Federal Register / Vol. 79, No. 227 / Tuesday, November 25, 2014 / Notices 70237 

21 15 U.S.C. 78f(b)(5). 

22 15 U.S.C. 78s(b)(3)(A)(ii). 

23 17 CFR 240.19b–4(f). 

24 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

not receive any additional benefit from 

having some of its shares listed on the 

Capital Market. 

A company that listed upon emerging 

from bankruptcy currently pays the 

minimum annual fee for the year of 

listing and subsequent two years. 

Allowing such companies that opt in to 

the all-inclusive annual fee to also pay 

the minimum fee on that fee schedule 

during the same period, and forgiving a 

portion of the all-inclusive annual fee in 

certain merger situations where the 

annual fee is similarly forgiven, is not 

unreasonable or unfairly discriminatory 

because these proposed changes extend 

benefits available to companies under 

the existing fee schedule to companies 

that will be on the all-inclusive fee 

schedule, thereby perpetuating features 

that the Commission has previously 

concluded satisfy the statutory 

requirements. Clarifying when a 

company receives a credit, instead of a 

waiver, and which company involved in 

a merger receives that credit or waiver 

clarifies Nasdaq’s rules and is not 

unreasonable or unfairly discriminatory 

because these clarifications give effect to 

the intent of the current waivers while 

respecting the difference between the 

two entities involved in a merger. 

Finally, Nasdaq believes that the 

proposed fees are consistent with the 

investor protection objectives of Section 

6(b)(5) of the Act 21 in that they are 

designed to promote just and equitable 

principles of trade, to remove 

impediments to a free and open market 

and national market system, and in 

general to protect investors and the 

public interest. Specifically, the fees are 

designed, in part, to ensure that there 

are adequate resources for Nasdaq’s 

listing compliance program, which 

helps to assure that listing standards are 

properly enforced and investors are 

protected. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

Nasdaq does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act, as amended. 

The market for listing services is 

extremely competitive and listed 

companies may freely choose alternative 

venues based on the aggregate fees 

assessed, and the value provided by 

each listing. This rule proposal does not 

burden competition with other listing 

venues, which are similarly free to set 

their fees. Further, this proposed rule 

change would introduce an all-inclusive 

annual listing fee, which no other 

market currently offers and which may 

therefore increase competition with 

other listing venues. Nasdaq believes 

that this innovative fee proposal reflects 

the existing competition between listing 

venues and will further enhance such 

competition. For these reasons, Nasdaq 

does not believe that the proposed rule 

change will result in any burden on 

competition for listings. 

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 

The foregoing rule change has become 

effective pursuant to Section 

19(b)(3)(A)(ii) of the Act 22 and 

paragraph (f) of Rule 19b–4 

thereunder.23

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. 

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– 

NASDAQ–2014–087 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NASDAQ–2014–087. 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 Web site (http://www.sec.gov/

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 

10:00 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; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR– 

NASDAQ–2014–087 and should be 

submitted on or before December 16, 

2014. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.24

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–27879 Filed 11–24–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73640; File No. SR– 

NYSEMKT–2014–93] 

Self-Regulatory Organizations; NYSE 

MKT LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Amending Its Rules 

Concerning Supervision To Harmonize 

the Rules With Certain Financial 

Industry Regulatory Authority, Inc. 

Rules and Making Other Conforming 

Changes 

November 19, 2014. 

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

Securities Exchange Act of 1934 (the 

‘‘Act’’) and Rule 19b–4 thereunder,2

notice is hereby given that on November 

5, 2014, NYSE MKT LLC (‘‘NYSE MKT’’ 

or ‘‘Exchange’’) filed with the Securities 

and Exchange Commission (‘‘SEC’’ or 


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70238 Federal Register / Vol. 79, No. 227 / Tuesday, November 25, 2014 / Notices 

3 17 CFR 240.19b–4(f)(6). 

4References to rules are to NYSE MKT rules 

unless otherwise indicated. 5See Exchange Act Release Nos. 56148 (Jul. 26, 

2007), 72 FR 42146 (Aug. 1, 2007) (File No. 4–544) 

(order approving the Agreement); 56147 (Jul. 26, 

2007), 72 FR 42166 (Aug. 1, 2007) (SR–NASD– 

2007–054) (order approving the incorporation of 

certain NYSE Rules as ‘‘Common Rules’’). 

6See Exchange Act Release No. 60409 (Jul. 30, 

2009), 74 FR 39353 (Aug. 6, 2009) (File No. 4–587) 

(order approving the amended and restated 

Agreement, adding the Exchange as a party). 

Paragraph 2(b) of the Agreement sets forth 

procedures regarding proposed changes by FINRA, 

NYSE or the Exchange to the substance of any of 

the Common Rules. 

7FINRA’s rulebook currently has three sets of 

rules: (1) NASD Rules, (2) FINRA Incorporated 

NYSE Rules, and (3) consolidated FINRA Rules. 

The FINRA Incorporated NYSE Rules apply only to 

those members of FINRA that are also members of 

the NYSE (‘‘Dual Members’’), while the 

consolidated FINRA Rules apply to all FINRA 

members. For more information about the FINRA 

rulebook consolidation process, see FINRA 

Information Notice, March 12, 2008. 

8See Exchange Act Release No. 71179 (Dec. 23, 

2013), 78 FR 79542 (Dec. 30, 2013) (SR–FINRA– 

2013–025). 

9There is one exception. On April 22, 2014, the 

Commission issued an order approving proposed 

rule changes that coincided with related changes to 

Form BR. Specifically, the Exchange deleted Rule 

343—Equities, and FINRA deleted the related 

FINRA Incorporated NYSE Rule and NYSE Rule 

Interpretations. The proposed changes became 

effective as of April 7, 2014. See FINRA Regulatory 

Notices 14–10 and 14–11 and Exchange Act Release 

No. 71988 (Apr. 22, 2014), 79 FR 23393 (Apr. 28, 

2014) (SR–NYSEMKT–2014–34). See also Exchange 

Act Release No. 73346 (Oct. 14, 2014), 79 FR 62693 

(Oct. 20, 2014) (SR–NYSEMKT–2014–88) 

(conforming amendments related to the deletion of 

NYSE MKT Rule 343—Equities). 

‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been 

substantially prepared by the Exchange. 

The Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons. The Exchange has designated 

the proposed rule change as constituting 

a ‘‘non-controversial’’ rule change under 

Rule 19b–4(f)(6) of the Act,3 which 

renders the proposal effective upon 

receipt of this filing by the Commission. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend its 

NYSE MKT rules concerning 

supervision to harmonize the rules with 

certain Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) rules and 

make other conforming change. The text 

of the proposed rule change is available 

on the Exchange’s Web site 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 

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 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 its 

rules concerning supervision to 

harmonize them with certain FINRA 

rules and make other conforming 

changes. Set forth below are 

descriptions of the harmonization 

process, the current NYSE MKT rules, 

and the proposed NYSE MKT rules. 

Specifically, the Exchange proposes to: 

(1) Adopt new rule text that is 

substantially similar to FINRA Rules 

3110, 3120, 3150, and 3170; (2) delete 

the following rules: Rule 342—Equities 

(except for certain text in Rule 342.13— 

Equities regarding qualifications and 

exam requirements for individuals with 

supervisory responsibilities), Rule 

351(e)—Equities, Rule 354—Equities, 

Rule 401—Equities, and Rule 401A— 

Equities; and (3) make other conforming 

changes.4

Background 

On July 30, 2007, FINRA’s 

predecessor, the National Association of 

Securities Dealers, Inc. (‘‘NASD’’), and 

NYSE Regulation, Inc. (‘‘NYSER’’) 

consolidated their member firm 

regulation operations into a combined 

organization, FINRA. Pursuant to Rule 

17d–2 under the Act, New York Stock 

Exchange LLC (‘‘NYSE’’), NYSER, and 

FINRA entered into an agreement (the 

‘‘Agreement’’) to reduce regulatory 

duplication for their members by 

allocating to FINRA certain regulatory 

responsibilities for NYSE rules and rule 

interpretations (‘‘FINRA Incorporated 

NYSE Rules’’).5 The Exchange became a 

party to the Agreement effective 

December 15, 2008.6

As part of its effort to reduce 

regulatory duplication and relieve firms 

that are members of FINRA, the 

Exchange, and NYSE of conflicting or 

unnecessary regulatory burdens, FINRA 

is now engaged in the process of 

reviewing and amending the NASD and 

FINRA Incorporated NYSE Rules in 

order to create a consolidated FINRA 

rulebook.7

FINRA recently harmonized NASD 

and FINRA Incorporated NYSE Rules 

and interpretations concerning 

supervision. More particularly, FINRA: 

(1) Adopted FINRA Rules 3110 and 

3120 to largely replace NASD Rules 

3010 and 3012, respectively; (2) 

incorporated into FINRA Rule 3110 and 

its supplementary material the 

requirements of NASD IM–1000–4, 

NASD IM–3010–1, FINRA Incorporated 

NYSE Rule 401A, and FINRA 

Incorporated NYSE Rule 342.21; (3) 

replaced NASD Rule 3010(b)(2) with 

new FINRA Rule 3170; (4) replaced 

NASD Rule 3110(i) with new FINRA 

Rule 3150; and (5) deleted the following 

FINRA Incorporated NYSE Rules and 

NYSE Rule Interpretations: (i) NYSE 

Rule 342 and related NYSE Rule 

Interpretations; (ii) NYSE Rule 343 and 

related NYSE Rule Interpretations; (iii) 

NYSE Rule 351(e) and related NYSE 

Rule Interpretation; (iv) NYSE Rule 354; 

(v) NYSE Rule 401; and (vi) NYSE Rule 

401A.8

FINRA has announced that the 

effective date for its rule change will be 

December 1, 2014. The Exchange 

proposes to make its proposed rule 

change effective on the same date as 

FINRA and will announce the effective 

date via an Information Memo.9

Current Supervision Rules 

Rule 342(a)—Equities requires each 

office, department or business activity 

of a member or member organization 

(including foreign incorporated branch 

offices) to be under the supervision and 

control of the member or member 

organization establishing it and of the 

personnel delegated such authority and 

responsibility. The person in charge of 

a group of employees must reasonably 

discharge his or her duties and 

obligations in connection with 

supervision and control of the activities 

of those employees related to the 

business of their employer and 

compliance with securities laws and 

regulations. 

