83 FR 51030 - Self-Regulatory Organizations; NYSE National, Inc.; Notice of Filing and Immediate Effectiveness of Amendments to Rules Regarding Qualification, Registration and Continuing Education Applicable to Equity Trading Permit Holders
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 196 (October 10, 2018)
Federal Register Volume 83, Issue 196 (October 10, 2018)
| Page Range | 51030-51040 | |
| FR Document | 2018-21903 |
[Federal Register Volume 83, Number 196 (Wednesday, October 10, 2018)] [Notices] [Pages 51030-51040] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-21903] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-84350; File No. SR-NYSENAT-2018-21] Self-Regulatory Organizations; NYSE National, Inc.; Notice of Filing and Immediate Effectiveness of Amendments to Rules Regarding Qualification, Registration and Continuing Education Applicable to Equity Trading Permit Holders 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, NYSE National, Inc. (the ``Exchange'' or ``NYSE National'') 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 Equity Trading Permit (``ETP'') Holders. 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 ETP Holders. The Exchange is not adopting registration categories that are not applicable to ETP Holders because ETP Holders do not engage in the type of business that would require such registration. As such, the Exchange is amending current Rule 2.2 regarding continuing education requirements to reflect the FINRA rule; adopting Commentary .08 to current Rule 2.2 regarding fingerprint information; adopting new Rule 2.1210 regarding registration requirements and related Commentary to new Rule 2.1210; adopting new Rule 2.1220 regarding registration categories \4\ and related Commentary to new Rule 2.1220; and adopting new Rule 2.1230 regarding associated persons exempt from registration and related Commentary to new Rule 2.1230. 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 ETP Holders. 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 ETP Holders. For example, while ETP Holders 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 ``ETP Holder'' for ``member'' and the term ``Exchange'' for ``FINRA.'' --------------------------------------------------------------------------- A. Amendments to Rule 2.2(c) Rule 2.2(c)(1) currently provides, among other things, that an ETP Holder shall register with the Exchange as a Principal any Person who meets the definition of a Principal as described in Rule 1.1 and that each such Principal must be registered as such through the FINRA Central Registration Depository System (``CRD''), and must pass the general Securities Principal (Series 24) examination. The current rule further provides that a Principal must pass the Series 7 examination or an equivalent foreign examination module as a prerequisite to taking the Series 24 examination. The Exchange proposes to amend the current rule to reflect the change of the prerequisite examination requirements for Principals registered with the Exchange. The amended rule provides that the Exchange would require the Series 7 examination and the Securities Industry Essentials examination as a prerequisite to taking the Series 24 examination and would no longer accept a foreign examination module as a prerequisite given the elimination of the foreign examination module in the FINRA Filing. Rule 2.2(c)(2) currently provides, among other things, that each ETP Holder, other than a sole proprietorship or a proprietary trading firm that has 25 or fewer Authorized Traders, is required to register at least two Principals with the Exchange. Per the rule, a sole proprietorship or a proprietary trading firm with 25 or fewer Authorized Traders is required to register one Principal with the Exchange. The [[Page 51031]] Exchange proposes to make a drafting change to the text of the rule without any substantive change to the application of the current rule.\7\ As proposed, each ETP Holder would continue to be required to register at least two Principals unless the ETP Holder is a sole proprietorship or a proprietary trading firm, in which case, such ETP Holder would continue to be required to register one Principal with the Exchange. --------------------------------------------------------------------------- \7\ The proposed change would align the text of the rule to the rules of other exchanges. See e.g., NASDAQ Stock Market Rule 1021(e). --------------------------------------------------------------------------- B. Amendments to Rule 2.2(e)--Continuing Education Requirements Rule 2.2(e) provides the continuing education requirements of certain Registered Persons \8\ 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. The Firm Element consists of at least an annual, member-developed and administered training programs designed to keep Registered Persons current regarding securities products, services and strategies offered by the member. For purposes of Rule 2.2(e), the Exchange proposes to include within the definition of a Registered Person any Person who is permissively registered pursuant to proposed Rule 2.1210, Commentary .01, and any Person designated as eligible for a waiver pursuant to proposed Rule 2.1210, Commentary .08.\9\ The purpose of this change is to ensure all Registered Persons, including those with permissive registrations, keep their knowledge of the securities industry current. The inclusion of persons designated as eligible for a waiver under the term ``Registered Person'' corresponds to the requirements of proposed Rule 2.1210, Commentary .08. --------------------------------------------------------------------------- \8\ For purposes of Rule 2.2(e), the term ``Registered Person'' means any Person registered with the Exchange as a General Securities Representative, Securities Trader, Principal, Principal-- Financial and Operations (``FINOP''), Person Associated with an ETP Holder, Authorized Trader or Market Maker Authorized Trader. See Rule 2.2(e). \9\ The proposed change is substantially similar to that contained in FINRA Rule 1240(a)(5). --------------------------------------------------------------------------- 1. Regulatory Element The Exchange proposes to amend Rule 2.2(e)(1) to provide, consistent with proposed Rule 2.1210, 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.\10\ The proposed amendment to Rule 2.2(e)(1) 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.\11\ --------------------------------------------------------------------------- \10\ The proposed change is substantially similar to that contained in FINRA Rule 1240(a)(1). \11\ The proposed change is substantially similar to that contained in FINRA Rule 1240(a)(2). --------------------------------------------------------------------------- Further, the Exchange proposes to amend Rule 2.2(e)(1) to provide that any person who 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 ETP Holder with which the person is associated has a policy prohibiting such trail or residual commissions.\12\ --------------------------------------------------------------------------- \12\ The proposed change is substantially similar to that contained in FINRA Rule 1240(a)(2). --------------------------------------------------------------------------- Additionally, under Rule 2.2(e)(1), 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 2.2(e)(1) to provide an exception to a waiver-eligible person from retaking the Regulatory Element and satisfy [sic] all of its requirements.\13\ --------------------------------------------------------------------------- \13\ The proposed change is substantially similar to that contained in FINRA Rule 1240(a)(3). --------------------------------------------------------------------------- 2. Firm Element Current Rule 2.2(e)(2)(B)(ii) provides that programs used to implement an ETP Holder's training program must be appropriate for the business of the ETP Holder and, at a minimum must cover specific matters concerning securities products, services, and strategies offered by the ETP Holder. 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.\14\ --------------------------------------------------------------------------- \14\ The proposed change is substantially similar to that contained in FINRA Rule 1240(b)(2). --------------------------------------------------------------------------- C. Amendments to Rule 2.2, Commentary .01 Current Rule 2.2, Commentary .01, states that the Exchange requires the General Securities Representative examination (``Series 7'') or an equivalent foreign examination module approved by the Exchange in qualifying Persons seeking registration as general securities representatives. As noted above, given the elimination of the foreign examination module in the FINRA Filing, the Exchange proposes to amend the current rule to remove a foreign examination module as an equivalent requirement to register as a general securities representative. As amended, Rule 2.2, Commentary .01, would provide that qualifying Persons seeking registration as a general securities representatives would be required to take the Series 7 examination and the Securities Industry Essentials examination. D. Amendments to Rule 2.2, Commentary .02 Current Rule 2.2, Commentary .02, states that the Exchange will accept the New York Stock Exchange Chief Compliance Officer Examination (``NYSE Series 14'') as an alternative qualification to register as Principal an individual identified as the Chief Compliance Officer on an ETP Holder's Form BD. The Exchange proposes a technical change to rename the NYSE Series 14 examination as the Compliance Official Examination which is the correct name of the examination. E. Amendments to Rule 2.2, Commentary .03 Current Rule 2.2, Commentary .03, provides that the definition of a Securities Trader is defined in Rule 1.1. With this proposed rule change, the Exchange is adopting FINRA's definition of Securities Trader (as described below) and therefore, proposes to replace the reference to Rule 1.1 to Rule 2.1220(b)(3) in current Rule 2.2(e), Commentary .03, as the appropriate rule in the Exchange's Rulebook where the definition of Securities Trader can be found. In doing so, the Exchange proposes to amend current Rule 1.1(ac) which provides the current definition of Securities Trader [[Page 51032]] and proposes to mark that rule as `Reserved.' Further, current Rule 2.2, Commentary .03, states that each Person Associated with an ETP Holder meeting the definition of a Securities Trader under Rule 1.1 must pass the Securities Trader Qualification examination (``Series 57'') and register as such in CRD. The rule further provides that a Person registered as a Securities Trader shall not function in any other registration category unless he/she is also qualified in such other registration category. Given the formulation of the Securities Industry Essential examination which all potential representative-level registrants would be required to pass, the Exchange proposes to amend the current rule to require each Person Associated with an ETP Holder that meets the definition of a Securities Trader to take the Series 57 examination and the Securities Industry Essential examination and register as such in CRD. F. Amendments to Rule 2.2, Commentary .04 Current Rule 2.2, Commentary .04, provides that the definition of a Securities Trader Principal is defined in Rule 1.1. With this proposed rule change, the Exchange is adopting FINRA's definition of Securities Trader (as described below) and therefore, proposes to replace the reference to Rule 1.1 to Rule 2.1220(a)(5) in current Rule 2.2(e), Commentary .04, as the appropriate rule in the Exchange's Rulebook where the definition of Securities Trader Principal can be found. In doing so, the Exchange proposes to amend current Rule 1.1(ad) which provides the current definition of Securities Trader Principal and proposes to mark that rule as `Reserved.' Current Rule 2.2, Commentary .04, references by incorporation NASD Rule 1032(f).\15\ With this proposed rule change, the Exchange is adopting the content of Rule 1032(f) into the Exchange's rules and therefore would no longer need to reference by incorporation the NASD rule. The Exchange, therefore, proposes to replace reference to NASD Rule 1032(f) in Rule 2.2, Commentary .04, with Rule 2.1220(b)(3) which is a proposed new Exchange rule that is substantively similar to NASD Rule 1032(f). --------------------------------------------------------------------------- \15\ NASD Rule 1032(f) was recently amended to expand the scope of individuals associated with a FINRA member broker-dealer who are required to register as Security Traders. See Securities Exchange Act Release No. 77551 (April 7, 2016), 81 FR 21914 (April 13, 2016) (SR-FINRA-2016-007) (Order Approving a Proposed Rule Change To Require Registration as Securities Traders of Associated Persons Primarily Responsible for the Design, Development, Significant Modification of Algorithmic Trading Strategies or Responsible for the Day-to-Day Supervision of Such Activities). --------------------------------------------------------------------------- G. Amendment to Rule 2.2--Commentary .06 Rule 2.2, Commentary .06, currently provides that the Exchange may, in exceptional cases and where good cause is shown, waive a proficiency examination and accept other standards as evidence of an applicant's qualifications for registration. The rule further provides that advanced age or physical infirmity will not individually of themselves constitute sufficient grounds to waive a qualification examination and that experience in fields ancillary to the investment banking or securities business may constitute sufficient grounds to waive a qualification examination. In light of the Exchange's proposal to adopt proposed new Rule 2.1210, Commentary .02 (Qualification Examinations and Waivers of Examinations),\16\ which adopts revised language regarding the waiver of examinations (see below for a further discussion), the Exchange proposes to delete the text of current Rule 2.2, Commentary .06, in its entirety. --------------------------------------------------------------------------- \16\ The proposed rule is substantially similar to FINRA Rule 1210.03. --------------------------------------------------------------------------- H. Proposed New Rule 2.2--Commentary .08--Fingerprint Information \17\ --------------------------------------------------------------------------- \17\ The proposed rule is substantially similar to FINRA Rule 1010(d). --------------------------------------------------------------------------- The Exchange proposes to adopt new Rule 2.2(e), Commentary .08, regarding the submission of fingerprint information by ETP Holders. As proposed, upon filing an electronic Form U4 on behalf of a person applying for registration, an ETP Holder would be required to promptly submit fingerprint information for that person. If the ETP Holder 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. I. Proposed New Rules 2.1210 Through 2.1230 As a general matter, FINRA administers qualification examinations that are designed to establish that persons associated with ETP Holders 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 Essential (``SIE'') that all potential representative-level registrants would take.