Federal Register / Vol. 77, No. 81 / Thursday, April 26, 2012 / Notices 25003 

15 15 U.S.C. 78q–1(b)(3)(G). 

16 15 U.S.C. 78q–1(b)(3)(H). 

17 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 66497 

(March 1, 2012) 77 FR 13668. 

4See Rule 604(a). 

5See Rule 604(g). 

6See Rule 604(e). 

7See Rule 604(d). 

8See Rule 1(t). 

9The term ‘‘investment banking or securities 

business’’ means the business, carried on by a 

broker or dealer, of underwriting or distributing 

issues of securities, or of purchasing securities and 

offering the same for sale as a dealer, or of 

purchasing and selling securities upon the order 

and for the account of others. See Rule 1(m). Of 

course, the federal securities laws may require 

broker-dealers to become members of the FINRA in 

order to perform some of these functions. See e.g., 

15 U.S.C. 78o(b)(8). 

10WebCRD is FINRA’s automated Central 

Registration Depository. 

11Supplementary Material .04 of Rule 604. 

12The requirement does not cover members 

whose activities are limited to the Exchange’s 

options trading floor and who are registered 

pursuant to Rule 620(a), as well as associated 

persons whose activities are limited to the 

Exchange’s options trading floor and are registered 

pursuant to Rule 620(b). 

13These functions include handling and 

executing electronic and phoned-in orders on the 

trading floor, as well as providing markets, both 

verbally and electronically. 

14Trading floor personnel, and members on the 

trading floor, would, however, be subject to new 

principal registration requirements, described 

below. 

requirements of Section 17A(b)(3)(G) of 

the Act, which requires that the rules of 

a clearing agency provide that its 

members be appropriately disciplined 

for violation of any provision of the 

rules of the clearing agency by 

expulsion, suspension, limitation of 

activities, functions, and operations, 

fine, censure, or any other fitting 

sanction,15 as well as Section 

17A(b)(3)(H) which, among other things, 

requires that the rules of a clearing 

agency provide a fair procedure with 

respect to the disciplining of 

participants.16

In its filing, OCC requested that the 

Commission approve this proposed rule 

change on an accelerated basis for good 

cause shown. OCC cites as the reason 

for this request OCC’s operation as a 

DCO, which is subject to regulation by 

the CFTC under the CEA. This rule 

change is being made according to 

regulations promulgated by the CFTC, 

which were previously subject to notice 

and comment. Not approving this 

request on an accelerated basis would 

have a significant impact on OCC’s 

operations as a DCO. 

The Commission finds good cause for 

approving the proposed rule change 

prior to the 30th day after the date of 

publication of notice in the Federal 

Register because the proposed rule 

change allows OCC to implement the 

regulations of another federal regulatory 

agency, the CFTC, in accordance with 

those regulations’ effective date. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act, that the 

proposed rule change (SR–OCC–2012– 

06) is approved on an accelerated basis. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.17

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2012–10028 Filed 4–25–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66840; File No. SR–Phlx– 

2012–23] 

Self-Regulatory Organizations; 

NASDAQ OMX Phlx LLC; Order 

Approving Proposed Rule Change To 

Amend Registration, Qualification, and 

Continuing Education Requirements 

for Associated Persons 

April 20, 2012. 

I. Introduction 

On February 16, 2012, NASDAQ OMX 

Phlx LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed 

with the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’), 

pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1, and Rule 19b–4 2 thereunder, 

a proposed rule change to amend and 

extend registration, qualification, and 

continuing education requirements for 

associated persons of members. The 

proposed rule change was published for 

comment in the Federal Register on 

March 7, 2012.3 The Commission 

received no comment letters on the 

proposal. This order approves the 

proposed rule change. 

II. Description of the Proposal 

Representative Registration 

Exchange Rule 604 applies to all 

member organizations and generally 

requires the Series 7 examination for 

Registered Representatives,4 Principals,5

off-floor traders 6 and persons 

compensated directly or indirectly for 

the solicitation or handling of business 

in securities who are not otherwise 

required to register with the Exchange 

by Rule 604(a).7 Rule 604(f) provides 

that members and persons associated 

with member organizations who are 

registered with the Exchange for the 

purpose of trading NMS Stocks 8

through the facilities of the Exchange, 

which is the PSX platform, are subject 

to the provisions of Rule 604(g) and (h) 

governing principal and representative 

registration, respectively. Rule 604(h) is 

applicable today only to PSX users 

pursuant to Rule 604(f). The Exchange 

proposes to move the requirements in 

Rule 604, and expand on those 

requirements, in proposed Rules 611, 

612 and 613. 

