Federal Register / Vol. 82, No. 163 / Thursday, August 24, 2017 / Notices 40181 

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

2 17 CFR 240.19b–4. 

3 ‘‘Pay-to-play’’ practices typically involve a 

person making cash or in-kind political 

contributions (or soliciting or coordinating others to 

make such contributions) to help finance the 

election campaigns of state or local officials or bond 

ballot initiatives as a quid pro quo for the receipt 

of government contracts. See FINRA Regulatory 

Notice 16–40 (October 2016) at 9, note 1. 

4See Investment Advisers Act Release No. 3043 

(July 1, 2010), 75 FR 41018 (July 14, 2010) (S7–18– 

09) (Political Contributions by Certain Investment 

Advisers) (‘‘SEC Pay-to-Play Rule Adopting 

Release’’). See also Investment Advisers Act Release 

No. 3221 (June 22, 2011), 76 FR 42950 (July 19, 

2011) (S7–36–10) (Rules Implementing 

Amendments to the Investment Advisers Act of 

1940); Investment Advisers Act Release No. 3418 

(June 8, 2012), 77 FR 35263 (June 13, 2012) (S7– 

18–09) (Political Contributions by Certain 

Investment Advisers; Ban on Third Party 

Solicitation; Extension of Compliance Date). 

5See Investment Advisers Act Rule 206(4)– 

5(a)(2)(i)(A), 17 CFR 275.206(4)–5(a)(2)(i)(A). 

6See Investment Advisers Act Rule 206(4)–5(f)(9), 

17 CFR 275.206(4)–5(f)(9). A ‘‘regulated person’’ 

also includes SEC-registered investment advisers 

and SEC-registered municipal advisors, subject to 

specified conditions. 

7See Securities Exchange Act Release No. 78683 

(August 25, 2016), 81 FR 60051 (August 31, 2016) 

(SR–FINRA–2015–056) (Approval Order). See also 

Securities Exchange Act Release No. 76767 

(December 24, 2015), 80 FR 81650 (December 30, 

2015) (SR–FINRA–2015–056) (Proposing Release). 

8See Investment Advisers Act Release No. 4532 

(September 20, 2016), 81 FR 66526 (September 28, 

2016) (S7–16–16). 

9See FINRA Regulatory Notice 16–40 (October 

2016). 

10See Securities Exchange Act Release No. 78617 

(August 18, 2016), 81 FR 57948 (August 24, 2016) 

(SR–FINRA–2015–054) (Order Approving Rule 

Change as Modified by Amendment Nos. 1 and 2 

to Adopt FINRA Capital Acquisition Broker Rules). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81438; File No. SR–FINRA– 

2017–027] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of a 

Proposed Rule Change Relating to 

Capital Acquisition Broker Rules 203 

(Engaging in Distribution and 

Solicitation Activities With 

Government Entities) and 458 (Books 

and Records Requirements for 

Government Distribution and 

Solicitation Activities) 

August 18, 2017. 

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

Securities Exchange Act of 1934 

(‘‘Exchange Act’’ or ‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 notice is hereby 

given that on August 17, 2017, Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) filed with the Securities and 

Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by FINRA. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

FINRA is proposing to adopt Capital 

Acquisition Broker Rules 203 (Engaging 

in Distribution and Solicitation 

Activities with Government Entities) 

and 458 (Books and Records 

Requirements for Government 

Distribution and Solicitation Activities) 

that would apply established ‘‘pay-toplay’’ and related rules to the activities 

of member firms that have elected to be 

governed by the Capital Acquisition 

Broker (‘‘CAB’’) Rules and that engage 

in distribution or solicitation activities 

for compensation with government 

entities on behalf of investment 

advisers. 

The text of the proposed rule change 

is available on FINRA’s Web site at 

http://www.finra.org, at the principal 

office of FINRA 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, 

FINRA 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. FINRA has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

FINRA Pay-to-Play Rules 

In July 2010, the SEC adopted Rule 

206(4)–5 under the Investment Advisers 

Act of 1940 addressing pay-to-play 

practices 3 by investment advisers (the 

‘‘SEC Pay-to-Play Rule’’).4 The SEC Payto-Play Rule prohibits, in part, an 

investment adviser and its covered 

associates from providing or agreeing to 

provide, directly or indirectly, payment 

to any person to solicit a government 

entity for investment advisory services 

on behalf of the investment adviser 

unless the person is a ‘‘regulated 

person.’’ 5 A ‘‘regulated person’’ 

includes a member firm, provided that: 

