83_FR_52187 83 FR 51988 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend, Reorganize and Enhance Its Membership, Registration and Qualification Rules

83 FR 51988 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend, Reorganize and Enhance Its Membership, Registration and Qualification Rules

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 199 (October 15, 2018)

Page Range51988-52005
FR Document2018-22295

Federal Register, Volume 83 Issue 199 (Monday, October 15, 2018)
[Federal Register Volume 83, Number 199 (Monday, October 15, 2018)]
[Notices]
[Pages 51988-52005]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-22295]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84386; File No. SR-NASDAQ-2018-078]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend, Reorganize and Enhance Its Membership, Registration and 
Qualification Rules

October 9, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 27, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II, below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend, reorganize and enhance its 
membership, registration and qualification rules, and to make 
conforming changes to certain other rules.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
Overview
    Nasdaq has adopted registration requirements to ensure that 
associated persons attain and maintain specified levels of competence 
and knowledge pertinent to their function. In general, the current 
rules require that persons engaged in a member's investment banking or 
securities business who are to function as representatives or 
principals register with the Exchange in each category of registration 
appropriate to their functions by passing one or more qualification 
examinations,\3\ and exempt specified associated persons from the 
registration requirements.\4\ They also prescribe ongoing continuing 
education requirements for registered persons.\5\ The Exchange now 
proposes to amend, reorganize and enhance its rules regarding 
registration, qualification examinations and continuing education, as 
described below.
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    \3\ See, e.g., Exchange Rules 1021, Registration Requirements, 
1022, Categories of Principal Registration, 1031, Registration 
Requirements, 1032, Categories of Representative Registration, and 
1041, Registration Requirements for Assistant Representatives.
    \4\ See Rule 1060, Persons Exempt from Registration.
    \5\ See Rule 1120, Continuing Education Requirements.
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    In 2006 Nasdaq separated from the National Association of 
Securities Dealers, Inc. (formerly ``NASD'' and now the Financial 
Industry Regulatory Authority or ``FINRA'') and began to operate as a 
national securities exchange. At that time it adopted a rulebook with 
provisions respecting registration, qualification examinations and 
continuing education that were designed to parallel the NASD rulebook 
in many respects.\6\ Recently, the Commission approved a FINRA proposed 
rule change consolidating and adopting NASD and Incorporated NYSE rules 
relating to qualification and registration requirements into the 
Consolidated FINRA Rulebook,\7\ restructuring the FINRA representative-
level qualification examinations, creating a general knowledge 
examination and specialized knowledge examinations, allowing permissive 
registration, establishing an examination waiver process for persons 
working for a financial services affiliate of a member, and amending 
certain continuing education (``CE'') requirements (collectively, the 
``FINRA Rule Changes'').\8\ The FINRA Rule Changes will become 
effective on October 1, 2018.
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    \6\ See Securities Exchange Act Release No. 54136 (July 12, 
2006), 71 FR 40759 (July 18, 2006).
    \7\ The current FINRA rulebook consists of: (1) FINRA rules; (2) 
NASD rules; and (3) rules incorporated from the New York Stock 
Exchange (``NYSE'') (the ``Incorporated NYSE rules''). While the 
NASD rules generally apply to all FINRA members, the Incorporated 
NYSE rules apply only to those members of FINRA that are also 
members of the NYSE.
    \8\ See Securities Exchange Act Release No. 81098 (July 7, 
2017), 82 FR 32419 (July 13, 2017) (Order Approving File No. SR-
FINRA-2017-007). See also FINRA Regulatory Notice 17-30 (SEC 
Approves Consolidated FINRA Registration Rules, Restructured 
Representative-Level Qualification Examinations and Changes to 
Continuing Education Requirements) (October 2017). FINRA articulated 
its belief that the proposed rule change would streamline, and bring 
consistency and uniformity to, its registration rules, which would, 
in turn, assist FINRA members and their associated persons in 
complying with the rules and improve regulatory efficiency. FINRA 
also determined to enhance the overall efficiency of its 
representative-level examinations program by eliminating redundancy 
of subject matter content across examinations, retiring several 
outdated representative-level registrations, and introducing a 
general knowledge examination that could be taken by all potential 
representative-level registrants and the general public. FINRA 
amended certain aspects of its continuing education rule, including 
by codifying existing guidance regarding the effect of failing to 
complete the Regulatory Element on a registered person's activities 
and compensation.
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    The Exchange now proposes to amend, reorganize and enhance certain 
of its corresponding membership, registration and qualification 
requirements rules in part in response to the FINRA Rule Changes, and 
also in order to facilitate the adoption of similar membership, 
registration and qualification rules by Nasdaq's affiliated exchanges 
in the interest of uniformity and to facilitate compliance with 
membership, registration and qualification regulatory requirements by 
members of multiple Nasdaq-affiliated exchanges. At the same time, the 
Exchange is proposing to further amend or delete certain existing 
Exchange rules originally based upon FINRA rules but

[[Page 51989]]

which are no longer appropriate for the business conducted by Nasdaq or 
its affiliated exchanges.\9\ Last, the Exchange proposes to enhance its 
registration rules by adding a new registration requirement applicable 
to developers of algorithmic trading systems similar to a requirement 
adopted by FINRA pursuant to a 2016 FINRA proposed rule change.\10\
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    \9\ For example, the Exchange is deleting the Limited 
Principal--Investment Company and Variable Contracts Products 
(current Nasdaq Rule 1022(d)), Limited Representative--Investment 
Company and Variable Contracts Products (current Nasdaq Rule 
1032(b)) and Introducing Broker/Dealer Financial and Operations 
Principal (current Nasdaq Rule 1022(c)) registration categories from 
the array of registration categories recognized by the Exchange. 
Although FINRA is retaining these registration categories for its 
own purposes, the activities permitted by registration in those 
categories have little or no practical relevance to the Exchange.
    \10\ See Securities Exchange Act Release No. 77551 (April 7, 
2016), 81 FR 21914 (April 13, 2016) (Order Approving File No. SR-
FINRA-2016-007). In its proposed rule change FINRA addressed the 
increasing significance of algorithmic trading strategies by 
amending its rules to require registration, as Securities Traders, 
of associated persons primarily responsible for the design, 
development or significant modification of algorithmic trading 
strategies, or who are responsible for the day-to-day supervision or 
direction of such activities.
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    As part of this proposed rule change, current IM-1002-2, Status of 
Persons Serving in the Armed Forces of the United States; IM-1002-3, 
Failure to Register Personnel; 1020, Registration of Principals; 1021, 
Registration Requirements; 1022, Categories of Principal Registration; 
IM-1022-1, Reserved; IM-1022-2, Limited Principal-General Securities 
Sales Supervisor; 1030, Registration of Representatives; 1031, 
Registration Requirements, Sections (a)-(e); 1032, Categories of 
Representative Registration; 1040, Registration of Assistant 
Representatives; 1041, Registration Requirements for Assistant 
Representatives; 1042, Restrictions for Assistant Representatives; 
1043, Reserved; 1060, Persons Exempt from Registration \11\; 1070, 
Qualification Examinations and Waiver of Requirements; 1080, 
Confidentiality of Examinations; 1100, Reserved; 1110, Reserved; 1120, 
Continuing Education Requirements; and Chapter II, Section 2, 
Requirements for Options Participation, Subsections (g) and (h) and 
Commentary .01, are proposed to be deleted. Rule 1140, Electronic 
Filing Requirements for Uniform Forms, is proposed to be amended and 
relocated. A number of other rules are proposed to be amended with 
conforming changes, or relocated in view of the foregoing 
amendments.\12\
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    \11\ Provisions currently found in Rule 1060(b) are being 
amended and relocated to new Rule 2040, as discussed below.
    \12\ Conforming amendments are proposed to Rules 0120, 
Definitions; 1050, Research Analysts; 3010, Supervision; 7003, 
Registration and Processing Fees; IM-9216, Violations Appropriate 
for Disposition Under Plan Pursuant to SEC Rule 19d-1(c)(2); and 
9630, Appeal. In the Exchange's Options Rules, amendments are 
proposed to Chapter XI, Section 2, Registration of Options 
Principals and Section 3, Registration of Representatives.
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    In place of the deleted rules and rule sections, the Exchange 
proposes to adopt a new 1200 Series of rules captioned Registration, 
Qualification and Continuing Education, generally conforming to and 
based upon FINRA's new 1200 Series of rules resulting from the FINRA 
Rule Changes, but with a number of Exchange-specific variations.\13\ 
The proposed new 1200 Series is also being proposed for adoption by 
Nasdaq's affiliated exchanges in order to facilitate compliance with 
membership, registration and qualification regulatory requirements by 
members of two or more of those affiliated exchanges.\14\ In the new 
1200 Series the Exchange would, among other things, recognize 
additional associated person registration categories, recognize a new 
general knowledge examination, permit the maintenance of permissive 
registrations, and require Securities Trader registration of developers 
of algorithmic trading strategies consistent with a comparable existing 
FINRA registration requirement.\15\
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    \13\ The proposed 1200 Series of Rules would consist of Rule 
1210, Registration Requirements; Rule 1220, Registration Categories; 
Rule 1230, Associated Persons Exempt from Registration; Rule 1240, 
Continuing Education Requirements; and Rule 1250, Electronic Filing 
Requirements for Uniform Forms.
    \14\ The Exchange's five affiliated exchanges, Nasdaq BX, Inc. 
(``BX''), Nasdaq PHLX LLC (``PHLX''), Nasdaq ISE, LLC (``ISE''), 
Nasdaq GEMX, LLC (``GEMX''), and Nasdaq MRX, LLC (``MRX'') (together 
with Nasdaq, the ``Nasdaq Affiliated Exchanges'') are also 
submitting proposed rule changes to adopt the 1200 Series of rules. 
See SR-BX-2018-047, SR-Phlx-2018-61, SR-ISE-2018-82, SR-GEMX-2018-
33, and SR-MRX-2018-31. The Exchange recently added a shell 
structure to its rulebook with the purpose of improving efficiency 
and readability and to align its rules more closely to those of the 
other Nasdaq Affiliated Exchanges. See Securities Exchange Act 
Release No. 82175 (November 29, 2017), 82 FR 57494 (December 5, 
2017) (SR-NASDAQ-2017-125). Ultimately, the Exchange intends to 
submit another proposed rule change to transfer the 1200 Series of 
rules into the new shell structure. (The Exchange notes that the 
Phlx 1200 Series of rules would differ slightly from the 1200 Series 
of the other Nasdaq Affiliated Exchanges given Phlx's trading floor 
and its unique membership structure which features the concept of a 
``member organization.'').
    \15\ See Securities Exchange Act Release No. 77551 (April 7, 
2016), 81 FR 21914 (April 13, 2016) (order approving SR-FINRA-2016-
007). In its proposed rule change to adopt this registration 
requirement, FINRA addressed the increasing significance of 
algorithmic trading strategies by proposing to require registration, 
as Securities Traders, of associated persons primarily responsible 
for the design, development or significant modification of 
algorithmic trading strategies, or who are responsible for the day-
to-day supervision or direction of such activities.
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    The proposed rule change would become operative October 1, 2018 
with the exception of the new registration requirement for developers 
of algorithmic trading strategies which would become operative on April 
1, 2019.
Proposed Rules
A. Registration Requirements (Proposed Rule 1210)
    Exchange Rules 1021(a) and 1031(a) currently require that persons 
engaged, or to be engaged, in the investment banking or securities 
business of a member who are to function as representatives or 
principals register with the Exchange in the category of registration 
appropriate to their functions as specified in Exchange Rules 1022 and 
1032.\16\ The Exchange is proposing to consolidate and streamline 
provisions of Exchange Rules 1021(a) and 1031(a) and to adopt them as 
Exchange Rule 1210, subject to several changes.\17\
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    \16\ In addition, IM-1002-3 provides that the failure to 
register an individual as a registered representative may be deemed 
to be conduct inconsistent with just and equitable principles of 
trade and may be sufficient cause for appropriate disciplinary 
action. As explained below the Exchange proposes to delete IM-1002-3 
as superfluous.
    \17\ Rule 1031, Registration Requirements, contains certain 
sections that are not affected by this proposed rule change. 
However, due to the overall organizational restructuring of the 
registration rules, those sections (current Rules 1031(c), (d) and 
(e)) are being relocated with non-substantive amendments to new 
Supplementary Material .12, Application for Registration and 
Jurisdiction, to proposed Rule 1210, Registration Requirements. 
These relocated provisions govern the process for applying for 
registration and amending the registration application, as well as 
for notifying the Exchange of termination of a member's association 
with a person registered with the Exchange. The Exchange proposes to 
adopt Rule 1210, Supplemental Material .12, into the 1200 Series in 
order to have uniform processes and requirements in this area across 
the Nasdaq Affiliated Exchanges. This relocated language is unique 
to the Exchange--the FINRA Rule Changes do not contain a counterpart 
Rule 1210 Supplementary Material .12. The Exchange anticipates 
amending Rule 1031(f) in a future proposed rule change.
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    Proposed Rule 1210 provides that each person engaged in the 
securities business of a member must register with the Exchange as a 
representative or principal in each category of registration 
appropriate to his or her functions and responsibilities as specified 
in proposed Rule 1220, unless exempt from registration pursuant to 
proposed Rule 1230. Unlike current Rules 1021(a) and 1031(a), proposed 
Rule 1210 would not

[[Page 51990]]

require persons engaged in the investment banking business of a member 
to register with the Exchange since a member's investment banking 
business is not the primary concern of the Exchange or the focus of its 
operations.\18\ Proposed Exchange Rule 1210 also provides that such 
person is not qualified to function in any registered capacity other 
than that for which the person is registered, unless otherwise stated 
in the rules. This latter provision is a consolidation of similar 
provisions in the registration categories under the current Exchange 
rules.
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    \18\ Miami International Securities Exchange LLC (``MIAX'') Rule 
203(a) and ISE Rule 313(a)(1) likewise require registration of 
associated persons of members engaged in the member's securities 
business, but do not require registration with the exchanges of 
associated persons of members who engage in the member's investment 
banking business. Because the Exchange's proposed registration rules 
focus solely on securities trading activity, the proposed rules 
differ from the FINRA Rule Changes by omitting references to 
investment banking in proposed Rules 1210, 1210.03, 1210.10, 
1220(a)(1), 1220(a)(2)(B), 1220(b), and 1240(b)(1), and also by 
omitting as unnecessary from Rule 1220(a)(10) a limitation on the 
qualification of a General Securities Sales Supervisor to supervise 
the origination and structuring of an underwriting.
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    Further, the Exchange is proposing to delete Exchange IM-1002-3 
because it is superfluous. The failure to register a representative as 
required under current Exchange Rule 1031(a) is in fact a violation of 
Exchange rules.
B. Minimum Number of Registered Principals (Proposed Rule 1210.01)
    Rule 1021(e)(1) currently requires that a member, except a sole 
proprietorship, have a minimum of two registered principals with 
respect to each aspect of the member's investment banking and 
securities business pursuant to the applicable provisions of Rule 1022, 
provided however that a proprietary trading firm with 25 or fewer 
registered representatives shall only be required to have one 
registered principal. This requirement applies to applicants for 
membership and existing members. Exchange Rule 1021(e)(2) also provides 
that, pursuant to the Exchange's Rule 9600 Series, the Exchange may 
waive the principal requirements of Rule 1021(e)(1) in situations that 
indicate conclusively that only one person associated with an applicant 
for membership should be required to register as a principal. Rule 
1021(e)(3) provides that an applicant for membership, if the nature of 
its business so requires, must also have at least one person qualified 
for registration under Rule 1022(b) and (c) as a Financial and 
Operations Principal (or an Introducing Broker/Dealer Financial and 
Operations Principal).\19\
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    \19\ Exchange Rules 1022(b) and (c) as well as other Exchange 
rules currently refer to categories of limited principal 
registration as ``Limited Principal--'' followed by the name of the 
registration category. In this proposed rule change and in the 
proposed rules, the Exchange will no longer employ the term 
``Limited Principal--'' in identifying various principal 
registration categories. No substantive change is intended; 
shortening the names of the various principals simply improves 
readability of the rules.
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    The Exchange is proposing to adopt Rule 1021(e) as Rule 1210.01, 
subject to the following changes. The Exchange proposes to provide 
firms that limit the scope of their business with greater flexibility 
to satisfy the two-principal requirement. In particular, proposed Rule 
1210.01 requires that a member have a minimum of two General Securities 
Principals, provided that a member that is limited in the scope of its 
activities may instead have two officers or partners who are registered 
in a principal category that corresponds to the scope of the member's 
activities.\20\ For instance, if a firm's business is limited to 
securities trading, the firm may have two Securities Trader Principals, 
instead of two General Securities Principals. Currently, a sole 
proprietor member (without any other associated persons) is not subject 
to the two-principal requirement because such member is operating as a 
one-person firm. Given that one-person firms may be organized in legal 
forms other than a sole proprietorship (such as a single-person limited 
liability company), proposed Exchange Rule 1210.01 provides that any 
member with only one associated person is excluded from the two 
principal requirement. In addition, proposed Rule 1210.01 clarifies 
that existing members as well as new applicants may request a waiver of 
the two-principal requirement. Finally, the Exchange is proposing to 
retain the existing rule's provision permitting a proprietary trading 
firm with 25 or fewer registered representatives to have just one 
registered principal. The FINRA Rule Changes do not include this 
provision.\21\
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    \20\ The principal registration categories are described in 
greater detail below.
    \21\ The Exchange is not proposing provisions conforming to the 
new FINRA Rule 1210.01 requirements that all FINRA members are 
required to have a Principal Financial Officer and a Principal 
Operations Officer, because it believes that its proposed Rule 
1220(a)(4), Financial and Operations Principal, which requires 
member firms operating pursuant to certain provisions of SEC rules 
to designate at least one Financial and Operations Principal, is 
sufficient. Further, the Exchange is not adopting the FINRA Rule 
1210.01 requirements that (1) a member engaged in investment banking 
activities have an Investment Banking Principal, (2) a member 
engaged in research activities have a Research Principal, or (3) a 
member engaged in options activities with the public have a 
Registered Options Principal. The Exchange does not recognize the 
Investment Banking Principal or the Research Principal registration 
categories, and the Registered Options Principal registration 
requirement is set forth in Rule 1210.08 and its inclusion is 
therefore unnecessary in Rule 1210.01.
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C. Permissive Registrations (Proposed Rule 1210.02)
    Rules 1021(a) and 1031(a) currently permit a member to register or 
maintain the registration(s) as a representative or principal of an 
individual performing legal, compliance, internal audit, back-office 
operations or similar responsibilities for the member. Rule 1031(a) 
also permits a member to register or maintain the registration as a 
representative of an individual performing administrative support 
functions for registered persons. In addition, Rules 1021(a) and 
1031(a) permit a member to register or maintain the registration(s) as 
a representative or principal of an individual engaged in the 
investment banking or securities business of a foreign securities 
affiliate or subsidiary of the member.
    The Exchange is proposing to consolidate these provisions under 
Rule 1210.02. The Exchange is also proposing to expand the scope of 
permissive registrations and to clarify a member's obligations 
regarding individuals who are maintaining such registrations.
    Specifically, proposed Rule 1210.02 allows any associated person to 
obtain and maintain any registration permitted by the member. For 
instance, an associated person of a member 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 member. As another example, an associated person 
of a member who is registered, and functioning solely, as a General 
Securities Representative would be able to obtain and maintain a 
General Securities Principal registration with the member. Further, 
proposed Rule 1210.02 allows an individual engaged in the securities 
business of a foreign securities affiliate or subsidiary of a member to 
obtain and maintain any registration permitted by the member.
    The Exchange is proposing to permit the registration of such 
individuals for several reasons. First, a member 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

[[Page 51991]]

rule change would allow members to develop a depth of associated 
persons with registrations in the event of unanticipated personnel 
changes. Third, allowing registration in additional categories 
encourages greater regulatory understanding. Finally, the proposed rule 
change would eliminate an inconsistency in the current rules, which 
permit some associated persons of a member to obtain permissive 
registrations, but not others who equally are engaged in the member's 
business.
    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. For 
instance, an individual working solely in an administrative capacity 
would be able to maintain a General Securities Representative 
registration and would be considered a registered person for purposes 
of rules relating to borrowing from or lending to customers, but the 
rule would have no practical application to his or her conduct because 
he or she would not have any customers.
    Consistent with the Exchange's supervision rules, members 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.\22\ 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 nonregistered person. 
Members would be required to assign a registered supervisor to this 
person 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.\23\
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    \22\ The FINRA Proposed Rules at Rule 1210.02 cite FINRA's own 
supervision rule, by number. Because the 1200 Series of rules is 
intended to apply to the Exchange as well as to its affiliates which 
have different supervision rules, proposed Rule 1210.02 refers 
generally to the supervision rules rather than identifying them by 
number.
    \23\ 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.
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D. Qualification Examinations and Waivers of Examinations (Proposed 
Rule 1210.03)
    Rules 1021(a) and 1031(a) currently set forth general requirements 
that an individual pass an appropriate qualification examination before 
his or her registration as a representative or principal can become 
effective. The Exchange is proposing to consolidate these provisions 
and adopt them as Rule 1210.03.
    In addition, as part of the FINRA Rule Changes FINRA has adopted a 
restructured representative-level qualification examination program 
whereby representative-level registrants would be required to take a 
general knowledge examination (the Securities Industry Essentials Exam 
or ``SIE'') and a specialized knowledge examination appropriate to 
their job functions at the firm with which they are associating. 
Therefore, proposed Rule 1210.03 provides that before the registration 
of a person as a representative can become effective under proposed 
Rule 1210, such person must pass the SIE and an appropriate 
representative-level qualification examination as specified in proposed 
Rule 1220. Proposed Rule 1210.03 also provides that before the 
registration of a person as a principal can become effective under 
proposed Rule 1210, such person must pass an appropriate principal-
level qualification examination as specified in proposed Rule 1220.
    Further, proposed 1210.03 provides that if the job functions of a 
registered representative, other than an individual registered as an 
Order Processing Assistant Representative, 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.\24\ Thus under the proposed rule change, 
individuals seeking registration in two or more representative-level 
categories would experience a net decrease in the total number of exam 
questions they would be required to answer because the SIE content 
would be tested only once.
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    \24\ The exception for Order Processing Assistant 
Representatives and Foreign Associates was adopted by FINRA in FINRA 
Rule 1210.03, and is included in proposed Exchange Rule 1210.03 
without the reference to Foreign Associates which is a registration 
category the Nasdaq Affiliated Exchanges do not recognize. FINRA has 
stated that 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. Proposed Rule 1210.03 provides that all 
associated persons, such as associated persons whose functions are 
solely and exclusively clerical or ministerial, are eligible to take 
the SIE. Proposed Rule 1210.03 also provides that individuals who 
are not associated persons of firms, such as members of the general 
public, are eligible to take the SIE. FINRA has stated its belief 
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 proposed Rule 1210.03, passing the SIE alone 
would not qualify them for registration with the Exchange. Rather, 
to be eligible for registration with the Exchange, an individual 
would be required to pass an applicable representative or principal 
qualification examination and complete the other requirements of the 
registration process.
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    The proposed rule change solely impacts the representative-level 
qualification requirements. The proposed rule change does not change 
the scope of the activities under the remaining representative 
categories. For instance, after the operative date of the proposed rule 
change, a previously unregistered individual registering as a 
Securities Trader for the first time would be required to pass the SIE 
and an appropriate specialized knowledge examination. However, such 
individual may engage only in those activities in which a current 
Securities Trader may engage under current Exchange Rules.
    Individuals who are registered on the operative date of the 
proposed rule change would be eligible to maintain those registrations 
without being subject to any additional requirements. Individuals who 
had been registered within the past two years prior to the operative 
date of the proposed rule change would also be eligible to maintain 
those registrations without being subject to any additional 
requirements, provided that they reregister with the Exchange within 
two years from the date of their last registration.
    Further, registered representatives, other than an individual 
registered as an Order Processing Assistant Representative, would be 
considered to have passed the SIE in the CRD system, and thus if they 
wish to register in any other representative category after the 
operative date of the proposed rule change, they could do so by taking 
only the appropriate specialized knowledge examination.\25\ However, 
with respect to

[[Page 51992]]

an individual who is not registered on the operative date of the 
proposed rule change but was registered within the past two years prior 
to the operative date of the proposed rule change, the individual's SIE 
status in the CRD system would be administratively terminated if such 
individual does not register within four years from the date of the 
individual's last registration.\26\
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    \25\ Under the proposed rule change, only individuals who have 
passed an appropriate representative-level examination would be 
considered to have passed the SIE. Registered principals who do not 
hold an appropriate representative-level registration would not be 
considered to have passed the SIE. For example, an individual who is 
registered solely as a Financial and Operations Principal (Series 
27) today would have to take the Series 7 to become registered as a 
General Securities Representative. Under the proposed rule change, 
in the future, this individual would have to pass the SIE and the 
specialized Series 7 examination to obtain registration as a General 
Securities Representative.
    \26\ As discussed below, the Exchange is proposing a four-year 
expiration period for the SIE.
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    In addition, individuals, with the exception of Order Processing 
Assistant Representatives, who had been registered as representatives 
two or more years, but less than four years, prior to the operative 
date of the proposed rule change would also be considered to have 
passed the SIE and designated as such in the CRD system. Moreover, if 
such individuals re-register with a firm after the operative date of 
the proposed rule change and within four years of having been 
previously registered, they would only need to pass the specialized 
knowledge examination associated with that registration position. 
However, if they do not register within four years from the date of 
their last registration, their SIE status in the CRD system would be 
administratively terminated. Similar to the current process for 
registration, firms would continue to use the CRD system to request 
registrations for representatives. An individual would be able to 
schedule both the SIE and specialized knowledge examinations for the 
same day, provided the individual is able to reserve space at one of 
FINRA's designated testing centers.
    Finally, paragraph (d) of Rule 1070 currently permits the Exchange, 
in exceptional cases and where good cause is shown, to waive the 
applicable qualification examination and accept other standards as 
evidence of an applicant's qualifications for registration. The 
Exchange is proposing to transfer the provisions of Rule 1070(d) into 
proposed Rule 1210.03 with changes which track FINRA Rule 1210.03.\27\ 
The proposed rule provides that the Exchange will only consider 
examination waiver requests submitted by a firm for individuals 
associated with the firm who are seeking registration in a 
representative- or principal-level registration category. Moreover, 
proposed Rule 1210.03 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.
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    \27\ Rules 1070(a), (b) and (c) provide general information 
relating to the examination process. The Exchange is proposing to 
delete these provisions given that they relate to the administration 
of the examination program rather than rule requirements.
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E. Requirements for Registered Persons Functioning as Principals for a 
Limited Period (Proposed Rule 1210.04)
    Exchange Rule 1021(d) provides that a person who is currently 
registered with a member as a representative and whose duties are 
changed by the member so as to require registration as a principal may 
function as a principal for up to 90 calendar days before he or she is 
required to pass the appropriate qualification examination for 
principal. In addition, it allows a formerly registered representative 
who is required to register as a principal to function as a principal 
without passing the appropriate principal qualification examination for 
up to 90 calendar days, provided the person first satisfies all 
applicable prerequisite requirements. A person who has never been 
registered does not qualify for this exception. This provision applies 
to a person associated with a member of another registered national 
securities exchange or association who is required to register in a 
principal classification under Nasdaq rules but who is not required to 
be so registered under the rules of the other exchange or association.
    The Exchange is proposing to adopt Rule 1021(d) as Rule 1210.04, 
subject to the following changes. Proposed Rule 1210.04 states that a 
member may designate any person currently registered, or who becomes 
registered, with the member 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 
within the five-year period immediately preceding the designation. This 
change is intended to ensure that representatives designated to 
function as principals for the limited period under the proposed rule 
have an appropriate level of registered representative experience. The 
proposed rule clarifies that the requirements of the rule apply 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.\28\ The 
Exchange is not conserving in Rule 1210.04 the language that this 
provision applies to a person associated with a member of another 
registered national securities exchange or association who is required 
to register in a principal classification under the Nasdaq rules but 
who is not required to be so registered under the rules of the other 
exchange or association. The Exchange believes this language is 
superfluous as the applicability to various individuals of proposed 
Rule 1210.04 speaks for itself and requires no elaboration.\29\ 
Proposed Rule 1210.04 would increase the Rule 1021(d)'s 90 day period 
to 120 days, to provide additional flexibility for representatives 
functioning as principals for a limited period of time.
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    \28\ In this regard, the Exchange notes that qualifying as a 
registered representative is currently a prerequisite to qualifying 
as a principal on the Exchange except with respect to the Financial 
and Operations Principal and the Introducing Broker/Dealer Financial 
and Operations Principal.
    \29\ Proposed Rule 1210.04 omits FINRA Rule 1210.04's reference 
to Foreign Associates, which is a registration category not 
recognized by the Nasdaq Affiliated Exchanges, but otherwise tracks 
the language of FINRA Rule 1210.04.
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F. Rules of Conduct for Taking Examinations and Confidentiality of 
Examinations (Proposed Rule 1210.05)
    Before taking an examination, FINRA currently requires each 
candidate to agree to the Rules of Conduct for taking a qualification 
examination. Among other things, the examination Rules of Conduct 
require each candidate to attest that he or she is in fact the person 
who is taking the examination. These Rules of Conduct also require that 
each candidate agree that the examination content is the intellectual 
property of FINRA and that the content cannot be copied or 
redistributed by any means. If FINRA discovers that a candidate has 
violated the Rules of Conduct for taking a qualification examination, 
the candidate may forfeit the results of the examination and may be 
subject to disciplinary action by FINRA. For instance, for cheating on 
a qualifications examination, FINRA's Sanction Guidelines recommend a 
bar. \30\
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    \30\ See SR-FINRA-2017-007, pp. 26-27.
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    Effective October 1, 2018 FINRA has codified the requirements 
relating to the Rules of Conduct for examinations under FINRA Rule 
1210.05. FINRA also adopted Rules of Conduct for taking the SIE for 
associated persons and non-associated persons who take the SIE.
    The Exchange proposes to adopt its own version of Rule 1210.05, 
which would provide that associated persons taking the SIE are subject 
to the SIE Rules of Conduct, and that associated persons taking any 
representative or principal examination are subject to the Rules of 
Conduct for representative and

