Document ID: SEC-2016-1366-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2016-08-04T04:00Z

[Federal Register Volume 81, Number 150 (Thursday, August 4, 2016)]
[Notices]
[Pages 51513-51517]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18472]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78445; File No. SR-CHX-2016-11]

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Adopt the Securities Trader Registration Category and the Series 57 
Securities Trader Examination Registration Requirement

July 29, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on July 20, 2016, the Chicago Stock Exchange, Inc. (``CHX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CHX proposes to amend the Rules of the Exchange (``CHX Rules'') to 
adopt the Securities Trader registration

[[Page 51514]]

category and the Series 57 Securities Trader Examination registration 
requirement.
    CHX has designated this proposed rule change as non-controversial 
pursuant to Section 19(b)(3)(A) \3\ of the Act and Rule 19b-4(f)(6) \4\ 
thereunder and has provided the Commission with the notice required by 
Rule 19b-4(f)(6)(iii).\5\
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    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of this proposed rule change is available on the 
Exchange's Web site at (www.chx.com) and in 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 CHX included statements 
concerning the purpose of and basis for the proposed rule changes and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The CHX 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
    The Exchange proposes to amend various provisions under Article 6 
to adopt the Securities Trader registration category and the Series 57 
Securities Trader Examination registration requirement and to eliminate 
references to the Proprietary Trader registration category and the 
Series 56 Proprietary Trader Examination registration requirement. The 
Series 56 exam was discontinued by FINRA on January 4, 2016.\6\ Thus, 
the Exchange proposes the following amendments, as discussed in further 
detail below:
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    \6\ See Securities Exchange Act Release No. 75783 (August 28, 
2015), 80 FR 53369 (September 3, 2015) (Order Approving a Proposed 
Rule Change To Establish the Securities Trader and Securities Trader 
Principal Registration Categories) (SR-FINRA-2015-017).
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     Amend Rule 3(a) and Rule 3(d) to replace references to the 
Proprietary Trader registration category and the Series 56 exam with 
the Securities Trader registration category and the Series 57 exam, 
respectively.
     Amend Article 6, Rule 3(a) to require any Representative 
\7\ that engages in securities trading activities, on either an agency 
or principal basis, for the Participant with which the Representative 
is associated, to register with the Exchange as a Securities Trader and 
to pass the Series 57 exam. The Series 7 General Securities 
Representative Examination will not be an acceptable qualification 
examination to register as a Securities Trader.
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    \7\ CHX Article 6, Rule 2(b) defines ``Representatives'' as 
follows:
    Persons associated with a Participant who are engaged or will be 
engaged in the securities business of a Participant, or the 
management of such securities business, including the functions of 
supervision, solicitation, conduct of business or the training of 
persons associated with a Participant for any of these functions are 
Representatives.
    A ``Participant'' is a ``member'' of the Exchange for purposes 
of the Act. See CHX Article 1, Rule 1(s).
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     Amend Article 6, Rule 3(b)(1) to modify the current 
Proprietary Trader Exception, which permits Chief Compliance Officers 
of Participants that engage solely in proprietary trading to maintain 
the Series 14, in lieu of the Series 24, as an expanded Securities 
Trading Exception for Participants that engage solely in securities 
trading activities, on either an agency or principal basis.
     Amend Article 6, Rule 2(c)(2) to replace the Limited 
Principal--Proprietary Trader registration category with the Securities 
Trader Principal registration category and update related requirements.
     Amend Article 6, Rule 11 to delete references to the S501 
Series 56 Proprietary Trader Program for Series 56 registered persons 
and the Series 56 exam and, instead, require Securities Traders to take 
the S101 General Program to fulfill Regulatory Element requirements.\8\
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    \8\ Pursuant to CHX Article 6, Rule 11(a), each registered 
person shall complete the Regulatory Element of the continuing 
education program on the occurrence of their second registration 
anniversary date(s), and every three years thereafter or as 
otherwise prescribed by the Exchange. On each occasion, the 
Regulatory Element must be completed within 120 days after the 
person's registration anniversary date. A person's initial 
registration date, also known as the ``base date,'' shall establish 
the cycle of anniversary dates for purposes of this rule.
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    This filing is similar to SR-FINRA-2015-017,\9\ which has been 
approved by the Commission.
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    \9\ See supra note 6.
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Proposed Representative Registration Requirements
    Current CHX Rules provide that Representatives are required to be 
registered with the Exchange in the category of registration 
appropriate to the function to be performed.\10\ As CHX Rules have not 
yet been updated to reflect the new Securities Trader registration 
category and the Series 57 exam registration requirement, CHX Rules 
currently require the following:
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    \10\ See current CHX Article 6, Rule 2(a).
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     A Representative must register with the Exchange as a 
General Securities Representative (Series 7) or Proprietary Trader 
(Series 56) \11\ before such registration is effective.\12\
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    \11\ The Series 56 exam was discontinued on January 4, 2016. See 
supra note 6.
    \12\ See current CHX Article 6, Rule 3(a).
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     Each Representative is required to register as a General 
Securities Representative and pass the Series 7 General Securities 
Representative Examination; provided that in the event a 
Representative's activities are confined to making trading decisions 
regarding, or otherwise engaging in, proprietary trading for the 
broker-dealer with which he or she is associated, the Representative 
may register as a Proprietary Trader without registering as a General 
Securities Representative.\13\
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    \13\ See id.
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     In order to qualify as a Proprietary Trader, a 
Representative must pass either the Series 7 exam or Series 56 
exam.\14\
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    \14\ See id.; see also Securities Exchange Act Release No. 70597 
(October 2, 2013), 78 FR 62728 (October 22, 2013) (Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change Relating to 
Registration, Qualification, Supervision, and Continuing Education 
of Individuals Associated with Participant Firms) (SR-CHX-2013-14).
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    The Exchange now proposes to amend current Article 6, Rule 3(a). 
Specifically, the Exchange proposes to amend paragraph (a)(1) to 
provide that each Representative shall be required to register with the 
Exchange as a General Securities Representative and pass the Series 7 
General Securities Representative Examination. However, a 
Representative that is engaged in securities trading activities, on 
either an agency or principal basis, for the Participant with which the 
Representative is associated, must register with the Exchange as a 
Securities Trader and pass the Series 57 Securities Trader Examination, 
subject to amended paragraph (a)(2).
    Amended paragraph (a)(2) \15\ provides that a Representative that 
is engaged solely in securities trading activities, on either an agency 
or principal basis, for the Participant with which the Representative 
is associated, shall not be required to register with the

