41814 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 

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

2 17 CFR 240.19b–4. 

3The Exchange will separately request an 

exemption from the rule filing requirements of 

Section 19(b) of the Act for changes to General 3 

to the extent such changes are affected solely by 

virtue of a change to the Nasdaq Rule 1000 Series. 

The Exchange’s proposed rule change will not 

become effective unless and until the Commission 

approves this exemption request. 

4The Affiliated Exchanges’ membership rules 

were previously amended to incorporate by 

reference Nasdaq’s membership rules. See 

Securities Exchange Act Release Nos. 86425 (July 

22, 2019), 84 FR 36139 (July 26, 2019) (SR–BX– 

2019–022); 90903 (January 12, 2021), 86 FR 5284 

(January 19, 2021) (SR–ISE–2020–43); 91672 (April 

26, 2021), 86 FR 23001 (April 30, 2021) (SR– 

GEMX–2021–02); and 91674 (April 26, 2021), 86 FR 

23013 (April 30, 2021) (SR–MRX–2021–03). 

5The Exchange notes that its General 4 title 

(entitled ‘‘Registration Requirements’’) currently 

incorporates by reference the rules contained in 

Nasdaq’s General 4 title. See Securities Exchange 

Act Release No. 85761 (May 2, 2019), 84 FR 20176 

(May 8, 2019) (SR–Phlx–2019–18) (Notice of Filing 

and Immediate Effectiveness of Proposed Rule 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–95219; File No. SR–Phlx– 

2022–28] 

Self-Regulatory Organizations; Nasdaq 

PHLX LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend Phlx’s General 

3 Membership Rules 

July 7, 2022. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on June 27, 

2022, Nasdaq PHLX LLC (‘‘Phlx’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III, below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to delete the 

Exchange’s membership rules currently 

under Phlx General 3 (Membership and 

Access), and incorporate by reference 

The Nasdaq Stock Market LLC’s 

(‘‘Nasdaq’’) rules in the General 3 Rule 

1000 Series, and make other related 

changes. The Exchange also proposes to 

relocate some rules currently within 

Phlx General 3 to General 2, 

Organization and Administration, 

Sections 10, 11, 23 and 24; Equity 2, 

Market Participants, Section 3; and 

Options 2, Options Market Participants, 

Section 2. 

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/phlx/rules, at the principal 

office of the Exchange, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

General 3 of Phlx’s General Equity 

and Option Rules and Nasdaq’s General 

3, Rules 1000 Series prescribe the 

qualifications and procedures for 

applying for membership, respectively, 

on Phlx and Nasdaq. Phlx proposes to 

delete in their entirety the rules under 

its General 3 title, entitled ‘‘Membership 

and Access,’’ and incorporate by 

reference the Nasdaq General 3, Rules 

1000 Series (the ‘‘Nasdaq Rule 1000 

Series’’ or ‘‘Nasdaq Membership Rules’’) 

as described below.3

The Exchange also proposes to 

relocate some rules currently within 

Phlx General 3 to General 2, 

Organization and Administration, 

Sections 10, 11, 23 and 24; Equity 2, 

Market Participants, Section 3; and 

Options 2, Options Market Participants, 

Section 2. This proposal is part of the 

Exchange’s plan to harmonize its 

membership rules with the membership 

rules of Nasdaq, Nasdaq BX, Inc. 

(‘‘BX’’), Nasdaq GEMX, LLC (‘‘GEMX’’), 

Nasdaq MRX, LLC (‘‘MRX’’), and 

Nasdaq ISE, LLC (‘‘ISE’’) exchanges 

(collectively the ‘‘Affiliated 

Exchanges’’). The Exchange notes that 

the Affiliated Exchanges have made 

amendments to their membership rules 

that made their rules substantially 

similar to those of Nasdaq.4 To account 

for any differences that may exist 

between Phlx’s General 3 Rules and 

Nasdaq’s General 3 Rules, the proposed 

introductory paragraph lists instances in 

which cross references in the Nasdaq 

Series 1000 Rules to other Nasdaq rules 

shall be read to refer instead to the 

Exchange Rules, and references to 

Nasdaq terms (whether or not defined) 

shall be read to refer to the Exchangerelated meanings of those terms. 

Specifically, references to defined terms 

‘‘Exchange’’ or ‘‘Nasdaq’’ shall be read 

to refer to the Phlx Exchange; ‘‘Rule’’ or 

‘‘Exchange Rule’’ shall be read to refer 

to the Exchange Rules; the defined term 

‘‘Applicant’’ in the Nasdaq Rule 1000 

Series shall be read to refer to an 

Applicant of the Phlx Exchange; the 

defined terms ‘‘Board’’ or ‘‘Exchange 

Board’’ in the Nasdaq Rule 1000 Series 

shall be read to refer to the Phlx Board 

of Directors; the defined term ‘‘Director’’ 

in the Nasdaq Rule 1000 Series shall be 

read to refer to a Director of the Board 

of the Phlx Exchange; the defined term 

‘‘Exchange Review Council’’ in the 

Nasdaq Rule 1000 Series shall be read 

to refer to the Phlx Exchange Review 

Council; the defined term 

‘‘Subcommittee’’ in the Nasdaq Rule 

1000 Series shall be read to refer to a 

Subcommittee of the Phlx Exchange 

Review Council; the defined term 

‘‘Interested Staff’’ in the Nasdaq Rule 

1000 Series shall be read to refer to 

Interested Staff of Phlx; the defined term 

‘‘Member’’ in the Nasdaq Rule 1000 

Series shall be read to refer to a Phlx 

member (as defined under Phlx General 

1, Section 1(16)) or member 

organization (as defined under Phlx 

General 1, Section 1(17)); the defined 

terms ‘‘Lead Market Maker’’ or ‘‘Market 

Maker’’ shall be read to refer to a 

Nasdaq Phlx Associated Person; the 

defined term ‘‘Associated Person’’ shall 

be read to refer to a Phlx Associated 

Person or Person Associated with a 

member organization (as defined under 

Phlx General 1, Section 1(2)); the 

defined terms ‘‘Exchange Membership 

Department’’ or ‘‘Membership 

Department’’ shall be read to refer to the 

Phlx Membership Department; and the 

defined term ‘‘Exchange Regulation 

Department’’ shall be read to refer to the 

Phlx Regulation Department. 

Additionally, cross references in the 

Nasdaq Rule 1000 Series to ‘‘General 1 

and Equity 1’’ shall be read as references 

to Phlx General 1, Section 1; cross 

references in the Nasdaq Rule 1000 

Series to ‘‘General 9, Section 20’’ shall 

be read as references to Phlx General 9, 

Section 20 and Phlx Supplementary 

Material .01 of Options 10, Section 5; 

cross references in the Nasdaq Rule 

1000 Series to ‘‘General 9, Section 37’’ 

shall be read as references to Phlx 

General 9, Section 37; and cross 

references to the ‘‘General 4, Rule 1200 

Series’’ shall be read as references to 

Phlx General 4, Section 1.5


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Change To Delete and Relocate the Exchange’s 

Current Registration, Qualification and Continuing 

Education Rules). 

6For purposes of this rule change, references to 

proposed Phlx General 3 Rules shall mean the 

Nasdaq General 3 Rules which Phlx proposes to 

incorporate by reference. 

7Nasdaq’s General 4, Section 1 (Registration, 

Qualification and Continuing Education) is 

currently incorporated by reference into the 

Exchange’s General 4 title. See supra note 5. 

8Phlx General 2, Section 5, Regulatory Services 

Agreements, provides, ‘‘The Board may authorize 

any officer, on behalf of the Exchange, subject to the 

approval of the Board, to enter into one or more 

agreements with another self-regulatory 

organization to provide regulatory services to the 

Exchange to assist the Exchange in discharging its 

obligations under Section 6 and Section 19(g) of the 

Exchange Act. Any action taken by another selfregulatory organization, or its employees or 

authorized agents, acting on behalf of the Exchange 

pursuant to a regulatory services agreement shall be 

deemed to be an action taken by the Exchange; 

provided, however, that nothing in this provision 

shall affect the oversight of such other selfregulatory organization by the Securities and 

Exchange Commission. Notwithstanding the fact 

that the Exchange may enter into one or more 

regulatory services agreements, the Exchange shall 

retain ultimate legal responsibility for, and control 

of, its self-regulatory responsibilities, and any such 

regulatory services agreement shall so provide.’’ 

9For example, Phlx may act as a designated 

examining authority, while Nasdaq does not act as 

a designated examining authority. Therefore, 

FINRA performs certain regulatory functions for 

Phlx as the designated examining authority that 

would not be performed under the Nasdaq RSA. 

10Phlx General 3, Sections 1(b) states, ‘‘Only an 

organization whose principal purpose is the 

transaction of business as a broker or dealer in 

securities may be qualified as a member 

organization.’’ 

11Phlx General 3, Sections 1(f)(1)(i) states, ‘‘To 

obtain and maintain the status of a member 

organization, an organization shall: (i) be a broker 

or dealer duly registered under the Exchange 

Act. . .’’. 

12The term ‘‘member’’ means a permit holder 

which has not been terminated in accordance with 

the By-Laws and these Rules of the Exchange. A 

member is a natural person and must be a person 

associated with a member organization. Any 

references in the rules of the Exchange to the rights 

or obligations of an associated person or person 

associated with a member organization also 

includes a member. See Phlx General 1, Section 

1(16). The term ‘‘member organization’’ means a 

corporation, partnership (general or limited), 

limited liability partnership, limited liability 

company, business trust or similar organization, 

transacting business as a broker or a dealer in 

securities and which has the status of a member 

organization by virtue of (i) admission to 

membership given to it by the Membership 

Department pursuant to the provisions of General 

3, Sections 5 and 10 or the By-Laws or (ii) the 

transitional rules adopted by the Exchange pursuant 

to Section 6–4 of the By-Laws. References herein to 

Continued 

As compared to the Exchange’s 

existing General 3, by virtue of 

incorporating by reference the Nasdaq 

Membership Rules into the Exchange’s 

rulebook, the Exchange’s membership 

rules will be organized in a more logical 

order. The incorporated rules will 

eliminate unnecessary or vague 

provisions that exist under the current 

General 3 title, eliminate unnecessary 

complexity in the membership process, 

and otherwise streamline the 

Exchange’s existing membership rules 

and their associated procedures. 

Summary of Proposed Changes 

A comparison between the Exchange’s 

existing General 3 and the Nasdaq 

Membership Rules is summarized 

below. As a general matter, in 

comparison to the Exchange’s existing 

membership rules, the Nasdaq 

Membership Rules provide for more 

specific membership procedures and 

due process. Moreover, as described 

below, some of the Nasdaq Rule 1000 

Series rules have no analogue in the 

existing Exchange rules. 

The Exchange notes that Nasdaq’s 

General 4, Registration Requirements 

were previously streamlined across the 

Affiliated Exchanges. Phlx’s General 4 

Rules are incorporated by reference to 

Nasdaq General 4. 

Proposed General 3, Rule 1001 (Phlx 

Regulatory Contract With FINRA) 6

Nasdaq General 3, Rule 1001 states 

that Nasdaq and the Financial Industry 

Regulatory Authority (‘‘FINRA’’) are 

parties to a Regulatory Contract, 

pursuant to which FINRA has agreed to 

perform certain functions described in 

the Nasdaq General 3, Rule 1000 Series 

and the Nasdaq General 4, Rule 1200 

Series on behalf of Nasdaq.7 Moreover, 

Nasdaq General 3, Rule 1001 provides 

that Nasdaq rules that refer to Nasdaq’s 

Regulation Department, Nasdaq 

Regulation Department staff, Nasdaq 

staff, and Nasdaq departments should be 

understood as also referring to FINRA 

staff and FINRA departments acting on 

behalf of Nasdaq pursuant to the 

Regulatory Contract. 

Nasdaq General 3, Rule 1001 also 

provides that, notwithstanding the fact 

that Nasdaq has entered into the 

Regulatory Contract with FINRA to 

perform some of Nasdaq’s functions, 

Nasdaq shall retain ultimate legal 

responsibility for, and control of, such 

functions. In addition, the rule informs 

that Nasdaq has incorporated by 

reference certain FINRA rules and that 

Nasdaq members shall comply with 

those rules and interpretations as if such 

rules and interpretations were part of 

Nasdaq’s Rules. 

Nasdaq General 3, Rule 1001 

currently has no analogue rule under 

Phlx’s membership rules. Current Phlx 

General 2, Section 5 does permit the 

Phlx Board to authorize any officer, on 

behalf of the Exchange, subject to the 

approval of the Board, to enter into one 

or more agreements with another selfregulatory organization to provide 

regulatory services to the Exchange to 

assist the Exchange in discharging its 

obligations under Section 6 and Section 

19(g) of the Act.8 Similar to Nasdaq, 

Phlx has entered into a Regulatory 

Services Agreement with FINRA. FINRA 

performs substantially similar services 

for Nasdaq pursuant to its Regulatory 

Services Agreement with FINRA as it 

performs for Phlx pursuant to Phlx’s 

Regulatory Services Agreement with 

FINRA.9 Therefore, the language of 

proposed General 3, Rule 1001 is 

applicable to the Exchange, as the 

Exchange is, similarly, a signatory of a 

Regulatory Contract with FINRA, 

pursuant to which FINRA has agreed to 

perform certain membership functions 

on its behalf, and the Exchange also 

retains the ultimate legal responsibility 

for the performance of said functions. 

The Exchange believes that the 

incorporation by reference of Nasdaq 

General 3, Rule 1001 is not a substantive 

amendment to the Exchange rules. 

Proposed General 3, Rule 1002 

(Qualifications of Exchange Members 

and Associated Persons; Registration of 

Branch Offices and Designation of 

Office of Supervisory Jurisdiction) 

Nasdaq General 3, Rule 1002, which 

will be incorporated by reference under 

the Exchange’s General 3 title, describes 

the qualifications of members, member 

organizations and Associated Persons, 

the registration of branch offices, and 

the designation of a member’s or 

member organization’s office of 

supervisory jurisdiction. The Exchange 

will adopt by incorporation the 

provisions of Nasdaq General 3, Rule 

1002 and delete those under current 

Phlx General 3, Section 1. The Exchange 

believes that incorporating by reference 

this rule will further the Exchange’s 

objective to provide uniformity and 

clarity to its rules by aligning them with 

the membership rules of Nasdaq and 

other Affiliated Exchanges. 

Proposed General 3, Rule 1002(a) 

provides that any registered broker or 

dealer shall be eligible for membership 

in Nasdaq (except for those excluded 

under paragraph (b) of the rule); 

additionally, paragraph (a) provides that 

any person shall be eligible to become 

an Associated Person of a member 

organization (except for those excluded 

under General 3, Rule 1002(b)). 

Proposed General 3, Rule 1002(a) is 

similar to current Phlx General 3, 

Sections 1(b) 10 and (f)(1)(i) 11 to the 

extent that it describes that brokers or 

dealers may become member 

organizations or an Associated Person of 

a member organization.12 The Exchange 


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officer or partner, when used in the context of a 

member organization, shall include any person 

holding a similar position in any organization other 

than a corporation or partnership that has the status 

of a member organization. See Phlx General 1, 

Section 1(17). 

14Today, all Affiliated Exchange General 3 Rules, 

except Phlx, incorporate by reference Nasdaq 

General 3. 

