[Federal Register Volume 75, Number 244 (Tuesday, December 21, 2010)]
[Notices]
[Pages 80091-80097]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-31951]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63554; File No. SR-ISE-2010-115]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change Regarding Registration 
and Qualification Requirements for Associated Persons

December 15, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 1, 2010, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``ISE'') filed with the Securities and 
Exchange Commission the proposed rule change, as described in Items I 
and II below, which items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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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 ISE proposes to amend its rules to amend its rules [sic] 
regarding the registration of associated persons. The text of the 
proposed rule change is provided below (italics indicate additions; 
[brackets] indicate deletions):

Rule 313. Registration Requirements

    (a) Registration of Individual Associated Persons Engaged in the 
Securities Business.
    (1) Individual associated persons engaged or to be engaged in the 
securities business of a Member shall be registered with the Exchange 
in the category of registration appropriate to the function to be 
performed as prescribed by the Exchange. Before the registration can 
become effective, the individual associated person shall submit the 
appropriate application for registration, pass a qualification 
examination appropriate to the category of registration as prescribed 
by the Exchange and submit any required registration and examination 
fees. A Member shall not maintain a registration with the Exchange for 
any person (1) who is no longer active in the Member's securities 
business; (2) who is no longer functioning in the registered capacity; 
or (3) where the sole purpose is to avoid an examination requirement. A 
Member shall not make application for the registration of any person 
where there is no intent to employ that person in the Member's 
securities business. A Member may, however, maintain or make 
application for the registration of an individual who performs legal, 
compliance, internal audit, back-office operations, or similar 
responsibilities for the Member, or a person who performs 
administrative support functions for registered personnel, or a person 
engaged in the securities business of a foreign securities affiliate or 
subsidiary of the Member.
    (2) Persons Exempt from Registration. The following individual 
associated persons of Members are exempt from the registration 
requirements set forth in paragraph (1):
    (A) individual associated persons whose functions are solely and 
exclusively clerical or ministerial;

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    (B) individual associated persons who are not actively engaged in 
the securities business;
    (C) individual associated persons whose functions are related 
solely and exclusively to the Member's need for nominal corporate 
officers or for capital participation;
    (D) individual associated persons whose functions are related 
solely and exclusively to:
    (i) transactions in commodities;
    (ii) transactions in security futures; and/or
    (iii) effecting transactions on the floor of another national 
securities exchange and who are registered as floor members with such 
exchange.
    (b) Financial/Operations Principal. Each Member subject to Exchange 
Act Rule 15c3-1 shall designate a Financial/Operations Principal. The 
duties of a Financial/Operations Principal shall include taking 
appropriate actions to assure that the Member complies with applicable 
financial and operational requirements under the Rules and the Exchange 
Act, including but not limited to those requirements relating to the 
submission of financial reports and the maintenance of books and 
records. Each Financial/Operations Principal is required to have 
successfully completed the Financial and Operations Principal 
Examination (Series 27 Exam). Each Financial/Operations Principal 
designated by a Trading Member shall be registered in that capacity 
with the Exchange as prescribed by the Exchange. A Financial/Operations 
Principal of a Member may be a full-time employee, a part-time employee 
or independent contractor of the Member.
    (c) Chief Compliance Officer. Each Member shall designate a Chief 
Compliance Officer on Schedule A of Form BD. An individual designated 
as a Chief Compliance Officer is required to register with the Exchange 
and pass the appropriate heightened qualification examination(s) as 
prescribed by the Exchange. A person who has been designated as a Chief 
Compliance Officer on Schedule A of Form BD for at least two years 
immediately prior to January 1, 2002, and who has not been subject 
within the last ten years to any statutory disqualification as defined 
in Section 3(a)(39) of the Act; a suspension; or the imposition of a 
fine of $5,000 or more for a violation of any provision of any 
securities law or regulation, or any agreement with, rule or standard 
of conduct of any securities governmental agency, securities self-
regulatory organization, or as imposed by any such regulatory or self-
regulatory organization in connection with a disciplinary proceeding 
shall be required to register in the category of registration 
appropriate to the function to be performed as prescribed by the 
Exchange, but shall be exempt from the requirement to pass the 
heightened qualification examination as prescribed by the Exchange.
    (d) Registration Required Under Chapter 6. Individual associated 
persons of a Member that conduct a public customer business must also 
comply with the registration requirements set forth in Rule 601 and 
Rule 602. These additional registration categories include: (i) 
Registered Options Principal; and (ii) Registered Representative.
    (e) Requirement for Examination on Lapse of Registration. Any 
person whose registration has been revoked by the Exchange as a 
disciplinary sanction or whose most recent registration has been 
terminated for two or more years immediately preceding the date of 
receipt by the Exchange of a new application shall be required to pass 
a qualification examination appropriate to the category of registration 
as prescribed by the Exchange.