[[Page 51515]]

Exchange as a General Securities Representative. Moreover, a 
Representative registered with the Exchange solely as a Securities 
Trader will not be qualified to function in any other registration 
category.
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    \15\ The Exchange proposes to delete current Article 6, Rule 
3(a)(2) in its entirety as it defines the Proprietary Trader 
registration category, which will be eliminated pursuant to this 
proposed rule change.
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    Current Article 6, Rule 3(d) provides, among other things, that 
Institutional Broker Representatives \16\ at Participant Firms that do 
not hold customer accounts and that only execute orders from other 
brokers or dealers or engage in proprietary trading only may, in the 
alternative to passing the Series 7, pass the Series 56 Proprietary 
Trader Exam. The Exchange now proposes to replace all references under 
current Article 6, Rule 3(d) to the ``Series 56'' with the ``Series 
57.'' The Exchange also proposes to replace the reference to the 
``Proprietary Trader Exam'' with the ``Securities Trader Exam'' and the 
reference to the ``Proprietary Trader Exception'' under current Article 
6, Rule 3(b)(1) with the proposed ``Securities Trading Exception'' 
under amended Article 6, Rule 3(b)(1), as described below. In addition, 
the Exchange proposes to capitalize the term ``Customer,'' as it is 
defined under CHX Rules.\17\ Moreover, the Exchange proposes to amend 
the third sentence under Rule 3(d) to provide that Institutional Broker 
Representatives at Participant Firms that do not carry Customers 
accounts and that only execute orders from other brokers or dealers or 
engage in proprietary trading must pass the Series 57 Securities Trader 
Exam.
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    \16\ See CHX Article 1, Rule 1(gg) defining ``Institutional 
Broker Representative.''
    \17\ See CHX Article [sic], Rule 1(hh) defining ``Customer.''
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    The Exchange also proposes to delete current Article 6, Rule 3(e) 
as it provides obsolete compliance dates.\18\
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    \18\ See supra note 14.
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Proposed Securities Trading Exception for Certain Chief Compliance 
Officers
    Current Article 6, Rule 3(b)(1) permits the Chief Compliance 
Officer of a Participant Firm to maintain the Series 14 Compliance 
Official qualification, in lieu of the Series 24 General Securities 
Principal qualification, if the Participant Firm engages solely in 
proprietary trading and otherwise meets the requirements listed under 
current Article 6, Rule 3(b) and Article 6, Rule 2(c)(1).\19\ The 
Exchange now proposes to conform the exception to apply to firms that 
engage solely in securities trading activities, on either an agency or 
principal basis. Thus, the Exchange proposes to amend Article 6, Rule 
3(b) by replacing the term ``Proprietary Trading'' with the phrase 
``securities trading activities, on either an agency or principal 
basis'' and rename the exception as the ``Securities Trading 
Exception.''
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    \19\ CHX Article 6, Rule 2(c)(1) provides as follows:
    Definition of Principals. Persons associated with a Participant, 
enumerated in subparagraphs (A) through (E) hereafter, who are 
actively engaged in the management of the Participants' securities 
business, including supervision, solicitation, conduct of business 
or the training of persons associated with a member for any of these 
functions are designated as Principals. Such persons shall include:
    (A) Sole Proprietors;
    (B) Officers;
    (C) Partners;
    (D) Branch office managers; and
    (E) Directors.
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Proposed Securities Trader Principal