15Nasdaq General 3, Rule 1014(b), titled ‘‘Bases 

for Approval Conditional Approval, or Denial’’ 

states, ‘‘After considering the completed 

application, other information and documents 

provided by the Applicant, other information and 

documents obtained by the Department, and the 

public interest and the protection of investors, the 

Department shall approve an application under 

Rules 1013 or 1017 by an Applicant that is not, and 

is not required to become, a FINRA member unless 

the Department determines that such information or 

documents provide a basis for denial of 

membership: (1) The Department may deny (or 

condition) approval of an Applicant for the same 

reasons that the Commission may deny or revoke 

a broker or dealer registration and for those reasons 

required or allowed under the Act; (2) Without 

limiting the generality of the foregoing, the 

Department may deny (or condition) approval of an 

Applicant when the Applicant directly or 

indirectly: (A) is unable to satisfactorily 

demonstrate its present capacity to adhere to all 

applicable Exchange and Commission policies, 

rules, and regulations, including, without 

limitation, those concerning recordkeeping, 

reporting, finance, and trading procedures; (B) has 

previously violated, and there is a reasonable 

likelihood such Applicant will again engage in acts 

or practices violative of, any applicable Exchange 

or Commission policies, rules and regulations, 

including, without limitation, those concerning 

record-keeping, reporting, finance and trading 

procedures or those rules of other self-regulatory 

organizations of which such Applicant is or was a 

member; (C) has engaged, and there is a reasonable 

likelihood such Applicant will again engage, in acts 

or practices inconsistent with just and equitable 

principles of trade; (D) is not in compliance with 

the Commission’s net capital rule (17 CFR 

240.15c3–1), or has financial difficulties involving 

an amount that is more than 5% of the Applicant’s 

net worth; (E) has been itself, or is the successor to 

an entity which has been subject to any bankruptcy 

proceeding, receivership or arrangement for the 

benefit of creditors within the past three years; (F) 

has engaged in an established pattern of failure to 

pay just debts; (G) does not have such licenses and 

registrations as are required by governmental 

authorities and self-regulatory organizations; or (H) 

is unable satisfactorily to demonstrate reasonably 

adequate systems capacity and capability. (3) The 

Department will not approve an Applicant unless 

the Applicant is a member of another registered 

securities exchange or association that is not 

registered solely under Section 6(g) or Section 

15A(k) of the Securities Exchange Act of 1934. An 

Applicant that will transact business with the 

public must be a member of FINRA. 

16Nasdaq General 3, Rule 1002(a), titled ‘‘Persons 

Eligible to Become Members and Associated 

Persons,’’ states, ‘‘(1) Any registered broker or 

dealer shall be eligible for membership in the 

Exchange, except such registered brokers or dealers 

as are excluded under paragraph (b). (2) Any person 

shall be eligible to become an Associated Person of 

a Member, except such persons as are excluded 

under paragraph (b).’’ 

17The Exchange notes that while Phlx General 3, 

Section 1(f)(1) mentions a ‘‘permit holder,’’ that 

term is encompassed within the definition of 

‘‘member’’ as defined within Phlx General 1, 

Section 1(16). The proposed General 3 rule notes 

the difference in the term ‘‘member’’ between 

Nasdaq’s and Phlx’s definitions. 

believes that incorporating by reference 

Nasdaq General 3, Rule 1002(a) expands 

upon current Phlx General 3, Sections 

1(b) and (f)(1)(i) by explicitly 

referencing an associated person of a 

member organization (‘‘Associated 

Person’’).13 Today, persons may be 

ineligible to be associated with a Phlx 

member organization under certain 

circumstances (e.g. statutory 

disqualification) notwithstanding the 

absence of specific language. 

The Exchange believes the remaining 

provisions of current Phlx General 3, 

Section 1 are unnecessary or 

incorporated by reference in other 

sections of the Nasdaq Rule. Current 

Phlx General 3, Section 1(a) provides 

that the Exchange’s Board of Directors 

may permit a member of the Exchange 

to qualify an entity as a member 

organization, subject to such terms and 

conditions as may from time to time be 

prescribed by rule or may be imposed 

by the Board of Directors. Phlx’s 

Membership Department reviews and 

approves all applicants for membership. 

The Exchange proposes to delete current 

Phlx General 3, Section 1(a). Instead, the 

Exchange would require all applications 

to be approved pursuant to the 

prescribed process detailed within the 

proposed General 3 Rules. Today, 

Nasdaq’s General 3 Rules apply to all 

Affiliated Exchanges, except Phlx.14

Current Phlx General 3, Section 1(c) 

provides that a member organization 

shall be organized under the laws of a 

jurisdiction approved by the 

Membership Department. The Exchange 

has not restricted any broker dealer from 

becoming a member organization of the 

Exchange, provided the broker dealer 

meets all the membership requirements 

specified in Phlx’s General 3 rules, 

notwithstanding the jurisdiction under 

which the member organization 

determines to be organized. The 

Exchange proposes to remove this rule 

as unnecessary. Additionally, no other 

Affiliated Exchange has a similar rule. 

Additionally, current Phlx General 3, 

Section 1(d) states that if it appears to 

the Membership Department that the 

business form of a member organization 

is being used to evade financial 

responsibility, such organization shall 

not be registered as a member 

organization. The Exchange believes 

that the membership qualifications 

described in current Phlx General 3, 

Section 1(d) are consistent with the 

eligibility criteria described in proposed 

General 3, Rule 1014(b) 15 discussed 

below, with the exception of General 3, 

Rule 1014(b)(3) as discussed later in this 

section. The Exchange proposes to 

delete current Phlx General 3, Section 

1(d) as that provision will be accounted 

for within proposed General 3, Rule 

1014. 

Moreover, current Phlx General 3, 

Section 1(e) states that no bank and no 

investment trust may be qualified or 

registered as a member organization. 

Today, a bank or an investment trust 

would need to be registered as a broker 

dealer in order to apply to be a member 

organization of the Exchange. This is 

similar to the membership requirements 

of proposed General 3, Rule 1002(a) 16

which also provides that registered 

broker or dealers are eligible for 

membership. The Exchange proposes to 

delete current Phlx General 3, Section 

1(e) since the requirement to be a broker 

or dealer is clearly stated and a bank or 

an investment trust would be subject to 

the same requirements as all other 

applicants. 

Current Phlx General 3, Section 1(f)(1) 

states, 

To obtain and maintain the status of a 

member organization, an organization shall: 

(i) be a broker or dealer duly registered under 

the Exchange Act; (ii) be duly qualified by a 

permit holder who is primarily affiliated 

with such organization for purposes of 

nominating as provided in the By-Laws; (iii) 

have submitted to the Membership 

Department an application for such status in 

the form approved by the Membership 

Department and any other information and 

materials requested by the Membership 

Department; (iv) have had such application 

approved by the Membership Department; 

and (v) meet such other requirements as are 

set forth in these By-Laws or the Rules of the 

Exchange. 

As stated above, the Exchange believes 

that the membership qualifications 

described in current Phlx General 3, 

Section 1(f)(1)(i) are consistent with the 

eligibility criteria described in proposed 

General 3, Rule 1002(a).17 The 

membership qualifications described in 

current Phlx General 3, Section 

1(f)(1)(ii) are specific to Phlx in that in 

order to obtain and maintain the status 

of a Phlx member organization, an 

organization shall be duly qualified by 

a permit holder who is primarily 

affiliated with such organization for 

purposes of nominating as provided in 

the By-Laws. The Exchange proposes to 

retain this requirement by adding rule 

text within Phlx General 3 which states, 

‘‘In order to obtain and maintain the 

status of a Phlx member organization, an 

organization shall be duly qualified by 

a permit holder who is primarily 

affiliated with such organization for 

purposes of nominating as provided in 

the By-Laws.’’ This proposed rule text 

will allow Phlx to retain this unique 

requirement while also incorporating by 


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18Current Phlx General 3, Section 1(f)(2) 

provides, ‘‘To obtain and maintain the status of a 

Market Maker on PSX, a member organization 

whose market making has not previously been 

approved by FINRA under the NASD Rule 1000 

Series (or such successor FINRA Rules as may be 

adopted by FINRA), Nasdaq under General 3, or 

Nasdaq BX under General 3 shall: (i) have 

submitted to the Membership Department an 

application for such status in the form approved by 

the Membership Department and any other 

information and material requested by the 

Membership Department; (ii) have had such 

application approved by the Membership 

Department; and (iii) meet such other requirements 

as are set forth in the By-Laws or Rules of the 

Exchange. The information to be provided shall 

include a business plan, an organizational chart, 

written supervisory procedures reflecting the 

change, and such other information as the 

Membership Department may request.’’ 

19Proposed General 3, Rule 1017(a)(5)(B) requires 

members and member organizations applying to 

become a Market Maker to seek Exchange approval 

and therefore would supersede Phlx Section 1(f)(2) 

as first time Market Makers would continue to be 

required to seek Exchange approval. Similar to 

current General 3, Section 1(f)(2), approval would 

not be required under proposed General 3, Rule 

1017(a) if an exchange affiliated with the Exchange 

or a Member’s Designated Examining Authority has 

already approved the change in accordance with its 

respective rules. 

20Proposed General 3, Rule 1013(b)(2) concerns 

the Special Application Procedures Applicable to 

Applicants that are Already Members of an 

Affiliated Exchange. 

21Nasdaq General 5, Rule 8310 concerns the 

Sanctions for Violation of the Rules. 

22Current Phlx General 3, Section 1(h) provides, 

‘‘A member of the Exchange who has qualified a 

member organization or a member organization may 

apply to the Membership Department for 

termination of the registration of the member 

organization. Such termination shall become 

effective upon such date as the Membership 

Department may determine and in no event shall 

it be effective until and unless the member 

organization and the member have discharged all 

commitments and liabilities to the Exchange and to 

its members and member organizations, or have 

made provision therefor satisfactory to the 

Membership Department. If the member who has 

qualified the member organization is prevented by 

death or incapacity from applying for the 

termination of such registration, the application 

may be made under the same terms and conditions 

as herein provided by his legal representative.’’ 

23Proposed General 3, Rule 1018 concerns the 

Resignation, Reinstatement, Termination, and 

Transfer of Membership. 

reference Nasdaq’s General 3 rules. The 

Exchange believes that the membership 

qualifications described in current Phlx 

General 3, Section 1(f)(1)(iii) are 

consistent with the eligibility criteria 

described further below in proposed 

General 3, Rule 1014. Further, approval 

by the Membership Department as 

described within current Phlx General 

3, Section 1(f)(1)(iv) is inherent within 

the proposed General 3 membership 

rules and compliance with the By-Laws 

and Rules of the Exchange within 

current Phlx General 3, Section 1(f)(1)(v) 

is a catch-all provision which requires 

an applicant to meet other requirements 

set forth in the by-laws and rules of the 

Exchange. Today, every Phlx member 

and member organization is required to 

comply with the requirements set forth 

in the by-laws and rules of the Exchange 

and, therefore, this provision is 

unnecessary. Additionally, no other 

Affiliated Exchange has a similar rule, 

although all members of Affiliated 

Exchanges are required to meet other 

requirements set forth in the by-laws 

and rules of the exchange. Accordingly, 

the Exchange proposes to delete current 

Phlx General 3, Section 1(f)(1) as those 

provisions not covered by proposed 

General 3, Rule 1002(a) are covered 

within proposed General 3, Rule 1014, 

with the exception of General 3, Section 

1(f)(1)(ii) which will be preserved in 

Phlx General 3’s rule text as described 

above. 

With respect to current Phlx General 

3, Section 1(f)(2),18 the Exchange 

proposes to remove this rule text 

because it is otherwise superseded by 

proposed General 3, Rule 1017(a)(5)(B) 

which provides that a member or 

member organization is required to file 

an application for approval if a material 

change in business operations occurs, 

which includes, ‘‘acting as a dealer or 

market maker for the first time.’’ Current 

Section 1(f)(2) provides that to obtain 

and maintain Market Maker status on 

PSX, a member organization whose 

market making has not previously been 

approved by FINRA, Nasdaq under 

General 3, or Nasdaq BX under General 

3 shall submit an application and any 

other requested information and 

material to, and have it approved by, the 

Membership Department and meet such 

other requirements as are set forth in the 

By-Laws or Rules of the Exchange.19

The information to be provided shall 

include a business plan, an 

organizational chart, written 

supervisory procedures reflecting the 

change, and such other information as 

the Membership Department may 

request. Proposed General 3, Rule 1017 

expands on current Phlx General 3, 

Section 1(f)(2) by explaining the process 

in more detail and requiring additional 

material such as pro forma financials. 

Generally speaking, current Phlx 

General 3, Section 1(f)(3) describes the 

expedited process for membership 

applications. Today, Phlx accepts 

Nasdaq’s and BX’s membership process 

as a basis for membership on Phlx. 

Incorporating Nasdaq’s rule would 

further support this reciprocity as an 

applicant would be subject to the same 

process for both Nasdaq and Phlx 

membership. Also, as discussed further 

below, proposed General 3, Rule 

1013(b)(2) 20 is substantially similar to 

the provisions in current Phlx General 

3, Section 1(f)(3). 

Current Phlx General 3, Section 1(g) 

allows the Board to terminate the 

registration of a member organization by 

the affirmative vote of a majority of the 

Board if the member organization is 

found to have violated the terms and 

conditions, or fails to meet the 

requirements, of its registration. The 

Exchange believes that this rule is 

substantially similar to General 5, Rule 

8310 21 of the Exchange’s disciplinary 

rules and is therefore not necessary to 

be retained within the Membership 

Rules. 

Current Phlx General 3, Section 1(h) 

allows for a member organization or an 

Exchange member who has qualified a 

member organization to apply for 

termination of the registration of the 

member organization.22 The Exchange 

believes that proposed General 3, Rule 

1018,23 discussed further below, is 

similar to, and consistent with the 

requirements of current Phlx General 3, 

Section 1(h) with respect the ability to 

voluntarily terminate membership. 

Additionally, both rules (proposed 

General 3, Rule 1018 and Phlx General 

3, Section 1(h)) provide that the 

effectiveness of the termination is 

contingent on all indebtedness to the 

Exchange has been paid. Phlx General 3, 

Section 1(h) also requires that 

commitments and liabilities have been 

discharged to its members and member 

organizations. This rule is a holdover 

from a time when members leased seats 

on Phlx prior to demutualization. The 

Exchange has not had occasion to 

enforce this rule in the recent past and 

believes this portion of the rule is 

unnecessary. The last provision in the 

Phlx rule, pertaining to death or 

incapacity of the member who has 

qualified the member organization is not 

necessary to be described within the 

membership rules. The proposed rules 

would not prohibit a legal 

representative from being used under 

such circumstances. Also, a member 

organization could make other legal 

arrangements to obtain proper consent, 

within the bounds of the law and their 

governing documents, to effect the 

termination without violating the 

proposed rules. This would be the case 

in the event any officer of any member 

died or became incapacitated. 

Lastly, current Phlx General 3, 

Section 1(i) provides, ‘‘During the 

unavoidable absence or disability of an 

officer (or person in a similar position) 

of a member organization who is a 

member of the Exchange, any officer or 

director (or person in a similar position) 

of such member organization shall have 

the privilege of effecting transactions on 

the Exchange in the name of the 


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24A member’s or member organization’s 

governing documents and/or business continuity 

plans would allow a member or member 

organization to appoint alternative officers in such 

an event. 

25Phlx’s General 4 rules are incorporated by 

reference to Nasdaq’s General 4 rules. 

26Proposed General 3, Rule 1002(b)(2) provides, 

‘‘For purposes of ‘‘statutory disqualification’’ as 

such term is defined in Section 3(a)(39) of the 

Exchange Act the terms ‘‘person associated with a 

member’’ and ‘‘associated person’’ shall mean (1) a 

natural person who is registered or has applied for 

registration under the Rules of the Exchange; (2) a 

sole proprietor, partner, officer, director, or branch 

manager of a member, or other natural person 

occupying a similar status or performing similar 

functions, or a natural person engaged in the 

investment banking or securities business who is 

directly or indirectly controlling or controlled by a 

member, whether or not any such person is 

registered or exempt from registration with the 

Exchange under its Rules; and (3) for purposes of 

Nasdaq General 5, Rule 8210, any other person 

listed in Schedule A of Form BD of a member.’’ 