Rule 342(b)—Equities provides that 

the general partners or directors of each 

member organization must provide for 

appropriate supervisory control and 

must designate a general partner or 

principal executive to assume overall 

authority and responsibility for internal 

supervision and control of the 

organization and compliance with 

securities laws and regulations. This 

person must: 

• Delegate to qualified principals or 

employees responsibility and authority 


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Federal Register / Vol. 79, No. 227 / Tuesday, November 25, 2014 / Notices 70239 

10Originally, firms had to acknowledge and 

respond to both written and oral customer 

complaints. However, as part of the effort to 

harmonize the NASD and NYSE MKT rules in the 

interim period before completion of the 

Consolidated FINRA Rulebook, current Rule 

4530(d)—Equities was amended to limit the 

definition of ‘‘customer complaint’’ to include only 

written complaints, thereby making the definition 

substantially similar to that in FINRA Rule 4530(d). 

The Exchange adopted the text of FINRA Rule 4530 

to replace comparable provisions in Rule 351. See 

Exchange Act Release No. 64784 (Jun. 30, 2011), 76 

FR 39947 (Jul. 7, 2011) (SR–NYSEAmex–2011–42). 

for supervision and control of each 

office, department or business activity, 

and provide for appropriate procedures 

of supervision and control; and 

• Establish a separate system of 

follow-up and review to determine that 

the delegated authority and 

responsibility is being properly 

exercised. 

Rule 342(c)—Equities provides that 

prior consent of the Exchange must be 

obtained for each office established by 

a member or member organization, other 

than a main office. 

Rule 342(d)—Equities provides that 

qualified persons acceptable to the 

Exchange must be in charge of: 

• Any office of a member or member 

organization; 

• Any regional or other group of 

offices; and 

• Any sales department or activity. 

Rule 342(e)—Equities provides that 

the amounts and types of credit 

extended by a member organization 

must be supervised by members or 

principal executives qualified by 

experience for such control in the types 

of business in which the member 

organization extends credit. 

Supplementary Materials 342.10– 

.30—Equities provide additional 

guidance relating to the definition of 

branch offices, annual fees, foreign 

branch offices, the acceptability of 

supervisors, the experience of senior 

management, small offices, the 

supervision of registered 

representatives, the review of 

communications with the public, 

bookkeeping, the supervision of 

producing managers, information 

requests, trade review and investigation, 

the definition of related financial 

instrument, internal controls, annual 

branch office inspection, risk-based 

surveillance and branch office 

identification, criteria for inspection 

programs, and annual reports and 

certifications. 

Rule 351(e)—Equities provides that 

each member not associated with a 

member organization and a principal 

executive of each member organization 

must take one or both of the following 

two actions in relation to the trades that 

are subject to the review procedures 

required by Rule 342.21(a)—Equities: 

• Sign a written statement in the form 

specified in the rule and deliver it to the 

Exchange by the 15th day of the month 

following the calendar quarter in which 

the trade occurred. 

• As to any such trade that is the 

subject of an internal investigation 

pursuant to Rule 342.21(b)—Equities, 

but has not been both resolved and 

included in the written statement, 

report in writing to the Exchange: 

• The commencement of the 

internal investigation, the identity of the 

trade and the reason why the trade 

could not be the subject of the written 

statement (report by the 15th day of the 

month, following the calendar quarter in 

which the trade occurred); 

• the quarterly progress of each 

open investigation (report by the 15th 

day of the month following the quarter); 

and 

• the completion of the 

investigation, detailing the methodology 

and results of the investigation, any 

internal disciplinary action taken, and 

any referral of the matter to the 

Exchange, another self-regulatory 

organization (‘‘SRO’’), the Commission 

or another federal agency, and 

including, where no internal 

disciplinary action has been taken and 

no such referral has been made, a 

written statement in relation to the trade 

in the form specified below (report 

within one week after completion of the 

investigation). 

Rule 351(e)—Equities also provides 

that when a statement pertains to one or 

more trades that have been the subject 

of an internal investigation pursuant to 

Rule 342.21(b)—Equities but as to 

which no internal disciplinary action 

has been taken and no referral of the 

matter to the Exchange, another SRO, or 

a federal agency has been made, the 

written statement must also refer to the 

particular trade(s) (rather than to the 

trades of a particular calendar quarter) 

and must omit the clause excepting 

trades reported as the subject of an 

investigation. 

Rule 354(a)—Equities provides that, 

by April 1 of each year, each member 

organization must submit a copy of its 

Rule 342.30—Equities annual report on 

supervision and compliance to its 

control person(s) or, if the member 

organization has no control person, to 

the audit committee of its Board of 

Directors or its equivalent committee or 

group. In the case of a control person 

that is an organization (a ‘‘controlling 

organization’’), the member organization 

must submit the report to the general 

counsel of the controlling organization 

and to the audit committee of the 

controlling organization’s Board of 

Directors or its equivalent committee or 

group. 

Rule 354(b)—Equities provides that, 

for the purpose of Rule 354(a)—Equities, 

‘‘control person’’ means a person who 

controls the member organization 

within the meaning of Rule 2—Equities 

otherwise than solely by virtue of being 

a director, general partner, or principal 

executive (or person occupying a similar 

status or performing similar functions) 

of the member organization. 

Rule 401(b)—Equities provides that 

each member and member organization 

must maintain written policies and 

procedures, administered pursuant to 

the internal control requirements 

prescribed under Rule 342.23—Equities, 

specifically with respect to the 

following activities: 

• Transmittals of funds (e.g., wires, 

checks, etc.) or securities: 

• from customer accounts to thirdparty accounts (i.e., a transmittal that 

would result in a change of beneficial 

ownership); 

• from customer accounts to outside 

entities (e.g., banks, investment 

companies, etc.); 

• from customer accounts to locations 

other than a customer’s primary 

residence (e.g., post office box, ‘‘in care 

of’’ accounts, alternate address, etc.); 

and 

• between customers and registered 

representatives (including the handdelivery of checks). 

• Customer changes of address. 

• Customer changes of investment 

objectives. 

The policies and procedures required 

under Rule 401(b)(1), (2), and (3)— 

Equities must include a means/method 

of customer confirmation, notification, 

or follow-up that can be documented. 

Rule 401A(a)—Equities provides that, 

for every customer complaint they 

receive that is subject to the reporting 

requirements of Rule 4530(d)— 

Equities,10 members and member 

organizations must: 

• Acknowledge receipt of the 

complaint within 15 business days of 

receiving it, and 

• Respond to the issues raised in the 

complaint within a reasonable period of 

time. 

Rule 401A(b)—Equities provides that 

each acknowledgement and response 

required by this rule must be conveyed 

to the complaining customer by an 

appropriate method. More specifically: 

• Acknowledgements and responses 

to written complaints must be either: 

• in writing, mailed to the 

complaining customer’s last known 

address, or 

• electronically transmitted to the 

email address from which the complaint 


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70240 Federal Register / Vol. 79, No. 227 / Tuesday, November 25, 2014 / Notices 

11The technical and conforming changes are that 

the Exchange would: (1) Substitute the term 

‘‘member organization’’ for ‘‘member,’’ (2) 

substitute the term ‘‘Exchange’’ for ‘‘FINRA,’’ (3) 

change certain cross-references to FINRA rules to 

cross-references to Exchange rules, and (4) add 

supplementary material to define the term 

‘‘associated person’’ in proposed Rules 3110— 

Equities, 3120—Equities, and 3150—Equities. 

12Exchange Rule 342 is based on the counterpart 

rule of its NYSE affiliate, which recently amended 

its rules concerning supervision to harmonize with 

those of FINRA. See Exchange Act Release No. 

73554 (Nov. 6, 2014), 79 FR 67508 (Nov. 13, 2014) 

(SR–NYSE–2014–56) (incorporating into NYSE Rule 

342 the requirement from the related NYSE 

Interpretation that every branch office or sales 

manager must have at least three years’ experience 

as a registered representative or substantial 

experience in a related sales or managerial position 

and must pass the Series 9/10). 

13The Interpretation to NYSE Rule 342 refers to 

‘‘allied members,’’ a category the NYSE and the 

Exchange eliminated and replaced with ‘‘principal 

executive,’’ which has substantially the same 

meaning. See Exchange Act Release Nos. 58549 

(Sept. 15, 2008), 73 FR 54444 (Sept. 19, 2008) (SR– 

NYSE–2008–80); 559022 (Nov. 26, 2008), 73 FR 

73683 (Dec. 3, 2008) (SR–NYSEALTR–2008–10). 

was sent (method only permissible for 

electronically transmitted complaints). 

• Acknowledgements and responses 

to verbal complaints must be either: 

• in writing, mailed to the 

complaining customer’s last known 

address, or 

• made verbally to the complaining 

customer, and recorded in a log of 

verbal acknowledgements and responses 

to customer complaints. 

Rule 401A(c)—Equities provides that 

written records of the 

acknowledgements, responses, and logs 

required by this rule must be retained in 

accordance with Rule 440—Equities. 

Proposed Rule Change 

The Exchange proposes to delete the 

foregoing rules relating to supervision 

(except as noted below), which are, in 

main part, either duplicative of, or do 

not align with, the proposed supervision 

requirements discussed below, and 

adopt the text of FINRA Rules 3110, 

3120, 3150, and 3170, subject to certain 

technical and conforming changes.11 As 

noted in Rule 0—Equities, NYSE MKT 

rules that refer to NYSER, NYSER staff 

or departments, Exchange staff, and 

Exchange departments should be 

understood as also referring to FINRA 

staff and FINRA departments acting on 

behalf of the Exchange pursuant to the 

Agreement, as applicable. 

The Exchange proposes to retain the 

requirements contained in Rule 

342.13(a) and (b)—Equities regarding 

qualifications and exam requirements 

for individuals with supervisory 

responsibilities. The proposed new 

version of Rule 342(a)—Equities, 

corresponding to current Rule 

342.13(a)—Equities, would provide that 

any member or employee identified as 

in charge of: (1) any office of a member 

or member organization, (2) any regional 

or other group of offices, or (3) any sales 

department or activity must have a 

creditable record and pass the General 

Securities Sales Supervisor 

Qualification Examination (Series 9/10) 

or another examination acceptable to 

the Exchange. The proposed new 

version of Rule 342(a) would also adopt 

the current requirement contained in 

the Interpretation to NYSE Rule 342 12

that every branch office or sales 

manager must have at least three years’ 

experience as a registered representative 

or substantial experience in a related 

sales or managerial position and must 

pass the Series 9/10. 

