Document ID: SEC-2018-1545-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange, LLC
Posted Date: 2018-10-09T04:00Z

[Federal Register Volume 83, Number 195 (Tuesday, October 9, 2018)]
[Notices]
[Pages 50727-50736]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-21781]

[[Page 50727]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84336; File No. SR-NYSE-2018-44]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Amendments To Rules 
Regarding Qualification, Registration and Continuing Education 
Applicable to Members and Member Organizations

October 2, 2018.
    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 September 27, 2018, 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 Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes amendments to the Exchange's rules regarding 
qualification, registration and continuing education requirements 
applicable to members or member organizations. To the extent the 
Exchange's rule proposal is intended to harmonize with Financial 
Regulatory Authority, Inc. (``FINRA'') rules and thus promote 
consistency within the securities industry, the Exchange is only 
adopting rules that are relevant to the Exchange's members or member 
organizations. The Exchange is not adopting registration categories 
that are not applicable to members or member organizations because 
members or member organizations do not engage in the type of business 
that would require such registration. As such, the Exchange is amending 
current Rule 345A regarding continuing education requirements to 
reflect the FINRA rule; adopting Commentary .60 to current Rule 345A 
regarding fingerprint information; adopting new Rule 1210 regarding 
registration requirements and related Commentary to new Rule 1210; 
adopting new Rule 1220 regarding registration categories \4\ and 
related Commentary to new Rule 1220; and adopting new Rule 1230 
regarding associated persons exempt from registration and related 
Commentary to new Rule 1230. Each of these rule changes, which are 
[sic] described in more detail below, would become operative on October 
1, 2018. The proposed rule change is available on the Exchange's 
website at www.nyse.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.
---------------------------------------------------------------------------

    \4\ The relevant principal registration categories the Exchange 
proposes to adopt are (1) Principal; (2) General Securities 
Principal; (3) Compliance Officer; (4) Financial and Operations 
Principal and Introducing Broker-Dealer Financial and Operations 
Principal; (5) Securities Trader Principal; and (6) General 
Securities Sales Supervisor. The relevant representative 
registration categories the Exchange proposes to adopt are (1) 
Representative; (2) General Securities Representative; and (3) 
Securities Trader.
---------------------------------------------------------------------------

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 its qualification, registration, and 
continuing education requirements applicable to members or member 
organizations. The proposed amendments are intended to: (i) Provide 
transparency and clarity with respect to the Exchange's registration, 
qualification and examination requirements; (ii) amend its rules 
relating to categories of registration and respective qualification 
examinations required for ETP Holders that engage in trading activities 
on the Exchange; (iii) harmonize the Exchange's qualification, 
registration and examination rules with those of FINRA \5\ so as to 
promote uniform standards across the securities industry; and (iv) add 
new definitions of terms and make other conforming changes to enhance 
the comprehensiveness and clarity of the Exchange's rules.\6\ The 
proposed changes are discussed below.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 81098 (July 7, 
2017), 82 FR 32419 (July 13, 2017) (SR-FINRA-2017-007) (Approval 
Order) (the ``FINRA Filing''). The Exchange notes that in order to 
maintain consistency with the FINRA Filing, the Exchange proposes to 
incorporate certain terms from the relevant FINRA rule into the 
Exchange's rule that may not be applicable to all member 
organizations. For example, while member organizations may not be 
engaged in ``investment banking'' activity, the Exchange proposes to 
adopt that term within these registration rules to conform them to 
the FINRA rules.
    \6\ The conforming changes the Exchange proposes would 
substitute the term ``member or member organization'' for ``member'' 
and the term ``Exchange'' for ``FINRA.''
---------------------------------------------------------------------------

A. Amendment to Rule 345, Commentary .10
    Rule 345, Commentary .10, provides the definition of a Securities 
Trader as any person engaged in the purchase or sale of securities or 
other similar instruments for the account of a member organization with 
which such person is associated, as an employee or otherwise, and who 
does not transact any business with the public. With this proposed rule 
change, the Exchange proposes to adopt FINRA's definition of Securities 
Trader (as described below) and therefore, proposes to add a reference 
in Rule 345, Commentary .10 to Rule 2.1220(b)(3) [sic] as the 
appropriate rule in the Exchange's Rulebook where the definition of 
Securities Trader can be found.
    Further, Rule 345, Commentary .10, states that a Securities Trader 
must be registered as such on Web CRD and pass the Series 57 
examination. Given the formulation of the Securities Industry 
Essentials (``SIE'') examination (discussed below) which all potential 
representative-level registrants would be required to pass, the 
Exchange proposes to amend the current rule to require that a 
Securities Trader must register as such on Web CRD and must pass both 
the SIE examination and the Series 57 examination.
B. Amendments to Rule 345A--Continuing Education Requirements
    Rule 345A provides the continuing education requirements of 
registered persons \7\ subsequent to their initial qualification and 
registration with the Exchange, and includes a Regulatory Element and a 
Firm Element. The Regulatory Element applies to registered persons and 
consists of periodic computer-based training on regulatory, compliance, 
ethical, supervisory subjects and sales practice standards.

[[Page 50728]]

The Firm Element consists of at least an annual, member-developed and 
administered training programs [sic] designed to keep registered 
persons current regarding securities products, services and strategies 
offered by the member or member organization.
---------------------------------------------------------------------------

    \7\ For purposes of Rule 345A, the term ``registered person'' 
means any member, principal executive, registered representative, or 
other person registered or required to be registered under Exchange 
rules, but does not include any such person whose activities are 
limited solely to the transaction of business on the Floor with 
member or registered broker-dealers. See Rule 345A, Commentary .10.
---------------------------------------------------------------------------

1. Regulatory Element
    The Exchange proposes to amend Rule 345A(a) to provide, consistent 
with proposed Rule 2.1210 [sic], Commentary .08, that a waiver-eligible 
person would be subject to a Regulatory Element program that correlates 
to his or her most recent registration category, and that the content 
of the Regulatory Element would be based on the same cycle had the 
individual remain [sic] registered.\8\ The proposed amendment to Rule 
345A(a) also provides that if a waiver-eligible person fails to 
complete the Regulatory Element during the prescribed time frames, he 
or she would lose waiver eligibility.\9\
---------------------------------------------------------------------------

    \8\ The proposed change is substantially similar to that 
contained in FINRA Rule 1240(a)(1).
    \9\ The proposed change is substantially similar to that 
contained in FINRA Rule 1240(a)(2).
---------------------------------------------------------------------------

    Further, the Exchange proposes to amend Rule 345A(a) to provide 
that any person whose registration has been deemed inactive under the 
rule may not accept or solicit business or receive any compensation for 
the purchase or sale of securities. The proposed amendment provides, 
however, that such person may receive trail or residual commissions 
resulting from transactions completed before the inactive status, 
unless the member or member organization with which the person is 
associated has a policy prohibiting such trail or residual 
commissions.\10\
---------------------------------------------------------------------------

    \10\ The proposed change is substantially similar to that 
contained in FINRA Rule 1240(a)(2).
---------------------------------------------------------------------------