27See Securities Exchange Act Release No.94473 

(March 18, 2022), 87 FR 16804 (March 24, 2022) 

(SR–NASDAQ–2022–022) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

To Amend General 3, Rule 1002, Qualifications of 

Exchange Members and Associated Persons; 

Registration of Branch Offices and Designation of 

Office of Supervisory Jurisdiction). 

28Proposed General 3, Rule 1002(c) provides, 

‘‘Membership in a Registered Securities Association 

or Another Registered Exchange. As a condition to 

maintaining membership in the Exchange, Members 

shall at all times maintain membership in a 

registered securities association that is not 

registered solely under Section 15A(k) of the 

Securities Exchange Act of 1934, or another 

registered exchange that is not registered solely 

under Section 6(g) of the Securities Exchange Act 

of 1934. Members that transact business with 

customers shall at all times be members of FINRA.’’ 

29The Exchange proposes to add the following to 

the General 3 rule text: ‘‘Phlx members and member 

organizations may comply with General 3, Rule 

1002(c) and General 3, Rule 1014(b)(3) if Phlx is the 

member’s or member organization’s designated 

examining authority.’’ 

member organization.’’ This provision 

has never been invoked by any Phlx 

member or member organization. The 

Exchange believes that the provision is 

unnecessary and should be removed 

from Phlx’s Rules.24

The Exchange proposes to incorporate 

Nasdaq General 3, Rule 1002 in its 

entirety. 

Current Phlx General 3, Section 2(a) 

allows Phlx to deny a permit to, or 

condition the permit of, any person or 

bar and deny from becoming associated, 

or condition any association of, any 

person with a registered broker or 

dealer, or deny or condition the 

qualification or registration of any 

member organization, if any such 

person, registered broker or dealer or 

member organization is subject to a 

statutory disqualification, as that term is 

defined in the Act, as amended. This 

provision is similar to proposed General 

3, Rule 1002(b)(1) and (2), which 

describe an Applicant’s ineligibility of 

certain persons for membership or 

association due to statutory 

disqualification. 

Proposed General 3, Rule 1002(b)(1) 

and (2) describe the ineligibility of 

certain persons for Membership or 

Association on Phlx. Proposed General 

3, Rule 1002(b)(1) provides that, subject 

to certain exceptions, no registered 

broker or dealer shall be admitted to 

membership, and no Member shall be 

continued in membership, if such 

broker, dealer, or Member fails or ceases 

to satisfy the qualification requirements 

established by the Rules, or if such 

broker, dealer, or Member is or becomes 

subject to a statutory disqualification, or 

if such broker, dealer, or Member fails 

to file such forms as may be required in 

accordance with such process as the 

Exchange may prescribe. Further, 

proposed General 3, Rule 1002(b)(2) 

provides, subject to certain exceptions, 

no person shall become associated with 

a Member, continue to be associated 

with a Member, or transfer association 

to another Member, if such person fails 

or ceases to satisfy the qualification 

requirements established by the rules 

(Phlx General 4 rules govern 

registration),25 or if such person is or 

becomes subject to a statutory 

disqualification. Also, no broker or 

dealer shall be admitted to membership, 

and no Member shall be continued in 

membership, if any person associated 

with it is ineligible to be an Associated 

Person pursuant to Phlx General 3, 

Section 2(b). 

Proposed General 3, Rule 1002(b)(2) 

describes a statutory disqualification,26

which was recently adopted by 

Nasdaq.27 Similar to Nasdaq, Phlx 

proposes to harmonize its description of 

statutory disqualification to align its 

application of statutory disqualification 

to FINRA and other Affiliated 

Exchanges. This proposal would avoid 

potentially different outcomes for 

members of both FINRA and Phlx with 

respect to ineligibility for membership 

and association. Additionally, other 

Affiliated Exchanges have adopted the 

FINRA defined term. Harmonizing the 

description of statutory disqualification 

would ensure that market participants 

that are members of both FINRA and 

Phlx, and members of another Affiliated 

Exchange and Phlx, are held to the same 

standard with respect to statutory 

disqualification. 

Proposed General 3, Rule 1002(c) 28

establishes, as a condition to 

maintaining membership, that member 

organizations shall at all times maintain 

membership in a registered securities 

association that is not registered solely 

under Section 15A(k) of the Act, or 

another registered exchange that is not 

registered solely under Section 6(g) of 

the Act. Furthermore, the rule 

prescribes that members and member 

organizations that transact business 

with customers shall at all times be 

members of FINRA. The Exchange 

proposes to incorporate this rule by 

reference and provide within the 

General 3 rule text that members or 

member organizations may comply with 

proposed General 3, Rule 1002(c) if Phlx 

is the member organization’s designated 

examining authority (‘‘DEA’’).29 Because 

Phlx acts in the capacity of a DEA, 

applicants for membership who register 

Phlx as their DEA comply with 

proposed General 3, Rule 1002(c). 

Current Phlx General 3, Section 2(b) 

allows the Exchange to deny or 

condition association or membership if 

the broker, dealer or member 

organization (1) is unable satisfactorily 

to demonstrate its present capacity to 

adhere to applicable provisions of (i) 

Sections 15 and 17 of the Act, as 

amended, and all rules and regulations 

promulgated thereunder or (ii) Exchange 

Rules relating to the maintenance of 

books and records; or (2) has previously 

been found to have violated and there 

is a reasonable likelihood the broker or 

dealer or member organization will 

again engage in acts or practices 

violative of (A) Sections 15 and 17 of 

the Act, as amended, and all rules and 

regulations promulgated thereunder, or 

(B) Rules relating to the maintenance of 

books and records of the Exchange or 

other self-regulatory organizations of 

which the broker or dealer or member 

organization is or was a member. The 

Exchange believes that the conditions 

for membership described in Phlx 

Section 2(b) are consistent with and are 

incorporated by reference into the 

eligibility criteria described further 

below in proposed General 3, Rule 

1014(b)(2)(A) and (B), which the 

Exchange is adopting with this 

proposal. Further, current Phlx General 

3, Section 2(c) allows the Exchange to 

deny or condition association or 

membership if the broker, dealer or 

member organization (1) does not 

successfully complete such written 

proficiency examinations as required by 

the Exchange to enable it to examine 

and verify the applicant’s qualifications 

to function in one or more of the 

capacities applied for; (2) does not meet 

such other standards of training, 

experience, and competence as may be 

established by the Exchange; (3) cannot 

demonstrate a capacity to adhere to all 

applicable policies, rules and 

regulations of the Exchange or any other 

self-regulatory organization, the SEC, 

the Board of Governors of the Federal 


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30E.g., Phlx By-Law Sec. 7–3, Membership 

Qualifications; General 9, Section 20, Supervision; 

and Options 8, Section 39, E–15 Options Trading 

Floor Training. 

31Phlx General 4 incorporates Nasdaq General 4 

by reference. Supplementary Material .03 of General 

4, Section 1210 states, in relevant part, ‘‘Pursuant 

to the Rule 9600 Series, the Exchange may, in 

exceptional cases and where good cause is shown, 

waive the applicable qualification examination(s) 

and accept other standards as evidence of an 

applicant’s qualifications for registration. Age or 

disability 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. The Exchange shall only consider 

waiver requests submitted by a member for 

individuals associated with the member who are 

seeking registration in a representative or principal 

registration category. Moreover, the Exchange shall 

consider waivers of the SIE alone or the SIE and the 

applicable representative and principal 

examination(s) for such individuals. The Exchange 

shall not consider a waiver of the SIE for 

individuals who are not associated persons or for 

associated persons who are not registering with the 

Exchange as representatives or principals.’’ 

Reserve System, the Commodity Futures 

Trading Commission contract market 

designated pursuant to Section 5 of the 

Commodity Exchange Act or futures 

association registered under Section 17 

of such Act; (4) has been the subject of 

findings of fact rendered by any of the 

above mentioned entities such that the 

broker or dealer, person or member 

organization has engaged in acts or 

practices inconsistent with just and 

equitable principles of trade, and there 

is a reasonable likelihood the person 

will do so again; or (5) (i) is subject to 

any unsatisfied liens, judgments or 

unsubordinated creditor claims of a 

material nature, which remain 

outstanding (ii) has been or is the 

successor to an entity which has been 

subject to any bankruptcy proceeding, 

receivership or arrangement for the 

benefit of creditors within the past three 

years (iii) has been and/or remains 

associated as a general partner, 

principal, officer, director, stockholder, 

or registered trader for a member 

organization which has been subject to 

any unsatisfied liens, judgments or 

unsubordinated creditor claims of a 

material nature (iv) has engaged in a 

pattern of failure to pay just debts (v) 

would bring the Exchange into 

disrepute or (vi) for such other cause as 

the Membership Department reasonably 

may decide. Proposed General 3, 

Section 1014(b)(1) provides that ‘‘[t]he 

Department may deny (or condition) 

approval of an Applicant for the same 

reasons that the Commission may deny 

or revoke a broker or dealer registration 

and for those reasons required or 

allowed under the Act.’’ Phlx’s General 

4 rules requires members and member 

organizations to obtain certain 

registrations and further proposed 

General 3, Section 1014(b)(2)(G) permits 

denial if proper licenses and 

registrations are not obtained. This 

would be the equivalent of the 

proficiency examination requirements 

within current Phlx General 3, Section 

2(c)(1) as well as the standards of 

training, experience, and competence as 

may be established by the Exchange in 

other rules pursuant to current Phlx 

General 3, Section 2(c)(1).30 Current 

Phlx General 3, Section 2(c)(3) requires 

a demonstration of a capacity to adhere 

to all applicable policies, rules and 

regulations of the Exchange or any selfregulatory organization, the 

Commission, the Board of Governors of 

the Federal Reserve System, the 

Commodity Futures Trading 

Commission contract market designated 

pursuant to Section 5 of the Commodity 

Exchange Act or futures association 

registered under Section 17 of such Act. 

General 3, Section 1014(b)(2)(A) is, in 

part, substantially similar to current 

Phlx General 3, Section 2(c)(3). While 

the provisions of Phlx General 3, 

Section 2(c)(3) are broader with respect 

to other agencies, the Exchange notes 

that to the extent a member or member 

organization is subject to the 

jurisdiction of other federal agencies, 

those same rules would apply. 

Current Phlx General 3, Section 

2(c)(4) concerns whether an applicant 

has engaged in acts or practices 

inconsistent with just and equitable 

principles of trade is substantially 

similar to proposed General 3, Section 

1014(b)(2)(C). Current Phlx General 3, 

Section 2(c)(5)(i) related to unsatisfied 

liens, judgments or unsubordinated 

creditor claims of a material nature, 

which remain outstanding is 

substantially similar to proposed 

General 3, Section 1014(b)(2)(F). Current 

Phlx General 3, Section 2(c)(5)(ii) 

related to bankruptcy proceeding, 

receivership or arrangement for the 

benefit of creditors within the past three 

years is substantially similar to 

proposed General 3, Section 

1014(b)(2)(E). Current Phlx General 3, 

Section 2(c)(5)(iii) and (iv) relating to 

unsatisfied liens, judgments or 

unsubordinated creditor claims of a 

material nature and failure to pay just 

debts is substantially similar to 

proposed General 3, Section 

1014(b)(2)(F). Current Phlx General 3, 

Section 2(c)(5)(v) would allow the 

Exchange to deny a permit to, or 

condition the permit of, any person that 

would bring the Exchange into 

disrepute. Current Phlx General 3, 

Section 2(c)(5)(vi) would allow the 

Exchange to deny a permit to, or 

condition the permit of, any person for 

such other cause as the Membership 

Department reasonably may decide. The 

proposed rules would eliminate the 

discretion under these two provisions. 

Current Phlx General 3, Section 2(d) 

permits the Membership Department to 

waive proficiency examinations in 

exceptional cases where good cause is 

shown upon written request of the 

applicant. The waiver described within 

current Phlx General 3, Section 2(d) is 

similar to current Supplementary 

Material .03 of General 4, Section 

1210 31 with one exception. Today, Phlx 

General 3, Section 2(d) provides, 

‘‘Advanced age, physical infirmity or 

experience in fields ancillary to the 

securities business will not individually 

of themselves constitute sufficient 

grounds to waive a proficiency 

examination.’’ This is different from the 

standard within Supplementary 

Material .03 of General 4, Section 1210 

which states, ‘‘Experience in fields 

ancillary to the securities business may 

constitute sufficient grounds to waive a 

qualification examination.’’ Phlx has not 

waived proficiency examinations within 

the recent past on the grounds of 

experience in fields ancillary to the 

securities business. Phlx proposes to 

remove Phlx General 3, Section 2(d) and 

instead waive proficiency examinations 

according to Supplementary Material 

.03 of General 4, Section 1210. By 

eliminating Phlx General 3, Section 

2(d), Phlx will also eliminate the 

conflict that exists today between Phlx 

and its Affiliated Exchanges, thereby 

harmonizing the qualification 

examination waiver process across 

Affiliated Exchanges. 

Proposed General 3, Rule 1002(d) 

describes the requirement to register a 

branch office and designate an office of 

supervisory jurisdiction. Phlx Options 

10, Section 5, Branch Office, similarly 

provides an obligation to register branch 

offices with the Exchange and requires 

supervision of such branch offices. 

Additionally, General 9, Section 20(f) 

requires Phlx DEA members to file a list 

identifying each of its branch offices. 

Adopting this rule would require all 

Phlx members to likewise register 

branch offices and designate 

supervision of those branches. The 

adoption of this rule would make clear 

the uniform requirement that all Phlx 

members and member organizations 

have to report branch offices and 

designate supervision of those branches 

to the Exchange. This would include 

advising the Exchange, via electronic 

means or such other means as the 

Exchange may prescribe, of the opening, 


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32The term ‘‘Applicant’’ means a person that 

applies for membership in the Exchange under Rule 

1013 or a Member that files an application for 

approval of a change in ownership, control, or 

business operations under Rule 1017. See proposed 

General 3, Rule 1011(a). 

33The term ‘‘Department’’ means the Exchange’s 

Membership Department located within the 

Exchange’s Regulation Department. See proposed 

General 3, Rule 1011(c). 

34The term ‘‘Interested Staff’’ means an employee 

who directly participates in a decision under Rule 

1014 or 1017, an employee who directly supervises 

an employee with respect to such decision, an 

employee who conducted an investigation or 

examination of a member that files an application 

under Rule 1017, and the head of the Department. 

See proposed General 3, Rule 1011(e). 

35The term ‘‘securities business’’ means the 

business 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 proposed General 3, Rule 1011(f). 

36The term ‘‘Exchange Board’’ means the Board 

of Directors of the Exchange. See proposed General 

3, Rule 1011(h). 

37The term ‘‘principal place of business’’ means 

the executive office from which the sole proprietor 

or the officers, partners, or managers of the 

Applicant direct, control, and coordinate the 

activities of the Applicant, unless the Department 

determines that the principal place of business is 

where: (1) the largest number of Associated Persons 

of the Applicant are located; or (2) the books and 

records necessary to provide information and data 

to operate the business and comply with applicable 

rules are located. See proposed General 3, Rule 

1011(i). 

38The term ‘‘registered broker or dealer’’ means 

any broker or dealer, as defined in Section 3(a)(48) 

of the Act, that is registered with the Commission 

under the Act. See proposed General 3, Rule 

1011(j). 

39The term ‘‘Representative’’ shall have the 

meaning assigned to it in General 4, Rule 

1220(b)(1). All Representatives of the Exchange 

Members are required to be registered with the 

Exchange, and Representatives that are so registered 

are referred to herein as ‘‘Registered 

Representatives.’’ See proposed General 3, Rule 

1011(k). 

40The term ‘‘sales practice event’’ means any 

customer complaint, arbitration, or civil litigation 

that has been reported to the Central Registration 

Depository, currently is required to be reported to 

the Central Registration Depository, or otherwise 

has been reported to the Exchange. See proposed 

General 3, Rule 1011(l). 