Supplementary Material to Rule 313

    .01 Each individual required to register under this Rule shall 
electronically file a Uniform Application for Securities Industry 
Registration (``Form U4'') through the Central Registration Depository 
system (``Web CRD'') operated by the Financial Industry Regulatory 
Authority, Incorporated (``FINRA'').
    .02 Each individual required to register under this Rule shall 
electronically submit to Web CRD any required amendments to Form U4.
    .03 Any Member that discharges or terminates the employment or 
retention of an individual required to register under this Rule shall 
comply with the termination filing requirements set forth in Rule 
601(c) and Rule 603, which include the filing of a Form U5.
    .04 Each individual required to register under this Rule is 
required to satisfy the continuing education requirements set forth in 
Rule 604 or any other applicable continuing education requirements as 
prescribed by the Exchange.
    .05 The Exchange may, in exceptional cases and where good cause is 
show, waive the applicable qualification examination and accept other 
standards as evidence of an applicant's qualifications for 
registration. Advanced age or physical infirmity will not individually 
of themselves constitute sufficient grounds to waive a qualification 
examination. Experience in fields ancillary to the securities business 
may constitute sufficient grounds to waive a qualification examination.
    .06 For purposes of paragraph (a)(1) above, the Exchange shall 
consider an individual associated person to be engaged in the 
securities business of a Member if:
    (a) the individual associated person engages in one or more of the 
following activities on behalf of the Member:
    (1) proprietary trading;
    (2) market-making;
    (3) effecting transactions on behalf of a broker-dealer;
    (4) supervision or monitoring of proprietary trading, market-
making, or brokerage activities;
    (5) supervision or training of those engaged in proprietary 
trading, market-making, or brokerage activities with respect to those 
activities; or
    (b) the individual associated person engages in the management of 
one or more of the activities enumerated in subparagraphs (1) through 
(5) above as an officer, partner or a director.
    .07 Each Member must register with the Exchange each individual 
acting in any of the following capacities: (i) officer; (ii) partner; 
(iii) director; (iv) supervisor of proprietary trading, market-making 
or brokerage activities; and/or (v) supervisor of those engaged in 
proprietary trading, market-making or brokerage activities with respect 
to those activities. Each Member must register with the Exchange at 
least two individuals acting in one or more of the capacities described 
in (i)-(v) above. The Exchange may waive this requirement if a Member 
demonstrates conclusively that only one individual acting in one or 
more of the capacities described in (i) through (v) above should be 
required to register. A Member that conducts proprietary trading only 
and has 25 or fewer registered persons shall only be required to have 
one officer or partner who is registered in this capacity.
    For purposes of this Supplementary Material .07 to Rule 313, a 
Member shall be considered to conduct only proprietary trading if the 
Member has the following characteristics:
    (a) The Member is not required by Section 15(b)(8) of the Exchange 
Act to become a FINRA member but is a member of another registered 
securities exchange not registered solely under Section 6(g) of the 
Exchange Act;
    (b) All funds used or proposed to be used by the Member are the 
Trading Member's own capital, traded through the Member's own accounts;
    (c) The Member does not, and will not, have customers; and

[[Page 80093]]