\18\ Rule changes related to the adoption of the SIE and other proposed new rules are discussed below. --------------------------------------------------------------------------- \18\ 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 2.1210--Registration Requirements \19\ --------------------------------------------------------------------------- \19\ The proposed rule is substantially similar to FINRA Rule 1210. --------------------------------------------------------------------------- Proposed Rule 2.1210 provides that each person engaged in the investment banking or securities business of an ETP Holder 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 2.1220, unless exempt from registration pursuant to proposed Rule 2.1230. Proposed Rule 2.1210 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. [[Page 51033]] 2. Proposed Rule 2.1210, Commentary .01--Permissive Registrations \20\ --------------------------------------------------------------------------- \20\ 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. Proposed Rule 2.1210, Commentary .01, allows any associated person to obtain and maintain any registration permitted by an ETP Holder. For instance, an associated person of an ETP Holder working solely in a clerical or ministerial capacity, such as in an administrative capacity, would be able to obtain and maintain a General Securities Representative registration with the ETP Holder. As another example, an associated person of an ETP Holder 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 ETP Holder. Further, proposed Rule 2.1210, Commentary .01, allows an individual engaged in the securities business of a foreign securities affiliate or subsidiary of an ETP Holder to obtain and maintain any registration permitted by the ETP Holder. The Exchange is proposing to permit the registration of such individuals for several reasons. First, an ETP Holder 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 ETP Holders 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, as proposed, ETP Holders 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, an ETP Holder 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.\21\ --------------------------------------------------------------------------- \21\ 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 2.1210, Commentary .02--Qualification Examinations and Waivers of Examinations \22\ --------------------------------------------------------------------------- \22\ The proposed rule is substantially similar to FINRA Rule 1210.03. --------------------------------------------------------------------------- Proposed Rule 2.1210, Commentary .02, provides that before the registration of a person as a representative can become effective under proposed Rule 2.1210, such person must pass the SIE and an appropriate representative-level qualification examination as specified in proposed Rule 2.1220.\23\ Proposed Rule 2.1210, Commentary .02, also provides that before the registration of a person as a principal can become effective under proposed Rule 2.1210, such person must pass an appropriate principal-level qualification examination as specified in proposed Rule 2.1220. --------------------------------------------------------------------------- \23\ Proposed Rule 2.1220 sets forth each registration category and applicable qualification examination for ETP Holders on the Exchange. --------------------------------------------------------------------------- Further, proposed Rule 2.1210, 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 2.1210, 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 2.1210, 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 2.1210, Commentary .02, also provides that the Exchange may, in exceptional cases and where good cause is shown, pursuant to the Rule 10.9600 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 an ETP Holder for individuals associated with the ETP Holder 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 2.1210, Commentary .03--Requirements for Registered Persons Functioning as Principals for a Limited Period \24\ --------------------------------------------------------------------------- \24\ The proposed rule is substantially similar to FINRA Rule 1210.04. --------------------------------------------------------------------------- Proposed Rule 2.1210, Commentary .03, provides that an ETP Holder may designate any person currently registered, or who becomes registered, with the ETP Holder 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 [[Page 51034]] 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 prerequisite representative-level registration requirement, such as the Financial and Operations Principal registration category.\25\ --------------------------------------------------------------------------- \25\ 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 an ETP Holder to function in other principal categories for a limited period. Specifically, the proposed rule states that an ETP Holder may designate any person currently registered, or who becomes registered, with the ETP Holder as a principal to function in another principal category for 120 calendar days before passing any applicable examinations. 5. Proposed Rule 2.1210, Commentary .04--Rules of Conduct for Taking Examinations and Confidentiality of Examinations \26\ --------------------------------------------------------------------------- \26\ The proposed rule is substantially similar to FINRA Rule 1210.05. --------------------------------------------------------------------------- Proposed Rule 2.1210, 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 2.1210, 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 11.3.1. 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 11.3.1. 6. Proposed Rule 2.1210, Commentary .05--Waiting Periods for Retaking a Failed Examination \27\ --------------------------------------------------------------------------- \27\ The proposed rule is substantially similar to FINRA Rule 1210.06. --------------------------------------------------------------------------- Proposed Rule 2.1210, 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 2.1210, Commentary .06--All Registered Persons Must Satisfy the Regulatory Element of Continuing Education \28\ --------------------------------------------------------------------------- \28\ The proposed rule is substantially similar to FINRA Rule 1210.07. --------------------------------------------------------------------------- Pursuant to Rule 2.2(e), the CE requirements applicable to Registered Persons consist of a Regulatory Element \29\ and a Firm Element.\30\ The Regulatory Element applies to Registered Persons and must be completed within prescribed time frames.\31\ For purposes of the Regulatory Element, a Registered Person is any person registered with the Exchange as a General Securities Principal, Securities Trader, Principal, FINOP, Person Associated with an ETP Holder, Authorized Trader or Market Maker Authorized Trader. The Firm Element consists of annual, ETP Holder-developed and administered training programs designed to keep covered Registered Persons current regarding securities products, services and strategies offered by the ETP Holder. For purposes of the Firm Element, the term covered Registered Persons means any Person registered with an ETP Holder who has direct contact with customers in the conduct of the ETP Holder's securities sales, trading and investment banking activities and to the immediate supervisors of such Persons. --------------------------------------------------------------------------- \29\ See Rule 2.2(e)(1). \30\ See Rule 2.2(e)(2). \31\ Pursuant to Rule 2.2(e)(1), 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 2.1210, Commentary .06, to clarify that all Registered Persons, including those who solely maintain a permissive [[Page 51035]] registration, are required to satisfy the Regulatory Element, as specified in Rule 2.2(e)(1). The Exchange is making corresponding changes to Rule 2.2(e)(1). The Exchange is not proposing any changes to the Firm Element requirement at this time. Individuals 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 2.1210, Commentary .06, also provides that a Registered Person of an ETP Holder who becomes CE inactive would not be permitted to be registered in another registration category with the ETP Holder or be registered in any registration category with another ETP Holder, until the person has satisfied the Regulatory Element. 8. Proposed Rule 2.1210, Commentary .07--Lapse of Registration and Expiration of the SIE \32\ --------------------------------------------------------------------------- \32\ The proposed rule is substantially similar to FINRA Rule 1210.08. --------------------------------------------------------------------------- Proposed Rule 2.1210, 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 2.1220(b). Proposed Rule 2.1210, 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 an ETP Holder 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 ETP Holder, or a subsequent ETP Holder, 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 an ETP Holder 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 an ETP Holder 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 2.1210, 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 2.1210, Commentary .08--Waiver of Examinations for Individuals Working for a Financial Services Industry Affiliate of an ETP Holder \33\ --------------------------------------------------------------------------- \33\ The proposed rule is substantially similar to FINRA Rule 1210.09. --------------------------------------------------------------------------- Proposed Rule 2.1210, Commentary .08, provides the process for individuals working for a financial services industry affiliate of an ETP Holder \34\ to terminate their registrations with the ETP Holder and be granted a waiver of their requalification requirements upon re- registering with an ETP Holder, provided the firm that is requesting the waiver and the individual satisfy the criteria for a Financial Services Affiliate (``FSA'') waiver. --------------------------------------------------------------------------- \34\ Proposed Rule 2.1210, Commentary .07 [sic], defines a ``financial services industry affiliate of an ETP Holder'' as a legal entity that controls, is controlled by or is under common control with an ETP Holder 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 ETP Holder with which the individual is registered would notify the Exchange of the FSA designation. The ETP Holder 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 an ETP Holder, 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 ETP Holder. 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,\35\ provided that the other conditions of the waiver, as described below, have been satisfied. Consequently, an ETP Holder other than the ETP Holder that initially designated an individual as an FSA-eligible person may request a waiver for the individual and more than one ETP Holder may request a waiver for the individual during the seven-year period.\36\ --------------------------------------------------------------------------- \35\ 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. \36\ 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 an ETP Holder. 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 2.2(e). 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 51036]] to the Exchange,\37\ 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: --------------------------------------------------------------------------- \37\ 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 ETP Holder 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 an ETP Holder; (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 an ETP Holder 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 an ETP Holder. Following the Form U5 filing, an individual could move between the financial services affiliates of an ETP Holder so long as the individual is continuously working for an affiliate. Further, an ETP Holder could submit multiple waiver requests for the individual, provided that the waiver requests are made during the course of the seven-year period.\38\ An individual who has been designated as an FSA- eligible person by an ETP Holder would not be able to take additional examinations to gain additional registrations while working for a financial services affiliate of an ETP Holder. --------------------------------------------------------------------------- \38\ For example, if an ETP Holder submits a waiver request for an FSA-eligible person who has been working for a financial services affiliate of the ETP Holder for three years and re-registers the individual, the ETP Holder 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 ETP Holder for another three years, the ETP Holder could submit a second waiver request and re-register the individual upon returning to the ETP Holder. --------------------------------------------------------------------------- 10. Proposed Rule 2.1210, Commentary .09--Status of Persons Serving in the Armed Forces of the United States \39\ --------------------------------------------------------------------------- \39\ The proposed rule is substantially similar to FINRA Rule 1210.10. --------------------------------------------------------------------------- Proposed Rule 2.1210, 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 an ETP Holder 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 ETP Holder with which such person is registered promptly notify the Exchange of such person's return to employment with the ETP Holder. The proposed rule would require an ETP Holder 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. J. Proposed New Rule 2.1220--Registration Categories \40\ --------------------------------------------------------------------------- \40\ The Exchange is not adopting the following categories from the FINRA Filing because ETP Holders 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 2.1220(a)(1)--Principal Rule 1.1(y) currently defines the term ``Principal'' to mean any Person Associated with an ETP Holder actively engaged in the management of the ETP Holder's securities business, including supervision, solicitation, conduct of the ETP Holder's business, or the training of Authorized Traders and Persons Associated with an ETP Holder for any of these functions. Such Persons include Sole Proprietors, Officers, Partners, and Directors of Corporations. The Exchange is not proposing any change to the current definition for purposes of the proposed new registration rules. The Exchange does, however, propose to codify the phrase ``actively engaged in the management of the ETP Holder's securities business'' to include 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 ETP Holder's securities business and management-level responsibilities for supervising any aspect of such business, such as serving as a voting member of the ETP Holder's executive, management or operations committee. 