41The term ‘‘Subcommittee’’ means a 

subcommittee of the Exchange Review Council that 

is constituted pursuant to Rule 1015 to conduct a 

review of a Department decision issued under the 

Rule 1010 Series. See proposed General 3, Rule 

1011(m). 

closing, relocation, change in designated 

supervisor, or change in designated 

activities of any branch office of such 

member organization not later than 30 

days after the effective date of such 

change. The proposed rule provides that 

members and member organizations that 

are also FINRA members shall be 

deemed to have complied with this 

provision if they are in compliance with 

FINRA rules by keeping current Form 

BR. Finally, members and member 

organizations that are not FINRA 

members shall promptly advise the 

Exchange by submitting to the Exchange 

a Branch Office Disclosure Form. 

Membership Proceedings and Proposed 

General 3, Rule 1011 (Definitions) 

Proposed General 3, Rule 1011 

contains definitions applicable to the 

Membership Rules. Proposed General 3, 

Rule 1011 has no analogue rule in the 

existing Exchange’s General 3 title. By 

incorporating by reference Nasdaq Rule 

1011 definitions under General 3, the 

Exchange believes it will further 

harmonize its rules with respect to the 

membership rules of Nasdaq and other 

Affiliated Exchanges. Nasdaq Rule 1011 

states that terms used in the Nasdaq 

Rule 1000 Series and the General 4, 

Rule 1200 Series shall have the meaning 

as defined in General 1 and Equity 1. 

Similarly, proposed Phlx General 3 shall 

have the meaning as defined in General 

1 and Equity 1. The terms 

‘‘Applicant,’’ 32 ‘‘Department,’’ 33

‘‘Interested Staff,’’ 34 ‘‘Securities 

business,’’ 35 ‘‘Exchange Board,’’ 36

‘‘principal place of business,’’ 37

‘‘registered broker or dealer,’’ 38

‘‘Representative,’’ 39 ‘‘sales practice 

event,’’ 40 and ‘‘Subcommittee,’’ 41 have 

not been defined in the Exchange’s 

rulebook. The term ‘‘associated person’’ 

as defined in Phlx General 1, Section 

1(2) is substantially similar to the 

definition of associated person within 

Nasdaq General 3, Rule 1011(b). The 

term ‘‘Director’’ is substantially similar 

to the term ‘‘Director’’ within General 1, 

Section 1(9). The term ‘‘statutory 

disqualification’’ as defined within 

proposed General 3, Rule 1011(n) aligns 

with the Act definition. Relatedly, the 

term ‘‘Proprietary Trading Firm’’ as 

defined in proposed Nasdaq General 3, 

Rule 1011(o) is substantially similar to 

the definition of ‘‘proprietary trading 

firm’’ within Phlx General 1, Section 

1(33). The Exchange proposes to adopt 

by incorporation the text of Nasdaq 

General 3, Rule 1011 in its entirety. The 

Exchange believes that incorporating by 

reference this rule will further the 

Exchange’s objective to provide 

uniformity and clarity to its rules by 

aligning them with the membership 

rules of Nasdaq and other Affiliated 

Exchanges. 

Proposed General 3, Rule 1012 (General 

Application Provisions) 

Proposed General 3, Rule 1012 

(‘‘General Application Provisions’’) 

provides a detailed outline of the 

requirements that an Applicant must 

follow in order to file an application for 

membership. In contrast, the Exchange’s 

General 3 membership rules do not 

describe in detail the manner in which 

an application shall be submitted or 

how service shall be performed. The 

Exchange believes that adopting 

proposed General 3, Rule 1012 will 

provide a more detailed set of 

instructions for Applicants, members, 

member organizations, and Associated 

Persons to submit materials and the 

requirements for service of documents. 

The Exchange believes that 

incorporating proposed General 3, Rule 

1012 by reference will further the 

Exchange’s objective to provide 

uniformity and clarity to its rules by 

aligning them with the membership 

rules of Nasdaq and other Affiliated 

Exchanges. 

Proposed General 3, Rule 1012(a) 

provides that Applicants, members and 

member organizations may submit an 

application or other documents and 

information to the Exchange by firstclass mail, overnight courier, hand 

delivery, or by electronic means (or 

facsimile if the Department and the 

Applicant, member, or member 

organization agree); this section also 

provides that the Exchange shall serve 

a notice or decision issued under the 

Membership Rules by first-class mail or 

electronic means on the Applicant, 

member or member organization, or its 

counsel, unless an Exchange rule 

specifies a different method of service; 

finally, this section also details when 

service by the Exchange or filing by an 

Applicant or member or member 

organization shall be deemed complete. 

The current Exchange membership rules 

contain no such provision. The 

Exchange believes that incorporating 

proposed General 3, Rule 1012(a) by 

reference improves its membership 

application process by adopting specific 

provisions regarding the manner of 

submission and service of documents. 

Proposed General 3, Rule 1012(b) 

provides a definition of the term 

‘‘calendar day’’ and describes the 

manner in which times under the 

Membership Rule shall be computed. 

The current Exchange membership rules 

contain no such provision. The 

Exchange believes that adopting this 

rule by incorporation will provide 

further clarity to the calculation of days 

under its membership rules. 

Proposed General 3, Rule 1012(c) 

describes a(n) Applicant’s, member’s, 

member organization’s and Associated 

Person’s duty to ensure that the 

information they provide to the 

Exchange at the time of the filing is 

accurate, complete, and current. 

Moreover, this provision requires that 

an Applicant, member, member 

organization, and Associated Person 

ensure that membership applications 

and supporting materials filed with the 

Exchange remain accurate, complete, 


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42Phlx General 3, Section 5, Member Application, 

provides, ‘‘(a) Every applicant for a membership or 

a permit and every non-member seeking admission 

as a member upon acquisition of an existing 

membership shall file an application in writing 

with the Membership Department of the Exchange 

in such form as the Membership Department may 

prescribe from time to time, shall appear before 

such department if required thereby, and shall 

submit such information as such department may 

direct. (b) All applications will be reviewed 

preliminarily by the staff of the Exchange. If the 

staff recommends that the applicant not be issued 

a membership or a permit the applicant shall be 

notified in writing of the reasons therefor and may, 

within fifteen (15) days of the receipt thereof, file 

a request with the Membership Department for its 

consideration of the application, together with a 

written statement setting forth the applicant’s 

opinion as to why the staff recommendation is in 

error or insufficient to preclude the issuance of a 

membership or a permit. (c) The Membership 

Department shall review and act upon the 

membership application or permit application. (d) 

Absent a showing of good cause, an application 

filed pursuant to this Rule shall lapse after a 90 

calendar day period if an applicant fails to provide 

the requisite documentation provided for in this 

Rule or any subsequent written request for 

information or documents pursuant to this Rule 

within such time period agreed to by the 

Membership Department. If such time period 

elapses, an applicant seeking membership to the 

Exchange shall be required to file a new application 

pursuant to this Rule. The applicant will be 

required to pay an additional application fee at that 

time. The Exchange will not refund any fees for 

lapsed applications.’’ 

and current at all times by filing 

supplementary amendments, which 

must be filed within 15 business days of 

their learning of the facts or 

circumstances giving rise to the need for 

an amendment. Furthermore, this 

section requires that Applicants, 

members, member organizations, and 

Associated Persons promptly notify the 

Exchange, in writing, of any material 

adverse change in their financial 

condition. The current Exchange 

membership rules contain no such 

provision. The Exchange believes that 

incorporating proposed General 3, Rule 

1012(c) by reference improves its 

membership rules by adopting 

provisions concerning a member’s and 

member organization’s duty to ensure 

the accuracy, completeness, and current 

nature of membership information. 

As previously stated, the Exchange 

proposes to adopt by incorporation the 

text of proposed General 3, Rule 1012 in 

its entirety, as the rule’s provisions 

provide clear instructions concerning 

the submission of membership 

applications and other materials; the 

requirements for service of documents; 

and the Applicants’, members’, member 

organizations’, and Associated Persons’ 

duty to ensure that the information filed 

with the Exchange is kept current. 

Proposed General 3, Rule 1013 (New 

Member Application) 

Proposed General 3, Rule 1013 sets 

forth the procedure for filing 

applications for new membership on the 

Exchange. The Exchange proposes to 

incorporate Nasdaq General 3, Rule 

1013 by reference under its General 3 

title. The Exchange is incorporating 

Nasdaq General 3, Rule 1013 as it 

expands upon and provides clarity to 

the procedure currently in place in the 

Exchange’s rules within current General 

3, Section 5, Member Applications.42

The Exchange believes that 

incorporating proposed General 3, Rule 

1013 by reference will further the 

Exchange’s objective to provide 

uniformity and clarity to its rules by 

aligning them with the membership 

rules of Nasdaq and other Affiliated 

Exchanges. 

Proposed General 3, Rule 1013(a) 

describes in detail the membership 

application process. Subsection (a)(1) 

(‘‘Where to File; Contents’’), provides 

that an application shall include (A) a 

copy of the Applicant’s current Form 

BD, if not otherwise available to the 

Exchange electronically through the 

Central Registration Depository 

(‘‘CRD’’); (B) an original Exchangeapproved fingerprint card for each 

Associated Person who will be subject 

to SEC Rule 17f–2 and for whom a 

fingerprint card has not been filed with 

another self-regulatory organization 

(SRO), if such fingerprints are not 

otherwise available electronically to the 

Exchange through CRD; (C) payment for 

such fee as may be required under the 

Rules; (D) a description of the 

Applicant’s proposed trading activities 

on the Exchange, such as the types of 

securities it will trade, whether it will 

be a market maker, or an order entry 

firm, and/or engage in block trading 

activities, and the extent to which the 

Applicant is conducting such activities 

as a member of other SROs; (E) a copy 

of the Applicant’s most recent audited 

financial statements and a description of 

any material changes in the Applicant’s 

financial condition since the date of the 

financial statements; (F) an 

organizational chart; (G) the intended 

location of the Applicant’s principal 

place of business and all other branch 

offices, if any, and the names of the 

persons who will be in charge of each 

office; (H) a description of the 

communications and operational 

systems the Applicant will employ to 

conduct business and the plans and 

procedures the Applicant will employ 

to ensure business continuity, 

including: system capacity to handle the 

anticipated level of usage; contingency 

plans in the event of systems or other 

technological or communications 

problems or failures; system 

redundancies; disaster recovery plans; 

and system security; (I) a copy of any 

decision or order by a federal or state 

authority or SRO taking permanent or 

temporary adverse action with respect 

to a registration or licensing 

determination regarding the Applicant 

or an Associated Person; (J) a statement 

indicating whether the Applicant or any 

person listed on Schedule A of the 

Applicant’s Form BD is currently, or has 

been in the last ten years, the subject of 

any investigation or disciplinary 

proceeding conducted by any SRO, the 

foreign equivalent of a SRO, a foreign or 

international securities exchange, a 

contract market designated pursuant to 

the Commodity Exchange Act (‘‘CEA’’) 

or any substantially equivalent foreign 

statute or regulation, a futures 

association registered under the CEA or 

any substantially similar foreign statute 

or regulation, the Commission or any 

other ‘‘appropriate regulatory agency’’ 

(as defined in the Act), the Commodity 

Futures Trading Commission, or any 

state financial regulatory agency 

regarding the Applicant’s activities that 

has not been reported to the CRD, 

together with all relevant details, 

including any sanctions imposed; (K) a 

statement indicating whether any 

person listed on Schedule A of the 

Applicant’s Form BD is currently, or has 

been in the last ten years, the subject of 

any investigation or disciplinary 

proceeding conducted by any SRO, the 

foreign equivalent of an SRO, a foreign 

or international securities exchange, a 

contract market designated pursuant to 

the CEA or any substantially equivalent 

foreign statute or regulation, a futures 

association registered under the CEA or 

any substantially similar foreign statute 

or regulation, the Commission or any 

other ‘‘appropriate regulatory agency’’, 

the CFTC, or any state financial 

regulatory agency regarding the 

Applicant’s activities that has not been 

reported to the CRD, together with all 

relevant details, including any sanctions 

imposed; (L) a copy of any contract or 

agreement with another broker-dealer, a 

bank, a clearing entity, a service bureau 

or a similar entity to provide the 

Applicant with services regarding the 

execution or clearance and settlement of 

transactions effected on the Exchange; 

(M) if the Applicant proposes to make 

markets on the Exchange, a description 

of the source and amount of Applicant’s 

capital to support its market making 

activities on the Exchange, and the 

source of any additional capital that 

may become necessary; (N) a 

description of the financial controls to 

be employed by the Applicant with 


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respect to anti-money laundering 

compliance rules as set forth in General 

9, Section 37; (O) a copy of the 

Applicant’s written supervisory 

procedures with respect to the activities 

identified in paragraph (a)(1)(D); (P) a 

list of the persons conducting the 

Applicant’s market making and other 

trading activities, and a list of the 

persons responsible for such persons’ 

supervision, together with the CRD 

numbers; (R) a copy of the Applicant’s 

most recent ‘‘FOCUS Report’’ (Form X– 

17A–5) filed with the SEC pursuant to 

SEC Rule 17a–5; (S) all examination 

reports and corresponding responses 

regarding the Applicant for the previous 

two years from the SROs of which it is 

a member; (T) a copy of the Exchange’s 

Membership Agreement, duly executed 

by the Applicant, which includes, 

among other things: (1) an agreement to 

comply with the federal securities laws, 

the rules and regulations thereunder, 

Exchange rules, and all rulings, orders, 

directions, and decisions issued and 

sanctions imposed under Exchange 

rules; (2) an agreement to pay such 

dues, assessments, and other charges in 

the manner and amount as from time to 

time shall be fixed pursuant to 

Exchange rules; and (U) such other 

reasonable information with respect to 

the Applicant as the Exchange may 

require. 

In contrast, current Phlx General 3, 

Section 5(a) states simply that every 

applicant for a membership or a permit 

and every non-member seeking 

admission as a member upon 

acquisition of an existing membership 

shall file an application in writing with 

the Membership Department of the 

Exchange in such form as the 

Membership Department may prescribe 

from time to time, shall appear before 

such department if required thereby, 

and shall submit such information as 

such department may direct. 

The Exchange believes that deleting 

current Phlx General 3, Section 5 is 

appropriate because the Exchange’s 

current rule contains broad language 

that permits the Membership 

Department to apply the same standard 

that is set forth in proposed General 3, 

Rule 1013(a)(1) to processing 

applications today. Proposed General 3, 

Rule 1013(a)(1) will now be 

incorporated by reference. This rule lists 

in detail all of the supplementary 

application materials required for 

submission by an Applicant. 

Incorporating this provision by 

reference will further standardize the 

Exchange’s membership application 

process. 

Proposed General 3, Rule 1013(a)(2) 

provides that the Membership 

Department will deem an application to 

be filed on the date when it is 

substantially complete, which is 

interpreted to be the date on which the 

Membership Department receives from 

the Applicant all material 

documentation and information 

required under proposed General 3, 

Rule 1013. This rule also provides that 

the Exchange will notify the Applicant 

in writing when it deems the 

Applicant’s application to be 

substantially complete. Phlx does not 

have a comparable rule. 

Proposed General 3, Rule 1013(a)(3) 

provides the procedure concerning 

incomplete applications (including the 

conditions necessary for the refund of 

application fees); and the request for 

additional documents or supporting 

information. Specifically, proposed 

General 3, Rule 1013(a)(3)(A) (‘‘Lapse of 

Applications that are not Substantially 

Complete’’) provides that if an 

application that was initiated under 

proposed Rule 1013 is not deemed to be 

substantially complete by the 

Membership Department within 90 

calendar days after an Applicant 

initiates it, then absent a showing of 

good cause by the Applicant, the 

Membership Department may, at its 

discretion, deem the application to have 

lapsed without filing, and the 

Membership Department will take no 

action in furtherance of the application. 