[[Page 51993]]

principal examinations. Under the proposed rule, 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 Exchange rules requiring observance of high standards of 
commercial honor or just and equitable principles of trade, such as 
Exchange Rule 2010A.\31\ Further, if the Exchange determines that an 
associated person has 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.
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    \31\ Pursuant to Exchange Rule 2010A, a member, in the conduct 
of its business, shall observe high standards of commercial honor 
and just and equitable principles of trade. FINRA Rule 1210.05 cites 
FINRA Rule 2010, which is a comparable rule.
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    Proposed Rule 1210.05 states that the Exchange considers all of the 
qualification examinations content to be highly confidential. 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 would be prohibited and would be deemed 
to be a violation of Exchange rules requiring observance of high 
standards of commercial honor or just and equitable principles of 
trade. Finally, proposed Rule 1210.05 would prohibit an applicant from 
receiving assistance while taking the examination, and require the 
applicant to certify that no assistance was given to or received by him 
or her during the examination.\32\
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    \32\ In view of proposed Rule 1210.05, the Exchange is proposing 
to delete Rule 1080, Confidentiality of Examinations, which is 
largely duplicative. The Exchange is not adopting portions of 
FINRA's Rule 1210.05 which apply to non-associated persons, over 
whom the Exchange would in any event have no jurisdiction.
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G. Waiting Periods for Retaking a Failed Examination (Proposed Rule 
1210.06)
    Rule 1070(e) currently sets forth waiting periods for retaking 
failed examinations. The rule provides that a person who fails a 
qualification examination would be permitted to retake the examination 
after either a period of 30 calendar days has elapsed from the date of 
the prior examination or the next administration of an examination 
administered on a monthly basis. However, if the person fails an 
examination three or more times in succession, he or she would be 
prohibited from retaking the examination either until a period of 180 
calendar days has elapsed from the date of his or her last attempt to 
pass the examination or until the sixth subsequent administration of an 
examination administered on a monthly basis. The Exchange is proposing 
to adopt Rule 1070(e) as Rule 1210.06, with the following changes.
    Proposed Rule 1210.06 provides that a person who fails an 
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 deletes the reference to examinations administered on a 
monthly basis because examinations are no longer administered in such a 
manner.
    Proposed Rule 1210.06 further provides that if a person fails an 
examination three or more times in succession within a two-year period, 
the person is prohibited from retaking that examination until 180 
calendar days from the date of the person's last attempt to pass it. 
These waiting periods would apply to the SIE and the representative- 
and principal-level examinations.\33\
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    \33\ FINRA Rule 1210.06 requires individuals taking the SIE who 
are not associated persons to agree to be subject to the same 
waiting periods for retaking the SIE. The Exchange is not including 
this language in proposed Rule 1210.06, as the Exchange will not 
apply the 1200 Series of rules in any event to individuals who are 
not associated persons of members.
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H. CE Requirements (Proposed Rule 1210.07)
    Pursuant to current Rule 1120, the CE requirements applicable to 
registered persons consist of a Regulatory Element \34\ and a Firm 
Element.\35\ The Regulatory Element applies to registered persons and 
must be completed within prescribed time frames.\36\ For purposes of 
the Regulatory Element, a ``registered person'' is defined in the 
current rule as any person registered with the Exchange as a 
representative, principal, or assistant representative.\37\ The Firm 
Element consists of annual, member-developed and administered training 
programs designed to keep covered registered persons current regarding 
securities products, services and strategies offered by the member. For 
purposes of the Firm Element, the term ``covered registered persons'' 
is defined as any registered person who has direct contact with 
customers in the conduct of the member's securities sales, trading and 
investment banking activities, and the immediate supervisors of such 
persons.\38\
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    \34\ See Rule 1120(a).
    \35\ See Rule 1120(b).
    \36\ Pursuant to Rule 1120(a), each 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. Unless otherwise determined by the Exchange, a 
registered person who has not completed the Regulatory Element 
program within the prescribed time frames will have their 
registrations deemed inactive until such time as the requirements of 
the program have been satisfied. Any person whose registration has 
been deemed inactive under Rule 1120(a) must cease all activities as 
a registered person and is prohibited from performing any duties and 
functioning in any capacity requiring registration. A registration 
that is inactive for a period of two years will be administratively 
terminated. A person whose registration is so terminated may 
reactivate the registration only by reapplying for registration and 
meeting the qualification requirements of the applicable provisions 
of the Exchange's rules. The Exchange may, upon application and a 
showing of good cause, allow for additional time for a registered 
person to satisfy the program requirements.
    \37\ See Rule 1120(a)(5).
    \38\ See Rule 1120(b)(1).
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    The Exchange proposes to delete Rule 1120 and to replace it with 
Rule 1240, Continuing Education Requirements. 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 is proposing Rule 1210.07, to clarify that all registered 
persons, including those who solely maintain a permissive registration, 
are required to satisfy the Regulatory Element, as specified in 
proposed Rule 1240. 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.
    Consistent with current practice, proposed Rule 1210.07 also 
provides that a registered person of a member who becomes CE inactive 
would not be permitted to be registered in another registration 
category with that member or be registered in any registration category 
with another member, until the person has satisfied the Regulatory 
Element.
I. Lapse of Registration and Expiration of SIE (Proposed Rule 1210.08)
    Rule 1021(c) currently states that any person whose registration 
has been revoked pursuant to Rule 8310 \39\ or

[[Page 51994]]

whose most recent registration as a principal has been terminated for a 
period of two or more years immediately preceding the date of receipt 
by the Exchange of a new application is required to pass a 
qualification examination for principals appropriate to the category of 
registration as specified in Rule 1022. Pursuant to Rule 1031(b), any 
person whose registration has been revoked pursuant to Rule 8310 or 
whose most recent registration as a representative or principal has 
been terminated for a period of two or more years immediately preceding 
the date of receipt by the Exchange of a new application is required to 
pass a qualification examination for representatives appropriate to the 
category of registration as specified in Rule 1032.\40\ The two years 
are calculated from the termination date stated on the individual's 
Form U5 (Uniform Termination Notice for Securities Industry 
Registration) and the date the Exchange receives a new application for 
registration.
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    \39\ Under Rule 8310(a)(3), the Exchange may impose one or more 
sanctions on a member or person associated with a member for each 
violation of the federal securities laws, rules or regulations 
thereunder, or Exchange rules, including suspending the membership 
of a member or suspending the registration of a person associated 
with a member for a definite period or a period contingent on the 
performance of a particular act.
    \40\ In addition, Exchange Rule 1041(c) provides that if any 
person whose most recent registration as an Assistant 
Representative--Order Processing has been terminated for a period of 
two or more years immediately preceding the date of receipt by the 
Exchange of a new application is required to pass a qualification 
examination for Assistant Representative--Order Processing. As 
discussed below, the Exchange is proposing to eliminate Rule 1041(c) 
as part of the elimination of the Assistant Representative--Order 
Processing registration category on the Exchange.
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    The Exchange is proposing to consolidate the requirements of Rules 
1021(c) and 1031(b) and adopt them as Rule 1210.08. Proposed Rule 
1210.08 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.
    Proposed Rule 1210.08 also sets forth the expiration period of the 
SIE. Based on the content covered on the SIE, the Exchange is proposing 
that a passing result on the SIE be valid for four years. Therefore, 
under the proposed rule change, an individual who passes the SIE and is 
an associated person of a firm 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 firm, or a 
subsequent firm, without having to retake the SIE. In addition, an 
individual who passes the SIE and is not an associated person at the 
time would have up to four years from the date he or she passes the SIE 
to become an associated person of a firm, 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 operative date of the proposed rule 
change would have up to four years to re-associate with a firm 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.
J. Waiver of Examinations for Individuals Working for a Financial 
Services Industry Affiliate of a Member (Proposed Rule 1210.09)
    The Exchange is proposing Rule 1210.09 to provide a process whereby 
individuals who would be working for a financial services industry 
affiliate of a member \41\ would terminate their registrations with the 
member and would be granted a waiver of their requalification 
requirements upon re-registering with a member, provided the firm that 
is requesting the waiver and the individual satisfy the criteria for a 
Financial Services Affiliate (``FSA'') waiver. \42\ The purpose of the 
FSA waiver is to provide a firm greater flexibility to move personnel, 
including senior and middle management, between the firm and its 
financial services affiliate(s) so that they may gain organizational 
skills and better knowledge of products developed by the affiliate(s) 
without the individuals having to requalify by examination each time 
they returned to the firm.
---------------------------------------------------------------------------

    \41\ Proposed Rule 1210.09 defines a ``financial services 
industry affiliate of a member'' as a legal entity that controls, is 
controlled by or is under common control with a member and is 
regulated by the SEC, Commodity Futures Trading Commission 
(``CFTC''), state securities authorities, federal or state banking 
authorities, state insurance authorities, or substantially 
equivalent foreign regulatory authorities.
    \42\ There is no counterpart to proposed Rule 1210.09 in the 
Exchange's existing rules. FINRA Rule 1210.09 was recently adopted 
as a new waiver process for FINRA registrants, as part of the FINRA 
Rule Changes.
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    Under the proposed waiver process, the first time a registered 
person is designated as eligible for a waiver based on the FSA 
criteria, the member with which the individual is registered would 
notify the Exchange of the FSA designation. The member would 
concurrently file a full Form U5 terminating the individual's 
registration with the firm, which would also terminate the individual's 
other SRO and state registrations.
    To be eligible for initial designation as an FSA-eligible person by 
a member, an individual must have been registered for a total of five 
years within the most recent 10-year period prior to the designation, 
including for the most recent year with that member.\43\ 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 \44\ provided that the other conditions of the waiver, as 
described below, have been satisfied. Consequently, a member other than 
the member that initially designated an individual as an FSA-eligible 
person may request a waiver for the individual and more than one member 
may request a waiver for the individual during the seven-year 
period.\45\
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    \43\ For purposes of this requirement, a five year period of 
registration with the Exchange, with FINRA or with another self-
regulatory organization would be sufficient.
    \44\ 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.
    \45\ 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 reregister 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 
FINRA 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.
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    An individual designated as an FSA-eligible person would be subject 
to the Regulatory Element of CE while working for a financial services 
industry affiliate of a member. The individual would be

[[Page 51995]]

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 proposed Rule 1240 (currently Rule 
1120, Continuing Education Requirements).
    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 to the 
Exchange,\46\ 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:
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    \46\ The Exchange would consider a waiver of the representative-
level qualification examination(s), the principal-level 
qualification examination(s) and the SIE, as applicable.
---------------------------------------------------------------------------

    (1) Prior to the individual's initial designation as an FSA-
eligible person, the individual was registered for a total of five 
years within the most recent 10-year period, including for the most 
recent year with the member that initially designated the individual as 
an FSA-eligible person;
    (2) The waiver request is made within seven years of the 
individual's initial designation as an FSA-eligible person by a member;
    (3) The initial designation and any subsequent designation(s) were 
made concurrently with the filing of the individual's related Form U5;
    (4) The individual continuously worked for the financial services 
affiliate(s) of a member since the last Form U5 filing;
    (5) The individual has complied with the Regulatory Element of CE; 
and
    (6) The individual does not have any pending or adverse regulatory 
matters, or terminations, that are reportable on the Form U4, and has 
not otherwise been subject to a statutory disqualification while the 
individual was designated as an FSA-eligible person with a member.
    Following the Form U5 filing, an individual could move between the 
financial services affiliates of a member so long as the individual is 
continuously working for an affiliate. Further, a member could submit 
multiple waiver requests for the individual, provided that the waiver 
requests are made during the course of the seven-year period.\47\ An 
individual who has been designated as an FSA-eligible person by a 
member would not be able to take additional examinations to gain 
additional registrations while working for a financial services 
affiliate of a member.
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    \47\ For example, if a member submits a waiver request for an 
FSA-eligible person who has been working for a financial services 
affiliate of the member for three years and re-registers the 
individual, the member could subsequently file a Form U5 and re-
designate the individual as an FSA-eligible person. Moreover, if the 
individual works with a financial services affiliate of the member 
for another three years, the member could submit a second waiver 
request and re-register the individual upon returning to the member.
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K. Status of Persons Serving in the Armed Forces of the United States 
(Proposed Rule 1210.10)
    IM-1002-2(a) and (b) currently provide specific relief to 
registered persons serving in the Armed Forces of the United States. 
Among other things, these rules permit a registered person of a member 
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. IM-1002-
2(c) also includes specific provisions regarding the deferment of the 
lapse of registration requirements in Exchange Rules 1021(c), 1031(b) 
and 1041(c) for formerly registered persons serving in the Armed Forces 
of the United States.
    The Exchange is proposing to adopt IM-1002-2 as Rule 1210.10 with 
the following changes. To enhance the efficiency of the current 
notification process for registered persons serving in the Armed 
Forces, proposed Rule 1210.10 requires that the member with which such 
person is registered promptly notify the Exchange of such person's 
return to employment with the member. A sole proprietor must similarly 
notify the Exchange of his or her return to participation in the 
securities business. Further, proposed Rule 1210.10 provides that the 
Exchange would also defer the lapse of the SIE for formerly registered 
persons serving in the Armed Forces of the United States.\48\
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    \48\ Proposed Rule 1210.10 tracks FINRA Rule 1210.10 except for 
the statement that inactive registered persons are not to be 
included within the definition of ``Personnel'' for purposes of dues 
or assessments as provided in Article VI of the FINRA By-Laws. 
Instead, proposed Rule 1210.10 conserves language from existing IM-
1002-2 stating that inactive persons under the rule are not included 
within the scope of fees, if any, charged by the Exchange with 
respect to registered persons.
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L. Impermissible Registrations (Proposed Rule 1210.11)
    Rules 1021(a) and 1031(a) currently prohibit a member from 
maintaining a representative or principal registration with the 
Exchange for any person who is no longer active in the member's 
investment banking or securities business, who is no longer functioning 
as a representative or principal as defined under the rules or where 
the sole purpose is to avoid the requalification requirement applicable 
to persons who have not been registered for two or more years. These 
rules also prohibit a member from applying for the registration of a 
person as representative or principal where the member does not intend 
to employ the person in its investment banking or securities business. 
These prohibitions do not apply to the current permissive registration 
categories.
    In light of proposed Rule 1210.02, the Exchange is proposing to 
delete these provisions and instead adopt Rule 1210.11 prohibiting a 
member from registering or maintaining the registration of a person 
unless the registration is consistent with the requirements of proposed 
Rule 1210.\49\
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    \49\ As discussed above, the Exchange is also proposing Rule 
1210, Supplementary Material .12, Application for Registration and 
Jurisdiction, which is not included in FINRA Rule 1210. Proposed 
Exchange Rule 1210, Supplementary Material .12, is based upon 
portions of existing Exchange Rule 1031.
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M. Registration Categories (Proposed Rule 1220)
    The Exchange is proposing to integrate the various registration 
categories and related definitions under the Exchange's rules into a 
single rule, Rule 1220, subject to the changes described below.\50\
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    \50\ For ease of reference, the Exchange proposes to adopt as 
Rule 1220, Supplementary Material .07, in chart form, a Summary of 
Qualification Requirements in chart form for each of the Exchange's 
permitted registration categories discussed below.
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1. Definition of Principal (Proposed Rule 1220(a)(1))
    Rule 1021(b) currently defines the term ``principal'' to include 
sole proprietors, officers, partners, managers of offices of 
supervisory jurisdiction and directors who are actively engaged in the 
management of the member's investment banking or securities

[[Page 51996]]

business, such as supervision, solicitation, conduct of business or the 
training of persons associated with a member for any of these 
functions. The Exchange is proposing to streamline and adopt Rule 
1021(b) as Rule 1220(a)(1).
    For the reason discussed above in connection with proposed Rule 
1210, proposed Rule 1220(a)(1) would not apply to individuals who are 
not engaged in the management of the member's securities business even 
if they are engaged in the management of the member's investment 
banking business. The proposed rule clarifies that a member's chief 
executive officer (``CEO'') and chief financial officer (``CFO'') (or 
equivalent officers) are considered principals based solely on their 
status. The proposed rule further clarifies that the term ``principal'' 
includes any other associated person who is performing functions or 
carrying out responsibilities that are required to be performed or 
carried out by a principal under Exchange rules. In addition, the 
proposed rule provides that the phrase ``actively engaged in the 
management of the member's securities business'' includes the 
management of, and the implementation of corporate policies related to, 
such business as well as managerial decision-making authority with 
respect to the member's securities business and management-level 
responsibilities for supervising any aspect of such business, such as 
serving as a voting member of the member's executive, management or 
operations committees.
2. General Securities Principal (Proposed Rule 1220(a)(2))
    Rule 1022(a)(1) currently requires that an associated person who 
meets the definition of ``principal'' under Rule 1021 and each person 
designated as Chief Compliance Officer (``CCO'') on Schedule A of the 
member's Form BD (Uniform Application for Broker-Dealer Registration) 
register as a General Securities Principal. A person registering as a 
General Securities Principal must pass the General Securities Principal 
examination. The rule, however, provides that such person is not 
required to register as a General Securities Principal if the person's 
activities are so limited as to qualify such person for one or more of 
the limited principal categories specified in Rule 1022. Further, the 
rule does not preclude individuals registered in a limited principal 
category from registering as General Securities Principals. Rule 
1022(a)(1) also includes transitioning and grandfathering provisions 
for CCO's.
    Rule 1022(a) provides that a person seeking to register as a 
General Securities Principal must satisfy the General Securities 
Representative or Corporate Securities Representative prerequisite 
registration. Rule 1022(a)(2) qualifies this provision by providing 
that the Corporate Securities Representative prerequisite registration 
gives a General Securities Principal only limited supervisory 
authority.
    Rule 1022(a)(3) includes a grandfathering provision for persons who 
were registered as principals before the adoption of the General 
Securities Principal registration category.
    Rule 1022(a)(4) provides that an associated person registered 
solely as a General Securities Principal is not qualified to function 
as a Financial and Operations Principal (or an Introducing Broker-
Dealer Financial and Operations Principal, as applicable), or Limited 
Principal--General Securities Sales Supervisor, unless the General 
Securities Principal is also registered in these other categories.
    Exchange Rule 1022(a)(5) currently requires that each associated 
person who is included within the definition of ``principal'' in Rule 
1021 with supervisory responsibility over the securities trading 
activities described in Rule 1032(f)(1) \51\ register as a Securities 
Trader Principal. To qualify for registration as a Securities Trader 
Principal, an individual must be registered as a Securities Trader and 
pass the General Securities Principal qualification examination. The 
rule provides that a person qualified and registered as a Securities 
Trader Principal may only have supervisory responsibility over the 
activities specified in Rule 1032(f)(1), unless such person is 
separately registered in another appropriate principal registration 
category, such as the General Securities Principal registration 
category. The rule further provides that a person registered as a 
General Securities Principal is not qualified to supervise the trading 
activities described in Rule 1032(f)(1), unless he or she qualifies and 
registers as a Securities Trader (by passing the Series 57 Securities 
Trader examination) and affirmatively registers as a Securities Trader 
Principal.
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    \51\ Current Rule 1032(f)(1) provides for the registration as a 
Securities Trader of an associated person if, with respect to 
transactions in equity, preferred or convertible debt securities or 
foreign currency options on Nasdaq, such person is engaged in 
proprietary trading, the execution of transactions on an agency 
basis, or the direct supervision of such activities, other than any 
person associated with a member whose trading activities are 
conducted principally on behalf of an investment company that is 
registered with the Commission pursuant to the Investment Company 
Act of 1940 and that controls, is controlled by or is under common 
control, with the member.
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    The Exchange is proposing to streamline the provisions of Rule 
1022(a) and adopt them as Rule 1220(a)(2) with the following changes.
    The Exchange is proposing to more clearly set forth the obligation 
to register as a General Securities Principal. Specifically, proposed 
Rule 1220(a)(2)(A) states that each principal as defined in proposed 
Rule 1220(a)(1) is required to register with the Exchange as a General 
Securities Principal, subject to the following exceptions. The proposed 
rule provides that if a principal's activities are limited to the 
functions of a Compliance Official, a Financial and Operations 
Principal, a Securities Trader Principal, a Securities Trader 
Compliance Officer, or a Registered Options Principal, then the 
principal shall appropriately register in one or more of these 
categories.\52\ Proposed Rule 1220(a)(2)(A) further provides that if a 
principal's activities are limited solely to the functions of a General 
Securities Sales Supervisor, then the principal may appropriately 
register in that category in lieu of registering as a General 
Securities Principal, provided that if the principal is engaged in 
options sales activities he or she shall be required to register as a 
General Securities Sales Supervisor or as a Registered Options 
Principal.\53\
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    \52\ The Exchange is proposing to recognize the Compliance 
Official and Securities Trader Compliance Officer registration 
categories for the first time as a result of this proposed rule 
change.
    \53\ The Exchange's proposed Rule 1220(a)(2)(A) deviates 
somewhat from the counterpart FINRA rule in that it does not offer 
various limited registration categories provided for in FINRA's new 
Rule 1220(a)(2)(A).
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    Proposed Rule 1220(a)(2)(B) requires that an individual registering 
as a General Securities Principal satisfy the General Securities 
Representative prerequisite registration and pass the General 
Securities Principal qualification examination. In conjunction with the 
elimination of the Corporate Securities Representative registration 
category, the Exchange is proposing in Rule 1220(a)(2) to delete the 
provision in Rule 1022(a)(1)(A) permitting the Corporate Securities 
Representative prerequisite registration. However, proposed Rule 
1220(a)(2)(B) provides that, subject to the lapse of registration 
provisions in proposed Rule 1210.08, General Securities Principals who 
obtained the Corporate Securities Representative prerequisite 
registration on the Exchange in lieu of the General Securities 
Representative prerequisite registration and individuals who had

[[Page 51997]]

been registered as such within the past two years prior to the 
operative date of the proposed rule change, may continue to supervise 
corporate securities activities as currently permitted. Proposed Rule 
1220(a)(2)(B) requires all other individuals registering as General 
Securities Principal after October 1, 2018, to first become registered 
as a General Securities Representative pursuant to Rule 1220(b)(2).\54\
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    \54\ The Exchange is not adopting the FINRA Rule 1220(a)(2)(B) 
language permitting an individual registering as a General 
Securities Principal after October 1, 2018 to register as a General 
Securities Sales Supervisor and to pass the General Securities 
Principal Sales Supervisor Module qualification examination. The 
Exchange believes that individuals registering as General Securities 
Principals should be required to demonstrate their competence for 
that role by passing the General Securities Principal qualification 
examination.
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    Moreover, as described in greater detail below, the Exchange is 
proposing to adopt with some changes the requirements of Rule 
1022(a)(1) relating to the registration of CCOs, and Rule 1022(a)(5) 
relating to the supervision of securities trading activities as Rule 
1220(a)(3).
    The Exchange is also proposing to eliminate the grandfathering 
provision for individuals who were registered as principals prior to 
the adoption of the General Securities Principal registration category 
because it no longer has any practical application. Finally, the 
Exchange is proposing to delete the provision that persons eligible for 
registration in other principal categories are not precluded from 
registering as General Securities Principals because it is 
superfluous.\55\
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    \55\ Proposed Rule 1220(a)(2) generally tracks FINRA Rule 
1220(a)(2), except that it omits references to a number of 
registration categories which FINRA recognizes but that the Exchange 
does not, and it includes a reference to the Securities Trader 
Compliance Officer category which the Exchange proposes to 
recognize, but which FINRA does not. Additionally, proposed Rule 
1220(a)(2)(A)(i) extends that provision's exception to the General 
Securities Principal registration requirement to certain principals 
whose activities are ``limited to'' (rather than ``include'') the 
functions of a more limited principal. The Exchange believes that 
activities ``limited to'' expresses the intent of that exception 
more accurately than activities that ``include.'' Finally, proposed 
Rule 1220(a)(2)(B) specifies that registration as a Corporate 
Securities Representative must be with the Exchange in order to 
fulfill the Corporate Securities Representative registration 
prerequisite for General Securities Principal registration pursuant 
to that rule.
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3. Compliance Official (Proposed Rule 1220(a)(3))
    The Exchange is proposing to adopt Rule 1022(a)(1)'s CCO 
registration requirement as Rule 1220(a)(3), subject to the following 
changes.
    Specifically, proposed Rule 1220(a)(3) provides that each person 
designated as a Chief Compliance Officer on Schedule A of Form BD shall 
be required to register with the Exchange as a General Securities 
Principal, provided that such person may instead register as a 
Compliance Official if his or her duties do not include supervision of 
trading. All individuals registering as Compliance Official shall, 
prior to or concurrent with such registration, pass the Compliance 
Official qualification examination. An individual designated as a Chief 
Compliance Officer on Schedule A of Form BD of a member that is engaged 
in limited securities business could also be registered in a principal 
category under Rule 1220(a) that corresponds to the limited scope of 
the member's business.
    Additionally, proposed Rule 1220(a)(3) provides that an individual 
designated as a Chief Compliance Officer on Schedule A of Form BD may 
register and qualify as a Securities Trader Compliance Officer if, with 
respect to transactions in equity, preferred or convertible debt 
securities, or options such person is engaged in proprietary trading, 
the execution of transactions on an agency basis, or the direct 
supervision of such activities other than a person associated with a 
member whose trading activities are conducted principally on behalf of 
an investment company that is registered with the SEC pursuant to the 
Investment Company Act and that controls, is controlled by, or is under 
common control with a member. All individuals registering as Securities 
Trader Compliance Officers would be required to first become registered 
pursuant to paragraph (b)(4) as a Securities Trader, and to pass the 
Compliance Official qualification exam.\56\
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    \56\ Proposed Rule 1220(a)(3) differs from FINRA Rule 
1220(a)(3), Compliance Officer. The Exchange does not recognize the 
Compliance Officer registration category. Similarly, FINRA does not 
recognize the Compliance Official or the Securities Trader 
Compliance Officer registration categories which the Exchange 
proposes to recognize. However, FINRA Rule 1220(a)(3), like proposed 
Rule 1220(a)(3), offers an exception pursuant to which a Chief 
Compliance Officer designated on Schedule A of Form BD may register 
in a principal category that corresponds to the limited scope of the 
member's business.
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4. Financial and Operations Principal, (Proposed Rule 1220(a)(4))
    Rule 1022(b)(1) currently provides that every member operating 
pursuant to the provisions of SEC Rule 15c3-1(a)(1)(ii), (a)(2)(i) or 
(a)(8), shall designate as Limited Principal--Financial and Operations 
those persons associated with it, at least one of whom shall be its 
chief financial officer, who performs the duties described in Rule 
1022(b)(2).\57\ Each person associated with a member who performs such 
duties is required to register as a Limited Principal--Financial and 
Operations with the Exchange and pass an appropriate qualification 
examination before such registration may become effective. A person 
registered solely as a Limited Principal--Financial and Operations is 
not qualified to function in a principal capacity with responsibility 
over any area of business activity not described in 1022(b)(2).
---------------------------------------------------------------------------

    \57\ These duties include (A) final approval and responsibility 
for the accuracy of financial reports submitted to any duly 
established securities industry regulatory body; (B) final 
preparation of such reports; (C) supervision of individuals who 
assist in the preparation of such reports; (D) supervision of and 
responsibility for individuals who are involved in the actual 
maintenance of the member's books and records from which such 
reports are derived; (E) supervision and/or performance of the 
member's responsibilities under all financial responsibility rules 
promulgated pursuant to the provisions of the Act; (F) overall 
supervision of and responsibility for the individuals who are 
involved in the administration and maintenance of the member's back 
office operations; or (G) any other matter involving the financial 
and operational management of the member.
---------------------------------------------------------------------------

    Rule 1022(c) currently provides that every member subject to the 
requirements of SEC Rule 15c3-1, other than a member operating pursuant 
to SEC Rule 15c3-1(a)(1)(ii), (a)(2)(i) or (a)(8) in which case Rule 
1022(b) shall apply, shall designate as Limited Principal--Introducing 
Broker/Dealer Financial and Operations those persons associated with 
it, at least one of whom shall be its chief financial officer, who 
perform the duties described in 1022(c)(2).\58\ Each person associated 
with a member who performs such duties is required to register as a 
Limited Principal--Introducing Broker/Dealer Financial and Operations 
with the Exchange and pass an appropriate Qualification Examination 
before such registration may become effective.
---------------------------------------------------------------------------

    \58\ These duties include (A) final approval and 
responsibilities for the accuracy of financial reports submitted to 
any duly established securities industry regulatory body; (B) final 
preparation of such reports; (C) supervision of individuals who 
assist in the preparation of such reports; (D) supervision of and 
responsibility for individuals who are involved in the actual 
maintenance of the member's books and records from which such 
reports are derived; (E) supervision and/or performance of the 
member's responsibilities under all financial responsibility rules 
promulgated pursuant to the provisions of the Act; (F) overall 
supervision of and responsibility for the individuals who are 
involved in the administration and maintenance of the member's back 
office operations; or (G) any other matter involving the financial 
and operational management of the member.
---------------------------------------------------------------------------

    Financial and Operations Principals and Introducing Broker-Dealer 
Financial and Operations Principals are not

[[Page 51998]]