2. Proposed Rule 2.1220(a)(2)--General Securities Principal \41\ --------------------------------------------------------------------------- \41\ The proposed rule is substantially similar to FINRA Rule 1220(a)(2). --------------------------------------------------------------------------- Proposed Rule 2.1220(a)(2)(A) states that each principal as defined in proposed Rule 2.1220(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 2.1220(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 2.1220(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 2.1220(a)(2)(B) also clarifies that an individual may register as a General Securities Sales Supervisor and pass the General Securities Sales Supervisor [[Page 51037]] 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 2.1220(a)(2)(B), however, provides that, subject to the lapse of registration provisions in proposed Rule 2.1210, 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 an ETP Holder are limited to corporate securities activities of the ETP Holder. 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 2.1220(a)(3)--Compliance Officer \42\ --------------------------------------------------------------------------- \42\ The proposed rule is substantially similar to FINRA Rule 1220(a)(3). --------------------------------------------------------------------------- Proposed Rule 2.1220(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 ETP Holders engaged in limited investment banking or securities business. The proposed rule only addresses the registration requirements for CCOs. However, consistent with proposed Rule 2.1210, 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 2.1220(a)(3) set forth the following qualification requirements for Compliance Officer registration:Subject to the lapse of registration provisions in proposed Rule 2.1210, 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 2.1210, 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 that is engaged in limited investment banking or securities business may be registered in a principal category under proposed Rule 2.1220(a) that corresponds to the limited scope of the ETP Holder's business. 4. Proposed Rule 2.1220(a)(4)--Financial and Operation Principal and Introducing Broker-Dealer Financial and Operations Principal \43\ --------------------------------------------------------------------------- \43\ The proposed rule is substantially similar to FINRA Rule 1220(a)(4). --------------------------------------------------------------------------- Proposed Rule 2.1220(a)(4) provides that each principal who is responsible for the financial and operational management of an ETP Holder 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 an ETP Holder that has a minimum net capital requirement of $150,000 under SEA Rule 15c-3- 1(a)(8) must be designated as a Financial and Operations Principal. In addition, proposed Rule 2.1220(a)(4) provides that a principal who is responsible for the financial and operational management of an ETP Holder that is subject to the net capital requirements of SEA Rule 15c3-1, other than an ETP Holder 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 2.1220(a)(4)(B) requires an ETP Holder 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 ETP Holders that neither self-clear nor provide clearing services are more limited, such ETP Holders 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 ETP Holders 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 ETP Holders 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 ETP Holder that is limited in size and resources may request a waiver of the requirement to designate separate persons to function as Principal Financial Officer and Principal Operations Officer. [[Page 51038]] 5. Proposed Rule 2.1220(a)(5)--Securities Trader Principal \44\ --------------------------------------------------------------------------- \44\ The proposed rule is substantially similar to FINRA Rule 1220(a)(7). --------------------------------------------------------------------------- Proposed Rule 2.1220(a)(5) requires that a principal responsible for supervising the securities trading activities specified in proposed Rule 2.1220(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 2.1220(a)(6)--General Securities Sales Supervisor \45\ --------------------------------------------------------------------------- \45\ The proposed rule is substantially similar to FINRA Rule 1220(a)(10). --------------------------------------------------------------------------- Proposed Rule 2.1220(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 an ETP Holder are limited to the securities sales activities of the ETP Holder, 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 ETP Holder 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.\46\ 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. --------------------------------------------------------------------------- \46\ An individual may also register as a General Securities Sales Supervisor by passing a combination of other principal-level examinations. --------------------------------------------------------------------------- 7. Proposed Rule 2.1220(b)(1)--Representative \47\ --------------------------------------------------------------------------- \47\ The proposed rule is substantially similar to FINRA Rule 1220(b)(1). --------------------------------------------------------------------------- Proposed Rule 2.1220(b)(1) defines a representative as any person associated with an ETP Holder, including assistant officers other than principals, who is engaged in the ETP Holder's investment banking or securities business, such as supervision, solicitation, conduct of business in securities or the training of persons associated with an ETP Holder for any of these functions. 8. Proposed Rule 2.1220(b)(2)--General Securities Representative \48\ --------------------------------------------------------------------------- \48\ The proposed rule is substantially similar to FINRA Rule 1220(b)(2). --------------------------------------------------------------------------- Proposed Rule 2.1220(b)(2)(A) states that each representative as defined in proposed Rule 2.1220(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 2.1210, 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 2.1220(b)(3)--Securities Trader \49\ --------------------------------------------------------------------------- \49\ The proposed rule is substantially similar to FINRA Rule 1220(b)(4). --------------------------------------------------------------------------- Proposed Rule 2.1220(b)(3) provides that each representative as defined in proposed Rule 2.1220(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 an ETP Holder 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 an ETP Holder. The Exchange proposes to adopt FINRA's definition of Securities Trader in proposed Rule 2.1220(b)(3) in order to align the text of the rule to that adopted by FINRA and other exchanges.\50\ --------------------------------------------------------------------------- \50\ 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 2.1210, 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 2.1220, Commentary .01--Foreign Registrations \51\ --------------------------------------------------------------------------- \51\ The proposed rule is substantially similar to FINRA Rule 1220.01 and 1220.06. --------------------------------------------------------------------------- Proposed Rule 2.1220, 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 2.1220, Commentary .01, provides that, subject to the lapse of registration provisions in Rule 2.1210, Commentary .07, each person who is registered with the Exchange as a United Kingdom Securities Representative or a Canada 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 [[Page 51039]] 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 2.1220, Commentary .02--Additional Qualification Requirements for Persons Engaged in Security Futures \52\ --------------------------------------------------------------------------- \52\ The proposed rule is substantially similar to FINRA Rule 1220.02. --------------------------------------------------------------------------- Proposed Rule 2.1220, 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 2.2(e)(2) that addresses security futures products before such person engages in security futures activities.\53\ --------------------------------------------------------------------------- \53\ FINRA Rule 1220.02 also includes Options Representative and Registered Options Principal registration categories. NYSE National does not trade options and ETP Holders of NYSE National 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 2.1220, Commentary .03 [sic]. --------------------------------------------------------------------------- 12. Proposed Rule 2.1220, Commentary .03--Scope of General Securities Sales Supervisor Registration Category \54\ --------------------------------------------------------------------------- \54\ The proposed rule is substantially similar to FINRA Rule 1220.04. --------------------------------------------------------------------------- Proposed Rule 2.1220, 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, the NYSE 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 2.1220, 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. K. Proposed New Rule 2.1230--Associated Persons Exempt From Registration \55\ --------------------------------------------------------------------------- \55\ The proposed rule is substantially similar to FINRA Rule 1230. --------------------------------------------------------------------------- Proposed Rule 2.1230 provides an exemption from registration with the Exchange for certain associated persons. Specifically, the proposed rule provides that persons associated with an ETP Holder whose functions are solely and exclusively clerical or ministerial would be exempt from registration.\56\ --------------------------------------------------------------------------- \56\ 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. ETP Holders of NYSE National 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 2.1230, Commentary .01--Registration Requirements for Associated Persons Who Accept Customer Orders \57\ --------------------------------------------------------------------------- \57\ The proposed rule is substantially similar to FINRA Rule 1230.01. --------------------------------------------------------------------------- Proposed Rule 2.1230, 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 [sic] 2. Statutory Basis The proposed rule change is consistent with Section 6(b) of the Securities Exchange Act of 1934 (the ``Act''),\58\ in general, and furthers the objectives of Section 6(b)(5),\59\ 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. --------------------------------------------------------------------------- \58\ 15 U.S.C. 78f(b). \59\ 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 ETP Holders 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 ETP Holders 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 an ETP Holder, 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 51040]] 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 ETP Holders 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 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 prior to 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b- 4(f)(6) thereunder. 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) \60\ 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.\61\ 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.\62\ --------------------------------------------------------------------------- \60\ 17 CFR 240.19b-4(f)(6)(iii). \61\ See supra note 5. \62\ 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. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) \63\ of the Act to determine whether the proposed rule change should be approved or disapproved. --------------------------------------------------------------------------- \63\ 15 U.S.C. 78s(b)(2)(B). --------------------------------------------------------------------------- IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic comments Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to rule-comments@sec.gov. Please include File Number SR-NYSENAT-2018-21 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-NYSENAT-2018-21. 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-NYSENAT-2018-21 and should be submitted on or before October 31, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\64\ --------------------------------------------------------------------------- \64\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-21903 Filed 10-9-18; 8:45 am] BILLING CODE 8011-01-P
![51030 Federal Register / Vol. 83, No. 196 / Wednesday, October 10, 2018 / Notices
IV. Conclusion because ETP Holders do not engage in respective qualification examinations
It is therefore ordered, pursuant to the type of business that would require required for ETP Holders that engage in
Section 19(b)(2) of the Act,27 that the such registration. As such, the Exchange trading activities on the Exchange; (iii)
proposed rule change (SR–NYSEArca– is amending current Rule 2.2 regarding harmonize the Exchange’s qualification,
2018–57), as modified by Amendment continuing education requirements to registration and examination rules with
Nos. 4 and 6 be, and hereby is, reflect the FINRA rule; adopting those of FINRA 5 so as to promote
approved. Commentary .08 to current Rule 2.2 uniform standards across the securities
regarding fingerprint information; industry; and (iv) add new definitions of
For the Commission, by the Division of terms and make other conforming
adopting new Rule 2.1210 regarding
Trading and Markets, pursuant to delegated
authority.28 registration requirements and related changes to enhance the
Commentary to new Rule 2.1210; comprehensiveness and clarity of the
Eduardo A. Aleman,
adopting new Rule 2.1220 regarding Exchange’s rules.6 The proposed
Assistant Secretary.
registration categories 4 and related changes are discussed below.