    Additionally, under Rule 345A(a), a registered person is required 
to retake the Regulatory Element in the event that such person (i) is 
subject to any statutory disqualification as defined in Section 
3(a)(39) of the Exchange Act; (ii) is subject to suspension or to the 
imposition of a fine of $5,000 or more for violation of any provision 
of any securities law or regulation, or any agreement with or rule or 
standard of conduct of any securities governmental agency, securities 
self-regulatory organization, or as imposed by any such regulatory or 
self-regulatory organization in connection with a disciplinary 
proceeding; or (iii) is ordered as a sanction in a disciplinary action 
to retake the Regulatory Element by any securities governmental agency 
or self-regulatory organization. The Exchange proposes to amend Rule 
345A(a) to provide an exception to a waiver-eligible person from 
retaking the Regulatory Element and satisfy [sic] all of its 
requirements.\11\
---------------------------------------------------------------------------

    \11\ The proposed change is substantially similar to that 
contained in FINRA Rule 1240(a)(3).
---------------------------------------------------------------------------

2. Firm Element
    Current Rule 345A(b) provides that programs used to implement a 
member's or member organization's training program must be appropriate 
for the business of the member or member organization and, at a minimum 
must cover specific matters concerning securities products, services, 
and strategies offered by the member or member organization. The 
Exchange proposes to amend the current rule to expand the minimum 
standard for such training programs by requiring that, at a minimum, a 
firm's training program must also cover training in ethics and 
professional responsibility.\12\
---------------------------------------------------------------------------

    \12\ The proposed change is substantially similar to that 
contained in FINRA Rule 1240(b)(2).
---------------------------------------------------------------------------

C. Proposed New Rule 345A--Commentary .60--Fingerprint Information \13\
---------------------------------------------------------------------------

    \13\ The proposed rule is substantially similar to FINRA Rule 
1010(d).
---------------------------------------------------------------------------

    The Exchange proposes to adopt new Rule 345A, Commentary .60, 
regarding the submission of fingerprint information by member 
organizations. As proposed, upon filing an electronic Form U4 on behalf 
of a person applying for registration, a member organization would be 
required to promptly submit fingerprint information for that person. If 
the member organization fails to submit the fingerprint information 
within 30 days after the Exchange receives the electronic Form U4, the 
person's registration shall be deemed inactive and the person would be 
required to immediately cease all activities requiring registration and 
would be prohibited from performing any duties and functioning in any 
capacity requiring registration. The proposed rule further provides 
allows [sic] the Exchange to administratively terminate a registration 
that is inactive for a period of two years. However, a person whose 
registration is administratively terminated may seek to reactivate his 
or her registration by reapplying for registration and meeting the 
qualification requirements under Exchange rules.
D. Proposed New Rules 1210 Through 1230
    As a general matter, FINRA administers qualification examinations 
that are designed to establish that persons associated with member 
organizations have attained specified levels of competence and 
knowledge. Over time, the examination program has increased in 
complexity to address the introduction of new products and functions, 
and related regulatory concerns and requirements. As a result, today, 
there are a large number of examinations, considerable content overlap 
across the representative-level examinations and requirements for 
individuals in various segments of the industry to pass multiple 
examinations. To address these issues, FINRA has formulated a general 
knowledge examination called the Securities Industry Essentials 
examination that all potential representative-level registrants would 
take.\14\ Rule changes related to the adoption of the SIE and other 
proposed new rules are discussed below.
---------------------------------------------------------------------------

    \14\ The SIE would assess basic product knowledge; the structure 
and function of the securities industry markets, regulatory agencies 
and their functions; and regulated and prohibited practices. In 
particular, the SIE will cover four major areas. The first, 
``Knowledge of Capital Markets,'' focuses on topics such as types of 
markets and offerings, broker-dealers and depositories, and economic 
cycles. The second, ``Understanding Products and Their Risks,'' 
covers securities products at a high level as well as associated 
investment risks. The third, ``Understanding Trading, Customer 
Accounts and Prohibited Activities,'' focuses on accounts, orders, 
settlement and prohibited activities. The final area, ``Overview of 
the Regulatory Framework,'' encompasses topics such as SROs, 
registration requirements and specified conduct rules.
---------------------------------------------------------------------------

1. Proposed Rule 1210--Registration Requirements \15\
---------------------------------------------------------------------------

    \15\ The proposed rule is substantially similar to FINRA Rule 
1210.
---------------------------------------------------------------------------

    Proposed Rule 1210 provides that each person engaged in the 
investment banking or securities business of a member organization must 
register with the Exchange as a representative or principal in each 
category of registration appropriate to his or her functions and 
responsibilities as specified in proposed Rule 1220, unless exempt from 
registration pursuant to proposed Rule 1230. Proposed Rule 1210 also 
provides that such person is not qualified to function in any 
registered capacity other than that for which the person is registered, 
unless otherwise stated in the rules.
2. Proposed Rule 1210, Commentary .01--Permissive Registrations \16\
---------------------------------------------------------------------------

    \16\ The proposed rule is substantially similar to FINRA Rule 
1210.02.
---------------------------------------------------------------------------

    The Exchange currently does not have a specific rule that provides 
for permissive registrations. With this proposed rule change, and to 
conform its rules to the FINRA rules, the Exchange proposes to adopt a 
specific rule regarding permissive registrations.

[[Page 50729]]

Proposed Rule 1210, Commentary .01, allows any associated person to 
obtain and maintain any registration permitted by a member 
organization. For instance, an associated person of a member 
organization working solely in a clerical or ministerial capacity would 
be able to obtain and maintain a General Securities Representative 
registration with the member organization. As another example, an 
associated person of a member organization who is registered, [sic] and 
functioning solely as a General Securities Representative would be able 
to obtain and maintain a General Securities Principal registration with 
the member organization. Further, proposed Rule 1210, Commentary .01, 
allows an individual engaged in the securities business of a foreign 
securities affiliate or subsidiary of a member organization to obtain 
and maintain any registration permitted by the member organization.
    The Exchange is proposing to permit the registration of such 
individuals for several reasons. First, a member organization may 
foresee a need to move a former representative or principal who has not 
been registered for two or more years back into a position that would 
require such person to be registered. Currently, such persons are 
required to requalify (or obtain a waiver of the applicable 
qualification examinations) and reapply for registration. Second, the 
proposed rule change would allow member organizations to develop a 
depth of associated persons with registrations in the event of 
unanticipated personnel changes. Finally, allowing registration in 
additional categories encourages greater regulatory understanding.
    Individuals maintaining a permissive registration under the 
proposed rule change would be considered registered persons and subject 
to all Exchange rules, to the extent relevant to their activities. 
Additionally, consistent with the requirements of the Exchange's 
supervision rules, member organizations would be required to have 
adequate supervisory systems and procedures reasonably designed to 
ensure that individuals with permissive registrations do not act 
outside the scope of their assigned functions. With respect to an 
individual who solely maintains a permissive registration, such as an 
individual working exclusively in an administrative capacity, the 
individual's day-to-day supervisor may be a non-registered person. 
However, for purposes of compliance with the Exchange's supervision 
rules, a member organization would be required to assign a registered 
supervisor who would be responsible for periodically contacting such 
individual's day-to-day supervisor to verify that the individual is not 
acting outside the scope of his or her assigned functions. If such 
individual is permissively registered as a representative, the 
registered supervisor must be registered as a representative or 
principal. If the individual is permissively registered as a principal, 
the registered supervisor must be registered as a principal.\17\
---------------------------------------------------------------------------

    \17\ In either case, the registered supervisor of an individual 
who solely maintains a permissive registration would not be required 
to be registered in the same representative or principal 
registration category as the permissively-registered individual.
---------------------------------------------------------------------------

