functions are solely and
registration under the proposed rule Proposed Rule 1210, Commentary .03,
exclusively clerical or ministerial, are
change would be considered registered provides that a member organization
eligible to take the SIE. Proposed Rule
persons and subject to all Exchange may designate any person currently
1210, Commentary .02, also provides
rules, to the extent relevant to their registered, or who becomes registered,
that individuals who are not associated
activities. Additionally, consistent with with the member organization as a
persons of firms, such as members of the
the requirements of the Exchange’s representative to function as a principal
general public, are eligible to take the
supervision rules, member organizations for a limited period, provided that such
would be required to have adequate SIE. The Exchange believes that
expanding the pool of individuals who person has at least 18 months of
supervisory systems and procedures experience functioning as a registered
reasonably designed to ensure that are eligible to take the SIE would enable
prospective securities industry representative with [sic] the five-year
individuals with permissive period immediately preceding the
registrations do not act outside the professionals to demonstrate to
prospective employers a basic level of designation. The proposed rule is
scope of their assigned functions. With intended to ensure that representatives
respect to an individual who solely knowledge prior to submitting a job
application. Further, this approach designated to function as principals for
maintains a permissive registration, the limited period under the proposal
such as an individual working 17 In either case, the registered supervisor of an have an appropriate level of registered
exclusively in an administrative representative experience. The proposed
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individual who solely maintains a permissive
capacity, the individual’s day-to-day registration would not be required to be registered rule clarifies that the requirements of
supervisor may be a non-registered in the same representative or principal registration the rule apply to designations to any
person. However, for purposes of category as the permissively-registered individual.
18 The proposed rule is substantially similar to
principal category, including those
compliance with the Exchange’s categories that are not subject to a
FINRA Rule 1210.03.
supervision rules, a member 19 Proposed Rule 1220 sets forth each registration
organization would be required to category and applicable qualification examination 20 The proposed rule is substantially similar to
assign a registered supervisor who for member organizations. FINRA Rule 1210.04.
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prerequisite representative-level Among other things, the SIE Rules of persons consist of a Regulatory
registration requirement, such as the Conduct would require individuals to Element 25 and a Firm Element.26 The
Financial and Operations Principal attest that they are not qualified to Regulatory Element applies to registered
registration category.21 engage in the investment banking or persons and must be completed within
The proposed rule also clarifies that securities business based on passing the prescribed time frames.27 For purposes
the individual must fulfill all applicable SIE and would prohibit individuals of the Regulatory Element, a registered
prerequisite registration, fee and from cheating on the examination or person is any member, principal
examination requirements before his or misrepresenting their qualifications to executive, registered representative, or
her designation as a principal. Further, the public subsequent to passing the other person registered or required to be
the proposed rule provides that in no SIE. Moreover, non-associated persons registered under Exchange rules, but
event may such person function as a may forfeit their SIE results and may be does not include any such person whose
principal beyond the initial 120 prohibited from retaking the SIE if the activities are limited solely to the
calendar days without having Exchange determines that they cheated transaction of business on the Floor
successfully passed an appropriate on the SIE or that they misrepresented with member [sic] or registered broker-
principal qualification examination. The their qualifications to the public dealers. The Firm Element consists of
proposed rule also provides an subsequent to passing the SIE. annual, member organization-developed
exception to the experience requirement The proposed rule further notes that and administered training programs
for principals who are designated by a the Exchange considers all qualification designed to keep covered registered
member organization to function in examinations [sic] content to be highly persons current regarding securities
other principal categories for a limited confidential and that the removal of products, services and strategies offered
period. Specifically, the proposed rule examination content from an by the member organization. For
states that a member organization may examination center, reproduction, purposes of the Firm Element, the term
designate any person currently disclosure, receipt from or passing to covered registered persons means any
registered, or who becomes registered, any person, or use for study purposes of person registered with a member
with the member organization as a any portion of such qualification organization who has direct contact
principal to function in another examination or any other use that would with customers in the conduct of the
principal category for 120 calendar days compromise the effectiveness of the member organization’s securities sales,
before passing any applicable examinations and the use in any manner trading and investment banking
examinations. and at any time of the questions or activities and to the immediate
answers to the examinations is supervisors of such persons.
5. Proposed Rule 1210, Commentary The Exchange believes that all
prohibited and would be deemed a
.04—Rules of Conduct for Taking registered persons, regardless of their
violation of Rule 2010.