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.
    The Exchange is proposing to move the provisions in Rules 1022(b) 
regarding Financial and Operations Principals to Rule 1220(a)(4)(A), 
substituting the word ``and'' for the current word ``or'' found in Rule 
1022(b)(2)(F) in order to conform to FINRA Rule 1220(a)(4)(A) in 
describing the duties of a Financial and Operations Principal. In 
addition, the Exchange proposes to delete the Introducing Broker-Dealer 
Financial and Operations Principals Rule 1022(c), as the Exchange has 
determined it no longer requires this registration category as it is 
relatively little used.\59\
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    \59\ FINRA Rule 1220(a)(4) differs from proposed Rule 1220(a)(4) 
in that it includes an Introducing Broker-Dealer Financial and 
Operations Principal registration requirement. Additionally, 
proposed Rule 1220(a)(4) contains a requirement, which the FINRA 
rule does not, that each person associated with a member who 
performs the duties of a Financial and Operations Principal must 
register as such with the Exchange. Further, as discussed above, the 
Exchange is not adopting a Principal Financial Officer or Principal 
Operations Officer requirement like FINRA Rule 1220(a)(4)(B), as it 
believes the Financial and Operations Principal requirement is 
sufficient. Finally, proposed Rule 1220(a)(4)(B)(v) and (vi) contain 
minor wording variations from the FINRA rule which are carried over 
from existing Nasdaq Rule 1022.
---------------------------------------------------------------------------

5. Investment Banking Principal (Proposed Rule 1220(a)(5))
    The Exchange does not recognize the Investment Banking Principal 
registration category and is reserving Rule 1220(a)(5), retaining the 
caption solely to facilitate comparison with FINRA's rules.
6. Research Principal (Proposed Rule 1220(a)(6))
    The Exchange does not recognize the Research Principal registration 
category and is reserving Rule 1220(a)(6), retaining the caption solely 
to facilitate comparison with FINRA's rules.
7. Securities Trader Principal (Proposed Rule 1220(a)(7))
    The Exchange is proposing to adopt Rule 1022(a)(5) relating to 
Securities Trader Principal registration as Rule 1220(a)(7). Similar to 
the current rule, proposed Rule 1220(a)(7) requires that a principal 
responsible for supervising the securities trading activities specified 
in proposed Rule 1220(b)(4) \60\ register as a Securities Trader 
Principal. The proposed rule requires individuals registering as 
Securities Trader Principals to be registered as Securities Traders and 
to pass the General Securities Principal qualification examination.
---------------------------------------------------------------------------

    \60\ Proposed Rule 1220(b)(4), discussed below, provides for 
representative-level registration in the ``Securities Trader'' 
category.
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8. Registered Options Principal (Proposed Rules 1220(a)(8)
    Chapter II, Section 2(g) of the rulebook currently requires that 
members engaged in security futures or options transactions with public 
customers have at least one Registered Options and Security Futures 
Principal. It also provides that every person engaged in the 
supervision of options and security futures sales practices shall be 
registered as a Registered Options and Security Futures Principal and 
pass the appropriate qualification examination for Registered Options 
and Security Futures Principal, or an equivalent examination acceptable 
to the Exchange. Further, each person required to register and qualify 
as a Registered Options and Security Futures Principal must, prior to 
or concurrent with such registration, be or become qualified pursuant 
to the Rule 1030 Series, as either a General Securities Representative 
or a Limited Representative--Corporate Securities and a Registered 
Options and Security Futures Representative.
    The rule provides that a person registered solely as a Registered 
Options and Security Futures Principal is not qualified to function in 
a principal capacity with responsibility over any area of business 
activity not prescribed in Chapter II, Section 2(g). Chapter II, 
Section 2(g)(5) provides that any person who is registered as a 
Registered Options and Security Futures Principal, or who becomes 
registered as a Registered Options and Security Futures Principal 
before a revised examination that includes security futures products is 
offered, must complete a firm-element continuing education program that 
addresses security futures and a principal's responsibilities for 
security futures before such person can supervise security futures 
activities. Finally, Chapter II, Section 2 of the Exchange's options 
rules further requires in Commentary .01 that members that have one 
Registered Options Principal promptly notify the Exchange and agree to 
specified conditions if such person is terminated, resigns, becomes 
incapacitated or is otherwise unable to perform his or her duties.
    The Exchange is proposing to adopt Chapter II, Section (2)(g) as 
Rule 1220(a)(8), Registered Options Principal, with certain changes. 
The registration category would now be titled Registered Options 
Principal, rather than Registered Options and Security Futures 
Principal.\61\ All references to a revised examination that includes 
security futures products would be deleted. Instead, Rule 1220(b), 
Supplementary Material .02 will simply provide that each person who is 
registered with the Exchange as a Registered Options Principal (or as a 
General Securities Representative, Options Representative, or General 
Securities Sales Supervisor) shall be eligible to engage in security 
futures activities as a principal, as applicable, provided that such 
individual completes a Firm Element program as set forth in proposed 
Rule 1240 that addresses security futures products before such person 
engages in security futures activities.\62\
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    \61\ FINRA has also shortened references to ``Registered Options 
and Security Futures Principal'' in its rulebook to ``Registered 
Options Principal''. See Securities Exchange Act Release No. 58932 
(November 12, 2008), 73 FR 69696 (November 19, 2008) (SR-FINRA-2008-
032).
    \62\ Unlike FINRA Rule 1220.02, proposed Exchange Rule 1220.02 
omits references to United Kingdom Securities Representatives and 
Canada Securities Representatives, which are registration categories 
the Exchange does not recognize. In any case, the Exchange does not 
currently offer security futures products for trading.
---------------------------------------------------------------------------

    Proposed Rule 1220(a)(8) provides that a General Securities Sales 
Supervisor may also supervise options activities. Rule 1220(b), 
Supplementary Material .02 regarding security futures activities will 
apply to General Securities Sales Supervisors as well as to Registered 
Options Principals.\63\
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    \63\ Rule 1220(b), Supplementary Material .02 regarding security 
futures activities will also apply to General Securities 
Representatives and to Options Representatives.
---------------------------------------------------------------------------

    Further, as discussed below, the Exchange is proposing to eliminate 
the Options Representative and Corporate Securities Representative 
registration categories. In conjunction with these changes, the 
Exchange is proposing to eliminate registration as an Options 
Representative and a Corporate Securities Representative from the 
prerequisite choices in the current rule. Consequently, a person 
registering as a Registered Options Principal under proposed Rule 
1220(a)(8) would be required to satisfy the General Securities 
Representative prerequisite registration.\64\
---------------------------------------------------------------------------

    \64\ Proposed Rule 1220(a)(8) differs from FINRA Rule 1220(a)(8) 
in that it omits certain references to other specific FINRA rules.
---------------------------------------------------------------------------

    Finally, the Exchange is proposing to adopt Chapter II, Section 2 
Commentary .01 with non-substantive changes as Supplementary Material 
.03 of Rule 1220.\65\
---------------------------------------------------------------------------

    \65\ Chapter XI, Doing Business with the Public, at Section 2(a) 
provides that no order entry firm (``OEF'') shall be approved to 
transact options business with the public until those associated 
persons who are designated as Options Principals have been approved 
by and registered with the Exchange. Persons engaged in the 
management and supervision of the OEF's business pertaining to 
options contracts must be designated as Options Principals and shall 
have responsibility for the overall oversight of the OEF's options 
related activities on the Exchange. Similarly, Chapter XI, Sections 
3(a) and (b) provide that no OEF shall be approved to transact 
business with the public until those persons associated with it who 
are designated representatives have been approved by and registered 
with the Exchange, and also that persons who perform duties for the 
OEF which are customarily performed by sales representatives or 
branch office managers shall be designated as representatives of the 
OEF. The foregoing provisions of Chapter XI are specific to 
conducting an options business with the public and are not proposed 
to be amended in this proposed rule change, other than to add a 
customer protection requirement, similar to existing Phlx Rule 
1024.08 and existing ISE Rule 602(d), that a person accepting orders 
from non-member customers (unless such customer is a broker-dealer 
registered with the Commission) is required to register with the 
Exchange and to be qualified by passing the General Securities 
Registered Representative Examination (Series 7). However, Chapter 
XI, Sections 2(b) and (c) and Section 3(c) also contain provisions 
regarding submission of Forms U4 and U5 to WebCRD that are 
duplicative of the proposed 1200 Series of rules, in particular 
proposed Rules 1210.12, Application for Registration and 
Jurisdiction, and 1250, Electronic Filing Requirements for 
Electronic Forms, and are therefore proposed to be deleted.

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[[Page 51999]]

9. Government Securities Principal (Rule 1220(a)(9))
    The Exchange does not recognize the Government Securities Principal 
registration category and is reserving Rule 1220(a)(9), retaining the 
caption solely to facilitate comparison with FINRA's rules.
10. General Securities Sales Supervisor (Proposed Rules 1220(a)(10) and 
1220.04)
    Pursuant to Exchange Rule 1022(g), each associated person of a 
member who is included within the definition of ``principal'' in Rule 
1021 may register as a Limited Principal--General Securities Sales 
Supervisor, instead of separately registering in multiple principal 
registration categories,\66\ if the individual's supervisory 
responsibilities are limited solely to securities sales activities. A 
person registering as a Limited Principal--General Securities Sales 
Supervisor must satisfy the General Securities Representative 
prerequisite registration and pass the General Securities Sales 
Supervisor examinations.\67\ 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) final 
approval of advertisements as these are defined in Exchange Rule 2210; 
(4) supervision of the custody of firm or customer funds or securities 
for purposes of SEC Rule 15c3-3; or (5) supervision of overall 
compliance with financial responsibility rules. Current IM-1022-2 
explains the purpose of the General Securities Sales Supervisor 
registration category.
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    \66\ For instance, a principal supervising the sale of corporate 
securities and options must be registered as a General Securities 
Principal and a Registered Options Principal, unless the principal 
is registered as a General Securities Sales Supervisor.
    \67\ An individual may also register as a General Securities 
Sales Supervisor by passing a combination of other principal-level 
examinations.
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    The Exchange is proposing to adopt Rule 1022(g) and IM-1022-2 as 
Rules 1220(a)(10) and 1220.04, respectively.\68\ Rule 1220(a)(10), 
however, omits the current Rule 1022(g) prohibition against supervision 
of the origination and structuring of underwritings, as that activity 
does not fall within the new, more limited scope of ``securities 
trading'' covered by the new 1200 Series of rules.
---------------------------------------------------------------------------

    \68\ The Exchange is not proposing to carry over into proposed 
Rule 1220(a)(10) the current Rule 1022(g)(2)(C)(iii) prohibition 
against final approval of advertisements by General Securities Sales 
Supervisors. The Exchange notes that FINRA removed this prohibition 
several years ago from NASD Rule 1022(g) (Limited Principal--General 
Securities Sales Supervisor) and NASD IM-1022-2 (Limited Principal--
General Securities Sales Supervisor). See Securities Exchange Act 
Release No. 68918 (February 13, 2013), 78 FR 11925 (February 20, 
2013) (SR-FINRA-2013-014). Also, unlike FINRA Rule 1220.04, proposed 
Exchange Rule 1220.04 refers to ``multiple exchanges'' rather than 
listing the various exchanges where a sales principal might be 
required to qualify in the absence of the General Securities Sales 
Supervisor registration category. It also omits FINRA internal 
cross-references.
---------------------------------------------------------------------------

11. Investment Company and Variable Contracts Products Principal and 
Direct Participation Programs Principal (Rules 1220(a)(11) and (a)(12))
    The Exchange is proposing to eliminate the Investment Company and 
Variable Contracts Products Principal registration category and does 
not recognize the Direct Participation Programs Principal registration 
category. The Exchange is therefore reserving Rules 1220(a)(11) and 
(a)(12), retaining the captions solely to facilitate comparison with 
FINRA's rules.
12. Private Securities Offerings Principal (Rule 1220(a)(13))
    The Exchange does not recognize the Private Securities Offerings 
Principal registration category and is therefore reserving Rule 
1220(a)(13), retaining the caption solely to facilitate comparison with 
FINRA's rules.
13. Supervisory Analyst (Rule 1220(a)(14))
    The Exchange does not recognize the Supervisory Analyst 
registration category and is therefore reserving Rule 1220(a)(14), 
retaining the caption solely to facilitate comparison with FINRA's 
rules.
14. Definition of Representative (Proposed Rule 1220(b)(1))
    Rule 1011(k) currently defines the term ``representative'' as an 
associated person of a registered broker or dealer, including assistant 
officers other than principals, who is engaged in the investment 
banking or securities business for the member including the functions 
of supervision, solicitation or conduct of business in securities or 
who is engaged in the training of persons associated with a broker or 
dealer for any of these functions. Rule 1011(k) further states that, as 
provided in Rule 1031, all representatives of members are required to 
be registered with the Exchange, and that representatives that are so 
registered are referred to as registered representatives.
    The Exchange now proposes to adopt a definition of 
``representative'' in proposed Rule 1220(b)(1). Current Rule 1011, 
Definitions, Section (k) would be amended by deleting the existing 
definition of representative, and replacing it with a cross reference 
to the new definition of representative in Rule 1220(b)(1). Proposed 
1220(b)(1) would define the term representative as any person 
associated with a member, including assistant officers other than 
principals, who is engaged in the member's securities business, such as 
supervision, solicitation, conduct of business in securities or the 
training of persons associated with a member for any of these 
functions. Unlike the current Rule 1011(k) ``representative'' 
definition, the new Rule 1220(b)(1) definition would be confined to 
associated persons of Exchange members (rather than to associated 
persons of broker dealers generally) who are engaged in the member's 
securities business (and not also in the member's investment banking 
business).
15. General Securities Representative (Proposed Rule 1220(b)(2))
    Rule 1032(a) currently requires that an associated person who meets 
the definition of ``representative'' under Rule 1011 register as a 
General Securities Representative. A person registering as a General 
Securities Representative must pass the General Securities 
Representative examination. The rule, however, provides that a

[[Page 52000]]

representative is not required to register as a General Securities 
Representative if the person's activities are so limited as to qualify 
such person for one or more of the limited representative categories 
specified in Rule 1032, such as an Investment Company and Variable 
Contracts Products Representative, a Corporate Securities 
Representative, or a Securities Trader. Further, the rule does not 
preclude individuals registered in a limited representative category 
from registering as General Securities Representatives.
    Rule 1032(a)(2) provides that if a representative does not engage 
in municipal securities activities, registration as a United Kingdom 
Securities Representative or Canada Securities Representative is 
equivalent to registration as a General Securities Representative. 
These foreign registration categories were created in the 1990s as an 
alternative to General Securities Representative registration for 
individuals who do not engage in municipal securities activities and 
who are in good standing as a representative with the Financial Conduct 
Authority in the United Kingdom or with a Canadian stock exchange or 
securities regulator. To qualify for registration as a United Kingdom 
Securities Representative or Canada Securities Representative, an 
individual must pass the United Kingdom Securities Representative 
examination or Canada Securities Representative examinations, 
respectively. Rule 1032(a)(2) also permits a person registered and in 
good standing as a representative with the Japanese securities 
regulators to become qualified to function as a General Securities 
Representative by passing the Japan Module of the General Securities 
Representative examination. The Japan Module, however, was never 
implemented.
    The Exchange is proposing to streamline the provisions of Rule 
1032(a) and adopt them as Rule 1220(b)(2) with the following changes.
    Similar to the proposed changes to the General Securities Principal 
registration category, the Exchange is proposing to more clearly set 
forth the obligation to register as a General Securities 
Representative. Specifically, proposed Rule 1220(b)(2)(A) states that 
each representative as defined in proposed Rule 1220(b)(1) is required 
to register with the Exchange as a General Securities Representative, 
except that if a representative's activities include the functions of a 
Securities Trader, as specified in this Rule, then such person shall 
appropriately register as a Securities Trader.
    Further, consistent with the proposed restructuring of the 
representative-level examinations, proposed Rule 1220(b)(2)(B) would 
require that individuals registering as General Securities 
Representatives pass the SIE and the General Securities Representative 
examination.\69\
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    \69\ Proposed Rule 1220(b)(2)(B) differs from FINRA Rule 
1220(b)(2)(B) in that it omits references to various registration 
categories which FINRA recognizes but which the Exchange does not 
propose to recognize.
---------------------------------------------------------------------------

    In addition, the Exchange is proposing to adopt Rule 1220.01 to 
provide individuals who are associated persons of firms and who hold 
foreign registrations an alternative, more flexible, process to obtain 
an Exchange representative-level registration. The Exchange believes 
that there is sufficient overlap between the SIE and these foreign 
qualification requirements to permit them to act as exemptions to the 
SIE. Under proposed Rule 1220.01, individuals who are in good standing 
as representatives with the Financial Conduct Authority in the United 
Kingdom or with a Canadian stock exchange or securities regulator would 
be exempt from the requirement to pass the SIE, and thus would be 
required only to pass a specialized knowledge examination to register 
with the Exchange as a representative. The proposed approach would 
provide individuals with a United Kingdom or Canadian qualification 
more flexibility to obtain an Exchange representative-level 
registration. Finally, the Exchange is proposing to delete the 
provision that persons eligible for registration in other 
representative categories are not precluded from registering as General 
Securities Representatives because it is superfluous.
16. Operations Professional, Securities Trader, Investment Banking 
Representative, Research Analyst, Investment Company and Variable 
Contracts Products Representative, Direct Participation Programs 
Representative and Private Securities Offerings Representative (Rules 
1220(b)(3), 1220(b)(4), 1220(b)(5), 1220(b)(6), 1220(b)(7), 1220(b)(8), 
1220(b)(9) and 1220.05))
    Operations Professional, Investment Banking Representative, 
Research Analyst, Direct Participation Programs Representative and 
Private Securities Offerings Representative. The Exchange has not 
adopted these registration categories for its associated persons. The 
Exchange is reserving Rules 1220(b)(3)--Operations Professional, and 
related Rule 1220.05; 1220(b)(5)--Investment Banking Representative, 
1220(b)(6)--Research Analyst; 1220(b)(8)--Direct Participation Programs 
Representative; and 1220(b)(9)--Private Securities Offerings 
Representative, retaining the captions, solely to facilitate comparison 
with FINRA's rules.
    Securities Trader--Proposed Rule 1220(b)(4). Pursuant to current 
Exchange Rule 1032(f), each associated person of a member who is 
included within the definition of ``representative'' in Rule 1101 is 
required to register as a Securities Trader if, with respect to 
transactions in equity, preferred or convertible debt securities or 
foreign currency options on the Exchange, such person is engaged in 
proprietary trading, the execution of transactions on an agency basis 
or the direct supervision of such activities. The rule provides an 
exception from the registration requirement for any associated person 
of a member whose trading activities are conducted principally 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 the member. Individuals registering 
as Securities Traders must pass the Securities Trader examination. 
Finally, the rule provides that registered Securities Traders are not 
qualified to function in any other registration category, unless he or 
she is also qualified and registered in such other registration 
category.
    The Exchange now proposes to amend the rule, and adopt it as 
proposed Rule 1220(b)(4).\70\ As amended, the Rule would require 
individuals registering as Securities Traders to pass the SIE as well 
as the Securities Trader qualification exam, and it would be expanded 
to refer not just to foreign currency options, but to the trading of 
options generally.
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    \70\ Proposed Rule 1220(b)(4)(A) differs from FINRA Rule 
1220(b)(4)(A) in that it applies to trading on the Exchange while 
the FINRA rule is limited to the specified trading which is 
``effected otherwise than on a securities exchange.'' Additionally, 
the FINRA rule does not specifically extend to options trading.
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    Additionally, proposed Rule 1220(b)(4)(A) would require each person 
associated with a member who is: (i) Primarily responsible for the 
design, development or significant modification of an algorithmic 
trading strategy relating to equity, preferred or convertible debt 
securities or options; or (ii) responsible for the day-to-day 
supervision or direction of such activities to register with the 
Exchange as a Securities Trader.\71\
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    \71\ As noted above, this new registration requirement was 
recently added to the FINRA rulebook. The Exchange has determined to 
add a parallel requirement to its own rules, but also to add options 
to the scope of products within the proposed rule's coverage. See 
Securities Exchange Act Release No. 77551 (April 7, 2016), 81 FR 
21914 (April 13, 2016) (Order Approving File No. SR-FINRA-2016-007).

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[[Page 52001]]

    For purposes of this proposed new registration requirement an 
``algorithmic trading strategy'' is an automated system that generates 
or routes orders (or order-related messages) but does not include an 
automated system that solely routes orders received in their entirety 
to a market center. The proposed registration requirement applies to 
orders and order related messages whether ultimately routed or sent to 
be routed to an exchange or over the counter. An order router alone 
would not constitute an algorithmic trading strategy. However, an order 
router that performs any additional functions would be considered an 
algorithmic trading strategy. An algorithm that solely generates 
trading ideas or investment allocations--including an automated 
investment service that constructs portfolio recommendations--but that 
is not equipped to automatically generate orders and order-related 
messages to effectuate such trading ideas into the market--whether 
independently or via a linked router--would not constitute an 
algorithmic trading strategy.\72\
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    \72\ See Securities Exchange Act Release No. 77551 (April 7, 
2016), 81 FR 21914 (April 13, 2016) (Order Approving File No. SR-
FINRA-2016-007).
---------------------------------------------------------------------------

    The associated persons covered by the expanded registration 
requirement would be required to pass the requisite qualification 
examination and be subject to the same continuing education 
requirements that are applicable to individual Securities Traders. The 
Exchange believes that potentially problematic conduct stemming from 
algorithmic trading strategies--such as failure to check for order 
accuracy, inappropriate levels of messaging traffic, wash sales, 
failure to mark orders as ``short'' or perform proper short sale 
``locates,'' and inadequate risk management controls--could be reduced 
or prevented, in part, through improved education regarding securities 
regulations for the specified individuals involved in the algorithm 
design and development process.
    The proposal is intended to ensure the registration of one or more 
associated persons that possesses knowledge of, and responsibility for, 
both the design of the intended trading strategy and the technological 
implementation of the strategy, sufficient to evaluate whether the 
resulting product is designed to achieve regulatory compliance in 
addition to business objectives. For example, a lead developer who 
liaises with a head trader regarding the head trader's desired 
algorithmic trading strategy and is primarily responsible for the 
supervision of the development of the algorithm to meet such objectives 
must be registered under the proposal as the associated person 
primarily responsible for the development of the algorithmic trading 
strategy and supervising or directing the team of developers. 
Individuals under the lead developer's supervision would not be 
required to register under the proposal if they are not primarily 
responsible for the development of the algorithmic trading strategy or 
are not responsible for the day-to-day supervision or direction of 
others on the team. Under this scenario, the person on the business 
side that is primarily responsible for the design of the algorithmic 
trading strategy, as communicated to the lead developer, also would be 
required to register. In the event of a significant modification to the 
algorithm, members, likewise, would be required to ensure that the 
associated person primarily responsible for the significant 
modification (or the associated person supervising or directing such 
activity), is registered as a Securities Trader.
    A member employing an algorithm is responsible for the algorithm's 
activities whether the algorithm is designed or developed in house or 
by a third-party. Thus, in all cases, robust supervisory procedures, 
both before and after deployment of an algorithmic trading strategy, 
are a key component in protecting against problematic behavior stemming 
from algorithmic trading. In addition, associated persons responsible 
for monitoring or reviewing the performance of an algorithmic trading 
strategy must be registered, and a member's trading activity must 
always be supervised by an appropriately registered person. Therefore, 
even where a firm purchases an algorithm off-the-shelf and does not 
significantly modify the algorithm, the associated person responsible 
for monitoring or reviewing the performance of the algorithm would be 
required to be registered.
    Pursuant to proposed Rule 1220(b)(4)(B) each person registered as a 
Securities Trader on October 1, 2018 and each person who was registered 
as a Securities Trader within two years prior to October 1, 2018 would 
be qualified to register as a Securities Trader without passing any 
additional qualification examinations. All other individuals 
registering as Securities Traders after October 1, 2018 would be 
required, prior to or concurrent with such registration, pass the SIE 
and the Securities Trader qualification examination.
    Investment Company and Variable Contracts Products Representative--
Proposed Rule 1220(b)(7). Pursuant to current Rule 1032(b), each 
associated person of a member who is included within the definition of 
``representative'' in Rule 1031 may register as an Investment Company 
and Variable Contracts Products Representative, instead of registering 
as a General Securities Representative, if the individual's activities 
are limited solely to redeemable securities of companies registered 
under the Investment Company Act, securities of closed-end companies 
registered under the Investment Company Act during the period of 
original distribution and specified insurance contracts, such as 
variable contracts. Individuals registering as Investment Company and 
Variable Contracts Products Representatives must pass the Investment 
Company and Variable Contracts Products Representative examination. The 
Exchange has experienced little demand for registration in this 
category. Therefore, it now proposes to eliminate the Investment 
Company and Variable Contracts Products Representative category as an 
acceptable category for Exchange representative registration. The 
Exchange is reserving proposed Rule 1220(b)(7), retaining the caption 
solely to facilitate comparison with FINRA's rule.
17. Additional Eliminated Registration Categories (Proposed Rule 
1220.06)
    As noted above, the Exchange is proposing to eliminate the 
Investment Company and Variable Products Representative category, 
reserving proposed Rule 1220(b)(7), and retaining the caption solely to 
facilitate comparison with FINRA's rule. Similarly, it is eliminating 
the Investment Company and Variable Contracts Products Principal 
category, reserving proposed Rule 1220(a)(11), and retaining the 
caption solely to facilitate comparison with FINRA's rule.
    Consistent with the FINRA Rule Changes, the Exchange is also 
proposing to eliminate from its rules the Order Processing Assistant 
Representative, Options Representative, and Corporate Securities 
Representative categories that FINRA is eliminating effective October 
1, 2018, as discussed below.
    Order Processing Assistant Representative. Pursuant to current Rule 
1041, an associated person is not required to register as a General 
Securities Representative or in one or

[[Page 52002]]

more of the limited categories of representative registration if the 
person's activities are so limited as to qualify such person for 
registration as an Order Processing Assistant Representative. An Order 
Processing Assistant Representative is an associated person whose only 
function is to accept unsolicited customer orders from existing 
customers for submission for execution by the member. Pursuant to Rule 
1042, Order Processing Assistant Representatives are subject to 
specified restrictions regarding their activities and compensation and 
are subject to particular supervisory requirements. In addition, they 
may not be registered concurrently in any other capacity.
    Options Representative. Chapter II, Section 2(h) of the Exchange's 
rulebook provides that each person associated with a member who is 
included within the definition of a representative as defined in Rule 
1031 may register with the Exchange as a Limited Representative--
Options and Security Futures if: (A) Such person's activities in the 
investment banking or securities business of the member involve the 
solicitation or sale of option or security futures contracts, including 
option contracts on government securities as that term is defined in 
Section 3(a)(42)(D) of the Act, for the account of a broker, dealer or 
public customer; and (B) such person passes an appropriate 
qualification examination for Limited Representative--Options and 
Security Futures. It also provides that each person seeking to register 
and qualify as a Limited Representative--Options and Security Futures 
must, concurrent with or before such registration may become effective, 
become registered with the Exchange or another SRO as either as a 
Limited Representative--Corporate Securities or Limited 
Representative--Government Securities. The Limited Representative--
Options and Security Futures registration category is the same as the 
Options Representative category.
    Corporate Securities Representative. Rule 1032(e) currently 
provides that each associated person of a member who is included within 
the definition of ``representative'' in Rule 1031 may register as a 
Corporate Securities Representative, instead of a General Securities 
Representative, if the individual's activities are limited solely to 
securities as defined under Section 3(a)(10) of the Act, other than 
municipal securities, options, mutual funds (except for money market 
funds), variable contracts and direct participation program securities. 
Individuals registering as Corporate Securities Representatives must 
pass the Corporate Securities Representative examination.
    The Exchange is proposing to eliminate the current registration 
categories of Order Processing Assistant Representative, Options 
Representative, and Corporate Securities, as FINRA has done in the 
FINRA Rule Changes. The Exchange believes that the utility of the Order 
Processing Assistant Representative registration category has 
diminished as technological advances and changes in industry practice 
have reduced the need for such representatives. As a result, the volume 
of candidates taking the Order Processing Assistant Representative 
examination has diminished. The Options Representative and Corporate 
Securities Representative registration categories were created over the 
years as subcategories of the General Securities Representative 
category. These subcategories currently allow an individual to sell a 
subset of the products (e.g., options, common stocks and corporate 
bonds) permitted to be sold by a General Securities Representative. In 
recent years, however, the utility of these subcategories has also 
diminished as a result of technological, regulatory and business 
practice changes. This is evidenced by the low annual volume for each 
of these examinations and the relatively low number of individuals who 
currently hold these registrations.
    Investment Company and Variable Products Representatives, 
Investment Company and Variable Contracts Products Principals, Order 
Processing Assistant Representatives, Options Representatives, and 
Corporate Securities Representatives would be eligible to maintain 
their registrations with the Exchange. Specifically, proposed Rule 
1220.06 provides that, subject to the lapse of registration provisions 
in proposed Rule 1210.08, individuals who are registered with the 
Exchange in any capacity recognized by the Exchange immediately prior 
to October 1, 2018, and each person who was registered with the 
Exchange in such categories within two years prior to October 1, 2018, 
shall be eligible to maintain such registrations with the Exchange. 
However, if individuals registered in these categories terminate their 
registration with the Exchange and the registration remains terminated 
for two or more years, they would not be able to re-register in that 
category. In addition, proposed Rule 1220.06 would include the current 
restrictions to which Order Processing Assistant Representatives are 
subject under Rule 1042.\73\
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    \73\ Proposed Exchange Rule 1220.06 omits references to a number 
of registration categories it does not propose to recognize, but 
which FINRA refers to in its own Rule 1220.06.
---------------------------------------------------------------------------