3. Proposed Rule 1210, Commentary .02--Qualification Examinations and 
Waivers of Examinations \18\
---------------------------------------------------------------------------

    \18\ The proposed rule is substantially similar to FINRA Rule 
1210.03.
---------------------------------------------------------------------------

    Proposed Rule 1210, Commentary .02, provides that before the 
registration of a person as a representative can become effective under 
proposed Rule 1210, such person must pass the SIE and an appropriate 
representative-level qualification examination as specified in proposed 
Rule 1220.\19\ Proposed Rule 1210, Commentary .02, also provides that 
before the registration of a person as a principal can become effective 
under proposed Rule 1210, such person must pass an appropriate 
principal-level qualification examination as specified in proposed Rule 
1220.
---------------------------------------------------------------------------

    \19\ Proposed Rule 1220 sets forth each registration category 
and applicable qualification examination for member organizations.
---------------------------------------------------------------------------

    Further, proposed Rule 1210, Commentary .02, provides that if a 
registered person's job functions change and he or she needs to become 
registered in another representative-level category, he or she would 
not need to pass the SIE again. Rather, the registered person would 
need to pass only the appropriate representative-level qualification 
examination.
    Moreover, proposed Rule 1210, Commentary .02, provides that all 
associated persons, such as associated persons whose functions are 
solely and exclusively clerical or ministerial, are eligible to take 
the SIE. Proposed Rule 1210, Commentary .02, also provides that 
individuals who are not associated persons of firms, such as members of 
the general public, are eligible to take the SIE. The Exchange believes 
that expanding the pool of individuals who are eligible to take the SIE 
would enable prospective securities industry professionals to 
demonstrate to prospective employers a basic level of knowledge prior 
to submitting a job application. Further, this approach would allow for 
more flexibility and career mobility within the securities industry. 
While all associated persons of firms as well as individuals who are 
not associated persons would be eligible to take the SIE pursuant to 
the proposed rule, passing the SIE alone would not qualify them for 
registration with the Exchange. Rather, to be eligible for registration 
with the Exchange, an individual must pass an applicable representative 
or principal qualification examination and complete the other 
requirements of the registration process.
    Proposed Rule 1210, Commentary .02, also provides that the Exchange 
may, in exceptional cases and where good cause is shown, pursuant to 
the Rule 9600 Series, waive the applicable qualification examination(s) 
and accept other standards as evidence of an applicant's qualifications 
for registration. The proposed rule further provides that the Exchange 
will only consider examination waiver requests submitted by a member 
organization for individuals associated with the member organization 
who are seeking registration in a representative- or principal-level 
registration category. Moreover, the proposed rule states that the 
Exchange will consider waivers of the SIE alone or the SIE and the 
representative- and principal-level examination(s) for such 
individuals. The Exchange would not consider a waiver of the SIE for 
non-associated persons or for associated persons who are not 
registering as representatives or principals.
4. Proposed Rule 1210, Commentary .03--Requirements for Registered 
Persons Functioning as Principals for a Limited Period \20\
---------------------------------------------------------------------------

    \20\ The proposed rule is substantially similar to FINRA Rule 
1210.04.
---------------------------------------------------------------------------

    Proposed Rule 1210, Commentary .03, provides that a member 
organization may designate any person currently registered, or who 
becomes registered, with the member organization as a representative to 
function as a principal for a limited period, provided that such person 
has at least 18 months of experience functioning as a registered 
representative with [sic] the five-year period immediately preceding 
the designation. The proposed rule is intended to ensure that 
representatives designated to function as principals for the limited 
period under the proposal have an appropriate level of registered 
representative experience. The proposed rule clarifies that the 
requirements of the rule apply to designations to any principal 
category, including those categories that are not subject to a

[[Page 50730]]

prerequisite representative-level registration requirement, such as the 
Financial and Operations Principal registration category.\21\
---------------------------------------------------------------------------

    \21\ The Exchange notes that qualifying as a registered 
representative is a prerequisite to qualifying as a principal except 
with respect to the following principal-level registrations: (1) 
Compliance Official; (2) Financial and Operations Principal; and (3) 
Introducing Broker-Dealer Financial and Operations Principal.
---------------------------------------------------------------------------

    The proposed rule also clarifies that the individual must fulfill 
all applicable prerequisite registration, fee and examination 
requirements before his or her designation as a principal. Further, the 
proposed rule provides that in no event may such person function as a 
principal beyond the initial 120 calendar days without having 
successfully passed an appropriate principal qualification examination. 
The proposed rule also provides an exception to the experience 
requirement for principals who are designated by a member organization 
to function in other principal categories for a limited period. 
Specifically, the proposed rule states that a member organization may 
designate any person currently registered, or who becomes registered, 
with the member organization as a principal to function in another 
principal category for 120 calendar days before passing any applicable 
examinations.
5. Proposed Rule 1210, Commentary .04--Rules of Conduct for Taking 
Examinations and Confidentiality of Examinations \22\
---------------------------------------------------------------------------

    \22\ The proposed rule is substantially similar to FINRA Rule 
1210.05.
---------------------------------------------------------------------------

    Proposed Rule 1210, Commentary .04 states that associated persons 
taking the SIE would be subject to the SIE Rules of Conduct, and 
associated persons taking a representative or principal examination 
would be subject to the Rules of Conduct for representative and 
principal examinations. Pursuant to proposed Rule 1210, Commentary .04, 
a violation of the SIE Rules of Conduct or the Rules of Conduct for 
representative and principal examinations by an associated person would 
be deemed to be a violation of Rule 2010. Moreover, if an associated 
person is deemed to have violated the SIE Rules of Conduct or the Rules 
of Conduct for representative and principal examinations, the 
associated person may forfeit the results of the examination and may be 
subject to disciplinary action by the Exchange.
    Further, the proposed rule states that individuals taking the SIE 
who are not associated persons must agree to be subject to the SIE 
Rules of Conduct. Among other things, the SIE Rules of Conduct would 
require individuals to attest that they are not qualified to engage in 
the investment banking or securities business based on passing the SIE 
and would prohibit individuals from cheating on the examination or 
misrepresenting their qualifications to the public subsequent to 
passing the SIE. Moreover, non-associated persons may forfeit their SIE 
results and may be prohibited from retaking the SIE if the Exchange 
determines that they cheated on the SIE or that they misrepresented 
their qualifications to the public subsequent to passing the SIE.
    The proposed rule further notes that the Exchange considers all 
qualification examinations [sic] content to be highly confidential and 
that the removal of examination content from an examination center, 
reproduction, disclosure, receipt from or passing to any person, or use 
for study purposes of any portion of such qualification examination or 
any other use that would compromise the effectiveness of the 
examinations and the use in any manner and at any time of the questions 
or answers to the examinations is prohibited and would be deemed a 
violation of Rule 2010.
6. Proposed Rule 1210, Commentary .05--Waiting Periods for Retaking a 
Failed Examination \23\
---------------------------------------------------------------------------

    \23\ The proposed rule is substantially similar to FINRA Rule 
1210.06.
---------------------------------------------------------------------------