Examinations and Confidentiality of activities, should be subject to the
Examinations 22 6. Proposed Rule 1210, Commentary Regulatory Element of the CE
Proposed Rule 1210, Commentary .04 .05—Waiting Periods for Retaking a requirements so that they can keep their
states that associated persons taking the Failed Examination 23 knowledge of the securities industry
SIE would be subject to the SIE Rules of Proposed Rule 1210, Commentary .05 current. Therefore, the Exchange
Conduct, and associated persons taking provides that any person who fails a proposes to adopt Rule 1210,
a representative or principal qualification examination may retake Commentary .06, to clarify that all
examination would be subject to the that examination after 30 calendar days registered persons, including those who
Rules of Conduct for representative and from the date of the person’s last solely maintain a permissive
principal examinations. Pursuant to attempt to pass that examination. The registration, are required to satisfy the
proposed Rule 1210, Commentary .04, a proposed rule further provides that if a Regulatory Element, as specified in Rule
violation of the SIE Rules of Conduct or person fails an examination three or 345A(a). The Exchange is making
the Rules of Conduct for representative more times in succession within a two- corresponding changes to Rule 345A(a)
and principal examinations by an year period, he or she would be [sic]. The Exchange is not proposing any
associated person would be deemed to prohibited from retaking the changes to the Firm Element
be a violation of Rule 2010. Moreover, examination either until a period of 180 requirement at this time. Individuals
if an associated person is deemed to calendar days from the date of the
25 See Rule 345A(a).
have violated the SIE Rules of Conduct person’s last attempt to pass it [sic]. 26 See Rule 345A(b).
or the Rules of Conduct for These waiting periods would apply to 27 Pursuant to Rule 345A(a), each specified
representative and principal the SIE and the representative- and registered person is required to complete the
examinations, the associated person principal-level examinations. Moreover, Regulatory Element initially within 120 days after
may forfeit the results of the the proposed rule provides that non- the person’s second registration anniversary date
examination and may be subject to associated persons taking the SIE must and, thereafter, within 120 days after every third
registration anniversary date. A registered person
disciplinary action by the Exchange. agree to be subject to the same waiting who has not completed the Regulatory Element
Further, the proposed rule states that periods for retaking the SIE. program within the prescribed time frames will
individuals taking the SIE who are not have his or her registrations deemed inactive and
associated persons must agree to be 7. Proposed Rule 1210, Commentary designated as ‘‘CE inactive’’ on the CRD system
subject to the SIE Rules of Conduct. .06—All Registered Persons Must until such time as the requirements of the program
Satisfy the Regulatory Element of have been satisfied. A CE inactive person is
prohibited from performing, or being compensated
Continuing Education 24
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21 The Exchange notes that qualifying as a
for, any activities requiring registration, including
registered representative is a prerequisite to Pursuant to Rule 345A, the CE supervision. Moreover, if a registered person is CE
qualifying as a principal except with respect to the inactive for a two-year period, the Exchange will
following principal-level registrations: (1) requirements applicable to registered administratively terminate the person’s registration
Compliance Official; (2) Financial and Operations status. The two-year period would be calculated
Principal; and (3) Introducing Broker-Dealer 23 The proposed rule is substantially similar to
from the date the person becomes CE inactive. In
Financial and Operations Principal. FINRA Rule 1210.06. either case, such person must requalify (or obtain
22 The proposed rule is substantially similar to 24 The proposed rule is substantially similar to a waiver of the applicable qualification
FINRA Rule 1210.05. FINRA Rule 1210.07. examination(s)) to be re-eligible for registration.
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![Federal Register / Vol. 83, No. 195 / Tuesday, October 9, 2018 / Notices 50731
who have passed the SIE but not a continue to be subject to a two-year conditions of the waiver, as described
representative- or principal-level expiration period as is the case today. below, have been satisfied.
examination and do not hold a Finally, proposed Rule 1210, Consequently, a member organization
registered position would not be subject Commentary .07, clarifies that, for other than the member organization that
to any CE requirements. purposes of the proposed rule, an initially designated an individual as an
Proposed Rule 1210, Commentary .06, application would not be considered to FSA-eligible person may request a
also provides that a registered person of have been received by the Exchange if waiver for the individual and more than
a member organization who becomes CE that application does not result in a one member organization may request a
inactive would not be permitted to be registration. waiver for the individual during the
registered in another registration 9. Proposed Rule 1210, Commentary seven-year period.32
category with the member organization .08—Waiver of Examinations for An individual designated as an FSA-
or be registered in any registration Individuals Working for a Financial eligible person would be subject to the
category with another member Services Industry Affiliate of a Member Regulatory Element of CE while working
organization, until the person has Organization 29 for a financial services industry affiliate
satisfied the Regulatory Element. of a member organization. The
Proposed Rule 1210, Commentary .08,
8. Proposed Rule 1210, Commentary provides the process for individuals individual would be subject to a
.07—Lapse of Registration and working for a financial services industry Regulatory Element program that
Expiration of the SIE 28 affiliate of a member organization 30 to correlates to his or her most recent
terminate their registrations with the registration category, and CE would be
Proposed Rule 1210, Commentary .07, member organization and be granted a based on the same cycle had the
provides that any person who was last waiver of their requalification individual remained registered. If the
registered as a representative two or requirements upon re-registering with a individual fails to complete the
more years immediately preceding the member organization, provided the firm prescribed Regulatory Element during
date of receipt by the Exchange of a new that is requesting the waiver and the the 120-day window for taking the
application for registration as a individual satisfy the criteria for a session, he or she would lose FSA
representative is required to pass a Financial Services Affiliate (‘‘FSA’’) eligibility (i.e., the individual would
qualification examination for waiver. have the standard two-year period after
representatives appropriate to the Under the proposed waiver process, termination to re-register without
category of registration as specified in the first time a registered person is having to retake an examination). The
proposed Rule 1220(b). Proposed Rule designated as eligible for a waiver based Exchange is making corresponding
1210, Commentary .07, also sets forth on the FSA criteria, the member changes to Rule 345A.