    (d) All persons registered on behalf of the Member acting or to be 
acting in the capacity of a trader must be owners of, employees of, or 
contractors to the Member.
Rule 601. Registration of Options Principals
    (a) No change.
    (b) In connection with their registration, Options Principals shall 
electronically file a Uniform Application for Securities Industry 
Registration or Transfer (``Form U4'') [with] through the Central 
Registration Depository system (``Web CRD'') [System] operated by the 
Financial Industry Regulatory Authority, Incorporated (``FINRA''), 
shall successfully complete an examination prescribed by the Exchange 
for the purpose of demonstrating an adequate knowledge of the options 
business and of the Rules of the Exchange, and shall further agree in 
the U4 filing to abide by the Constitution and Rules of the Exchange 
and the Rules of the Options Clearing Corporation. Any person required 
to complete Form U4 shall promptly electronically file any required 
amendments to Form U4 [with the] through Web CRD.
    (c) Termination of employment or affiliation of any Options 
Principal in such capacity shall be promptly electronically reported 
[to the] through Web CRD together with a brief statement of the reason 
for such termination on [Form U5] a Uniform Termination Notice for 
Securities Industry Registration (``Form U5'').
    (d) and (e) no change.
Rule 602. Registration of Representatives
    (a) and (b) no change
    (c) In connection with their registration, Representatives shall 
electronically file a [Uniform Application for Securities Industry 
Registration or Transfer (Form U4) with the NASD's] Form U4 through Web 
CRD [System] by appropriately checking the ISE as a requested 
registration on the electronic U4 filing, and shall successfully 
complete an examination for the purpose of demonstrating an adequate 
knowledge of the securities business, and shall further agree in the U4 
filing to abide by the Constitution and Rules of the Exchange and the 
Rules of the Clearing Corporation. Any person required to complete Form 
U4 shall promptly electronically file any required amendments to Form 
U4 [with the NASD's] through Web CRD [System].
    (d) no change.
Rule 603. Termination of Registered Persons
    (a) The discharge or termination of employment of any registered 
person, together with the reasons therefore, shall be electronically 
reported [to the NASD's] through Web CRD [System], by a Member 
immediately following the date of termination, but in no event later 
than thirty (30) days following termination on Form U5 [a Uniform 
Termination Notice for Securities Industry Registration (Form U-5)]. A 
copy of said termination notice shall be provided concurrently to the 
person whose association has been terminated.
    (b) The Member shall electronically report [to the NASD's] through 
Web CRD [System], by means of an amendment to the Form [U-5] U5 filed 
pursuant to paragraph (a) above, in the event that the Member learns of 
facts or circumstances causing any information set forth in the notice 
to become inaccurate or incomplete. Such amendment shall be provided 
concurrently to the person whose association has been terminated no 
later than thirty (30) days after the Member learns of the facts or 
circumstances giving rise to the amendment.
    Rule 604. Continuing Education for Registered Persons
    (a) no change.
    (b) In-house Delivery of Regulatory Element: Members will be 
permitted to administer the Regulatory Element of the Continuing 
Education program to their registered persons by instituting a firm 
program acceptable to the Exchange. The following procedures are 
required:
    (1) Senior Officer or Partner in Charge. The Member has designated 
a senior officer or partner to be responsible for the firm's delivery 
of the Regulatory Element of the Continuing Education program.
    (2) Site Requirements. The location of all delivery sites will be 
under the control of the Member. Delivery of Regulatory Element 
continuing education will take place in an environment conducive to 
training (i.e., a training facility, conference room or other area 
dedicated to this type of purpose would be appropriate. Inappropriate 
locations would include a personal office or any location that is not 
or cannot be secured from traffic and interruptions). Where multiple 
delivery terminals are placed in a room, adequate separation between 
terminals will be maintained.
    (3) Technology Requirements. The communication links and firm 
delivery computer hardware must comply with standards defined by the 
Exchange or its designated vendor.
    (4) Supervision. The Member's written supervisory procedures must 
contain the procedures implemented to comply with the requirements of 
its delivery of Regulatory Element continuing education. The Member's 
written supervisory procedures must identify the senior officer or 
partner designated pursuant to paragraph (b)(1) above and contain a 
list of individuals authorized by the Member to serve as a proctor. 
Member locations for delivery of Regulatory Element continuing 
education will be specifically listed in the Member's written 
supervisory procedures.
    (5) Proctors. All sessions will be proctored by an authorized 
person during the entire Regulatory Element continuing education 
session. Proctors must be present in the session room or must be able 
to view the person(s) sitting for Regulatory Element continuing 
education through a window or by video monitor. The individual 
responsible for proctoring at each administration will sign a 
certification that required procedures have been followed, that no 
material from Regulatory Element continuing education has been 
reproduced, and that no candidate received any assistance to complete 
the session. Such certification may be a part of the sign-in log 
required under paragraph (b)(6) below. Individuals serving as proctors 
must be individuals registered with the Exchange as ``proctors'' and 
supervised by the designated senior officer/partner for purposes of 
Member delivery of Regulatory Element continuing education. Proctors 
will check and verify the identification of all individuals taking 
Regulatory Element continuing education.
    (6) Administration. All appointments will be scheduled in advance 
using the procedures and software specified by the Exchange, its agent 
or designated vendor to communicate with the Proctor system and the 
NASD's CRD System. The Member/proctor will conduct each session in 
accordance with the administrative and appointment scheduling 
procedures required by the Exchange or its designated vendor.
    A sign-in log will be maintained at the delivery facility. Logs 
will contain the date of each session, the name and social security 
number of the individual taking the session, that required 
identification was checked, the sign-in time, the sign-out time, and 
the name of the individual proctoring the session. Such logs are 
required to be retained pursuant to Securities Exchange Act of 1934 
Rules 17a-3 and 17a-4. No material will be permitted to be utilized for 
the session nor may any session-