If the Membership Department deems 

an application to have lapsed, then the 

Membership Department shall serve a 

written notice of that determination on 

the Applicant. If an Applicant still 

wishes to apply for membership on the 

Exchange after receiving notice of a 

lapse in its application, then the 

Applicant will be required to submit a 

new application pursuant to 

Membership Rules and pay a new 

application fee for doing so, if 

applicable. The Membership 

Department will refund fees that an 

Applicant has paid to the Exchange in 

connection with a lapsed application, in 

accordance with Exchange rules 

regarding fees, provided that the 

Exchange has not proceeded to process 

the application at the time it lapses. The 

rule also provides that, for purposes of 

proposed Rule 1013(a)(3)(A), the 

Membership Department will deem an 

application to be not ‘‘substantially 

complete’’ if the Applicant fails to 

submit to the Membership Department 

materially important information or 

documentation that is required or 

requested under these Rules. 

Current Phlx General 3, Rule 5(d) 

provides that absent a showing of good 

cause, an application filed pursuant to 

this Rule shall lapse after a 90 calendar 

day period if an applicant fails to 

provide the requisite documentation 

provided for in this Rule or any 

subsequent written request for 

information or documents. The 

applicant would be required to file a 

new application and pay an additional 

application fee at that time. The 

Exchange will not refund any fees for 

lapsed applications. Current Phlx 

General 3, Rule 5(d) would be replaced 

by proposed General 3, Rule 1013. 

While the rules are substantially similar, 

proposed General 3, Rule 1013(a)(3)(A) 

provides that the Department will 

refund fees that an Applicant has paid 

to the Exchange in connection with a 

lapsed application, in accordance with 

its Rules regarding fees, provided that 

the Exchange has not proceeded to 

process the application at the time it 

lapses. This carve-out for permitting 

refunds would be a new provision as 

Phlx has no such carve-out today. The 

Exchange believes adopting the carveout as specified within proposed 

General 3, Rule 1013(a)(3)(A) and 

otherwise removing current Phlx 

General 3, Rule 5(d) would serve to 

align Phlx’s rules with that of Nasdaq 

and other Affiliated Exchanges. 

Proposed General 3, Rule 

1013(a)(3)(B) (‘‘Rejection of Filed 

Applications that Remain or Become 

Incomplete After Filing’’) provides that 

if an application that was initiated 

under proposed General 3, Rule 1013 is 

substantially complete and thus is 

deemed to be filed with the Exchange 

under proposed General 3, Rule 

1013(a)(2), but the application 

nevertheless remains or becomes 

incomplete with respect to any required 

or requested information or 

documentation, then the Membership 

Department shall serve written notice to 

the Applicant of such incompleteness 

and describe the missing information or 

documentation. If the Applicant fails to 

submit to the Exchange the missing 

information or documentation within a 

reasonable period after it receives a 

notice of incompleteness, then absent a 

showing of good cause by the Applicant, 

the Membership Department may, at its 

discretion, reject the application. If the 

Membership Department rejects an 

application on the basis of 

incompleteness, then the Membership 

Department shall serve a written notice 

on the Applicant of the Membership 

Department’s determination and the 

reasons therefor. The Exchange shall not 

refund the application fees that an 

Applicant has paid to the Exchange in 

connection with an application that the 

Exchange rejects. If the Applicant 

determines to continue to seek 


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43The term ‘‘permit’’ is not necessary in the 

proposed new rules because the Exchange’s 

membership rules govern membership in the same 

manner as the Nasdaq rules. An applicant that is 

approved for membership on Phlx would be 

entitled to the issuance of a permit pursuant to Phlx 

General 3, Section 11, Rights and Privileges of A– 

1 Permits. The Exchange proposes to retain Phlx 

General 3, Section 11 and relocate that rule to new 

Phlx General 2, Section 23, as described within this 

proposal. The concept of a ‘‘permit’’ will continue 

to separately exist within the Phlx rules and would 

continue to be tied to the membership process 

through the definition of a member. See General 1, 

Section 1(16). 

membership on the Exchange, then the 

Applicant shall submit a new 

application and pay a new application 

fee in accordance with the Exchange 

rules. 

Current Phlx General 3, Section 5(c), 

similar to proposed General 3, Rule 

1013, provides that the Membership 

Department shall review and act upon 

the membership application or permit 

application. Proposed General 3, 

Section 1013 would obviate the need for 

current Phlx General 3, Section 5(c). 

Similarly, current Phlx General 3, 

Section 5(b) provides that all 

applications will be reviewed 

preliminarily by the staff of the 

Exchange. Proposed General 3, Rule 

1014(a) implies that an application will 

be reviewed by the Membership 

Department. Further, current Phlx 

General 3, Section 5(b) provides that the 

Exchange shall notify the applicant in 

writing if a membership or permit will 

not be issued.43 The applicant would 

have 15 days from the day of receipt of 

the notice to request a consideration of 

the application by providing a written 

statement setting forth the applicant’s 

opinion as to why the staff 

recommendation is in error or 

insufficient to preclude the issuance of 

a membership or a permit. Further, 

pursuant to Phlx’s current rules under 

General 3, Section 16(a)(i) within 25 

days after service of a decision of an 

adverse action described above, an 

applicant may file a written request for 

review with the Exchange Review 

Council. A request for review shall state 

with specificity why the applicant 

believes that the Department’s decision 

is inconsistent with the bases for denial 

set forth in General 3, Section 2, or 

otherwise should be set aside, and state 

whether a hearing is requested. The 

applicant simultaneously shall file by 

first-class mail a copy of the request 

with the Department. The Exchange 

notes that the rule text within current 

Phlx General 3, Section 16(a)(i) is the 

same as the rule text within Nasdaq 

General 3, Rule 1015(a). This proposal 

would therefore eliminate the first level 

of appeal by the Membership 

Department. Similar to Affiliated 

Exchanges, with the proposed rules, an 

applicant would have the right to 

review before the Exchange Review 

Council. Despite the elimination of the 

first level of review by the Membership 

Department, the Exchange believes the 

review by the Exchange Review Council 

provides an applicant with appropriate 

due process as the review is conducted 

by an independent panel. 

The Exchange plans to replace current 

Phlx General 3, Section 5(d) by 

incorporating by reference Nasdaq 

General 3, Rule 1013(a)(3) which 

provides well-defined processes for the 

treatment of applications that become 

stale or result in the Applicant’s failure 

to pursue membership by not 

responding to requests for additional 

information. 

Proposed General 3, Rule 1013(a)(4) 

(‘‘Requests by the Department for 

Additional Documents or Information 

from the Applicant or from Third 

Parties’’) establishes that (A) at any time 

before the Membership Department 

serves its decision as to an application 

for new membership in the Exchange, 

the Membership Department may serve 

a written request for additional 

information or documentation, from the 

Applicant or from a third party, if the 

Membership Department deems such 

information or documentation to be 

necessary to clarify, verify, or 

supplement the application materials. 

The Membership Department may, at its 

discretion, request that the Applicant or 

the third party provide the requested 

information or documentation in 

writing or through an in-person or 

telephonic interview. In the written 

request, the Membership Department 

shall afford the Applicant or the third 

party a reasonable period of time within 

which to respond to the request; 

moreover, (B) in the event that the 

Membership Department obtains 

information or documentation about an 

Applicant from a third party that the 

Membership Department reasonably 

believes could adversely impact its 

decision on an application, then the 

Membership Department shall promptly 

inform the Applicant in writing and 

provide the Applicant with a 

description of the information or a copy 

of the documentation that the 

Membership Department obtained, 

where appropriate under the 

circumstances. Prior to rendering an 

application decision on the basis of 

information or documentation obtained 

from a third party source, the 

Membership Department shall afford the 

Applicant with a reasonable 

opportunity to discuss or to otherwise 

address the information or 

documentation that the Membership 

Department obtained from the third 

party. 

The provisions under proposed 

General 3, Rule 1013(a)(4) are similar to 

the Exchange’s current practice to the 

extent that the Membership Department 

has made written requests for 

documentation in furtherance of their 

review of the membership applications. 

Proposed General 3, Rule 1013(a)(4) 

specifically provides for the Exchange’s 

authority to request additional 

documents or information from the 

Applicant, or a third party. The 

Exchange believes that incorporating by 

reference proposed Nasdaq Rule 

1013(a)(4) into its membership rules 

will provide a greater degree of detail 

concerning the Exchange’s discretion 

and authority to request additional 

information. 

Proposed General 3, Rule 

1013(b)(1)(A) sets forth the procedure 

that allows an Applicant who is a 

FINRA member to ‘‘waive-in’’ to become 

an Exchange member or member 

organization and to register with the 

Exchange all persons associated with it 

whose registrations FINRA has 

approved (in categories recognized by 

the Exchange’s rules). This section 

defines the term ‘‘waive-in’’ to mean 

that the Membership Department will 

rely substantially upon FINRA’s prior 

determination to approve the Applicant 

for FINRA membership when the 

Membership Department evaluates the 

Applicant for Exchange membership. 

That is, the Membership Department 

will normally permit a FINRA member 

to waive-into Exchange membership 

without conducting an independent 

examination of the Applicant’s 

qualifications for membership on the 

Exchange, provided that the 

Membership Department is not 

otherwise aware of any basis set forth in 

proposed General 3, Rule 1014 to deny 

or condition approval of the application. 

Today, General 3, Section 1(f)(3) permits 

an applicant that is an approved 

member in good standing of Nasdaq or 

BX to apply to become a member of the 

Exchange and to register with the 

Exchange all associated persons of the 

firm whose registrations with the firm 

are approved with Nasdaq or BX in 

categories recognized by the Rules of the 

Exchange through an expedited process. 

The expedited process requires 

applicants to complete an Organization 

Membership Application and attest that 

the application material previously 

provided and reviewed as part of the 

Nasdaq or BX application is complete 

and accurate but does not require the 

applicant to submit duplicative 

documentation which was previously 

produced. By incorporating the Nasdaq 


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General 3 rules, Phlx would be able to 

similarly waive-in a member of any of 

the other Affiliated Exchanges (ISE, 

GEMX or MRX). This would expand 

Phlx’s current ability to offer a waive-in 

application process (similar to Phlx’s 

‘‘expediated process’’) to all Affiliated 

Exchanges, not just members of Nasdaq 

and BX. 

Proposed General 3, Rule 

1013(b)(1)(B) provides that waive-in 

membership that is granted to a FINRA 

member pursuant to this provision shall 

terminate in the event that the 

Applicant ceases to be a FINRA member 

and otherwise fails to comply with Rule 

1002(c). Proposed General 3, Rule 

1013(b)(1)(C) provides that in lieu of 

submitting an application as set forth in 

paragraph (a), an Applicant may waivein to Exchange membership as provided 

in subparagraph (b)(1) by filing with the 

Exchange a waive-in application form 

and an executed Exchange Membership 

Agreement. Proposed General 3, Rule 

1013(b)(1)(D) provides that the 

Membership Department will act upon 

a duly submitted application to waiveinto Exchange membership under 

paragraph (b)(1) by serving upon the 

Applicant a written notification of its 

decision within a reasonable time frame 

not to exceed 20 days of submission of 

the application, unless the Department 

and the Applicant agree that the 

Department may issue its decision at a 

later date. A failure of the Department 

to issue a decision within this time 

frame shall be subject to proposed 

General 3, Rule 1014(c)(3). The 

Department will normally grant a duly 

submitted application to waive-into 

Exchange membership, provided that 

the Applicant submits the required 

materials, the Department verifies that 

the Applicant is a FINRA member, and 

that the Department is not otherwise 

aware of any basis to deny or condition 

approval of the application, as set forth 

in proposed General 3, Rule 1014. A 

decision issued under this provision 

shall have the same effectiveness as set 

forth in proposed General 3, Rule 1014 

and shall be subject to review as set 

forth in proposed General 3, Rules 1015 

and 1016. By incorporating Nasdaq’s 

General 3 Rules by reference, the 

Exchange’s rules would become similar 

to FINRA’s 1000 Series membership 

rules. Therefore, with this proposal, a 

FINRA member would be permitted to 

waive-in with the adoption of General 3, 

Rule 1013 as is the case today for 

Nasdaq and BX and would be the case 

for all other Affiliated Exchanges (ISE, 

GEMX, and MRX) upon adoption of this 

proposal. Today, Phlx’s membership 

rules differ from FINRA’s membership 

rules. 

The second special application 

process, which is set forth in proposed 

General 3, Rule 1013(b)(2)(A), permits 

Applicants for membership that are 

already approved members or member 

organizations of one or more of the 

Affiliated Exchanges to waive-into the 

Exchange. In this context, ‘‘waive-in’’ 

means that the Membership Department 

will rely substantially upon an 

Affiliated Exchange’s prior 

determination to approve the Applicant 

for membership. The procedures in 

proposed General 3, Rule 1013(b)(2) for 

an Applicant to submit a waive-in 

application under this provision and for 

the Membership Department to issue a 

decision based upon such an 

application are identical to the 

procedures described above for FINRA 

members that seek to waive-into the 

Exchange membership. Applicants who 

meet the criteria for this waive-in 

review process have already 

demonstrated their ability to meet 

membership standards on one or more 

of the Affiliated Exchanges which 

eliminates the need for a full review. 

Proposed General 3, Rule 1013(b)(2)(B) 

provides that in lieu of submitting an 

application as set forth in paragraph (a), 

an Applicant may waive-into Exchange 

membership as provided in 

subparagraph (b)(2) by filing with the 

Department a waive-in application form. 

As part of this form, the Applicant must 

attest to the fact that it has made no 

unapproved material changes to its 

broker-dealer business subsequent to its 

approval as a member of an affiliated 

exchange. Finally, proposed General 3, 

Rule 1013(b)(2)(C) provides that the 

Department will act upon a duly 

submitted application to waive-into 

Exchange membership under paragraph 

(b)(2) by serving upon the Applicant a 

written notification of its decision 

within a reasonable time frame not to 

exceed 20 days of submission of the 

application, unless the Department and 

the Applicant agree that the Department 

may issue its decision at a later date. A 

failure of the Department to issue a 

decision within this time frame shall be 

subject to General 3, Rule 1014(c)(3). 

The Department will normally grant a 

duly submitted application to waiveinto Exchange membership, provided 

that the Applicant submits the required 

materials, the Department verifies that 

the Applicant is a member of an 

exchange affiliated with the Exchange, 

and that the Department is not 

otherwise aware of any basis to deny or 

condition approval of the application, as 

set forth in General 3, Rule 1014. A 

decision issued under this provision 

shall have the same effectiveness as set 

forth in General 3, Rule 1014 and shall 

be subject to review as set forth in 

General 3, Rules 1015 and 1016. As 

noted above, an applicant that is an 

approved member in good standing of 

Nasdaq or BX to apply may become a 

member of the Exchange and register 

with the Exchange all associated 

persons of the firm whose registrations 

with the firm are approved with Nasdaq 

or BX in categories recognized by the 

Rules of the Exchange through an 

expedited process. The process to 

approve members in good standing of 

Nasdaq and BX that is described in 

current Phlx General 3, Section 1(f)(3) is 

not detailed. Proposed General 3, Rule 

1013(b)(2) will provide Phlx a more 

detailed process to continue to allow it 

to accept members of Nasdaq and BX 

and also permit it to accept members of 

other Affiliated Exchanges similar to the 

process that occurs today on Nasdaq 

and other Affiliated Exchanges with 

respect to Phlx members and member 

organizations. 

Nasdaq General 3, Rule 1013(b) 

(‘‘Special Application Procedures’’) was 

adopted by Nasdaq to expedite the 

membership application process of 

Applicants who were already members 

of FINRA or members of one of the 

Affiliated Exchanges. The Exchange 

proposes to adopt by incorporation 

these same provisions to facilitate 

Applicants who meet the rule 

requirements. The adoption of this rule 

will offer members of FINRA, Nasdaq, 

and other Affiliated Exchanges the 

option to apply for membership on the 

Exchange through an expedited 

membership application process. 