that a passing result on the SIE would organization with which the individual
be valid for up to four years. Therefore, Upon registering an FSA-eligible
is registered would notify the Exchange person, a firm would file a Form U4 and
under the proposed rule change, an of the FSA designation. The member
individual who passes the SIE and is an request the appropriate registration(s)
organization would concurrently file a for the individual. The firm would also
associated person of a member full Form U5 terminating the
organization at the time would have up submit an examination waiver request
individual’s registration with the firm,
to four years from the date he or she which would also terminate the
passes the SIE to pass a representative- designation, and the period would not be tolled or
individual’s other SRO and state renewed.
level examination to register as a registrations. To be eligible for initial 32 The following examples illustrate this point:
representative with that member designation as an FSA-eligible person Example 1. Firm A designates an individual as an
organization, or a subsequent member by a member organization, an individual FSA-eligible person by notifying the Exchange and
organization, without having to retake must have been registered for a total of files a Form U5. The individual joins Firm A’s
the SIE. In addition, an individual who financial services affiliate. Firm A does not submit
five years within the most recent 10- a waiver request for the individual. After working
passes the SIE and is not an associated year period prior to the designation, for Firm A’s financial services affiliate for three
person at the time would have up to including for the most recent year with years, the individual directly joins Firm B’s
four years from the date he or she passes that member organization. An financial services affiliate for three years. Firm B
the SIE to become an associated person then submits a waiver request to register the
individual would have to satisfy these individual.
of a member organization and pass a preconditions only for purposes of his Example 2. Same as Example 1, but the
representative-level examination and or her initial designation as an FSA- individual directly joins Firm B after working for
register as a representative without eligible person, and not for any Firm A’s financial services affiliate, and Firm B
having to retake the SIE. submits a waiver request to register the individual
subsequent FSA designation(s). at that point in time.
Moreover, an individual holding a Thereafter, the individual would be Example 3. Firm A designates an individual as an
representative-level registration who eligible for a waiver for up to seven FSA-eligible person by notifying the Exchange and
leaves the industry after the effective years from the date of initial files a Form U5. The individual joins Firm A’s
date of this proposed rule change would financial services affiliate for three years. Firm A
designation,31 provided that the other then submits a waiver request to re-register the
have up to four years to re-associate individual. After working for Firm A in a registered
with a member organization and register 29 The proposed rule is substantially similar to
capacity for six months, Firm A re-designates the
as a representative without having to FINRA Rule 1210.09. individual as an FSA-eligible person by notifying
30 Proposed Rule 1210, Commentary .07 [sic], the Exchange and files a Form U5. The individual
retake the SIE. However, the four-year
defines a ‘‘financial services industry affiliate of a rejoins Firm A’s financial services affiliate for two
expiration period in the proposed rule
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member organization’’ as a legal entity that controls, years, after which the individual directly joins Firm
change extends only to the SIE, and not is controlled by or is under common control with B’s financial services affiliate for one year. Firm B
the representative- and principal-level a member organization and is regulated by the SEC, then submits a waiver request to register the
registrations. The representative- and CFTC, state securities authorities, federal or state individual.
banking authorities, state insurance authorities, or Example 4. Same as Example 3, but the
principal-level registrations would substantially equivalent foreign regulatory individual directly joins Firm B after the second
authorities. period of working for Firm A’s financial services
28 The proposed rule is substantially similar to 31 Individuals would be eligible for a single, fixed affiliate, and Firm B submits a waiver request to
FINRA Rule 1210.08. seven-year period from the date of initial register the individual at that point in time.