Rule 604(h) governs the registration of 

representatives with the Exchange. 

Specifically, Rule 604(h)(1) requires that 

all persons engaged or to be engaged in 

the investment banking or securities 

business 9 of a member organization 

who are to function as representatives 

be registered through WebCRD 10 in the 

category of registration appropriate to 

the function they will perform.11 Before 

their registration can become effective, 

they must pass the Series 7 

examination. The Exchange proposes to 

delete Rule 604 and adopt broader 

registration requirements in proposed 

Rule 613. Provisions contained in Rule 

604(h) would be moved to Rule 613, 

Representative Registration, in 

substantially the same form, except with 

respect to trading floor personnel 

subject to Rule 620. 

Proposed Rule 613(a) would require 

all persons engaged or to be engaged in 

the investment banking or securities 

business of a member organization who 

are to function as representatives to be 

registered through WebCRD as specified 

in Rule 613(e).12 Trading floor 

personnel whose activities 13 are limited 

to the trading floor would continue to be 

required to register pursuant to Rule 620 

and qualify by passing the Exchange’s 

Trading Floor Qualification 

Examination.14 In addition, amended 

Rule 620 would require all trading floor 

personnel, including clerks, interns, and 

any other associated persons of a 

member organization who are not 

required to register pursuant to Rule 

620(a) to register on Form U4 through 

WebCRD. Thus, the same registration 

information would be available 


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15See e.g., BX Rules 1031 and 1032, NASDAQ 

Rules 1031 and 1032, and NASD Rules 1031 and 

1032. 

16The Exchange filed the Series 56 content 

outline with the Commission. See Securities 

Exchange Act Release No. 66645 (March 22, 2012), 

77 FR 19042 (March 29, 2012). The Series 56 would 

also serve as a prerequisite for the Proprietary 

Trader principal registration category. The Series 24 

would be the appropriate examination for the new 

principal registration category, as described below. 

17This provision is the same as the provision in 

Chicago Board Options Exchange Incorporated 

(‘‘CBOE’’) rules, which requires that an individual 

Trading Permit Holder or associated person who 

effects transactions on behalf of a broker-dealer 

account register and pass the Series 56 examination. 

See CBOE Rule 3.6A, Interpretation and Policy .06. 

18See Rule 604(f). 19The Exchange defined the term ‘‘office of 

supervisory jurisdiction’’ to mean any office of a 

member organization at which any one or more of 

the following functions take place: Order execution 

and/or market making; structuring of public 

offerings or private placements; maintaining 

custody of customers’ funds and/or securities; final 

acceptance (approval) of new accounts on behalf of 

the member organization; review and endorsement 

of customer orders; final approval of advertising or 

sales literature for use by persons associated with 

the member organization, pursuant to Rule 605, 

except for an office that solely conducts final 

approval of research reports; or responsibility for 

supervising the activities of persons associated with 

the member organization at one or more other 

branch offices of the member organization. This 

definition is drawn from NASD Rule 3010. The 

Exchange is adopting the reference to this term in 

order to cover these managers in the new principal 

registration requirement. The Exchange is not, at 

this time, adopting a comprehensive program with 

regard to such offices, such as that found in NASD 

Rule 3010. See proposed Rule 611(b). 

20The Exchange worked with other exchanges 

and FINRA to develop this registration category. 

The Proprietary Trader Principal registration 

category is limited to those who supervise persons 

engaged only in activities covered by the proposed 

Proprietary Trader registration category. 

electronically in WebCRD for trading 

floor members and associated persons as 

is available for persons registered as 

General Securities Representatives. 