As noted above, current Phlx General 

3, Section 1(f)(3) permits an applicant 

that is an approved member in good 

standing of Nasdaq or Nasdaq BX, Inc. 

to have the option to apply to become 

a member of Phlx through an expedited 

process. The adoption of proposed 

General 3, Rule 1013(b) would expand 

the scope of markets by which an 

applicant could utilize an expedited 

process. The Exchange believes that 

incorporating by reference the waive-in 

provisions within proposed General 3, 

Rule 1013(b) will further the Exchange’s 

objective to provide uniformity and 

clarity to its rules by aligning its 

membership application process with 

Nasdaq and other Affiliated Exchanges. 

Proposed General 3, Rule 1014 

(Department Decision) 

Proposed General 3, Rule 1014 

(‘‘Department Decision’’) describes the 

Membership Department’s process for 

the issuance of a decision. The 


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Exchange proposes to incorporate by 

reference proposed General 3, Rule 1014 

in its entirety as it provides a more 

organized, detailed, and logical 

description of the procedure currently 

described in current Phlx General 3, 

Sections 2 and 5. Incorporating 

proposed General 3, Rule 1014 by 

reference in the Exchange’s rules will 

improve the membership application 

and decision making process by better 

defining the Membership Department’s 

authority and obligations, describing the 

basis for approval, conditional approval 

or denial of an application. Further, the 

Exchange believes that this proposed 

change provides consistency in the 

treatment of Exchange Applicants. 

Proposed General 3, Rule 1014(a) 

describes the Membership Department’s 

authority to act on an application by 

approving it, denying it, or approving it 

subject to restrictions: (1) that are 

reasonably designed to address a 

specific (financial, operational, 

supervisory, disciplinary, investor 

protection, or other regulatory) concern; 

or (2) that mirror a restriction placed 

upon the Applicant by FINRA or an 

Affiliated Exchange. 

Proposed General 3, Rule 1014(b), 

entitled ‘‘Bases for Approval, 

Conditional Approval, or Denial,’’ 

provides that the Membership 

Department will approve, grant 

conditional approval, or deny a 

membership application filed under 

proposed General 3, Rules 1013 and 

1017 by an Applicant that is not, and is 

not required to become, a FINRA 

member. Proposed General 3, Rule 

1014(b)(1) indicates that the 

Membership Department may deny or 

condition membership approval for the 

same reasons that the Commission may 

deny or revoke a broker or dealer’s 

registration; this Rule parallels current 

Phlx General 3, Section 2(a) and (b), 

which describes the Exchange’s 

authority to deny an application for the 

same reasons that the SEC may deny or 

revoke a broker-dealer registration and 

for those reasons required or allowed 

under the Act. 

Proposed General 3, Rule 1014(b)(2) 

enumerates the reasons for denial or 

conditional approval of a membership 

application in the cases when the 

Applicant (A) is unable to satisfactorily 

demonstrate its capacity to adhere to the 

Exchange and Commission rules; (B) has 

previously violated, and there is a 

reasonable likelihood that such 

Applicant will again engage in violative 

acts or practices, of any Exchange or 

Commission policies, rules, and 

regulations; (C) has engaged in acts or 

practices inconsistent with just and 

equitable principles of trade, and there 

is a reasonable likelihood that such 

Applicant will again engage in violative 

acts or practices, of any Exchange or 

Commission policies, rules, and 

regulations; (D) is not in compliance 

with the Commission’s net capital rule 

or has financial difficulties greater than 

5% of their net worth; (E) has been 

itself, or is the successor to an entity 

subject to a bankruptcy, proceeding, 

receivership, or arrangement for the 

benefit of creditors within the past 3 

years; (F) has engaged in an established 

pattern of failure to pay just debts; (G) 

does not hold required licenses or 

registrations; or (H) is unable to 

satisfactorily demonstrate reasonably 

adequate systems capacity and 

capability. 

The Exchange notes that the basis for 

denial listed under current Phlx General 

3, Section 2, includes statutory 

disqualification at Section 2(a), 

violations of Section 15 and 17 of the 

Act and books and records violations at 

Section 2(b), and the following list of 

reasons under Section 2(c): (i) failure to 

complete proficiency examinations or 

meet other standards of competence; 

and (ii) failure to adhere to applicable 

policies, rules and regulations of the 

Exchange or any other self-regulatory 

organization, the SEC, the Board of 

Governors of the Federal Reserve 

System and the contract market 

designated pursuant to Section 5 of the 

Commodity Exchange Act or futures 

association registered under Section 17 

of such Act; (iii) unsatisfied liens, 

judgments or unsubordinated creditor 

claims of a material nature, which 

remain outstanding; subject to any 

bankruptcy proceeding, receivership or 

arrangement within three years; 

associated as a general partner, 

principal, officer, director, stockholder, 

or registered trader for a member 

organization which has been subject to 

any unsatisfied liens, judgments or 

unsubordinated creditor claims of a 

material nature; (iv) engaged in a pattern 

of failure to pay just debts; and (v) 

generally, for such other cause as the 

Membership Department reasonably 

may decide. 

The Exchange believes that the 

provisions under proposed General 3, 

Rule 1014(b)(2) are very similar to the 

Exchange’s current provisions for 

denial. While Phlx does not currently 

have specific provisions for net capital 

or adequate systems capacity and 

capability, it currently does have a 

catch-all provision within current Phlx 

General 3, Section 2(c) that would allow 

the Exchange to deny membership for 

those reasons. 

The Exchange notes that current Phlx 

General 3, Section 2(a), which refers to 

the basis for membership denial as it 

relates to statutory disqualification, is 

substantially similar to proposed 

General 3, Rule 1002(b)(1) and (2), 

which describe an Applicant’s 

ineligibility for membership or 

association due to statutory 

disqualification. As stated above, the 

Exchange proposes to incorporate 

proposed General 3, Rule 1002 in its 

entirety. 

Proposed General 3, Rule 1014(b)(3) 

provides that the Membership 

Department will not approve an 

Applicant unless the Applicant is a 

member of another registered securities 

exchange or association that is not 

registered solely under Section 6(g) or 

Section 15A(k) of the Act. As noted 

herein, the Exchange acts in the 

capacity of a DEA and, therefore, 

applicants for membership may register 

to have Phlx as their DEA. As such, a 

member or member organization that 

registers with Phlx as its DEA may meet 

the requirement of proposed General 3, 

Rule 1014(b)(3) without the need to be 

a member of another registered 

securities exchange or association. 

Further, because Phlx is distinct from 

Nasdaq with respect to its DEA capacity, 

the Exchange proposes to add rule text 

which provides for this distinction 

within General 3. Proposed General 3, 

Rule 1014(b)(3) also provides that an 

Applicant that will transact business 

with the public must be a member of 

FINRA. While Phlx’s rules currently do 

not indicate that an Applicant that 

transacts business with the public must 

be a member of FINRA, this is the case 

today. Proposed General 3, Rule 

1014(b)(3) will make clear that an 

Applicant must also be a member of 

FINRA if an Applicant transacts 

business with the public. 

The Exchange proposes to incorporate 

by reference proposed General 3, Rule 

1014(c) to establish the time and content 

of a decision and the recourse available 

to an Applicant if the Membership 

Department fails to timely issue a 

decision on a membership application. 

Current Phlx General 3, Section 5(c), 

broadly states that the Membership 

Department shall review and act upon 

the membership application or permit. 

Proposed General 3, Rule 1014(c) 

outlines this process in greater detail. 

Proposed General 3, Rule 1014(c)(1) 

requires the Membership Department to 

serve a decision on the membership 

application within a reasonable time 

period, not to exceed 45 (calendar) days 

after the Applicant files and provides to 

the Exchange all required and requested 

information or documents in connection 

with the application. Additionally, the 

rule allows the Membership Department 


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and the Applicant the ability to agree to 

further extensions of the decision 

deadlines. Phlx has no comparable rule. 

Proposed General 3, Rule 1014(c)(2) also 

provides that the decision will detail the 

reason(s) for the denial of membership 

or the approval of the application 

subject to restrictions. This provision is 

similar to current Phlx General 3, 

Section 5(b), which provides that if 

Exchange staff recommends that the 

applicant not be issued a membership or 

a permit the applicant shall be notified 

in writing of the reasons therefor. 

Moreover, proposed General 3, Rule 

1014(c)(3) provides that if the 

Membership Department fails to timely 

serve a decision, the rule prescribes that 

the Applicant may request the Exchange 

Board to direct the Membership 

Department to serve a decision. The rule 

further provides that the Exchange 

Board, within seven days, will direct the 

Membership Department to serve its 

decision or to show good cause for a 

time extension. If the Membership 

Department shows good cause, the 

Exchange Board may grant the 

Membership Department up to 45 days 

to issue the decision. Phlx has no 

comparable rule. 

Proposed General 3, Rule 1014(e) 

prescribes that service of the 

Membership Department’s decision 

shall be made pursuant to proposed 

General 3, Rule 1012. Further, the rule 

provides that the decision shall become 

effective upon service and shall remain 

in effect during the pendency of any 

review until a decision constituting 

final action of the Exchange is issued 

under proposed General 3, Rules 1015 

or 1016, unless otherwise directed by 

the Exchange Review Council, the 

Exchange Board, or the Commission. 

Current Phlx General 3, Section 5(b) 

prescribes that a notice of the 

Exchange’s decision shall be provided 

to the Applicant if the staff recommends 

not to issue a membership or a permit 

but is silent on providing a decision to 

approve membership. The Exchange 

believes that incorporating this rule by 

reference clarifies the process for 

serving the Membership Department’s 

decision on applications. 

Proposed General 3 Rules 1014(f) and 

(g), respectively, provide for the 

effectiveness of restrictions on an 

approved application and what 

constitutes final action in the 

Membership Department’s decision. 

Proposed General 3, Rule 1014(f) 

establishes that a restriction imposed 

under proposed General 3, Rule 1014 

shall remain in effect and bind the 

Applicant and all successors to the 

ownership or control of the Applicant 

unless (1) it is removed or modified by 

a decision constituting final action of 

the Exchange issued under proposed 

General 3, Rules 1015, 1016, or 1017; or 

(2) stayed by the Exchange Review 

Council, the Exchange Board, or the 

Commission. Proposed General 3, Rule 

1014(g) provides that unless the 

Applicant files a written request for a 

review under proposed General 3, Rule 

1015, the Membership Department’s 

decision shall constitute final action by 

the Exchange. Phlx has no comparable 

rule. 

Proposed General 3, Rule 1015 (Review 

by Exchange Review Counsel) 

The Exchange proposes to incorporate 

by reference Nasdaq General 3 Rule 

1015 in its entirety under its General 3 

title. Proposed General 3, Rule 1015, 

subsections (a) through (j) are 

substantially similar to the current 

provisions concerning a review by the 

Exchange Review Council detailed in 

current Phlx General 3, Section 16(a). 

Phlx will no longer retain the 

introductory sentence within current 

Phlx General 3, Section 16 which 

provides, ‘‘If the Membership 

Department takes an adverse action with 

respect to a membership application, 

permit application, or other matter for 

which the Membership Department has 

responsibility, the department will 

notify the applicant in writing of the 

specific grounds for denial and the 

applicant shall have a right to a 

hearing.’’ This rule text is covered 

within proposed General 3, Rule 1014(g) 

and 1015. 

The Exchange proposes to incorporate 

by reference Nasdaq General 3, Rules 

1015(k) and (l) (respectively, ‘‘Ex Parte 

Communications’’ and ‘‘Recusal or 

Disqualification’’). Proposed General 3, 

Rule 1015(k) prohibits ex parte 

communications involving membership 

decisions subject to review between an 

Applicant, a counsel or representative of 

an Applicant, or an Interested Staff and 

certain Exchange staff, members of the 

Exchange Review Council, members of 

a Subcommittee of the Council, and 

Directors, unless notice was provided 

along with an opportunity for an 

Applicant and Interested Staff to 

participate. Further, pursuant to General 

3, Rule 1015(k)(3), in the instance that 

a Director, a member of the Exchange 

Review Council or a Subcommittee, or 

an Exchange employee participating or 

advising in the decision of such a 

person, who receives, makes, or 

knowingly causes to be made a 

communication prohibited by this 

paragraph shall place in the record of 

the membership proceeding all written 

communications, memoranda stating 

the substance of all such oral 

communications, and all written 

responses and memoranda stating the 

substance of all oral responses to all 

such communications. Proposed 

General 3, Rule 1015(l) governs the 

recusal and disqualification of a 

member of the Exchange Review 

Council, a Subcommittee thereof, or a 

Director from participating in a review 

of a membership decision, where that 

person has a conflict of interest or bias, 

or if circumstances otherwise exist 

where his or her fairness might 

reasonably be questioned. The Exchange 

has no parallel provisions in its 

rulebook to proposed General 3, Rules 

1015(k) and (l). The Exchange believes 

that incorporating proposed General 3, 

Rules 1015(k) and (l) by reference 

enhances the Exchange Review 

Council’s procedures and is in line with 

the Exchange’s goal of harmonizing its 

rules with those of the Nasdaq and other 

Affiliated Exchanges. 

Proposed General 3, Rule 1016 

(Discretionary Review by the Exchange 

Board) 

Aside from their respective internal 

cross-references, the text in proposed 

General 3, Rule 1016 and current Phlx 

General 3, Section 16(b) (both entitled 

‘‘Discretionary Review by the Exchange 

Board’’) are identical. The Exchange 

proposes to incorporate by reference 

Nasdaq General 3, Rule 1016 under its 

General 3 title. The Exchange believes 

that incorporating by reference this rule 

will further the Exchange’s objective to 

provide uniformity and clarity to its 

rules by aligning them with the 

membership rules of the Nasdaq and 

other Affiliated Exchanges. 

Proposed General 3, Rule 1017 

(Application for Approval of Change in 

Ownership, Control, or Material 

Business Operations) 

Proposed General 3, Rule 1017, 

‘‘Application for Approval of Change in 

Ownership, Control, or Material 

Business Operations,’’ has no analogue 

rule in the current Phlx General 3 title, 

other than current Phlx General 3, 

Section 1(f)(2) which discussed PSX 

Participants who commence market 

making. Incorporating Nasdaq General 

3, Rule 1017 by reference in its entirety 

in the Exchange’s rules will enhance the 

Exchange’s ongoing regulatory oversight 

capabilities by clearly identifying events 

that would trigger the requirement for 

an approved member or member 

organization to file an application with 

the Exchange. As stated below, 

proposed General 3, Rule 1017 outlines 

in detail the circumstances that trigger 

the filing of an application pursuant to 

this rule. While the Exchange has no 


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44See Phlx General 3, Section 1(f)(2). 

corresponding rule, it does have a 

similar process in place that it 

administers procedurally. For example, 

if an existing member organization of 

the Exchange is seeking Market Maker 

status for the first time, the current 

Exchange process is to require that the 

member organization submit an 

amended Exchange application along 

with relevant supplementary material.44

The Exchange believes that 

incorporating proposed General 3, Rule 

1017 by reference further harmonizes its 

process with that of Nasdaq and other 

Affiliated Exchanges and improves its 

current practice. As stated previously, 

the objective is to eventually harmonize 

membership rules across all Affiliated 

Exchanges in order to advance 

uniformity within the membership rules 

and procedures. 

Proposed General 3, Rule 1017(a) 

prescribes the events that require 

member organizations to file 

applications with the Exchange. 