Further, the proposed new version of 

Rule 342(a)—Equities would adopt the 

current examples of a related sales or 

managerial position in the Interpretation 

to NYSE Rule 342 and the requirement 

that in order to qualify as a supervisory 

person, a principal executive 13 should 

have at least three years’ experience as 

a registered representative unless 

granted an exception. The proposed 

new version of Rule 342(a)—Equities 

would also incorporate from the related 

NYSE Interpretation that the General 

Securities Principal Examination (Series 

24) is an acceptable alternative for 

persons whose duties do not include the 

supervision of options or municipal 

securities sales activity and that the 

examination requirement may be 

waived at the discretion of the 

Exchange. Finally, the proposed new 

version of Rule 342(a)—Equities would 

incorporate the requirement from the 

NYSE Interpretation that in the case of 

a firm applying for registered brokerdealer status, the supervisory candidates 

must have at least one year of direct 

experience or two years of related 

experience in the subject area to be 

supervised in addition to the 

requirements outlined above. 

The proposed new version of Rule 

342(b)—Equities, corresponding to 

current Rule 342.13(b)—Equities, would 

provide that the individuals designated 

as having day-to-day compliance 

responsibilities for their respective 

firms, or who supervise ten or more 

persons engaged in compliance 

activities, have the knowledge necessary 

to carry out their job responsibilities 

(i.e., overall knowledge of the securities 

laws and Exchange rules) and pass the 

Compliance Official Examination (the 

‘‘Series 14’’) or, in the case of 

compliance supervisors of member 

organizations that conduct a Designated 

Market Maker (‘‘DMM’’) business, the 

DMM Compliance Official Examination 

(the ‘‘Series 14A’’). The proposed new 

version of Rule 342(b)—Equities would 

also adopt the current requirement in 

the Interpretation to NYSE Rule 342 that 

member organizations engaged in a 

public business in addition to a DMM 

business must have a qualified 

compliance supervisor who has passed 

both the Series 14 and Series 14A 

Examinations. Finally, the proposed 

new version of Rule 342(b)—Equities 

would incorporate the following 

exemptions from the Series 14 

Examination requirement contained in 

the Interpretation to NYSE Rule 342: 

• Compliance supervisors at member 

organizations whose activities are solely 

related to execution of orders on the 

Exchange trading floor and who do not 

conduct any business with the public; 

• Compliance supervisors at member 

organizations whose commissions and 

other fees from public business (retail 

and institutional) are under $500,000 in 

the preceding calendar year and who 

introduce to another broker-dealer; and 

• Supervisors of ten or more persons 

whose compliance responsibilities are 

limited to the registration of member 

organization employees with the various 

regulators and SROs. 

Proposed Rule 3110—Equities 

(Supervision) 

Proposed Rule 3110—Equities is 

based primarily on requirements in the 

FINRA rulebook and current Rule 342— 

Equities relating to, among other things, 

supervisory systems, written 

procedures, internal inspections, and 

review of correspondence. 

Proposed Rule 3110(a)—Equities 

Proposed Rule 3110(a)—Equities 

would cover supervisory systems and 

would require each member 

organization to establish and maintain a 

system to supervise the activities of 

each associated person that is 

reasonably designed to achieve 

compliance with applicable securities 

laws and regulations, and with 

applicable Exchange rules. Under the 

proposed rule, final responsibility for 

proper supervision would rest with the 

member organization. In addition, a 

member organization’s supervisory 

system would be required to provide, at 

a minimum, for the following: 

• The establishment and maintenance 

of written procedures as required by 

proposed Rule 3110—Equities. 

• The designation, where applicable, 

of an appropriately registered principal 

with authority to carry out the 

supervisory responsibilities of the 

member organization for each type of 

business in which it engages for which 


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14Although to date the Exchange and FINRA have 

used the same definition for ‘‘branch office,’’ the 

Exchange has not previously designated OSJs. As 

such, the requirements relating to OSJs described 

hereinafter would be new for member 

organizations. 

15With respect to customer complaints, proposed 

Rule 3110(b)(5)—Equities also would affirmatively 

require members to capture, acknowledge, and 

respond to all written (including electronic) 

customer complaints. 

registration as a broker-dealer is 

required. 

• The registration and designation as 

a branch office or an office of 

supervisory jurisdiction (‘‘OSJ’’) of each 

location, including the main office, that 

meets the definitions contained in 

proposed Rule 3110(e)—Equities.14

• The designation of one or more 

appropriately registered principals in 

each OSJ and one or more appropriately 

registered representatives or principals 

in each non-OSJ branch office with 

authority to carry out the supervisory 

responsibilities assigned to that office 

by the member organization. 

• The assignment of each registered 

person to an appropriately registered 

representative or principal who would 

be responsible for supervising that 

person’s activities. 

• The use of reasonable efforts to 

determine that all supervisory personnel 

are qualified, either by virtue of 

experience or training, to carry out their 

assigned responsibilities. 

• The participation of each registered 

representative and registered principal, 

either individually or collectively, no 

less than annually, in an interview or 

meeting conducted by persons 

designated by the member organization 

at which compliance matters relevant to 

the activities of the representative and 

principal are discussed, which may 

occur in conjunction with the 

discussion of other matters and may be 

conducted at a central or regional 

location or at the representative’s or 

principal’s place of business. 

Proposed Rule 3110(b)—Equities 

In proposed Rule 3110(b)—Equities, 

the Exchange proposes to consolidate 

provisions from current Rule 401A— 

Equities relating to the review of 

customer complaints, with various 

provisions and rules from the FINRA 

rulebook that currently require written 

procedures, including provisions 

relating to the supervision and review of 

registered representatives’ transactions 

and correspondence. In addition, 

proposed supplementary material, 

which is discussed in detail below, 

would codify and expand guidance in 

these areas. 

Proposed Rule 3110(b)(1)—Equities 

would address written procedures and 

would require each member 

organization to establish, maintain, and 

enforce written procedures to supervise 

the types of business in which it 

engages and the activities of its 

associated persons that are reasonably 

designed to achieve compliance with 

applicable securities laws and 

regulations and applicable Exchange 

rules. 

Under proposed Rule 3110(b)(2)— 

Equities, the supervisory procedures 

required by proposed Rule 3110(b)— 

Equities would include procedures for 

the review by a registered principal, 

evidenced in writing, of all transactions 

relating to the investment banking or 

securities business of the member 

organization. Consistent with FINRA 

Rule 3110(b)(3), proposed Rule 

3110(b)(3)—Equities would be marked 

‘‘Reserved.’’ 

Under proposed Rule 3110(b)(4)— 

Equities, the supervisory procedures 

required by proposed Rule 3110(b)— 

Equities would also include procedures 

for the review of incoming and outgoing 

written (including electronic) 

correspondence and internal 

communications relating to the member 

organization’s investment banking or 

securities business and be appropriate 

for the member organization’s business, 

size, structure, and customers. The 

supervisory procedures would require 

the member organization’s review of: 

• Incoming and outgoing written 

(including electronic) correspondence to 

properly identify and handle in 

accordance with firm procedures, 

customer complaints, instructions, 

funds and securities, and 

communications that are of a subject 

matter that require review under 

Exchange rules and federal securities 

laws; and 

• Internal communications to 

properly identify those communications 

that are of a subject matter that require 

review under Exchange rules and 

federal securities laws. 

Such reviews must be conducted by a 

registered principal and must be 

evidenced in writing, either 

electronically or on paper. Those 

communications include (without 

limitation): 

• Communications between nonresearch and research departments 

concerning a research report’s contents 

(Rule 472(b)(3)—Equities); 

• Certain communications with the 

public that require a principal’s preapproval (Rule 2210—Equities); and 

• The identification and reporting to 

the Exchange of customer complaints 

(Rule 4530—Equities).15

Proposed Rule 3110(b)(5)—Equities, 

would require a member organization’s 

supervisory procedures to include 

procedures to capture, acknowledge, 

and respond to all written (including 

electronic) customer complaints, 

essentially incorporating the customer 

complaint requirement in current Rule 

401A—Equities, including the 

limitation on including only written 

(including electronic) customer 

complaints. The Exchange believes that 

oral complaints are difficult to capture 

and assess, and that they raise 

competing views as to the substance of 

the complaint being alleged. 

Consequently, the Exchange believes 

that oral complaints do not lend 

themselves as effectively to a review 

program as written complaints, which 

are more readily documented and 

retained. However, the Exchange 

reminds member organizations that the 

failure to address any customer 

complaint, written or oral, may be a 

violation of Rule 2010—Equities. 

Under proposed Rule 3110(b)(6)— 

Equities, the supervisory procedures 

required by proposed Rule 3110(b)— 

Equities must set forth the supervisory 

system established by the member 

organization pursuant to proposed Rule 

3110(a)—Equities, and would include: 

• The titles, registration status, and 

locations of the required supervisory 

personnel and the responsibilities of 

each supervisory person as these relate 

to the types of business engaged in, 

applicable securities laws and 

regulations, and Exchange rules. 

• A record, preserved by the member 

organization for a period of not less than 

three years, the first two years in an 

easily accessible place, of the names of 

all persons who are designated as 

supervisory personnel and the dates for 

which such designation is or was 

effective. 

• Procedures prohibiting associated 

persons who perform a supervisory 

function from: 

• Supervising their own activities; 

and 

• Reporting to, or having their 

compensation or continued employment 

determined by, a person or persons they 

are supervising. 

• If a member organization 

determines, with respect to any of its 

supervisory personnel, that compliance 

with the preceding two bullets is not 

possible because of the member 

organization’s size or a supervisory 

personnel’s position within the firm, the 

member organization would be required 

to document: 

• The factors the member 

organization used to reach such 

determination; and 


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16The Exchange currently does not have a 

comparable rule. 

17 17 CFR 240.17a–3(a)(17)(i)(B)(2) and 17 CFR 

240.17a–3(a)(17)(i)(B)(3). 

• How the supervisory arrangement 

with respect to such supervisory 

personnel otherwise complies with 

proposed Rule 3110(a)—Equities. 

• Procedures reasonably designed to 

prevent the supervisory system required 

pursuant to proposed Rule 3110(a)— 

Equities from being compromised due to 

the conflicts of interest that may be 

present with respect to the associated 

person being supervised, including the 

position of such person, the revenue 

such person generates for the firm, or 

any compensation that the associated 

person conducting the supervision may 

derive from the associated person being 

supervised.16

Proposed Rule 3110(b)(7)—Equities 

would require a member organization to 

keep and maintain a copy of its written 

supervisory procedures, or such 

relevant portions, in each OSJ and at 

each location where supervisory 

activities are conducted on behalf of the 

member organization. Each member 

organization would be required to 

promptly amend its written supervisory 

procedures to reflect changes in 

applicable securities laws or 

regulations, including Exchange rules, 

and as changes occur in its supervisory 

system. Each member organization 

would be responsible for promptly 

communicating its written supervisory 

procedures and amendments to all 

associated persons to whom such 

written supervisory procedures and 

amendments are relevant based on their 

activities and responsibilities. 

