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[Federal Register Volume 89, Number 239 (Thursday, December 12, 2024)]
[Notices]
[Pages 100562-100564]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-29145]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101832; File No. SR-NYSECHX-2024-36]

Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Article 3

December 6, 20240
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on December 3, 2024, the NYSE Chicago, Inc. (``NYSE Chicago'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 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 Article 3, Rule 1 to add clarity to 
the process for a broker-dealer to become or remain a Participant on 
the Exchange notwithstanding the existence of a statutory 
disqualification. The proposed rule change is available on the 
Exchange's website at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Article 3, Rule 1 to add clarity to 
the process for a broker-dealer to become or remain a Participant on 
the Exchange notwithstanding the existence of a statutory 
disqualification.
Background and Proposed Rule Filing
    Section 3(a)(39) of the Act defines the term ``statutory 
disqualification'' and the circumstances that can cause a person 
(either a Member, or a person associated with a Member) to be subject 
to a statutory disqualification.\4\ Absent relief, a statutory 
disqualification would preclude a broker-dealer or person associated 
with a broker-dealer from certain activities, including membership in a 
self-regulatory organization (``SRO'').
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    \4\ 15 U.S.C. 78c(a)(39).
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    There is, however, a well-established process through which a 
broker-dealer (or a person associated with a broker-dealer) may 
continue to operate in the securities industry (and either become a 
member of, or continue as a member of, one or more SROs) despite being 
subject to a statutory disqualification.\5\ In particular, SEC Rule 
19h-1 \6\ describes several ways an SRO may seek relief for a member 
(or prospective member) that is subject to a statutory 
disqualification, including whether an SRO must file a notice with the 
Commission in order to allow the disqualified firm to become or 
continue as a member with the SRO (a ``19h-1 Notice''). A 19h-1 Notice 
does not, for instance, need to be filed by an SRO if the firm subject 
to a statutory disqualification is a member of at least one other SRO, 
and that SRO intends to file a 19h-1 Notice for the firm.\7\
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    \5\ See FINRA Regulatory Notice 09-19 (``Amendments to FINRA 
Rule 9520 Series to Establish Procedures Applicable to Firms and 
Associated Persons Subject to Certain Statutory 
Disqualifications'').
    \6\ 17 CFR 240.19h-1.
    \7\ Id. at (a)(3).
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    Article 3, Rule 1 (Qualifications) governs the qualifications for 
Participants to transact business on the Exchange, and provides in 
subsection (b) that an applicant or Participant (including any 
Associated Person) may not be subject to an order of the Commission (1) 
denying, suspending or revoking the registration of such person as a 
broker or dealer, or (2) barring or suspending such person from being 
associated with a broker or dealer.\8\
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    \8\ See Article 3, Rule 1(b).
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    Recently, a non-member broker-dealer firm subject to a statutory 
disqualification that is currently under review by the Financial 
Industry Regulatory Authority, Inc. (``FINRA'') applied for Exchange 
membership.\9\ In reviewing this application, the Exchange determined 
that this situation is not explicitly addressed in its rules as it is 
in the rules of other exchanges.\10\ Specifically, BOX, Cboe BZX, Cboe 
BYX, Cboe EDGX, and Cboe EDGA each amended their respective rules in 
2016 to provide more clarity as to the authority of each exchange to 
determine whether to admit a prospective member that is subject to a 
statutory disqualification.\11\ The 2016 rule change filings of these 
exchanges also amended several other aspects of their application 
procedures, but the Exchange only seeks to harmonize its rules insofar 
as they apply to Participants and prospective Participants (and 
associated person of Participants) that are subject to a statutory 
disqualification in order to

[[Page 100563]]