18. Grandfathering Provisions
    In addition to the grandfathering provisions in proposed Rule 
1220(a)(2) (relating to General Securities Principals) and proposed 
Rule 1220.06 (relating to the eliminated registration categories), the 
Exchange is proposing to include grandfathering provisions in proposed 
Rule 1220(a)(8) (Registered Options Principal), 1220(b)(2) (General 
Securities Representative), and 1220(b)(4) (Securities Trader). 
Specifically, the proposed grandfathering provisions provide that, 
subject to the lapse of registration provisions in proposed Rule 
1210.08, individuals who are registered in specified registration 
categories on the operative date of the proposed rule change and 
individuals who had been registered in such categories within the past 
two years prior to the operative date of the proposed rule change would 
be qualified to register in the proposed corresponding registration 
categories without having to take any additional examinations.
N. Associated Persons Exempt From Registration (Proposed Rules 1230 and 
1230.01)
    Rule 1060(a) currently provides that the following persons 
associated with a member are not required to register:
    (1) Persons associated with a member whose functions are solely and 
exclusively clerical or ministerial;
    (2) persons associated with a member who are not actively engaged 
in the investment banking or securities business;
    (3) persons associated with a member whose functions are related 
solely and exclusively to the member's need for nominal corporate 
officers or for capital participation; and
    (4) persons associated with a member whose functions are related 
solely and exclusively to: (A) Effecting transactions on the floor of 
another national securities exchange and who are registered as floor 
members with such exchange; (B) transactions in municipal securities; 
(C) transactions in commodities; (D) transactions in security futures, 
provided that any such person is registered with FINRA or a registered 
futures association; or (E) transactions in variable contracts and 
insurance premium funding programs and other contracts issued by an 
insurance company; (F) transactions in

[[Page 52003]]

direct participation programs; (G) Reserved; (H) transactions in 
government securities; or (I) effecting sales as part of a primary 
offering of securities not involving a public offering pursuant to 
Section 3(b), 4(2), or 4(6) of the Securities Act of 1933 and the rules 
and regulations thereunder.
    (5) Persons associated with a member that are not citizens, 
nationals, or residents of the United States or any of its territories 
or possessions and that will conduct all of their securities activities 
in areas outside the jurisdiction of the United States and will not 
engage in any securities activities with or for any citizen, national 
or resident of the United States.
    Rule 1060(a) is not meant to provide an exclusive or exhaustive 
list of exemptions from registration. Associated persons may otherwise 
be exempt from registration based on their activities and functions.
    The Exchange is proposing to adopt Rule 1060(a) as Rule 1230 
subject to the following changes. As noted above, Rule 1060(a) exempts 
from registration those associated persons who are not actively engaged 
in the investment banking or securities business. Rule 1060(a) also 
exempts from registration those associated persons whose functions are 
related solely and exclusively to a member's need for nominal corporate 
officers or for capital participation.\74\ The Exchange believes that 
the determination of whether an associated person is required to 
register must be based on an analysis of the person's activities and 
functions in the context of the various registration categories. The 
Exchange does not believe that categorical exemptions for associated 
persons who are not ``actively engaged'' in a member's investment 
banking or securities business, associated persons whose functions are 
related only to a member's need for nominal corporate officers or 
associated persons whose functions are related only to a member's need 
for capital participation is consistent with this analytical framework. 
The Exchange therefore is proposing to delete these exemptions. Rule 
1060(a) further exempts from registration associated persons whose 
functions are related solely and exclusively to effecting transactions 
on the floor of another national securities exchange as long as they 
are registered as floor members with such exchange. Because exchanges 
have registration categories other than the floor member category, 
proposed Rule 1230 clarifies that the exemption applies to associated 
persons solely and exclusively effecting transactions on the floor of 
another national securities exchange, provided they are appropriately 
registered with such exchange.\75\ Additionally, the Exchange proposes 
to add Section 3 of Rule 1230, pursuant to which persons associated 
with a member that are not citizens, nationals, or residents of the 
United States or any of its territories or possessions, that will 
conduct all of their securities activities in areas outside the 
jurisdiction of the United States, and that will not engage in any 
securities activities with or for any citizen, national or resident of 
the United States need not register with the Exchange.\76\
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    \74\ These exemptions generally apply to associated persons who 
are corporate officers of a member in name only to meet specific 
corporate legal obligations or who only provide capital for a 
member, but have no other role in a member's business.
    \75\ Proposed Rule 1230 differs from FINRA Rule 1230 in that it 
contains a number of additional exemptions, based upon current 
Nasdaq Rule 1060(a), which are not included in FINRA Rule 1230.
    \76\ Individuals described by Section 3 of Rule 1230 who are 
associated with FINRA members may be registered with FINRA as 
Foreign Associates pursuant to FINRA Rule 1220.06. FINRA is 
eliminating this registration category effective October 1, 2018, 
and the Exchange has never recognized it.
---------------------------------------------------------------------------

    The Exchange proposes to adopt Rule 1230.01 to clarify that the 
function of accepting customer orders is not considered a clerical or 
ministerial function 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.
O. Changes to CE Requirements (Proposed Rule 1240)
    As described above, current Rule 1120 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 annual, member-developed and 
administered training programs designed to keep covered registered 
persons current regarding securities products, services and strategies 
offered by the member. The Exchange is proposing to delete Rule 1120 
and replace it with Rule 1240. Proposed Rule 1240 would differ from 
current Rule 1120 in a number of respects, discussed below.\77\
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    \77\ Proposed Rule 1240 also differs slightly from FINRA Rule 
1240 in that it omits references to certain registration categories 
which the Exchange does not recognize as well as an internal cross 
reference to FINRA Rule 4517.
---------------------------------------------------------------------------

1. Regulatory Element
    The Exchange is proposing to replace the term ``registered person'' 
under current Rule 1120(a) with the term ``covered person'' and make 
conforming changes to proposed Rule 1240(a). For purposes of the 
Regulatory Element, the Exchange is proposing to define the term 
``covered person'' in Rule 1240(a)(5) as any person registered pursuant 
to proposed Rule 1210, including any person who is permissively 
registered pursuant to proposed Rule 1210.02, and any person who is 
designated as eligible for an FSA waiver pursuant to proposed Rule 
1210.09. The purpose of this change is to ensure that all registered 
persons, including those with permissive registrations, keep their 
knowledge of the securities industry current. The inclusion of persons 
designated as eligible for an FSA waiver under the term ``covered 
persons'' corresponds to the requirements of proposed Rule 1210.09. In 
addition, consistent with proposed Rule 1210.09, proposed Rule 1240(a) 
provides that an FSA-eligible person 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. The proposed rule also provides that if an FSA-
eligible person fails to complete the Regulatory Element during the 
prescribed time frames, he or she would lose FSA eligibility.
    Further, the Exchange is proposing to add a rule to address the 
impact of failing to complete the Regulatory Element on a registered 
person's activities and compensation. Specifically, proposed Rule 
1240(a)(2) provides that any person whose registration has been deemed 
inactive under the rule may not accept or solicit business or receive 
any compensation for the purchase or sale of securities. However, like 
the FINRA rule, the proposed rule provides that such person may receive 
trail or residual commissions resulting from transactions completed 
before the inactive status, unless the member with which the person is 
associated has a policy prohibiting such trail or residual commissions.
    The Exchange is also proposing to remove the requirements currently 
found in Rule 1120(a)(1) prescribing the

[[Page 52004]]

specific Regulatory Elements administered by FINRA that are required 
for General Securities Representatives, Securities Traders or persons 
registered in a supervisory capacity, so that Rule 1240(a)(1) will 
conform more closely to the FINRA counterpart rule which does not 
identify specific Regulatory Element requirements for particular 
categories of registrant.
2. Firm Element
    The Exchange believes that training in ethics and professional 
responsibility should apply to all covered registered persons. 
Therefore, proposed Rule 1240(b)(2)(B), which provides that the Firm 
Element training programs must cover applicable regulatory 
requirements, would also require that a firm's training program cover 
training in ethics and professional responsibility.
P. Electronic Filing Rules
    Existing Rule 1140, Electronic Filing Requirements for Uniform 
Forms, is proposed to be relocated as Rule 1250, Electronic 
Requirements for Uniform Forms, with non-substantive conforming 
changes. As revised the rule provides that all forms required to be 
filed under the Exchange's registration rules including the Rule 1200 
series shall be filed through an electronic process or such other 
process as the Exchange may prescribe to the Central Registration 
Depository. Rule 1250, as part of the uniform 1200 Series, will 
consolidate Form U4 and U5 electronic filing requirements in a single 
location, across the Nasdaq Affiliated Exchanges.
Q. Other Rules
    The Exchange is deleting Rule 1060, Persons Exempt from 
Registration, as explained above. Rule 1060(b) however, contains 
provisions dealing with Nonregistered Foreign ``Finders'' and is simply 
being relocated with non-substantive changes to new Rule 2040.\78\ The 
remaining rules identified above under ``Overview'' which are to be 
amended in this proposed rule change but are not further discussed 
herein simply update citations and/or make technical or non-substantive 
changes to the proposed new rules.
---------------------------------------------------------------------------

    \78\ The FINRA counterpart to current Rule 1060(b) occupies a 
similar location in the FINRA rulebook. See FINRA Rule 2040(c), 
Nonregistered Foreign Finders.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\79\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\80\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest.
---------------------------------------------------------------------------

    \79\ 15 U.S.C. 78f(b).
    \80\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change will 
streamline, and bring consistency and uniformity to, the registration 
rules, which will, in turn, assist members 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, 
by eliminating duplicative testing of general securities knowledge on 
examinations and by removing examinations that currently have limited 
utility. In addition, the proposed rule change will expand the scope of 
permissive registrations, which, among other things, will allow members 
to develop a depth of associated persons with registrations to respond 
to unanticipated personnel changes and will encourage greater 
regulatory understanding. Further, the proposed rule change will 
provide a more streamlined and effective waiver process for individuals 
working for a financial services industry affiliate of a member, and it 
will require such individuals to maintain specified levels of 
competence and knowledge while working in areas ancillary to the 
securities business. The proposed rule change will improve the 
supervisory structure of firms by imposing an experience requirement 
for representatives that are designated by firms to function as 
principals for a 120-day period before having to pass an appropriate 
principal qualification examination. The proposed rule change will also 
prohibit unregistered persons from accepting customer orders under any 
circumstances, which will enhance investor protection.
    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.
    The extension of the Securities Trader registration requirement to 
developers of algorithmic trading strategies requires associated 
persons primarily responsible for the design, development or 
significant modification of an algorithmic trading strategy or 
responsible for the day-to-day supervision or direction of such 
activities to register and meet a minimum standard of knowledge 
regarding the securities rules and regulations applicable to the member 
employing the algorithmic trading strategy. This minimum standard of 
knowledge is identical to the standard of knowledge currently 
applicable to traditional securities traders. The Exchange believes 
that improved education of firm personnel may reduce the potential for 
problematic market conduct and manipulative trading activity.
    Finally, the proposed rule change makes organizational changes to 
Exchange rules to maintain appropriate parallelism with corresponding 
Exchange rules, in order to prevent unnecessary regulatory burdens and 
promote efficient administration of the rules. The change also makes 
minor updates and corrections to the Exchange's rules which improve 
readability.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change is 
designed to ensure that all associated persons of members engaged in a 
securities business are, and will continue to be, properly trained and 
qualified to perform their functions, will be supervised, and can be 
identified by regulators. The proposed new 1200 Series of rules, which 
are similar in many respects to the registration-related requirements 
adopted by FINRA effective October 1, 2018, should enhance the ability 
of member firms to comply with the Exchange's rules as well as with the 
Federal securities laws. Additionally, as described above, the Exchange 
intends the amendments described herein to eliminate inconsistent 
registration-related requirements across the Nasdaq Affiliated 
Exchanges, thereby promoting uniformity of regulation across markets. 
The new 1200 Series should in fact remove administrative burdens that 
currently exist for members seeking to register associated persons on 
multiple Nasdaq Affiliated Exchanges featuring varying registration-
related requirements. Additionally, all similarly-situated associated 
persons of

[[Page 52005]]

members will be treated similarly under the new 1200 Series in terms of 
standards of training, experience and competence for persons associated 
with Exchange members.
    With respect to registration of developers of algorithmic trading 
strategies in particular, the Exchange recognizes that the proposal 
would impose costs on member firms employing associated persons engaged 
in the activity subject to the registration requirement. Specifically, 
among other things, additional associated persons would be required to 
become registered under the proposal, and the firm would need to 
establish policies and procedures to monitor compliance with the 
proposed requirement on an ongoing basis. However, given the prevalence 
and importance of algorithmic trading strategies in today's markets, 
the Exchange believes that associated persons engaged in the activities 
covered by this proposal must meet a minimum standard of knowledge 
regarding the applicable securities rules and regulations. To mitigate 
the costs imposed on member firms, the proposed rule change limits the 
scope of registration requirement by excluding technological or 
development support personnel who are not primarily responsible for the 
covered activities. It also excludes supervisors who are not 
responsible for the ``day-to-day'' supervision or direction of the 
covered activities.

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

    No written comments were either solicited or received.

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

    Because the 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) \81\ 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.\82\ 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.\83\
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    \81\ 17 CFR 240.19b-4(f)(6)(iii).
    \82\ See supra note 5.
    \83\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \84\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \84\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2018-078 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-NASDAQ-2018-078. 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-NASDAQ-2018-078, and should be submitted 
on or before November 5, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\85\
---------------------------------------------------------------------------

    \85\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22295 Filed 10-12-18; 8:45 am]
 BILLING CODE 8011-01-P



                                               51988                           Federal Register / Vol. 83, No. 199 / Monday, October 15, 2018 / Notices

                                               or by sending an email to:                                 II. Self-Regulatory Organization’s                     in many respects.6 Recently, the
                                               Lindsay.M.Abate@omb.eop.gov; and (ii)                      Statement of the Purpose of, and                       Commission approved a FINRA
                                               Charles Riddle, Acting Director/Chief                      Statutory Basis for, the Proposed Rule                 proposed rule change consolidating and
                                               Information Officer, Securities and                        Change                                                 adopting NASD and Incorporated NYSE
                                               Exchange Commission, c/o Candace                                                                                  rules relating to qualification and
                                                                                                            In its filing with the Commission, the               registration requirements into the
                                               Kenner, 100 F Street NE, Washington,                       Exchange included statements
                                               DC 20549 or send an email to: PRA_                                                                                Consolidated FINRA Rulebook,7
                                                                                                          concerning the purpose of and basis for                restructuring the FINRA representative-
                                               Mailbox@sec.gov. Comments must be                          the proposed rule change and discussed
                                               submitted to OMB within 30 days of                                                                                level qualification examinations,
                                                                                                          any comments it received on the                        creating a general knowledge
                                               this notice.                                               proposed rule change. The text of these                examination and specialized knowledge
                                                 Dated: October 9, 2018.                                  statements may be examined at the                      examinations, allowing permissive
                                               Eduardo A. Aleman,                                         places specified in Item IV below. The                 registration, establishing an examination
                                                                                                          Exchange has prepared summaries, set                   waiver process for persons working for
                                               Assistant Secretary.
                                                                                                          forth in sections A, B, and C below, of                a financial services affiliate of a
                                               [FR Doc. 2018–22288 Filed 10–12–18; 8:45 am]
                                                                                                          the most significant aspects of such                   member, and amending certain
                                               BILLING CODE 8011–01–P                                     statements.                                            continuing education (‘‘CE’’)
                                                                                                          A. Self-Regulatory Organization’s                      requirements (collectively, the ‘‘FINRA
                                                                                                          Statement of the Purpose of, and                       Rule Changes’’).8 The FINRA Rule
                                               SECURITIES AND EXCHANGE
                                                                                                          Statutory Basis for, the Proposed Rule                 Changes will become effective on
                                               COMMISSION
                                                                                                          Change                                                 October 1, 2018.
                                                                                                                                                                    The Exchange now proposes to
                                               [Release No. 34–84386; File No. SR–                        1. Purpose                                             amend, reorganize and enhance certain
                                               NASDAQ–2018–078]                                                                                                  of its corresponding membership,
                                                                                                          Overview
                                                                                                                                                                 registration and qualification
                                               Self-Regulatory Organizations; The                            Nasdaq has adopted registration                     requirements rules in part in response to
                                               Nasdaq Stock Market LLC; Notice of                         requirements to ensure that associated                 the FINRA Rule Changes, and also in
                                               Filing and Immediate Effectiveness of                      persons attain and maintain specified                  order to facilitate the adoption of similar
                                               Proposed Rule Change To Amend,                             levels of competence and knowledge                     membership, registration and
                                               Reorganize and Enhance Its                                 pertinent to their function. In general,               qualification rules by Nasdaq’s affiliated
                                               Membership, Registration and                               the current rules require that persons                 exchanges in the interest of uniformity
                                               Qualification Rules                                        engaged in a member’s investment                       and to facilitate compliance with
                                                                                                          banking or securities business who are                 membership, registration and
                                               October 9, 2018.                                           to function as representatives or                      qualification regulatory requirements by
                                                  Pursuant to Section 19(b)(1) of the                     principals register with the Exchange in               members of multiple Nasdaq-affiliated
                                               Securities Exchange Act of 1934                            each category of registration appropriate              exchanges. At the same time, the
                                               (‘‘Act’’),1 and Rule 19b–4 thereunder,2                    to their functions by passing one or                   Exchange is proposing to further amend
                                               notice is hereby given that on                             more qualification examinations,3 and                  or delete certain existing Exchange rules
                                               September 27, 2018, The Nasdaq Stock                       exempt specified associated persons                    originally based upon FINRA rules but
                                               Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’)                    from the registration requirements.4
                                                                                                          They also prescribe ongoing continuing                    6 See Securities Exchange Act Release No. 54136
                                               filed with the Securities and Exchange                                                                            (July 12, 2006), 71 FR 40759 (July 18, 2006).
                                                                                                          education requirements for registered
                                               Commission (‘‘SEC’’ or ‘‘Commission’’)                                                                               7 The current FINRA rulebook consists of: (1)
                                                                                                          persons.5 The Exchange now proposes
                                               the proposed rule change as described                                                                             FINRA rules; (2) NASD rules; and (3) rules
                                                                                                          to amend, reorganize and enhance its                   incorporated from the New York Stock Exchange
                                               in Items I and II, below, which Items                      rules regarding registration,                          (‘‘NYSE’’) (the ‘‘Incorporated NYSE rules’’). While
                                               have been prepared by the Exchange.                        qualification examinations and                         the NASD rules generally apply to all FINRA
                                               The Commission is publishing this                          continuing education, as described
                                                                                                                                                                 members, the Incorporated NYSE rules apply only
                                                                                                                                                                 to those members of FINRA that are also members
                                               notice to solicit comments on the                          below.                                                 of the NYSE.
                                               proposed rule change from interested                                                                                 8 See Securities Exchange Act Release No. 81098
                                                                                                            In 2006 Nasdaq separated from the
                                               persons.                                                                                                          (July 7, 2017), 82 FR 32419 (July 13, 2017) (Order
                                                                                                          National Association of Securities                     Approving File No. SR–FINRA–2017–007). See also
                                               I. Self-Regulatory Organization’s                          Dealers, Inc. (formerly ‘‘NASD’’ and                   FINRA Regulatory Notice 17–30 (SEC Approves
                                               Statement of the Terms of Substance of                     now the Financial Industry Regulatory                  Consolidated FINRA Registration Rules,
                                                                                                          Authority or ‘‘FINRA’’) and began to                   Restructured Representative-Level Qualification
                                               the Proposed Rule Change                                                                                          Examinations and Changes to Continuing Education
                                                                                                          operate as a national securities                       Requirements) (October 2017). FINRA articulated
                                                  The Exchange proposes to amend,                         exchange. At that time it adopted a                    its belief that the proposed rule change would
                                               reorganize and enhance its membership,                     rulebook with provisions respecting                    streamline, and bring consistency and uniformity
                                               registration and qualification rules, and                                                                         to, its registration rules, which would, in turn,
                                                                                                          registration, qualification examinations               assist FINRA members and their associated persons
                                               to make conforming changes to certain                      and continuing education that were                     in complying with the rules and improve regulatory
                                               other rules.                                               designed to parallel the NASD rulebook                 efficiency. FINRA also determined to enhance the
                                                                                                                                                                 overall efficiency of its representative-level
                                                  The text of the proposed rule change                                                                           examinations program by eliminating redundancy
                                                                                                            3 See, e.g., Exchange Rules 1021, Registration
                                               is available on the Exchange’s website at                                                                         of subject matter content across examinations,
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                                                                                                          Requirements, 1022, Categories of Principal            retiring several outdated representative-level
                                               http://nasdaq.cchwallstreet.com, at the                    Registration, 1031, Registration Requirements, 1032,   registrations, and introducing a general knowledge
                                               principal office of the Exchange, and at                   Categories of Representative Registration, and 1041,   examination that could be taken by all potential
                                               the Commission’s Public Reference                          Registration Requirements for Assistant                representative-level registrants and the general
                                                                                                          Representatives.                                       public. FINRA amended certain aspects of its
                                               Room.                                                        4 See Rule 1060, Persons Exempt from
                                                                                                                                                                 continuing education rule, including by codifying
                                                                                                          Registration.                                          existing guidance regarding the effect of failing to
                                                 1 15   U.S.C. 78s(b)(1).                                   5 See Rule 1120, Continuing Education                complete the Regulatory Element on a registered
                                                 2 17   CFR 240.19b–4.                                    Requirements.                                          person’s activities and compensation.



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                                                                             Federal Register / Vol. 83, No. 199 / Monday, October 15, 2018 / Notices                                                        51989

                                               which are no longer appropriate for the                   with conforming changes, or relocated                    The proposed rule change would
                                               business conducted by Nasdaq or its                       in view of the foregoing amendments.12                 become operative October 1, 2018 with
                                               affiliated exchanges.9 Last, the Exchange                    In place of the deleted rules and rule              the exception of the new registration
                                               proposes to enhance its registration                      sections, the Exchange proposes to                     requirement for developers of
                                               rules by adding a new registration                        adopt a new 1200 Series of rules                       algorithmic trading strategies which
                                               requirement applicable to developers of                   captioned Registration, Qualification                  would become operative on April 1,
                                               algorithmic trading systems similar to a                  and Continuing Education, generally                    2019.
                                               requirement adopted by FINRA                              conforming to and based upon FINRA’s                   Proposed Rules
                                               pursuant to a 2016 FINRA proposed rule                    new 1200 Series of rules resulting from
                                               change.10                                                 the FINRA Rule Changes, but with a                     A. Registration Requirements (Proposed
                                                                                                         number of Exchange-specific                            Rule 1210)
                                                  As part of this proposed rule change,
                                               current IM–1002–2, Status of Persons                      variations.13 The proposed new 1200                      Exchange Rules 1021(a) and 1031(a)
                                               Serving in the Armed Forces of the                        Series is also being proposed for                      currently require that persons engaged,
                                               United States; IM–1002–3, Failure to                      adoption by Nasdaq’s affiliated                        or to be engaged, in the investment
                                               Register Personnel; 1020, Registration of                 exchanges in order to facilitate                       banking or securities business of a
                                                                                                         compliance with membership,                            member who are to function as
                                               Principals; 1021, Registration
                                                                                                         registration and qualification regulatory              representatives or principals register
                                               Requirements; 1022, Categories of
                                                                                                         requirements by members of two or                      with the Exchange in the category of
                                               Principal Registration; IM–1022–1,
                                                                                                         more of those affiliated exchanges.14 In               registration appropriate to their
                                               Reserved; IM–1022–2, Limited
                                                                                                         the new 1200 Series the Exchange                       functions as specified in Exchange
                                               Principal-General Securities Sales
                                                                                                         would, among other things, recognize                   Rules 1022 and 1032.16 The Exchange is
                                               Supervisor; 1030, Registration of
                                                                                                         additional associated person registration              proposing to consolidate and streamline
                                               Representatives; 1031, Registration
                                                                                                         categories, recognize a new general                    provisions of Exchange Rules 1021(a)
                                               Requirements, Sections (a)–(e); 1032,
                                                                                                         knowledge examination, permit the                      and 1031(a) and to adopt them as
                                               Categories of Representative
                                                                                                         maintenance of permissive registrations,               Exchange Rule 1210, subject to several
                                               Registration; 1040, Registration of
                                                                                                         and require Securities Trader                          changes.17
                                               Assistant Representatives; 1041,                                                                                   Proposed Rule 1210 provides that
                                                                                                         registration of developers of algorithmic
                                               Registration Requirements for Assistant                                                                          each person engaged in the securities
                                                                                                         trading strategies consistent with a
                                               Representatives; 1042, Restrictions for                                                                          business of a member must register with
                                                                                                         comparable existing FINRA registration
                                               Assistant Representatives; 1043,                                                                                 the Exchange as a representative or
                                                                                                         requirement.15
                                               Reserved; 1060, Persons Exempt from                                                                              principal in each category of registration
                                               Registration 11; 1070, Qualification                         12 Conforming amendments are proposed to Rules      appropriate to his or her functions and
                                               Examinations and Waiver of                                0120, Definitions; 1050, Research Analysts; 3010,      responsibilities as specified in proposed
                                               Requirements; 1080, Confidentiality of                    Supervision; 7003, Registration and Processing         Rule 1220, unless exempt from
                                               Examinations; 1100, Reserved; 1110,                       Fees; IM–9216, Violations Appropriate for
                                                                                                         Disposition Under Plan Pursuant to SEC Rule 19d–       registration pursuant to proposed Rule
                                               Reserved; 1120, Continuing Education                      1(c)(2); and 9630, Appeal. In the Exchange’s           1230. Unlike current Rules 1021(a) and
                                               Requirements; and Chapter II, Section 2,                  Options Rules, amendments are proposed to              1031(a), proposed Rule 1210 would not
                                               Requirements for Options Participation,                   Chapter XI, Section 2, Registration of Options
                                               Subsections (g) and (h) and Commentary                    Principals and Section 3, Registration of
                                                                                                                                                                algorithmic trading strategies by proposing to
                                                                                                         Representatives.
                                               .01, are proposed to be deleted. Rule                        13 The proposed 1200 Series of Rules would
                                                                                                                                                                require registration, as Securities Traders, of
                                               1140, Electronic Filing Requirements for                                                                         associated persons primarily responsible for the
                                                                                                         consist of Rule 1210, Registration Requirements;       design, development or significant modification of
                                               Uniform Forms, is proposed to be                          Rule 1220, Registration Categories; Rule 1230,         algorithmic trading strategies, or who are
                                               amended and relocated. A number of                        Associated Persons Exempt from Registration; Rule      responsible for the day-to-day supervision or
                                               other rules are proposed to be amended                    1240, Continuing Education Requirements; and           direction of such activities.
                                                                                                         Rule 1250, Electronic Filing Requirements for             16 In addition, IM–1002–3 provides that the
                                                                                                         Uniform Forms.
                                                  9 For example, the Exchange is deleting the
                                                                                                                                                                failure to register an individual as a registered
                                                                                                            14 The Exchange’s five affiliated exchanges,
                                                                                                                                                                representative may be deemed to be conduct
                                               Limited Principal—Investment Company and                  Nasdaq BX, Inc. (‘‘BX’’), Nasdaq PHLX LLC              inconsistent with just and equitable principles of
                                               Variable Contracts Products (current Nasdaq Rule          (‘‘PHLX’’), Nasdaq ISE, LLC (‘‘ISE’’), Nasdaq GEMX,    trade and may be sufficient cause for appropriate
                                               1022(d)), Limited Representative—Investment               LLC (‘‘GEMX’’), and Nasdaq MRX, LLC (‘‘MRX’’)          disciplinary action. As explained below the
                                               Company and Variable Contracts Products (current          (together with Nasdaq, the ‘‘Nasdaq Affiliated         Exchange proposes to delete IM–1002–3 as
                                               Nasdaq Rule 1032(b)) and Introducing Broker/              Exchanges’’) are also submitting proposed rule         superfluous.
                                               Dealer Financial and Operations Principal (current        changes to adopt the 1200 Series of rules. See SR–        17 Rule 1031, Registration Requirements, contains
                                               Nasdaq Rule 1022(c)) registration categories from         BX–2018–047, SR–Phlx–2018–61, SR–ISE–2018–82,          certain sections that are not affected by this
                                               the array of registration categories recognized by the    SR–GEMX–2018–33, and SR–MRX–2018–31. The               proposed rule change. However, due to the overall
                                               Exchange. Although FINRA is retaining these               Exchange recently added a shell structure to its       organizational restructuring of the registration rules,
                                               registration categories for its own purposes, the         rulebook with the purpose of improving efficiency      those sections (current Rules 1031(c), (d) and (e))
                                               activities permitted by registration in those             and readability and to align its rules more closely    are being relocated with non-substantive
                                               categories have little or no practical relevance to the   to those of the other Nasdaq Affiliated Exchanges.     amendments to new Supplementary Material .12,
                                               Exchange.                                                 See Securities Exchange Act Release No. 82175          Application for Registration and Jurisdiction, to
                                                  10 See Securities Exchange Act Release No. 77551       (November 29, 2017), 82 FR 57494 (December 5,          proposed Rule 1210, Registration Requirements.
                                               (April 7, 2016), 81 FR 21914 (April 13, 2016) (Order      2017) (SR–NASDAQ–2017–125). Ultimately, the            These relocated provisions govern the process for
                                               Approving File No. SR–FINRA–2016–007). In its             Exchange intends to submit another proposed rule       applying for registration and amending the
                                               proposed rule change FINRA addressed the                  change to transfer the 1200 Series of rules into the   registration application, as well as for notifying the
                                               increasing significance of algorithmic trading            new shell structure. (The Exchange notes that the      Exchange of termination of a member’s association
                                               strategies by amending its rules to require               Phlx 1200 Series of rules would differ slightly from   with a person registered with the Exchange. The
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                                               registration, as Securities Traders, of associated        the 1200 Series of the other Nasdaq Affiliated         Exchange proposes to adopt Rule 1210,
                                               persons primarily responsible for the design,             Exchanges given Phlx’s trading floor and its unique    Supplemental Material .12, into the 1200 Series in
                                               development or significant modification of                membership structure which features the concept of     order to have uniform processes and requirements
                                               algorithmic trading strategies, or who are                a ‘‘member organization.’’).                           in this area across the Nasdaq Affiliated Exchanges.
                                               responsible for the day-to-day supervision or                15 See Securities Exchange Act Release No. 77551    This relocated language is unique to the Exchange—
                                               direction of such activities.                             (April 7, 2016), 81 FR 21914 (April 13, 2016) (order   the FINRA Rule Changes do not contain a
                                                  11 Provisions currently found in Rule 1060(b) are      approving SR–FINRA–2016–007). In its proposed          counterpart Rule 1210 Supplementary Material .12.
                                               being amended and relocated to new Rule 2040, as          rule change to adopt this registration requirement,    The Exchange anticipates amending Rule 1031(f) in
                                               discussed below.                                          FINRA addressed the increasing significance of         a future proposed rule change.