    Proposed Rule 1210, Commentary .05 provides that any person who 
fails a qualification examination may retake that examination after 30 
calendar days from the date of the person's last attempt to pass that 
examination. The proposed rule further provides that if a person fails 
an examination three or more times in succession within a two-year 
period, he or she would be prohibited from retaking the examination 
either until a period of 180 calendar days from the date of the 
person's last attempt to pass it [sic]. These waiting periods would 
apply to the SIE and the representative- and principal-level 
examinations. Moreover, the proposed rule provides that non-associated 
persons taking the SIE must agree to be subject to the same waiting 
periods for retaking the SIE.
7. Proposed Rule 1210, Commentary .06--All Registered Persons Must 
Satisfy the Regulatory Element of Continuing Education \24\
---------------------------------------------------------------------------

    \24\ The proposed rule is substantially similar to FINRA Rule 
1210.07.
---------------------------------------------------------------------------

    Pursuant to Rule 345A, the CE requirements applicable to registered 
persons consist of a Regulatory Element \25\ and a Firm Element.\26\ 
The Regulatory Element applies to registered persons and must be 
completed within prescribed time frames.\27\ For purposes of the 
Regulatory Element, a registered person is any member, principal 
executive, registered representative, or other person registered or 
required to be registered under Exchange rules, but does not include 
any such person whose activities are limited solely to the transaction 
of business on the Floor with member [sic] or registered broker-
dealers. The Firm Element consists of annual, member organization-
developed and administered training programs designed to keep covered 
registered persons current regarding securities products, services and 
strategies offered by the member organization. For purposes of the Firm 
Element, the term covered registered persons means any person 
registered with a member organization who has direct contact with 
customers in the conduct of the member organization's securities sales, 
trading and investment banking activities and to the immediate 
supervisors of such persons.
---------------------------------------------------------------------------

    \25\ See Rule 345A(a).
    \26\ See Rule 345A(b).
    \27\ Pursuant to Rule 345A(a), each specified registered person 
is required to complete the Regulatory Element initially within 120 
days after the person's second registration anniversary date and, 
thereafter, within 120 days after every third registration 
anniversary date. A registered person who has not completed the 
Regulatory Element program within the prescribed time frames will 
have his or her registrations deemed inactive and designated as ``CE 
inactive'' on the CRD system until such time as the requirements of 
the program have been satisfied. A CE inactive person is prohibited 
from performing, or being compensated for, any activities requiring 
registration, including supervision. Moreover, if a registered 
person is CE inactive for a two-year period, the Exchange will 
administratively terminate the person's registration status. The 
two-year period would be calculated from the date the person becomes 
CE inactive. In either case, such person must requalify (or obtain a 
waiver of the applicable qualification examination(s)) to be re-
eligible for registration.
---------------------------------------------------------------------------

    The Exchange believes that all registered persons, regardless of 
their activities, should be subject to the Regulatory Element of the CE 
requirements so that they can keep their knowledge of the securities 
industry current. Therefore, the Exchange proposes to adopt Rule 1210, 
Commentary .06, to clarify that all registered persons, including those 
who solely maintain a permissive registration, are required to satisfy 
the Regulatory Element, as specified in Rule 345A(a). The Exchange is 
making corresponding changes to Rule 345A(a) [sic]. The Exchange is not 
proposing any changes to the Firm Element requirement at this time. 
Individuals

[[Page 50731]]

who have passed the SIE but not a representative- or principal-level 
examination and do not hold a registered position would not be subject 
to any CE requirements.
    Proposed Rule 1210, Commentary .06, also provides that a registered 
person of a member organization who becomes CE inactive would not be 
permitted to be registered in another registration category with the 
member organization or be registered in any registration category with 
another member organization, until the person has satisfied the 
Regulatory Element.
8. Proposed Rule 1210, Commentary .07--Lapse of Registration and 
Expiration of the SIE \28\
---------------------------------------------------------------------------

    \28\ The proposed rule is substantially similar to FINRA Rule 
1210.08.
---------------------------------------------------------------------------

    Proposed Rule 1210, Commentary .07, provides that any person who 
was last registered as a representative two or more years immediately 
preceding the date of receipt by the Exchange of a new application for 
registration as a representative is required to pass a qualification 
examination for representatives appropriate to the category of 
registration as specified in proposed Rule 1220(b). Proposed Rule 1210, 
Commentary .07, also sets forth that a passing result on the SIE would 
be valid for up to four years. Therefore, under the proposed rule 
change, an individual who passes the SIE and is an associated person of 
a member organization at the time would have up to four years from the 
date he or she passes the SIE to pass a representative-level 
examination to register as a representative with that member 
organization, or a subsequent member organization, without having to 
retake the SIE. In addition, an individual who passes the SIE and is 
not an associated person at the time would have up to four years from 
the date he or she passes the SIE to become an associated person of a 
member organization and pass a representative-level examination and 
register as a representative without having to retake the SIE.
    Moreover, an individual holding a representative-level registration 
who leaves the industry after the effective date of this proposed rule 
change would have up to four years to re-associate with a member 
organization and register as a representative without having to retake 
the SIE. However, the four-year expiration period in the proposed rule 
change extends only to the SIE, and not the representative- and 
principal-level registrations. The representative- and principal-level 
registrations would continue to be subject to a two-year expiration 
period as is the case today.
    Finally, proposed Rule 1210, Commentary .07, clarifies that, for 
purposes of the proposed rule, an application would not be considered 
to have been received by the Exchange if that application does not 
result in a registration.
9. Proposed Rule 1210, Commentary .08--Waiver of Examinations for 
Individuals Working for a Financial Services Industry Affiliate of a 
Member Organization \29\
---------------------------------------------------------------------------

    \29\ The proposed rule is substantially similar to FINRA Rule 
1210.09.
---------------------------------------------------------------------------

    Proposed Rule 1210, Commentary .08, provides the process for 
individuals working for a financial services industry affiliate of a 
member organization \30\ to terminate their registrations with the 
member organization and be granted a waiver of their requalification 
requirements upon re-registering with a member organization, provided 
the firm that is requesting the waiver and the individual satisfy the 
criteria for a Financial Services Affiliate (``FSA'') waiver.
---------------------------------------------------------------------------

    \30\ Proposed Rule 1210, Commentary .07 [sic], defines a 
``financial services industry affiliate of a member organization'' 
as a legal entity that controls, is controlled by or is under common 
control with a member organization and is regulated by the SEC, 
CFTC, state securities authorities, federal or state banking 
authorities, state insurance authorities, or substantially 
equivalent foreign regulatory authorities.
---------------------------------------------------------------------------

    Under the proposed waiver process, the first time a registered 
person is designated as eligible for a waiver based on the FSA 
criteria, the member organization with which the individual is 
registered would notify the Exchange of the FSA designation. The member 
organization would concurrently file a full Form U5 terminating the 
individual's registration with the firm, which would also terminate the 
individual's other SRO and state registrations. To be eligible for 
initial designation as an FSA-eligible person by a member organization, 
an individual must have been registered for a total of five years 
within the most recent 10-year period prior to the designation, 
including for the most recent year with that member organization. An 
individual would have to satisfy these preconditions only for purposes 
of his or her initial designation as an FSA-eligible person, and not 
for any subsequent FSA designation(s). Thereafter, the individual would 
be eligible for a waiver for up to seven years from the date of initial 
designation,\31\ provided that the other conditions of the waiver, as 
described below, have been satisfied. Consequently, a member 
organization other than the member organization that initially 
designated an individual as an FSA-eligible person may request a waiver 
for the individual and more than one member organization may request a 
waiver for the individual during the seven-year period.\32\
---------------------------------------------------------------------------

