Document ID: SEC-2016-1289-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange, LLC
Posted Date: 2016-07-26T04:00Z

[Federal Register Volume 81, Number 143 (Tuesday, July 26, 2016)]
[Notices]
[Pages 48879-48882]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-17583]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78371; File No. SR-NYSE-2016-43]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
for a New Rule 346 Prohibiting Association by Member Organizations, 
Principal Executives, Approved Persons, and Persons Associated With a 
Member Organization or Control Persons of Member Organizations With 
Persons Subject to a Statutory Disqualification

July 20, 2016.
    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 July 14, 2016, 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, 
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 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

    The Exchange proposes to add a new Rule 346 prohibiting association 
by member organizations, approved persons, and persons associated with 
a member organization or control persons of member organizations with 
persons subject to a statutory disqualification. 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,

[[Page 48880]]

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 a new Rule 346 prohibiting association by 
member organizations, principal executives, approved persons, and 
persons associated with a member organization or control persons of 
member organizations with persons subject to a statutory 
disqualification.
Background
    In 2007, the Exchange and FINRA \4\ entered into an agreement (the 
``Agreement'') pursuant to Rule 17d-2 under the Act to reduce 
regulatory duplication by allocating to FINRA certain regulatory 
responsibilities for NYSE rules and rule interpretations (``FINRA 
Incorporated NYSE Rules'').\5\ In order to reduce regulatory 
duplication and relieve firms that are members of the Exchange and 
FINRA of conflicting or unnecessary regulatory burdens, FINRA has been 
reviewing and amending the NASD and FINRA Incorporated NYSE Rules in 
order to create a consolidated FINRA rulebook.\6\
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    \4\ NYSE Regulation, Inc., a former not-for-profit subsidiary of 
the Exchange, was also a party to the Agreement by virtue of the 
fact that it performed regulatory functions for the Exchange 
pursuant to a delegation agreement. See Securities Exchange Act 
Release No. 53382 (February 27, 2006), 71 FR 11251, 11264-65 (March 
6, 2006) (SR-NYSE-2005-77) (approving delegation agreement). The 
delegation agreement terminated on February 16, 2016, and NYSE 
Regulation has ceased providing regulatory services to the Exchange, 
which has re-integrated its regulatory functions.
    \5\ See Securities Exchange Act Release Nos. 56148 (July 26, 
2007), 72 FR 42146 (August 1, 2007) (order approving the Agreement); 
56147 (July 26, 2007), 72 FR 42166 (August 1, 2007) (SR-NASD-2007-
054) (order approving the incorporation of certain NYSE Rules as 
``Common Rules''). Paragraph 2(b) of the Agreement sets forth 
procedures regarding proposed changes by FINRA or the Exchange to 
the substance of any of the Common Rules.
    \6\ FINRA'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.
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    As part of the rule consolidation process, in 2010, FINRA adopted 
NASD Rule 3030 (Outside Business Activities of an Associated Person) as 
FINRA Rule 3270 (Outside Business Activities of Registered Persons) in 
the consolidated FINRA rulebook. FINRA also deleted FINRA Incorporated 
NYSE Rule 346 (Limitations--Employment and Association with Members and 
Member Organizations) and related interpretations.\7\ In 2011, to 
correspond with the changes by FINRA, the Exchange adopted FINRA Rule 
3270 as NYSE Rule 3270 and deleted Rule 346 in its entirety.\8\
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    \7\ See Securities Exchange Act Release No. 62762 (August 23, 
2010), 75 FR 53362 (August 31, 2010) (SR-FINRA-2009-042) (``Release 
No. 62762'').
    \8\ See Securities Exchange Act Release No. 64131 (March 28, 
2011), 76 FR 18285 (April 1, 2011) (SR-NYSE-2011-12) (``Release No. 
64131'').
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    Prior to its deletion in 2011, subdivision (f) of Rule 346 provided 
that, unless permitted by the Exchange, no member, member organization, 
approved person, person associated with a member organization or any 
person directly or indirectly controlling, controlled by or under 
common control with a member or member organization shall have 
associated with him or it any person who is known, or in the exercise 
of reasonable care should be known, to be subject to any ``statutory 
disqualification'' defined in Section 3(a)(39) of the Act.\9\ Because 
FINRA had previously amended its definition of disqualification in its 
By-Laws to align with the definition in the Act, FINRA deleted Rule 
346(f) as redundant.\10\ When the Exchange adopted FINRA Rule 3270 as 
NYSE Rule 3270, it deleted Rule 346 in its entirety, including 
subdivision (f).\11\ The Exchange did not delete the associated rule 
interpretations, which the Exchange now proposes to delete.
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    \9\ See Release No. 62762, 75 FR at 53363.
    \10\ Id. FINRA also deleted related NYSE Interpretations 346(e)/
01-03.
    \11\ See Release No. 64131, 76 FR 18286.
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Proposed Rule Change
    The Exchange's deletion of Rule 346(f) was inadvertent.\12\ The 
Exchange accordingly proposes to reintroduce the standards contained in 
deleted Rule 346(f) as new Rule 346. In particular, proposed Rule 346 
would provide that, except as otherwise permitted by the Exchange, no 
member organization, principal executive, approved person, person 
associated with a member organization or any person directly or 
indirectly controlling, controlled by or under common control with a 
member organization shall have associated with it any person who is 
known, or in the exercise of reasonable care should be known, to be 
subject to any ``statutory disqualification'' defined in Section 
3(a)(39) of the Act.
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    \12\ The processing of new membership applications at the 
Exchange includes statutory disqualification disclosures and 
background investigations of prospective member organizations and 
persons associated with a member organization. Since 2010, review, 
assessment, and processing of NYSE membership applications has been 
conducted on behalf of the Exchange by FINRA pursuant to a 
regulatory services agreement. Although Rule 346(f) was 
inadvertently deleted in 2011, the Exchange continued to work with 
FINRA to seek disclosure of and identify persons subject to any 
statutory disqualification as defined in Section 3(a)(39) of the Act 
and take appropriate action in individual cases. For example, 
whenever Exchange staff has reason to believe that a 
disqualification exists or that a member organization or covered 
person otherwise fails to meet the eligibility requirements of the 
Exchange, the Exchange can issue a notice of disqualification or 
ineligibility under NYSE Rule 9522(a)(1). For purposes of Rule 9522, 
a ``covered person'' means a member, principal executive, approved 
person, registered or non-registered employee of a member 
organization, or other person (excluding a member organization) 
subject to the Exchange's jurisdiction. See Rule 9521(g).
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    The proposed rule text is the same as former Rule 346(f) except 
that the proposed rule would not use the terms ``member'' or 
``employee.'' Under Exchange rules, the term ``member organization'' 
means a registered broker or dealer (unless exempt pursuant to the Act) 
that is a member of FINRA or another registered securities 
exchange.\13\ The term ``member'' means a natural person associated 
with a member organization that has been approved by the Exchange and 
designated by such member organization to effect transactions on the 
floor of the Exchange or any facility thereof.\14\ A ``member'' is not 
a registered broker-dealer and does not have employees; only member 
organizations have employees. For purposes of the proposed change, the 
Exchange proposes to continue using the phrase ``person associated with 
a member organization'' to indicate employees of a member 
organization.\15\ The proposed rule would also use the term ``principal 
executives,'' which replaced ``allied members'' in 2008.\16\ The 
proposed rule is also substantially similar to Rule 342(e) of the 
Exchange's affiliate, NYSE MKT LLC.\17\
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    \13\ See Rule 2(b)(i).
    \14\ See Rule 2(a).
    \15\ See, e.g., Rule 9000 Series.
    \16\ See Securities Exchange Act Release No. 58549 (September 
15, 2008), 73 FR 54444 (September 19, 2008) (SR-NYSE-2008-80).
    \17\ MKT LLC Rule 342(e) provides that ``[e]xcept as otherwise 
permitted by the Exchange, no member, member organization, allied 
member, approved person, employee, or any person directly or 
indirectly controlling, controlled by or under common control with a 
member or member organization shall have associated with him or it 
any person who is known, or in the exercise of reasonable care 
should be known, to be subject to any ``statutory disqualification'' 
defined in Section 3(a)(39) of the Securities Exchange Act of 
1934.'' As noted previously, the NYSE eliminated allied members in 
2008. See note 16, supra.
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    Finally, the Exchange proposes to delete NYSE Rule Interpretations 
346(e)/01-03 as unnecessary in light of