Currently, Supplementary Material 

.04 to Rule 604, Categories of 

Representative Registration—General 

Securities Representative, contains the 

basic requirement that each member and 

each person associated with a member 

organization who is included within the 

definition of a representative in Rule 

1(cc) register with the Exchange as a 

General Securities Representative and 

pass the Series 7 examination before his 

registration may become effective. This 

provision is not changing and is similar 

to that of several other self-regulatory 

organizations (‘‘SROs’’).15 The Exchange 

proposes to move the provisions of Rule 

604(h) into Rule 613 and 

Supplementary Material .04 of Rule 604 

into Rule 613(e) so that the ‘‘registered 

representative’’ categories and 

requirements would be located in one 

rule. 

The Exchange also proposes Rule 

613(f) which would adopt a limited 

category of representative registration, 

Proprietary Trader, and a qualifying 

examination for that category, the Series 

56.16 Members and associated persons 

engaged solely in proprietary trading, 

market making or effecting transactions 

on behalf of a broker-dealer account and 

who do not do business with the public 

may register as Proprietary Traders and 

pass the Series 56 examination, in lieu 

of registering as General Securities 

Representatives and passing the Series 7 

examination. The Proprietary Trader 

category would include both Floor 

Brokers on the Exchange’s trading floor 

and persons performing brokerage 

functions off the trading floor 

(‘‘upstairs’’).17

The Exchange proposes to replace 

Rule 604 with Rule 613. Rule 613 would 

cover every person subject to 

registration as a representative, and 

unlike Rule 604, it is not limited to 

associated persons of member 

organizations for which the Exchange is 

the designated examining authority 

(‘‘DEA’’). Furthermore, the proposed 

rules would extend the requirements 

currently set forth in Rule 604(h), which 

apply only to member organizations 

registered to use PSX,18 to all member 

organizations. In addition, the language 

of Rule 613 more closely aligns with the 

rules of FINRA and NASDAQ, which 

should facilitate compliance by brokerdealers. 

Principal Registration 

Persons associated with a member 

organization who are actively engaged 

in the management of the member 

organization’s investment banking or 

securities business, including 

supervision, solicitation, conduct of 

business or training persons associated 

with a member organization for any of 

these functions are principals. Such 

persons include: Sole proprietors, 

officers, partners, managers of offices of 

supervisory jurisdiction,19 and directors 

of corporations. Currently, principals of 

PSX member firms must register via 

Form U4 in Web CRD, and qualify by 

passing an appropriate examination, 

pursuant to Rule 604(g). The Exchange 

proposes to extend these principal 

requirements to cover all member 

organizations, including those that trade 

options. The more extensive principal 

requirements would be embodied in 

Rules 611 and 612, which would be 

substantially similar to Rule 604(g) and 

Supplementary Material .01–.03. 

The Exchange also proposes to 

recognize two new categories of limited 

principal registration. First, the 

Exchange proposes to adopt Rule 

612(d), which recognizes Registered 

Options Principals. Each member or 

person associated with a member 

organization who is included within the 

definition of principal, including any 

person designated as a Chief 

Compliance Officer on Schedule A of 

Form BD of a member organization, may 

register as a Registered Options 

Principal and pass the Series 4 

examination, instead of registering as a 

General Securities Principal and passing 

the Series 24 examination, if the 

person’s activities are limited solely to 

options. Specifically, a Registered 

Options Principal can only supervise 

the options activities of a member 

organization and must be registered 

pursuant to Exchange Rules as a General 

Securities Representative. 

Second, the Exchange proposes to 

recognize the Proprietary Trader 

Principal category as a limited principal 

category in Rule 612(e). It would apply 

to persons whose supervisory 

responsibilities in the investment 

banking and securities business are 

limited to the activities of a member 

organization that involve proprietary 

trading, market making and effecting 

transactions on behalf of broker-dealers. 

It would require that the associated 

person register pursuant to Exchange 

Rules as a Proprietary Trader, qualify by 

passing the Series 24 examination, and 

not function in a principal capacity with 

responsibility over any area of business 

activity other than proprietary trading, 

market making and effecting 

transactions on behalf of broker-dealer 

accounts.20 This category is in lieu of 

registration as a General Securities 

Principal, for which the prerequisite 

qualification examination is the Series 

7. The qualification examination for the 

proposed new registration category of 

Proprietary Trader Principal is the 

Series 24, which is the same 

qualification required for registration as 

a General Securities Principal. However, 

the prerequisite examination for the 

Proprietary Trader Principal category is 

the Series 56. Phlx expects the 

Proprietary Trader Principal category to 

be available to Phlx member 

organizations in WebCRD shortly. 