    Current Article 6, Rule 2(c)(2) provides for a limited principal 
registration category called the ``Limited Principal--Proprietary 
Trader.'' Specifically, current subparagraph (A) provides that each 
person associated with a Participant who is included within the 
definition of a Principal \20\ may register with the Exchange as a 
Limited Principal--Proprietary Trader if: (i) His or her supervisory 
responsibilities in the securities business are limited solely to the 
activities of a Participant that involve proprietary trading; (ii) he 
or she is registered pursuant to Exchange Rules as a Proprietary 
Trader; and (iii) he or she is qualified to be so registered by passing 
the Series 24 examination. Current subparagraph (B) provides that a 
person registered in this category shall not be qualified to function 
in a Principal capacity with responsibility over any area of business 
activity not described in paragraph (c)(2)(A)(i) of this Rule.
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    \20\ See id.
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    The Exchange now proposes to amend Article 6, Rule 2(c)(2)(A) to 
provide that each Principal shall register with the Exchange as a 
Securities Trader Principal if such Principal supervises the securities 
trading activities of a Participant. Moreover, a Principal is required 
to pass the Series 57 exam as a prerequisite to registration as a 
Securities Trader Principal.\21\
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    \21\ All Principals are required to pass the Series 24 or Series 
14 exam, as applicable, pursuant to current Article 6, Rule 3(b).
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    The Exchange also proposes to amend Article 6, Rule 2(c)(2)(B) to 
provide that a person registered as a Securities Trader Principal shall 
only be qualified to supervise the securities trading activities of a 
Participant and shall not be qualified to supervise any other 
activities of a Participant. Moreover, a Principal shall not be 
qualified to supervise the trading activities of a Participant, unless 
such person is registered as a Securities Trader Principal.
    The Exchange also proposes to amend Article 6, Rule 2(c) to provide 
that all persons engaged or to be engaged in the securities business of 
a Participant who are to function as a Principal shall be registered 
with the Exchange as a General Securities Principal, unless the 
Principal meets the requirements under this Rule 2(c), so as to 
contemplate the proposed Securities Trader Principal registration 
requirement. Moreover, for the purpose of clarifying the examination 
requirements for all Principals, the Exchange proposes to amend the 
last sentence of current Rule 2(c) to provide that each Principal shall 
pass the Series 24 or Series 14 exam, as applicable, pursuant to 
Article 6, Rule 3(b).\22\
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    \22\ See id.
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Proposed Continuing Education Requirements
    Current Article 6, Rule 11 provides continuing education 
requirements for registered persons, including Proprietary Traders. The 
Exchange now proposes to amend Article 6, Rule 11(a)(3) to eliminate 
reference to the S501 Series 56 Proprietary Trader continuing education 
program for Series 56 registered persons, as the S501 Series 56 
Proprietary Trader continuing education program was phased out along 
with the Series 56 exam on January 4, 2016.\23\ The Exchange now 
proposes to require Series 57 registered persons to take the S101 
General Program to fulfill the Regulatory Element requirement. Thus, 
the Exchange proposes to replace current Article 6, Rule 11(a)(3) with 
new language that provides that the following sets forth the Regulatory 
Element appropriate for each registration category:
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    \23\ See supra note 6.