Proposed Rule 3110(c)—Equities 

Proposed Rule 3110(c)—Equities 

would cover internal inspections. 

Proposed Rule 3110(c)(1)—Equities 

would require each member 

organization to conduct a review, at 

least annually (on a calendar-year basis), 

of the businesses in which it engages. 

The review must be reasonably designed 

to assist the member organization in 

detecting and preventing violations of, 

and achieving compliance with, 

applicable securities laws and 

regulations, and with applicable 

Exchange rules. Each member 

organization would be required to 

review the activities of each office, 

which would include the periodic 

examination of customer accounts to 

detect and prevent irregularities or 

abuses. Each member organization 

would also be required to retain a 

written record of the date upon which 

each review and inspection is 

conducted. 

In addition, proposed Rule 

3110(c)(1)—Equities would require each 

member organization to inspect at least 

annually (on a calendar-year basis) 

every OSJ and any branch office that 

supervises one or more non-branch 

locations. Each member organization 

would also be required to inspect at 

least every three years every branch 

office that does not supervise one or 

more non-branch locations. In 

establishing how often to inspect each 

non-supervisory branch office, the 

member organization would be required 

to consider whether the nature and 

complexity of the securities activities 

for which the location is responsible, 

the volume of business done at the 

location, and the number of associated 

persons assigned to the location require 

the non-supervisory branch office to be 

inspected more frequently than every 

three years. If a member organization 

establishes a more frequent inspection 

cycle, the member organization would 

be required to ensure that at least every 

three years, the inspection requirements 

enumerated in proposed Rule 

3110(c)(2)—Equities have been met. The 

member organization’s written 

supervisory and inspection procedures 

would have to set forth the nonsupervisory branch office examination 

cycle, an explanation of the factors the 

member organization used in 

determining the frequency of the 

examinations in the cycle, and the 

manner in which a member organization 

would comply with proposed Rule 

3110(c)(2)—Equities if using more 

frequent inspections than every three 

years. 

Under proposed Rule 3110(c)(1)— 

Equities, each member organization 

would also be required to inspect every 

non-branch location on a regular, 

periodic schedule. In establishing such 

schedule, the member organization 

would be required to consider the 

nature and complexity of the securities 

activities for which the location is 

responsible and the nature and extent of 

contact with customers. The member 

organization’s written supervisory and 

inspection procedures would have to set 

forth the schedule and an explanation 

regarding how the member organization 

determined the frequency of the 

examination. 

Proposed Rule 3110(c)(2)—Equities 

would require that the inspection and 

review by a member organization 

pursuant to proposed Rule 3110(c)(1)— 

Equities be reduced to a written report 

and kept on file by the member 

organization for a minimum of three 

years, unless the inspection is being 

conducted pursuant to proposed Rule 

3110(c)(1)(C)—Equities and the regular 

periodic schedule is longer than a threeyear cycle, in which case the report 

would have to be kept on file at least 

until the next inspection report has been 

written. If applicable to the location 

being inspected, proposed Rule 

3110(c)(2)(A)—Equities would require 

that location’s written inspection report 

to include, without limitation, the 

testing and verification of the member 

organization’s policies and procedures, 

including supervisory policies and 

procedures in the following areas: 

• Safeguarding of customer funds and 

securities; 

• Maintaining books and records; 

• Supervision of supervisory 

personnel; 

• Transmittals of funds (e.g., wires or 

checks, etc.) or securities from 

customers to third-party accounts; from 

customer accounts to outside entities 

(e.g., banks, investment companies, 

etc.); from customer accounts to 

locations other than a customer’s 

primary residence (e.g., post office box, 

‘‘in care of’’ accounts, alternate address, 

etc.); and between customers and 

registered representatives, including the 

hand-delivery of checks; and 

• Changes of customer account 

information, including address and 

investment objectives changes and 

validation of such changes. 

Under proposed Rule 3110(c)(2)(B)— 

Equities, the policies and procedures 

regarding transmittals of funds must 

include a means or method of customer 

confirmation, notification, or follow-up 

that can be documented. Member 

organizations could use reasonable riskbased criteria to determine the 

authenticity of the transmittal 

instructions. Under proposed Rule 

3110(c)(2)(C)—Equities, the policies and 

procedures regarding changes in 

customer account information would 

have to include, for each change 

processed, a means or method of 

customer confirmation, notification, or 

follow-up that can be documented and 

that complies with Rules 17a– 

3(a)(17)(i)(B)(2) and 17a–3(a)(17)(i)(B)(3) 

under the Act.17

Pursuant to proposed Rule 

3110(c)(2)(D)—Equities, if a member 

organization does not engage in all of 

the activities enumerated in the bullets 

immediately above at the location being 

inspected, the member organization 

would be required to identify those 

activities in the member organization’s 

written supervisory procedures or the 

location’s written inspection report and 

document in the member organization’s 

written supervisory procedures or the 


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18 If a member organization determines that 

compliance with this requirement is not possible 

either because of a member organization’s size or 

its business model, the member organization would 

be required to document in the inspection report 

both the factors the member organization used to 

make its determination and how the inspection 

otherwise complies with proposed Rule 

3110(c)(1)—Equities. 

19See Insider Trading and Securities Fraud 

Enforcement Act of 1988, Pub. L. 100–704, 102 Stat. 

4677. 

20 15 U.S.C. 78o(g). 

location’s written inspection report that 

supervisory policies and procedures for 

such activities must be in place at that 

location before the member organization 

can engage in them. 

Under proposed Rule 3110(c)(3)— 

Equities, for each inspection conducted 

pursuant to the proposed rule, a 

member organization would be required 

to: 

• Have procedures reasonably 

designed to prevent the effectiveness of 

inspections from being compromised 

due to conflicts of interest that may be 

present with respect to the location 

being inspected, including but not 

limited to, economic, commercial, or 

financial interests in the associated 

persons and businesses being inspected; 

and 

• Ensure that the person conducting 

an inspection is not an associated 

person assigned to the location or is not 

directly or indirectly supervised by, or 

otherwise reporting to, an associated 

person assigned to the location.18

By way of comparison, under current 

Rules 342.24—Equities and 342.25— 

Equities, each branch office must be 

inspected annually, unless the member 

organization obtained an exemption by 

submitting to the Exchange written 

policies and procedures for systematic 

risk-based surveillance of its branch 

offices, in which case each branch office 

must be inspected at least every three 

years. The proposed subject matter 

requirements for inspection reports are 

substantially the same as the current 

subject matter requirements. 

Proposed Rule 3110(d)—Equities 

Section 15(g) of the Act, adopted as 

part of the Insider Trading and 

Securities Fraud Enforcement Act of 

1988,19 requires every registered broker 

or dealer to establish, maintain, and 

enforce written policies and procedures 

reasonably designed to prevent the 

misuse of material, non-public 

information by the broker or dealer or 

any associated person of the broker or 

dealer.20 Current Rule 342.21—Equities 

sets forth specific supervisory 

procedures for compliance with Section 

15(g) by requiring firms to review trades 

in Exchange-listed or Exchange-traded 

securities and related financial 

instruments that are effected for the 

member organization’s account or for 

the accounts of the member 

organization’s employees and family 

members. Current Rule 342.21—Equities 

also requires member organizations to 

promptly conduct an internal 

investigation into any trade the firm 

identifies that may have violated insider 

trading laws or rules. 

Proposed Rule 3110(d)—Equities 

incorporates provisions of current Rule 

342.21—Equities, with some 

modifications, and extends the 

requirement beyond Exchange-listed 

and Exchange-traded securities and 

related financial instruments to cover all 

securities. 

Proposed Rule 3110(d)—Equities 

would cover transaction reviews and 

investigations. Proposed Rule 

3110(d)(1)—Equities would require each 

member organization to include in its 

supervisory procedures a process for the 

review of securities transactions 

reasonably designed to identify trades 

that may violate the provisions of the 

Act, the rules thereunder, or Exchange 

rules prohibiting insider trading and 

manipulative and deceptive devices that 

are effected for the: 

• Accounts of the member 

organization; 

• Accounts introduced or carried by 

the member organization in which a 

person associated with the member 

organization has a beneficial interest or 

the authority to make investment 

decisions; 

• Accounts of a person associated 

with the member organization that are 

disclosed to the member organization 

pursuant to Rule 407—Equities or 

NASD Rule 3050, as applicable; and 

• Covered accounts. 

Under proposed Rule 3110(d)(2)— 

Equities, each member organization 

would be required to promptly conduct 

an internal investigation into any such 

trade to determine whether a violation 

of those laws or rules has occurred. 

In addition, under proposed Rule 

3110(d)(3)—Equities, a member 

organization engaging in investment 

banking services would be required to 

file written reports with the Exchange, 

signed by a senior officer of the member 

organization, at such times and, without 

limitation, including such content, as 

follows: 

• Within ten business days of the end 

of each calendar quarter, a written 

report describing each internal 

investigation initiated in the previous 

calendar quarter pursuant to proposed 

Rule 3110(d)(2)—Equities, including the 

identity of the member organization, the 

date each internal investigation 

commenced, the status of each open 

internal investigation, the resolution of 

any internal investigation reached 

during the previous calendar quarter, 

and, with respect to each internal 

investigation, the identity of the 

security, trades, accounts, associated 

persons of the member organization, or 

associated person of the member 

organization’s family members holding 

a covered account, under review, and 

that includes a copy of the member 

organization’s policies and procedures 

required by proposed Rule 3110(d)(1)— 

Equities. 

• Within five business days of 

completion of an internal investigation 

pursuant to proposed Rule 3110(d)(2)— 

Equities in which it was determined 

that a violation of the provisions of the 

Act, the rules thereunder, or Exchange 

rules prohibiting insider trading and 

manipulative and deceptive devices had 

occurred, a written report detailing the 

completion of the investigation, 

including the results of the 

investigation, any internal disciplinary 

action taken, and any referral of the 

matter to the Exchange, another SRO, 

the SEC, or any other federal, state, or 

international regulatory authority. 

For purposes of proposed Rule 

3110(d)(4)—Equities, the following 

definitions would apply: 

• The term ‘‘covered account’’ would 

include any account introduced or 

carried by the member organization that 

is held by: 

• The spouse of a person associated 

with the member organization; 

• A child of the person associated 

with the member organization or such 

person’s spouse, provided that the child 

resides in the same household as or is 

financially dependent upon the person 

associated with the member 

organization; 

• Any other related individual over 

whose account the person associated 

with the member organization has 

control; or 

• Any other individual over whose 

account the associated person of the 

member organization has control and to 

whose financial support such person 

materially contributes. 