[[Page 80094]]

related material be removed. Delivery sites will be made available for 
inspection by the SROs. Before commencing in-firm delivery of the 
Regulatory Element continuing education, Members are required to file 
with their Designated Examining Authority (``DEA''), a letter of 
attestation (as specified below) signed by a senior officer or partner, 
attesting to the establishment of required procedures addressing senior 
officer or partner in-charge, supervision, site, technology, proctors, 
and administrative requirements.
    Letter of Attestation for In-Firm Delivery of Regulatory Element 
Continuing Education [Name of senior officer or partner] has 
established procedures for delivering Regulatory Element continuing 
education on its premises. I have determined that these procedures are 
reasonably designed to comply with SRO requirements pertaining to in-
firm delivery of Regulatory Element continuing education, including 
that such procedures have been implemented to comply with senior 
officer or partner in-charge, supervision, site, technology, proctors, 
and administrative requirements.
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Signature

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Printed name

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Title [Must be signed by a Principal Executive Officer (or Executive 
Representative) of the firm]

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Date

    (7) Annual Representation. Each Member will be required to 
represent to the Exchange, annually, that they have continued to 
maintain, and reasonably believe that they have complied with, all 
required procedures outlined in paragraphs (b)(1)-(b)(6) above for the 
previous year. Such attestation must be signed by a senior officer or 
partner.
    (8) Definition of Senior Officer/Partner. For purposes of paragraph 
(b) of this rule, ``senior officer or partner'' means the chief 
executive officer or managing partner or either (A) any other officer 
or partner who is a member of the Member's executive or management 
committee or its equivalent committee or group or (B) if the Member has 
no such committee or group, any officer or partner having senior 
executive or management responsibility who reports directly to the 
chief executive officer or managing partner. If the chief executive 
officer or managing partner does not sign the attestation, a copy of 
the attestation shall be provided to the chief executive officer or 
managing partner.
[(b)] (c) Firm Element
    (1) through (3) no change.
Supplementary Material to Rule 604
    .01 For purposes of this Rule, the term ``registered person'' means 
any Member, Representative or other person registered or required to be 
registered under the Rules[, but does not include any such person whose 
activities are limited solely to the transaction of business on the 
Exchange with Members or registered broker-dealers].
    .02 through .04 no change.
    * * * * *