------------------------------------------------------------------------
         Catergory of registration               Regulatory element
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General Securities Representative.........  S101 General Program.
Securities Trader.........................  S101 General Program.
General Securities Principal..............  S201 Supervisor Program.
Securities Trader Principal...............  S201 Supervisor Program.
Financial and Operations Principal........  S201 Supervisor Program.
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    The Exchange also proposes to replace a reference to ``Series 56'' 
with ``Series 57'' under the first sentence of

[[Page 51516]]

Article 6, Rule 11(b)(1), which describes persons subject to the Firm 
Element continuing education requirement.
2. Statutory Basis
    The Exchange believes that proposed rule change is consistent with 
Section 6(b) of the Act \24\ in general and Section 6(b)(5) of the Act 
\25\ in particular, which requires, among other things, that the 
Exchange's rules be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, and to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, protect investors and the public 
interest. Additionally, the Exchange believes that the proposed rule 
change is consistent with the Section 6(b)(5) requirement that the 
rules of an exchange not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
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    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes that adoption of the 
Securities Trader registration category and Series 57 exam registration 
requirement is consistent with the Act. FINRA indicated that the Series 
57 exam was being developed in an effort to adopt a more tailored 
examination. The Exchange believes that adopting the Series 57 exam for 
Representatives engaging in trading activities will help ensure 
professionalism among market participants, prevent fraudulent and 
manipulative practices, and promote just and equitable principles of 
trade. The Exchange also believes that it is in the interests of 
investors and the general public to adopt a tailored qualification 
examination for proprietary traders and that a uniform qualification 
standard may help ensure fair and orderly markets. Furthermore, the 
Exchange believes that it is in the interests of all market 
participants to provide consistent qualification and registration 
requirements across markets. The Exchange believes that harmonizing the 
Exchange's qualification and registration requirements with those of 
FINRA and the other national securities exchanges would further such 
interests.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the proposed rule change relating to Securities Traders, which is based 
upon and substantially similar to recent rule changes adopted by FINRA, 
which is similar to the filings of other national securities exchanges, 
will reduce the regulatory burden placed on market participants engaged 
in trading activities across different markets. The Exchange believes 
that the harmonization of these registration requirements across the 
various markets will reduce burdens on competition by removing 
impediments to participation in the national market system.

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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) \26\ of the Act and Rule 19b-
4(f)(6) thereunder.\27\
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    \26\ 15 U.S.C. 78s(b)(3)(A).
    \27\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and the text of the proposed rule change, 
at least five business days prior to the date of filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \28\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \29\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposal may become operative upon filing. According to the 
Exchange, the Series 57 exam has already replaced the Series 56 exam, 
which was discontinued by FINRA as of January 4, 2016, and the waiver 
of the operative delay would permit new Representatives to register 
with the Exchange under registration standards similar to those of 
FINRA and other national securities exchanges.\30\ Based on the 
foregoing, the Commission believes the waiver of the operative delay is 
consistent with the protection of investors and the public interest. 
Therefore, the Commission hereby waives the operative delay and 
designates the proposal operative upon filing.\31\
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    \28\ 17 CFR 240.19b-4(f)(6).
    \29\ 17 CFR 240.19b-4(f)(6)(iii).
    \30\ See supra note 6.
    \31\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File No. SR-CHX-2016-11 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 No. SR-CHX-2016-11. 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

[[Page 51517]]

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 CHX. 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 No. SR-CHX-2016-11 and should be submitted on or before August 25, 
2016.
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    \32\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-18472 Filed 8-3-16; 8:45 am]
 BILLING CODE 8011-01-P