• The term ‘‘investment banking 

services’’ would include, without 

limitation, acting as an underwriter, 

participating in a selling group in an 

offering for the issuer, or otherwise 

acting in furtherance of a public offering 

of the issuer; acting as a financial 

adviser in a merger or acquisition; 

providing venture capital or equity lines 

of credit or serving as placement agent 

for the issuer or otherwise acting in 

furtherance of a private offering of the 

issuer. 


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21The term ‘‘business day’’ would not include 

any partial business day provided that the 

associated person spends at least four hours on 

such business day at his or her designated branch 

office during the hours that such office is normally 

open for business. 

22Where such office of convenience is located on 

bank premises, signage necessary to comply with 

applicable federal and state laws, rules and 

regulations and applicable rules and regulations of 

other SROs, and securities and banking regulators 

could be displayed and would not be deemed 

‘‘holding out’’ for purposes of this section. 

Proposed Rule 3110(e)—Equities 

Proposed Rule 3110(e)—Equities 

would define ‘‘OSJ’’ and ‘‘branch 

office.’’ As noted above, ‘‘OSJ’’ would be 

a new designation for the Exchange and 

the definition of the term would 

substantially mirror FINRA’s definition. 

The term ‘‘OSJ’’ would mean any office 

of a member organization at which any 

one or more of the following functions 

take place: 

• Order execution or market making; 

• Structuring of public offerings or 

private placements; 

• Maintaining custody of customers’ 

funds or securities; 

• Final acceptance (approval) of new 

accounts on behalf of the member 

organization; 

• Review and endorsement of 

customer orders; 

• Final approval of retail 

communications for use by persons 

associated with the member 

organization, pursuant to Rule 

2210(b)(1)—Equities, except for an 

office that solely conducts final 

approval of research reports; or 

• Responsibility for supervising the 

activities of persons associated with the 

member organization at one or more 

other branch offices of the member 

organization. 

The definition of ‘‘branch office’’ 

would be substantially the same as 

current Rule 342.10—Equities. It would 

mean any location where one or more 

associated persons of a member 

organization regularly conducts the 

business of effecting any transactions in, 

or inducing or attempting to induce the 

purchase or sale of, any security, or is 

held out as such, excluding: 

• Any location that is established 

solely for customer service or back 

office type functions where no sales 

activities are conducted and that is not 

held out to the public as a branch office; 

• Any location that is the associated 

person’s primary residence, provided 

that: 

• Only one associated person, or 

multiple associated persons who reside 

at that location and are members of the 

same immediate family, conduct 

business at the location; 

• The location is not held out to the 

public as an office and the associated 

person does not meet with customers at 

the location; 

• Neither customer funds nor 

securities are handled at that location; 

• The associated person is assigned 

to a designated branch office, and such 

designated branch office is reflected on 

all business cards, stationery, retail 

communications and other 

communications to the public by such 

associated person; 

• The associated person’s 

correspondence and communications 

with the public are subject to the firm’s 

supervision in accordance with 

proposed Rule 3110—Equities; 

• Electronic communications (e.g., 

email) are made through the member 

organization’s electronic system; 

• All orders are entered through the 

designated branch office or an electronic 

system established by the member 

organization that is reviewable at the 

branch office; 

• Written supervisory procedures 

pertaining to supervision of sales 

activities conducted at the residence are 

maintained by the member organization; 

and 

• A list of the residence locations is 

maintained by the member organization. 

• Any location, other than a primary 

residence, that is used for securities 

business for less than 30 business 

days 21 in any one calendar year, 

provided the member organization 

complies with the first eight of the nine 

immediately preceding bullet points; 

• Any office of convenience, where 

associated persons occasionally and 

exclusively by appointment meet with 

customers, which is not held out to the 

public as an office; 22

• Any location that is used primarily 

to engage in non-securities activities 

and from which the associated person(s) 

effects no more than 25 securities 

transactions in any one calendar year; 

provided that any retail communication 

identifying such location also sets forth 

the address and telephone number of 

the location from which the associated 

person(s) conducting business at the 

non-branch locations are directly 

supervised; 

• The floor of a registered national 

securities exchange where a member 

organization conducts a direct access 

business with public customers; or 

• A temporary location established in 

response to the implementation of a 

business continuity plan. 

Notwithstanding the exclusions for 

branch offices described above, any 

location that is responsible for 

supervising the activities of persons 

associated with the member 

organization at one or more non-branch 

locations of the member organization 

would be considered a branch office. 

Proposed Supplementary Materials to 

Proposed Rule 3110—Equities 

Proposed Supplementary Material .01 

to Rule 3110—Equities would require a 

member organization’s main office 

location to be registered and designated 

as a branch office or OSJ if it meets the 

definitions of a ‘‘branch office’’ or 

‘‘office of supervisory jurisdiction’’ as 

set forth in proposed Rule 3110(e)— 

Equities. In general, the nature of 

activities conducted at a main office 

will satisfy the requirements of such 

terms. 

Proposed Supplementary Material .02 

to Rule 3110—Equities would provide 

that, in addition to the locations that 

meet the definition of OSJ in proposed 

Rule 3110(e)—Equities, each member 

organization must also register and 

designate other offices as OSJs as is 

necessary to supervise its associated 

persons in accordance with the 

standards set forth in proposed Rule 

3110—Equities. In making a 

determination as to whether to 

designate a location as an OSJ, the 

member organization should consider 

the following factors: 

• Whether registered persons at the 

location engage in retail sales or other 

activities involving regular contact with 

public customers; 

• Whether a substantial number of 

registered persons conduct securities 

activities at, or are otherwise supervised 

from, such location; 

• Whether the location is 

geographically distant from another OSJ 

of the firm; 

• Whether the member organization’s 

registered persons are geographically 

dispersed; and 

• Whether the securities activities at 

such location are diverse or complex. 

Proposed Supplementary Material .03 

to Rule 3110—Equities would provide 

additional guidance relating to proposed 

Rule 3110(a)(4)—Equities, which would 

require a member organization to 

designate one or more appropriately 

registered principals in each OSJ with 

the authority to carry out the 

supervisory responsibilities assigned to 

that office (‘‘on-site principal’’). The 

proposed Supplementary Material 

would provide that the designated onsite principal for each OSJ must have a 

physical presence, on a regular and 

routine basis, at each OSJ for which the 

principal has supervisory 

responsibilities. Consequently, there 

would be a general presumption that a 

principal will not be designated and 

assigned to be the on-site principal 

pursuant to proposed Rule 3110(a)(4)— 


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Equities to supervise more than one 

OSJ. If a member organization 

determines it is necessary to designate 

and assign one appropriately registered 

principal to be the on-site principal 

pursuant to proposed Rule 3110(a)(4)— 

Equities to supervise two or more OSJs, 

the member organization would be 

required to take into consideration, 

among others, the following factors: 

• Whether the on-site principal is 

qualified by virtue of experience and 

training to supervise the activities and 

associated persons in each location; 

• Whether the on-site principal has 

the capacity and time to supervise the 

activities and associated persons in each 

location; 

• Whether the on-site principal is a 

producing registered representative; 

• Whether the OSJ locations are in 

sufficiently close proximity to ensure 

that the on-site principal is physically 

present at each location on a regular and 

routine basis; and 

• The nature of activities at each 

location, including size and number of 

associated persons, scope of business 

activities, the nature and complexity of 

products and services offered, volume of 

business done, the disciplinary history 

of persons assigned to such locations, 

and any other indicators of irregularities 

or misconduct. 

The proposed Supplementary 

Material would provide that a member 

organization must establish, maintain, 

and enforce written supervisory 

procedures regarding the supervision of 

all OSJs. In all cases where a member 

organization designates and assigns one 

on-site principal to supervise more than 

one OSJ, the member organization 

would be required to document in the 

member organization’s written 

supervisory and inspection procedures 

the factors used to determine why the 

member organization considers such 

supervisory structure to be reasonable, 

and the determination by the member 

organization will be subject to scrutiny. 

Proposed Supplementary Material .04 

to Rule 3110—Equities would provide 

that a member organization is not 

required to conduct in-person meetings 

with each registered person or group of 

registered persons to comply with the 

annual compliance meeting (or 

interview) required by proposed Rule 

3110(a)(7)—Equities. A member 

organization that chooses to conduct 

compliance meetings using other 

methods (e.g., on-demand webcast or 

course, video conference, interactive 

classroom setting, telephone, or other 

electronic means) would be required to 

ensure, at a minimum, that each 

registered person attends the entire 

meeting (e.g., an on-demand annual 

compliance webcast would require each 

registered person to use a unique user 

ID and password to gain access and use 

a technology platform to track the time 

spent on the webcast, provide click-asyou go confirmation, and have an 

attestation of completion at the end of 

a webcast) and is able to ask questions 

regarding the presentation and receive 

answers in a timely fashion (e.g., an ondemand annual compliance webcast 

that allows registered persons to ask 

questions via an email to a presenter or 

a centralized address or via a telephone 

hotline and receive timely responses 

directly or view such responses on the 

member organization’s intranet site). 

Proposed Supplementary Material .05 

to Rule 3110—Equities would provide 

that a member organization could use a 

risk-based review system to comply 

with proposed Rule 3110(b)(2)— 

Equities’ requirement that a registered 

principal review all transactions relating 

to the investment banking or securities 

business of the member organization. A 

member organization would not be 

required to conduct detailed reviews of 

each transaction if it is using a 

reasonably designed risk-based review 

system that provides the member 

organization with sufficient information 

that permits it to focus on the areas that 

pose the greatest numbers and risks of 

violation. 

Proposed Supplementary Material .06 

to Rule 3110—Equities would provide 

that, by employing risk-based 

principles, a member organization must 

decide the extent to which additional 

policies and procedures for the review 

of: 

• Incoming and outgoing written 

(including electronic) correspondence 

that fall outside of the subject matters 

listed in proposed Rule 3110(b)(4)— 

Equities are necessary for its business 

and structure. If a member 

organization’s procedures do not require 

that all correspondence be reviewed 

before use or distribution, the 

procedures must provide for: 

• The education and training of 

associated persons regarding the firm’s 

procedures governing correspondence; 

• The documentation of such 

education and training; and 

• Surveillance and follow-up to 

ensure that such procedures are 

implemented and followed. 

• Internal communications that are 

not of a subject matter that require 

review under Exchange rules and 

federal securities laws are necessary for 

its business and structure. 