Both a Registered Options Principal 

and a Proprietary Trader Principal 

would count towards a firm’s twoprincipal requirement in Rule 611(e). If 

the member organization is involved in 

activity other than that permitted by 

these categories, however, an additional 

principal or principals would be 

required. 

Two additional limited principal 

registration categories would also be 

available to all member organizations. 

Rule 604.02, titled Limited Principal— 


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21See e.g., Phlx Rule 703. 

22Rule 604(j) provides that the Exchange may, in 

exceptional cases and where good cause is shown, 

waive the applicable Qualification Examination and 

accept other standards as evidence of an applicant’s 

qualifications for registration. The Commission 

expects this waiver authority to be used sparingly, 

and that where used, the Exchange would keep 

records of waivers granted and reasons for so doing. 

23Although there must be a minimum of two 

Principals, all persons who engage in specified 

supervisory functions must be registered as 

Principals. 

24As part of the member organization’s 

recordkeeping requirements, it must retain such 

records for a period of not less than three years, the 

first two years in an easily accessible place, and 

make such records available promptly upon request 

in accordance with Rule 17a–4 under the Act 

(17 CFR 240.17a–4). 

25This rule is similar to NASDAQ Rule 

1031(d)(3). 

26The Exchange does not believe that the Series 

7, Series 56 or its Trading Floor Qualification 

Examination is appropriate for the limited functions 

of a trading floor clerk because these persons are 

not members trading on the floor, and they are 

supervised by members. These persons do not 

execute transactions on the Exchange, but rather 

enter orders and report trades, for example, and 

perform related clerical functions. See Rule 1090. 

Financial and Operations, requires each 

member organization of the Exchange 

that is subject to Rule 604(g) and that is 

operating pursuant to the provisions of 

Rule 15c3–1(a)(1)(ii), (a)(2)(i) or (a)(8) 

under the Act to designate as Limited 

Principal—Financial and Operations 

(‘‘FINOP’’) those persons associated 

with it, at least one of whom shall be its 

chief financial officer, who perform 

certain financial and operational duties, 

as specified in the rule. Each FINOP 

must register with the Exchange and 

pass the Series 27 examination. The 

Exchange proposes to move this 

provision to Rule 612(b) and extend it 

to cover trading floor members, in order 

to ensure that persons handling the 

financial affairs of a firm are properly 

registered and qualified, given the 

importance and complexity of the rules 

governing financial responsibility for 

broker-dealers.21 Although the FINOP is 

a type of principal registration, because 

its scope is limited to financial matters, 

the FINOP does not count toward the 

two-principal requirement of Rule 

611(e). 

The Limited Principal—General 

Securities Sales Supervisor, currently in 

Rule 604.03, would be moved to Rule 

612(c) and would also be available to all 

member organizations who have 

associated persons meeting its specific, 

limited requirements. Like the FINOP, 

the General Securities Sales Supervisor 

does not count toward satisfying the 

two-principal requirement of Rule 611. 

Other Rule Modifications 

In connection with strengthening its 

registration rules, the Exchange is 

proposing to reorganize and renumber 

its registration rules to better align with 

those of NASDAQ and FINRA. 