[FR Doc. 2018–21901 Filed 10–9–18; 8:45 am]
Commentary to new Rule 2.1220; and A. Amendments to Rule 2.2(c)
BILLING CODE 8011–01–P
adopting new Rule 2.1230 regarding
associated persons exempt from Rule 2.2(c)(1) currently provides,
registration and related Commentary to among other things, that an ETP Holder
SECURITIES AND EXCHANGE shall register with the Exchange as a
new Rule 2.1230. Each of these rule
COMMISSION Principal any Person who meets the
changes, which are [sic] described in
[Release No. 34–84350; File No. SR– more detail below, would become definition of a Principal as described in
NYSENAT–2018–21] operative on October 1, 2018. The Rule 1.1 and that each such Principal
proposed rule change is available on the must be registered as such through the
Self-Regulatory Organizations; NYSE Exchange’s website at www.nyse.com, at FINRA Central Registration Depository
National, Inc.; Notice of Filing and the principal office of the Exchange, and System (‘‘CRD’’), and must pass the
Immediate Effectiveness of at the Commission’s Public Reference general Securities Principal (Series 24)
Amendments to Rules Regarding Room. examination. The current rule further
Qualification, Registration and provides that a Principal must pass the
Continuing Education Applicable to II. Self-Regulatory Organization’s Series 7 examination or an equivalent
Equity Trading Permit Holders Statement of the Purpose of, and foreign examination module as a
Statutory Basis for, the Proposed Rule prerequisite to taking the Series 24
Pursuant to Section 19(b)(1) 1 of the Change examination. The Exchange proposes to
Securities Exchange Act of 1934 (the
In its filing with the Commission, the amend the current rule to reflect the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
self-regulatory organization included change of the prerequisite examination
notice is hereby given that on
statements concerning the purpose of, requirements for Principals registered
September 27, 2018, NYSE National,
and basis for, the proposed rule change with the Exchange. The amended rule
Inc. (the ‘‘Exchange’’ or ‘‘NYSE
and discussed any comments it received provides that the Exchange would
National’’) filed with the Securities and
on the proposed rule change. The text require the Series 7 examination and the
Exchange Commission (the
of those statements may be examined at Securities Industry Essentials
‘‘Commission’’) the proposed rule
the places specified in Item IV below. examination as a prerequisite to taking
change as described in Items I and II
The Exchange has prepared summaries, the Series 24 examination and would no
below, which Items have been prepared
set forth in sections A, B, and C below, longer accept a foreign examination
by the self-regulatory organization. The
of the most significant parts of such module as a prerequisite given the
Commission is publishing this notice to
statements. elimination of the foreign examination
solicit comments on the proposed rule
module in the FINRA Filing.
change from interested persons. A. Self-Regulatory Organization’s Rule 2.2(c)(2) currently provides,
I. Self-Regulatory Organization’s Statement of the Purpose of, and the among other things, that each ETP
Statement of the Terms of Substance of Statutory Basis for, the Proposed Rule Holder, other than a sole proprietorship
the Proposed Rule Change Change or a proprietary trading firm that has 25
The Exchange proposes amendments 1. Purpose or fewer Authorized Traders, is required
to the Exchange’s rules regarding to register at least two Principals with
The Exchange proposes to amend its the Exchange. Per the rule, a sole
qualification, registration and qualification, registration, and
continuing education requirements proprietorship or a proprietary trading
continuing education requirements firm with 25 or fewer Authorized
applicable to Equity Trading Permit applicable to ETP Holders. The
(‘‘ETP’’) Holders. To the extent the Traders is required to register one
proposed amendments are intended to: Principal with the Exchange. The
Exchange’s rule proposal is intended to (i) Provide transparency and clarity with
harmonize with Financial Regulatory respect to the Exchange’s registration, 5 See Securities Exchange Act Release No. 81098
Authority, Inc. (‘‘FINRA’’) rules and qualification and examination (July 7, 2017), 82 FR 32419 (July 13, 2017) (SR–
thus promote consistency within the requirements; (ii) amend its rules FINRA–2017–007) (Approval Order) (the ‘‘FINRA
securities industry, the Exchange is only relating to categories of registration and
Filing’’). The Exchange notes that in order to
adopting rules that are relevant to the maintain consistency with the FINRA Filing, the
Exchange proposes to incorporate certain terms
Exchange’s ETP Holders. The Exchange 4 The relevant principal registration categories the from the relevant FINRA rule into the Exchange’s
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is not adopting registration categories Exchange proposes to adopt are (1) Principal; (2) rule that may not be applicable to all ETP Holders.
that are not applicable to ETP Holders General Securities Principal; (3) Compliance For example, while ETP Holders may not be
Officer; (4) Financial and Operations Principal and engaged in ‘‘investment banking’’ activity, the
27 15 Introducing Broker-Dealer Financial and Operations Exchange proposes to adopt that term within these
U.S.C. 78s(b)(2). registration rules to conform them to the FINRA
28 17
Principal; (5) Securities Trader Principal; and (6)
CFR 200.30–3(a)(12). General Securities Sales Supervisor. The relevant rules.
1 15 U.S.C. 78s(b)(1).
representative registration categories the Exchange 6 The conforming changes the Exchange proposes
2 15 U.S.C. 78a.
proposes to adopt are (1) Representative; (2) General would substitute the term ‘‘ETP Holder’’ for
3 17 CFR 240.19b–4. Securities Representative; and (3) Securities Trader. ‘‘member’’ and the term ‘‘Exchange’’ for ‘‘FINRA.’’
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![Federal Register / Vol. 83, No. 196 / Wednesday, October 10, 2018 / Notices 51031
Exchange proposes to make a drafting or her most recent registration category, proposes to amend the current rule to
change to the text of the rule without and that the content of the Regulatory expand the minimum standard for such
any substantive change to the Element would be based on the same training programs by requiring that, at a
application of the current rule.7 As cycle had the individual remain [sic] minimum, a firm’s training program
proposed, each ETP Holder would registered.10 The proposed amendment must also cover training in ethics and
continue to be required to register at to Rule 2.2(e)(1) also provides that if a professional responsibility.14
least two Principals unless the ETP waiver-eligible person fails to complete
Holder is a sole proprietorship or a the Regulatory Element during the C. Amendments to Rule 2.2,
proprietary trading firm, in which case, prescribed time frames, he or she would Commentary .01
such ETP Holder would continue to be lose waiver eligibility.11 Current Rule 2.2, Commentary .01,
required to register one Principal with Further, the Exchange proposes to states that the Exchange requires the
the Exchange. amend Rule 2.2(e)(1) to provide that any General Securities Representative
person who registration has been examination (‘‘Series 7’’) or an
B. Amendments to Rule 2.2(e)— deemed inactive under the rule may not equivalent foreign examination module
Continuing Education Requirements accept or solicit business or receive any approved by the Exchange in qualifying
Rule 2.2(e) provides the continuing compensation for the purchase or sale of Persons seeking registration as general
education requirements of certain securities. The proposed amendment securities representatives. As noted
Registered Persons 8 subsequent to their provides, however, that such person above, given the elimination of the
initial qualification and registration may receive trail or residual foreign examination module in the
with the Exchange, and includes a commissions resulting from transactions FINRA Filing, the Exchange proposes to
Regulatory Element and a Firm Element. completed before the inactive status, amend the current rule to remove a
The Regulatory Element applies to unless the ETP Holder with which the foreign examination module as an
Registered Persons and consists of person is associated has a policy equivalent requirement to register as a
periodic computer-based training on prohibiting such trail or residual general securities representative. As
regulatory, compliance, ethical, commissions.12 amended, Rule 2.2, Commentary .01,
supervisory subjects and sales practice Additionally, under Rule 2.2(e)(1), a would provide that qualifying Persons
standards. The Firm Element consists of Registered Person is required to retake seeking registration as a general
at least an annual, member-developed the Regulatory Element in the event that securities representatives would be
and administered training programs such person (i) is subject to any required to take the Series 7
designed to keep Registered Persons statutory disqualification as defined in examination and the Securities Industry
current regarding securities products, Section 3(a)(39) of the Exchange Act; (ii) Essentials examination.
services and strategies offered by the is subject to suspension or to the
member. For purposes of Rule 2.2(e), the imposition of a fine of $5,000 or more D. Amendments to Rule 2.2,
Exchange proposes to include within for violation of any provision of any Commentary .02
the definition of a Registered Person any securities law or regulation, or any Current Rule 2.2, Commentary .02,
Person who is permissively registered agreement with or rule or standard of states that the Exchange will accept the
pursuant to proposed Rule 2.1210, conduct of any securities governmental New York Stock Exchange Chief
Commentary .01, and any Person agency, securities self-regulatory Compliance Officer Examination
designated as eligible for a waiver organization, or as imposed by any such (‘‘NYSE Series 14’’) as an alternative
pursuant to proposed Rule 2.1210, regulatory or self-regulatory qualification to register as Principal an
Commentary .08.9 The purpose of this organization in connection with a individual identified as the Chief
change is to ensure all Registered disciplinary proceeding; or (iii) is Compliance Officer on an ETP Holder’s
Persons, including those with ordered as a sanction in a disciplinary Form BD. The Exchange proposes a
permissive registrations, keep their action to retake the Regulatory Element technical change to rename the NYSE
knowledge of the securities industry by any securities governmental agency Series 14 examination as the
current. The inclusion of persons or self-regulatory organization. The Compliance Official Examination which
designated as eligible for a waiver under Exchange proposes to amend Rule is the correct name of the examination.
the term ‘‘Registered Person’’ 2.2(e)(1) to provide an exception to a
corresponds to the requirements of waiver-eligible person from retaking the E. Amendments to Rule 2.2,
proposed Rule 2.1210, Commentary .08. Regulatory Element and satisfy [sic] all Commentary .03
of its requirements.13 Current Rule 2.2, Commentary .03,
1. Regulatory Element
provides that the definition of a
The Exchange proposes to amend 2. Firm Element Securities Trader is defined in Rule 1.1.
Rule 2.2(e)(1) to provide, consistent Current Rule 2.2(e)(2)(B)(ii) provides With this proposed rule change, the
with proposed Rule 2.1210, that programs used to implement an Exchange is adopting FINRA’s
Commentary .08, that a waiver-eligible ETP Holder’s training program must be definition of Securities Trader (as
person would be subject to a Regulatory appropriate for the business of the ETP described below) and therefore,
Element program that correlates to his Holder and, at a minimum must cover proposes to replace the reference to Rule
specific matters concerning securities 1.1 to Rule 2.1220(b)(3) in current Rule
7 The proposed change would align the text of the
products, services, and strategies offered 2.2(e), Commentary .03, as the
rule to the rules of other exchanges. See e.g.,
NASDAQ Stock Market Rule 1021(e).
by the ETP Holder. The Exchange appropriate rule in the Exchange’s
Rulebook where the definition of
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8 For purposes of Rule 2.2(e), the term ‘‘Registered
10 The proposed change is substantially similar to
Person’’ means any Person registered with the Securities Trader can be found. In doing
Exchange as a General Securities Representative, that contained in FINRA Rule 1240(a)(1).