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to the Exchange,33 similar to the process organization would not be able to take registration rules, the term ‘‘Principal’’
used today for waiver requests, and it additional examinations to gain [sic] to mean any Person Associated
would represent that the individual is additional registrations while working with a member organization actively
eligible for an FSA waiver based on the for a financial services affiliate of a engaged in the management of the
conditions set forth below. The member organization. member organization’s securities
Exchange would review the waiver business, including supervision,
10. Proposed Rule 1210, Commentary
request and make a determination of solicitation, conduct of the member
.09—Status of Persons Serving in the
whether to grant the request within 30 organization’s business, or the training
Armed Forces of the United States 35
calendar days of receiving the request. of Authorized Traders and Persons
The Exchange would summarily grant Proposed Rule 1210, Commentary .09, Associated with a member organization
the request if the following conditions provides specific relief to registered for any of these functions. Such Persons
are met: persons serving in the Armed Forces of include Sole Proprietors, Officers,
(1) Prior to the individual’s initial the United States. Among other things, Partners, and Directors of Corporations.
designation as an FSA-eligible person, the proposed rule permits a registered For purposes of proposed Rule
the individual was registered for a total person of a member organization who 1220(a)(1), the phrase ‘‘actively engaged
of five years within the most recent 10- volunteers for or is called into active in the management of the member
year period, including for the most duty in the Armed Forces of the United organization’s securities business’’
recent year with the member States to be registered in an inactive includes the management of, and the
organization that initially designated the status and remain eligible to receive implementation of corporate policies
individual as an FSA-eligible person; ongoing transaction-related related to, such business. The term also
(2) The waiver request is made within compensation. The proposed rule also includes managerial decision-making
seven years of the individual’s initial includes specific provisions regarding authority with respect to the member
designation as an FSA-eligible person the deferment of the lapse of registration organization’s securities business and
by a member organization; requirements for formerly registered management-level responsibilities for
(3) The initial designation and any persons serving in the Armed Forces of supervising any aspect of such business,
subsequent designation(s) were made the United States. The proposed rule such as serving as a voting member of
concurrently with the filing of the further requires that the member the member organization’s executive,
individual’s related Form U5; organization with which such person is management or operations committee.
(4) The individual continuously registered promptly notify the Exchange
worked for the financial services 2. Proposed Rule 1220(a)(2)—General
of such person’s return to employment
affiliate(s) of a member organization Securities Principal 37
with the member organization. The
since the last Form U5 filing; proposed rule would require a member Proposed Rule 1220(a)(2)(A) states
(5) The individual has complied with organization that is a sole proprietor to that each principal as defined in
the Regulatory Element of CE; and also similarly notify the Exchange of his proposed Rule 1220(a)(1) is required to
(6) The individual does not have any or her return to participation in the register with the Exchange as a General
pending or adverse regulatory matters, investment banking or securities Securities Principal, subject to the
or terminations, that are reportable on business. The proposed rule also following exceptions. The proposed rule
the Form U4, and has not otherwise provides that the Exchange would defer provides that if a principal’s activities
been subject to a statutory the lapse of the SIE for formerly include the functions of a Compliance
disqualification while the individual registered persons serving in the Armed Officer, a Financial and Operations
was designated as an FSA-eligible Forces of the United States. Principal (or an Introducing Broker-
person with a member organization. Dealer Financial and Operations
Following the Form U5 filing, an E. Proposed New Rule 1220— Principal, as applicable), a Principal
individual could move between the Registration Categories 36 Financial Officer, a Principal Operations
financial services affiliates of a member 1. Proposed Rule 1220(a)(1)—Principal Officer, or a Securities Trader Principal,
organization so long as the individual is then the principal must appropriately
continuously working for an affiliate. As set forth in proposed Rule
1220(a)(1), for purposes of these register in one or more of these
Further, a member organization could categories.
submit multiple waiver requests for the 35 The proposed rule is substantially similar to Proposed Rule 1220(a)(2)(A) further
individual, provided that the waiver FINRA Rule 1210.10. provides that if a principal’s activities
requests are made during the course of 36 The Exchange is not adopting the following are limited solely to the functions of a
the seven-year period.34 An individual categories from the FINRA Filing because member General Securities Sales Supervisor,
who has been designated as an FSA- organizations do not engage in the type of business then the principal may appropriately
that would require registration with the Exchange:
eligible person by a member Investment Banking Principal, Research Principal, register in that category in lieu of
Registered Options Principal, Government registering as a General Securities
33 The Exchange would consider a waiver of the
Securities Principal, Investment Company and Principal.