(a) FINRA rules prohibit member firms 

from engaging in distribution or 

solicitation activities if political 

contributions have been made; and (b) 

the SEC finds, by order, that such rules 

impose substantially equivalent or more 

stringent restrictions on member firms 

than the SEC Pay-to-Play Rule imposes 

on investment advisers and that such 

rules are consistent with the objectives 

of the SEC Pay-to-Play Rule.6

Based on this regulatory framework, 

on August 25, 2016, the SEC approved 

FINRA Rules 2030 and 4580 to establish 

a comprehensive regime to regulate the 

activities of member firms that engage in 

distribution or solicitation activities 

with government entities on behalf of 

investment advisers.7 On September 20, 

2016, the SEC, by order, found that 

FINRA Rule 2030 imposes substantially 

equivalent or more stringent restrictions 

on member firms than the SEC Pay-toPlay Rule imposes on investment 

advisers and is consistent with the 

objectives of the SEC Pay-to-Play Rule.8

These rules enable member firms to 

continue to engage in distribution and 

solicitation activities with government 

entities on behalf of investment advisers 

while at the same time deterring 

member firms from engaging in pay-toplay practices. 

In October 2016, FINRA published a 

Regulatory Notice announcing 

Commission approval of FINRA Rules 

2030 and 4580.9 The Notice also 

announced that Rules 2030 and 4580 

will become effective on August 20, 

2017. 

FINRA Capital Acquisition Broker Rules 

On August 18, 2016, the SEC 

approved 10 a separate set of FINRA 

rules for firms that meet the definition 

of a ‘‘capital acquisition broker’’ and 

that elect to be governed under this rule 

set. CABs are member firms that engage 

in a limited range of activities, 

essentially advising companies and 

private equity funds on capital raising 

and corporate restructuring, and acting 

as placement agents for sales of 

unregistered securities to institutional 

investors under limited conditions. 

Member firms that elect to be governed 

under the CAB rule set are not 

permitted, among other things, to carry 

or maintain customer accounts, handle 

customers’ funds or securities, accept 

customers’ trading orders, or engage in 

proprietary trading or market-making. 

The CAB Rules became effective on 

April 14, 2017. In order to provide new 

CAB applicants with lead time to apply 

for FINRA membership and obtain the 

necessary qualifications and 

registrations, CAB Rules 101–125 

became effective on January 3, 2017. 


rmajette on DSKBCKNHB2PROD with NOTICES
40182 Federal Register / Vol. 82, No. 163 / Thursday, August 24, 2017 / Notices 

11 15 U.S.C. 78o–3(b)(6). 

12See supra note 7. See also Securities Exchange 

Act Release No. 76767 (December 24, 2015), 80 FR 

81650, 81656–81658 (December 30, 2015) (SR– 

FINRA–2015–056) (at the time of the Economic 

Impact Assessment, the SEC had not approved the 

separate set of rules for CABs). 

Addition of FINRA Pay-to-Play Rules to 

CAB Rulebook 

The CAB Rules subject CABs to a 

number of FINRA Rules, but do not 

expressly provide that FINRA Rules 

2030 and 4580 apply to CABs. FINRA 

believes that the CAB Rules should be 

clarified to reflect that FINRA Rule 2030 

and the related record-keeping 

requirements of FINRA Rule 4580 apply 

to CABs. As stated above, the SEC Payto-Play Rule prohibits, in part, an 

investment adviser and its covered 

associates from providing or agreeing to 

provide, directly or indirectly, payment 

to any person to solicit a government 

entity for investment advisory services 

on behalf of the investment adviser 

unless the person is a ‘‘regulated 

person.’’ The SEC Pay-to-Play Rule 

defines a ‘‘regulated person’’ to include 

a member firm subject to a FINRA payto-play rule. 

The proposed rule change would 

make clear that CABs are subject to 

FINRA’s pay-to-play rule and, therefore, 

that CABs, similarly to non-CAB 

member firms, are ‘‘regulated persons’’ 

that can engage in distribution and 

solicitation activities with government 

entities on behalf of investment advisers 

in accordance with the SEC’s Pay-toPlay Rule, while at the same time 

deterring CABs from engaging in pay-toplay practices. 