    \31\ Individuals would be eligible for a single, fixed seven-
year period from the date of initial designation, and the period 
would not be tolled or renewed.
    \32\ The following examples illustrate this point:
    Example 1. Firm A designates an individual as an FSA-eligible 
person by notifying the Exchange and files a Form U5. The individual 
joins Firm A's financial services affiliate. Firm A does not submit 
a waiver request for the individual. After working for Firm A's 
financial services affiliate for three years, the individual 
directly joins Firm B's financial services affiliate for three 
years. Firm B then submits a waiver request to register the 
individual.
    Example 2. Same as Example 1, but the individual directly joins 
Firm B after working for Firm A's financial services affiliate, and 
Firm B submits a waiver request to register the individual at that 
point in time.
    Example 3. Firm A designates an individual as an FSA-eligible 
person by notifying the Exchange and files a Form U5. The individual 
joins Firm A's financial services affiliate for three years. Firm A 
then submits a waiver request to re-register the individual. After 
working for Firm A in a registered capacity for six months, Firm A 
re-designates the individual as an FSA-eligible person by notifying 
the Exchange and files a Form U5. The individual rejoins Firm A's 
financial services affiliate for two years, after which the 
individual directly joins Firm B's financial services affiliate for 
one year. Firm B then submits a waiver request to register the 
individual.
    Example 4. Same as Example 3, but the individual directly joins 
Firm B after the second period of working for Firm A's financial 
services affiliate, and Firm B submits a waiver request to register 
the individual at that point in time.
---------------------------------------------------------------------------

    An individual designated as an FSA-eligible person would be subject 
to the Regulatory Element of CE while working for a financial services 
industry affiliate of a member organization. The individual would be 
subject to a Regulatory Element program that correlates to his or her 
most recent registration category, and CE would be based on the same 
cycle had the individual remained registered. If the individual fails 
to complete the prescribed Regulatory Element during the 120-day window 
for taking the session, he or she would lose FSA eligibility (i.e., the 
individual would have the standard two-year period after termination to 
re-register without having to retake an examination). The Exchange is 
making corresponding changes to Rule 345A.
    Upon registering an FSA-eligible person, a firm would file a Form 
U4 and request the appropriate registration(s) for the individual. The 
firm would also submit an examination waiver request

[[Page 50732]]

to the Exchange,\33\ similar to the process used today for waiver 
requests, and it would represent that the individual is eligible for an 
FSA waiver based on the conditions set forth below. The Exchange would 
review the waiver request and make a determination of whether to grant 
the request within 30 calendar days of receiving the request. The 
Exchange would summarily grant the request if the following conditions 
are met:
---------------------------------------------------------------------------

    \33\ The Exchange would consider a waiver of the representative-
level qualification examination(s), the principal-level 
qualification examination(s) and the SIE, as applicable.
---------------------------------------------------------------------------

    (1) Prior to the individual's initial designation as an FSA-
eligible person, the individual was registered for a total of five 
years within the most recent 10-year period, including for the most 
recent year with the member organization that initially designated the 
individual as an FSA-eligible person;
    (2) The waiver request is made within seven years of the 
individual's initial designation as an FSA-eligible person by a member 
organization;
    (3) The initial designation and any subsequent designation(s) were 
made concurrently with the filing of the individual's related Form U5;
    (4) The individual continuously worked for the financial services 
affiliate(s) of a member organization since the last Form U5 filing;
    (5) The individual has complied with the Regulatory Element of CE; 
and
    (6) The individual does not have any pending or adverse regulatory 
matters, or terminations, that are reportable on the Form U4, and has 
not otherwise been subject to a statutory disqualification while the 
individual was designated as an FSA-eligible person with a member 
organization.
    Following the Form U5 filing, an individual could move between the 
financial services affiliates of a member organization so long as the 
individual is continuously working for an affiliate. Further, a member 
organization could submit multiple waiver requests for the individual, 
provided that the waiver requests are made during the course of the 
seven-year period.\34\ An individual who has been designated as an FSA-
eligible person by a member organization would not be able to take 
additional examinations to gain additional registrations while working 
for a financial services affiliate of a member organization.
---------------------------------------------------------------------------

    \34\ For example, if a member organization submits a waiver 
request for an FSA-eligible person who has been working for a 
financial services affiliate of the member organization for three 
years and re-registers the individual, the member organization could 
subsequently file a Form U5 and re-designate the individual as an 
FSA-eligible person. Moreover, if the individual works with a 
financial services affiliate of the member organization for another 
three years, the member organization could submit a second waiver 
request and re-register the individual upon returning to the member 
organization.
---------------------------------------------------------------------------

10. Proposed Rule 1210, Commentary .09--Status of Persons Serving in 
the Armed Forces of the United States \35\
---------------------------------------------------------------------------

    \35\ The proposed rule is substantially similar to FINRA Rule 
1210.10.
---------------------------------------------------------------------------

    Proposed Rule 1210, Commentary .09, provides specific relief to 
registered persons serving in the Armed Forces of the United States. 
Among other things, the proposed rule permits a registered person of a 
member organization who volunteers for or is called into active duty in 
the Armed Forces of the United States to be registered in an inactive 
status and remain eligible to receive ongoing transaction-related 
compensation. The proposed rule also includes specific provisions 
regarding the deferment of the lapse of registration requirements for 
formerly registered persons serving in the Armed Forces of the United 
States. The proposed rule further requires that the member organization 
with which such person is registered promptly notify the Exchange of 
such person's return to employment with the member organization. The 
proposed rule would require a member organization that is a sole 
proprietor to also similarly notify the Exchange of his or her return 
to participation in the investment banking or securities business. The 
proposed rule also provides that the Exchange would defer the lapse of 
the SIE for formerly registered persons serving in the Armed Forces of 
the United States.
E. Proposed New Rule 1220--Registration Categories \36\
---------------------------------------------------------------------------

    \36\ The Exchange is not adopting the following categories from 
the FINRA Filing because member organizations do not engage in the 
type of business that would require registration with the Exchange: 
Investment Banking Principal, Research Principal, Registered Options 
Principal, Government Securities Principal, Investment Company and 
Variable Contracts Products Principal, Direct Participation Programs 
Principal, Private Securities Offerings Principal, Supervisory 
Analyst, Operations Professional, Investment Banking Representative, 
Research Analyst, Investment Company and Variable Contracts Products 
Representative, Direct Participation Programs Representative, and 
Private Securities Offering Representative. The Exchange is also not 
adopting the following categories because the FINRA Filing 
eliminated them: Order Processing Assistant Representative, United 
Kingdom Securities Representative, Canadian Securities 
Representative, Options Representative, Corporate Securities 
Representative and Government Securities Representative.
---------------------------------------------------------------------------

1. Proposed Rule 1220(a)(1)--Principal
    As set forth in proposed Rule 1220(a)(1), for purposes of these 
registration rules, the term ``Principal'' [sic] to mean any Person 
Associated with a member organization actively engaged in the 
management of the member organization's securities business, including 
supervision, solicitation, conduct of the member organization's 
business, or the training of Authorized Traders and Persons Associated 
with a member organization for any of these functions. Such Persons 
include Sole Proprietors, Officers, Partners, and Directors of 
Corporations.
    For purposes of proposed Rule 1220(a)(1), the phrase ``actively 
engaged in the management of the member organization's securities 
business'' includes the management of, and the implementation of 
corporate policies related to, such business. The term also includes 
managerial decision-making authority with respect to the member 
organization's securities business and management-level 
responsibilities for supervising any aspect of such business, such as 
serving as a voting member of the member organization's executive, 
management or operations committee.
2. Proposed Rule 1220(a)(2)--General Securities Principal \37\
---------------------------------------------------------------------------