representative-level qualification examination(s), Variable Contracts Products Principal, Direct
the principal-level qualification examination(s) and
Proposed Rule 1220(a)(2)(B) requires
Participation Programs Principal, Private Securities
the SIE, as applicable. Offerings Principal, Supervisory Analyst, that an individual registering as a
34 For example, if a member organization submits Operations Professional, Investment Banking General Securities Principal satisfy the
a waiver request for an FSA-eligible person who has Representative, Research Analyst, Investment General Securities Representative
been working for a financial services affiliate of the Company and Variable Contracts Products prerequisite registration and pass the
member organization for three years and re-registers Representative, Direct Participation Programs
General Securities Principal
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the individual, the member organization could Representative, and Private Securities Offering
subsequently file a Form U5 and re-designate the Representative. The Exchange is also not adopting qualification examination. Proposed
individual as an FSA-eligible person. Moreover, if the following categories because the FINRA Filing Rule 1220(a)(2)(B) also clarifies that an
the individual works with a financial services eliminated them: Order Processing Assistant individual may register as a General
affiliate of the member organization for another Representative, United Kingdom Securities
three years, the member organization could submit Representative, Canadian Securities Representative, Securities Sales Supervisor and pass the
a second waiver request and re-register the Options Representative, Corporate Securities
individual upon returning to the member Representative and Government Securities 37 The proposed rule is substantially similar to
organization. Representative. FINRA Rule 1220(a)(2).
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![Federal Register / Vol. 83, No. 195 / Tuesday, October 9, 2018 / Notices 50733
General Securities Sales Supervisor requirements for CCOs. Specifically, financial and operational management
qualification examination in lieu of proposed Rule 1220(a)(3) set forth the of a member organization that is subject
passing the General Securities Principal following qualification requirements for to the net capital requirements of SEA
examination. Compliance Officer registration: Rule 15c3–1, other than a member
As a general matter, the Exchange • Subject to the lapse of registration organization that is subject to the net
currently recognizes the Corporate provisions in proposed Rule 1210, capital requirements of SEA Rules
Securities Representative but would no Commentary .07, each person registered 15c3–1(a)(1)(ii), (a)(2)(i) or (a)(8), must
longer recognize this registration with the Exchange as a General be designated and registered as either a
category given its elimination by Securities Representative and a General Financial and Operations Principal or
FINRA. Proposed Rule 1220(a)(2)(B), Securities Principal on October 1, 2018 an Introducing Broker-Dealer Financial
however, provides that, subject to the and each person who was registered and Operations Principal. Financial and
lapse of registration provisions in with the Exchange as a General Operations Principals and Introducing
proposed Rule 1210, Commentary .07, Securities Representative and a General Broker-Dealer Financial and Operation
each person registered with the Securities Principal within two years Principals are not subject to a
Exchange as a Corporate Securities prior to October 1, 2018 would be prerequisite representative registration,
Representative and a General Securities qualified to register as Compliance but they must pass the Financial and
Principal on October 1, 2018 and each Officers without having to take any Operations Principal or Introducing
person who was registered with the additional examinations. In addition, Broker-Dealer Financial and Operations
Exchange as a Corporate Securities subject to the lapse of registration Principal examination, as applicable.
Representative and a General Securities provisions in proposed Rule 1210, Additionally, proposed Rule
Principal within two years prior to Commentary .07, individuals registered 1220(a)(4)(B) requires a member
October 1, 2018 would be qualified to as Compliance Officials in the CRD organization to designate a Principal
register as a General Securities Principal system on October 1, 2018 and Financial Officer with primary
without having to take any additional individuals who were registered as such responsibility for the day-to-day
qualification examinations, provided within two years prior to October 1, operations of the business, including
that such person’s supervisory 2018 would also be qualified to register overseeing the receipt and delivery of
responsibilities in the investment as Compliance Officers without having securities and funds, safeguarding
banking and securities business of a to take any additional examinations; customer and firm assets, calculation
member organization are limited to [sic] and collection of margin from customers
corporate securities activities of the • All other individuals registering as and processing dividend receivable and
member organization. The proposed Compliance Officers after October 1, payables and reorganization
rule further provides that all other 2018 would have to: (1) Satisfy the redemptions and those books and
individuals registering as General General Securities Representative records related to such activities.
Securities Principals after October 1, prerequisite registration and pass the Further, the proposed rule requires that
2018 shall, prior to or concurrent with General Securities Principal a firm’s Principal Financial Officer and
such registration, become registered as a qualification examination; or (2) pass Principal Operations Officer qualify and
General Securities Representative and the Compliance Official qualification register as Financial and Operations
either (1) pass the General Securities examination. Principals or Introducing Broker-Dealer
Principal qualification examination; or • An individual designated as a CCO Financial and Operations Principals, as
(2) register as a General Securities Sales on Schedule A of Form BD of an ETP applicable.