To make this clarification, FINRA 

proposes the addition of CAB Rule 203, 

which would provide that all capital 

acquisition brokers are subject to FINRA 

Rule 2030. CAB Rule 458 would provide 

that all capital acquisition brokers are 

subject to FINRA Rule 4580. 

Effective Date 

If the Commission approves the 

proposed rule change, FINRA will 

announce the effective date of the 

proposed rule change in a Regulatory 

Notice to be published no later than 60 

days following Commission approval. 

The effective date will be no later than 

30 days following publication of the 

Regulatory Notice announcing 

Commission approval. 

2. Statutory Basis 

FINRA believes that the proposed rule 

change is consistent with the provisions 

of Section 15A(b)(6) of the Act,11 which 

requires, among other things, that 

FINRA rules must be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, and, in 

general, to protect investors and the 

public interest. 

FINRA believes that the proposed rule 

change would make clear that CABs are 

subject to the same regime that regulates 

the activities of non-CAB member firms 

that engage in distribution or 

solicitation activities with government 

entities on behalf of investment 

advisers, while deterring CABs from 

engaging in pay-to-play practices. In the 

absence of this proposed rule change, 

under the SEC’s Pay-to-Play Rule, CABs 

could be prohibited from receiving 

compensation for engaging in 

distribution and solicitation activities 

with government entities on behalf of 

investment advisers following the 

effective date of FINRA Rule 2030 

because the rule set for CABs does not 

expressly provide that FINRA Rule 2030 

applies to CABs. FINRA believes that 

clarifying that FINRA Rule 2030 and the 

related record-keeping requirements of 

FINRA Rule 4580 apply to CABs is a 

more effective regulatory response to the 

concerns identified by the SEC 

regarding third-party solicitations than 

an outright ban on such activity. Thus, 

the proposed rule change is intended to 

make clear that CABs, similarly to nonCAB member firms, are ‘‘regulated 

persons’’ that can engage in distribution 

and solicitation activities with 

government entities on behalf of 

investment advisers in accordance with 

the SEC Pay-to-Play rule, while at the 

same time deterring such firms from 

engaging in pay-to-play practices. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

FINRA 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. While CABs 

have a more limited scope of permitted 

activities relative to other member firms, 

they still may engage, for example, in 

providing advice to municipalities 

either as issuer or as participant in the 

issuance. The proposed rule change 

would allow CABs to be subject to the 

same pay-to-play rules as other nonCAB member firms. As such, the 

economic impacts associated with this 

proposal are all contemplated in the 

Economic Impact Assessment 

accompanying the filing of FINRA Rules 

2030 and 4580. In this regard, FINRA’s 

Economic Impact Assessment in the 

Proposing Release for FINRA Rules 2030 

and 4580 considered the impact on all 

FINRA member firms, including firms 

that at that time engaged solely in 

activities that were later deemed 

permissible for CABs.12

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the self-regulatory 

organization consents, the Commission 

will: 

(A) by order approve or disapprove 

such proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• 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– 

FINRA–2017–027 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–FINRA–2017–027. 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 


rmajette on DSKBCKNHB2PROD with NOTICES
Federal Register / Vol. 82, No. 163 / Thursday, August 24, 2017 / Notices 40183 

13 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4See Securities Exchange Act Release No. 809333 

(June 15, 2017), 82 FR 28200 (June 20, 

2017)(‘‘Notice’’). 

5See letter from James J. Angel, Associate 

Professor of Finance, Georgetown University, dated 

July 28, 2017. 

6See Securities Exchange Act Release No. 81309 

(August 3, 2017), 82 FR 37244 (August 9, 2017). 

7The Exchange filed Amendment No. 1 to the 

proposed rule change on July 28, 2017 and 

withdrew Amendment No. 1 on August 16, 2017. 

8 In Amendment No. 2, the Exchange, among 

other things, provides that a Designated Market 

Maker (‘‘DMM’’) can only use a trading price in a 

private placement market as a reference price and 

to facilitate a fair and orderly opening on the first 

day of trading in a security being listed under 

proposed Footnote (E) to Section 102.01(B) of the 

NYSE’s Listed Company Manual (‘‘non-IPO new 

listing’’) if the private placement market has had 

recent sustained history of trading prior to listing. 