Paragraph (a) provides that a member 

organization shall file an application for 

approval prior to effecting the following 

changes: (1) a merger of the member 

organization with another member 

organization; (2) a direct or indirect 

acquisition by the member organization 

of another member organization; (3) 

direct or indirect acquisitions or 

transfers of 25% or more in the 

aggregate of the member organization’s 

assets or any asset, business line or line 

of operations that generates revenues 

comprising 25% or more in the 

aggregate of the member organization’s 

earnings measured on a rolling 36 

month basis; (4) a change in the equity 

ownership or partnership capital of the 

member organization that results in one 

person or entity directly or indirectly 

owning or controlling 25% or more of 

the equity or partnership capital; or (5) 

a material change in business 

operations, which includes, but is not 

limited to, (A) removing or modifying a 

membership restriction; (B) acting as a 

dealer or a market maker for the first 

time; (C) adding business activities that 

require a higher minimum net capital 

under SEC Rule 15c3–1; or (D) adding 

business activities that would cause a 

proprietary trading firm no longer to 

meet the definition of that term 

contained in the proposed Rule 1000 

Series. 

Proposed General 3, Rule 1017(b), 

governs the filing and content of 

applications filed under proposed 

General 3, Rule 1017. This Rule 

provides that the application shall be 

filed with the Membership Department; 

if the Applicant seeks approval of 

change of ownership or control or a 

material change in the member 

organization’s business operations, the 

application shall (A) provide a detailed 

description of the proposed change, (B) 

provide a business plan, pro forma 

financials, an organizational chart, and 

written supervisory procedures 

reflecting the proposed change; and (C) 

if the application requests approval of a 

change in ownership or control, the 

application also shall include the names 

of the new owners, their percentage of 

ownership, and the sources of their 

funding for the purchase and 

recapitalization of the member 

organization. 

Furthermore, proposed General 3, 

Rule 1017(b) provides that if the 

application requests the removal or 

modification of a membership 

restriction, the application also shall, 

(A) present facts showing that the 

circumstances that gave rise to the 

restriction have changed; and (B) state 

with specificity why the restriction 

should be modified or removed in light 

of the applicable bases for denial or 

standards for approval set forth in 

proposed General 3, Rules 1014 or 1017 

and the articulated rationale for the 

imposition of the restriction. Moreover, 

the Rule indicates that if the application 

requests approval of an increase in 

Associated Persons involved in sales, 

offices, or markets made, the application 

shall set forth the increases in such 

areas during the preceding 12 months. 

Proposed General 3, Rule 1017(c) 

indicates when an application shall or 

may be filed. Specifically, the Rule 

provides that (1) an application for 

approval of a change in ownership or 

control shall be filed at least 30 days 

prior to such change; (2) that an 

application to remove or modify a 

membership restriction may be filed at 

any time (clarifying that an existing 

restriction shall remain in effect during 

the pendency of the proceeding); and 

that (3) an application for approval of a 

material change in business operations, 

other than the modification or removal 

of a restriction, may be filed at any time, 

but the member organization may not 

effect such change until the conclusion 

of the proceeding, unless the 

Membership Department and the 

member organization otherwise agree. 

Proposed General 3, Rule 1017(d) 

prescribes that an application will be 

deemed to be filed on the date when it 

is substantially complete, meaning the 

date on which the Membership 

Department receives from the Applicant 

all material documentation and 

information required under this Rule, 

and that the Membership Department 

will notify the Applicant in writing 

when the Membership Department 

deems the Applicant’s application to be 

substantially complete. 

Proposed General 3, Rule 1017(e) 

indicates that, pursuant to proposed 

General 3, Rule 1013(a)(3), the 

Membership Department may treat an 

application filed under this Rule as 

having lapsed or it may reject such an 

application, except that the Membership 

Department may treat an application as 

having lapsed if it is not substantially 

complete for 30 days or more after the 

Applicant initiates it. 

Proposed General 3, Rule 1017(f) 

provides that the Membership 

Department, at any time before it serves 

its decision, may request additional 

information or documentation from the 

Applicant or from a third party in 

accordance with proposed General 3, 

Rule 1013(a)(4). 

Proposed General 3, Rule 1017(g) 

establishes that a Membership 

Department’s decision shall be issued in 

accordance with proposed General 3, 

Rule 1014, except that (1) In rendering 

a decision on an application submitted 

under the Rule that requests the 

modification or removal of a 

membership restriction, the 

Membership Department shall consider 

whether maintenance of the restriction 

is appropriate in light of: (A) the 

applicable bases for denial or standards 

for approval set forth in proposed 

General 3, Rule 1014; (B) the 

circumstances that gave rise to the 

imposition of the restriction; (C) the 

Applicant’s operations since the 

restriction was imposed; (D) any change 

in ownership or control or supervisors 

and principals; and (E) any new 

evidence submitted in connection with 

the application. Furthermore, this Rule 

provides that the Membership 

Department shall serve a written 

decision on an application filed under 

this Rule in accordance with proposed 

General 3, Rule 1013(c). Moreover, the 

Rule provides that in the event that a 

proposed change in ownership, control, 

or business operations by a member 

organization requires such member 

organization to become a member of 

FINRA, the Membership Department 

shall not be required to serve a written 

decision under this Rule until 10 

business days after the member 

organization becomes a FINRA member. 

Proposed General 3, Rule 1017(h) 

provides that service of the decision on 

the Applicant shall be made in 

accordance with proposed General 3, 

Rule 1012. Moreover, the Rule indicates 

that the decision shall become effective 

upon service and shall remain in effect 

during the pendency of any review until 

a decision constituting final action of 


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the Exchange is issued under proposed 

General 3, Rules 1015 or 1016, unless 

otherwise directed by the Exchange 

Review Council, the Exchange Board, or 

the Commission. 

Proposed General 3, Rule 1017(i) 

indicates that an Applicant may file a 

written request for review of the 

Membership Department’s decision 

with the Exchange Review Council 

pursuant to proposed General 3, Rule 

1015. The rule further clarifies that the 

procedures set forth in proposed 

General 3, Rule 1015 shall apply to such 

review, and the Exchange Review 

Council’s decision shall be subject to 

discretionary review by the Exchange 

Board pursuant to proposed General 3, 

Rule 1016. If the Applicant does not file 

a request for a review, the Membership 

Department’s decision shall constitute 

final action by the Exchange. 

Proposed General 3, Rule 1017(j) 

prescribes that the Membership 

Department shall modify or remove a 

restriction on its own initiative if the 

Membership Department determines 

such action is appropriate in light of the 

considerations set forth in paragraph 

(g)(1) of the Rule. The Membership 

Department shall notify the member in 

writing of the Membership Department’s 

determination and inform the member 

that it may apply for further 

modification or removal of a restriction 

by filing an application under proposed 

General 3, Rule 1017(a). 

Proposed General 3, Rule 1018 

(Resignation, Reinstatement, 

Termination, and Transfer of 

Membership) 

Proposed General 3, Rule 1018, 

‘‘Resignation, Reinstatement, 

Termination, and Transfer of 

Membership,’’ has no analogue rule in 

the Exchange’s current General 3 title. 

The Exchange proposes to incorporate 

the rule by reference under its General 

3 title. Proposed General 3, Rule 1018 

outlines the process for resignation, 

reinstatement, termination, and 

transfers of memberships. Incorporating 

Nasdaq General 3, Rule 1018 by 

reference will eventually allow the 

Exchange to standardize the processing 

of these requests across all the Affiliated 

Exchanges. 

Proposed General 3, Rule 1018(a) 

provides that membership may be 

voluntarily terminated only by formal 

resignation. Resignations of members 

and member organizations must be filed 

via electronic process or such other 

process as the Exchange may prescribe. 

Any member or member organization 

may resign from the Exchange at any 

time. Such resignation shall not take 

effect until all indebtedness due to the 

Exchange from such member or member 

organization shall have been paid in full 

and so long as any complaint or action 

is pending against the member or 

member organization under the Rules. 

The Exchange, however, may in its 

discretion declare a resignation effective 

at any time. 

Proposed General 3, Rule 1018(b) 

indicates that no member organization 

may transfer its membership or any 

right arising therefrom; the membership 

of a corporation, partnership, or any 

other business organization that is a 

member organization shall terminate 

upon its liquidation, dissolution, or 

winding up; and the membership of a 

sole proprietorship that is a member 

organization shall terminate at death, 

provided that all obligations of 

membership under the Rules have been 

fulfilled. Moreover, the Rule provides 

that the consolidation, reorganization, 

merger, change of name, or similar 

change in any corporate member 

organization shall not terminate the 

membership of such corporate member 

organization, provided that the 

Exchange member organization or 

surviving corporation, if any, shall be 

deemed a successor to the business of 

the corporate member organization, and 

the member organization or the 

surviving organization shall continue in 

the securities business, and shall 

possess the qualifications for 

membership in the Exchange. 

Furthermore, the death, change of name, 

withdrawal of any partner, the addition 

of any new partner, reorganization, 

consolidation, or any change in the legal 

structure of a partnership member 

organization shall not terminate the 

membership of such partnership 

member organization, provided that the 

member organization or surviving 

organization, if any, shall be deemed a 

successor to the business of the 

partnership member organization, and 

the member organization or surviving 

organization shall possess the 

qualifications for membership in the 

Exchange. If the business of any 

predecessor member organization is to 

be carried on by an organization deemed 

to be a successor organization by the 

Exchange, the membership of such 

predecessor member organization shall 

be extended to the successor 

organization subject to the notice and 

application requirements of the Rules 

and the right of the Exchange to place 

restrictions on the successor 

organization pursuant to the Rules; 

otherwise, any surviving organization 

shall be required to satisfy all of the 

membership application requirements 

of the Exchange’s Rules. 

Proposed General 3, Rule 1018(c) 

establishes that any membership or 

registration suspended or canceled 

under the Rules may be reinstated by 

the Exchange upon such terms and 

conditions as are permitted under the 

Act and the Exchange rules; provided, 

however, that any applicant for 

reinstatement of membership or 

registration shall possess the 

qualifications required for membership 

or registration in the Exchange. 

Proposed General 3, Rule 1019 

(Application to Commission for Review) 

Proposed General 3, Rule 1019 

(‘‘Application to Commission for 

Review’’) has no analogue rule in the 

Exchange’s current General 3 title. 

Proposed General 3, Rule 1019 allows 

an aggrieved person to request the 

Commission to review an Exchange 

final action under the proposed General 

3, Rule 1010 Series. Incorporating 

proposed General 3, Rule 1019 by 

reference standardizes the process by 

which an Applicant may dispute any 

final action of the Exchange. 

Proposed General 3, Rule 1019 

provides that a person aggrieved by the 

Exchange’s final action under 

Membership Rules may apply for review 

by the Commission pursuant to Section 

19(d)(2) of the Act. The filing of an 

application for review shall not stay the 

effectiveness of a decision constituting 

final action of the Exchange, unless the 

Commission otherwise orders. 

Proposed General 3, Rule 1030 (Member 

Access to the Exchange) 

Current Phlx General 3, Rule 1030 is 

identical to proposed General 3, Rule 

1030. The Exchange intends to 

incorporate Nasdaq General 3, Rule 

1030 in order to continue to harmonize 

Phlx’s membership rules with Nasdaq 

and other Affiliated Exchanges. 

Current Phlx General 3, Section 7, 

Registration 

Current Phlx General 3, Section 7, 

Registration, is proposed to be deleted 

in part and relocated in part. 

Current Phlx General 3, Section 7(a) 

provides that each member and member 

organization shall register with the 

Membership Department an address 

where notices may be served. 

Subsequent changes in address must be 

provided to the Membership 

Department of the Exchange before the 

effective date thereof. This provision is 

no longer necessary as the Membership 

Department has access to Web CRD and 

monitors for member organization 

address changes which are available to 

the Exchange through Web CRD. All 

Phlx members and member 


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45See Nasdaq General 4, Rule 1210. Phlx’s 

General 4 rules incorporate by reference Nasdaq’s 

General 4 rules. 

46 Id. 

47See Phlx General 3, Section 7(c)(2). 

organizations are required to register 

within Web CRD to fulfill their General 

4 registration requirements.45

Current Phlx General 3, Section 7(b) 

provides that each member and member 

organization shall register with the 

Exchange, on such form or forms as may 

from time to time be required by the 

Membership Department. Registration 

forms shall include, but not be limited 

to, (i) the name and address of the 

individual member having qualified 

such member organization in 

accordance with General 3, Section 1 

and (ii) the name and address of the 

Executive Representative designated by 

such member organization in 

accordance with General 3, Section 

13(b). Finally, members and member 

organizations must use Web CRD to 

submit Form U4, Uniform Application 

for Securities Industry Registration or 

Transfer registration filings. Members 

and member organizations shall amend 

Form U4 filings not later than thirty (30) 

days after the filer knew or should have 

known of the facts which gave rise to 

the amendment. The Exchange proposes 

to delete current Phlx General 3, Section 

7(b) as proposed General 3, Rule 1013 

describes the content of an application 

that would be required to seek 

membership with the Exchange. Also, 

Phlx General 4 describes the manner in 

which members and member 

organizations must be registered and 

utilize Form U–4 and Web CRD.46

Current Phlx General 3, Section 7(c) 

provides that each member organization 

applicant that is a registered broker or 

dealer pursuant to Section 15 of the Act 

must use Web CRD to submit a Uniform 

Application for Broker-Dealer 

Registration, Form BD. Member 

organizations shall amend Form BD 

filings not later than thirty (30) days 

after the filer knew or should have 

known of the facts which gave rise to 

the amendment.47 The Exchange 

proposes to delete this rule text as 

Nasdaq General 3, Rule 1013(a)(1)(A) 

requires an applicant to provide a copy 

of the Form BD and all broker-dealers 

are required to amend their Form BD or 

Uniform Application for Broker-Dealer 

Registration. Pursuant to Article IV, 

Section 1(c) of the FINRA By-Laws, a 

broker-dealer is required to promptly 

update Form BD information by 

submitting amendments whenever the 

information on file becomes inaccurate 

or incomplete for any reason. Finally, 

Section 15 of the Act requires brokerdealers to use Web CRD to submit a 

Form BD and to amend Form BD filings 

not later than thirty days after the filer 

knew or should have known of the facts 

which gave rise to the amendment. 

Current Phlx General 3, Section 7(d) 

is being relocated to General 2, Section 

11 which is proposed to be titled 

‘‘Contact Information Requirements.’’ 

The Exchange proposes to remove the 

sentence which provides, ‘‘In addition 

to the requirements of paragraph (a) 

above, each member organization must 

comply with the contact information 

requirements of this paragraph (d)’’ and 

re-letter the rule. This sentence is no 

longer necessary given the relocation of 

this rule. Nasdaq has the same rule 

within General 2, Section 11 of its rules. 

Current Phlx General 3, Section 8, 

Status Verification 

The Exchange proposes to delete 

current Phlx General 3, Section 8, Status 

Verification. This rule provides that 

upon the request of any member or 

member organization, the Membership 

Department of the Exchange shall 

provide such member or member 

organization (as applicable) with 

reasonable written verification of its 

status as a member or member 

organization. No member or member 

organization has requested verification 

in recent history. This rule is obsolete 

and unnecessary. No other Affiliated 

Exchanges have a similar provision. If 

requested, the Exchange would provide 

such verification as a courtesy. 

Current Phlx General 3, Section 9, 

Administration of Rules by Membership 

Department 

The Exchange proposes to delete 

current Phlx General 3, Section 9, 

Administration of Rules by Membership 

Department. This rule, which simply 

states that the Membership Department 

shall administer General 3, is 

unnecessary. No other Affiliated 

Exchanges have a similar provision. 

Current Phlx General 3, Section 10, 

General Powers and Duties of 

Membership Department 

The Exchange proposes to delete 

current Phlx General 3, Section 10, 

General Powers and Duties of 

Membership Department. 

Current Phlx General 3, Section 10(a) 

indicates that the Membership 

Department shall have jurisdiction over 

the issuance of memberships (in respect 

of members and member organizations) 

and permits and over applications by 

nonmembers for admission as members. 