Supervisor and pass the General Holder [sic] that is engaged in limited Because the financial and operational
Securities Sales Supervisor qualification investment banking or securities activities of member organizations that
examination. business may be registered in a neither self-clear nor provide clearing
principal category under proposed Rule services are more limited, such member
3. Proposed Rule 1220(a)(3)— 1220(a) that corresponds to the limited organizations may designate the same
Compliance Officer 38 scope of the member organization’s person as the Principal Financial
Proposed Rule 1220(a)(3) establishes a business. Officer, Principal Operations Officer
Compliance Officer registration category and Financial and Operations Principal
and requires all persons designated as 4. Proposed Rule 1220(a)(4)—Financial or Introducing Broker-Dealer Financial
CCOs on Schedule A of Form BD to and Operation Principal and and Operations Principal (that is, such
register as Compliance Officers, subject Introducing Broker-Dealer Financial and member organizations are not required
to an exception for member Operations Principal 39 to designate different persons to
organizations engaged in limited Proposed Rule 1220(a)(4) provides function in these capacities).
investment banking or securities that each principal who is responsible Given the level of financial and
business. The proposed rule only for the financial and operational operational responsibility at clearing
addresses the registration requirements management of a member organization and self-clearing members, the
for CCOs. However, consistent with that has a minimum net capital Exchange believes that it is necessary
proposed Rule 1210, Commentary .01 requirement of $250,000 under SEA for such member organizations to
relating to permissive registrations, a Rules 15c3–1(a)(1)(ii) and 15c3– designate separate persons to function
firm may allow other associated persons 1(a)(2)(i), or a member organization that as Principal Financial Officer and
to register as Compliance Officers. has a minimum net capital requirement Principal Operations Officer. Such
In addition, the Exchange is of $150,000 under SEA Rule 15c3– persons may also carry out the other
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proposing to provide CCOs of firms that 1(a)(8) must be designated as a Financial responsibilities of a Financial and
engage in limited investment banking or and Operations Principal. In addition, Operations Principal, such as
securities business with greater proposed Rule 1220(a)(4) provides that supervision of individuals engaged in
flexibility to satisfy the qualification a principal who is responsible for the financial and operational activities. In
addition, the proposed rule provides
38 The proposed rule is substantially similar to 39 The proposed rule is substantially similar to that a clearing or self-clearing member
FINRA Rule 1220(a)(3). FINRA Rule 1220(a)(4). organization that is limited in size and
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![Federal Register / Vol. 83, No. 195 / Tuesday, October 9, 2018 / Notices 50735
Securities Representative on October 1, Sales Supervisors may also qualify in occasionally, when an appropriately
2018 and each person who was any other category of principal registered person is unavailable, the
registered with the Exchange in such registration. Persons who are already associated person transcribes the order
categories within two years prior to qualified in one or more categories of details and the registered person
October 1, 2018 would be eligible to principal registration may supervise contacts the customer to confirm the
maintain such registrations with the sales activities of all securities by also order details before entering the order.
Exchange. However, if persons qualifying as General Securities Sales
2. Statutory Basis
registered in such categories Supervisors.
subsequently terminate such The proposed rule further provides The proposed rule change is
registration(s) with the Exchange and that any person required to be registered consistent with Section 6(b) of the
the registration remains terminated for as a principal who supervises sales Securities Exchange Act of 1934 (the
two or more years, they would not be activities in corporate, municipal and ‘‘Act’’),54 in general, and furthers the
eligible to re-register in such categories. option securities, investment company objectives of Section 6(b)(5),55 in
products, variable contracts, and particular, because it is designed to
11. Proposed Rule 1220, Commentary security futures (subject to the prevent fraudulent and manipulative
.02—Additional Qualification requirements of Rule 1220, Commentary acts and practices, to promote just and
Requirements for Persons Engaged in .02) may be registered solely as a equitable principles of trade, to foster
Security Futures 48 General Securities Sales Supervisor. In cooperation and coordination with
Proposed Rule 1220, Commentary .02, addition to branch office managers, persons engaged in facilitating
states that each person who is registered other persons such as regional and transactions in securities, to remove
with the Exchange as a General national sales managers may also be impediments to, and perfect the
Securities Representative, United registered solely as General Securities mechanism of, a free and open market
Kingdom Securities Representative, Sales Supervisors as long as they and a national market system and, in
Canada Securities Representative, or supervise only sales activities. general, to protect investors and the
General Securities Sales Supervisor public interest.
