2450 Federal Register / Vol. 80, No. 11 / Friday, January 16, 2015 / Notices 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 73672 

(Nov. 21, 2014), 79 FR 70909 (Nov. 28, 2014) 

(‘‘Notice’’). 

4Current Rule 311(f) permits the Exchange to 

approve ‘‘entities that have characteristics 

essentially similar to corporations, partnerships, or 

both’’ as a member organization ‘‘on such terms and 

conditions as the Exchange may prescribe.’’ 

5Rule 311(b)(2) and (b)(3) currently impose the 

same requirement on the relevant control persons 

at corporations and partnerships, respectively. 

6The first sentence of Rule 311(f) also provides 

that every member firm organization shall be a 

partnership or corporation. This statement is 

redundant to Rule 311(b), which the Exchange is 

amending to add LLCs. Accordingly, the Exchange 

proposes to delete the first sentence of Rule 311(f) 

in its entirety. 

7See 17 CFR 240.15a–6 and Commission Guide 

to Broker-Dealer Registration, Division of Trading 

and Markets, available at http://www.sec.gov/

divisions/marketreg/bdguide.htm (foreign brokerdealers that, from the outside of the United States, 

induce or attempt to induce securities transactions 

by any person in the United States, or that use the 

means or instrumentalities of interstate commerce 

in the United States for this purpose, must register 

as broker-dealers with the Commission). 

8See, e.g., NASD Membership and Registration 

Rules (1000 Series). NASD Rule 1090 imposes 

specific requirements on members that do not 

maintain an office in the United States responsible 

for preparing and maintaining financial and other 

reports required to be filed with the SEC and the 

Exchange, which the Exchange proposes to import 

into Rule 313. See infra note 9 and accompanying 

text. See also BATS Exchange, Inc. Rules 2.3, 2.5 

and 2.6. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74035; File No. SR–NYSE– 

2014–63] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Order 

Approving Proposed Rule Change 

Amending Rules 311 and 313 To Add 

Limited Liability Companies as Eligible 

Member Organizations and Delineate 

the Information Limited Liability 

Companies Must Submit to the 

Exchange as Part of the Membership 

Process; Eliminate the Requirement 

That a Member Corporation Be Created 

or Organized, and Maintain Its 

Principal Place of Business, in the 

United States; and Make Additional 

Related Amendments To Update Its 

Membership Rules 

January 12, 2015. 

I. Introduction 

On November 12, 2014, New York 

Stock Exchange LLC (‘‘NYSE’’ or the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (the 

‘‘Commission’’) pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (the ‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 a proposal to amend NYSE 

Rules 311 and 313 to add limited 

liability companies (‘‘LLCs’’) to the 

types of eligible member organizations 

and delineate the information LLCs 

must submit to the Exchange as part of 

the membership process; eliminate the 

requirement that a member corporation 

be created or organized, and maintain 

its principal place of business, in the 

United States; and make additional 

related amendments to update its 

membership rules. The proposed rule 

change was published for comment in 

the Federal Register on November 28, 

2014.3 The Commission received no 

comments on the proposal. This order 

approves the proposed rule change. 

II. Description of the Proposal 

A. Rule 311 

NYSE Rule 311 governs the formation 

and approval of member organizations. 

The Exchange proposes to revise Rule 

311 to explicitly provide for LLCs to 

apply to become member organizations 

and eliminate the requirement that a 

member corporation be created or 

organized, and maintain its principal 

place of business, in the United States. 

The Exchange’s membership rules 

currently provide for member 

organizations to be corporations or 

partnerships, but have not explicitly 

provided for LLCs.4 The Exchange 

proposes to add LLCs to the types of 

potential member organizations and 

require LLCs to meet the same 

requirements currently applicable to 

partnerships and corporations set forth 

in Rule 311(b). As part of the proposed 

revision, the Exchange seeks to add a 

new section (4) to Rule 311(b) requiring 

every member of an LLC to be a 

member, principal executive, or 

approved person.5 The Exchange also 

proposes to amend current Rule 

311(b)(6) to reflect that proposed LLC 

member organizations must, like 

corporations and partnerships, also 

comply with any additional 

requirements as the rules of the 

Exchange may prescribe. In addition, 

the Exchange proposes to add new 

Supplementary Material .16 to Rule 311 

to specify that LLC applicants for 

Exchange membership are subject to 

Rule 313.24 regarding the submission of 

copies of proposed or existing limited 

liability company documents and other 

agreements. 