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                                               51990                        Federal Register / Vol. 83, No. 199 / Monday, October 15, 2018 / Notices

                                               require persons engaged in the                          Broker/Dealer Financial and Operations                   C. Permissive Registrations (Proposed
                                               investment banking business of a                        Principal).19                                            Rule 1210.02)
                                               member to register with the Exchange                       The Exchange is proposing to adopt                       Rules 1021(a) and 1031(a) currently
                                               since a member’s investment banking                     Rule 1021(e) as Rule 1210.01, subject to                 permit a member to register or maintain
                                               business is not the primary concern of                  the following changes. The Exchange                      the registration(s) as a representative or
                                               the Exchange or the focus of its                        proposes to provide firms that limit the                 principal of an individual performing
                                               operations.18 Proposed Exchange Rule                    scope of their business with greater                     legal, compliance, internal audit, back-
                                               1210 also provides that such person is                  flexibility to satisfy the two-principal                 office operations or similar
                                               not qualified to function in any                        requirement. In particular, proposed                     responsibilities for the member. Rule
                                               registered capacity other than that for                 Rule 1210.01 requires that a member                      1031(a) also permits a member to
                                               which the person is registered, unless                  have a minimum of two General                            register or maintain the registration as a
                                               otherwise stated in the rules. This latter              Securities Principals, provided that a                   representative of an individual
                                               provision is a consolidation of similar                 member that is limited in the scope of                   performing administrative support
                                                                                                       its activities may instead have two                      functions for registered persons. In
                                               provisions in the registration categories
                                                                                                       officers or partners who are registered in               addition, Rules 1021(a) and 1031(a)
                                               under the current Exchange rules.
                                                                                                       a principal category that corresponds to                 permit a member to register or maintain
                                                  Further, the Exchange is proposing to                the scope of the member’s activities.20
                                               delete Exchange IM–1002–3 because it                                                                             the registration(s) as a representative or
                                                                                                       For instance, if a firm’s business is                    principal of an individual engaged in
                                               is superfluous. The failure to register a               limited to securities trading, the firm                  the investment banking or securities
                                               representative as required under current                may have two Securities Trader                           business of a foreign securities affiliate
                                               Exchange Rule 1031(a) is in fact a                      Principals, instead of two General                       or subsidiary of the member.
                                               violation of Exchange rules.                            Securities Principals. Currently, a sole                    The Exchange is proposing to
                                                                                                       proprietor member (without any other                     consolidate these provisions under Rule
                                               B. Minimum Number of Registered                         associated persons) is not subject to the
                                               Principals (Proposed Rule 1210.01)                                                                               1210.02. The Exchange is also proposing
                                                                                                       two-principal requirement because such                   to expand the scope of permissive
                                                  Rule 1021(e)(1) currently requires that              member is operating as a one-person                      registrations and to clarify a member’s
                                               a member, except a sole proprietorship,                 firm. Given that one-person firms may                    obligations regarding individuals who
                                               have a minimum of two registered                        be organized in legal forms other than                   are maintaining such registrations.
                                               principals with respect to each aspect of               a sole proprietorship (such as a single-                    Specifically, proposed Rule 1210.02
                                               the member’s investment banking and                     person limited liability company),                       allows any associated person to obtain
                                               securities business pursuant to the                     proposed Exchange Rule 1210.01                           and maintain any registration permitted
                                                                                                       provides that any member with only one                   by the member. For instance, an
                                               applicable provisions of Rule 1022,
                                                                                                       associated person is excluded from the                   associated person of a member working
                                               provided however that a proprietary
                                                                                                       two principal requirement. In addition,                  solely in a clerical or ministerial
                                               trading firm with 25 or fewer registered
                                                                                                       proposed Rule 1210.01 clarifies that                     capacity, such as in an administrative
                                               representatives shall only be required to
                                                                                                       existing members as well as new                          capacity, would be able to obtain and
                                               have one registered principal. This                     applicants may request a waiver of the
                                               requirement applies to applicants for                                                                            maintain a General Securities
                                                                                                       two-principal requirement. Finally, the                  Representative registration with the
                                               membership and existing members.                        Exchange is proposing to retain the
                                               Exchange Rule 1021(e)(2) also provides                                                                           member. As another example, an
                                                                                                       existing rule’s provision permitting a                   associated person of a member who is
                                               that, pursuant to the Exchange’s Rule                   proprietary trading firm with 25 or
                                               9600 Series, the Exchange may waive                                                                              registered, and functioning solely, as a
                                                                                                       fewer registered representatives to have                 General Securities Representative would
                                               the principal requirements of Rule                      just one registered principal. The FINRA
                                               1021(e)(1) in situations that indicate                                                                           be able to obtain and maintain a General
                                                                                                       Rule Changes do not include this                         Securities Principal registration with the
                                               conclusively that only one person                       provision.21                                             member. Further, proposed Rule
                                               associated with an applicant for
                                                                                                                                                                1210.02 allows an individual engaged in
                                               membership should be required to                          19 Exchange Rules 1022(b) and (c) as well as other
                                                                                                                                                                the securities business of a foreign
                                               register as a principal. Rule 1021(e)(3)                Exchange rules currently refer to categories of
                                                                                                       limited principal registration as ‘‘Limited              securities affiliate or subsidiary of a
                                               provides that an applicant for
                                                                                                       Principal—’’ followed by the name of the                 member to obtain and maintain any
                                               membership, if the nature of its business               registration category. In this proposed rule change      registration permitted by the member.
                                               so requires, must also have at least one                and in the proposed rules, the Exchange will no             The Exchange is proposing to permit
                                               person qualified for registration under                 longer employ the term ‘‘Limited Principal—’’ in
                                                                                                                                                                the registration of such individuals for
                                               Rule 1022(b) and (c) as a Financial and                 identifying various principal registration categories.
                                                                                                       No substantive change is intended; shortening the        several reasons. First, a member may
                                               Operations Principal (or an Introducing                 names of the various principals simply improves          foresee a need to move a former
                                                                                                       readability of the rules.                                representative or principal who has not
                                                  18 Miami International Securities Exchange LLC         20 The principal registration categories are
                                                                                                                                                                been registered for two or more years
                                               (‘‘MIAX’’) Rule 203(a) and ISE Rule 313(a)(1)           described in greater detail below.
                                               likewise require registration of associated persons       21 The Exchange is not proposing provisions
                                                                                                                                                                back into a position that would require
                                               of members engaged in the member’s securities           conforming to the new FINRA Rule 1210.01                 such person to be registered. Currently,
                                               business, but do not require registration with the      requirements that all FINRA members are required         such persons are required to requalify
                                               exchanges of associated persons of members who          to have a Principal Financial Officer and a Principal    (or obtain a waiver of the applicable
                                               engage in the member’s investment banking               Operations Officer, because it believes that its         qualification examinations) and reapply
                                               business. Because the Exchange’s proposed               proposed Rule 1220(a)(4), Financial and Operations
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                                               registration rules focus solely on securities trading   Principal, which requires member firms operating         for registration. Second, the proposed
                                               activity, the proposed rules differ from the FINRA      pursuant to certain provisions of SEC rules to
                                               Rule Changes by omitting references to investment       designate at least one Financial and Operations          options activities with the public have a Registered
                                               banking in proposed Rules 1210, 1210.03, 1210.10,       Principal, is sufficient. Further, the Exchange is not   Options Principal. The Exchange does not recognize
                                               1220(a)(1), 1220(a)(2)(B), 1220(b), and 1240(b)(1),     adopting the FINRA Rule 1210.01 requirements that        the Investment Banking Principal or the Research
                                               and also by omitting as unnecessary from Rule           (1) a member engaged in investment banking               Principal registration categories, and the Registered
                                               1220(a)(10) a limitation on the qualification of a      activities have an Investment Banking Principal, (2)     Options Principal registration requirement is set
                                               General Securities Sales Supervisor to supervise the    a member engaged in research activities have a           forth in Rule 1210.08 and its inclusion is therefore
                                               origination and structuring of an underwriting.         Research Principal, or (3) a member engaged in           unnecessary in Rule 1210.01.



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                                                                            Federal Register / Vol. 83, No. 199 / Monday, October 15, 2018 / Notices                                                        51991

                                               rule change would allow members to                      D. Qualification Examinations and                        proposed rule change, individuals
                                               develop a depth of associated persons                   Waivers of Examinations (Proposed                        seeking registration in two or more
                                               with registrations in the event of                      Rule 1210.03)                                            representative-level categories would
                                               unanticipated personnel changes. Third,                    Rules 1021(a) and 1031(a) currently                   experience a net decrease in the total
                                               allowing registration in additional                     set forth general requirements that an                   number of exam questions they would
                                               categories encourages greater regulatory                individual pass an appropriate                           be required to answer because the SIE
                                               understanding. Finally, the proposed                    qualification examination before his or                  content would be tested only once.
                                               rule change would eliminate an                                                                                     The proposed rule change solely
                                                                                                       her registration as a representative or
                                               inconsistency in the current rules,                                                                              impacts the representative-level
                                                                                                       principal can become effective. The
                                               which permit some associated persons                                                                             qualification requirements. The
                                                                                                       Exchange is proposing to consolidate
                                               of a member to obtain permissive                                                                                 proposed rule change does not change
                                                                                                       these provisions and adopt them as Rule
                                               registrations, but not others who equally                                                                        the scope of the activities under the
                                                                                                       1210.03.
                                               are engaged in the member’s business.                                                                            remaining representative categories. For
                                                                                                          In addition, as part of the FINRA Rule
                                                  Individuals maintaining a permissive                                                                          instance, after the operative date of the
                                                                                                       Changes FINRA has adopted a
                                               registration under the proposed rule                                                                             proposed rule change, a previously
                                                                                                       restructured representative-level
                                               change would be considered registered                                                                            unregistered individual registering as a
                                                                                                       qualification examination program                        Securities Trader for the first time
                                               persons and subject to all Exchange                     whereby representative-level registrants
                                               rules, to the extent relevant to their                                                                           would be required to pass the SIE and
                                                                                                       would be required to take a general                      an appropriate specialized knowledge
                                               activities. For instance, an individual                 knowledge examination (the Securities
                                               working solely in an administrative                                                                              examination. However, such individual
                                                                                                       Industry Essentials Exam or ‘‘SIE’’) and                 may engage only in those activities in
                                               capacity would be able to maintain a                    a specialized knowledge examination
                                               General Securities Representative                                                                                which a current Securities Trader may
                                                                                                       appropriate to their job functions at the                engage under current Exchange Rules.
                                               registration and would be considered a                  firm with which they are associating.
                                               registered person for purposes of rules                                                                            Individuals who are registered on the
                                                                                                       Therefore, proposed Rule 1210.03                         operative date of the proposed rule
                                               relating to borrowing from or lending to                provides that before the registration of a
                                               customers, but the rule would have no                                                                            change would be eligible to maintain
                                                                                                       person as a representative can become                    those registrations without being subject
                                               practical application to his or her                     effective under proposed Rule 1210,
                                               conduct because he or she would not                                                                              to any additional requirements.
                                                                                                       such person must pass the SIE and an                     Individuals who had been registered
                                               have any customers.                                     appropriate representative-level                         within the past two years prior to the
                                                  Consistent with the Exchange’s                       qualification examination as specified                   operative date of the proposed rule
                                               supervision rules, members would be                     in proposed Rule 1220. Proposed Rule                     change would also be eligible to
                                               required to have adequate supervisory                   1210.03 also provides that before the                    maintain those registrations without
                                               systems and procedures reasonably                       registration of a person as a principal                  being subject to any additional
                                               designed to ensure that individuals with                can become effective under proposed                      requirements, provided that they
                                               permissive registrations do not act                     Rule 1210, such person must pass an                      reregister with the Exchange within two
                                               outside the scope of their assigned                     appropriate principal-level qualification                years from the date of their last
                                               functions.22 With respect to an                         examination as specified in proposed                     registration.
                                               individual who solely maintains a                       Rule 1220.                                                 Further, registered representatives,
                                               permissive registration, such as an                        Further, proposed 1210.03 provides                    other than an individual registered as an
                                               individual working exclusively in an                    that if the job functions of a registered                Order Processing Assistant
                                               administrative capacity, the individual’s               representative, other than an individual                 Representative, would be considered to
                                               day-to-day supervisor may be a                          registered as an Order Processing                        have passed the SIE in the CRD system,
                                               nonregistered person. Members would                     Assistant Representative, change and he                  and thus if they wish to register in any
                                               be required to assign a registered                      or she needs to become registered in                     other representative category after the
                                               supervisor to this person who would be                  another representative-level category, he                operative date of the proposed rule
                                               responsible for periodically contacting                 or she would not need to pass the SIE                    change, they could do so by taking only
                                               such individual’s day-to-day supervisor                 again. Rather, the registered person                     the appropriate specialized knowledge
                                               to verify that the individual is not acting             would need to pass only the appropriate                  examination.25 However, with respect to
                                               outside the scope of his or her assigned                representative-level qualification
                                               functions. If such individual is                        examination.24 Thus under the                            demonstrate to prospective employers a basic level
                                               permissively registered as a                                                                                     of knowledge prior to submitting a job application.
                                               representative, the registered supervisor                  24 The exception for Order Processing Assistant       Further, this approach would allow for more
                                               must be registered as a representative or               Representatives and Foreign Associates was               flexibility and career mobility within the securities
                                                                                                       adopted by FINRA in FINRA Rule 1210.03, and is           industry. While all associated persons of firms as
                                               principal. If the individual is                         included in proposed Exchange Rule 1210.03               well as individuals who are not associated persons
                                               permissively registered as a principal,                 without the reference to Foreign Associates which        would be eligible to take the SIE pursuant to
                                               the registered supervisor must be                       is a registration category the Nasdaq Affiliated         proposed Rule 1210.03, passing the SIE alone
                                               registered as a principal.23                            Exchanges do not recognize. FINRA has stated that        would not qualify them for registration with the
                                                                                                       the SIE would assess basic product knowledge; the        Exchange. Rather, to be eligible for registration with
                                                                                                       structure and function of the securities industry        the Exchange, an individual would be required to
                                                 22 The FINRA Proposed Rules at Rule 1210.02 cite                                                               pass an applicable representative or principal
                                                                                                       markets, regulatory agencies and their functions;
                                               FINRA’s own supervision rule, by number. Because        and regulated and prohibited practices. Proposed         qualification examination and complete the other
                                               the 1200 Series of rules is intended to apply to the    Rule 1210.03 provides that all associated persons,       requirements of the registration process.
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                                               Exchange as well as to its affiliates which have        such as associated persons whose functions are              25 Under the proposed rule change, only
                                               different supervision rules, proposed Rule 1210.02      solely and exclusively clerical or ministerial, are      individuals who have passed an appropriate
                                               refers generally to the supervision rules rather than   eligible to take the SIE. Proposed Rule 1210.03 also     representative-level examination would be
                                               identifying them by number.                             provides that individuals who are not associated         considered to have passed the SIE. Registered
                                                 23 In either case, the registered supervisor of an    persons of firms, such as members of the general         principals who do not hold an appropriate
                                               individual who solely maintains a permissive            public, are eligible to take the SIE. FINRA has stated   representative-level registration would not be
                                               registration would not be required to be registered     its belief that expanding the pool of individuals        considered to have passed the SIE. For example, an
                                               in the same representative or principal registration    who are eligible to take the SIE would enable            individual who is registered solely as a Financial
                                               category as the permissively-registered individual.     prospective securities industry professionals to                                                      Continued




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                                               51992                        Federal Register / Vol. 83, No. 199 / Monday, October 15, 2018 / Notices

                                               an individual who is not registered on                  the firm who are seeking registration in                 not conserving in Rule 1210.04 the
                                               the operative date of the proposed rule                 a representative- or principal-level                     language that this provision applies to a
                                               change but was registered within the                    registration category. Moreover,                         person associated with a member of
                                               past two years prior to the operative                   proposed Rule 1210.03 states that the                    another registered national securities
                                               date of the proposed rule change, the                   Exchange will consider waivers of the                    exchange or association who is required
                                               individual’s SIE status in the CRD                      SIE alone or the SIE and the                             to register in a principal classification
                                               system would be administratively                        representative- and principal-level                      under the Nasdaq rules but who is not
                                               terminated if such individual does not                  examination(s) for such individuals.                     required to be so registered under the
                                               register within four years from the date                                                                         rules of the other exchange or
                                                                                                       E. Requirements for Registered Persons
                                               of the individual’s last registration.26                                                                         association. The Exchange believes this
                                                                                                       Functioning as Principals for a Limited
                                                  In addition, individuals, with the                                                                            language is superfluous as the
                                                                                                       Period (Proposed Rule 1210.04)
                                               exception of Order Processing Assistant                                                                          applicability to various individuals of
                                               Representatives, who had been                             Exchange Rule 1021(d) provides that                    proposed Rule 1210.04 speaks for itself
                                               registered as representatives two or                    a person who is currently registered                     and requires no elaboration.29 Proposed
                                               more years, but less than four years,                   with a member as a representative and                    Rule 1210.04 would increase the Rule
                                               prior to the operative date of the                      whose duties are changed by the                          1021(d)’s 90 day period to 120 days, to
                                               proposed rule change would also be                      member so as to require registration as                  provide additional flexibility for
                                               considered to have passed the SIE and                   a principal may function as a principal                  representatives functioning as
                                               designated as such in the CRD system.                   for up to 90 calendar days before he or                  principals for a limited period of time.
                                               Moreover, if such individuals re-register               she is required to pass the appropriate
                                               with a firm after the operative date of                 qualification examination for principal.                 F. Rules of Conduct for Taking
                                               the proposed rule change and within                     In addition, it allows a formerly                        Examinations and Confidentiality of
                                               four years of having been previously                    registered representative who is                         Examinations (Proposed Rule 1210.05)
                                               registered, they would only need to pass                required to register as a principal to                      Before taking an examination, FINRA
                                               the specialized knowledge examination                   function as a principal without passing                  currently requires each candidate to
                                               associated with that registration                       the appropriate principal qualification                  agree to the Rules of Conduct for taking
                                               position. However, if they do not                       examination for up to 90 calendar days,                  a qualification examination. Among
                                               register within four years from the date                provided the person first satisfies all                  other things, the examination Rules of
                                               of their last registration, their SIE status            applicable prerequisite requirements. A                  Conduct require each candidate to attest
                                               in the CRD system would be                              person who has never been registered                     that he or she is in fact the person who
                                               administratively terminated. Similar to                 does not qualify for this exception. This                is taking the examination. These Rules
                                               the current process for registration,                   provision applies to a person associated                 of Conduct also require that each
                                               firms would continue to use the CRD                     with a member of another registered                      candidate agree that the examination
                                               system to request registrations for                     national securities exchange or                          content is the intellectual property of
                                               representatives. An individual would be                 association who is required to register in               FINRA and that the content cannot be
                                               able to schedule both the SIE and                       a principal classification under Nasdaq                  copied or redistributed by any means. If
                                               specialized knowledge examinations for                  rules but who is not required to be so                   FINRA discovers that a candidate has
                                               the same day, provided the individual is                registered under the rules of the other                  violated the Rules of Conduct for taking
                                               able to reserve space at one of FINRA’s                 exchange or association.                                 a qualification examination, the
                                               designated testing centers.                               The Exchange is proposing to adopt                     candidate may forfeit the results of the
                                                  Finally, paragraph (d) of Rule 1070                  Rule 1021(d) as Rule 1210.04, subject to                 examination and may be subject to
                                               currently permits the Exchange, in                      the following changes. Proposed Rule                     disciplinary action by FINRA. For
                                               exceptional cases and where good cause                  1210.04 states that a member may                         instance, for cheating on a qualifications
                                               is shown, to waive the applicable                       designate any person currently                           examination, FINRA’s Sanction
                                               qualification examination and accept                    registered, or who becomes registered,                   Guidelines recommend a bar. 30
                                               other standards as evidence of an                       with the member as a representative to                      Effective October 1, 2018 FINRA has
                                               applicant’s qualifications for                          function as a principal for a limited                    codified the requirements relating to the
                                               registration. The Exchange is proposing                 period, provided that such person has at                 Rules of Conduct for examinations
                                               to transfer the provisions of Rule                      least 18 months of experience                            under FINRA Rule 1210.05. FINRA also
                                               1070(d) into proposed Rule 1210.03                      functioning as a registered                              adopted Rules of Conduct for taking the
                                               with changes which track FINRA Rule                     representative within the five-year                      SIE for associated persons and non-
                                               1210.03.27 The proposed rule provides                   period immediately preceding the                         associated persons who take the SIE.
                                               that the Exchange will only consider                    designation. This change is intended to                     The Exchange proposes to adopt its
                                               examination waiver requests submitted                   ensure that representatives designated                   own version of Rule 1210.05, which
                                               by a firm for individuals associated with               to function as principals for the limited                would provide that associated persons
                                                                                                       period under the proposed rule have an                   taking the SIE are subject to the SIE
                                               and Operations Principal (Series 27) today would        appropriate level of registered                          Rules of Conduct, and that associated
                                               have to take the Series 7 to become registered as a     representative experience. The proposed                  persons taking any representative or
                                               General Securities Representative. Under the            rule clarifies that the requirements of                  principal examination are subject to the
                                               proposed rule change, in the future, this individual
                                               would have to pass the SIE and the specialized          the rule apply to any principal category,                Rules of Conduct for representative and
                                               Series 7 examination to obtain registration as a        including those categories that are not
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                                               General Securities Representative.                      subject to a prerequisite representative-                Exchange except with respect to the Financial and
                                                  26 As discussed below, the Exchange is proposing
                                                                                                       level registration requirement, such as                  Operations Principal and the Introducing Broker/
                                               a four-year expiration period for the SIE.                                                                       Dealer Financial and Operations Principal.
                                                  27 Rules 1070(a), (b) and (c) provide general
                                                                                                       the Financial and Operations Principal                      29 Proposed Rule 1210.04 omits FINRA Rule

                                               information relating to the examination process.        registration category.28 The Exchange is                 1210.04’s reference to Foreign Associates, which is
                                               The Exchange is proposing to delete these                                                                        a registration category not recognized by the Nasdaq
                                               provisions given that they relate to the                  28 In this regard, the Exchange notes that             Affiliated Exchanges, but otherwise tracks the
                                               administration of the examination program rather        qualifying as a registered representative is currently   language of FINRA Rule 1210.04.
                                               than rule requirements.                                 a prerequisite to qualifying as a principal on the          30 See SR–FINRA–2017–007, pp. 26–27.




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                                                                            Federal Register / Vol. 83, No. 199 / Monday, October 15, 2018 / Notices                                                        51993

                                               principal examinations. Under the                       succession, he or she would be                            of the Regulatory Element, a ‘‘registered
                                               proposed rule, a violation of the SIE                   prohibited from retaking the                              person’’ is defined in the current rule as
                                               Rules of Conduct or the Rules of                        examination either until a period of 180                  any person registered with the Exchange
                                               Conduct for representative and                          calendar days has elapsed from the date                   as a representative, principal, or
                                               principal examinations by an associated                 of his or her last attempt to pass the                    assistant representative.37 The Firm
                                               person would be deemed to be a                          examination or until the sixth                            Element consists of annual, member-
                                               violation of Exchange rules requiring                   subsequent administration of an                           developed and administered training
                                               observance of high standards of                         examination administered on a monthly                     programs designed to keep covered
                                               commercial honor or just and equitable                  basis. The Exchange is proposing to                       registered persons current regarding
                                               principles of trade, such as Exchange                   adopt Rule 1070(e) as Rule 1210.06,                       securities products, services and
                                               Rule 2010A.31 Further, if the Exchange                  with the following changes.                               strategies offered by the member. For
                                               determines that an associated person                       Proposed Rule 1210.06 provides that                    purposes of the Firm Element, the term
                                               has violated the SIE Rules of Conduct or                a person who fails an examination may                     ‘‘covered registered persons’’ is defined
                                               the Rules of Conduct for representative                 retake that examination after 30                          as any registered person who has direct
                                               and principal examinations, the                         calendar days from the date of the                        contact with customers in the conduct
                                               associated person may forfeit the results               person’s last attempt to pass that                        of the member’s securities sales, trading
                                               of the examination and may be subject                   examination. The proposed rule deletes                    and investment banking activities, and
                                               to disciplinary action by the Exchange.                 the reference to examinations                             the immediate supervisors of such
                                                 Proposed Rule 1210.05 states that the                 administered on a monthly basis                           persons.38
                                               Exchange considers all of the                           because examinations are no longer                           The Exchange proposes to delete Rule
                                               qualification examinations content to be                administered in such a manner.                            1120 and to replace it with Rule 1240,
                                               highly confidential. The removal of                        Proposed Rule 1210.06 further                          Continuing Education Requirements.
                                               examination content from an                             provides that if a person fails an                        The Exchange believes that all
                                               examination center, reproduction,                       examination three or more times in                        registered persons, regardless of their
                                               disclosure, receipt from or passing to                  succession within a two-year period, the                  activities, should be subject to the
                                               any person, or use for study purposes of                person is prohibited from retaking that                   Regulatory Element of the CE
                                               any portion of such qualification                       examination until 180 calendar days                       requirements so that they can keep their
                                               examination or any other use that would                 from the date of the person’s last                        knowledge of the securities industry
                                               compromise the effectiveness of the                     attempt to pass it. These waiting periods                 current. Therefore, the Exchange is
                                               examinations and the use in any manner                  would apply to the SIE and the                            proposing Rule 1210.07, to clarify that
                                               and at any time of the questions or                     representative- and principal-level                       all registered persons, including those
                                               answers to the examinations would be                    examinations.33                                           who solely maintain a permissive
                                               prohibited and would be deemed to be                    H. CE Requirements (Proposed Rule                         registration, are required to satisfy the
                                               a violation of Exchange rules requiring                 1210.07)                                                  Regulatory Element, as specified in
                                               observance of high standards of                                                                                   proposed Rule 1240. Individuals who
                                               commercial honor or just and equitable                    Pursuant to current Rule 1120, the CE
                                                                                                                                                                 have passed the SIE but not a
                                               principles of trade. Finally, proposed                  requirements applicable to registered
                                                                                                       persons consist of a Regulatory                           representative or principal-level
                                               Rule 1210.05 would prohibit an                                                                                    examination and do not hold a
                                               applicant from receiving assistance                     Element 34 and a Firm Element.35 The
                                                                                                       Regulatory Element applies to registered                  registered position would not be subject
                                               while taking the examination, and                                                                                 to any CE requirements.
                                               require the applicant to certify that no                persons and must be completed within
                                                                                                                                                                    Consistent with current practice,
                                               assistance was given to or received by                  prescribed time frames.36 For purposes
                                                                                                                                                                 proposed Rule 1210.07 also provides
                                               him or her during the examination.32                                                                              that a registered person of a member
                                                                                                         33 FINRA Rule 1210.06 requires individuals

                                               G. Waiting Periods for Retaking a Failed                taking the SIE who are not associated persons to          who becomes CE inactive would not be
                                               Examination (Proposed Rule 1210.06)                     agree to be subject to the same waiting periods for       permitted to be registered in another
                                                                                                       retaking the SIE. The Exchange is not including this      registration category with that member
                                                  Rule 1070(e) currently sets forth                    language in proposed Rule 1210.06, as the Exchange
                                                                                                                                                                 or be registered in any registration
                                               waiting periods for retaking failed                     will not apply the 1200 Series of rules in any event
                                                                                                       to individuals who are not associated persons of          category with another member, until the
                                               examinations. The rule provides that a                  members.                                                  person has satisfied the Regulatory
                                               person who fails a qualification                          34 See Rule 1120(a).
                                                                                                                                                                 Element.
                                               examination would be permitted to                         35 See Rule 1120(b).

                                               retake the examination after either a                     36 Pursuant to Rule 1120(a), each registered            I. Lapse of Registration and Expiration
                                               period of 30 calendar days has elapsed                  person is required to complete the Regulatory             of SIE (Proposed Rule 1210.08)
                                               from the date of the prior examination                  Element initially within 120 days after the person’s
                                                                                                       second registration anniversary date and, thereafter,        Rule 1021(c) currently states that any
                                               or the next administration of an                        within 120 days after every third registration            person whose registration has been
                                               examination administered on a monthly                   anniversary date. Unless otherwise determined by          revoked pursuant to Rule 8310 39 or
                                               basis. However, if the person fails an                  the Exchange, a registered person who has not
                                                                                                       completed the Regulatory Element program within
                                               examination three or more times in                      the prescribed time frames will have their                Exchange may, upon application and a showing of
                                                                                                       registrations deemed inactive until such time as the      good cause, allow for additional time for a
                                                  31 Pursuant to Exchange Rule 2010A, a member,
                                                                                                       requirements of the program have been satisfied.          registered person to satisfy the program
                                               in the conduct of its business, shall observe high      Any person whose registration has been deemed             requirements.
                                                                                                                                                                   37 See Rule 1120(a)(5).
                                               standards of commercial honor and just and              inactive under Rule 1120(a) must cease all activities
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                                               equitable principles of trade. FINRA Rule 1210.05       as a registered person and is prohibited from               38 See Rule 1120(b)(1).