shall be eligible to engage in security F. Proposed New Rule 1230— The Exchange believes that the
futures activities as a representative or Associated Persons Exempt From proposed rule change will streamline,
principal, as applicable, provided that Registration 51 and bring consistency and uniformity
such individual completes a Firm Proposed Rule 1230 provides an to, the registration rules, which will, in
Element program as set forth in Rule exemption from registration with the turn, assist member organizations and
345A(b) that addresses security futures Exchange for certain associated persons. their associated persons in complying
products before such person engages in Specifically, the proposed rule provides with these rules and improve regulatory
security futures activities.49 that persons associated with a member efficiency. The proposed rule change
organization whose functions are solely will also improve the efficiency of the
12. Proposed Rule 1220, Commentary and exclusively clerical or ministerial examination program, without
.03—Scope of General Securities Sales would be exempt from registration.52 compromising the qualification
Supervisor Registration Category 50
standards. In addition, the proposed
Proposed Rule 1220, Commentary .03, 1. Proposed Rule 1230, Commentary
rule change will expand the scope of
explains the purpose of the General .01—Registration Requirements for
Associated Persons Who Accept permissive registrations, which, among
Securities Sales Supervisor registration other things, will allow member
category. The General Securities Sales Customer Orders 53
organizations to develop a depth of
Supervisor category is an alternate Proposed Rule 1230, Commentary .01, associated persons with registrations to
category of registration designed to clarifies that the function of accepting respond to unanticipated personnel
lessen the qualification burdens on customer orders is not considered changes and will encourage greater
principals of general securities firms clerical or ministerial and that regulatory understanding. Further, the
who supervise sales. Without this associated persons who accept customer proposed rule change will provide a
category of limited registration, such orders under any circumstances are more streamlined and effective waiver
principals would be required to required to be appropriately registered. process for individuals working for a
separately qualify pursuant to the rules However, the proposed rule provides financial services industry affiliate of a
of FINRA, the MSRB, and the options that an associated person is not member organization, and it will require
exchanges. While persons may continue accepting a customer order where such individuals to maintain specified
to separately qualify with all relevant levels of competence and knowledge
51 The proposed rule is substantially similar to
self-regulatory organizations, the while working in areas ancillary to the
FINRA Rule 1230.
General Securities Sales Supervisor 52 FINRA Rule 1230 provides an exemption from investment banking and securities
examination permits qualification as a registration with FINRA to persons associated with business.
supervisor of sales of all securities a FINRA member whose functions are solely and Finally, the Exchange believes that,
through one registration category. exclusively clerical or ministerial and persons with the introduction of the SIE and
associated with a FINRA member whose functions
Persons registered as General Securities are related solely and exclusively to (i) effecting expansion of the pool of individuals
transactions on the floor of a national securities who are eligible to take the SIE, the
48 The proposed rule is substantially similar to
exchange and who are appropriately registered with proposed rule change has the potential
FINRA Rule 1220.02. such exchange; (ii) effecting transactions in
49 FINRA Rule 1220.02 also includes Options
of enhancing the pool of prospective
municipal securities; (iii) effecting transactions in
securities industry professionals by
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Representative and Registered Options Principal commodities; or (iv) effecting transactions in
registration categories. NYSE does not trade options security futures, provided that any such person is introducing them to securities laws,
and member organizations therefore would not be registered with a registered futures association. rules and regulations and appropriate
required to register with the Exchange in those Member organizations do not solely and exclusively conduct before they join the industry in
categories and therefore the Exchange is not engage in any of the foregoing transactions and
adopting those categories within proposed Rule therefore the Exchange is not adopting that portion a registered capacity.
1220, Commentary .03 [sic]. of FINRA Rule 1230.
50 The proposed rule is substantially similar to 53 The proposed rule is substantially similar to 54 15 U.S.C. 78f(b).
FINRA Rule 1220.04. FINRA Rule 1230.01. 55 15 U.S.C. 78f(b)(5).
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![50736 Federal Register / Vol. 83, No. 195 / Tuesday, October 9, 2018 / Notices
B. Self-Regulatory Organization’s effective date of FINRA’s proposed rule those that may be withheld from the
Statement on Burden on Competition change on which the proposal is public in accordance with the
The Exchange does not believe that based.58 The waiver of the operative provisions of 5 U.S.C. 552, will be
the proposed rule change will impose delay would make the Exchange’s available for website viewing and
any burden on competition that is not qualification requirements consistent printing in the Commission’s Public
necessary or appropriate in furtherance with those of FINRA, as of October 1, Reference Room, 100 F Street NE,
of the purposes of the Act. The 2018. Therefore, the Commission Washington, DC 20549, on official
proposed amendments are intended to believes that the waiver of the 30-day business days between the hours of
promote transparency in the Exchange’s operative delay is consistent with the 10:00 a.m. and 3:00 p.m. Copies of the
rules, and consistency with the rules of protection of investors and the public filing also will be available for
other SROs with respect to the interest and hereby waives the 30-day inspection and copying at the principal
examination, qualification, and operative delay and designates the office of the Exchange. All comments
continuing education requirements proposal operative on October 1, 2018.59 received will be posted without change.