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

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

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

1. Purpose
    ISE is proposing to amend its rules regarding qualification, 
registration and continuing education of individual associated 
persons.\3\ Specifically, in response to a request by the Division of 
Trading and Markets of the U.S. Securities and Exchange Commission and 
in light of recent market events, the Exchange is proposing to expand 
its registration and qualification requirements to include additional 
types of individual associated persons. The Exchange believes the 
proposed rule changes are consistent with Rule 15b7-1,\4\ promulgated 
under the Securities Exchange Act of 1934, as amended (``Exchange 
Act''),\5\ which provides: ``No registered broker or dealer shall 
effect any transaction in* * *any security unless any natural person 
associated with such broker or dealer who effects or is involved in 
effecting such transaction is registered or approved in accordance with 
the standards of training, experience, competence, and other 
qualification standards* * *established by the rules of any national 
securities exchange * * *''.
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    \3\ Under ISE Rule 100(a)(3), the term ``associated person'' or 
``person associated with a Member'' means any partner, officer, 
director or branch manager of Member (or any person occupying a 
similar status or performing similar functions), any person directly 
or indirectly controlling, controlled by, or under common control 
with a Member or any employee of a Member. This filing refers 
specifically to the classification of ``individual associated 
persons'' as an organization could fall within the scope of this 
definition, and it is not ISE's intention to require registration by 
an organization.
    \4\ 17 CFR 240.15b7-1.
    \5\ 15 U.S.C. 78a et seq.
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    Proposed Rule 313 establishes the qualification and registration 
requirements for associated persons of Members. This proposed rule also 
establishes registration requirements for a Chief Compliance Officer 
for each Member and for a Financial/Operations Principal for each 
Member subject to the Exchange Act Rule 15c3-1.\6\ Proposed Rule 313 
also references the registration requirements set forth in Chapter 6 of 
the Exchange's Rulebook for associated persons of Members that conduct 
a public customer business.\7\
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    \6\ 17 CFR 240.15c3-1.
    \7\ These proposed rule changes are consistent with those 
recently adopted by the Chicago Board of Options Exchange. 
Securities Exchange Act Release No. 62977 (Sept. 22, 2010), 75 FR 
59773 (Sept. 28, 2010) (``CBOE Registration Proposal''); Securities 
Exchange Act Release No. 63314 (November 12, 2010), 75 FR 70957 
(November 19, 2010) (``CBOE Approval Order'').
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    Under the proposal, individual associated persons acting in the 
capacity of a sole proprietor, officer, partner, director or Chief 
Compliance Officer will be subject to heightened qualification 
requirements. In addition, an individual associated person that is 
engaged in the supervision or monitoring of proprietary trading, 
market-making or brokerage activities and/or that is engaged in the 
supervision or training of those engaged in proprietary trading, 
market-making or brokerage activities with respect to those activities 
will be subject to heightened qualification requirements. The Exchange 
believes that the heightened qualification requirements should enhance 
the supervisory structure for Members that do not conduct a public 
customer business.\8\
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    \8\ Proposed Rule 313 specifies that individual associated 
persons, including Registered Options Principals and Registered 
Representatives, are also subject to the registration requirements 
set forth in Chapter 6 of ISE's Rules, which is generally applicable 
to Members that conduct a public customer business.
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    Specifically, the Exchange is proposing to require additional 
associated persons to submit the appropriate application for 
registration online through the Central Registration

[[Page 80095]]