                                               cites FINRA Rule 2010, which is a comparable rule.      performing any duties and functioning in any                39 Under Rule 8310(a)(3), the Exchange may
                                                  32 In view of proposed Rule 1210.05, the             capacity requiring registration. A registration that is   impose one or more sanctions on a member or
                                               Exchange is proposing to delete Rule 1080,              inactive for a period of two years will be                person associated with a member for each violation
                                               Confidentiality of Examinations, which is largely       administratively terminated. A person whose               of the federal securities laws, rules or regulations
                                               duplicative. The Exchange is not adopting portions      registration is so terminated may reactivate the          thereunder, or Exchange rules, including
                                               of FINRA’s Rule 1210.05 which apply to non-             registration only by reapplying for registration and      suspending the membership of a member or
                                               associated persons, over whom the Exchange would        meeting the qualification requirements of the             suspending the registration of a person associated
                                               in any event have no jurisdiction.                      applicable provisions of the Exchange’s rules. The                                                   Continued




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                                               51994                        Federal Register / Vol. 83, No. 199 / Monday, October 15, 2018 / Notices

                                               whose most recent registration as a                     an associated person of a firm, pass a                 with the firm, which would also
                                               principal has been terminated for a                     representative-level examination and                   terminate the individual’s other SRO
                                               period of two or more years                             register as a representative without                   and state registrations.
                                               immediately preceding the date of                       having to retake the SIE.                                 To be eligible for initial designation as
                                               receipt by the Exchange of a new                          Moreover, an individual holding a                    an FSA-eligible person by a member, an
                                               application is required to pass a                       representative-level registration who                  individual must have been registered for
                                               qualification examination for principals                leaves the industry after the operative                a total of five years within the most
                                               appropriate to the category of                          date of the proposed rule change would                 recent 10-year period prior to the
                                               registration as specified in Rule 1022.                 have up to four years to re-associate                  designation, including for the most
                                               Pursuant to Rule 1031(b), any person                    with a firm and register as a                          recent year with that member.43 An
                                               whose registration has been revoked                     representative without having to retake                individual would have to satisfy these
                                               pursuant to Rule 8310 or whose most                     the SIE. However, the four-year                        preconditions only for purposes of his
                                               recent registration as a representative or              expiration period in the proposed rule                 or her initial designation as an FSA-
                                               principal has been terminated for a                     change extends only to the SIE, and not                eligible person, and not for any
                                               period of two or more years                             the representative- and principal-level                subsequent FSA designation(s).
                                               immediately preceding the date of                       registrations. The representative- and                 Thereafter, the individual would be
                                               receipt by the Exchange of a new                        principal-level registrations would                    eligible for a waiver for up to seven
                                               application is required to pass a                       continue to be subject to a two year                   years from the date of initial
                                               qualification examination for                           expiration period as is the case today.                designation 44 provided that the other
                                               representatives appropriate to the                                                                             conditions of the waiver, as described
                                                                                                       J. Waiver of Examinations for
                                               category of registration as specified in                                                                       below, have been satisfied.
                                                                                                       Individuals Working for a Financial
                                               Rule 1032.40 The two years are                                                                                 Consequently, a member other than the
                                                                                                       Services Industry Affiliate of a Member
                                               calculated from the termination date                                                                           member that initially designated an
                                                                                                       (Proposed Rule 1210.09)
                                               stated on the individual’s Form U5                                                                             individual as an FSA-eligible person
                                               (Uniform Termination Notice for                            The Exchange is proposing Rule                      may request a waiver for the individual
                                               Securities Industry Registration) and the               1210.09 to provide a process whereby                   and more than one member may request
                                               date the Exchange receives a new                        individuals who would be working for                   a waiver for the individual during the
                                               application for registration.                           a financial services industry affiliate of             seven-year period.45
                                                  The Exchange is proposing to                         a member 41 would terminate their                         An individual designated as an FSA-
                                               consolidate the requirements of Rules                   registrations with the member and                      eligible person would be subject to the
                                               1021(c) and 1031(b) and adopt them as                   would be granted a waiver of their                     Regulatory Element of CE while working
                                               Rule 1210.08. Proposed Rule 1210.08                     requalification requirements upon re-                  for a financial services industry affiliate
                                               clarifies that, for purposes of the                     registering with a member, provided the                of a member. The individual would be
                                               proposed rule, an application would not                 firm that is requesting the waiver and
                                               be considered to have been received by                  the individual satisfy the criteria for a                 43 For purposes of this requirement, a five year

                                               the Exchange if that application does                   Financial Services Affiliate (‘‘FSA’’)                 period of registration with the Exchange, with
                                                                                                                                                              FINRA or with another self-regulatory organization
                                               not result in a registration.                           waiver. 42 The purpose of the FSA                      would be sufficient.
                                                  Proposed Rule 1210.08 also sets forth                waiver is to provide a firm greater                       44 Individuals would be eligible for a single, fixed
                                               the expiration period of the SIE. Based                 flexibility to move personnel, including               seven-year period from the date of initial
                                               on the content covered on the SIE, the                  senior and middle management,                          designation, and the period would not be tolled or
                                               Exchange is proposing that a passing                    between the firm and its financial                     renewed.
                                                                                                                                                                 45 The following examples illustrate this point:
                                               result on the SIE be valid for four years.              services affiliate(s) so that they may gain
                                                                                                                                                                 Example 1. Firm A designates an individual as an
                                               Therefore, under the proposed rule                      organizational skills and better                       FSA-eligible person by notifying the Exchange and
                                               change, an individual who passes the                    knowledge of products developed by the                 files a Form U5. The individual joins Firm A’s
                                               SIE and is an associated person of a firm               affiliate(s) without the individuals                   financial services affiliate. Firm A does not submit
                                               at the time would have up to four years                 having to requalify by examination each                a waiver request for the individual. After working
                                                                                                                                                              for Firm A’s financial services affiliate for three
                                               from the date he or she passes the SIE                  time they returned to the firm.                        years, the individual directly joins Firm B’s
                                               to pass a representative-level                             Under the proposed waiver process,                  financial services affiliate for three years. Firm B
                                               examination to register as a                            the first time a registered person is                  then submits a waiver request to register the
                                               representative with that firm, or a                     designated as eligible for a waiver based              individual.
                                                                                                                                                                 Example 2. Same as Example 1, but the
                                               subsequent firm, without having to                      on the FSA criteria, the member with                   individual directly joins Firm B after working for
                                               retake the SIE. In addition, an                         which the individual is registered                     Firm A’s financial services affiliate, and Firm B
                                               individual who passes the SIE and is                    would notify the Exchange of the FSA                   submits a waiver request to register the individual
                                               not an associated person at the time                    designation. The member would                          at that point in time.
                                               would have up to four years from the                    concurrently file a full Form U5                          Example 3. Firm A designates an individual as an
                                                                                                                                                              FSA-eligible person by notifying the Exchange and
                                               date he or she passes the SIE to become                 terminating the individual’s registration              files a Form U5. The individual joins Firm A’s
                                                                                                                                                              financial services affiliate for three years. Firm A
                                               with a member for a definite period or a period            41 Proposed Rule 1210.09 defines a ‘‘financial      then submits a waiver request to reregister the
                                               contingent on the performance of a particular act.      services industry affiliate of a member’’ as a legal   individual. After working for Firm A in a registered
                                                 40 In addition, Exchange Rule 1041(c) provides        entity that controls, is controlled by or is under     capacity for six months, Firm A re-designates the
                                               that if any person whose most recent registration as    common control with a member and is regulated by       individual as an FSA-eligible person by notifying
                                               an Assistant Representative—Order Processing has        the SEC, Commodity Futures Trading Commission          FINRA and files a Form U5. The individual rejoins
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                                               been terminated for a period of two or more years       (‘‘CFTC’’), state securities authorities, federal or   Firm A’s financial services affiliate for two years,
                                               immediately preceding the date of receipt by the        state banking authorities, state insurance             after which the individual directly joins Firm B’s
                                               Exchange of a new application is required to pass       authorities, or substantially equivalent foreign       financial services affiliate for one year. Firm B then
                                               a qualification examination for Assistant               regulatory authorities.                                submits a waiver request to register the individual.
                                               Representative—Order Processing. As discussed              42 There is no counterpart to proposed Rule            Example 4. Same as Example 3, but the
                                               below, the Exchange is proposing to eliminate Rule      1210.09 in the Exchange’s existing rules. FINRA        individual directly joins Firm B after the second
                                               1041(c) as part of the elimination of the Assistant     Rule 1210.09 was recently adopted as a new waiver      period of working for Firm A’s financial services
                                               Representative—Order Processing registration            process for FINRA registrants, as part of the FINRA    affiliate, and Firm B submits a waiver request to
                                               category on the Exchange.                               Rule Changes.                                          register the individual at that point in time.



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                                                                            Federal Register / Vol. 83, No. 199 / Monday, October 15, 2018 / Notices                                                      51995

                                               subject to a Regulatory Element program                    Following the Form U5 filing, an                     L. Impermissible Registrations
                                               that correlates to his or her most recent               individual could move between the                       (Proposed Rule 1210.11)
                                               registration category, and CE would be                  financial services affiliates of a member                  Rules 1021(a) and 1031(a) currently
                                               based on the same cycle had the                         so long as the individual is                            prohibit a member from maintaining a
                                               individual remained registered. If the                  continuously working for an affiliate.                  representative or principal registration
                                               individual fails to complete the                        Further, a member could submit                          with the Exchange for any person who
                                               prescribed Regulatory Element during                    multiple waiver requests for the                        is no longer active in the member’s
                                               the 120-day window for taking the                       individual, provided that the waiver                    investment banking or securities
                                               session, he or she would lose FSA                       requests are made during the course of                  business, who is no longer functioning
                                               eligibility (i.e., the individual would                 the seven-year period.47 An individual
                                                                                                                                                               as a representative or principal as
                                               have the standard two-year period after                 who has been designated as an FSA-
                                                                                                                                                               defined under the rules or where the
                                               termination to re-register without                      eligible person by a member would not
                                                                                                                                                               sole purpose is to avoid the
                                               having to retake an examination). The                   be able to take additional examinations
                                                                                                                                                               requalification requirement applicable
                                               Exchange is making corresponding                        to gain additional registrations while
                                                                                                                                                               to persons who have not been registered
                                               changes to proposed Rule 1240                           working for a financial services affiliate
                                                                                                                                                               for two or more years. These rules also
                                               (currently Rule 1120, Continuing                        of a member.
                                                                                                                                                               prohibit a member from applying for the
                                               Education Requirements).                                K. Status of Persons Serving in the                     registration of a person as representative
                                                  Upon registering an FSA-eligible                     Armed Forces of the United States                       or principal where the member does not
                                               person, a firm would file a Form U4 and                 (Proposed Rule 1210.10)                                 intend to employ the person in its
                                               request the appropriate registration(s)                                                                         investment banking or securities
                                               for the individual. The firm would also                    IM–1002–2(a) and (b) currently
                                                                                                       provide specific relief to registered                   business. These prohibitions do not
                                               submit an examination waiver request                                                                            apply to the current permissive
                                               to the Exchange,46 similar to the process               persons serving in the Armed Forces of
                                                                                                       the United States. Among other things,                  registration categories.
                                               used today for waiver requests, and it                                                                             In light of proposed Rule 1210.02, the
                                               would represent that the individual is                  these rules permit a registered person of
                                                                                                       a member who volunteers for or is                       Exchange is proposing to delete these
                                               eligible for an FSA waiver based on the                                                                         provisions and instead adopt Rule
                                               conditions set forth below. The                         called into active duty in the Armed
                                                                                                       Forces of the United States to be                       1210.11 prohibiting a member from
                                               Exchange would review the waiver                                                                                registering or maintaining the
                                               request and make a determination of                     registered in an inactive status and
                                                                                                       remain eligible to receive ongoing                      registration of a person unless the
                                               whether to grant the request within 30                                                                          registration is consistent with the
                                               calendar days of receiving the request.                 transaction-related compensation.
                                                                                                       IM–1002–2(c) also includes specific                     requirements of proposed Rule 1210.49
                                               The Exchange would summarily grant
                                               the request if the following conditions                 provisions regarding the deferment of                   M. Registration Categories (Proposed
                                               are met:                                                the lapse of registration requirements in               Rule 1220)
                                                  (1) Prior to the individual’s initial                Exchange Rules 1021(c), 1031(b) and
                                                                                                                                                                 The Exchange is proposing to
                                               designation as an FSA-eligible person,                  1041(c) for formerly registered persons
                                                                                                                                                               integrate the various registration
                                               the individual was registered for a total               serving in the Armed Forces of the
                                                                                                                                                               categories and related definitions under
                                               of five years within the most recent 10-                United States.
                                                                                                          The Exchange is proposing to adopt                   the Exchange’s rules into a single rule,
                                               year period, including for the most                                                                             Rule 1220, subject to the changes
                                               recent year with the member that                        IM–1002–2 as Rule 1210.10 with the
                                                                                                       following changes. To enhance the                       described below.50
                                               initially designated the individual as an
                                               FSA-eligible person;                                    efficiency of the current notification                  1. Definition of Principal (Proposed
                                                  (2) The waiver request is made within                process for registered persons serving in               Rule 1220(a)(1))
                                               seven years of the individual’s initial                 the Armed Forces, proposed Rule
                                                                                                                                                                 Rule 1021(b) currently defines the
                                               designation as an FSA-eligible person                   1210.10 requires that the member with
                                                                                                                                                               term ‘‘principal’’ to include sole
                                               by a member;                                            which such person is registered
                                                                                                                                                               proprietors, officers, partners, managers
                                                  (3) The initial designation and any                  promptly notify the Exchange of such
                                                                                                                                                               of offices of supervisory jurisdiction and
                                               subsequent designation(s) were made                     person’s return to employment with the
                                                                                                                                                               directors who are actively engaged in
                                               concurrently with the filing of the                     member. A sole proprietor must
                                                                                                                                                               the management of the member’s
                                               individual’s related Form U5;                           similarly notify the Exchange of his or
                                                                                                                                                               investment banking or securities
                                                  (4) The individual continuously                      her return to participation in the
                                               worked for the financial services                       securities business. Further, proposed                  registered persons are not to be included within the
                                               affiliate(s) of a member since the last                 Rule 1210.10 provides that the                          definition of ‘‘Personnel’’ for purposes of dues or
                                               Form U5 filing;                                         Exchange would also defer the lapse of                  assessments as provided in Article VI of the FINRA
                                                                                                       the SIE for formerly registered persons                 By-Laws. Instead, proposed Rule 1210.10 conserves
                                                  (5) The individual has complied with                                                                         language from existing IM–1002–2 stating that
                                               the Regulatory Element of CE; and                       serving in the Armed Forces of the                      inactive persons under the rule are not included
                                                  (6) The individual does not have any                 United States.48                                        within the scope of fees, if any, charged by the
                                               pending or adverse regulatory matters,                                                                          Exchange with respect to registered persons.
                                                                                                          47 For example, if a member submits a waiver            49 As discussed above, the Exchange is also
                                               or terminations, that are reportable on                 request for an FSA-eligible person who has been         proposing Rule 1210, Supplementary Material .12,
                                               the Form U4, and has not otherwise                      working for a financial services affiliate of the       Application for Registration and Jurisdiction, which
                                               been subject to a statutory                             member for three years and re-registers the             is not included in FINRA Rule 1210. Proposed
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                                               disqualification while the individual                   individual, the member could subsequently file a        Exchange Rule 1210, Supplementary Material .12,
                                                                                                       Form U5 and re-designate the individual as an FSA-      is based upon portions of existing Exchange Rule
                                               was designated as an FSA-eligible                       eligible person. Moreover, if the individual works      1031.
                                               person with a member.                                   with a financial services affiliate of the member for      50 For ease of reference, the Exchange proposes to
                                                                                                       another three years, the member could submit a          adopt as Rule 1220, Supplementary Material .07, in
                                                 46 The Exchange would consider a waiver of the        second waiver request and re-register the individual    chart form, a Summary of Qualification
                                               representative-level qualification examination(s),      upon returning to the member.                           Requirements in chart form for each of the
                                               the principal-level qualification examination(s) and       48 Proposed Rule 1210.10 tracks FINRA Rule           Exchange’s permitted registration categories
                                               the SIE, as applicable.                                 1210.10 except for the statement that inactive          discussed below.



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                                               51996                        Federal Register / Vol. 83, No. 199 / Monday, October 15, 2018 / Notices

                                               business, such as supervision,                             Rule 1022(a) provides that a person                 57 Securities Trader examination) and
                                               solicitation, conduct of business or the                seeking to register as a General                       affirmatively registers as a Securities
                                               training of persons associated with a                   Securities Principal must satisfy the                  Trader Principal.
                                               member for any of these functions. The                  General Securities Representative or                      The Exchange is proposing to
                                               Exchange is proposing to streamline and                 Corporate Securities Representative                    streamline the provisions of Rule
                                               adopt Rule 1021(b) as Rule 1220(a)(1).                  prerequisite registration. Rule 1022(a)(2)             1022(a) and adopt them as Rule
                                                  For the reason discussed above in                    qualifies this provision by providing                  1220(a)(2) with the following changes.
                                               connection with proposed Rule 1210,                     that the Corporate Securities                             The Exchange is proposing to more
                                               proposed Rule 1220(a)(1) would not                      Representative prerequisite registration               clearly set forth the obligation to register
                                               apply to individuals who are not                        gives a General Securities Principal only              as a General Securities Principal.
                                               engaged in the management of the                        limited supervisory authority.                         Specifically, proposed Rule
                                               member’s securities business even if                       Rule 1022(a)(3) includes a                          1220(a)(2)(A) states that each principal
                                               they are engaged in the management of                   grandfathering provision for persons                   as defined in proposed Rule 1220(a)(1)
                                               the member’s investment banking                         who were registered as principals before               is required to register with the Exchange
                                               business. The proposed rule clarifies                   the adoption of the General Securities                 as a General Securities Principal, subject
                                               that a member’s chief executive officer                 Principal registration category.                       to the following exceptions. The
                                               (‘‘CEO’’) and chief financial officer                      Rule 1022(a)(4) provides that an                    proposed rule provides that if a
                                               (‘‘CFO’’) (or equivalent officers) are                  associated person registered solely as a               principal’s activities are limited to the
                                               considered principals based solely on                   General Securities Principal is not                    functions of a Compliance Official, a
                                               their status. The proposed rule further                 qualified to function as a Financial and               Financial and Operations Principal, a
                                               clarifies that the term ‘‘principal’’                   Operations Principal (or an Introducing                Securities Trader Principal, a Securities
                                               includes any other associated person                    Broker-Dealer Financial and Operations                 Trader Compliance Officer, or a
                                               who is performing functions or carrying                 Principal, as applicable), or Limited                  Registered Options Principal, then the
                                               out responsibilities that are required to               Principal—General Securities Sales                     principal shall appropriately register in
                                               be performed or carried out by a                        Supervisor, unless the General                         one or more of these categories.52
                                               principal under Exchange rules. In                      Securities Principal is also registered in             Proposed Rule 1220(a)(2)(A) further
                                               addition, the proposed rule provides                    these other categories.                                provides that if a principal’s activities
                                               that the phrase ‘‘actively engaged in the                  Exchange Rule 1022(a)(5) currently                  are limited solely to the functions of a
                                               management of the member’s securities                   requires that each associated person                   General Securities Sales Supervisor,
                                               business’’ includes the management of,                  who is included within the definition of               then the principal may appropriately
                                               and the implementation of corporate                     ‘‘principal’’ in Rule 1021 with                        register in that category in lieu of
                                               policies related to, such business as well              supervisory responsibility over the                    registering as a General Securities
                                               as managerial decision-making authority                 securities trading activities described in             Principal, provided that if the principal
                                               with respect to the member’s securities                 Rule 1032(f)(1) 51 register as a Securities            is engaged in options sales activities he
                                               business and management-level                           Trader Principal. To qualify for                       or she shall be required to register as a
                                               responsibilities for supervising any                    registration as a Securities Trader                    General Securities Sales Supervisor or
                                               aspect of such business, such as serving                Principal, an individual must be                       as a Registered Options Principal.53
                                               as a voting member of the member’s                      registered as a Securities Trader and                     Proposed Rule 1220(a)(2)(B) requires
                                               executive, management or operations                     pass the General Securities Principal                  that an individual registering as a
                                               committees.                                             qualification examination. The rule                    General Securities Principal satisfy the
                                                                                                       provides that a person qualified and                   General Securities Representative
                                               2. General Securities Principal                         registered as a Securities Trader                      prerequisite registration and pass the
                                               (Proposed Rule 1220(a)(2))                              Principal may only have supervisory                    General Securities Principal
                                                  Rule 1022(a)(1) currently requires that              responsibility over the activities                     qualification examination. In
                                               an associated person who meets the                      specified in Rule 1032(f)(1), unless such              conjunction with the elimination of the
                                               definition of ‘‘principal’’ under Rule                  person is separately registered in                     Corporate Securities Representative
                                               1021 and each person designated as                      another appropriate principal                          registration category, the Exchange is
                                               Chief Compliance Officer (‘‘CCO’’) on                   registration category, such as the                     proposing in Rule 1220(a)(2) to delete
                                               Schedule A of the member’s Form BD                      General Securities Principal registration              the provision in Rule 1022(a)(1)(A)
                                               (Uniform Application for Broker-Dealer                  category. The rule further provides that               permitting the Corporate Securities
                                               Registration) register as a General                     a person registered as a General                       Representative prerequisite registration.
                                               Securities Principal. A person                          Securities Principal is not qualified to               However, proposed Rule 1220(a)(2)(B)
                                               registering as a General Securities                     supervise the trading activities                       provides that, subject to the lapse of
                                               Principal must pass the General                         described in Rule 1032(f)(1), unless he                registration provisions in proposed Rule
                                               Securities Principal examination. The                   or she qualifies and registers as a                    1210.08, General Securities Principals
                                               rule, however, provides that such                       Securities Trader (by passing the Series               who obtained the Corporate Securities
                                               person is not required to register as a                                                                        Representative prerequisite registration
                                               General Securities Principal if the
                                                                                                          51 Current Rule 1032(f)(1) provides for the         on the Exchange in lieu of the General
                                                                                                       registration as a Securities Trader of an associated   Securities Representative prerequisite
                                               person’s activities are so limited as to                person if, with respect to transactions in equity,
                                               qualify such person for one or more of                  preferred or convertible debt securities or foreign
                                                                                                                                                              registration and individuals who had
                                               the limited principal categories                        currency options on Nasdaq, such person is
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                                                                                                                                                                 52 The Exchange is proposing to recognize the
                                                                                                       engaged in proprietary trading, the execution of
                                               specified in Rule 1022. Further, the rule               transactions on an agency basis, or the direct         Compliance Official and Securities Trader
                                               does not preclude individuals registered                supervision of such activities, other than any         Compliance Officer registration categories for the
                                               in a limited principal category from                    person associated with a member whose trading          first time as a result of this proposed rule change.
                                               registering as General Securities                       activities are conducted principally on behalf of an      53 The Exchange’s proposed Rule 1220(a)(2)(A)

                                                                                                       investment company that is registered with the         deviates somewhat from the counterpart FINRA
                                               Principals. Rule 1022(a)(1) also includes               Commission pursuant to the Investment Company          rule in that it does not offer various limited
                                               transitioning and grandfathering                        Act of 1940 and that controls, is controlled by or     registration categories provided for in FINRA’s new
                                               provisions for CCO’s.                                   is under common control, with the member.              Rule 1220(a)(2)(A).



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                                                                             Federal Register / Vol. 83, No. 199 / Monday, October 15, 2018 / Notices                                                      51997

                                               been registered as such within the past                   a Chief Compliance Officer on Schedule                1022(b)(2).57 Each person associated
                                               two years prior to the operative date of                  A of Form BD shall be required to                     with a member who performs such
                                               the proposed rule change, may continue                    register with the Exchange as a General               duties is required to register as a
                                               to supervise corporate securities                         Securities Principal, provided that such              Limited Principal—Financial and
                                               activities as currently permitted.                        person may instead register as a                      Operations with the Exchange and pass
                                               Proposed Rule 1220(a)(2)(B) requires all                  Compliance Official if his or her duties              an appropriate qualification
                                               other individuals registering as General                  do not include supervision of trading.                examination before such registration
                                               Securities Principal after October 1,                     All individuals registering as                        may become effective. A person
                                               2018, to first become registered as a                     Compliance Official shall, prior to or                registered solely as a Limited
                                               General Securities Representative                         concurrent with such registration, pass               Principal—Financial and Operations is
                                               pursuant to Rule 1220(b)(2).54                            the Compliance Official qualification                 not qualified to function in a principal
                                                  Moreover, as described in greater                      examination. An individual designated                 capacity with responsibility over any
                                               detail below, the Exchange is proposing                   as a Chief Compliance Officer on                      area of business activity not described
                                               to adopt with some changes the                            Schedule A of Form BD of a member                     in 1022(b)(2).
                                               requirements of Rule 1022(a)(1) relating                  that is engaged in limited securities                    Rule 1022(c) currently provides that
                                               to the registration of CCOs, and Rule                     business could also be registered in a                every member subject to the
                                               1022(a)(5) relating to the supervision of                 principal category under Rule 1220(a)                 requirements of SEC Rule 15c3–1, other
                                               securities trading activities as Rule                     that corresponds to the limited scope of              than a member operating pursuant to
                                               1220(a)(3).                                               the member’s business.                                SEC Rule 15c3–1(a)(1)(ii), (a)(2)(i) or
                                                  The Exchange is also proposing to                         Additionally, proposed Rule                        (a)(8) in which case Rule 1022(b) shall
                                               eliminate the grandfathering provision                    1220(a)(3) provides that an individual                apply, shall designate as Limited
                                               for individuals who were registered as                    designated as a Chief Compliance                      Principal—Introducing Broker/Dealer
                                               principals prior to the adoption of the                   Officer on Schedule A of Form BD may                  Financial and Operations those persons
                                               General Securities Principal registration                 register and qualify as a Securities                  associated with it, at least one of whom
                                               category because it no longer has any                     Trader Compliance Officer if, with                    shall be its chief financial officer, who
                                               practical application. Finally, the                       respect to transactions in equity,                    perform the duties described in
                                               Exchange is proposing to delete the                       preferred or convertible debt securities,             1022(c)(2).58 Each person associated
                                               provision that persons eligible for                       or options such person is engaged in                  with a member who performs such
                                               registration in other principal categories                proprietary trading, the execution of                 duties is required to register as a
                                               are not precluded from registering as                     transactions on an agency basis, or the               Limited Principal—Introducing Broker/
                                               General Securities Principals because it                  direct supervision of such activities                 Dealer Financial and Operations with
                                               is superfluous.55                                         other than a person associated with a                 the Exchange and pass an appropriate
                                                                                                         member whose trading activities are                   Qualification Examination before such
                                               3. Compliance Official (Proposed Rule                                                                           registration may become effective.
                                                                                                         conducted principally on behalf of an
                                               1220(a)(3))                                                                                                        Financial and Operations Principals
                                                                                                         investment company that is registered
                                                  The Exchange is proposing to adopt                     with the SEC pursuant to the Investment               and Introducing Broker-Dealer Financial
                                               Rule 1022(a)(1)’s CCO registration                        Company Act and that controls, is                     and Operations Principals are not
                                               requirement as Rule 1220(a)(3), subject                   controlled by, or is under common
                                               to the following changes.                                 control with a member. All individuals
                                                                                                                                                                  57 These duties include (A) final approval and

                                                  Specifically, proposed Rule 1220(a)(3)                                                                       responsibility for the accuracy of financial reports
                                                                                                         registering as Securities Trader                      submitted to any duly established securities
                                               provides that each person designated as                   Compliance Officers would be required                 industry regulatory body; (B) final preparation of
                                                                                                         to first become registered pursuant to                such reports; (C) supervision of individuals who
                                                 54 The Exchange is not adopting the FINRA Rule                                                                assist in the preparation of such reports; (D)
                                               1220(a)(2)(B) language permitting an individual
                                                                                                         paragraph (b)(4) as a Securities Trader,              supervision of and responsibility for individuals
                                               registering as a General Securities Principal after       and to pass the Compliance Official                   who are involved in the actual maintenance of the
                                               October 1, 2018 to register as a General Securities       qualification exam.56                                 member’s books and records from which such
                                               Sales Supervisor and to pass the General Securities                                                             reports are derived; (E) supervision and/or
                                               Principal Sales Supervisor Module qualification           4. Financial and Operations Principal,                performance of the member’s responsibilities under
                                               examination. The Exchange believes that                   (Proposed Rule 1220(a)(4))                            all financial responsibility rules promulgated
                                               individuals registering as General Securities                                                                   pursuant to the provisions of the Act; (F) overall
                                               Principals should be required to demonstrate their           Rule 1022(b)(1) currently provides                 supervision of and responsibility for the individuals
                                               competence for that role by passing the General           that every member operating pursuant                  who are involved in the administration and
                                               Securities Principal qualification examination.           to the provisions of SEC Rule 15c3–                   maintenance of the member’s back office
                                                 55 Proposed Rule 1220(a)(2) generally tracks                                                                  operations; or (G) any other matter involving the
                                                                                                         1(a)(1)(ii), (a)(2)(i) or (a)(8), shall               financial and operational management of the
                                               FINRA Rule 1220(a)(2), except that it omits
                                               references to a number of registration categories         designate as Limited Principal—                       member.
                                               which FINRA recognizes but that the Exchange              Financial and Operations those persons                   58 These duties include (A) final approval and

                                               does not, and it includes a reference to the              associated with it, at least one of whom              responsibilities for the accuracy of financial reports
                                               Securities Trader Compliance Officer category             shall be its chief financial officer, who             submitted to any duly established securities
                                               which the Exchange proposes to recognize, but                                                                   industry regulatory body; (B) final preparation of
                                               which FINRA does not. Additionally, proposed              performs the duties described in Rule                 such reports; (C) supervision of individuals who
                                               Rule 1220(a)(2)(A)(i) extends that provision’s                                                                  assist in the preparation of such reports; (D)
                                               exception to the General Securities Principal               56 Proposed Rule 1220(a)(3) differs from FINRA      supervision of and responsibility for individuals
                                               registration requirement to certain principals whose      Rule 1220(a)(3), Compliance Officer. The Exchange     who are involved in the actual maintenance of the
                                               activities are ‘‘limited to’’ (rather than ‘‘include’’)   does not recognize the Compliance Officer             member’s books and records from which such
                                               the functions of a more limited principal. The            registration category. Similarly, FINRA does not      reports are derived; (E) supervision and/or
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                                               Exchange believes that activities ‘‘limited to’’          recognize the Compliance Official or the Securities   performance of the member’s responsibilities under
                                               expresses the intent of that exception more               Trader Compliance Officer registration categories     all financial responsibility rules promulgated
                                               accurately than activities that ‘‘include.’’ Finally,     which the Exchange proposes to recognize.             pursuant to the provisions of the Act; (F) overall
                                               proposed Rule 1220(a)(2)(B) specifies that                However, FINRA Rule 1220(a)(3), like proposed         supervision of and responsibility for the individuals
                                               registration as a Corporate Securities Representative     Rule 1220(a)(3), offers an exception pursuant to      who are involved in the administration and
                                               must be with the Exchange in order to fulfill the         which a Chief Compliance Officer designated on        maintenance of the member’s back office
                                               Corporate Securities Representative registration          Schedule A of Form BD may register in a principal     operations; or (G) any other matter involving the
                                               prerequisite for General Securities Principal             category that corresponds to the limited scope of     financial and operational management of the
                                               registration pursuant to that rule.                       the member’s business.                                member.