In addition to the amendments 

discussed above, the Exchange proposes 

to renumber without change: Rule 

604(i), Persons Exempt from 

Registration, to Rule 614 (and Rule 

604(i)(2) to Rule 614(b)); and Rule 

604(j), Waiver of Requirements, to Rule 

615; 22 and Rule 604(g)(5), the general 

requirement to have a minimum of two 

principals with respect to each aspect of 

a member’s investment banking and 

securities business (except a proprietary 

trading firm with 25 or fewer 

representatives, which is only required 

to have one) to Rule 611(e)(i).23

The Exchange proposes to consolidate 

electronic filing requirements in 

proposed Rule 616, Electronic Filing 

Requirements for Uniform Forms. Rule 

616(a), WebCRD Filing, would require 

that forms filed pursuant to the Rule 600 

Series be filed electronically through 

WebCRD. Similarly, Rule 616(b), Form 

U4 and U5 Filing Requirements, would 

require that initial filings and 

amendments of Forms U4 and U5 be 

submitted electronically.24 In addition, 

every application for registration filed 

with the Exchange shall be kept current 

at all times by supplementary 

amendments via electronic filing or 

such other process as the Exchange may 

prescribe. The amendments shall be 

filed not later than 30 days after the 

applicant learns of the facts or 

circumstances giving rise to the need for 

the amendment.25

The Exchange also proposes to amend 

OFPA F–34 and EFPA A–7, both titled 

Failure to Timely Submit Amendments 

to Form U4, Form U5 and Form BD. 

These are the corollary minor rule plan 

provisions for Rule 623, which are being 

amended only to delete the reference to 

Rule 604 and add rule numbers 611–613 

and 616. 

The Exchange proposes to amend 

Rule 620, Trading Floor Registration, to 

specifically state the registration 

categories governed by the rule, to 

require all trading floor associated 

persons of member organizations to 

register via Form U4, to delete 

unnecessary language and to strengthen 

the time requirement. Specifically, the 

Exchange proposes to add to Rule 

620(a), which requires Floor Brokers, 

Specialists and Registered Options 

Traders on an Exchange trading floor to 

register under ‘‘Member Exchange’’ 

(‘‘ME’’) via Form U4. The Exchange 

notes that this provision covers 

members operating on the trading floor 

and that such members are required to 

successfully complete the Exchange’s 

Trading Floor Qualification 

Examination. The Exchange also 

proposes to delete the reference in Rule 

620(a) regarding updating Form U4 

within a certain time period and include 

this requirement in Rule 616. 

Rule 620(b) covers all trading floor 

personnel, such as clerks, interns, and 

other associated persons of member 

organizations who are not required to 

register under Rule 620(a) and requires 

them to register with the Exchange on 

a form supplied by the Exchange. The 

Exchange proposes to require these 

individuals to be registered on Form U4 

in WebCRD. Accordingly, these 

associated persons will be subject to the 

comprehensive disclosure obligations of 

Form U4, which the Exchange believes 

is an important enhancement. The 

specific registration category will be 

‘‘Floor Employee (‘‘FE’’)’’ under ‘‘Phlx,’’ 

which will be stated in the rule. The 

Exchange does not intend to require a 

qualification examination for nonmember trading floor personnel at this 

time.26

The Exchange also proposes to amend 

Rule 620(b) to provide that following 

the termination of, or the initiation of a 

change in the status of any such 

personnel of a member organization 

who has been issued an Exchange 

access card and a trading floor badge, 

the appropriate Exchange form must be 

completed, approved and dated by a 

member organization principal, officer, 

or member of the member organization 

with authority to do so, and submitted 

to the appropriate Exchange department 

no later than 9:30 a.m. the next business 

day by the member organization 

employer. The Exchange proposes to 

strengthen this requirement by adding 

that such submission should occur as 

soon as possible but no later than 9:30 

a.m. the next business day. 

The Exchange proposes to codify an 

existing fingerprinting requirement into 

new paragraph (b) of Rule 623, 

Fingerprinting. This paragraph specifies 

that a member organization must 

promptly submit fingerprints on behalf 

of any person filing Form U4 pursuant 

to Rule 616, and the Exchange may 

make registration effective pending 

receipt of fingerprint information. 

Finally, as a result of the expanded 

and amended registration requirements, 

additional persons will become subject 

to Continuing Education requirements 

in Rule 640. 


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27Section 6 requires exchanges to have the ability 

to enforce compliance by their members and 

associated persons with the federal securities laws 

and with their own rules. 15 U.S.C. 78f(b)(1). 

28Broker and dealers are required to supervise the 

activities of their associated persons. See Section 

15(b)(4)(E) of the Act, 15 U.S.C. 78o(b)(4)(E). 

29 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

30 15 U.S.C. 78f(b)(5). 

31 15 U.S.C. 78f(c)(3)(B). 

32See, e.g., CBOE Rule 9.2 and ISE Rule 601. 

33See, e.g., CBOE Rule 3.6A and NASDAQ Rule 

1032(c). 