11 The proposed change is substantially similar to
so, the Exchange proposes to amend
Securities Trader, Principal, Principal—Financial
and Operations (‘‘FINOP’’), Person Associated with that contained in FINRA Rule 1240(a)(2). current Rule 1.1(ac) which provides the
an ETP Holder, Authorized Trader or Market Maker 12 The proposed change is substantially similar to current definition of Securities Trader
Authorized Trader. See Rule 2.2(e). that contained in FINRA Rule 1240(a)(2).
9 The proposed change is substantially similar to 13 The proposed change is substantially similar to 14 The proposed change is substantially similar to
that contained in FINRA Rule 1240(a)(5). that contained in FINRA Rule 1240(a)(3). that contained in FINRA Rule 1240(b)(2).
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![51032 Federal Register / Vol. 83, No. 196 / Wednesday, October 10, 2018 / Notices
and proposes to mark that rule as 2.1220(b)(3) which is a proposed new the qualification requirements under
‘Reserved.’ Exchange rule that is substantively Exchange rules.
Further, current Rule 2.2, similar to NASD Rule 1032(f).
Commentary .03, states that each Person I. Proposed New Rules 2.1210 Through
Associated with an ETP Holder meeting G. Amendment to Rule 2.2— 2.1230
the definition of a Securities Trader Commentary .06
As a general matter, FINRA
under Rule 1.1 must pass the Securities Rule 2.2, Commentary .06, currently administers qualification examinations
Trader Qualification examination provides that the Exchange may, in
(‘‘Series 57’’) and register as such in that are designed to establish that
exceptional cases and where good cause persons associated with ETP Holders
CRD. The rule further provides that a
is shown, waive a proficiency have attained specified levels of
Person registered as a Securities Trader
examination and accept other standards competence and knowledge. Over time,
shall not function in any other
as evidence of an applicant’s the examination program has increased
registration category unless he/she is
qualifications for registration. The rule in complexity to address the
also qualified in such other registration
further provides that advanced age or introduction of new products and
category. Given the formulation of the
physical infirmity will not individually functions, and related regulatory
Securities Industry Essential
of themselves constitute sufficient concerns and requirements. As a result,
examination which all potential
grounds to waive a qualification today, there are a large number of
representative-level registrants would be
examination and that experience in examinations, considerable content
required to pass, the Exchange proposes
to amend the current rule to require fields ancillary to the investment overlap across the representative-level
each Person Associated with an ETP banking or securities business may
examinations and requirements for
Holder that meets the definition of a constitute sufficient grounds to waive a
individuals in various segments of the
Securities Trader to take the Series 57 qualification examination. In light of the
industry to pass multiple examinations.
examination and the Securities Industry Exchange’s proposal to adopt proposed
new Rule 2.1210, Commentary .02 To address these issues, FINRA has
Essential examination and register as formulated a general knowledge
such in CRD. (Qualification Examinations and
Waivers of Examinations),16 which examination called the Securities
F. Amendments to Rule 2.2, adopts revised language regarding the Industry Essential (‘‘SIE’’) that all
Commentary .04 waiver of examinations (see below for a potential representative-level registrants
further discussion), the Exchange would take.18 Rule changes related to
Current Rule 2.2, Commentary .04,
proposes to delete the text of current the adoption of the SIE and other
provides that the definition of a
Securities Trader Principal is defined in Rule 2.2, Commentary .06, in its proposed new rules are discussed
Rule 1.1. With this proposed rule entirety. below.
change, the Exchange is adopting H. Proposed New Rule 2.2— 1. Proposed Rule 2.1210—Registration
FINRA’s definition of Securities Trader Commentary .08—Fingerprint Requirements 19
(as described below) and therefore, Information 17
proposes to replace the reference to Rule Proposed Rule 2.1210 provides that
1.1 to Rule 2.1220(a)(5) in current Rule The Exchange proposes to adopt new each person engaged in the investment
2.2(e), Commentary .04, as the Rule 2.2(e), Commentary .08, regarding banking or securities business of an ETP
appropriate rule in the Exchange’s the submission of fingerprint Holder must register with the Exchange
Rulebook where the definition of information by ETP Holders. As as a representative or principal in each
Securities Trader Principal can be proposed, upon filing an electronic category of registration appropriate to
found. In doing so, the Exchange Form U4 on behalf of a person applying his or her functions and responsibilities
proposes to amend current Rule 1.1(ad) for registration, an ETP Holder would be as specified in proposed Rule 2.1220,
which provides the current definition of required to promptly submit fingerprint unless exempt from registration
Securities Trader Principal and information for that person. If the ETP pursuant to proposed Rule 2.1230.
proposes to mark that rule as ‘Reserved.’ Holder fails to submit the fingerprint Proposed Rule 2.1210 also provides that
Current Rule 2.2, Commentary .04, information within 30 days after the such person is not qualified to function
references by incorporation NASD Rule Exchange receives the electronic Form in any registered capacity other than
1032(f).15 With this proposed rule U4, the person’s registration shall be that for which the person is registered,
change, the Exchange is adopting the deemed inactive and the person would unless otherwise stated in the rules.
content of Rule 1032(f) into the be required to immediately cease all
Exchange’s rules and therefore would activities requiring registration and 18 The SIE would assess basic product knowledge;
no longer need to reference by would be prohibited from performing the structure and function of the securities industry
incorporation the NASD rule. The any duties and functioning in any markets, regulatory agencies and their functions;
Exchange, therefore, proposes to replace capacity requiring registration. The and regulated and prohibited practices. In
particular, the SIE will cover four major areas. The
reference to NASD Rule 1032(f) in Rule proposed rule further provides allows first, ‘‘Knowledge of Capital Markets,’’ focuses on
2.2, Commentary .04, with Rule [sic] the Exchange to administratively topics such as types of markets and offerings,
terminate a registration that is inactive broker-dealers and depositories, and economic
15 NASD Rule 1032(f) was recently amended to
for a period of two years. However, a cycles. The second, ‘‘Understanding Products and
expand the scope of individuals associated with a Their Risks,’’ covers securities products at a high
FINRA member broker-dealer who are required to
person whose registration is level as well as associated investment risks. The
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register as Security Traders. See Securities administratively terminated may seek to third, ‘‘Understanding Trading, Customer Accounts
Exchange Act Release No. 77551 (April 7, 2016), 81 reactivate his or her registration by and Prohibited Activities,’’ focuses on accounts,
FR 21914 (April 13, 2016) (SR–FINRA–2016–007) reapplying for registration and meeting orders, settlement and prohibited activities. The
(Order Approving a Proposed Rule Change To final area, ‘‘Overview of the Regulatory
Require Registration as Securities Traders of Framework,’’ encompasses topics such as SROs,
16 The proposed rule is substantially similar to registration requirements and specified conduct
Associated Persons Primarily Responsible for the
Design, Development, Significant Modification of FINRA Rule 1210.03. rules.
Algorithmic Trading Strategies or Responsible for 17 The proposed rule is substantially similar to 19 The proposed rule is substantially similar to
the Day-to-Day Supervision of Such Activities). FINRA Rule 1010(d). FINRA Rule 1210.
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2. Proposed Rule 2.1210, Commentary respect to an individual who solely 2.1210, Commentary .02, also provides
.01—Permissive Registrations 20 maintains a permissive registration, that individuals who are not associated
The Exchange currently does not have such as an individual working persons of firms, such as members of the
a specific rule that provides for exclusively in an administrative general public, are eligible to take the
permissive registrations. With this capacity, the individual’s day-to-day SIE. The Exchange believes that
proposed rule change, and to conform supervisor may be a non-Registered expanding the pool of individuals who
its rules to the FINRA rules, the Person. However, for purposes of are eligible to take the SIE would enable
Exchange proposes to adopt a specific compliance with the Exchange’s prospective securities industry
rule regarding permissive registrations. supervision rules, an ETP Holder would professionals to demonstrate to
Proposed Rule 2.1210, Commentary .01, be required to assign a registered prospective employers a basic level of
allows any associated person to obtain supervisor who would be responsible knowledge prior to submitting a job
and maintain any registration permitted for periodically contacting such application. Further, this approach
by an ETP Holder. For instance, an individual’s day-to-day supervisor to would allow for more flexibility and
associated person of an ETP Holder verify that the individual is not acting career mobility within the securities
working solely in a clerical or outside the scope of his or her assigned industry. While all associated persons of
ministerial capacity, such as in an functions. If such individual is firms as well as individuals who are not
administrative capacity, would be able permissively registered as a associated persons would be eligible to
to obtain and maintain a General representative, the registered supervisor take the SIE pursuant to the proposed
Securities Representative registration must be registered as a representative or rule, passing the SIE alone would not
with the ETP Holder. As another principal. If the individual is qualify them for registration with the
example, an associated person of an ETP permissively registered as a principal, Exchange. Rather, to be eligible for
Holder who is registered, [sic] and the registered supervisor must be registration with the Exchange, an
functioning solely as a General registered as a principal.21 individual must pass an applicable
Securities Representative would be able representative or principal qualification
3. Proposed Rule 2.1210, Commentary examination and complete the other
to obtain and maintain a General .02—Qualification Examinations and
Securities Principal registration with the requirements of the registration process.