If there is no recent sustained history of trading 

prior to listing in the private placement market, the 

proposal states that the DMM will consult with a 

financial advisor to the issuer of the security to 

establish a reference price pursuant to Exchange 

Rule 15 and facilitate a fair and orderly opening 

pursuant to Exchange Rule 104. Amendment No. 2, 

also amended the proposal to delete the proposed 

regulatory halt provision for an initial public 

offering so that the proposed new regulatory halt 

authority is only applicable to a security that is the 

subject of a non-IPO new listing. Amendment No 

2 also adds language to make clear that the 

regulatory halt authority for a non-IPO new listing 

will be terminated when the DMM opens the 

security for trading. The proposed new regulatory 

halt will, therefore, only apply during the preopening period on the first day of trading on the 

Exchange in a non-IPO new listing. 

9The Exchange has previously filed this proposal 

as SR–NYSE–2017–30. See Securities Exchange Act 

Release No. 80933 (June 15, 2017), 82 FR 28200 

(June 20, 2017) (SR–NYSE–2017–30). This 

Amendment No. 2 replaces and supersedes the 

original filing of SR–NYSE–2017–30 in its entirety. 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of such filing 

also will be available for inspection and 

copying at the principal office of 

FINRA. 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–FINRA–2017–027 and 

should be submitted on or before 

September 14, 2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Robert W. Errett, 

Deputy Secretary. 

[FR Doc. 2017–17910 Filed 8–23–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81440; File No. SR–NYSE– 

2017–30] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Notice of 

Filing of Amendment No. 2 to 

Proposed Rule Change To Amend 

Section 102.01B of the NYSE Listed 

Company Manual To Provide for the 

Listing of Companies That List Without 

a Prior Exchange Act Registration and 

That Are Not Listing in Connection 

With an Underwritten Initial Public 

Offering and Related Changes to Rules 

15, 104, and 123D 

August 18, 2017. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that, on June 13, 

2017, New York Stock Exchange LLC 

(‘‘NYSE’’ or the ‘‘Exchange’’) filed with 

the Securities and Exchange 

Commission (the ‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the self-regulatory 

organization. The proposed rule change 

was published for comment in the 

Federal Register on June 20, 2017.4 The 

Commission received one comment on 

the proposed rule change.5 On August 3, 

2017, the Commission extended the 

time period within which to approve 

the proposed rule change, disapprove 

the proposed rule change, or institute 

proceedings to determine whether to 

approve or disapprove the proposed 

rule change to September 18, 2017.6

The Exchange filed Amendment No. 2 

to the proposed rule change on August 

16, 2017, which amended and replaced 

the proposed rule change.7 The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change, as modified by Amendment No. 

2, from interested persons.8

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend: (i) 

Footnote (E) to Section 102.01B of the 

NYSE Listed Company Manual (the 

‘‘Manual’’) to modify the provisions 

relating to the qualification of 

companies listing without a prior 

Exchange Act registration; (ii) Rule 15 to 

add a Reference Price for when a 

security is listed under Footnote (E) to 

Section 102.01B; (iii) Rule 104 to 

specify DMM requirements when a 

security is listed under Footnote (E) to 

Section 102.01B and there has been no 

trading in the private market for such 

security; and (iv) Rule 123D to specify 

that the Exchange may declare a 

regulatory halt in a security that is the 

subject of an initial listing on the 

Exchange. 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 

self-regulatory organization included 

statements concerning the purpose of, 

and basis for, the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of those statements may be examined at 

the places specified in Item IV below. 

The Exchange has prepared summaries, 

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

of the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend: (i) 

Footnote (E) to Section 102.01B of the 

Manual to modify the provisions 

relating to the qualification of 

companies listing without a prior 

Exchange Act registration; (ii) Rule 15 to 

add a Reference Price for when a 

security is listed under Footnote (E) to 

Section 102.01B; (iii) Rule 104 to 

specify DMM requirements when a 

security is listed under Footnote (E) to 

Section 102.10B and there has been no 

trading in the private market for such 

security; and (iv) Rule 123D to specify 

that the Exchange may declare a 

regulatory halt in a security that is the 

subject of an initial listing on the 

Exchange.9

Amendments to Footnote (E) to Section 

102.01B 

Generally, the Exchange expects to 

list companies in connection with a firm 

commitment underwritten initial public 

offering (‘‘IPO’’), upon transfer from 

another market, or pursuant to a spinoff. Companies listing in connection 

with an IPO must demonstrate that they 

have $40 million in market value of 


rmajette on DSKBCKNHB2PROD with NOTICES