Depository system (``Web CRD''), which is operated by the Financial 
Industry Regulatory Authority, Incorporated (``FINRA''), successfully 
complete any qualification examination(s) as prescribed by the Exchange 
and submit any required registration and examination fees.\9\ Proposed 
Rule 313 will require registration and qualification by individual 
associated persons engaged or to be engaged in the securities business 
of a Member.\10\ An individual associated person will be considered to 
be a person engaged in the securities business of a Member if (i) the 
individual associated person conducts proprietary trading, acts as a 
market-maker, effects transactions on behalf of a broker-dealer 
account, supervises or monitors proprietary trading, market-making or 
brokerage activities on behalf of the broker-dealer, supervises or 
conducts training for those engaged in proprietary trading, market-
making or brokerage activities on behalf of a broker-dealer account; or 
(ii) the individual associated person engages in the management of any 
individual associated person identified in (i) above as an officer, 
partner or director.\11\
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    \9\ Under the proposal, each individual associated person 
subject to the registration requirements in Rule 313 will be 
required to electronically file a Uniform Application for Securities 
Industry Registration (``Form U4'') through Web CRD.
    \10\ An individual with an indirect ownership interest in a 
Member that is engaged in the securities business of such Member is 
required to register under proposed Rule 313.
    \11\ This requirement is consistent with FINRA's registration 
requirement for ``Principals'' (as defined in NASD Rule 1021). ISE 
is declining to adopt the term ``Principal'' in the Exchange 
proposed rule change to avoid confusion with existing terms, such as 
``Option Principal.''
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    ISE will require all associated persons required to register under 
proposed Rule 313 that are not already registered in Web CRD to 
register (i.e., complete a Form U4) within 60 days of the approval date 
of this filing by the U.S. Securities and Exchange Commission.\12\ With 
respect to the examination requirement associated with the proposed 
rule,\13\ ISE is working with other self-regulatory organizations 
(``SROs'') to develop an additional examination for associated persons 
who previously may not have been required to register under applicable 
SRO rules (e.g., proprietary options traders) that may be used as an 
alternative to the existing categories of registration.\14\ The 
Exchange will notify its Members via regulatory circular what 
qualification examination(s) will be acceptable for compliance with the 
requirements proposed in Rule 313.
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    \12\ Web CRD has been enhanced by FINRA to allow for general 
registration of applicable associated persons.
    \13\ The availability of the appropriate category on Web CRD for 
any new qualification examinations recognized by the Exchange may be 
subject to the timing for any required systems development on Web 
CRD.
    \14\ ISE intends to develop with other SROs, within six months 
of the approval date of this filing, an alternative qualification 
examination(s) that is appropriate for the additional individual 
associated persons required to register under the proposed rule. 
Once the development of this examination(s) has been completed, the 
implementation and effective date will be subject to approval by the 
Commission and any necessary systems development schedules to 
implement the examination. If an alternative examination(s) is not 
completed within six months of the approval date of this filing, the 
Exchange will establish a deadline for qualification based on the 
existing categories of registration and qualification examinations 
available on Web CRD, until such time as the development and 
implementation of an alternative examination(s) has been completed. 
The referenced categories of registration available on Web CRD 
include, but may not be limited to, the General Securities 
Representative (GS) and General Securities Principal (GP), as 
applicable to the type of business activities conducted. The 
accompanying qualification examination for the General Securities 
Representative is the Series 7 and the accompanying qualification 
examination for the General Securities Principal is the Series 24.
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    The Exchange is proposing to identify in Rule 313 several 
categories of persons that are exempt from these additional 
registration requirements. The categories of individual associated 
persons that are exempt from the registration requirements include (i) 
Individual associated persons functioning solely and exclusively in a 
clerical or ministerial capacity; (ii) individual associated persons 
that are not actively engaged in the securities business, (iii) 
individual associated persons functioning solely and exclusively to 
meet a need for nominal corporate officers or for capital 
participation; and (iv) individual associated persons whose functions 
are solely and exclusively related to transactions in commodities, 
transactions in security futures and/or effecting transactions on the 
floor of another national securities exchange and who are registered as 
floor members with such exchange. The Exchange believes these 
registration exemptions are appropriate because ISE would not consider 
individuals that fall into the exemptions to be actively engaged in 
securities business unless they are registered as floor members on 
another national securities exchange, in which case, they are already 
registered as floor members and not required to register at ISE. ISE 
believes incorporating these exemptions into the rule provides 
additional clarity to individual associated persons as to who will or 
will not be required to register under the proposed rule. Any 
applicable FINRA registration requirements would continue to apply to 
Members that are also members of FINRA.
    Additionally, under the proposal, the Exchange may waive the 
qualification examination requirement where good cause is shown. 
Similar rules are in place at the New York Stock Exchange, Inc. 
(``NYSE'') and FINRA.\15\ In determining whether a waiver shall be 
granted, the Exchange shall consider, among other things, previous 
industry employment, training and/or the successful completion of 
similar qualification examinations of other self-regulatory 
organizations. Under the proposed Rule, individual associated persons 
whose activities are limited solely to the transaction of business on 
the floor of another exchange will be subject to the continuing 
education requirements set forth in Rule 604 or any other continuing 
education requirements as prescribed by the Exchange.
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    \15\ See NASD Rule 1070 (Qualification Examinations and Waiver 
of Requirements) and NYSE Rule 345 (Employees--Registration, 
Approval, Records).
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    The Exchange also is proposing to require the designation of a 
Financial/Operations Principal by each member that is subject to 
Exchange Act Rule 15c3-1, and the designation of a Chief Compliance 
Officer by each Member. Under the proposed rule, the Financial/
Operations Principal and Chief Compliance Officer are required to 
register and pass the appropriate qualification examination.\16\ The 
registration requirements for a Financial/Operations Principal are 
consistent with CBOE Rule 3.6A,\17\ and the requirements for a Chief 
Compliance Officer are consistent with proposed amendments to CBOE Rule 
3.6A (which in turn are consistent with FINRA Rule 3130 and NASD Rule 
1022).\18\ The proposal includes a limited exemption from the 
requirement to pass the appropriate qualification examination by a 
Chief Compliance Officer. Specifically, a person that has been