Waivers of Examinations 22 Proposed Rule 2.1210, Commentary
ETP Holder. Further, proposed Rule
2.1210, Commentary .01, allows an Proposed Rule 2.1210, Commentary .02, also provides that the Exchange
individual engaged in the securities .02, provides that before the registration may, in exceptional cases and where
business of a foreign securities affiliate of a person as a representative can good cause is shown, pursuant to the
or subsidiary of an ETP Holder to obtain become effective under proposed Rule Rule 10.9600 Series, waive the
and maintain any registration permitted 2.1210, such person must pass the SIE applicable qualification examination(s)
by the ETP Holder. and an appropriate representative-level and accept other standards as evidence
The Exchange is proposing to permit qualification examination as specified of an applicant’s qualifications for
the registration of such individuals for in proposed Rule 2.1220.23 Proposed registration. The proposed rule further
several reasons. First, an ETP Holder Rule 2.1210, Commentary .02, also provides that the Exchange will only
may foresee a need to move a former provides that before the registration of a consider examination waiver requests
representative or principal who has not person as a principal can become submitted by an ETP Holder for
been registered for two or more years effective under proposed Rule 2.1210, individuals associated with the ETP
back into a position that would require such person must pass an appropriate Holder who are seeking registration in a
such person to be registered. Currently, principal-level qualification representative- or principal-level
such persons are required to requalify examination as specified in proposed registration category. Moreover, the
(or obtain a waiver of the applicable Rule 2.1220. proposed rule states that the Exchange
qualification examinations) and reapply Further, proposed Rule 2.1210, will consider waivers of the SIE alone
for registration. Second, the proposed Commentary .02, provides that if a or the SIE and the representative- and
rule change would allow ETP Holders to Registered Person’s job functions change principal-level examination(s) for such
develop a depth of associated persons and he or she needs to become individuals. The Exchange would not
with registrations in the event of registered in another representative- consider a waiver of the SIE for non-
unanticipated personnel changes. level category, he or she would not need associated persons or for associated
Finally, allowing registration in to pass the SIE again. Rather, the persons who are not registering as
additional categories encourages greater Registered Person would need to pass representatives or principals.
regulatory understanding. only the appropriate representative- 4. Proposed Rule 2.1210, Commentary
Individuals maintaining a permissive level qualification examination. .03—Requirements for Registered
registration under the proposed rule Moreover, proposed Rule 2.1210, Persons Functioning as Principals for a
change would be considered Registered Commentary .02, provides that all Limited Period 24
Persons and subject to all Exchange associated persons, such as associated
rules, to the extent relevant to their persons whose functions are solely and Proposed Rule 2.1210, Commentary
activities. Additionally, consistent with exclusively clerical or ministerial, are .03, provides that an ETP Holder may
the requirements of the Exchange’s eligible to take the SIE. Proposed Rule designate any person currently
supervision rules, as proposed, ETP registered, or who becomes registered,
Holders would be required to have 21 In either case, the registered supervisor of an with the ETP Holder as a representative
to function as a principal for a limited
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adequate supervisory systems and individual who solely maintains a permissive
procedures reasonably designed to registration would not be required to be registered period, provided that such person has at
in the same representative or principal registration least 18 months of experience
ensure that individuals with permissive category as the permissively-registered individual.
registrations do not act outside the 22 The proposed rule is substantially similar to
functioning as a registered
scope of their assigned functions. With FINRA Rule 1210.03. representative with [sic] the five-year
23 Proposed Rule 2.1220 sets forth each
20 The proposed rule is substantially similar to registration category and applicable qualification 24 The proposed rule is substantially similar to
FINRA Rule 1210.02. examination for ETP Holders on the Exchange. FINRA Rule 1210.04.
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![51034 Federal Register / Vol. 83, No. 196 / Wednesday, October 10, 2018 / Notices
period immediately preceding the have violated the SIE Rules of Conduct agree to be subject to the same waiting
designation. The proposed rule is or the Rules of Conduct for periods for retaking the SIE.
intended to ensure that representatives representative and principal
7. Proposed Rule 2.1210, Commentary
designated to function as principals for examinations, the associated person
.06—All Registered Persons Must
the limited period under the proposal may forfeit the results of the
Satisfy the Regulatory Element of
have an appropriate level of registered examination and may be subject to
Continuing Education 28
representative experience. The proposed disciplinary action by the Exchange.
rule clarifies that the requirements of Further, the proposed rule states that Pursuant to Rule 2.2(e), the CE
the rule apply to designations to any individuals taking the SIE who are not requirements applicable to Registered
principal category, including those associated persons must agree to be Persons consist of a Regulatory
categories that are not subject to a subject to the SIE Rules of Conduct. Element 29 and a Firm Element.30 The
prerequisite representative-level Among other things, the SIE Rules of Regulatory Element applies to
registration requirement, such as the Conduct would require individuals to Registered Persons and must be
Financial and Operations Principal attest that they are not qualified to completed within prescribed time
registration category.25 engage in the investment banking or frames.31 For purposes of the Regulatory
The proposed rule also clarifies that securities business based on passing the Element, a Registered Person is any
the individual must fulfill all applicable SIE and would prohibit individuals person registered with the Exchange as
prerequisite registration, fee and from cheating on the examination or a General Securities Principal,
examination requirements before his or misrepresenting their qualifications to Securities Trader, Principal, FINOP,
her designation as a principal. Further, the public subsequent to passing the Person Associated with an ETP Holder,
the proposed rule provides that in no SIE. Moreover, non-associated persons Authorized Trader or Market Maker
event may such person function as a may forfeit their SIE results and may be Authorized Trader. The Firm Element
principal beyond the initial 120 prohibited from retaking the SIE if the consists of annual, ETP Holder-
calendar days without having Exchange determines that they cheated developed and administered training
successfully passed an appropriate on the SIE or that they misrepresented programs designed to keep covered
principal qualification examination. The their qualifications to the public Registered Persons current regarding
proposed rule also provides an subsequent to passing the SIE. securities products, services and
exception to the experience requirement The proposed rule further notes that strategies offered by the ETP Holder. For
for principals who are designated by an the Exchange considers all qualification purposes of the Firm Element, the term
ETP Holder to function in other examinations [sic] content to be highly covered Registered Persons means any
principal categories for a limited period. confidential and that the removal of Person registered with an ETP Holder
Specifically, the proposed rule states examination content from an who has direct contact with customers
that an ETP Holder may designate any examination center, reproduction, in the conduct of the ETP Holder’s
person currently registered, or who disclosure, receipt from or passing to securities sales, trading and investment
becomes registered, with the ETP any person, or use for study purposes of banking activities and to the immediate
Holder as a principal to function in any portion of such qualification supervisors of such Persons.
examination or any other use that would The Exchange believes that all
another principal category for 120
compromise the effectiveness of the Registered Persons, regardless of their
calendar days before passing any
examinations and the use in any manner activities, should be subject to the
applicable examinations.
and at any time of the questions or Regulatory Element of the CE
5. Proposed Rule 2.1210, Commentary answers to the examinations is requirements so that they can keep their
.04—Rules of Conduct for Taking prohibited and would be deemed a knowledge of the securities industry
Examinations and Confidentiality of violation of Rule 11.3.1. current. Therefore, the Exchange
Examinations 26 proposes to adopt Rule 2.1210,
6. Proposed Rule 2.1210, Commentary Commentary .06, to clarify that all
Proposed Rule 2.1210, Commentary .05—Waiting Periods for Retaking a
.04 states that associated persons taking Registered Persons, including those who
Failed Examination 27 solely maintain a permissive
the SIE would be subject to the SIE
Rules of Conduct, and associated Proposed Rule 2.1210, Commentary
28 The proposed rule is substantially similar to
persons taking a representative or .05 provides that any person who fails
FINRA Rule 1210.07.
principal examination would be subject a qualification examination may retake 29 See Rule 2.2(e)(1).
to the Rules of Conduct for that examination after 30 calendar days 30 See Rule 2.2(e)(2).
representative and principal from the date of the person’s last 31 Pursuant to Rule 2.2(e)(1), each specified
examinations. Pursuant to proposed attempt to pass that examination. The Registered Person is required to complete the
proposed rule further provides that if a Regulatory Element initially within 120 days after
Rule 2.1210, Commentary .04, a the person’s second registration anniversary date
violation of the SIE Rules of Conduct or person fails an examination three or and, thereafter, within 120 days after every third
the Rules of Conduct for representative more times in succession within a two- registration anniversary date. A Registered Person
and principal examinations by an year period, he or she would be who has not completed the Regulatory Element
prohibited from retaking the program within the prescribed time frames will
associated person would be deemed to have his or her registrations deemed inactive and
be a violation of Rule 11.3.1. Moreover, examination either until a period of 180 designated as ‘‘CE inactive’’ on the CRD system
if an associated person is deemed to calendar days from the date of the until such time as the requirements of the program
person’s last attempt to pass it [sic]. have been satisfied. A CE inactive person is
prohibited from performing, or being compensated
These waiting periods would apply to
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25 The Exchange notes that qualifying as a
for, any activities requiring registration, including
registered representative is a prerequisite to the SIE and the representative- and supervision. Moreover, if a Registered Person is CE
qualifying as a principal except with respect to the principal-level examinations. Moreover, inactive for a two-year period, the Exchange will
following principal-level registrations: (1) administratively terminate the person’s registration
Compliance Official; (2) Financial and Operations
the proposed rule provides that non-
status. The two-year period would be calculated
Principal; and (3) Introducing Broker-Dealer associated persons taking the SIE must from the date the person becomes CE inactive. In
Financial and Operations Principal. either case, such person must requalify (or obtain
26 The proposed rule is substantially similar to 27 The proposed rule is substantially similar to a waiver of the applicable qualification
FINRA Rule 1210.05. FINRA Rule 1210.06. examination(s)) to be re-eligible for registration.
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![Federal Register / Vol. 83, No. 196 / Wednesday, October 10, 2018 / Notices 51035
registration, are required to satisfy the the SIE. However, the four-year date of initial designation,35 provided
Regulatory Element, as specified in Rule expiration period in the proposed rule that the other conditions of the waiver,
2.2(e)(1). The Exchange is making change extends only to the SIE, and not as described below, have been satisfied.
corresponding changes to Rule 2.2(e)(1). the representative- and principal-level Consequently, an ETP Holder other than
The Exchange is not proposing any registrations. The representative- and the ETP Holder that initially designated
changes to the Firm Element principal-level registrations would an individual as an FSA-eligible person
requirement at this time. Individuals continue to be subject to a two-year may request a waiver for the individual
who have passed the SIE but not a expiration period as is the case today. and more than one ETP Holder may
representative- or principal-level Finally, proposed Rule 2.1210, request a waiver for the individual
examination and do not hold a Commentary .07, clarifies that, for during the seven-year period.36
registered position would not be subject purposes of the proposed rule, an An individual designated as an FSA-
to any CE requirements. application would not be considered to eligible person would be subject to the
Proposed Rule 2.1210, Commentary have been received by the Exchange if Regulatory Element of CE while working
.06, also provides that a Registered that application does not result in a for a financial services industry affiliate
Person of an ETP Holder who becomes registration. of an ETP Holder. The individual would
CE inactive would not be permitted to be subject to a Regulatory Element
9. Proposed Rule 2.1210, Commentary
be registered in another registration program that correlates to his or her
.08—Waiver of Examinations for
category with the ETP Holder or be most recent registration category, and
Individuals Working for a Financial
registered in any registration category CE would be based on the same cycle
Services Industry Affiliate of an ETP
with another ETP Holder, until the had the individual remained registered.