[[Page 48881]]

the adoption of Rule 3270 or duplicative of new proposed Rule 346.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\18\ in general, and Section 6(b)(1) of 
the Act,\19\ in particular, in that it enables the Exchange to be so 
organized as to have the capacity to be able to carry out the purposes 
of the Exchange Act and to comply, and to enforce compliance by its 
exchange members and persons associated with its exchange members, with 
the provisions of the Exchange Act, the rules and regulations 
thereunder, and the rules of the Exchange. Specifically, the Exchange 
believes that reinstating deleted rule text prohibiting the association 
of member organizations and related persons with individuals meeting 
the definition of a ``statutory disqualification'' under the Act 
supports the objectives of the Act by enabling the Exchange to enforce 
the prohibitions contained therein regarding association with persons 
subject to a statutory disqualification, and is thus consistent with 
Section 6(b)(1).
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(1).
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    For similar reasons, the Exchange believes that the filing furthers 
the objectives of Section 6(b)(5) of the Act,\20\ because the proposed 
rule change would be consistent with and facilitate a governance and 
regulatory structure that is 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 regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, 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. As discussed above, the 
Exchange believes that the reintroducing the prohibition on member 
organizations and related persons from associating with statutory 
disqualified persons that was inadvertently deleted would remove 
impediments to and perfect the mechanism of a free and open market by 
eliminating a regulatory disparity between the rules of the Exchange 
and FINRA, thereby also further harmonizing those rules. Finally, the 
Exchange believes that the proposed rule change would not be 
inconsistent with the public interest and the protection of investors 
because investors would not be harmed by the reintroduction of a rule 
previously approved by the Commission that reflects the Act's 
requirements regarding association with statutorily disqualified 
persons.
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    \20\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\21\ 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 proposed rule change is not intended to 
address competitive issues but rather to achieve greater transparency 
and consistency between the Exchange's rules and FINRA's requirements 
concerning statutory disqualification.
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    \21\ 15 U.S.C. 78f(b)(8).
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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 \22\ and Rule 19b-4(f)(6) thereunder.\23\ 
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.
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    \22\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \23\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \24\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\25\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
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    \24\ 17 CFR 240.19b-4(f)(6).
    \25\ 17 CFR 240.19b-4(f)(6)(iii).
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    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) \26\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \26\ 15 U.S.C. 78s(b)(2)(B).
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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-NYSE-2016-43 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-NYSE-2016-43. 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

[[Page 48882]]

identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSE-2016-43 and should be submitted on 
or before August 16, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-17583 Filed 7-25-16; 8:45 am]
 BILLING CODE 8011-01-P