[[Page 80096]]

designated as a Chief Compliance Officer on Schedule A of Form BD for 
at least two years immediately prior to January 1, 2002, and who has 
not been subject within the last ten years to any statutory 
disqualification as defined in Section 3(a)(39) of the Act; a 
suspension; or the imposition of a $5,000 or more fine for a 
violation(s) of any provision of any securities law or regulation, or 
any agreement with, rule or standard of conduct of any securities 
governmental agency, securities self-regulatory organization, or as 
imposed by any such self-regulatory organization in connection with a 
disciplinary proceeding, shall be required to register in the category 
of registration appropriate to the function to be performed as 
prescribed by the Exchange, but shall be exempt from the requirement to 
pass the heightened qualification examination as prescribed by the 
Exchange.
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    \16\ The appropriate qualification examination for a Financial/
Operations Principal is the Series 27 exam. The appropriate 
qualification examination for a Chief Compliance Officer is the 
Series 14 exam. ISE is working with FINRA to establish this category 
of registration and make the accompanying qualification examination 
available at ISE on Web CRD.
    \17\ The duties of a Financial/Operations Principal include 
taking appropriate actions to assure that the Member complies with 
applicable financial and operational requirements under SRO rules 
and the Exchange Act. The Exchange notes that it is not the 
Designated Examining Authority for any of its Members, but for 
consistency with other SRO rules, the Exchange is proposing to 
include the designation of a Financial/Operations Principal in its 
Rules.
    \18\ CBOE Registration Proposal, supra note 7.
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    In addition, the Exchange is proposing to require registration and 
successful completion of a heightened qualification examination by at 
least two individuals that are each an officer, partner or director of 
each Member.\19\ However, the Exchange notes that all individuals who 
engage in supervisory functions of the Member's securities business 
shall be required to register and pass the appropriate heightened 
qualification examination(s) relevant to the particular category of 
registration. Members that are sole proprietors are exempt from this 
requirement. In addition, the Exchange may waive the requirement to 
have two officers, partners and/or directors registered if a Member 
conclusively demonstrates that only one officer, partner or director 
should be required to register. For example, a Member could 
conclusively demonstrate that only one individual is required to 
register if such Member is owned by one individual (such as a single 
member limited liability company), such individual acts as the only 
trader on behalf of the Member, and the Member employs only one other 
individual who functions only in a clerical capacity. The ability to 
waive this registration requirement is consistent with similar FINRA 
rules regarding principal registration.\20\
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    \19\ With the exception of its application to sole proprietors, 
this requirement is consistent with the registration requirement set 
forth in NASD Rule 1021 addressing registration of two Principals 
(as defined in NASD Rule 1021).
    \20\ See NASD Rule 1021(e).
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    ISE is also proposing to allow a Member that conducts proprietary 
trading only and has 25 or fewer registered persons to have only one 
officer or partner registered under this section rather than two. This 
exception is similar to that of several other exchanges and reflects 
that such Members do not necessitate the same level of supervisory 
structure as those Members that have customers or are larger in size. 
For purposes of this requirement, a Member is be [sic] considered to 
conduct only proprietary trading if it has the following 
characteristics: (i) The Member is not required by Section 15(b)(8) of 
the Exchange Act to become a FINRA member but is a member of another 
registered securities exchange not registered solely under Section 6(g) 
of the Exchange Act; (ii) all funds used or proposed to be used by the 
Member are the Member's own capital, traded through the Member's own 
accounts; (iii) the Member does not, and will not, have customers; and 
(iv) all persons registered on behalf of the Member acting or to be 
acting in the capacity of a trader must be owners of, employees of, or 
contractors to the Member. The description of what constitutes 
proprietary trading for purposes of this requirement is appropriate in 
that it provides additional clarity for associated persons to evaluate 
whether two individuals are required to register.
    Proposed Rule 313 also sets forth the requirements for examinations 
where there is a lapse in registration. Specifically, an individual 
associated person shall be required to pass the appropriate 