The Exchange also proposes to amend 

Rule 311(f) to eliminate the geographic 

limitation on incorporation and 

domicile of corporation members and 

delete the related interpretations of Rule 

311(f). The first sentence of Rule 311(f) 

currently provides that every member 

corporation be a corporation ‘‘created or 

organized under the laws of, and shall 

maintain its principal place of business 

in, the United States or any State 

thereof.’’ 6 The Exchange does not 

believe that the Exchange’s restriction 

on whether foreign entities may be a 

member organization is consistent with 

either federal rules or those of other selfregulatory organizations (‘‘SRO’’). The 

Exchange states that rules promulgated 

pursuant to the Act require, under 

certain circumstances, a foreign brokerdealer to register with the Commission.7

The Exchange also states that other 

SROs, including the Financial Industry 

Regulatory Authority, Inc. (‘‘FINRA’’), 

do not require their members to be 

domiciled in the United States.8

The Exchange believes that the 

current restriction in Rule 311(f) puts it 

at a competitive disadvantage because it 

restricts foreign broker-dealers that are 

registered with the Commission and are 

members of another SRO from also 

becoming Exchange member 

organizations. The Exchange notes that 

its rules already require member 

organizations to meet prerequisites as 

specified in Rule 2(b). Specifically, 

regardless of corporate form, all member 

organizations must be registered brokerdealers that are members of FINRA or 

another registered securities exchange. 

If a registered broker-dealer transacts 

business with public customers or 

conducts business on the Floor of the 

Exchange, such member organization 

must be a member of FINRA. 

The Exchange further notes that a 

member organization will be subject to 

regulatory examination and jurisdiction 

for misconduct whether or not it is 

based in the United States. However, for 

the avoidance of doubt, as discussed 

below, the Exchange proposes to add 

supplementary material to Rule 313 

based on NASD Rule 1090 that imposes 

certain requirements on foreign 

members that do not maintain an office 

in the United States. 

B. Rule 313 

NYSE Rule 313 sets forth certain 

corporate or partnership documents that 

each member organization must submit 

to enter into and continue in NYSE 

membership. The Rule also sets forth 

certain restrictions on capital 

withdrawals and distributions 

applicable to member corporations and 

partnerships. The Exchange proposes to 

amend Rule 313 to delineate the types 

of documents that LLCs must submit 

that, as noted, mirror the requirements 

currently in place for member 

corporations and partnerships. 

First, the Exchange proposes to add a 

subsection (d) to Rule 313 requiring all 


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Federal Register / Vol. 80, No. 11 / Friday, January 16, 2015 / Notices 2451 

9The Exchange is not proposing to adopt a rule 

similar to NASD Rule 1090(d), which requires 

foreign members to ‘‘utilize, either directly or 

indirectly, the services of a broker/dealer registered 

with the Commission, a bank or a clearing agency 

registered with the Commission located in the 

United States in clearing all transactions involving 

members of the Association, except where both 

parties to a transaction agree otherwise.’’ The 

Exchange agrees with FINRA, which similarly 

recommended skipping paragraph (d) as part of its 

contemplated adoption of NASD Rule 1090, that the 

provision is ‘‘outdated’’ and that clearing 

arrangements are better addressed by FINRA Rule 

4311 (Carrying Agreements). See FINRA Regulatory 

Notice 13–29 at 27 (Sept. 2013). FINRA Rule 4311 

governs the requirements applicable to members 

when entering into agreements for the carrying of 

any customer accounts in which securities 

transactions can be effected. 

10See also infra note 11. 

11FINRA Rule 4110 (Capital Compliance) 

contains similar prohibitions on capital 

withdrawals by FINRA members without requiring 

that the prohibitions be reflected in a firm’s 

partnership articles or requiring a legal opinion that 

the member has made the prohibitions legally 

effective. See FINRA Rule 4110(c)(1) (‘‘No equity 

capital of a member may be withdrawn for a period 

of one year from the date such equity capital is 

contributed, unless otherwise permitted by FINRA 

in writing.’’). 

articles of organization and operating 

documents for LLCs to be submitted for 

Exchange approval prior to becoming 

effective. Relatedly, the Exchange 

proposes to add Supplementary 

Material .24 setting forth that existing 

LLCs must promptly submit certified 

copies (to the extent possible) of articles 

of organization and operating 

agreements to the Exchange. 

Second, the Exchange proposes to add 

Supplementary Material .25 providing 

restrictions on capital withdrawals by 

LLC members that are substantially the 

same as those applicable to corporations 

and partnerships. The Supplementary 

Material would provide that the capital 

contribution of any LLC member may 

not be withdrawn on less than six 

months’ written notice of withdrawal 

given no sooner than six months after 

such contribution was first made 

without the prior written approval of 

the Exchange. The Supplementary 

Material would also specify that each 

member firm shall promptly notify the 

Exchange of the receipt of any notice of 

withdrawal of any part of a member’s 

capital contribution or if any 

withdrawal is not made because 

prohibited under the provisions of Rule 

15c3–1 under the Act. 