    \37\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(2).
---------------------------------------------------------------------------

    Proposed Rule 1220(a)(2)(A) states that each principal as defined 
in proposed Rule 1220(a)(1) is required to register with the Exchange 
as a General Securities Principal, subject to the following exceptions. 
The proposed rule provides that if a principal's activities include the 
functions of a Compliance Officer, a Financial and Operations Principal 
(or an Introducing Broker-Dealer Financial and Operations Principal, as 
applicable), a Principal Financial Officer, a Principal Operations 
Officer, or a Securities Trader Principal, then the principal must 
appropriately register in one or more of these categories.
    Proposed Rule 1220(a)(2)(A) further provides that if a principal's 
activities are limited solely to the functions of a General Securities 
Sales Supervisor, then the principal may appropriately register in that 
category in lieu of registering as a General Securities Principal.
    Proposed Rule 1220(a)(2)(B) requires that an individual registering 
as a General Securities Principal satisfy the General Securities 
Representative prerequisite registration and pass the General 
Securities Principal qualification examination. Proposed Rule 
1220(a)(2)(B) also clarifies that an individual may register as a 
General Securities Sales Supervisor and pass the

[[Page 50733]]

General Securities Sales Supervisor qualification examination in lieu 
of passing the General Securities Principal examination.
    As a general matter, the Exchange currently recognizes the 
Corporate Securities Representative but would no longer recognize this 
registration category given its elimination by FINRA. Proposed Rule 
1220(a)(2)(B), however, provides that, subject to the lapse of 
registration provisions in proposed Rule 1210, Commentary .07, each 
person registered with the Exchange as a Corporate Securities 
Representative and a General Securities Principal on October 1, 2018 
and each person who was registered with the Exchange as a Corporate 
Securities Representative and a General Securities Principal within two 
years prior to October 1, 2018 would be qualified to register as a 
General Securities Principal without having to take any additional 
qualification examinations, provided that such person's supervisory 
responsibilities in the investment banking and securities business of a 
member organization are limited to corporate securities activities of 
the member organization. The proposed rule further provides that all 
other individuals registering as General Securities Principals after 
October 1, 2018 shall, prior to or concurrent with such registration, 
become registered as a General Securities Representative and either (1) 
pass the General Securities Principal qualification examination; or (2) 
register as a General Securities Sales Supervisor and pass the General 
Securities Sales Supervisor qualification examination.
3. Proposed Rule 1220(a)(3)--Compliance Officer \38\
---------------------------------------------------------------------------

    \38\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(3).
---------------------------------------------------------------------------

    Proposed Rule 1220(a)(3) establishes a Compliance Officer 
registration category and requires all persons designated as CCOs on 
Schedule A of Form BD to register as Compliance Officers, subject to an 
exception for member organizations engaged in limited investment 
banking or securities business. The proposed rule only addresses the 
registration requirements for CCOs. However, consistent with proposed 
Rule 1210, Commentary .01 relating to permissive registrations, a firm 
may allow other associated persons to register as Compliance Officers.
    In addition, the Exchange is proposing to provide CCOs of firms 
that engage in limited investment banking or securities business with 
greater flexibility to satisfy the qualification requirements for CCOs. 
Specifically, proposed Rule 1220(a)(3) set forth the following 
qualification requirements for Compliance Officer registration:
     Subject to the lapse of registration provisions in 
proposed Rule 1210, Commentary .07, each person registered with the 
Exchange as a General Securities Representative and a General 
Securities Principal on October 1, 2018 and each person who was 
registered with the Exchange as a General Securities Representative and 
a General Securities Principal within two years prior to October 1, 
2018 would be qualified to register as Compliance Officers without 
having to take any additional examinations. In addition, subject to the 
lapse of registration provisions in proposed Rule 1210, Commentary .07, 
individuals registered as Compliance Officials in the CRD system on 
October 1, 2018 and individuals who were registered as such within two 
years prior to October 1, 2018 would also be qualified to register as 
Compliance Officers without having to take any additional examinations; 
[sic]
     All other individuals registering as Compliance Officers 
after October 1, 2018 would have to: (1) Satisfy the General Securities 
Representative prerequisite registration and pass the General 
Securities Principal qualification examination; or (2) pass the 
Compliance Official qualification examination.
     An individual designated as a CCO on Schedule A of Form BD 
of an ETP Holder [sic] that is engaged in limited investment banking or 
securities business may be registered in a principal category under 
proposed Rule 1220(a) that corresponds to the limited scope of the 
member organization's business.
4. Proposed Rule 1220(a)(4)--Financial and Operation Principal and 
Introducing Broker-Dealer Financial and Operations Principal \39\
---------------------------------------------------------------------------

    \39\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(4).
---------------------------------------------------------------------------

    Proposed Rule 1220(a)(4) provides that each principal who is 
responsible for the financial and operational management of a member 
organization that has a minimum net capital requirement of $250,000 
under SEA Rules 15c3-1(a)(1)(ii) and 15c3-1(a)(2)(i), or a member 
organization that has a minimum net capital requirement of $150,000 
under SEA Rule 15c3-1(a)(8) must be designated as a Financial and 
Operations Principal. In addition, proposed Rule 1220(a)(4) provides 
that a principal who is responsible for the financial and operational 
management of a member organization that is subject to the net capital 
requirements of SEA Rule 15c3-1, other than a member organization that 
is subject to the net capital requirements of SEA Rules 15c3-
1(a)(1)(ii), (a)(2)(i) or (a)(8), must be designated and registered as 
either a Financial and Operations Principal or an Introducing Broker-
Dealer Financial and Operations Principal. Financial and Operations 
Principals and Introducing Broker-Dealer Financial and Operation 
Principals are not subject to a prerequisite representative 
registration, but they must pass the Financial and Operations Principal 
or Introducing Broker-Dealer Financial and Operations Principal 
examination, as applicable.
    Additionally, proposed Rule 1220(a)(4)(B) requires a member 
organization to designate a Principal Financial Officer with primary 
responsibility for the day-to-day operations of the business, including 
overseeing the receipt and delivery of securities and funds, 
safeguarding customer and firm assets, calculation and collection of 
margin from customers and processing dividend receivable and payables 
and reorganization redemptions and those books and records related to 
such activities. Further, the proposed rule requires that a firm's 
Principal Financial Officer and Principal Operations Officer qualify 
and register as Financial and Operations Principals or Introducing 
Broker-Dealer Financial and Operations Principals, as applicable.
    Because the financial and operational activities of member 
organizations that neither self-clear nor provide clearing services are 
more limited, such member organizations may designate the same person 
as the Principal Financial Officer, Principal Operations Officer and 
Financial and Operations Principal or Introducing Broker-Dealer 
Financial and Operations Principal (that is, such member organizations 
are not required to designate different persons to function in these 
capacities).
    Given the level of financial and operational responsibility at 
clearing and self-clearing members, the Exchange believes that it is 
necessary for such member organizations to designate separate persons 
to function as Principal Financial Officer and Principal Operations 
Officer. Such persons may also carry out the other responsibilities of 
a Financial and Operations Principal, such as supervision of 
individuals engaged in financial and operational activities. In 
addition, the proposed rule provides that a clearing or self-clearing 
member organization that is limited in size and