34See, e.g., FINRA Rule 1070(d) and NASDAQ 

Rule 1070(d). 

35See Rule 17a–1(a) under the Act, 17 CFR 

240.17a–1(a). 

36 15 U.S.C. 78s(b)(2). 

37 17 CFR 200.30–3(a)(12). 

III. Discussion and Commission 

Findings 

The Commission believes that this 

proposed rule change is an important 

step towards harmonizing the 

registration, qualification and 

continuing education requirements 

across the SROs. In order to meet its 

obligations under Section 6(b)(1) of the 

Act 27 to enforce compliance by member 

firms 28 and their associated persons 

with the Act, the rules thereunder, and 

the Exchange’s own rules, an exchange 

must have baseline registration and 

examination requirements for all 

persons conducting business on an 

exchange, as well as for those 

supervising the activity. In addition, an 

exchange should have continuing 

education requirements for registered 

persons to help ensure that members 

and persons associated with their 

members are up to date on the industry, 

including but not limited to 

amendments to the Exchange’s rules 

and the securities laws, rules, and 

regulations that govern their activities. 

The Commission finds that the 

proposed rule change is consistent with 

the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

exchange.29 Specifically, the 

Commission finds that the proposal is 

consistent with Section 6(b)(5) of the 

Act,30 which requires, among other 

things, that the rules of a national 

securities exchange be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, to remove 

impediments to, and perfect the 

mechanism of, a free and open market 

and a national market system and, in 

general, to protect investors and the 

public interest. The Commission 

believes that the proposed rule change 

is also consistent with Section 6(c)(3)(B) 

of the Act,31 which authorizes 

exchanges to prescribe standards of 

training, experience and competence for 

persons associated with exchange 

members, and gives exchanges the 

authority to bar a natural person from 

becoming a member or a person 

associated with a member, if the person 

does not meet the standards of training, 

experience and competence prescribed 

in the rules of the exchange. 

Phlx’s proposed rule change requires 

all associated persons of member 

organizations engaged in a securities 

business on Phlx, as well as those who 

supervise, train or otherwise oversee 

those who do, to register with the 

Exchange via the Form U4, qualify by 

passing an appropriate examination, 

and comply with continuing education 

requirements. Phlx’s requirements 

should help ensure that all associated 

persons who transact business on Phlx, 

including those engaged in proprietary 

trading, are subject to appropriate 

registration, qualification, and 

continuing education requirements. 

These requirements bolster the integrity 

of the Exchange by helping to ensure 

that all associated persons 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. 

Phlx is adding new limited principal 

registration categories which are 

recognized by other exchanges.32 The 

Registered Option Principal will be 

restricted to supervising those persons 

exclusively involved in options 

activities, and the required examination, 

the Series 4, is focused on practices in 

and rules governing the options 

industry. The Proprietary Trader 

Principal category is corollary to the 

new Proprietary Trader Representative 

category discussed above and is 

recognized by many of the other 

exchanges.33 Proprietary Trader 

Principals may supervise persons 

engaged in proprietary trading, market 

making and effecting transactions on 

behalf of broker-dealer accounts and 

must pass the Series 24 (General 

Securities Principal) examination. 

In sum, under the proposed rule 

change, all Principals must register 

through WebCRD and pass appropriate 

prerequisite examinations, as well as 

principal examinations that reflect the 

enhanced responsibility entrusted to 

principals. In addition, Principals 

would be subject to the Exchange’s 

continuing education requirements. 

Phlx’s proposed exceptions from the 

above-discussed general requirements 

are appropriate. Any member seeking an 

exception from the two principal 

requirement must provide evidence that 

conclusively indicates to the Exchange 

that only one principal is necessary. The 

Commission expects this authority to be 

used sparingly, because such persons 

oversee the operations of member firms 

and provide the first line of defense in 

ensuring that member firms are 

complying with the rules of the 

exchange as well as the federal 

securities laws. In addition, Phlx may 

waive the qualification examination 

requirement in exceptional cases where 

the applicant has demonstrated that 

good cause exists to grant the waiver. 