Proposed Supplementary Material .07 

to Rule 3110—Equities would provide 

that the evidence of review required in 

proposed Rule 3110(b)(4)—Equities 

must be chronicled either electronically 

or on paper and must clearly identify 

the reviewer, the internal 

communication or correspondence that 

was reviewed, the date of review, and 

the actions taken by the member 

organization as a result of any 

significant regulatory issues identified 

during the review. Merely opening a 

communication would not be sufficient 

review. 

Proposed Supplementary Material .08 

to Rule 3110—Equities would provide 

that, in the course of the supervision 

and review of correspondence and 

internal communications required by 

proposed Rule 3110(b)(4)—Equities, a 

supervisor/principal may delegate 

certain functions to persons who need 

not be registered. However, the 

supervisor/principal would remain 

ultimately responsible for the 

performance of all necessary 

supervisory reviews, irrespective of 

whether he or she delegates functions 

related to the review. Accordingly, 

supervisors/principals would have to 

take reasonable and appropriate action 

to ensure delegated functions are 

properly executed and would be 

required to evidence performance of 

their procedures sufficiently to 

demonstrate overall supervisory control. 

Proposed Supplementary Material .09 

to Rule 3110—Equities would provide 

that each member organization must 

retain the internal communications and 

correspondence of associated persons 

relating to the member organization’s 

investment banking or securities 

business for the period of time and 

accessibility specified in Rule 17a–4(b) 

under the Act. The names of the persons 

who prepared outgoing correspondence 

and who reviewed the correspondence 

would have to be ascertainable from the 

retained records, and the retained 

records would have to be readily 

available to the Exchange, upon request. 

Proposed Supplementary Material .10 

to Rule 3110—Equities would provide 

that a member organization’s 

determination that it is not possible to 

comply with proposed Rules 

3110(b)(6)(C)(i)—Equities or 

(b)(6)(C)(ii)—Equities prohibiting 

supervisory personnel from supervising 

their own activities and from reporting 

to, or otherwise having compensation or 

continued employment determined by, 

a person or persons they are supervising 

generally will arise in instances where: 

• The member organization is a sole 

proprietor in a single-person firm; 

• A registered person is the member 

organization’s most senior executive 

officer (or similar position); or 

• A registered person is one of several 

of the member organization’s most 


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senior executive officers (or similar 

positions). 

Proposed Supplementary Material .11 

to Rule 3110—Equities would provide 

that a member organization may use 

electronic media to satisfy its obligation 

to communicate its written supervisory 

procedures, and any amendment 

thereto, pursuant to proposed Rule 

3110(b)(7)—Equities, provided that: 

• The written supervisory procedures 

have been promptly communicated to, 

and are readily accessible by, all 

associated persons to whom such 

supervisory procedures apply based on 

their activities and responsibilities 

through, for example, the member 

organization’s intranet system; 

• All amendments to the written 

supervisory procedures are promptly 

posted to the member organization’s 

electronic media; 

• Associated persons are notified 

when amendments relevant to their 

activities and responsibilities have been 

made to the written supervisory 

procedures; 

• The member organization has 

reasonable procedures to monitor and 

maintain the security of the material 

posted to ensure that it cannot be 

altered by unauthorized persons; and 

• The member organization retains 

current and prior versions of its written 

supervisory procedures in compliance 

with the applicable record retention 

requirements of Rule 17a–4(e)(7) under 

the Act. 

Proposed Supplementary Material .12 

to Rule 3110—Equities would provide 

that, in fulfilling its obligations under 

proposed Rule 3110(c)—Equities, each 

member organization must conduct a 

review, at least annually, of the 

businesses in which it engages. The 

review would have to be reasonably 

designed to assist in detecting and 

preventing violations of and achieving 

compliance with applicable securities 

laws and regulations and with Exchange 

rules. Each member organization would 

be required to establish and maintain 

supervisory procedures that must take 

into consideration, among other things, 

the firm’s size, organizational structure, 

scope of business activities, number and 

location of the firm’s offices, the nature 

and complexity of the products and 

services offered by the firm, the volume 

of business done, the number of 

associated persons assigned to a 

location, the disciplinary history of 

registered representatives or associated 

persons, and any indicators of 

irregularities or misconduct (i.e., ‘‘red 

flags’’), etc. The procedures established 

and reviews conducted would have to 

provide that the quality of supervision 

at remote locations is sufficient to 

ensure compliance with applicable 

securities laws and regulations and with 

Exchange rules. A member organization 

would have to be especially diligent in 

establishing procedures and conducting 

reasonable reviews with respect to a 

non-branch location where a registered 

representative engages in securities 

activities. Based on the factors outlined 

above, member organizations might 

need to impose reasonably designed 

supervisory procedures for certain 

locations or may need to provide for 

more frequent reviews of certain 

locations. 

Proposed Supplementary Material .13 

to Rule 3110—Equities would provide 

additional guidance to proposed Rule 

3110(c)(1)(C)—Equities, which would 

require a member organization to 

inspect on a regular periodic schedule 

every non-branch location. In 

establishing a non-branch location 

inspection schedule, there would be a 

general presumption that a non-branch 

location will be inspected at least every 

three years, even in the absence of any 

indicators of irregularities or 

misconduct (i.e., ‘‘red flags’’). If a 

member organization establishes a 

longer periodic inspection schedule, the 

member organization would be required 

to document in its written supervisory 

and inspection procedures the factors 

used in determining that a longer 

periodic inspection cycle is appropriate. 

Proposed Supplementary Material .14 

to Rule 3110—Equities would provide 

that a member organization’s 

determination that it is not possible to 

comply with proposed Rule 

3110(c)(3)(B)—Equities with respect to 

who is not allowed to conduct a 

location’s inspection will generally arise 

in instances where: 

• The member organization has only 

one office; or 

• The member organization has a 

business model where small or singleperson offices report directly to an OSJ 

manager who is also considered the 

offices’ branch office manager. 

Proposed Supplementary Material .15 

to Rule 3110—Equities would provide a 

definition for ‘‘associated person’’ for 

the purposes of proposed Rule 3110— 

Equities. 

Proposed Rule 3120—Equities 

(Supervisory Control System) 

Proposed Rule 3120(a)—Equities, 

which is based on FINRA Rule 3120(a), 

would provide that each member 

organization must designate and 

specifically identify to the Exchange one 

or more principals who must establish, 

maintain, and enforce a system of 

supervisory control policies and 

procedures that: 

• Test and verify that the member 

organization’s supervisory procedures 

are reasonably designed with respect to 

the activities of the member 

organization and its associated persons, 

to achieve compliance with applicable 

securities laws and regulations, and 

with applicable Exchange rules; and 

• Create additional or amend 

supervisory procedures where the need 

is identified by such testing and 

verification. 

Similar to the requirements of current 

Rule 342.30—Equities, the designated 

principal or principals would be 

required to submit to the member 

organization’s senior management no 

less than annually, a report detailing 

each member organization’s system of 

supervisory controls, the summary of 

the test results and significant identified 

exceptions, and any additional or 

amended supervisory procedures 

created in response to the test results. 

Proposed Rule 3120(b)—Equities 

would provide that each report 

provided to senior management 

pursuant to proposed Rule 3120(a)— 

Equities in the calendar year following 

a calendar year in which a member 

organization reported $200 million or 

more in gross revenue must include, to 

the extent applicable to the member 

organization’s business: 

• A tabulation of the reports 

pertaining to customer complaints and 

internal investigations made to the 

Exchange during the preceding year; 

and 

• Discussion of the preceding year’s 

compliance efforts, including 

procedures and educational programs, 

in each of the following areas: 

• Trading and market activities; 

• Investment banking activities; 

• Antifraud and sales practices; 

• Finance and operations; 

• Supervision; and 

• Anti-money laundering. 

The categories listed above are 

incorporated from the annual report 

content requirements of current Rule 

342.30—Equities, which apply to all 

member organizations regardless of 

revenue. The proposed rule change 

seeks to mitigate compliance costs and 

burdens with respect to proposed Rule 

3120—Equities’ annual reporting 

requirements by requiring that only 

member organizations reporting $200 

million or more in gross revenues in the 

preceding year include in their annual 

reports supplemental information from 

current Rule 342.30—Equities’ annual 

report content requirements. The 

Exchange also believes that the 

proposed threshold strikes the 

appropriate balance as it encompasses 

larger member organizations, member 


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organizations engaged in significant 

underwriting activities and substantial 

trading activities or market making 

business, and member organizations 

with extensive sales platforms. 

Proposed Rule 3120(c)—Equities 

would provide that, for purposes of 

proposed Rule 3120(b)—Equities, ‘‘gross 

revenue’’ is defined as: 

• Total revenue as reported on 

FOCUS Form Part II or IIA (line item 

4030) less commodities revenue (line 

item 3990), if applicable; or 

• Total revenue as reported on 

FOCUS Form Part II CSE (line item 

4030) less, if applicable: 

• Commissions on commodity 

transactions (line item 3991); and 

• Commodities gains or losses (line 

items 3924 and 3904). 

Proposed Supplementary Material .01 

to Rule 3120—Equities would provide a 

definition for ‘‘associated person’’ for 

the purposes of proposed Rule 3120— 

Equities. 

Proposed Rule 3150—Equities (Holding 

of Customer Mail) 

Proposed Rule 3150(a)—Equities 

would provide that a member 

organization may hold mail for a 

customer who will not be receiving mail 

at his or her usual address, provided 

that: 

• The member organization receives 

written instructions from the customer 

that include the time period during 

which the member organization is 

requested to hold the customer’s mail. If 

the requested time period included in 

the instructions is longer than three 

consecutive months (including any 

aggregation of time periods from prior 

requests), the customer’s instructions 

must include an acceptable reason for 

the request (e.g., safety or security 

concerns). Convenience is not an 

acceptable reason for holding mail 

longer than three months; 

• The member organization: 

• Informs the customer in writing 

of any alternate methods, such as email 

or access through the member 

organization’s Web site, that the 

customer may use to receive or monitor 

account activity and information; and 

• Obtains the customer’s 

confirmation of the receipt of such 

information; and 

• The member organization verifies at 

reasonable intervals that the customer’s 

instructions still apply. 

Proposed Rule 3150(b)—Equities 

would provide that, during the time that 

a member organization is holding mail 

for a customer, the member organization 

must be able to communicate with the 

customer in a timely manner to provide 

important account information (e.g., 

privacy notices and the Securities 

Investor Protection Corporation 

information disclosures required by 

Rule 2266—Equities), as necessary. 

Proposed Rule 3150(c)—Equities 

would provide that a member 

organization holding a customer’s mail 

pursuant to proposed Rule 3150— 

Equities must take actions reasonably 

designed to ensure that the customer’s 

mail is not tampered with, held without 

the customer’s consent, or used by an 

associated person of the member 

organization in any manner that would 

violate Exchange rules or the federal 

securities laws. 