[[Page 50734]]

resources may request a waiver of the requirement to designate separate 
persons to function as Principal Financial Officer and Principal 
Operations Officer.
5. Proposed Rule 1220(a)(5)--Securities Trader Principal \40\
---------------------------------------------------------------------------

    \40\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(7).
---------------------------------------------------------------------------

    Proposed Rule 1220(a)(5) requires that a principal responsible for 
supervising the securities trading activities specified in proposed 
Rule 1220(b)(3) register as a Securities Trader Principal. The proposed 
rule requires that individuals registering as Securities Trader 
Principals must be registered as Securities Traders and pass the 
General Securities Principal qualification examination.
6. Proposed Rule 1220(a)(6)--General Securities Sales Supervisor \41\
---------------------------------------------------------------------------

    \41\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(10).
---------------------------------------------------------------------------

    Proposed Rule 1220(a)(6) provides that a principal may register 
with the Exchange as a General Securities Sales Supervisor if his or 
her supervisory responsibilities in the investment banking or 
securities business of a member organization are limited to the 
securities sales activities of the member organization, including the 
approval or customer accounts, training of sales and sales supervisory 
personnel and the maintenance of records of original entry or ledger 
accounts of the member organization required to be maintained in branch 
offices by Exchange Act record-keeping rules.
    A person registering as a General Securities Sales Supervisor must 
satisfy the General Securities Representative prerequisite registration 
and pass the General Securities Sales Supervisor examinations.\42\ 
Moreover, a General Securities Sales Supervisor is precluded from 
performing any of the following activities: (1) Supervision of the 
origination and structuring of underwritings; (2) supervision of 
market-making commitments; (3) supervision of the custody of firm or 
customer funds or securities for purposes of SEA Rule 15c3-3; or (4) 
supervision of overall compliance with financial responsibility rules.
---------------------------------------------------------------------------

    \42\ An individual may also register as a General Securities 
Sales Supervisor by passing a combination of other principal-level 
examinations.
---------------------------------------------------------------------------

7. Proposed Rule 1220(b)(1)--Representative \43\
---------------------------------------------------------------------------

    \43\ The proposed rule is substantially similar to FINRA Rule 
1220(b)(1).
---------------------------------------------------------------------------

    Proposed Rule 1220(b)(1) defines a representative as any person 
associated with a member organization, including assistant officers 
other than principals, who is engaged in the member organization's 
investment banking or securities business, such as supervision, 
solicitation, conduct of business in securities or the training of 
persons associated with a member organizations for any of these 
functions.
8. Proposed Rule 1220(b)(2)--General Securities Representative \44\
---------------------------------------------------------------------------

    \44\ The proposed rule is substantially similar to FINRA Rule 
1220(b)(2).
---------------------------------------------------------------------------

    Proposed Rule 1220(b)(2)(A) states that each representative as 
defined in proposed Rule 1220(b)(1) is required to register with the 
Exchange as a General Securities Representative, subject to the 
following exceptions. The proposed rule provides that if a 
representative's activities include the function of a Securities 
Trader, then the representative must appropriately register in that 
category.
    The proposed rule further provides that, subject to the lapse of 
registration provisions in proposed Rule 1210, Commentary .07, each 
person registered with the Exchange as a General Securities 
Representative on October 1, 2018 and each person who was registered 
with the Exchange as a General Securities Representative within two 
years prior to October 1, 2018 would be qualified to register as a 
General Securities Representative without having to take any additional 
qualification examinations. Additionally, the proposed rule would 
require that individuals registering as General Securities 
Representatives after October 1, 2018 shall, prior to or concurrent 
with such registration, pass the SIE and the General Securities 
Representative examination.
9. Proposed Rule 1220(b)(3)--Securities Trader \45\
---------------------------------------------------------------------------

    \45\ The proposed rule is substantially similar to FINRA Rule 
1220(b)(4).
---------------------------------------------------------------------------

    Proposed Rule 1220(b)(3) provides that each representative as 
defined in proposed Rule 1220(b)(1) is required to register as a 
Securities Trader if, with respect to transactions in equity (including 
equity options), preferred or convertible debt securities, such person 
is engaged in proprietary trading, the execution of transactions on an 
agency basis, or the direct supervision of such activities. The 
proposed rule provides an exception from the registration requirement 
for any associated person of a member organization whose trading 
activities are conducted primarily on behalf of an investment company 
that is registered with the SEC pursuant to the Investment Company Act 
and that controls, is controlled by, or is under common control with a 
member organization. The Exchange proposes to adopt FINRA's definition 
of Securities Trader in proposed Rule 1220(b)(3) in order to align the 
text of the rule to that adopted by FINRA and other exchanges.\46\
---------------------------------------------------------------------------

    \46\ See e.g., MIAX International Stock Exchange, LLC Rule 
203(d).
---------------------------------------------------------------------------

    The proposed rule also requires that associated persons primarily 
responsible for the design, development or significant modification of 
algorithmic trading strategies (or responsible for the day-to-day 
supervision or direction of such activities) register as Securities 
Traders. Individuals registering as Securities Traders must pass the 
SIE and the Securities Trader examination.
    Finally, the proposed rule provides that, subject to the lapse of 
registration provisions in proposed Rule 1210, Commentary .07, each 
person registered with the Exchange as a Securities Trader on October 
1, 2018 and each person who was registered with the Exchange as a 
Securities Trader within two years prior to October 1, 2018 would be 
qualified to register as a Securities Trader without having to take any 
additional qualification examinations. Additionally, the proposed rule 
would require that individuals registering as Securities Traders after 
October 1, 2018 shall, prior to or concurrent with such registration, 
pass the SIE and the Securities Trader qualification examination.
10. Proposed Rule 1220, Commentary .01--Foreign Registrations \47\
---------------------------------------------------------------------------

    \47\ The proposed rule is substantially similar to FINRA Rule 
1220.01 and 1220.06.
---------------------------------------------------------------------------

    Proposed Rule 1220, Commentary .01, states that individuals who are 
in good standing as representatives with the Financial Conduct 
Authority in the United Kingdom or with a Canadian stock exchange or 
securities regulator would be exempt from the requirement to pass the 
SIE, and thus would be required only to pass a specialized knowledge 
examination to register with the Exchange as a representative. The 
proposed approach would provide individuals with a United Kingdom or 
Canadian qualification more flexibility to obtain a representative-
level registration. Additionally, proposed Rule 1220, Commentary .01, 
provides that, subject to the lapse of registration provisions in Rule 
1210, Commentary .07, each person who is registered with the Exchange 
as a United Kingdom Securities Representative or a Canada

[[Page 50735]]

Securities Representative on October 1, 2018 and each person who was 
registered with the Exchange in such categories within two years prior 
to October 1, 2018 would be eligible to maintain such registrations 
with the Exchange. However, if persons registered in such categories 
subsequently terminate such registration(s) with the Exchange and the 
registration remains terminated for two or more years, they would not 
be eligible to re-register in such categories.
11. Proposed Rule 1220, Commentary .02--Additional Qualification 
Requirements for Persons Engaged in Security Futures \48\
---------------------------------------------------------------------------

    \48\ The proposed rule is substantially similar to FINRA Rule 
1220.02.
---------------------------------------------------------------------------