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                                               51998                        Federal Register / Vol. 83, No. 199 / Monday, October 15, 2018 / Notices

                                               subject to a prerequisite representative                registering as Securities Trader                      Options Principal, rather than
                                               registration, but they must pass the                    Principals to be registered as Securities             Registered Options and Security Futures
                                               Financial and Operations Principal or                   Traders and to pass the General                       Principal.61 All references to a revised
                                               Introducing Broker-Dealer Financial and                 Securities Principal qualification                    examination that includes security
                                               Operations Principal examination, as                    examination.                                          futures products would be deleted.
                                               applicable.                                                                                                   Instead, Rule 1220(b), Supplementary
                                                  The Exchange is proposing to move                    8. Registered Options Principal
                                                                                                                                                             Material .02 will simply provide that
                                               the provisions in Rules 1022(b)                         (Proposed Rules 1220(a)(8)
                                                                                                                                                             each person who is registered with the
                                               regarding Financial and Operations                         Chapter II, Section 2(g) of the                    Exchange as a Registered Options
                                               Principals to Rule 1220(a)(4)(A),                       rulebook currently requires that                      Principal (or as a General Securities
                                               substituting the word ‘‘and’’ for the                   members engaged in security futures or                Representative, Options Representative,
                                               current word ‘‘or’’ found in Rule                       options transactions with public                      or General Securities Sales Supervisor)
                                               1022(b)(2)(F) in order to conform to                    customers have at least one Registered                shall be eligible to engage in security
                                               FINRA Rule 1220(a)(4)(A) in describing                  Options and Security Futures Principal.               futures activities as a principal, as
                                               the duties of a Financial and Operations                It also provides that every person                    applicable, provided that such
                                               Principal. In addition, the Exchange                    engaged in the supervision of options                 individual completes a Firm Element
                                               proposes to delete the Introducing                      and security futures sales practices shall            program as set forth in proposed Rule
                                               Broker-Dealer Financial and Operations                  be registered as a Registered Options                 1240 that addresses security futures
                                               Principals Rule 1022(c), as the Exchange                and Security Futures Principal and pass               products before such person engages in
                                               has determined it no longer requires this               the appropriate qualification                         security futures activities.62
                                               registration category as it is relatively               examination for Registered Options and                   Proposed Rule 1220(a)(8) provides
                                               little used.59                                          Security Futures Principal, or an                     that a General Securities Sales
                                                                                                       equivalent examination acceptable to                  Supervisor may also supervise options
                                               5. Investment Banking Principal                         the Exchange. Further, each person                    activities. Rule 1220(b), Supplementary
                                               (Proposed Rule 1220(a)(5))                              required to register and qualify as a                 Material .02 regarding security futures
                                                  The Exchange does not recognize the                  Registered Options and Security Futures               activities will apply to General
                                               Investment Banking Principal                            Principal must, prior to or concurrent                Securities Sales Supervisors as well as
                                               registration category and is reserving                  with such registration, be or become                  to Registered Options Principals.63
                                               Rule 1220(a)(5), retaining the caption                  qualified pursuant to the Rule 1030                      Further, as discussed below, the
                                               solely to facilitate comparison with                    Series, as either a General Securities                Exchange is proposing to eliminate the
                                               FINRA’s rules.                                          Representative or a Limited                           Options Representative and Corporate
                                               6. Research Principal (Proposed Rule                    Representative—Corporate Securities                   Securities Representative registration
                                               1220(a)(6))                                             and a Registered Options and Security                 categories. In conjunction with these
                                                                                                       Futures Representative.                               changes, the Exchange is proposing to
                                                  The Exchange does not recognize the                     The rule provides that a person                    eliminate registration as an Options
                                               Research Principal registration category                registered solely as a Registered Options             Representative and a Corporate
                                               and is reserving Rule 1220(a)(6),                       and Security Futures Principal is not                 Securities Representative from the
                                               retaining the caption solely to facilitate              qualified to function in a principal                  prerequisite choices in the current rule.
                                               comparison with FINRA’s rules.                          capacity with responsibility over any                 Consequently, a person registering as a
                                               7. Securities Trader Principal (Proposed                area of business activity not prescribed              Registered Options Principal under
                                               Rule 1220(a)(7))                                        in Chapter II, Section 2(g). Chapter II,              proposed Rule 1220(a)(8) would be
                                                                                                       Section 2(g)(5) provides that any person              required to satisfy the General Securities
                                                  The Exchange is proposing to adopt                   who is registered as a Registered                     Representative prerequisite
                                               Rule 1022(a)(5) relating to Securities                  Options and Security Futures Principal,               registration.64
                                               Trader Principal registration as Rule                   or who becomes registered as a                           Finally, the Exchange is proposing to
                                               1220(a)(7). Similar to the current rule,                Registered Options and Security Futures               adopt Chapter II, Section 2 Commentary
                                               proposed Rule 1220(a)(7) requires that a                Principal before a revised examination                .01 with non-substantive changes as
                                               principal responsible for supervising the               that includes security futures products               Supplementary Material .03 of Rule
                                               securities trading activities specified in              is offered, must complete a firm-element              1220.65
                                               proposed Rule 1220(b)(4) 60 register as a               continuing education program that
                                               Securities Trader Principal. The                        addresses security futures and a                         61 FINRA has also shortened references to
                                               proposed rule requires individuals                      principal’s responsibilities for security             ‘‘Registered Options and Security Futures
                                                                                                                                                             Principal’’ in its rulebook to ‘‘Registered Options
                                                  59 FINRA Rule 1220(a)(4) differs from proposed
                                                                                                       futures before such person can                        Principal’’. See Securities Exchange Act Release No.
                                               Rule 1220(a)(4) in that it includes an Introducing
                                                                                                       supervise security futures activities.                58932 (November 12, 2008), 73 FR 69696
                                               Broker-Dealer Financial and Operations Principal        Finally, Chapter II, Section 2 of the                 (November 19, 2008) (SR–FINRA–2008–032).
                                                                                                                                                                62 Unlike FINRA Rule 1220.02, proposed
                                               registration requirement. Additionally, proposed        Exchange’s options rules further
                                               Rule 1220(a)(4) contains a requirement, which the                                                             Exchange Rule 1220.02 omits references to United
                                                                                                       requires in Commentary .01 that                       Kingdom Securities Representatives and Canada
                                               FINRA rule does not, that each person associated
                                               with a member who performs the duties of a
                                                                                                       members that have one Registered                      Securities Representatives, which are registration
                                               Financial and Operations Principal must register as     Options Principal promptly notify the                 categories the Exchange does not recognize. In any
                                               such with the Exchange. Further, as discussed           Exchange and agree to specified                       case, the Exchange does not currently offer security
                                               above, the Exchange is not adopting a Principal                                                               futures products for trading.
                                                                                                       conditions if such person is terminated,                 63 Rule 1220(b), Supplementary Material .02
                                               Financial Officer or Principal Operations Officer
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                                               requirement like FINRA Rule 1220(a)(4)(B), as it
                                                                                                       resigns, becomes incapacitated or is                  regarding security futures activities will also apply
                                               believes the Financial and Operations Principal         otherwise unable to perform his or her                to General Securities Representatives and to
                                               requirement is sufficient. Finally, proposed Rule       duties.                                               Options Representatives.
                                               1220(a)(4)(B)(v) and (vi) contain minor wording            The Exchange is proposing to adopt                    64 Proposed Rule 1220(a)(8) differs from FINRA

                                               variations from the FINRA rule which are carried        Chapter II, Section (2)(g) as Rule                    Rule 1220(a)(8) in that it omits certain references to
                                               over from existing Nasdaq Rule 1022.                                                                          other specific FINRA rules.
                                                  60 Proposed Rule 1220(b)(4), discussed below,        1220(a)(8), Registered Options Principal,                65 Chapter XI, Doing Business with the Public, at

                                               provides for representative-level registration in the   with certain changes. The registration                Section 2(a) provides that no order entry firm
                                               ‘‘Securities Trader’’ category.                         category would now be titled Registered               (‘‘OEF’’) shall be approved to transact options



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                                                                             Federal Register / Vol. 83, No. 199 / Monday, October 15, 2018 / Notices                                              51999

                                               9. Government Securities Principal                       from performing any of the following                    13. Supervisory Analyst (Rule
                                               (Rule 1220(a)(9))                                        activities: (1) Supervision of the                      1220(a)(14))
                                                  The Exchange does not recognize the                   origination and structuring of                            The Exchange does not recognize the
                                               Government Securities Principal                          underwritings; (2) supervision of                       Supervisory Analyst registration
                                               registration category and is reserving                   market-making commitments; (3) final                    category and is therefore reserving Rule
                                               Rule 1220(a)(9), retaining the caption                   approval of advertisements as these are                 1220(a)(14), retaining the caption solely
                                               solely to facilitate comparison with                     defined in Exchange Rule 2210; (4)                      to facilitate comparison with FINRA’s
                                               FINRA’s rules.                                           supervision of the custody of firm or                   rules.
                                                                                                        customer funds or securities for
                                               10. General Securities Sales Supervisor                  purposes of SEC Rule 15c3–3; or (5)                     14. Definition of Representative
                                               (Proposed Rules 1220(a)(10) and                                                                                  (Proposed Rule 1220(b)(1))
                                                                                                        supervision of overall compliance with
                                               1220.04)
                                                                                                        financial responsibility rules. Current                    Rule 1011(k) currently defines the
                                                  Pursuant to Exchange Rule 1022(g),                    IM–1022–2 explains the purpose of the                   term ‘‘representative’’ as an associated
                                               each associated person of a member                       General Securities Sales Supervisor                     person of a registered broker or dealer,
                                               who is included within the definition of                 registration category.                                  including assistant officers other than
                                               ‘‘principal’’ in Rule 1021 may register as                                                                       principals, who is engaged in the
                                                                                                           The Exchange is proposing to adopt
                                               a Limited Principal—General Securities                                                                           investment banking or securities
                                               Sales Supervisor, instead of separately                  Rule 1022(g) and IM–1022–2 as Rules
                                                                                                        1220(a)(10) and 1220.04, respectively.68                business for the member including the
                                               registering in multiple principal                                                                                functions of supervision, solicitation or
                                               registration categories,66 if the                        Rule 1220(a)(10), however, omits the
                                                                                                        current Rule 1022(g) prohibition against                conduct of business in securities or who
                                               individual’s supervisory responsibilities                                                                        is engaged in the training of persons
                                               are limited solely to securities sales                   supervision of the origination and
                                                                                                        structuring of underwritings, as that                   associated with a broker or dealer for
                                               activities. A person registering as a                                                                            any of these functions. Rule 1011(k)
                                               Limited Principal—General Securities                     activity does not fall within the new,
                                                                                                                                                                further states that, as provided in Rule
                                               Sales Supervisor must satisfy the                        more limited scope of ‘‘securities
                                                                                                                                                                1031, all representatives of members are
                                               General Securities Representative                        trading’’ covered by the new 1200 Series
                                                                                                                                                                required to be registered with the
                                               prerequisite registration and pass the                   of rules.
                                                                                                                                                                Exchange, and that representatives that
                                               General Securities Sales Supervisor                      11. Investment Company and Variable                     are so registered are referred to as
                                               examinations.67 Moreover, a General                      Contracts Products Principal and Direct                 registered representatives.
                                               Securities Sales Supervisor is precluded                 Participation Programs Principal (Rules                    The Exchange now proposes to adopt
                                                                                                        1220(a)(11) and (a)(12))                                a definition of ‘‘representative’’ in
                                               business with the public until those associated                                                                  proposed Rule 1220(b)(1). Current Rule
                                               persons who are designated as Options Principals
                                               have been approved by and registered with the
                                                                                                           The Exchange is proposing to                         1011, Definitions, Section (k) would be
                                               Exchange. Persons engaged in the management and          eliminate the Investment Company and                    amended by deleting the existing
                                               supervision of the OEF’s business pertaining to          Variable Contracts Products Principal                   definition of representative, and
                                               options contracts must be designated as Options          registration category and does not                      replacing it with a cross reference to the
                                               Principals and shall have responsibility for the
                                               overall oversight of the OEF’s options related
                                                                                                        recognize the Direct Participation                      new definition of representative in Rule
                                               activities on the Exchange. Similarly, Chapter XI,       Programs Principal registration category.               1220(b)(1). Proposed 1220(b)(1) would
                                               Sections 3(a) and (b) provide that no OEF shall be       The Exchange is therefore reserving                     define the term representative as any
                                               approved to transact business with the public until      Rules 1220(a)(11) and (a)(12), retaining                person associated with a member,
                                               those persons associated with it who are designated
                                               representatives have been approved by and                the captions solely to facilitate                       including assistant officers other than
                                               registered with the Exchange, and also that persons      comparison with FINRA’s rules.                          principals, who is engaged in the
                                               who perform duties for the OEF which are                                                                         member’s securities business, such as
                                               customarily performed by sales representatives or        12. Private Securities Offerings                        supervision, solicitation, conduct of
                                               branch office managers shall be designated as            Principal (Rule 1220(a)(13))                            business in securities or the training of
                                               representatives of the OEF. The foregoing
                                               provisions of Chapter XI are specific to conducting        The Exchange does not recognize the                   persons associated with a member for
                                               an options business with the public and are not
                                                                                                        Private Securities Offerings Principal                  any of these functions. Unlike the
                                               proposed to be amended in this proposed rule                                                                     current Rule 1011(k) ‘‘representative’’
                                               change, other than to add a customer protection          registration category and is therefore
                                               requirement, similar to existing Phlx Rule 1024.08       reserving Rule 1220(a)(13), retaining the               definition, the new Rule 1220(b)(1)
                                               and existing ISE Rule 602(d), that a person              caption solely to facilitate comparison                 definition would be confined to
                                               accepting orders from non-member customers
                                                                                                        with FINRA’s rules.                                     associated persons of Exchange
                                               (unless such customer is a broker-dealer registered                                                              members (rather than to associated
                                               with the Commission) is required to register with
                                               the Exchange and to be qualified by passing the            68 The Exchange is not proposing to carry over
                                                                                                                                                                persons of broker dealers generally) who
                                               General Securities Registered Representative             into proposed Rule 1220(a)(10) the current Rule         are engaged in the member’s securities
                                               Examination (Series 7). However, Chapter XI,             1022(g)(2)(C)(iii) prohibition against final approval   business (and not also in the member’s
                                               Sections 2(b) and (c) and Section 3(c) also contain      of advertisements by General Securities Sales           investment banking business).
                                               provisions regarding submission of Forms U4 and          Supervisors. The Exchange notes that FINRA
                                               U5 to WebCRD that are duplicative of the proposed        removed this prohibition several years ago from         15. General Securities Representative
                                               1200 Series of rules, in particular proposed Rules       NASD Rule 1022(g) (Limited Principal—General
                                               1210.12, Application for Registration and
                                                                                                                                                                (Proposed Rule 1220(b)(2))
                                                                                                        Securities Sales Supervisor) and NASD IM–1022–2
                                               Jurisdiction, and 1250, Electronic Filing                (Limited Principal—General Securities Sales               Rule 1032(a) currently requires that
                                               Requirements for Electronic Forms, and are               Supervisor). See Securities Exchange Act Release        an associated person who meets the
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                                               therefore proposed to be deleted.                        No. 68918 (February 13, 2013), 78 FR 11925
                                                 66 For instance, a principal supervising the sale of
                                                                                                        (February 20, 2013) (SR–FINRA–2013–014). Also,
                                                                                                                                                                definition of ‘‘representative’’ under
                                               corporate securities and options must be registered      unlike FINRA Rule 1220.04, proposed Exchange            Rule 1011 register as a General
                                               as a General Securities Principal and a Registered       Rule 1220.04 refers to ‘‘multiple exchanges’’ rather    Securities Representative. A person
                                               Options Principal, unless the principal is registered    than listing the various exchanges where a sales        registering as a General Securities
                                               as a General Securities Sales Supervisor.                principal might be required to qualify in the
                                                 67 An individual may also register as a General        absence of the General Securities Sales Supervisor
                                                                                                                                                                Representative must pass the General
                                               Securities Sales Supervisor by passing a                 registration category. It also omits FINRA internal     Securities Representative examination.
                                               combination of other principal-level examinations.       cross-references.                                       The rule, however, provides that a


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                                               52000                        Federal Register / Vol. 83, No. 199 / Monday, October 15, 2018 / Notices

                                               representative is not required to register                 Further, consistent with the proposed               1220(b)(6)—Research Analyst;
                                               as a General Securities Representative if               restructuring of the representative-level              1220(b)(8)—Direct Participation
                                               the person’s activities are so limited as               examinations, proposed Rule                            Programs Representative; and
                                               to qualify such person for one or more                  1220(b)(2)(B) would require that                       1220(b)(9)—Private Securities Offerings
                                               of the limited representative categories                individuals registering as General                     Representative, retaining the captions,
                                               specified in Rule 1032, such as an                      Securities Representatives pass the SIE                solely to facilitate comparison with
                                               Investment Company and Variable                         and the General Securities                             FINRA’s rules.
                                               Contracts Products Representative, a                    Representative examination.69                             Securities Trader—Proposed Rule
                                               Corporate Securities Representative, or a                  In addition, the Exchange is                        1220(b)(4). Pursuant to current
                                               Securities Trader. Further, the rule does               proposing to adopt Rule 1220.01 to                     Exchange Rule 1032(f), each associated
                                               not preclude individuals registered in a                provide individuals who are associated                 person of a member who is included
                                               limited representative category from                    persons of firms and who hold foreign                  within the definition of ‘‘representative’’
                                               registering as General Securities                       registrations an alternative, more                     in Rule 1101 is required to register as a
                                               Representatives.                                        flexible, process to obtain an Exchange                Securities Trader if, with respect to
                                                  Rule 1032(a)(2) provides that if a                   representative-level registration. The                 transactions in equity, preferred or
                                               representative does not engage in                       Exchange believes that there is                        convertible debt securities or foreign
                                               municipal securities activities,                        sufficient overlap between the SIE and                 currency options on the Exchange, such
                                               registration as a United Kingdom                        these foreign qualification requirements               person is engaged in proprietary trading,
                                               Securities Representative or Canada                     to permit them to act as exemptions to                 the execution of transactions on an
                                               Securities Representative is equivalent                 the SIE. Under proposed Rule 1220.01,                  agency basis or the direct supervision of
                                               to registration as a General Securities                 individuals who are in good standing as                such activities. The rule provides an
                                               Representative. These foreign                           representatives with the Financial                     exception from the registration
                                               registration categories were created in                 Conduct Authority in the United                        requirement for any associated person of
                                               the 1990s as an alternative to General                  Kingdom or with a Canadian stock                       a member whose trading activities are
                                               Securities Representative registration for              exchange or securities regulator would                 conducted principally on behalf of an
                                               individuals who do not engage in                        be exempt from the requirement to pass                 investment company that is registered
                                               municipal securities activities and who                 the SIE, and thus would be required                    with the SEC pursuant to the Investment
                                               are in good standing as a representative                only to pass a specialized knowledge                   Company Act and that controls, is
                                               with the Financial Conduct Authority in                 examination to register with the                       controlled by, or is under common
                                               the United Kingdom or with a Canadian                   Exchange as a representative. The                      control with the member. Individuals
                                               stock exchange or securities regulator.                 proposed approach would provide                        registering as Securities Traders must
                                               To qualify for registration as a United                 individuals with a United Kingdom or                   pass the Securities Trader examination.
                                                                                                       Canadian qualification more flexibility                Finally, the rule provides that registered
                                               Kingdom Securities Representative or
                                                                                                       to obtain an Exchange representative-                  Securities Traders are not qualified to
                                               Canada Securities Representative, an
                                                                                                       level registration. Finally, the Exchange              function in any other registration
                                               individual must pass the United
                                                                                                       is proposing to delete the provision that              category, unless he or she is also
                                               Kingdom Securities Representative
                                                                                                       persons eligible for registration in other             qualified and registered in such other
                                               examination or Canada Securities
                                                                                                       representative categories are not                      registration category.
                                               Representative examinations,
                                                                                                       precluded from registering as General                     The Exchange now proposes to amend
                                               respectively. Rule 1032(a)(2) also
                                                                                                       Securities Representatives because it is               the rule, and adopt it as proposed Rule
                                               permits a person registered and in good
                                                                                                       superfluous.                                           1220(b)(4).70 As amended, the Rule
                                               standing as a representative with the
                                               Japanese securities regulators to become                16. Operations Professional, Securities                would require individuals registering as
                                               qualified to function as a General                      Trader, Investment Banking                             Securities Traders to pass the SIE as
                                               Securities Representative by passing the                Representative, Research Analyst,                      well as the Securities Trader
                                               Japan Module of the General Securities                  Investment Company and Variable                        qualification exam, and it would be
                                               Representative examination. The Japan                   Contracts Products Representative,                     expanded to refer not just to foreign
                                               Module, however, was never                              Direct Participation Programs                          currency options, but to the trading of
                                               implemented.                                            Representative and Private Securities                  options generally.
                                                  The Exchange is proposing to                         Offerings Representative (Rules                           Additionally, proposed Rule
                                               streamline the provisions of Rule                       1220(b)(3), 1220(b)(4), 1220(b)(5),                    1220(b)(4)(A) would require each person
                                               1032(a) and adopt them as Rule                          1220(b)(6), 1220(b)(7), 1220(b)(8),                    associated with a member who is: (i)
                                               1220(b)(2) with the following changes.                  1220(b)(9) and 1220.05))                               Primarily responsible for the design,
                                                  Similar to the proposed changes to the                 Operations Professional, Investment                  development or significant modification
                                               General Securities Principal registration               Banking Representative, Research                       of an algorithmic trading strategy
                                               category, the Exchange is proposing to                  Analyst, Direct Participation Programs                 relating to equity, preferred or
                                               more clearly set forth the obligation to                Representative and Private Securities                  convertible debt securities or options; or
                                               register as a General Securities                        Offerings Representative. The Exchange                 (ii) responsible for the day-to-day
                                               Representative. Specifically, proposed                  has not adopted these registration                     supervision or direction of such
                                               Rule 1220(b)(2)(A) states that each                     categories for its associated persons. The             activities to register with the Exchange
                                               representative as defined in proposed                   Exchange is reserving Rules                            as a Securities Trader.71
                                               Rule 1220(b)(1) is required to register                 1220(b)(3)—Operations Professional,
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                                                                                                                                                                 70 Proposed Rule 1220(b)(4)(A) differs from
                                               with the Exchange as a General                          and related Rule 1220.05; 1220(b)(5)—                  FINRA Rule 1220(b)(4)(A) in that it applies to
                                               Securities Representative, except that if               Investment Banking Representative,                     trading on the Exchange while the FINRA rule is
                                               a representative’s activities include the                                                                      limited to the specified trading which is ‘‘effected
                                               functions of a Securities Trader, as                      69 Proposed Rule 1220(b)(2)(B) differs from          otherwise than on a securities exchange.’’
                                                                                                       FINRA Rule 1220(b)(2)(B) in that it omits references   Additionally, the FINRA rule does not specifically
                                               specified in this Rule, then such person                to various registration categories which FINRA         extend to options trading.
                                               shall appropriately register as a                       recognizes but which the Exchange does not                71 As noted above, this new registration

                                               Securities Trader.                                      propose to recognize.                                  requirement was recently added to the FINRA



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                                                                            Federal Register / Vol. 83, No. 199 / Monday, October 15, 2018 / Notices                                            52001

                                                  For purposes of this proposed new                    business objectives. For example, a lead              such registration, pass the SIE and the
                                               registration requirement an ‘‘algorithmic               developer who liaises with a head trader              Securities Trader qualification
                                               trading strategy’’ is an automated system               regarding the head trader’s desired                   examination.
                                               that generates or routes orders (or order-              algorithmic trading strategy and is                      Investment Company and Variable
                                               related messages) but does not include                  primarily responsible for the                         Contracts Products Representative—
                                               an automated system that solely routes                  supervision of the development of the                 Proposed Rule 1220(b)(7). Pursuant to
                                               orders received in their entirety to a                  algorithm to meet such objectives must                current Rule 1032(b), each associated
                                               market center. The proposed registration                be registered under the proposal as the               person of a member who is included
                                               requirement applies to orders and order                 associated person primarily responsible               within the definition of ‘‘representative’’
                                               related messages whether ultimately                     for the development of the algorithmic                in Rule 1031 may register as an
                                               routed or sent to be routed to an                       trading strategy and supervising or                   Investment Company and Variable
                                               exchange or over the counter. An order                  directing the team of developers.                     Contracts Products Representative,
                                               router alone would not constitute an                    Individuals under the lead developer’s                instead of registering as a General
                                               algorithmic trading strategy. However,                  supervision would not be required to                  Securities Representative, if the
                                               an order router that performs any                       register under the proposal if they are               individual’s activities are limited solely
                                               additional functions would be                           not primarily responsible for the                     to redeemable securities of companies
                                               considered an algorithmic trading                       development of the algorithmic trading                registered under the Investment
                                               strategy. An algorithm that solely                      strategy or are not responsible for the               Company Act, securities of closed-end
                                               generates trading ideas or investment                   day-to-day supervision or direction of                companies registered under the
                                               allocations—including an automated                      others on the team. Under this scenario,              Investment Company Act during the
                                               investment service that constructs                      the person on the business side that is               period of original distribution and
                                               portfolio recommendations—but that is                   primarily responsible for the design of               specified insurance contracts, such as
                                               not equipped to automatically generate                  the algorithmic trading strategy, as                  variable contracts. Individuals
                                               orders and order-related messages to                    communicated to the lead developer,                   registering as Investment Company and
                                               effectuate such trading ideas into the                  also would be required to register. In the            Variable Contracts Products
                                               market—whether independently or via a                   event of a significant modification to the            Representatives must pass the
                                               linked router—would not constitute an                   algorithm, members, likewise, would be                Investment Company and Variable
                                               algorithmic trading strategy.72                         required to ensure that the associated                Contracts Products Representative
                                                  The associated persons covered by the                person primarily responsible for the                  examination. The Exchange has
                                               expanded registration requirement                       significant modification (or the                      experienced little demand for
                                               would be required to pass the requisite                 associated person supervising or                      registration in this category. Therefore,
                                               qualification examination and be subject                directing such activity), is registered as            it now proposes to eliminate the
                                               to the same continuing education                        a Securities Trader.                                  Investment Company and Variable
                                               requirements that are applicable to                        A member employing an algorithm is                 Contracts Products Representative
                                               individual Securities Traders. The                      responsible for the algorithm’s activities            category as an acceptable category for
                                               Exchange believes that potentially                      whether the algorithm is designed or                  Exchange representative registration.
                                               problematic conduct stemming from                       developed in house or by a third-party.               The Exchange is reserving proposed
                                               algorithmic trading strategies—such as                  Thus, in all cases, robust supervisory                Rule 1220(b)(7), retaining the caption
                                                                                                       procedures, both before and after                     solely to facilitate comparison with
                                               failure to check for order accuracy,
                                                                                                       deployment of an algorithmic trading                  FINRA’s rule.
                                               inappropriate levels of messaging traffic,
                                                                                                       strategy, are a key component in
                                               wash sales, failure to mark orders as                                                                         17. Additional Eliminated Registration
                                                                                                       protecting against problematic behavior
                                               ‘‘short’’ or perform proper short sale                                                                        Categories (Proposed Rule 1220.06)
                                                                                                       stemming from algorithmic trading. In
                                               ‘‘locates,’’ and inadequate risk                                                                                 As noted above, the Exchange is
                                                                                                       addition, associated persons responsible
                                               management controls—could be                                                                                  proposing to eliminate the Investment
                                                                                                       for monitoring or reviewing the
                                               reduced or prevented, in part, through                                                                        Company and Variable Products
                                                                                                       performance of an algorithmic trading
                                               improved education regarding securities                                                                       Representative category, reserving
                                                                                                       strategy must be registered, and a
                                               regulations for the specified individuals                                                                     proposed Rule 1220(b)(7), and retaining
                                                                                                       member’s trading activity must always
                                               involved in the algorithm design and                    be supervised by an appropriately                     the caption solely to facilitate
                                               development process.                                    registered person. Therefore, even                    comparison with FINRA’s rule.
                                                  The proposal is intended to ensure                   where a firm purchases an algorithm off-              Similarly, it is eliminating the
                                               the registration of one or more                         the-shelf and does not significantly                  Investment Company and Variable
                                               associated persons that possesses                       modify the algorithm, the associated                  Contracts Products Principal category,
                                               knowledge of, and responsibility for,                   person responsible for monitoring or                  reserving proposed Rule 1220(a)(11),
                                               both the design of the intended trading                 reviewing the performance of the                      and retaining the caption solely to
                                               strategy and the technological                          algorithm would be required to be                     facilitate comparison with FINRA’s rule.
                                               implementation of the strategy,                         registered.                                              Consistent with the FINRA Rule
                                               sufficient to evaluate whether the                         Pursuant to proposed Rule                          Changes, the Exchange is also proposing
                                               resulting product is designed to achieve                1220(b)(4)(B) each person registered as a             to eliminate from its rules the Order
                                               regulatory compliance in addition to                    Securities Trader on October 1, 2018                  Processing Assistant Representative,
                                                                                                       and each person who was registered as                 Options Representative, and Corporate
                                               rulebook. The Exchange has determined to add a
                                                                                                       a Securities Trader within two years
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                                               parallel requirement to its own rules, but also to
                                                                                                                                                             Securities Representative categories that
                                               add options to the scope of products within the         prior to October 1, 2018 would be                     FINRA is eliminating effective October
                                               proposed rule’s coverage. See Securities Exchange       qualified to register as a Securities                 1, 2018, as discussed below.
                                               Act Release No. 77551 (April 7, 2016), 81 FR 21914      Trader without passing any additional                    Order Processing Assistant
                                               (April 13, 2016) (Order Approving File No. SR–          qualification examinations. All other                 Representative. Pursuant to current Rule
                                               FINRA–2016–007).
                                                 72 See Securities Exchange Act Release No. 77551      individuals registering as Securities                 1041, an associated person is not
                                               (April 7, 2016), 81 FR 21914 (April 13, 2016) (Order    Traders after October 1, 2018 would be                required to register as a General
                                               Approving File No. SR–FINRA–2016–007).                  required, prior to or concurrent with                 Securities Representative or in one or