address the membership application described herein.\12\
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    \9\ The processing of new membership applications at the 
Exchange includes statutory disqualification disclosures and 
background investigations of prospective Participants and persons 
associated with a Participant. Review, assessment, and processing of 
these membership applications has been conducted on behalf of the 
Exchange by FINRA pursuant to a regulatory services agreement.
    \10\ See Cboe EDGX Exchange, Inc. (``Cboe EDGX'') Rule 2.5(a) & 
Interpretation and Policies .04; Cboe BZX Exchange, Inc. (``Cboe 
BZX'') Rule 2.5(a) & Interpretation and Policies .04; Cboe BYX 
Exchange, Inc. (``Cboe BYX'') Rule 2.5(a) & Interpretation and 
Policies .04; Cboe EDGA Exchange, Inc. (``Cboe EDGA'') Rule 2.5(a) & 
Interpretation and Policies .04; and BOX Options Exchange LLC 
(``BOX'') Rule 2040(a) & IM-2040-08.
    \11\ See Securities Exchange Act Release No. 78449 (August 1, 
2016), 81 FR 51947 (August 5, 2016) (SR-BOX-2016-26); Securities 
Exchange Act Release No. 79229 (November 3, 2016), 81 FR 78875 
(November 9, 2016) (SR-BatsBZX-2016-67); Securities Exchange Act 
Release No. 79233 (November 3, 2016), 81 FR 78869 (November 9, 2016) 
(SR-BatsBYX-2016-28); Securities Exchange Act Release No. 79234 
(November 3, 2016), 81 FR 78867 (November 9, 2016) (SR-BatsEDGA-
2016-23); Securities Exchange Act Release No. 79236 (November 3, 
2016), 81 FR 78878 (November 9, 2016) (SR-BatsEDGX2016-59).
    \12\ The 2016 rule filings also added some other conditions for 
eligibility for exchange membership such as adding a restriction 
that members must meet any condition the exchange placed on such 
member, which the Exchange believes are adequately addressed in 
other Exchange rules. See, e.g., Article 3, Rule 1; Article 3, Rule 
2 (Rights and Privileges of Participants); Article 6, Rule 2 
(Registration and Approval of Participant Personnel). Moreover, the 
Rule 10.9520 Series sets forth procedures for a covered person 
(defined in Rule 10.9120(g) as an Associated Person as defined in 
Article 1, Rule 1(d) and any other person subject to the 
jurisdiction of the Exchange) to become or remain associated with a 
Participant or Participant Firm notwithstanding the existence of a 
statutory disqualification as defined in Section 3(a)(39) of the 
Act, and for a current Participant, Participant Firm or covered 
person to obtain relief from the eligibility or qualification 
requirements of the Exchange's Rules, referred to in the Rule as 
``eligibility proceedings.''
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    The Exchange accordingly proposes to align its rule with these 
other exchanges specifically with respect to the process of assessing 
an applicant for membership that is subject to a statutory 
disqualification.\13\ As discussed below, the Exchange is making the 
proposed rule changes and seeks waiver of the 30-day operative delay in 
order to address an unusual and time sensitive situation in which a 
firm subject to a statutory disqualification seeks to become an 
Exchange Participant during the pendency of the process by which the 
firm is seeking relief from the statutory disqualification.
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    \13\ The proposed changes mirror the language in the following 
rules: BOX Rule 2040(a) and IM-2040-08; Cboe BZX Rule 2.5(a) and 
Interpretation and Policies .04; Cboe BYX Rule 2.5(a) and 
Interpretation and Policies .04; Cboe EDGA Rule 2.5(a) and 
Interpretation and Policies .04; and Cboe EDGX Rule 2.5(a) and 
Interpretation and Policies .04.
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    To effectuate these changes, the Exchange proposes to add 
Interpretation and Policy .02 to Article 3, Rule 1 to provide that the 
Exchange could approve an applicant for membership (or association with 
a member) that is subject to a statutory disqualification when a 
proceeding is pending before another SRO to determine whether to permit 
a Participant or associated person of a Participant to become or 
continue membership or association notwithstanding a statutory 
disqualification. This provision, which is consistent with SEC Rule 
19h-1(a)(3), would provide as follows (additions italicized):
    .02 The Exchange may waive the provisions of Article 3, Rule 1(b) 
when a proceeding is pending before another self-regulatory 
organization to determine whether to permit a member or associated 
person of a member to become or continue membership or association 
notwithstanding a statutory disqualification. In the event the Exchange 
determines to waive the provisions of Article 3, Rule 1(b) with respect 
to an existing or prospective Participant or associated person of an 
existing or prospective Participant, the Exchange shall determine 
whether it will concur in any Exchange Act Rule 19h-1 filing made by 
another self-regulatory organization with respect to the Participant or 
associated person.
    This Interpretation and Policy is substantively identical to IM-
2040-8 to BOX Rule 2040 and Interpretation and Policies .04 to Cboe 
BZX, BYX, EDGX, and EDGA Rules 2.5, except for language clarifying that 
the new supplementary material would apply to both prospective and 
existing Participants and associated persons of Participants.
    The Exchange also proposes a conforming amendment to Article 3, 
Rule 1(b) to delete the existing text providing that an applicant or 
Participant (including any Associated Person) may not be subject to an 
order of the Commission (1) denying, suspending or revoking the 
registration of such person as a broker or dealer, or (2) barring or 
suspending such person from being associated with a broker or dealer 
since not every statutory disqualification requires a Commission 
order.\14\ As proposed, Article 3, Rule 1(b) would read ``Except as 
otherwise permitted by the Exchange, no person may become a Participant 
or continue as a Participant in any capacity on the Exchange where such 
person is subject to a statutory disqualification.'' The proposed 
language is based on the rules of the Exchange's affiliates the New 
York Stock Exchange LLC (``NYSE'') and NYSE American LLC (``NYSE 
American''), specifically NYSE Rule 346 (Statutory Disqualification--
Association of Member Organizations, and Persons Associated With Member 
Organizations) and NYSE American Rule 342 (Association of Members, 
Member Organizations, and Persons Associated With Member 
Organizations), and is also substantively identical to BOX Rule 
2040(a)(3) and Cboe BZX, BYX, EDGX, and EDGA Rules 2.5(a)(3).
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    \14\ See the list of disqualifying events in Section 3(a)(39) of 
the Act, 15 U.S.C. 78c(a)(39).
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    The Exchange believes that the proposed rule change would 
appropriately align its rules with the Commission's rules regarding 
statutory disqualifications and harmonize the Exchange's process with 
several other SROs. The Exchange notes that in assessing the statutory 
disqualification of a Participant or prospective Participant, it must 
act consistent with the protection of investors and in the public 
interest and cannot unfairly discriminate against Participants or 
prospective Participants.\15\ Moreover, as noted above, a Participant 
or Participant Firm can seek relief from the Exchange's eligibility or 
qualification requirements pursuant to the Rule 10.9520 Series.\16\ In 
addition, any prospective Participant that has been denied membership 
in the Exchange or barred from becoming associated with a Participant 
is entitled to certain due process pursuant to the procedures set forth 
in Article 15 (Hearings and Reviews), which includes, but is not 
limited to, potential review by the Commission.
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    \15\ 15 U.S.C. 78f(b)(5).
    \16\ See note 12, supra.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
\17\ in general, and furthers the objectives of Section 6(b)(5),\18\ in 
particular, because it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system and, in general, to protect investors and 
the public interest.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change would better 
align the Exchange's rules with the Commission's rules regarding 
statutory disqualifications and enable a consistent process across the 
Exchange and several other SROs to make appropriate filings with 
respect to persons subject to a statutory disqualification, thereby 
protecting investors and the public interest by providing more clarity 
and consistency with respect to the process of seeking relief from a 
statutory disqualification and in general enabling the Exchange to more 
efficiently administer membership applications involving statutory 
disqualifications. The Exchange further believes that the proposed 
change would remove impediments to and perfect the mechanism of a free 
and open market and a national market system and, in general, protect 
investors and the public interest add clarity, transparency and 
consistency to the Exchange's rules. The Exchange believes that market 
participants would benefit from the increased clarity, thereby reducing 
potential confusion.