qualification examination for the category of registration if the 
individual associated person's registration has been revoked by the 
Exchange as a disciplinary sanction or whose most recent registration 
has been terminated for a period of two or more years.
    Additionally, the Exchange proposes to update Rule 604 regarding 
continuing education requirements so that it is consistent with other 
SRO rules.\21\ Specifically, the Exchange proposes to add a provision 
detailing the procedures required for in-house delivery of the 
regulatory element. The required procedures address responsibly [sic] 
for the education program, site requirements, technology requirements, 
supervision requirements, and administration of the program. Members 
are required to file with their Designated Examining Authority, a 
letter of attestation signed by a senior officer or partner, attesting 
to the establishment of the required procedures, and must annually 
represent that they have continued to maintain all required procedures 
for the previous year. While the Exchange does not have a floor, for 
consistency with other SRO rules, the Exchange also proposes to delete 
language that excludes those people whose activities are limited solely 
to the transaction of business on a floor from the definition of 
``registered person'' for purposes of the Rule 604.\22\
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    \21\ E.g., CBOE Rule 9.3A.
    \22\ See CBOE Registration Proposal, supra note 7.
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    Finally, this filing proposes to make non-substantive changes to 
ISE Rule 601 (Registration of Options Principals), Rule 602 
(Registration of Representatives) and Rule 603 (Termination of 
Registered Persons) to define and reference certain terms consistently 
within these rules and with proposed Rule 313. Specifically, these 
rules currently contain inconsistent references to the Central 
Registration Depository, and the registration and termination forms 
required to be filed under the rules. Additionally, these rules contain 
reference to the National Association of Securities Dealers or ``NASD'' 
which is now known as the Financial Industry Regulatory Authority or 
``FINRA.''
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act,\23\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\24\ which requires, among other things, 
that the Exchange's rules be designed to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and protect investors and the public interest. Specifically, 
the enhanced registration and qualification requirements will provide 
additional protection to investors and further promote the public 
interest.
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    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(5).
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    In addition, the Exchange believes that the proposed rule change is 
consistent with Section 6(c) of the Act,\25\ in general, and furthers 
the objectives of Section 6(c)(3)(B) of the Act,\26\ which provides, 
among other things, that a national securities exchange may bar a 
natural person from becoming associated with a member if such natural 
person does not meet the standards of training, experience and 
competence as prescribed by the rules of the national securities 
exchange. The Exchange also believes that the proposed rule change 
furthers the objectives of Section 6(c)(3)(C) of the Act,\27\ which 
provides, among other things, that a national securities exchange may 
bar any person from

[[Page 80097]]

becoming associated with a member if such person does not agree to 
supply the exchange with such information with respect to its dealings 
with the member as may be specified by the rules of the exchange and to 
permit the examination of its books and records to verify the accuracy 
of any information so supplied.
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    \25\ 15 U.S.C. 78f(c).
    \26\ 15 U.S.C. 78f(c)(3)(B).
    \27\ 15 U.S.C. 78f(c)(3)(C).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    This proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.

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

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#7d0f081118501e1210101813090e3d0e181e531a120b"><span class="__cf_email__" data-cfemail="5022253c357d333f3d3d353e2423102335337e373f26">[email protected]</span></a>. Please include 
File Number SR-ISE-2010-115 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2010-115. This file 
number should be included on the subject line if e-mail 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 Web site (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 Web site 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 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make publicly available. All 
submissions should refer to File Number SR-ISE-2010-115 and should be 
submitted on or before January 11, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-31951 Filed 12-20-10; 8:45 am]
BILLING CODE 8011-01-P


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