Holder 33
person has satisfied the Regulatory If the individual fails to complete the
Element. Proposed Rule 2.1210, Commentary
.08, provides the process for individuals prescribed Regulatory Element during
8. Proposed Rule 2.1210, Commentary working for a financial services industry the 120-day window for taking the
.07—Lapse of Registration and affiliate of an ETP Holder 34 to terminate session, he or she would lose FSA
Expiration of the SIE 32 their registrations with the ETP Holder eligibility (i.e., the individual would
Proposed Rule 2.1210, Commentary and be granted a waiver of their have the standard two-year period after
.07, provides that any person who was requalification requirements upon re- termination to re-register without
last registered as a representative two or registering with an ETP Holder, having to retake an examination). The
more years immediately preceding the provided the firm that is requesting the Exchange is making corresponding
date of receipt by the Exchange of a new waiver and the individual satisfy the changes to Rule 2.2(e).
application for registration as a criteria for a Financial Services Affiliate Upon registering an FSA-eligible
representative is required to pass a (‘‘FSA’’) waiver. person, a firm would file a Form U4 and
qualification examination for Under the proposed waiver process, request the appropriate registration(s)
representatives appropriate to the the first time a Registered Person is for the individual. The firm would also
category of registration as specified in designated as eligible for a waiver based submit an examination waiver request
proposed Rule 2.1220(b). Proposed Rule on the FSA criteria, the ETP Holder
2.1210, Commentary .07, also sets forth with which the individual is registered 35 Individuals would be eligible for a single, fixed
would notify the Exchange of the FSA seven-year period from the date of initial
that a passing result on the SIE would designation, and the period would not be tolled or
be valid for up to four years. Therefore, designation. The ETP Holder would renewed.
under the proposed rule change, an concurrently file a full Form U5 36 The following examples illustrate this point:
individual who passes the SIE and is an terminating the individual’s registration Example 1. Firm A designates an individual as an
associated person of an ETP Holder at with the firm, which would also FSA-eligible person by notifying the Exchange and
terminate the individual’s other SRO files a Form U5. The individual joins Firm A’s
the time would have up to four years financial services affiliate. Firm A does not submit
from the date he or she passes the SIE and state registrations. To be eligible for a waiver request for the individual. After working
to pass a representative-level initial designation as an FSA-eligible for Firm A’s financial services affiliate for three
examination to register as a person by an ETP Holder, an individual years, the individual directly joins Firm B’s
representative with that ETP Holder, or must have been registered for a total of financial services affiliate for three years. Firm B
five years within the most recent 10- then submits a waiver request to register the
a subsequent ETP Holder, without individual.
having to retake the SIE. In addition, an year period prior to the designation, Example 2. Same as Example 1, but the
individual who passes the SIE and is including for the most recent year with individual directly joins Firm B after working for
not an associated person at the time that ETP Holder. An individual would Firm A’s financial services affiliate, and Firm B
have to satisfy these preconditions only submits a waiver request to register the individual
would have up to four years from the at that point in time.
date he or she passes the SIE to become for purposes of his or her initial
Example 3. Firm A designates an individual as an
an associated person of an ETP Holder designation as an FSA-eligible person, FSA-eligible person by notifying the Exchange and
and pass a representative-level and not for any subsequent FSA files a Form U5. The individual joins Firm A’s
examination and register as a designation(s). Thereafter, the financial services affiliate for three years. Firm A
individual would be eligible for a then submits a waiver request to re-register the
representative without having to retake individual. After working for Firm A in a registered
the SIE. waiver for up to seven years from the capacity for six months, Firm A re-designates the
Moreover, an individual holding a individual as an FSA-eligible person by notifying
33 The proposed rule is substantially similar to the Exchange and files a Form U5. The individual
representative-level registration who FINRA Rule 1210.09. rejoins Firm A’s financial services affiliate for two
leaves the industry after the effective
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34 Proposed Rule 2.1210, Commentary .07 [sic], years, after which the individual directly joins Firm
date of this proposed rule change would defines a ‘‘financial services industry affiliate of an B’s financial services affiliate for one year. Firm B
have up to four years to re-associate ETP Holder’’ as a legal entity that controls, is then submits a waiver request to register the
controlled by or is under common control with an individual.
with an ETP Holder and register as a
ETP Holder and is regulated by the SEC, CFTC, Example 4. Same as Example 3, but the
representative without having to retake state securities authorities, federal or state banking individual directly joins Firm B after the second
authorities, state insurance authorities, or period of working for Firm A’s financial services
32 The proposed rule is substantially similar to substantially equivalent foreign regulatory affiliate, and Firm B submits a waiver request to
FINRA Rule 1210.08. authorities. register the individual at that point in time.
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qualification examination in lieu of following qualification requirements for than an ETP Holder that is subject to the
passing the General Securities Principal Compliance Officer registration: net capital requirements of SEA Rules
examination. • Subject to the lapse of registration 15c3–1(a)(1)(ii), (a)(2)(i) or (a)(8), must
As a general matter, the Exchange provisions in proposed Rule 2.1210, be designated and registered as either a
currently recognizes the Corporate Commentary .07, each person registered Financial and Operations Principal or
Securities Representative but would no with the Exchange as a General an Introducing Broker-Dealer Financial
longer recognize this registration Securities Representative and a General and Operations Principal. Financial and
category given its elimination by Securities Principal on October 1, 2018 Operations Principals and Introducing
FINRA. Proposed Rule 2.1220(a)(2)(B), and each person who was registered Broker-Dealer Financial and Operation
however, provides that, subject to the with the Exchange as a General Principals are not subject to a
lapse of registration provisions in Securities Representative and a General prerequisite representative registration,
proposed Rule 2.1210, Commentary .07, Securities Principal within two years but they must pass the Financial and
each person registered with the prior to October 1, 2018 would be Operations Principal or Introducing
Exchange as a Corporate Securities qualified to register as Compliance Broker-Dealer Financial and Operations
Representative and a General Securities Officers without having to take any Principal examination, as applicable.
Principal on October 1, 2018 and each additional examinations. In addition,
person who was registered with the Additionally, proposed Rule
subject to the lapse of registration
Exchange as a Corporate Securities 2.1220(a)(4)(B) requires an ETP Holder
provisions in proposed Rule 2.1210,
Representative and a General Securities to designate a Principal Financial
Commentary .07, individuals registered
Principal within two years prior to Officer with primary responsibility for
as Compliance Officials in the CRD
October 1, 2018 would be qualified to the day-to-day operations of the
system on October 1, 2018 and
register as a General Securities Principal business, including overseeing the
individuals who were registered as such
without having to take any additional receipt and delivery of securities and
within two years prior to October 1,
qualification examinations, provided funds, safeguarding customer and firm
2018 would also be qualified to register
that such person’s supervisory assets, calculation and collection of
as Compliance Officers without having
responsibilities in the investment margin from customers and processing
to take any additional examinations;
banking and securities business of an dividend receivable and payables and
[sic]
ETP Holder are limited to corporate • All other individuals registering as reorganization redemptions and those
securities activities of the ETP Holder. Compliance Officers after October 1, books and records related to such
The proposed rule further provides that 2018 would have to: (1) Satisfy the activities. Further, the proposed rule
all other individuals registering as General Securities Representative requires that a firm’s Principal Financial
General Securities Principals after prerequisite registration and pass the Officer and Principal Operations Officer
October 1, 2018 shall, prior to or General Securities Principal qualify and register as Financial and
concurrent with such registration, qualification examination; or (2) pass Operations Principals or Introducing
become registered as a General the Compliance Official qualification Broker-Dealer Financial and Operations
Securities Representative and either (1) examination. Principals, as applicable.
pass the General Securities Principal • An individual designated as a CCO Because the financial and operational
qualification examination; or (2) register on Schedule A of Form BD of an ETP activities of ETP Holders that neither
as a General Securities Sales Supervisor Holder that is engaged in limited self-clear nor provide clearing services
and pass the General Securities Sales investment banking or securities are more limited, such ETP Holders may
Supervisor qualification examination. business may be registered in a designate the same person as the
principal category under proposed Rule Principal Financial Officer, Principal
3. Proposed Rule 2.1220(a)(3)— 2.1220(a) that corresponds to the limited Operations Officer and Financial and
Compliance Officer 42 scope of the ETP Holder’s business. Operations Principal or Introducing
Proposed Rule 2.1220(a)(3) establishes Broker-Dealer Financial and Operations
a Compliance Officer registration 4. Proposed Rule 2.1220(a)(4)—
Financial and Operation Principal and Principal (that is, such ETP Holders are
category and requires all persons not required to designate different
designated as CCOs on Schedule A of Introducing Broker-Dealer Financial and
Operations Principal 43 persons to function in these capacities).
Form BD to register as Compliance
Given the level of financial and
Officers, subject to an exception for ETP Proposed Rule 2.1220(a)(4) provides
operational responsibility at clearing
Holders engaged in limited investment that each principal who is responsible
and self-clearing members, the
banking or securities business. The for the financial and operational
Exchange believes that it is necessary
proposed rule only addresses the management of an ETP Holder that has
for such ETP Holders to designate
registration requirements for CCOs. a minimum net capital requirement of
separate persons to function as Principal
However, consistent with proposed Rule $250,000 under SEA Rules 15c3–
Financial Officer and Principal
2.1210, Commentary .01 relating to 1(a)(1)(ii) and 15c3–1(a)(2)(i), or an ETP
Operations Officer. Such persons may
permissive registrations, a firm may Holder that has a minimum net capital
also carry out the other responsibilities
allow other associated persons to requirement of $150,000 under SEA
of a Financial and Operations Principal,
register as Compliance Officers. Rule 15c–3–1(a)(8) must be designated
such as supervision of individuals
In addition, the Exchange is as a Financial and Operations Principal.
engaged in financial and operational
proposing to provide CCOs of firms that In addition, proposed Rule 2.1220(a)(4)
activities. In addition, the proposed rule
engage in limited investment banking or provides that a principal who is
amozie on DSK3GDR082PROD with NOTICES1
provides that a clearing or self-clearing
securities business with greater responsible for the financial and
ETP Holder that is limited in size and
flexibility to satisfy the qualification operational management of an ETP
resources may request a waiver of the
requirements for CCOs. Specifically, Holder that is subject to the net capital
requirement to designate separate
proposed Rule 2.1220(a)(3) set forth the requirements of SEA Rule 15c3–1, other
persons to function as Principal
42 The proposed rule is substantially similar to 43 The proposed rule is substantially similar to Financial Officer and Principal
FINRA Rule 1220(a)(3). FINRA Rule 1220(a)(4). Operations Officer.