Third, the Exchange proposes to add 

Supplementary Material .26 providing 

that LLCs not organized under the laws 

of New York State must subject 

themselves to the following restrictions: 

No distributions shall be declared or 

paid that impair the LLC’s capital; and 

no distribution of assets shall be made 

to any member unless the value of the 

LLC’s assets remaining after such 

payment or distribution is at least equal 

to the aggregate of its debts and 

liabilities, including capital. These 

proposed restrictions are based on 

existing restrictions applicable to 

member corporations and partnerships. 

In addition, as noted above, the 

Exchange proposes to add new 

Supplementary Material .27 to Rule 313 

specifying the requirements applicable 

to Foreign Member Organizations. The 

proposed new rule text would adopt, 

without substantive change, paragraphs 

(a), (b), and (c) of NASD Rule 1090 

(Foreign Members), which impose 

specific requirements on FINRA 

members that do not maintain an office 

in the United States responsible for 

preparing and maintaining financial and 

other reports required to be filed by the 

SEC and FINRA.9 As proposed, foreign 

member organizations that do not 

maintain an office in the United States 

responsible for preparing and 

maintaining financial and other reports 

required to be filed with the 

Commission and the Exchange would be 

required to: (1) Prepare all such reports, 

and maintain a general ledger chart of 

account and any description thereof, in 

English and U.S. dollars; (2) reimburse 

the Exchange or its representatives for 

expenses incurred in connection with 

examinations of the member 

organization to the extent that such 

expenses exceed the cost of examining 

a member organization located within 

the continental United States in the 

geographic location most distant from 

the Exchange’s principal office or, in 

such other amount as the Exchange may 

deem to be an equitable allocation of 

such expenses; and (3) ensure the 

availability of an individual fluent in 

English and knowledgeable in securities 

and financial matters to assist 

representatives of the Exchange during 

examinations. 

The Exchange also proposes to 

eliminate certain restrictions, which the 

Exchange considers redundant, on 

member organizations and prospective 

member organizations organized as 

partnerships and corporations. The 

Exchange proposes to eliminate the 

requirement in Rule 313.11 that the 

partnership articles of each member 

firm provide that capital withdrawals by 

partners cannot be made without the 

prior written approval of the Exchange. 

Rule 313.11 already requires the 

Exchange’s prior written approval for 

any such capital withdrawals, and 

member organizations need to monitor 

for and comply with the prohibition, 

including whether particular 

withdrawals violate net capital 

requirements. The Exchange believes 

that because Exchange rules already 

govern this behavior, a partnership 

seeking approval as a member 

organization would not need to amend 

its partnership articles to reflect this 

existing rule requirement.10

Further, the Exchange proposes to 

eliminate the requirement in Rule 

313.20 that prospective member 

corporations submit an opinion of 

counsel stating, among other things, that 

the corporation is duly organized and 

existing, that its stock is validly issued 

and outstanding, and that the 

restrictions and provisions required by 

the Exchange on the transfer, issuance, 

conversion and redemption of its stock 

have been made legally effective. 

Corporate members are required under 

the Rule to submit relevant corporate 

documents, including articles of 

incorporation, that contain the same 

information required in the opinion of 

counsel. The Exchange represents that 

requiring a legal opinion attesting to 

facts contained in a corporation’s public 

filings is redundant and, given the 

expense, potentially a disincentive to 

smaller entities applying for Exchange 

membership. 

Similarly, the Exchange proposes to 

remove the requirement in Rule 313.23 

that the opinion of counsel submitted to 

the Exchange at the time the corporation 

applies for approval under Rule 313.20 

state the extent to which the corporation 

has made the following prohibitions 

legally effective: The prohibition on 

declaring or paying a dividend that 

impairs the capital of the corporation 

and the prohibition on distributing 

assets to any stockholder unless the 

value of the corporate assets remaining 

after such payment or distribution is at 

least equal to the aggregate of its debts 

and liabilities, including capital. Rule 

313.23 would continue to prohibit 

corporation members from declaring or 

paying dividends or distributing 

corporate assets that impair the 

corporation’s capital, and member 

corporations would not be relieved of 

the obligation to monitor and enforce 

these prohibitions. The Exchange 

believes that requiring these 

representations in a separate legal 

opinion is redundant and serves no 

necessary regulatory or other purpose.11

Finally, the Exchange proposes to 

make certain miscellaneous 

amendments to Rule 313. Specifically, 

the Exchange proposes to replace 

outdated references to ‘‘Regulation and 

Surveillance’’ with ‘‘the Exchange’’ in 


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2452 Federal Register / Vol. 80, No. 11 / Friday, January 16, 2015 / Notices 

12Under Rule 0, references to the Exchange also 

refer to FINRA staff and FINRA departments acting 

on behalf of the Exchange pursuant to a Regulatory 

Services Agreement (‘‘RSA’’). FINRA currently 

provides member application proceedings services 

to the Exchange pursuant to an RSA. 