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                                               52002                        Federal Register / Vol. 83, No. 199 / Monday, October 15, 2018 / Notices

                                               more of the limited categories of                       Corporate Securities Representative                   Representatives are subject under Rule
                                               representative registration if the                      examination.                                          1042.73
                                               person’s activities are so limited as to                   The Exchange is proposing to                       18. Grandfathering Provisions
                                               qualify such person for registration as                 eliminate the current registration
                                               an Order Processing Assistant                                                                                    In addition to the grandfathering
                                                                                                       categories of Order Processing Assistant              provisions in proposed Rule 1220(a)(2)
                                               Representative. An Order Processing                     Representative, Options Representative,
                                               Assistant Representative is an                                                                                (relating to General Securities
                                                                                                       and Corporate Securities, as FINRA has                Principals) and proposed Rule 1220.06
                                               associated person whose only function
                                                                                                       done in the FINRA Rule Changes. The                   (relating to the eliminated registration
                                               is to accept unsolicited customer orders
                                                                                                       Exchange believes that the utility of the             categories), the Exchange is proposing to
                                               from existing customers for submission
                                               for execution by the member. Pursuant                   Order Processing Assistant                            include grandfathering provisions in
                                               to Rule 1042, Order Processing Assistant                Representative registration category has              proposed Rule 1220(a)(8) (Registered
                                               Representatives are subject to specified                diminished as technological advances                  Options Principal), 1220(b)(2) (General
                                               restrictions regarding their activities and             and changes in industry practice have                 Securities Representative), and
                                               compensation and are subject to                         reduced the need for such                             1220(b)(4) (Securities Trader).
                                               particular supervisory requirements. In                 representatives. As a result, the volume              Specifically, the proposed
                                               addition, they may not be registered                    of candidates taking the Order                        grandfathering provisions provide that,
                                               concurrently in any other capacity.                     Processing Assistant Representative                   subject to the lapse of registration
                                                  Options Representative. Chapter II,                  examination has diminished. The                       provisions in proposed Rule 1210.08,
                                                                                                       Options Representative and Corporate                  individuals who are registered in
                                               Section 2(h) of the Exchange’s rulebook
                                                                                                       Securities Representative registration                specified registration categories on the
                                               provides that each person associated
                                                                                                       categories were created over the years as             operative date of the proposed rule
                                               with a member who is included within
                                                                                                       subcategories of the General Securities               change and individuals who had been
                                               the definition of a representative as
                                                                                                       Representative category. These                        registered in such categories within the
                                               defined in Rule 1031 may register with
                                                                                                       subcategories currently allow an                      past two years prior to the operative
                                               the Exchange as a Limited
                                                                                                       individual to sell a subset of the                    date of the proposed rule change would
                                               Representative—Options and Security
                                                                                                       products (e.g., options, common stocks                be qualified to register in the proposed
                                               Futures if: (A) Such person’s activities
                                                                                                       and corporate bonds) permitted to be                  corresponding registration categories
                                               in the investment banking or securities
                                                                                                       sold by a General Securities                          without having to take any additional
                                               business of the member involve the                                                                            examinations.
                                               solicitation or sale of option or security              Representative. In recent years,
                                               futures contracts, including option                     however, the utility of these                         N. Associated Persons Exempt From
                                               contracts on government securities as                   subcategories has also diminished as a                Registration (Proposed Rules 1230 and
                                               that term is defined in Section                         result of technological, regulatory and               1230.01)
                                               3(a)(42)(D) of the Act, for the account of              business practice changes. This is                       Rule 1060(a) currently provides that
                                               a broker, dealer or public customer; and                evidenced by the low annual volume for                the following persons associated with a
                                               (B) such person passes an appropriate                   each of these examinations and the                    member are not required to register:
                                               qualification examination for Limited                   relatively low number of individuals                     (1) Persons associated with a member
                                               Representative—Options and Security                     who currently hold these registrations.               whose functions are solely and
                                               Futures. It also provides that each                        Investment Company and Variable                    exclusively clerical or ministerial;
                                               person seeking to register and qualify as               Products Representatives, Investment                     (2) persons associated with a member
                                               a Limited Representative—Options and                    Company and Variable Contracts                        who are not actively engaged in the
                                               Security Futures must, concurrent with                  Products Principals, Order Processing                 investment banking or securities
                                               or before such registration may become                  Assistant Representatives, Options                    business;
                                               effective, become registered with the                                                                            (3) persons associated with a member
                                                                                                       Representatives, and Corporate
                                               Exchange or another SRO as either as a                                                                        whose functions are related solely and
                                                                                                       Securities Representatives would be                   exclusively to the member’s need for
                                               Limited Representative—Corporate
                                                                                                       eligible to maintain their registrations              nominal corporate officers or for capital
                                               Securities or Limited Representative—
                                                                                                       with the Exchange. Specifically,                      participation; and
                                               Government Securities. The Limited
                                                                                                       proposed Rule 1220.06 provides that,                     (4) persons associated with a member
                                               Representative—Options and Security
                                                                                                       subject to the lapse of registration                  whose functions are related solely and
                                               Futures registration category is the same
                                                                                                       provisions in proposed Rule 1210.08,                  exclusively to: (A) Effecting transactions
                                               as the Options Representative category.
                                                                                                       individuals who are registered with the               on the floor of another national
                                                  Corporate Securities Representative.
                                                                                                       Exchange in any capacity recognized by                securities exchange and who are
                                               Rule 1032(e) currently provides that
                                                                                                       the Exchange immediately prior to                     registered as floor members with such
                                               each associated person of a member
                                                                                                       October 1, 2018, and each person who                  exchange; (B) transactions in municipal
                                               who is included within the definition of
                                                                                                       was registered with the Exchange in                   securities; (C) transactions in
                                               ‘‘representative’’ in Rule 1031 may
                                               register as a Corporate Securities                      such categories within two years prior                commodities; (D) transactions in
                                               Representative, instead of a General                    to October 1, 2018, shall be eligible to              security futures, provided that any such
                                               Securities Representative, if the                       maintain such registrations with the                  person is registered with FINRA or a
                                               individual’s activities are limited solely              Exchange. However, if individuals                     registered futures association; or (E)
                                               to securities as defined under Section                  registered in these categories terminate              transactions in variable contracts and
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                                               3(a)(10) of the Act, other than municipal               their registration with the Exchange and              insurance premium funding programs
                                               securities, options, mutual funds                       the registration remains terminated for               and other contracts issued by an
                                               (except for money market funds),                        two or more years, they would not be                  insurance company; (F) transactions in
                                               variable contracts and direct                           able to re-register in that category. In
                                               participation program securities.                       addition, proposed Rule 1220.06 would                   73 Proposed Exchange Rule 1220.06 omits

                                                                                                                                                             references to a number of registration categories it
                                               Individuals registering as Corporate                    include the current restrictions to which             does not propose to recognize, but which FINRA
                                               Securities Representatives must pass the                Order Processing Assistant                            refers to in its own Rule 1220.06.



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                                                                            Federal Register / Vol. 83, No. 199 / Monday, October 15, 2018 / Notices                                                     52003

                                               direct participation programs; (G)                      categories other than the floor member                  current Rule 1120 in a number of
                                               Reserved; (H) transactions in                           category, proposed Rule 1230 clarifies                  respects, discussed below.77
                                               government securities; or (I) effecting                 that the exemption applies to associated
                                                                                                                                                               1. Regulatory Element
                                               sales as part of a primary offering of                  persons solely and exclusively effecting
                                               securities not involving a public offering              transactions on the floor of another                       The Exchange is proposing to replace
                                               pursuant to Section 3(b), 4(2), or 4(6) of              national securities exchange, provided                  the term ‘‘registered person’’ under
                                               the Securities Act of 1933 and the rules                they are appropriately registered with                  current Rule 1120(a) with the term
                                               and regulations thereunder.                             such exchange.75 Additionally, the                      ‘‘covered person’’ and make conforming
                                                  (5) Persons associated with a member                 Exchange proposes to add Section 3 of                   changes to proposed Rule 1240(a). For
                                               that are not citizens, nationals, or                    Rule 1230, pursuant to which persons                    purposes of the Regulatory Element, the
                                               residents of the United States or any of                associated with a member that are not                   Exchange is proposing to define the
                                               its territories or possessions and that                 citizens, nationals, or residents of the                term ‘‘covered person’’ in Rule
                                               will conduct all of their securities                    United States or any of its territories or              1240(a)(5) as any person registered
                                               activities in areas outside the                         possessions, that will conduct all of                   pursuant to proposed Rule 1210,
                                               jurisdiction of the United States and                   their securities activities in areas                    including any person who is
                                               will not engage in any securities                       outside the jurisdiction of the United                  permissively registered pursuant to
                                               activities with or for any citizen,                     States, and that will not engage in any                 proposed Rule 1210.02, and any person
                                               national or resident of the United States.              securities activities with or for any                   who is designated as eligible for an FSA
                                                  Rule 1060(a) is not meant to provide                 citizen, national or resident of the                    waiver pursuant to proposed Rule
                                               an exclusive or exhaustive list of                      United States need not register with the                1210.09. The purpose of this change is
                                               exemptions from registration.                           Exchange.76                                             to ensure that all registered persons,
                                               Associated persons may otherwise be                        The Exchange proposes to adopt Rule                  including those with permissive
                                               exempt from registration based on their                 1230.01 to clarify that the function of                 registrations, keep their knowledge of
                                               activities and functions.                               accepting customer orders is not                        the securities industry current. The
                                                  The Exchange is proposing to adopt                   considered a clerical or ministerial                    inclusion of persons designated as
                                               Rule 1060(a) as Rule 1230 subject to the                function and that associated persons                    eligible for an FSA waiver under the
                                               following changes. As noted above, Rule                 who accept customer orders under any                    term ‘‘covered persons’’ corresponds to
                                               1060(a) exempts from registration those                 circumstances are required to be                        the requirements of proposed Rule
                                               associated persons who are not actively                 appropriately registered. However, the                  1210.09. In addition, consistent with
                                               engaged in the investment banking or                    proposed rule provides that an                          proposed Rule 1210.09, proposed Rule
                                               securities business. Rule 1060(a) also                  associated person is not accepting a                    1240(a) provides that an FSA-eligible
                                               exempts from registration those                         customer order where occasionally,                      person would be subject to a Regulatory
                                               associated persons whose functions are                  when an appropriately registered person                 Element program that correlates to his
                                               related solely and exclusively to a                     is unavailable, the associated person                   or her most recent registration category,
                                               member’s need for nominal corporate                     transcribes the order details and the                   and CE would be based on the same
                                               officers or for capital participation.74                registered person contacts the customer                 cycle had the individual remained
                                               The Exchange believes that the                          to confirm the order details before                     registered. The proposed rule also
                                               determination of whether an associated                  entering the order.                                     provides that if an FSA-eligible person
                                               person is required to register must be                                                                          fails to complete the Regulatory Element
                                               based on an analysis of the person’s                    O. Changes to CE Requirements                           during the prescribed time frames, he or
                                               activities and functions in the context of              (Proposed Rule 1240)                                    she would lose FSA eligibility.
                                               the various registration categories. The                   As described above, current Rule 1120                   Further, the Exchange is proposing to
                                               Exchange does not believe that                          includes a Regulatory Element and a                     add a rule to address the impact of
                                               categorical exemptions for associated                   Firm Element. The Regulatory Element                    failing to complete the Regulatory
                                               persons who are not ‘‘actively engaged’’                applies to registered persons and                       Element on a registered person’s
                                               in a member’s investment banking or                     consists of periodic computer-based                     activities and compensation.
                                               securities business, associated persons                 training on regulatory, compliance,                     Specifically, proposed Rule 1240(a)(2)
                                               whose functions are related only to a                   ethical, supervisory subjects and sales                 provides that any person whose
                                               member’s need for nominal corporate                     practice standards. The Firm Element                    registration has been deemed inactive
                                               officers or associated persons whose                    consists of at least annual, member-                    under the rule may not accept or solicit
                                               functions are related only to a member’s                developed and administered training                     business or receive any compensation
                                               need for capital participation is                       programs designed to keep covered                       for the purchase or sale of securities.
                                               consistent with this analytical                         registered persons current regarding                    However, like the FINRA rule, the
                                               framework. The Exchange therefore is                    securities products, services and                       proposed rule provides that such person
                                               proposing to delete these exemptions.                   strategies offered by the member. The                   may receive trail or residual
                                               Rule 1060(a) further exempts from                       Exchange is proposing to delete Rule                    commissions resulting from transactions
                                               registration associated persons whose                   1120 and replace it with Rule 1240.                     completed before the inactive status,
                                               functions are related solely and                        Proposed Rule 1240 would differ from                    unless the member with which the
                                               exclusively to effecting transactions on                                                                        person is associated has a policy
                                               the floor of another national securities                   75 Proposed Rule 1230 differs from FINRA Rule        prohibiting such trail or residual
                                               exchange as long as they are registered                 1230 in that it contains a number of additional         commissions.
                                                                                                       exemptions, based upon current Nasdaq Rule                 The Exchange is also proposing to
                                               as floor members with such exchange.
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                                                                                                       1060(a), which are not included in FINRA Rule
                                               Because exchanges have registration                     1230.
                                                                                                                                                               remove the requirements currently
                                                                                                          76 Individuals described by Section 3 of Rule 1230   found in Rule 1120(a)(1) prescribing the
                                                 74 These exemptions generally apply to associated     who are associated with FINRA members may be
                                               persons who are corporate officers of a member in       registered with FINRA as Foreign Associates               77 Proposed Rule 1240 also differs slightly from

                                               name only to meet specific corporate legal              pursuant to FINRA Rule 1220.06. FINRA is                FINRA Rule 1240 in that it omits references to
                                               obligations or who only provide capital for a           eliminating this registration category effective        certain registration categories which the Exchange
                                               member, but have no other role in a member’s            October 1, 2018, and the Exchange has never             does not recognize as well as an internal cross
                                               business.                                               recognized it.                                          reference to FINRA Rule 4517.



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                                               52004                        Federal Register / Vol. 83, No. 199 / Monday, October 15, 2018 / Notices

                                               specific Regulatory Elements                            objectives of Section 6(b)(5) of the Act,80            associated persons primarily
                                               administered by FINRA that are                          in particular, in that it is designed to               responsible for the design, development
                                               required for General Securities                         promote just and equitable principles of               or significant modification of an
                                               Representatives, Securities Traders or                  trade, to remove impediments to and                    algorithmic trading strategy or
                                               persons registered in a supervisory                     perfect the mechanism of a free and                    responsible for the day-to-day
                                               capacity, so that Rule 1240(a)(1) will                  open market and a national market                      supervision or direction of such
                                               conform more closely to the FINRA                       system, and, in general to protect                     activities to register and meet a
                                               counterpart rule which does not identify                investors and the public interest.                     minimum standard of knowledge
                                               specific Regulatory Element                                The Exchange believes that the                      regarding the securities rules and
                                               requirements for particular categories of               proposed rule change will streamline,                  regulations applicable to the member
                                               registrant.                                             and bring consistency and uniformity                   employing the algorithmic trading
                                                                                                       to, the registration rules, which will, in             strategy. This minimum standard of
                                               2. Firm Element                                         turn, assist members and their                         knowledge is identical to the standard
                                                  The Exchange believes that training in               associated persons in complying with                   of knowledge currently applicable to
                                               ethics and professional responsibility                  these rules and improve regulatory                     traditional securities traders. The
                                               should apply to all covered registered                  efficiency. The proposed rule change                   Exchange believes that improved
                                               persons. Therefore, proposed Rule                       will also improve the efficiency of the                education of firm personnel may reduce
                                               1240(b)(2)(B), which provides that the                  examination program, without                           the potential for problematic market
                                               Firm Element training programs must                     compromising the qualification                         conduct and manipulative trading
                                               cover applicable regulatory                             standards, by eliminating duplicative                  activity.
                                               requirements, would also require that a                 testing of general securities knowledge                   Finally, the proposed rule change
                                               firm’s training program cover training in               on examinations and by removing                        makes organizational changes to
                                               ethics and professional responsibility.                 examinations that currently have                       Exchange rules to maintain appropriate
                                                                                                       limited utility. In addition, the proposed             parallelism with corresponding
                                               P. Electronic Filing Rules                              rule change will expand the scope of                   Exchange rules, in order to prevent
                                                  Existing Rule 1140, Electronic Filing                permissive registrations, which, among                 unnecessary regulatory burdens and
                                               Requirements for Uniform Forms, is                      other things, will allow members to                    promote efficient administration of the
                                               proposed to be relocated as Rule 1250,                  develop a depth of associated persons                  rules. The change also makes minor
                                               Electronic Requirements for Uniform                     with registrations to respond to                       updates and corrections to the
                                               Forms, with non-substantive                             unanticipated personnel changes and                    Exchange’s rules which improve
                                               conforming changes. As revised the rule                 will encourage greater regulatory                      readability.
                                               provides that all forms required to be                  understanding. Further, the proposed
                                                                                                                                                              B. Self-Regulatory Organization’s
                                               filed under the Exchange’s registration                 rule change will provide a more
                                                                                                                                                              Statement on Burden on Competition
                                               rules including the Rule 1200 series                    streamlined and effective waiver
                                                                                                       process for individuals working for a                     The Exchange does not believe that
                                               shall be filed through an electronic
                                                                                                       financial services industry affiliate of a             the proposed rule change will impose
                                               process or such other process as the
                                                                                                       member, and it will require such                       any burden on competition not
                                               Exchange may prescribe to the Central
                                                                                                       individuals to maintain specified levels               necessary or appropriate in furtherance
                                               Registration Depository. Rule 1250, as
                                                                                                       of competence and knowledge while                      of the purposes of the Act. The
                                               part of the uniform 1200 Series, will
                                                                                                       working in areas ancillary to the                      proposed rule change is designed to
                                               consolidate Form U4 and U5 electronic
                                                                                                       securities business. The proposed rule                 ensure that all associated persons of
                                               filing requirements in a single location,
                                                                                                       change will improve the supervisory                    members engaged in a securities
                                               across the Nasdaq Affiliated Exchanges.                                                                        business are, and will continue to be,
                                                                                                       structure of firms by imposing an
                                               Q. Other Rules                                          experience requirement for                             properly trained and qualified to
                                                                                                       representatives that are designated by                 perform their functions, will be
                                                 The Exchange is deleting Rule 1060,
                                                                                                       firms to function as principals for a 120-             supervised, and can be identified by
                                               Persons Exempt from Registration, as
                                                                                                       day period before having to pass an                    regulators. The proposed new 1200
                                               explained above. Rule 1060(b) however,                                                                         Series of rules, which are similar in
                                               contains provisions dealing with                        appropriate principal qualification
                                                                                                       examination. The proposed rule change                  many respects to the registration-related
                                               Nonregistered Foreign ‘‘Finders’’ and is                                                                       requirements adopted by FINRA
                                               simply being relocated with non-                        will also prohibit unregistered persons
                                                                                                       from accepting customer orders under                   effective October 1, 2018, should
                                               substantive changes to new Rule 2040.78                                                                        enhance the ability of member firms to
                                               The remaining rules identified above                    any circumstances, which will enhance
                                                                                                       investor protection.                                   comply with the Exchange’s rules as
                                               under ‘‘Overview’’ which are to be                                                                             well as with the Federal securities laws.
                                                                                                          The Exchange believes that, with the
                                               amended in this proposed rule change                                                                           Additionally, as described above, the
                                                                                                       introduction of the SIE and expansion of
                                               but are not further discussed herein                                                                           Exchange intends the amendments
                                                                                                       the pool of individuals who are eligible
                                               simply update citations and/or make                                                                            described herein to eliminate
                                                                                                       to take the SIE, the proposed rule
                                               technical or non-substantive changes to                                                                        inconsistent registration-related
                                                                                                       change has the potential of enhancing
                                               the proposed new rules.                                                                                        requirements across the Nasdaq
                                                                                                       the pool of prospective securities
                                               2. Statutory Basis                                      industry professionals by introducing                  Affiliated Exchanges, thereby promoting
                                                                                                       them to securities laws, rules and                     uniformity of regulation across markets.
                                                 The Exchange believes that its                                                                               The new 1200 Series should in fact
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                                                                                                       regulations and appropriate conduct
                                               proposal is consistent with Section 6(b)                                                                       remove administrative burdens that
                                                                                                       before they join the industry in a
                                               of the Act,79 in general, and furthers the                                                                     currently exist for members seeking to
                                                                                                       registered capacity.
                                                                                                          The extension of the Securities Trader              register associated persons on multiple
                                                 78 The FINRA counterpart to current Rule 1060(b)
                                                                                                       registration requirement to developers                 Nasdaq Affiliated Exchanges featuring
                                               occupies a similar location in the FINRA rulebook.
                                               See FINRA Rule 2040(c), Nonregistered Foreign           of algorithmic trading strategies requires             varying registration-related
                                               Finders.                                                                                                       requirements. Additionally, all
                                                 79 15 U.S.C. 78f(b).                                    80 15   U.S.C. 78f(b)(5).                            similarly-situated associated persons of


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                                                                            Federal Register / Vol. 83, No. 199 / Monday, October 15, 2018 / Notices                                                52005

                                               members will be treated similarly under                 4(f)(6)(iii) 81 permits the Commission to             file number should be included on the
                                               the new 1200 Series in terms of                         designate a shorter time if such action               subject line if email is used. To help the
                                               standards of training, experience and                   is consistent with the protection of                  Commission process and review your
                                               competence for persons associated with                  investors and the public interest. The                comments more efficiently, please use
                                               Exchange members.                                       Exchange has asked the Commission to                  only one method. The Commission will
                                                  With respect to registration of                      waive the 30-day operative delay so that              post all comments on the Commission’s
                                               developers of algorithmic trading                       the proposal may become operative on                  internet website (http://www.sec.gov/
                                               strategies in particular, the Exchange                  October 1, 2018 to coincide with the                  rules/sro.shtml). Copies of the
                                               recognizes that the proposal would                      effective date of FINRA’s proposed rule               submission, all subsequent
                                               impose costs on member firms                            change on which the proposal is                       amendments, all written statements
                                               employing associated persons engaged                    based.82 The waiver of the operative                  with respect to the proposed rule
                                               in the activity subject to the registration             delay would make the Exchange’s                       change that are filed with the
                                               requirement. Specifically, among other                  qualification requirements consistent                 Commission, and all written
                                               things, additional associated persons                   with those of FINRA, as of October 1,                 communications relating to the
                                               would be required to become registered                  2018. Therefore, the Commission                       proposed rule change between the
                                               under the proposal, and the firm would                  believes that the waiver of the 30-day                Commission and any person, other than
                                               need to establish policies and                          operative delay is consistent with the                those that may be withheld from the
                                               procedures to monitor compliance with                   protection of investors and the public                public in accordance with the
                                               the proposed requirement on an ongoing                  interest and hereby waives the 30-day                 provisions of 5 U.S.C. 552, will be
                                               basis. However, given the prevalence                    operative delay and designates the                    available for website viewing and
                                               and importance of algorithmic trading                   proposal operative on October 1, 2018.83              printing in the Commission’s Public
                                               strategies in today’s markets, the                         At any time within 60 days of the                  Reference Room, 100 F Street NE,
                                               Exchange believes that associated                       filing of the proposed rule change, the               Washington, DC 20549, on official
                                               persons engaged in the activities                       Commission summarily may                              business days between the hours of
                                               covered by this proposal must meet a                    temporarily suspend such rule change if               10:00 a.m. and 3:00 p.m. Copies of the
                                               minimum standard of knowledge                           it appears to the Commission that such                filing also will be available for
                                               regarding the applicable securities rules               action is necessary or appropriate in the             inspection and copying at the principal
                                               and regulations. To mitigate the costs                  public interest, for the protection of                office of the Exchange. All comments
                                               imposed on member firms, the proposed                   investors, or otherwise in furtherance of             received will be posted without change.
                                               rule change limits the scope of                         the purposes of the Act. If the                       Persons submitting comments are
                                               registration requirement by excluding                   Commission takes such action, the                     cautioned that we do not redact or edit
                                               technological or development support                    Commission shall institute proceedings                personal identifying information from
                                               personnel who are not primarily                         under Section 19(b)(2)(B) 84 of the Act to            comment submissions. You should
                                               responsible for the covered activities. It              determine whether the proposed rule                   submit only information that you wish
                                               also excludes supervisors who are not                   change should be approved or                          to make available publicly. All
                                               responsible for the ‘‘day-to-day’’                      disapproved.                                          submissions should refer to File
                                               supervision or direction of the covered                 IV. Solicitation of Comments                          Number SR–NASDAQ–2018–078, and
                                               activities.                                                                                                   should be submitted on or before
                                                                                                         Interested persons are invited to                   November 5, 2018.
                                               C. Self-Regulatory Organization’s                       submit written data, views, and
                                                                                                                                                               For the Commission, by the Division of
                                               Statement on Comments on the                            arguments concerning the foregoing,                   Trading and Markets, pursuant to delegated
                                               Proposed Rule Change Received From                      including whether the proposed rule                   authority.85
                                               Members, Participants, or Others                        change is consistent with the Act.                    Eduardo A. Aleman,
                                                                                                       Comments may be submitted by any of
                                                 No written comments were either                                                                             Assistant Secretary.
                                                                                                       the following methods:
                                               solicited or received.                                                                                        [FR Doc. 2018–22295 Filed 10–12–18; 8:45 am]
                                                                                                       Electronic Comments                                   BILLING CODE 8011–01–P
                                               III. Date of Effectiveness of the
                                                                                                         • Use the Commission’s internet
                                               Proposed Rule Change and Timing for
                                                                                                       comment form (http://www.sec.gov/
                                               Commission Action                                                                                             SECURITIES AND EXCHANGE
                                                                                                       rules/sro.shtml); or
                                                                                                         • Send an email to rule-comments@                   COMMISSION
                                                  Because the proposed rule change
                                               does not: (i) Significantly affect the                  sec.gov. Please include File Number SR–               [SEC File No. 270–071, OMB Control No.
                                               protection of investors or the public                   NASDAQ–2018–078 on the subject line.                  3235–0058]
                                               interest; (ii) impose any significant                   Paper Comments
                                               burden on competition; and (iii) become                                                                       Submission for OMB Review;
                                                                                                         • Send paper comments in triplicate                 Comment Request
                                               operative prior to 30 days from the date
                                                                                                       to Secretary, Securities and Exchange
                                               on which it was filed, or such shorter                                                                        Upon Written Request Copies Available
                                                                                                       Commission, 100 F Street NE,
                                               time as the Commission may designate,                                                                          From: Securities and Exchange
                                                                                                       Washington, DC 20549–1090.
                                               if consistent with the protection of                                                                           Commission, Office of FOIA Services,
                                               investors and the public interest, the                  All submissions should refer to File                   100 F Street NE, Washington, DC
                                               proposed rule change has become                         Number SR–NASDAQ–2018–078. This                        20549–2736
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                                               effective pursuant to Section 19(b)(3)(A)                 81 17                                               Extension:
                                                                                                                CFR 240.19b–4(f)(6)(iii).
                                               of the Act and Rule 19b-4(f)(6)                           82 See                                                Form 12b–25
                                                                                                                 supra note 5.
                                               thereunder.                                                83 For purposes only of waiving the 30-day
                                                                                                                                                               Notice is hereby given that, pursuant
                                                  A proposed rule change filed under                   operative delay, the Commission has also
                                                                                                                                                             to the Paperwork Reduction Act of 1995
                                               Rule 19b–4(f)(6) normally does not                      considered the proposed rule’s impact on
                                                                                                       efficiency, competition, and capital formation. See   (44 U.S.C. 3501 et seq.), the Securities
                                               become operative for 30 days from the                   15 U.S.C. 78c(f).
                                               date of filing. However, Rule 19b–                         84 15 U.S.C. 78s(b)(2)(B).                           85 17   CFR 200.30–3(a)(12).



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Document Created: 2018-10-13 10:05:19
Document Modified: 2018-10-13 10:05:19
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation83 FR 51988 

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