The Exchange currently does not have 

a rule comparable to proposed Rule 

3150—Equities. The Exchange believes 

that adding proposed Rule 3150— 

Equities would help protect customers. 

Proposed Supplementary Material .01 

to Rule 3150—Equities would provide a 

definition for ‘‘associated person’’ for 

the purposes of proposed Rule 3150— 

Equities. 

Proposed Rule 3170—Equities (Tape 

Recording of Registered Persons by 

Certain Firms) 

Proposed Rule 3170(a)—Equities 

would provide the following definitions 

for purposes of proposed Rule 3170— 

Equities: 

• The term ‘‘registered person’’ would 

mean any person registered with the 

Exchange. 

• The term ‘‘disciplined firm’’ would 

mean: 

• A member organization that, in 

connection with sales practices 

involving the offer, purchase, or sale of 

any security, has been expelled from 

membership or participation in any 

securities industry SRO or is subject to 

an order of the SEC revoking its 

registration as a broker-dealer; 

• A futures commission merchant 

or introducing broker that has been 

formally charged by either the 

Commodity Futures Trading 

Commission or a registered futures 

association with deceptive 

telemarketing practices or promotional 

material relating to security futures, 

those charges have been resolved, and 

the futures commission merchant or 

introducing broker has been closed 

down and permanently barred from the 

futures industry as a result of those 

charges; or 

• A futures commission merchant 

or introducing broker that, in 

connection with sales practices 

involving the offer, purchase, or sale of 

security futures is subject to an order of 

the SEC revoking its registration as a 

broker or dealer. 

• The term ‘‘disciplinary history’’ 

would mean a finding of a violation by 

a registered person in the past five years 

by the SEC, an SRO, or a foreign 

financial regulatory authority of one or 

more of the following provisions (or 

comparable foreign provision) or rules 

or regulations thereunder: 

• Violations of the types 

enumerated in Section 15(b)(4)(E) of the 

Act; 

• Section 15(c) of the Act; 

• Section 17(a) of the Securities Act 

of 1933; 

• Rules 10b–5 and 15g–1 through 

15g–9 under the Act; 

• NASD Rule 2110 (Standards of 

Commercial Honor and Principles of 

Trade) or FINRA Rule 2010 (Standards 

of Commercial Honor and Principles of 

Trade) or Rule 2010—Equities 

(Standards of Commercial Honor and 

Principles of Trade) or NYSE MKT Rule 

476(a)(6) (Failure to Observe High 

Standards of Commercial Honor and 

Just and Equitable Principles of Trade) 

(only if the finding of a violation of 

NASD Rule 2110, FINRA Rule 2010, 

Rule 2010—Equities or NYSE MKT Rule 

476(a)(6) is for unauthorized trading, 

churning, conversion, material 

misrepresentations or omissions to a 

customer, front-running, trading ahead 

of research reports or excessive 

markups), FINRA Rule 5280 (Trading 

Ahead of Research Reports), NASD Rule 

2120 (Use of Manipulative, Deceptive or 

Other Fraudulent Devices) or FINRA 

Rule 2020 (Use of Manipulative, 

Deceptive or Other Fraudulent Devices) 

or Rule 2020—Equities (Use of 

Manipulative, Deceptive or Other 

Fraudulent Devices) or NYSE MKT Rule 

476(a)(5) (effecting any transaction in, or 

inducing the purchase or sale of, any 

security by means of any manipulative, 

deceptive or other fraudulent device or 

contrivance), NASD Rule 2310 

(Recommendations to Customers 

(Suitability)) or FINRA Rule 2111 

(Suitability) or Rule 405—Equities 

(Diligence as to Accounts), NASD Rule 

2330 (Customers’ Securities or Funds) 

or FINRA Rule 2150 (Improper Use of 

Customers’ Securities or Funds; 

Prohibition Against Guarantees and 

Sharing in Accounts) or Rule 2150— 

Equities (Improper Use of Customers’ 

Securities or Funds; Prohibition Against 

Guarantees and Sharing in Accounts), 

NASD Rule 2440 (Fair Prices and 

Commissions), NASD Rule 3010 

(Supervision) or FINRA Rule 3110 

(Supervision) or Rule 3110—Equities 

(Supervision) or NYSE MKT Rule 342 

(Offices—Approval, Supervision and 

Control) (failure to supervise only for 

both NASD Rule 3010, FINRA Rule 

3110, Rule 3110—Equities or NYSE 


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23FINRA Rule 3170(d) requires written 

applications for an exemption to be made pursuant 

to the FINRA Rule 9600 Series, which sets forth the 

procedures for seeking exemptive relief. The 

Exchange has not adopted the FINRA Rule 9600 

Series, and therefore proposes that a taping firm 

seeking an exemption file a written application 

with the Exchange within 30 days after receiving 

notice from the Exchange or obtaining actual 

knowledge that it is a taping firm. 

24The Exchange proposes to update a cross 

reference in Rule 86—Equities, which should refer 

to Rule 4522—Equities instead of Rule 440— 

Equities. See Exchange Act Release No. 64887 (Jul. 

14, 2011), 76 FR 43357 (Jul. 20, 2011) (SR– 

NYSEAmex–2011–51). NYSE submitted a similar 

proposal at that time, which included the change 

to NYSE Rule 86 that the Exchange is proposing 

herein. See Exchange Act Release No. 64888 (Jul. 

14, 2011), 76 FR 43366 (Jul. 20, 2011) (SR–NYSE– 

2011–33). The Exchange also proposes to update a 

reference to Rules 17a–3 and 17a–4 of the Act. 

25 15 U.S.C. 78f(b). 

26 15 U.S.C. 78f(b)(5). 

MKT Rule 342), NASD Rule 3310 

(Publication of Transactions and 

Quotations) or FINRA Rule 5210 

(Publication of Transactions and 

Quotations), and NASD Rule 3330 

(Payment Designed to Influence Market 

Prices, Other than Paid Advertising) or 

FINRA Rule 5230 (Payments Involving 

Publications that Influence the Market 

Price of a Security), and MSRB Rules G– 

19, G–30, and G–37(b) & (c). 

• The term ‘‘tape recording’’ would 

include without limitation, any 

electronic or digital recording that meets 

the requirements of proposed Rule 

3170—Equities. 

• The term ‘‘taping firm’’ would 

mean: 

• A member organization with at 

least five but fewer than ten registered 

persons, where 40% or more of its 

registered persons have been associated 

with one or more disciplined firms in a 

registered capacity within the last three 

years; 

• A member organization with at 

least ten but fewer than twenty 

registered persons, where four or more 

of its registered persons have been 

associated with one or more disciplined 

firms in a registered capacity within the 

last three years; 

• A member organization with at 

least twenty registered persons where 

20% or more of its registered persons 

have been associated with one or more 

disciplined firms in a registered 

capacity within the last three years. 

• For purposes of calculating the 

number of registered persons who have 

been associated with one or more 

disciplined firms in a registered 

capacity within the last three years 

pursuant to proposed Rule 3170(a)(5)— 

Equities, member organizations should 

not include registered persons who: 

• Have been registered for an 

aggregate total of 90 days or less with 

one or more disciplined firms within 

the past three years; and 

• Do not have a disciplinary 

history. 

Proposed Rule 3170(b)—Equities 

would provide that each member 

organization that either is notified by 

the Exchange or otherwise has actual 

knowledge that it is a taping firm must 

establish, maintain, and enforce special 

written procedures for supervising the 

telemarketing activities of all of its 

registered persons. A taping firm 

required to establish, maintain, and 

enforce special written procedures 

pursuant to proposed Rule 3170(b)— 

Equities would have to establish and 

implement the procedures within 60 

days of receiving notice from the 

Exchange or obtaining actual knowledge 

that it is a taping firm. 

The procedures required by proposed 

Rule 3170(b)—Equities would include 

procedures for tape recording all 

telephone conversations between the 

taping firm’s registered persons and 

both existing and potential customers 

and for reviewing the tape recordings to 

ensure compliance with applicable 

securities laws and regulations and 

applicable Exchange rules. The 

procedures would have to be 

appropriate for the taping firm’s 

business, size, structure, and customers, 

and must be maintained for a period of 

three years from the date that the taping 

firm establishes and implements the 

procedures. All tape recordings made 

pursuant to the requirements of 

proposed Rule 3170(b)—Equities would 

have to be retained for a period of not 

less than three years from the date the 

tape was created, the first two years in 

an easily accessible place. Each taping 

firm would be required to catalog the 

retained tapes by registered person and 

date. By the 30th day of the month 

following the end of each calendar 

quarter, each taping firm subject to the 

requirements of proposed Rule 

3170(b)—Equities would have to submit 

to the Exchange a report on the taping 

firm’s supervision of the telemarketing 

activities of its registered persons. 

Proposed Rule 3170(c)—Equities 

would provide that a member 

organization that becomes a taping firm 

for the first time may reduce its staffing 

levels to fall below the threshold levels 

within 30 days after receiving notice 

from the Exchange pursuant to the 

provisions of proposed Rule 

3170(b)(1)—Equities or obtaining actual 

knowledge that it is a taping firm, 

provided the member organization 

promptly notifies the Exchange’s 

Department of Member Regulation in 

writing of its becoming subject to the 

rule. Once the member organization has 

reduced its staffing levels to fall below 

the threshold levels, it could not rehire 

a person terminated to accomplish the 

staff reduction for a period of 180 days. 

On or prior to reducing staffing levels 

pursuant to proposed Rule 3170(c)— 

Equities, a member organization would 

be required to provide the Exchange’s 

Department of Member Regulation with 

written notice identifying the 

terminated person(s). 

Proposed Rule 3170(d)—Equities 

would provide that the Exchange may, 

in exceptional circumstances, taking 

into consideration all relevant factors, 

exempt any taping firm unconditionally 

or on specified terms and conditions 

from the requirements of proposed Rule 

3170—Equities. A taping firm seeking 

an exemption would be required to file 

a written application with the 

Exchange 23 within 30 days after 

receiving notice from the Exchange or 

obtaining actual knowledge that it is a 

taping firm. A member organization that 

becomes a taping firm for the first time 

could elect to reduce its staffing levels 

pursuant to the provisions of proposed 

Rule 3170(c)—Equities or, alternatively, 

could seek an exemption pursuant to 

proposed Rule 3170(d)—Equities, as 

appropriate. A taping firm could not 

seek relief from proposed Rule 3170— 

Equities by both reducing its staffing 

levels pursuant to proposed Rule 

3170(c)—Equities and requesting an 

exemption. 