The Commission also expects this 

authority to be used sparingly. The 

Commission notes that these exceptions 

are substantively the same as exceptions 

provided in similar rules at other 

SROs,34 and it expects Phlx to keep 

records detailing the reasons for 

exceptions granted and waivers given.35

Phlx’s proposed rule change will help 

ensure that all associated persons of 

members transacting business on the 

Exchange, as well as those who 

supervise, train or otherwise oversee 

those who do, will be registered with, 

and qualified by, the Exchange and will 

be subject to continuing education 

requirements. The Commission believes 

the proposal should enhance the 

Exchange’s ability to ensure an effective 

supervisory structure for those 

conducting business on its facilities. 

The requirements apply broadly and 

should enhance the ability of Exchange 

members to comply with the Exchange’s 

rules as well as with the federal 

securities laws. 

Additionally, the Commission 

believes that the proposed rule change 

is consistent with the principles of 

Section 11A(a)(1)(22) of the Act in that 

it seeks to assure fair competition 

among brokers and dealers and among 

exchange markets. The Commission 

believes that the proposed rule change 

will promote uniformity of regulation 

across markets, thus reducing 

opportunities for regulatory arbitrage. 

Phlx’s proposed rule change helps 

ensure that all persons conducting a 

securities business through Phlx are 

appropriately registered, qualified, and 

supervised, as is required under the Act. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,36 that the 

proposed rule change (SR–Phlx–2012– 

023), be, and hereby is, approved. 


tkelley on DSK3SPTVN1PROD with NOTICES
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1See Securities Exchange Act Release No. 64976 

(July 27, 2011), 76 FR 46960 (Aug. 3, 2011) (‘‘Rule 

13h–1 Adopting Release’’). The effective date of 

Rule 13h–1 was October 3, 2011. 

2See 15 U.S.C. 78m and 17 CFR 240.13h–1(g), 

respectively. 

3The effective date for Rule 13h–1 remains 

October 3, 2011. The compliance date for the 

requirement on large traders to identify to the 

Commission pursuant to Rule 13h–1(b) was 

December 1, 2011. 

4The term ‘‘Unidentified Large Trader’’ means 

each person who has not complied with the 

identification requirements of paragraphs (b)(1) and 

(b)(2) of Rule 13h–1 that a registered broker-dealer 

knows or has reason to know is a large trader. See 

17 CFR 240.13h–1(a)(9). For purposes of 

determining whether a registered broker-dealer has 

reason to know that a person is a large trader, a 

registered broker-dealer need take into account only 

transactions in NMS securities effected by or 

through such broker-dealer. See id. 

5See 17 CFR 240.13h–1(d)(2)(xii). 

6See 17 CFR 240.13h–1(d)(2)(xiii). 

7The reporting activity level is 100 shares. See 17 

CFR 240.13h–1(a)(8). Accordingly, in response to a 

Commission request for EBS information, brokerdealers are required to report information for each 

account in which any large trader’s or Unidentified 

Large Trader’s activity amounts to at least 100 

shares in the aggregate. 

In response to a Commission request for 

transaction records, in addition to reporting 

information for any identified large trader (i.e., a 

person for whom the broker-dealer has received an 

LTID number), the broker-dealer also should report 

records for each Unidentified Large Trader, as 

applicable, including any unique identifying 

number that the broker-dealer has assigned to such 

person. 

8See 17 CFR 240.13h–1(e). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.37

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2012–10027 Filed 4–25–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66839] 

Order Temporarily Exempting BrokerDealers From the Recordkeeping, 

Reporting, and Monitoring 

Requirements of Rule 13h–1 Under the 

Securities Exchange Act of 1934 and 

Granting an Exemption for Certain 

Securities Transactions 

April 20, 2012. 

I. Introduction 

On July 27, 2011, the Securities and 

Exchange Commission (‘‘Commission’’) 

adopted Rule 13h–1 under the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’) concerning large 

trader reporting to assist the 

Commission in both identifying, and 

obtaining trading information on, 

market participants that conduct a 

substantial amount of trading activity, 

as measured by volume or market value, 

in U.S. securities (such persons are 

referred to as ‘‘large traders’’).1

Pursuant to Exchange Act Section 

13(h)(6) and Rule 13h–1(g) thereunder,2

the Commission, by order, may exempt 

from the provisions of Rule 13h–1, upon 

specified terms and conditions or for 

stated periods, any person or class of 

persons or any transaction or class of 

transactions from the provisions of Rule 

13h–1 to the extent that such exemption 

is consistent with the purposes of the 

Exchange Act. 