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![Federal Register / Vol. 83, No. 196 / Wednesday, October 10, 2018 / Notices 51039
registered in such categories qualifying as General Securities Sales customer to confirm the order details
subsequently terminate such Supervisors. before entering the order [sic]
registration(s) with the Exchange and The proposed rule further provides
the registration remains terminated for that any person required to be registered 2. Statutory Basis
two or more years, they would not be as a principal who supervises sales The proposed rule change is
eligible to re-register in such categories. activities in corporate, municipal and consistent with Section 6(b) of the
11. Proposed Rule 2.1220, Commentary option securities, investment company Securities Exchange Act of 1934 (the
.02—Additional Qualification products, variable contracts, and ‘‘Act’’),58 in general, and furthers the
Requirements for Persons Engaged in security futures (subject to the
objectives of Section 6(b)(5),59 in
Security Futures 52 requirements of Rule 2.1220,
particular, because it is designed to
Commentary .02) may be registered
Proposed Rule 2.1220, Commentary prevent fraudulent and manipulative
solely as a General Securities Sales
.02, states that each person who is Supervisor. In addition to branch office acts and practices, to promote just and
registered with the Exchange as a managers, other persons such as equitable principles of trade, to foster
General Securities Representative, regional and national sales managers cooperation and coordination with
United Kingdom Securities may also be registered solely as General persons engaged in facilitating
Representative, Canada Securities Securities Sales Supervisors as long as transactions in securities, to remove
Representative, or General Securities they supervise only sales activities. impediments to, and perfect the
Sales Supervisor shall be eligible to mechanism of, a free and open market
engage in security futures activities as a K. Proposed New Rule 2.1230— and a national market system and, in
representative or principal, as Associated Persons Exempt From general, to protect investors and the
applicable, provided that such Registration 55 public interest.
individual completes a Firm Element Proposed Rule 2.1230 provides an
program as set forth in Rule 2.2(e)(2) The Exchange believes that the
exemption from registration with the proposed rule change will streamline,
that addresses security futures products Exchange for certain associated persons.
before such person engages in security and bring consistency and uniformity
Specifically, the proposed rule provides to, the registration rules, which will, in
futures activities.53 that persons associated with an ETP
turn, assist ETP Holders and their
12. Proposed Rule 2.1220, Commentary Holder whose functions are solely and
associated persons in complying with
.03—Scope of General Securities Sales exclusively clerical or ministerial would
be exempt from registration.56 these rules and improve regulatory
Supervisor Registration Category 54
efficiency. The proposed rule change
Proposed Rule 2.1220, Commentary 1. Proposed Rule 2.1230, Commentary will also improve the efficiency of the
.03, explains the purpose of the General .01—Registration Requirements for examination program, without
Securities Sales Supervisor registration Associated Persons Who Accept compromising the qualification
category. The General Securities Sales Customer Orders 57 standards. In addition, the proposed
Supervisor category is an alternate
Proposed Rule 2.1230, Commentary rule change will expand the scope of
category of registration designed to
.01, clarifies that the function of permissive registrations, which, among
lessen the qualification burdens on
principals of general securities firms accepting customer orders is not other things, will allow ETP Holders to
who supervise sales. Without this considered clerical or ministerial and develop a depth of associated persons
category of limited registration, such that associated persons who accept with registrations to respond to
principals would be required to customer orders under any unanticipated personnel changes and
separately qualify pursuant to the rules circumstances are required to be will encourage greater regulatory
of FINRA, the MSRB, the NYSE and the appropriately registered. However, the understanding. Further, the proposed
options exchanges. While persons may proposed rule provides that an rule change will provide a more
continue to separately qualify with all associated person is not accepting a streamlined and effective waiver
relevant self-regulatory organizations, customer order where occasionally, process for individuals working for a
the General Securities Sales Supervisor when an appropriately Registered financial services industry affiliate of an
examination permits qualification as a Person is unavailable, the associated ETP Holder, and it will require such
supervisor of sales of all securities person transcribes the order details and individuals to maintain specified levels
through one registration category. the Registered Person contacts the of competence and knowledge while
Persons registered as General Securities working in areas ancillary to the
55 The proposed rule is substantially similar to
Sales Supervisors may also qualify in investment banking and securities
FINRA Rule 1230.
any other category of principal 56 FINRA Rule 1230 provides an exemption from business.
registration. Persons who are already registration with FINRA to persons associated with Finally, the Exchange believes that,
qualified in one or more categories of a FINRA member whose functions are solely and
principal registration may supervise exclusively clerical or ministerial and persons with the introduction of the SIE and
sales activities of all securities by also associated with a FINRA member whose functions expansion of the pool of individuals
are related solely and exclusively to (i) effecting who are eligible to take the SIE, the
transactions on the floor of a national securities
52 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 of enhancing the pool of prospective
53 FINRA Rule 1220.02 also includes Options 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 National does not security futures, provided that any such person is
introducing them to securities laws,
trade options and ETP Holders of NYSE National registered with a registered futures association. ETP rules and regulations and appropriate
therefore would not be required to register with the Holders of NYSE National do not solely and conduct before they join the industry in
Exchange in those categories and therefore the exclusively engage in any of the foregoing a registered capacity.
Exchange is not adopting those categories within transactions and therefore the Exchange is not
proposed Rule 2.1220, Commentary .03 [sic]. adopting that portion of FINRA Rule 1230.
54 The proposed rule is substantially similar to 57 The proposed rule is substantially similar to 58 15 U.S.C. 78f(b).
FINRA Rule 1220.04. FINRA Rule 1230.01. 59 15 U.S.C. 78f(b)(5).
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![51040 Federal Register / Vol. 83, No. 196 / Wednesday, October 10, 2018 / Notices
B. Self-Regulatory Organization’s October 1, 2018 to coincide with the submission, all subsequent
Statement on Burden on Competition effective date of FINRA’s proposed rule amendments, all written statements
The Exchange does not believe that change on which the proposal is with respect to the proposed rule
the proposed rule change will impose based.61 The waiver of the operative change that are filed with the
any burden on competition that is not delay would make the Exchange’s Commission, and all written
necessary or appropriate in furtherance qualification requirements consistent communications relating to the
of the purposes of the Act. The with those of FINRA, as of October 1, proposed rule change between the
proposed amendments are intended to 2018. Therefore, the Commission Commission and any person, other than
promote transparency in the Exchange’s believes that the waiver of the 30-day those that may be withheld from the
rules, and consistency with the rules of operative delay is consistent with the public in accordance with the
other SROs with respect to the protection of investors and the public provisions of 5 U.S.C. 552, will be
examination, qualification, and interest and hereby waives the 30-day available for website viewing and
continuing education requirements operative delay and designates the printing in the Commission’s Public
applicable to ETP Holders and their proposal operative on October 1, 2018.62 Reference Room, 100 F Street NE,
registered personnel. The Exchange At any time within 60 days of the Washington, DC 20549, on official
believes that in that regard that any filing of the proposed rule change, the business days between the hours of
burden on competition would be clearly Commission summarily may 10:00 a.m. and 3:00 p.m. Copies of the
outweighed by the important regulatory temporarily suspend such rule change if filing also will be available for
goal of ensuring clear and consistent it appears to the Commission that such inspection and copying at the principal
requirements applicable across SROs, action is necessary or appropriate in the office of the Exchange. All comments
avoiding duplication, and mitigating public interest, for the protection of received will be posted without change.
any risk of SROs implementing different investors, or otherwise in furtherance of Persons submitting comments are
standards in these important areas. the purposes of the Act. If the cautioned that we do not redact or edit
Further, the Exchange does not Commission takes such action, the personal identifying information from
believe that the proposed amendments Commission shall institute proceedings comment submissions. You should
will affect competition among securities under Section 19(b)(2)(B) 63 of the Act to submit only information that you wish
markets since all SROs are expected to determine whether the proposed rule to make available publicly. All
adopt similar rules with uniform change should be approved or submissions should refer to File
standards for qualification, registration disapproved. Number SR–NYSENAT–2018–21 and
and continuing education requirements. IV. Solicitation of Comments should be submitted on or before
October 31, 2018.
C. Self-Regulatory Organization’s Interested persons are invited to
Statement on Comments on the For the Commission, by the Division of
submit written data, views, and
Proposed Rule Change Received From Trading and Markets, pursuant to delegated
arguments concerning the foregoing, authority.64
Members, Participants, or Others including whether the proposed rule
Eduardo A. Aleman,
No written comments were solicited change is consistent with the Act.
Assistant Secretary.
or received with respect to the proposed Comments may be submitted by any of
rule change. the following methods: [FR Doc. 2018–21903 Filed 10–9–18; 8:45 am]
BILLING CODE 8011–01–P
III. Date of Effectiveness of the Electronic comments
Proposed Rule Change and Timing for • Use the Commission’s internet
Commission Action comment form (http://www.sec.gov/ SMALL BUSINESS ADMINISTRATION
Because the proposed rule change rules/sro.shtml); or
does not: (i) Significantly affect the • Send an email to rule-comments@ Reporting and Recordkeeping
protection of investors or the public sec.gov. Please include File Number SR– Requirements Under OMB Review
interest; (ii) impose any significant NYSENAT–2018–21 on the subject line.
AGENCY: Small Business Administration.
burden on competition; and (iii) become
Paper comments ACTION: 30-Day notice.
operative prior to 30 days from the date
on which it was filed, or such shorter • Send paper comments in triplicate
SUMMARY: The Small Business
time as the Commission may designate, to Secretary, Securities and Exchange
Administration (SBA) is publishing this
if consistent with the protection of Commission, 100 F Street NE,
notice to comply with requirements of
investors and the public interest, the Washington, DC 20549–1090.
All submissions should refer to File the Paperwork Reduction Act (PRA)
proposed rule change has become
Number SR–NYSENAT–2018–21. This which requires agencies to submit
effective pursuant to Section 19(b)(3)(A)
file number should be included on the proposed reporting and recordkeeping
of the Act and Rule 19b–4(f)(6)
subject line if email is used. To help the requirements to OMB for review and
thereunder.
A proposed rule change filed under Commission process and review your approval, and to publish a notice in the
Rule 19b–4(f)(6) normally does not comments more efficiently, please use Federal Register notifying the public of
become operative for 30 days from the only one method. The Commission will that submission.
date of filing. However, Rule 19b– post all comments on the Commission’s DATES: Submit comments on or before
4(f)(6)(iii) 60 permits the Commission to internet website (http://www.sec.gov/ November 9, 2018.
designate a shorter time if such action rules/sro.shtml). Copies of the ADDRESSES: Comments should refer to
amozie on DSK3GDR082PROD with NOTICES1
is consistent with the protection of the information collection by name and/
investors and the public interest. The 61 See supra note 5. or OMB Control Number and should be
62 For purposes only of waiving the 30-day
Exchange has asked the Commission to sent to: Agency Clearance Officer, Curtis
operative delay, the Commission has also
waive the 30-day operative delay so that considered the proposed rule’s impact on
Rich, Small Business Administration,
the proposal may become operative on efficiency, competition, and capital formation. See 409 3rd Street SW, 5th Floor,
15 U.S.C. 78c(f).
60 17 CFR 240.19b–4(f)(6)(iii). 63 15 U.S.C. 78s(b)(2)(B). 64 17 CFR 200.30–3(a)(12).
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Document Created: 2018-10-10 17:37:57
Document Modified: 2018-10-10 17:37:57
| 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 51030 |
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