[[Page 100564]]

    The Exchange also believes is it reasonable to remove language in 
Article 3, Rule 1(b) limiting statutory disqualification to a 
Commission order because, as discussed above, not every statutory 
disqualification requires a Commission order. In addition, the proposed 
changes would align Article 3, Rule 1 with the equivalent rules of BOX, 
Cboe BZX, Cboe BYX, Cboe EDGA, Cboe EDGX, as well as the rules of the 
Exchange's affiliates.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
not intended to address competitive issues but rather is concerned 
solely with aligning the Exchange's rules with those of other exchanges 
and with the Commission's approach to handling firms that are subject 
to statutory disqualification.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \19\ and Rule 19b-
4(f)(6) thereunder.\20\
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
NYSE Chicago has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \21\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\22\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. NYSE Chicago has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative upon filing. NYSE Chicago states that 
waiving the 30-day delay in this manner would allow the Exchange to 
address an unusual and time sensitive situation in which a firm subject 
to a statutory disqualification seeks to become an Exchange member 
organization during the pendency of the process by which the firm is 
seeking relief from the statutory disqualification. For this reason, 
the Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Therefore, the Commission hereby waives the operative delay and 
designates the proposal operative upon filing.
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    \21\ 17 CFR 240.19b-4(f)(6).
    \22\ 17 CFR 240.19b-4(f)(6)(iii).
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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 to 
determine whether the proposed rule should be approved or 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

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NYSECHX-2024-36 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-NYSECHX-2024-36. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection.
    All submissions should refer to file number SR-NYSECHX-2024-36 and 
should be submitted on or before January 2, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-29145 Filed 12-11-24; 8:45 am]
BILLING CODE 8011-01-P
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