13 In approving the proposed rule change, the 

Commission has considered the proposed rule 

change’s impact on efficiency, competition, and 

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

14 15 U.S.C. 78f(b)(5). 15 15 U.S.C. 78s(b)(2). 

16 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)(ii). 

4 17 CFR 240.19b–4(f)(2). 

Rules 313.10 and 313.20.12 Similarly, 

the Exchange proposes to replace 

outdated references to ‘‘photostatic’’ 

copies in Rules 313.10 and 313.20 in 

connection with the submission of 

documents to the Exchange and replace 

them with ‘‘electronically or 

mechanically reproduced.’’ 

As noted above, the Commission 

received no comments on the proposed 

rule change. 

III. Discussion and Commission 

Findings 

After carefully considering the 

proposal, the Commission finds that the 

proposed rule change is consistent with 

the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

exchange.13 In particular, the 

Commission finds that the proposed 

rule change is consistent with Section 

6(b)(5) of the Act,14 which requires, 

among other things, that the rules of a 

national securities exchange be 

designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general, to protect 

investors and the public interest. 

The Commission agrees with the 

Exchange that adding LLCs to the list of 

eligible member organizations would 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system by 

expanding the types of organizational 

forms a member organization may take. 

The Exchange also believes that 

permitting LLCs to become member 

organizations subject to the same 

restrictions and requirements currently 

applicable to corporations and 

partnerships also protects investors and 

the public interest by holding LLCs to 

the same high standards. 

In addition, permitting non-United 

States-based registered broker-dealers 

that are members of FINRA or another 

registered securities exchange and that 

do not have their principal place of 

business in the United States to become 

Exchange member organizations would 

remove impediments to and perfect the 

mechanism of a free and open market by 

removing geographic restrictions on 

Exchange membership that are not 

required by FINRA or other exchanges. 

Broadening the Exchange membership 

pool by facilitating the participation of 

additional foreign-based U.S. registered 

broker-dealers would benefit investors 

and the public interest by increasing 

market participation and depth at the 

Exchange. Moreover, adoption of 

specific requirements for foreign 

members that do not maintain an office 

in the United States based on NASD 

Rule 1090 would further assure that 

foreign Exchange members, once 

approved, remain subject to regulatory 

examination and jurisdiction. 

In addition, updating the Exchange’s 

rules to remove requirements that the 

Exchange believes are redundant—that a 

member firm’s partnership articles 

provide that capital withdrawals by 

partners cannot be made without the 

prior written approval of the Exchange, 

that prospective member corporations 

submit an opinion of counsel reciting 

facts contained in its public filings, and 

that certain prohibitions have been 

made legally effective—would remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system by 

ensuring that potential member 

organizations, persons subject to the 

Exchange’s jurisdiction, regulators, and 

the public could more easily navigate 

the Exchange’s rulebook and better 

understand what obligations attach and 

when. Further, updating the Exchange’s 

rules to remove what the Exchange 

considers redundant requirements also 

would protect investors as well as the 

public interest by providing 

transparency and reducing potential 

confusion regarding the Exchange 

membership process that may result 

from having what the Exchange 

characterizes as obsolete rules and 

outdated guidelines in the Exchange’s 

rulebook. For the same reasons, 

updating the Exchange’s rules to remove 

requirements that the Exchange 

considers outdated would remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system and is 

equally designed to protect investors as 

well as the public interest. 

Based on the foregoing, the 

Commission finds the proposed rule 

change is consistent with the Act. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,15 that the 

proposed rule change (SR–NYSE–2014– 

63) be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.16

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–00578 Filed 1–15–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 74033; File No. SR–FICC– 

2014–12] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Modify the 

Fee Schedule in the Mortgage-Backed 

Securities Division Clearing Rules 

January 12, 2015. 

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 December 

30, 2014 the Fixed Income Clearing 

Corporation (‘‘FICC’’) 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 FICC. FICC filed the proposal 

pursuant to Section 19(b)(3)(A)(ii) of the 

Act 3 and Rule 19b–4(f)(2) thereunder 4

so that the proposal 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 is filed by 

FICC and consists of modifications to 

the fee schedule in the Mortgage-Backed 

Securities Division (‘‘MBSD’’) Clearing 

Rules (the ‘‘Clearing Rules’’). 

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, 

FICC 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. FICC has prepared 


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