The Exchange does not currently have 

a rule comparable to proposed Rule 

3170–Equities. The Exchange believes 

that adopting proposed Rule 3170– 

Equities would provide for more 

effective supervision of member 

organizations that have a significant 

number of registered persons with 

disciplinary history, thereby resulting is 

enhanced customer protection. 

Conforming Changes 

The Exchange also proposes to make 

certain conforming changes to Rules 

476A, 36–Equities, 70–Equities, 86– 

Equities, 345–Equities, 405–Equities, 

407–Equities, 408–Equities, 410– 

Equities, 416A–Equities, 472–Equities, 

and 2210–Equities to delete or update 

cross-references to the proposed rules as 

applicable. The Exchange also proposes 

certain technical changes within Rule 

86–Equities, which are unrelated to this 

proposal.24

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

Section 6(b) of the Act,25 in general, and 

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

of the Act,26 in particular, because it is 

designed to promote just and equitable 


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27 15 U.S.C. 78s(b)(3)(A)(iii). 

28 17 CFR 240.19b–4(f)(6). 

29 Id. 

30 17 CFR 240.19b–4(f)(6)(iii). 

31For purposes of waiving the 30-day operative 

delay, the SEC has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 32 15 U.S.C. 78s(b)(2)(B). 

principles of trade and to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system. 

Specifically, the Exchange believes that 

the proposed rule change supports the 

objectives of the Act by providing 

greater harmonization between 

Exchange rules and FINRA rules of 

similar purpose, resulting in less 

burdensome and more efficient 

regulatory compliance. In particular, 

Exchange member organizations that are 

also FINRA members are subject to 

Exchange supervisory rules and FINRA 

Rules 3110, 3120, 3150, and 3170, and 

harmonizing these rules by adopting 

proposed Rules 3110–Equities, 3120– 

Equities, 3150–Equities, and 3170– 

Equities would promote just and 

equitable principles of trade by 

requiring a single standard for 

supervision. The Exchange believes that 

to the extent it has proposed changes 

that differ from the FINRA version of 

the Exchange rules, such changes are 

generally technical in nature and do not 

change the substance of the proposed 

rules. The Exchange also believes that 

the proposed rule change would update 

and add specificity to the requirements 

governing supervision, which would 

promote just and equitable principles of 

trade and help to protect investors. As 

such the Exchange believes that the 

proposed rule change meets the 

requirements of Section 6(b)(5) of the 

Act. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will result in 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. The 

Exchange believes that the proposed 

rule change is not intended to address 

competitive issues but rather to achieve 

greater consistency between the 

Exchange’s rules and FINRA’s rules 

concerning supervision. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The Exchange has filed the proposed 

rule change pursuant to Section 

19(b)(3)(A)(iii) of the Act 27 and Rule 

19b–4(f)(6) thereunder.28 Because the 

proposed rule change does not: (i) 

Significantly affect the protection of 

investors or the public interest; (ii) 

impose any significant burden on 

competition; and (iii) become operative 

prior to 30 days from the date on which 

it was filed, or such shorter time as the 

Commission may designate, if 

consistent with the protection of 

investors and the public interest, the 

proposed rule change has become 

effective pursuant to Section 19(b)(3)(A) 

of the Act and Rule 19b–4(f)(6)(iii) 

thereunder. 

A proposed rule change filed under 

Rule 19b–4(f)(6) normally does not 

become operative prior to 30 days after 

the date of the filing.29 However, 

pursuant to Rule 19b–4(f)(6)(iii), the 

Commission may designate a shorter 

period of time if such action is 

consistent with the protection of 

investors and the public interest.30 The 

Exchange has asked the Commission to 

waive the 30-day operative delay so that 

the proposal may become operative 

immediately upon filing. 

The Commission believes that 

waiving the 30-day operative delay is 

consistent with the protection of 

investors and the public interest, 

because it allows the Exchange to 

immediately conform its supervision 

rules to corresponding FINRA rules. 

This will ensure that dual members of 

the Exchange and FINRA generally will 

be subject to a single set of rules 

governing supervision. As noted by the 

Exchange, the proposal will harmonize 

NYSE MKT and FINRA rules, resulting 

in less burdensome and more efficient 

regulatory compliance. In addition, the 

proposal will update and add specificity 

to the Exchange’s requirements 

governing supervision, which will 

promote just and equitable principles of 

trade and help to protect investors. For 

these reasons, the Commission 

designates the proposed rule change to 

be operative upon filing.31

At any time within 60 days of the 

filing of such proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission shall institute proceedings 

under Section 19(b)(2)(B) of the Act to 

determine whether the proposed rule 

change should be approved or 

disapproved.32

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– 

NYSEMKT–2014–93 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NYSEMKT–2014–93. 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 Web site (http://www.sec.gov/

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for Web site viewing and 

printing in the Commission’s Public 

Reference Section, 100 F Street NE., 

Washington, DC 20549–1090 on official 

business days between the hours of 

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

filing will also be available for 

inspection and copying at the NYSE’s 

principal office. All comments received 

will be posted without change; the 

Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR– 

NYSEMKT–2014–93 and should be 

submitted on or before December 16, 

2014. 


wreier-aviles on DSK4TPTVN1PROD with NOTICES
70250 Federal Register / Vol. 79, No. 227 / Tuesday, November 25, 2014 / Notices 

33 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(1). 

5NSCC’s Rules are available at http://dtcc.com/ 

legal/rules-and-procedures.aspx. 

6 15 U.S.C. 78q–1(b)(3)(C). 

7See Commission orders approving NSCC and 

DTC’s rule filings which implemented the current 

stock ownership structure that satisfies the fair 

representation requirements. Securities Exchange 

Act Release No. 41800 (August 27, 1999), 64 FR 

48694 (September 7, 1999) (SR–NSCC–1999–10); 

and Securities Exchange Act Release No. 41786 

(August 24, 1999), 64 FR 47882 (September 1, 1999) 

(SR–DTC–1999–17). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.33

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–27839 Filed 11–24–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73644; File No. SR–NSCC– 

2014–10] 

Self-Regulatory Organizations; 

National Securities Clearing 

Corporation; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Clarify That Federal 

Reserve Banks, Central 

Counterparties, and Central Securities 

Depositories Shall Not Be Considered 

Either ‘‘Mandatory Purchaser 

Participants’’ or ‘‘Voluntary Purchaser 

Participants’’ 

November 19, 2014. 

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 November 

12, 2014, National Securities Clearing 

Corporation (‘‘NSCC’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II and III 

below, which Items have been prepared 

by NSCC. NSCC filed the proposed rule 

change pursuant to Section 19(b)(3)(A) 3

of the Act and Rule 19b–4(f)(1) 4

thereunder. The proposed rule change 

was effective upon filing with the 

Commission. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

The proposed rule change consists of 

amendments to Rule 64 Rules & 

Procedures (‘‘Rules’’) of NSCC in order 

to clarify that Federal Reserve Banks, 

central counterparties, and central 

securities depositories shall not be 

considered either ‘‘Mandatory Purchaser 

Participants’’ or ‘‘Voluntary Purchaser 

Participants’’ as such terms are defined 

therein, as more fully described below. 

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, 

NSCC 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. NSCC has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

(A) Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

1. Purpose 

Pursuant to the Third Amended and 

Restated Shareholders Agreement, dated 

as of December 7, 2005 (‘‘Shareholders 

Agreement’’), by and among The 

Depository Trust & Clearing Corporation 

(‘‘DTCC’’), The Depository Trust 

Company (‘‘DTC’’), NSCC, Fixed Income 

Clearing Corporation (‘‘FICC’’) and the 

other parties thereto, and NSCC Rule 64: 

(1) Members (as such term is defined in 

the Rules 5) other than non-U.S. based 

central securities depositories are 

required to be ‘‘Mandatory Purchaser 

Participants’’ (as such term is defined in 

Rule 64) and be parties to the 

Shareholders Agreement; (2) users 

whose use of NSCC is more limited and 

does not include the guaranteed 

services, i.e., Fund Members, Insurance 

Carrier/Retirement Services Members, 

Municipal Comparison Only Members, 

and Mutual Fund/Insurance Services 

Members (as such terms are defined in 

the Rules), are permitted, but not 

required, to purchase and own shares of 

DTCC common stock (‘‘Common 

Shares’’) and be parties to the 

Shareholders Agreement; and (3) all 

other users i.e., Data Services Only 

Members, Commission Billing Members, 

Settling Bank Only Members, 

Investment Manager/Agent Members, 

TPP Members, TPA Members, AIP 

Members, and AIP Settling Bank Only 

Members (as such terms are defined in 

the Rules), are not permitted to 

purchase and own Common Shares or 

be parties to the Shareholders 

Agreement. 

NSCC is proposing to amend Rule 64, 

as marked on Exhibit 5 hereto, in order 

to make clear Federal Reserve Banks, 

central counterparties, and central 

securities depositories shall not be 

considered either Mandatory Purchaser 

Participants or Voluntary Purchaser 

Participants (as such terms are defined 

in Rule 64). NSCC has interpreted Rule 

64 to exclude from its provisions: (1) 

Federal Reserve Banks, because it was 

never intended that such governmental 

authorities should be required to own 

shares in DTCC notwithstanding that 

they may use certain services of NSCC; 

and (2) central counterparties and 

central securities depositories, because 

link arrangements between NSCC and 

these entities are for the purpose of 

extending clearing agency services 

across borders or among closely related 

activities and products, but not for 

ownership purposes. 

2. Statutory Basis 

The proposed rule change is 

consistent with the Act, and the rules 

and regulations thereunder, in 

particular Section 17A(b)(3)(C) which 

requires that the rules of NSCC ‘‘assure 

a fair representation of its shareholders 

(or members) and participants in the 

selection of its directors and 

administration of its affairs . . . [and 

the Commission] may determine that 

the representation of participants is fair 

if they are afforded a reasonable 

opportunity to acquire voting stock of 

the clearing agency, directly or 

indirectly, in reasonable proportion to 

their use of such clearing agency.’’ 6

NSCC implements and meets this 

requirement through NSCC Rule 64, 

which afford NSCC’s Members a 

reasonable opportunity to acquire voting 

stock indirectly in the clearing agency 

in reasonable proportion to their use of 

the clearing agency.7 The proposed rule 

change constitutes a stated policy, 

practice, or interpretation with respect 

to the meaning, administration, or 

enforcement of this existing rule. 

(B) Clearing Agency’s Statement on 

Burden on Competition 

The proposed rule change will not 

have any impact, or impose any burden, 

on competition. 

(C) Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants, or Others 

Written comments relating to the 

proposed rule change have not yet been 

solicited or received. NSCC will notify 


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