applicable to member organizations and At any time within 60 days of the Persons submitting comments are
their registered personnel. The filing of the proposed rule change, the cautioned that we do not redact or edit
Exchange believes that in that regard Commission summarily may personal identifying information from
that any burden on competition would temporarily suspend such rule change if comment submissions. You should
be clearly outweighed by the important it appears to the Commission that such submit only information that you wish
regulatory goal of ensuring clear and action is necessary or appropriate in the to make available publicly. All
consistent requirements applicable public interest, for the protection of submissions should refer to File
across SROs, avoiding duplication, and investors, or otherwise in furtherance of Number SR–NYSE–2018–44 and should
mitigating any risk of SROs the purposes of the Act. be submitted on or before October 30,
implementing different standards in IV. Solicitation of Comments 2018.
these important areas. Interested persons are invited to For the Commission, by the Division of
Further, the Exchange does not Trading and Markets, pursuant to delegated
submit written data, views, and
believe that the proposed amendments authority.60
arguments concerning the foregoing,
will affect competition among securities Eduardo A. Aleman,
including whether the proposed rule
markets since all SROs are expected to Assistant Secretary.
change is consistent with the Act.
adopt similar rules with uniform
Comments may be submitted by any of [FR Doc. 2018–21781 Filed 10–5–18; 8:45 am]
standards for qualification, registration
the following methods: BILLING CODE 8011–01–P
and continuing education requirements.
Electronic Comments
C. Self-Regulatory Organization’s
Statement on Comments on the • Use the Commission’s internet SECURITIES AND EXCHANGE
Proposed Rule Change Received From comment form (http://www.sec.gov/ COMMISSION
Members, Participants, or Others rules/sro.shtml); or
• Send an email to rule-comments@ Proposed Collection; Comment
No written comments were solicited Request
sec.gov. Please include File Number SR–
or received with respect to the proposed
NYSE–2018–44 on the subject line.
rule change. Upon Written Request, Copies Available
Paper Comments From: Securities and Exchange
III. Date of Effectiveness of the
Proposed Rule Change and Timing for • Send paper comments in triplicate Commission, Office of FOIA Services,
Commission Action to Secretary, Securities and Exchange 100 F Street NE, Washington, DC
Commission, 100 F Street NE, 20549–2736
Because the foregoing proposed rule
Washington, DC 20549–1090. Extension:
change does not: (i) Significantly affect
All submissions should refer to File Rule 17f–2(a), SEC File No. 270–034, OMB
the protection of investors or the public Control No. 3235–0034
interest; (ii) impose any significant Number SR–NYSE–2018–44. This file
burden on competition; and (iii) become number should be included on the Notice is hereby given that pursuant
operative for 30 days from the date on subject line if email is used. To help the to the Paperwork Reduction Act of 1995
which it was filed, or such shorter time Commission process and review your (44 U.S.C. 3501 et seq.) (‘‘PRA’’), the
as the Commission may designate, it has comments more efficiently, please use Securities and Exchange Commission
become effective pursuant to Section only one method. The Commission will (‘‘Commission’’) is soliciting comments
19(b)(3)(A) of the Act 56 and Rule 19b– post all comments on the Commission’s on the existing collection of information
4(f)(6) thereunder. internet website (http://www.sec.gov/ provided for in Rule 17f–2(a) (17 CFR
A proposed rule change filed under rules/sro.shtml). Copies of the 240.17f–2(a)), under the Securities
Rule 19b–4(f)(6) normally does not submission, all subsequent Exchange Act of 1934 (15 U.S.C. 78a et
become operative for 30 days from the amendments, all written statements seq.). The Commission plans to submit
date of filing. However, Rule 19b– with respect to the proposed rule the existing collection of information to
4(f)(6)(iii) 57 permits the Commission to change that are filed with the the Office of Management and Budget
designate a shorter time if such action Commission, and all written (‘‘OMB’’) for extension and approval.
is consistent with the protection of communications relating to the Rule 17f–2(a) (Fingerprinting
investors and the public interest. The proposed rule change between the Requirements for Securities
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Exchange has asked the Commission to Commission and any person, other than Professionals) requires that securities
waive the 30-day operative delay so that professionals be fingerprinted. This
the proposal may become operative on 58 See supra note 5. requirement serves to identify security-
59 For purposes only of waiving the 30-day
October 1, 2018 to coincide with the risk personnel, to allow an employer to
operative delay, the Commission has also
considered the proposed rule’s impact on
make fully informed employment
56 15 U.S.C. 78s(b)(3)(A). efficiency, competition, and capital formation. See
57 17 CFR 240.19b–4(f)(6)(iii). 15 U.S.C. 78c(f). 60 17 CFR 200.30–3(a)(12).
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Document Created: 2018-10-06 00:59:19
Document Modified: 2018-10-06 00:59:19
| 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 50727 |
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