Currently, the compliance date for the 

broker-dealer recordkeeping and 

reporting requirements of Rule 13h–1(d) 

and (e), respectively, as well as the 

requirement under Rule 13h–1(f) for 

broker-dealers to monitor their 

customers’ accounts for activity that 

may trigger the large trader 

identification requirements of Rule 13h– 

1, is April 30, 2012. As discussed below, 

the Commission is temporarily 

exempting registered broker-dealers 

from the requirements of new Rule 

13h–1 by extending the April 30, 2012 

compliance date to provide them with 

additional time to comply with the 

recordkeeping, reporting, and 

monitoring requirements of the Rule. 

Specifically, and as discussed more 

fully below, the Commission is 

extending the April 30, 2012 

compliance date for registered brokerdealers to May 1, 2013, except for 

certain broker-dealers that: (1) Are large 

traders or (2) have large trader 

customers that are either broker-dealers 

or that trade through a ‘‘sponsored 

access’’ arrangement, for which the 

Commission is extending the 

compliance date to November 30, 2012.3

The extension of the compliance date 

will allow broker-dealers additional 

time to develop, test, and implement 

enhancements to their recordkeeping 

and reporting systems as required under 

Rule 13h–1 and, for those broker-dealer 

requirements for which the compliance 

date has been extended to May 1, 2013, 

for the Commission to consider requests 

for relief from certain provisions of the 

Rule. 

In addition, the Commission is 

exempting certain transactions from the 

definition of the term ‘‘transaction’’ 

provided in Rule 13h–1(a)(6), but for the 

sole purpose of determining whether a 

person is a large trader. 

II. Broker-Dealer Recordkeeping and 

Reporting 

A. Introduction 

Recordkeeping. In addition to 

requiring large traders to register with 

the Commission by filing and 

periodically updating Form 13H, Rule 

13h–1 requires certain broker-dealers to, 

among other things, maintain specified 

records of transactions that they effect, 

directly or indirectly, for large traders, 

and to report to the Commission, upon 

request of the Commission, such records 

in electronic format. Specifically, Rule 

13h–1(d) requires broker-dealers to 

maintain records of the information 

specified in Rule 13h–1(d) for all 

transactions effected directly or 

indirectly by or through: 

(i) An account such broker-dealer 

carries for a large trader or an 

Unidentified Large Trader,4 or 

(ii) If the broker-dealer is a large 

trader, any proprietary or other account 

over which such broker-dealer exercises 

investment discretion. 

(iii) Additionally, where a non-brokerdealer carries an account for a large 

trader or an Unidentified Large Trader, 

the broker-dealer effecting transactions 

directly or indirectly for such large 

trader or Unidentified Large Trader 

shall maintain records of all of the 

information required under the Rule for 

those transactions. 

The information required to be 

maintained for large trader accounts 

includes the standard information 

currently captured pursuant to Rule 

17a–25 and the Electronic Blue Sheets 

(‘‘EBS’’) system, plus two new fields 

that are unique to Rule 13h–1: (1) The 

time that the transaction was executed 

(‘‘execution time’’) 5 and (2) the large 

trader identification (‘‘LTID’’) number(s) 

associated with the account.6

Reporting. Rule 13h–1(e) requires 

every registered broker-dealer who is 

itself a large trader or carries an account 

for a large trader or an Unidentified 

Large Trader to report electronically to 

the Commission, at the Commission’s 

request, the required transaction 

information on such persons whose 

activity is equal to or greater than the 

reporting activity level.7 In addition, the 

Rule provides that where a non-brokerdealer carries an account for a large 

trader or an Unidentified Large Trader, 

the broker-dealer effecting such 

transactions directly or indirectly for a 

large trader must electronically report 

such information, at the Commission’s 

request. 

Broker-dealers are required to report 

information to the Commission upon 

request of the Commission.8 Information 

must be reported to the Commission no 

later than the day and time specified in 

the Commission’s request for 

transaction information, which shall be 

no earlier than the open of business of 


tkelley on DSK3SPTVN1PROD with NOTICES