The Membership Department shall also 

have jurisdiction over the revocation of 

memberships and permits. All 

applications for a membership or a 

permit, all applications by non-members 

for admission as members, all 

applications for reinstatement of any 

membership or permit suspended for 

insolvency of its holder, and any 

application for readmission of a person 

who has been expelled from the 

Exchange shall be referred to the 

Membership Department for review and 

action. Proposed General 3, Rule 1013 

makes clear that the Membership 

Department handles memberships. 

Proposed General 3, Rule 1018 describes 

the resignation, reinstatement, 

termination, and transfer of 

memberships. The Exchange proposes 

to delete current Phlx General 3, Section 

10(a) in light of the proposed rules. No 

other Affiliated Exchanges have a 

similar provision. 

Current Phlx General 3, Section 10(b) 

provides that all applications to qualify 

and register a corporation or other entity 

as a member organization and all 

applications for reinstatement of any 

qualification or registration of a member 

organization shall be referred to the 

Membership Department which shall 

investigate and act thereon. The 

Membership Department shall have 

supervision over member corporation 

(and similar) arrangements, and copies 

of the articles of incorporation, by-laws 

and all amendments thereto shall be 

filed with the Membership Department 

for approval. Proposed General 3, Rule 

1013 makes clear that all applications 

for membership are handled by the 

Membership Department, which would 

include a corporation’s request for 

membership. The Exchange proposes to 

delete this rule as proposed General 3, 

Rule 1013 would govern. Additionally, 

today, the Membership Department does 

not collect articles of incorporation, bylaws and all amendments to those 

documents on an on-going basis beyond 

a request from the Membership 

Department associated with the 

application to become a member. Any 

arrangements that a corporation may 

have in terms of ‘‘events’’ would be 

handled by the Membership Department 

pursuant to proposed General 3, Rule 

1017(a). No other Affiliated Exchanges 

have a similar provision. 

Current Phlx General 3, Section 10(c) 

provides for a situation where a member 

organization’s only officer who was a 

member of the Exchange dies or resigns 

and the remaining officers may request 

the Membership Department to permit 

the corporation to have the status of a 

member organization for such period, 

not exceeding sixty (60) days from the 

date of such death or resignation. The 

Membership Department in its 

discretion may, at any time during such 


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41830 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 

48 15 U.S.C. 78f(b). 

49 15 U.S.C. 78f(b)(5). 

period, withdraw such permission and 

upon such withdrawal such status shall 

terminate. The Exchange notes that such 

a request has never been made to the 

Membership Department in recent 

history and the Exchange believes that 

such discretion is not necessary. No 

other Affiliated Exchanges have a 

similar provision. 

Current Phlx General 3, Section 11, 

Rights and Privileges of A–1 Permits 

Current Phlx General 3, Section 11, 

Rights and Privileges of A–1 Permits, is 

proposed to be relocated to new General 

2, Section 23, with one change within 

subparagraph (c)(ii) to update a rule 

citation from General 3, Section 13(a) to 

General 3, Rule 1002(a). The rule would 

retain the current title. 

Current Phlx General 3, Section 12, 

Member and Member Organization 

Participation 

Current Phlx General 3, Section 12, 

Member and Member Organization 

Participation, is being relocated into 

Equity 2, Section 3, which is currently 

reserved, and Options 2, Section 2, 

which is currently reserved. The rules 

would retain the same title. The 

Exchange proposes to amend proposed 

Equity 2, Section 3(a)(3) to remove 

references to FBMS, which is related to 

options, and the collective definition of 

‘‘System’’. The rule is otherwise being 

relocated to Equity 2, Section 3, without 

change. Nasdaq has a similar rule 

within Equity 2, Section 3. Also, the 

Exchange proposes to amend proposed 

Options 2, Section 2(a)(3) to remove 

references to PSX, which is related to 

equities, and the collective definition of 

‘‘System’’. The rule is otherwise being 

relocated to Options 2, Section 3 

without change. 

Current Phlx General 3, Section 13, 

Qualification; Designation of Executive 

Representative 

Current Phlx General 3, Section 13, 

Qualification; Designation of Executive 

Representative, is being relocated to 

General 2, Section 10, which is 

currently reserved. This rule is being 

relocated without change. The current 

title would be retained. 

Current Phlx General 3, Section 14, 

Transfer of Accounts 

The Exchange proposes to relocate 

General 3, Section 14, Transfer of 

Accounts, to new General 2, Section 24, 

without change. The current title would 

be retained. 

Current Phlx General 3, Section 15, 

Certificate of Incorporation 

The Exchange proposes to delete 

current Phlx General 3, Section 15, 

Certificate of Incorporation. This rule 

requires a certificate of incorporation 

and by-laws of a proposed member 

organization to be filed with the 

Membership Department and approved 

as well as other authorization 

documents. Also, amendments to the 

certificate of incorporation and by-laws 

of a member organization are required to 

be reviewed by the Membership 

Department for approval. Phlx has not 

approved amendments to the certificate 

of incorporation and by-laws of a 

member organization. Proposed General 

3, Rule 1013 includes a list of required 

documentation which may include a 

certificate of incorporation and by-laws, 

if requested by the Membership 

Department. The Exchange proposes to 

delete current Phlx General 3, Section 

15 because it is redundant and 

unnecessary. 

Conclusion 

The amendments proposed herein 

will allow the Exchange to harmonize 

its membership rules and processes 

with those of Nasdaq and other 

Affiliated Exchanges. These 

amendments will provide uniform 

criteria across the Affiliated Exchanges 

for membership qualifications and a 

consistent process across the Affiliated 

Exchanges for processing membership 

applications. The proposal will also 

provide for full membership reciprocity 

between the Affiliated Exchanges so that 

a member of one Affiliated Exchange 

would receive expedited treatment in 

applying for membership on any other 

Affiliated Exchange. Similarly, 

harmonized membership rules and 

processes will benefit Exchange 

Applicants, members and member 

organizations by establishing consistent 

membership requirements and 

processes that must be followed to 

apply for membership on the Exchange. 

Moreover, as to the Exchange itself, 

the proposed changes described herein 

will render the Exchange’s membership 

rules and processes clearer, better 

organized, simpler, and easier to comply 

with. Again, such changes will provide 

benefits both to the Exchange’s 

Membership Department and to 

Exchange Applicants. 

The proposed membership rules and 

processes are similar to the existing 

rules and process, and where there are 

differences between the new and old 

processes, the Exchange believes that 

the new process does not disadvantage 

its members, member organizations or 

Associated Persons. To the contrary, the 

Exchange believes that the new rules 

and processes will benefit all parties as 

it again provides greater clarity, 

simplicity, and efficiency than the 

retired rules and processes. 

Implementation 

As noted in footnote 3 above, the 

Exchange’s proposed rule change will 

not become effective unless and until 

the Commission approves the 

exemption request. To facilitate an 

orderly transition from the existing rules 

under the General 3 title and the Nasdaq 

Membership Rules to be incorporated by 

reference, the Exchange is proposing to 

apply the existing Rules to all 

applications which have been submitted 

to the Exchange (including applications 

that are not yet complete) and are 

pending approval prior to the operative 

date. The Exchange also will apply the 

existing Rules to any appeal of an 

Exchange membership decision or any 

request for the Board to direct action on 

an application pending before the 

Exchange Review Council, the Board, or 

the Commission, as applicable. As a 

consequence of this transition process, 

the Exchange will retain the existing 

processes during the transition period 

until such time that there are no longer 

any applications or matters proceeding 

under the existing rules. To facilitate 

this transition process, the Exchange 

will retain a transitional rulebook that 

will contain the Exchange’s membership 

rules as they are at the time that this 

proposal is filed with the Commission. 

This transitional rulebook will apply 

only to matters initiated prior to the 

operational date of the changes 

proposed herein and it will be posted to 

the Exchange’s public rules website. 

When the transition is complete, the 

Exchange will remove the transitional 

rulebook from its public website. 

The Exchange will announce and 

explain this transition process in a 

regulatory alert. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act,48 in general, and furthers the 

objectives of Section 6(b)(5) and of the 

Act,49 in particular, in that it is designed 

to promote just and equitable principles 

of trade, to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general to protect 

investors and the public interest. It is 

also consistent with Section 6(b)(7) of 

the Act in that it provides for a fair 


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Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 41831 

50 15 U.S.C. 78f(b)(7). 51 15 U.S.C. 78f(b)(7). 

52See footnote 3 above. Additionally, the 

Exchange will issue a regulatory alert to provide 

members and member organizations notice of this 

rule change and the implementation date. 

procedure for denying Exchange 

membership to any person who seeks it, 

barring any person from becoming 

associated with an Exchange member or 

member organization, and prohibiting or 

limiting any person with respect to 

access to services offered by the 

Exchange or a member or member 

organization thereof.50

As a general matter, the Exchange 

believes that its proposal to delete its 

existing membership rules, incorporate 

by reference the Nasdaq Membership 

Rules, and other related changes will 

promote a free and open market, and 

will benefit investors, the public, and 

the markets, because the new rules will 

be clearer, better organized, and 

simpler, and will enhance consistency 

for membership procedures across all of 

Nasdaq’s Affiliated Exchanges. 

The proposal is just and equitable 

because it will render the Exchange’s 

membership rules easier for Applicants, 

members and member organizations to 

read and understand, including by 

doing the following: 

• Establishing a ‘‘roadmap’’ 

paragraph as shown in proposed 

General 3, Rule 1014(a) that sets forth 

the basic authority of the Membership 

Department to approve, approve with 

conditions, or deny applications for 

membership before the Rule goes on to 

enumerate criteria for the Membership 

Department to apply when taking each 

of those actions; 

• Making the titles of the rules more 

accurate and descriptive (e.g., proposed 

General 3, Rule 1014(b)); 

• Grouping logically-related 

provisions together in the rules (e.g., 

provisions governing resignation, 

termination, transfer, and reinstatement 

of membership; recusals and 

disqualifications); 

• Clarifying when the Membership 

Department will deem an application to 

be filed (when the application is 

‘‘substantially complete,’’ as set forth in 

proposed General 3, Rule 1013(a)(2)) 

and by requiring the Membership 

Department to notify an Applicant in 

writing of the filing date; 

• Clarifying what the Exchange 

means when it states that an Applicant 

may ‘‘waive-in’’ to Exchange 

membership (as set forth in proposed 

General 3, Rule 1013(b)); and 

The proposal will also make 

compliance with the membership rules 

simpler and less burdensome for 

Applicants, members and member 

organizations by, codifying the below 

practices which are not currently 

specified within the rules: 

• Eliminating obsolete requirements 

to submit paper articles of incorporation 

and by-laws, pursuant to Phlx General 

3, Section 10(b), unless requested; 

• Permitting electronic filing of 

applications (proposed General 3, Rule 

1012(a)(1)); 

• Allowing payment of application 

fees by means other than paper check 

(proposed General 3, Rule 

1013(a)(1)(C)); and 

• Harmonizing Phlx’s disparate 

procedures under proposed General 3, 

Rules 1013 and 1017 for filing, 

evaluating, and responding to initial 

membership applications and 

applications for approval of business 

changes as compared to the Affiliated 

Exchanges. 

Finally, the proposal will also make 

compliance with the membership rules 

simpler and less burdensome for 

Applicants, members and member 

organizations by, for example, detailing 

the circumstances in which an 

Applicant may waive-into Exchange 

membership to include the Applicant’s 

membership in any of the Affiliated 

Exchanges and defining procedures for 

processing and responding to waive-in 

applications (proposed General 3, Rule 

1013(b)). 

In sum, the foregoing changes will 

update, rationalize, and streamline the 

Exchange’s membership rules and 

processes, and enhance consistency 

with membership rules and processes of 

the Affiliated Exchanges, all to the 

benefit of Applicants, members and 

member organizations. Moreover, these 

changes will not adversely impact the 

rights of Applicants, members or 

member organizations to appeal adverse 

Membership Department decisions 

under these Rules or to request Board 

action to compel the Membership 

Department to render decisions on 

applications. 

Last, the Exchange believes that its 

proposal to phase-in the 

implementation of the new membership 

rules and processes is consistent with 

Section 6(b)(7) of the Act 51 because 

both the current and proposed processes 

provide fair procedures for granting and 

denying applications for becoming an 

Exchange member or member 

organization, becoming an Associated 

Person, and making material changes to 

the business operations of a member or 

member organization. The Exchange is 

proposing to provide advanced notice of 

the implementation date of the new 

processes, and will apply the new 

processes to new applications, appeals, 

and requests for Board action that are 

initiated on or after that implementation 

date.52 Any application, appeal, or 

request for Board action initiated prior 

to the implementation date will be 

completed using the current processes. 

As a consequence, the Exchange will 

maintain a transitional rulebook on the 

Exchange’s public rules website which 

will contain the Exchange Rules as they 

are at the time of filing this rule change. 

These transitional rules will apply 

exclusively to applications, appeals, and 

requests for Board action initiated prior 

to the implementation date. Upon 

conclusion of the last decision on a 

matter to which the transitional rules 

apply, the Exchange will remove the 

defunct transitional rules from its public 

rules website. Thus, the transition will 

be conducted in a fair, orderly, and 

transparent manner. Lastly, the 

proposed transition process is the same 

process that Nasdaq and other Affiliated 

Exchanges implemented during its 

transition to new membership rules. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Act. The 

Exchange does not expect that its 

proposed changes to the membership 

rules will have any competitive impact 

on its existing or prospective 

membership. The proposed changes will 

apply equally to all similarly situated 

Applicants, members and member 

organizations and they will confer no 

relative advantage or disadvantage upon 

any category of Exchange Applicant, 

member, or member organization. 

Moreover, the Exchange does not expect 

that its proposal will have an adverse 

impact on competition among 

exchanges for members; to the contrary, 

the Exchange hopes that by clarifying, 

reorganizing, and streamlining its 

membership rules and enhancing 

consistency across all Nasdaq Affiliated 

Exchanges, the Exchange’s membership 

process will be less burdensome for 

Applicants, members, and member 

organizations. Also, the proposal will 

improve Phlx’s competitive standing 

relative to other exchanges by 

expanding its waive-in process to all 

Affiliated Exchanges, not just Nasdaq 

and BX, as well as FINRA members, 

thereby simplifying the process for 

additional market participants to 

become a Phlx member or member 

organization. 


jspears on DSK121TN23PROD with NOTICES1
41832 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 

53 15 U.S.C. 78s(b)(3)(A)(iii). 

54 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 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. The Exchange has satisfied this 

requirement. 

55 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the 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)(iii) of the Act 53 and 

subparagraph (f)(6) of Rule 19b–4 

thereunder.54

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 (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

Phlx–2022–28 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–Phlx–2022–28. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–Phlx–2022–28 and should 

be submitted on or before August 3, 

2022. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.55

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–14885 Filed 7–12–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–95209; File No. SR–NYSE– 

2022–25] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Modify Rule 

7.31 

July 7, 2022. 

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

Securities Exchange Act of 1934 (the 

‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that on June 24, 

2022, New York Stock Exchange LLC 

(‘‘NYSE’’ 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to modify 

Rule 7.31 to (1) permit certain nonroutable order types to be designated to 

cancel if they would be displayed at a 

price other than their limit price; (2) 

allow ALO Orders to be designated as 

non-displayed; (3) permit ALO Orders 

to be entered in any size; (4) introduce 

the Non-Display Remove and Proactive 

if Locked/Crossed Modifiers; and (5) 

make MPL Orders eligible to trade at 

their limit price. 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 

Rule 7.31 to (1) permit certain nonroutable order types to be designated to 

cancel if they would be displayed at a 

price other than their limit price; (2) 

allow ALO Orders to be designated as 

non-displayed; (3) permit ALO Orders 

to be entered in any size; (4) introduce 

the Non-Display Remove and Proactive 

if Locked/Crossed Modifiers; and (5) 

allow MPL Orders to trade at either the 

midpoint or their limit price. The 

Exchange also proposes additional 


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