    Proposed Rule 1220, Commentary .02, states that each person who is 
registered with the Exchange as a General Securities Representative, 
United Kingdom Securities Representative, Canada Securities 
Representative, or General Securities Sales Supervisor shall be 
eligible to engage in security futures activities as a representative 
or principal, as applicable, provided that such individual completes a 
Firm Element program as set forth in Rule 345A(b) that addresses 
security futures products before such person engages in security 
futures activities.\49\
---------------------------------------------------------------------------

    \49\ FINRA Rule 1220.02 also includes Options Representative and 
Registered Options Principal registration categories. NYSE does not 
trade options and member organizations therefore would not be 
required to register with the Exchange in those categories and 
therefore the Exchange is not adopting those categories within 
proposed Rule 1220, Commentary .03 [sic].
---------------------------------------------------------------------------

12. Proposed Rule 1220, Commentary .03--Scope of General Securities 
Sales Supervisor Registration Category \50\
---------------------------------------------------------------------------

    \50\ The proposed rule is substantially similar to FINRA Rule 
1220.04.
---------------------------------------------------------------------------

    Proposed Rule 1220, Commentary .03, explains the purpose of the 
General Securities Sales Supervisor registration category. The General 
Securities Sales Supervisor category is an alternate category of 
registration designed to lessen the qualification burdens on principals 
of general securities firms who supervise sales. Without this category 
of limited registration, such principals would be required to 
separately qualify pursuant to the rules of FINRA, the MSRB, and the 
options exchanges. While persons may continue to separately qualify 
with all relevant self-regulatory organizations, the General Securities 
Sales Supervisor examination permits qualification as a supervisor of 
sales of all securities through one registration category. Persons 
registered as General Securities Sales Supervisors may also qualify in 
any other category of principal registration. Persons who are already 
qualified in one or more categories of principal registration may 
supervise sales activities of all securities by also qualifying as 
General Securities Sales Supervisors.
    The proposed rule further provides that any person required to be 
registered as a principal who supervises sales activities in corporate, 
municipal and option securities, investment company products, variable 
contracts, and security futures (subject to the requirements of Rule 
1220, Commentary .02) may be registered solely as a General Securities 
Sales Supervisor. In addition to branch office managers, other persons 
such as regional and national sales managers may also be registered 
solely as General Securities Sales Supervisors as long as they 
supervise only sales activities.
F. Proposed New Rule 1230--Associated Persons Exempt From Registration 
\51\
---------------------------------------------------------------------------

    \51\ The proposed rule is substantially similar to FINRA Rule 
1230.
---------------------------------------------------------------------------

    Proposed Rule 1230 provides an exemption from registration with the 
Exchange for certain associated persons. Specifically, the proposed 
rule provides that persons associated with a member organization whose 
functions are solely and exclusively clerical or ministerial would be 
exempt from registration.\52\
---------------------------------------------------------------------------

    \52\ FINRA Rule 1230 provides an exemption from registration 
with FINRA to persons associated with a FINRA member whose functions 
are solely and exclusively clerical or ministerial and persons 
associated with a FINRA member whose functions are related solely 
and exclusively to (i) effecting transactions on the floor of a 
national securities exchange and who are appropriately registered 
with such exchange; (ii) effecting transactions in municipal 
securities; (iii) effecting transactions in commodities; or (iv) 
effecting transactions in security futures, provided that any such 
person is registered with a registered futures association. Member 
organizations do not solely and exclusively engage in any of the 
foregoing transactions and therefore the Exchange is not adopting 
that portion of FINRA Rule 1230.
---------------------------------------------------------------------------

1. Proposed Rule 1230, Commentary .01--Registration Requirements for 
Associated Persons Who Accept Customer Orders \53\
---------------------------------------------------------------------------

    \53\ The proposed rule is substantially similar to FINRA Rule 
1230.01.
---------------------------------------------------------------------------

    Proposed Rule 1230, Commentary .01, clarifies that the function of 
accepting customer orders is not considered clerical or ministerial and 
that associated persons who accept customer orders under any 
circumstances are required to be appropriately registered. However, the 
proposed rule provides that an associated person is not accepting a 
customer order where occasionally, when an appropriately registered 
person is unavailable, the associated person transcribes the order 
details and the registered person contacts the customer to confirm the 
order details before entering the order.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\54\ in general, and 
furthers the objectives of Section 6(b)(5),\55\ in particular, because 
it 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 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.
---------------------------------------------------------------------------

    \54\ 15 U.S.C. 78f(b).
    \55\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change will 
streamline, and bring consistency and uniformity to, the registration 
rules, which will, in turn, assist member organizations and their 
associated persons in complying with these rules and improve regulatory 
efficiency. The proposed rule change will also improve the efficiency 
of the examination program, without compromising the qualification 
standards. In addition, the proposed rule change will expand the scope 
of permissive registrations, which, among other things, will allow 
member organizations to develop a depth of associated persons with 
registrations to respond to unanticipated personnel changes and will 
encourage greater regulatory understanding. Further, the proposed rule 
change will provide a more streamlined and effective waiver process for 
individuals working for a financial services industry affiliate of a 
member organization, and it will require such individuals to maintain 
specified levels of competence and knowledge while working in areas 
ancillary to the investment banking and securities business.
    Finally, the Exchange believes that, with the introduction of the 
SIE and expansion of the pool of individuals who are eligible to take 
the SIE, the proposed rule change has the potential of enhancing the 
pool of prospective securities industry professionals by introducing 
them to securities laws, rules and regulations and appropriate conduct 
before they join the industry in a registered capacity.

[[Page 50736]]

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 proposed amendments are 
intended to promote transparency in the Exchange's rules, and 
consistency with the rules of other SROs with respect to the 
examination, qualification, and continuing education requirements 
applicable to member organizations and their registered personnel. The 
Exchange believes that in that regard that any burden on competition 
would be clearly outweighed by the important regulatory goal of 
ensuring clear and consistent requirements applicable across SROs, 
avoiding duplication, and mitigating any risk of SROs implementing 
different standards in these important areas.
    Further, the Exchange does not believe that the proposed amendments 
will affect competition among securities markets since all SROs are 
expected to adopt similar rules with uniform standards for 
qualification, registration and continuing education requirements.

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

    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) of the Act \56\ and Rule 19b-
4(f)(6) thereunder.
---------------------------------------------------------------------------

    \56\ 15 U.S.C. 78s(b)(3)(A).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days from the date of filing. However, Rule 
19b-4(f)(6)(iii) \57\ 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 on 
October 1, 2018 to coincide with the effective date of FINRA's proposed 
rule change on which the proposal is based.\58\ The waiver of the 
operative delay would make the Exchange's qualification requirements 
consistent with those of FINRA, as of October 1, 2018. Therefore, the 
Commission believes that the waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest and 
hereby waives the 30-day operative delay and designates the proposal 
operative on October 1, 2018.\59\
---------------------------------------------------------------------------

    \57\ 17 CFR 240.19b-4(f)(6)(iii).
    \58\ See supra note 5.
    \59\ 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).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSE-2018-44 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-NYSE-2018-44. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSE-2018-44 and should be submitted on 
or before October 30, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\60\
Eduardo A. Aleman,
Assistant Secretary.
---------------------------------------------------------------------------

    \60\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. 2018-21781 Filed 10-5-18; 8:45 am]
 BILLING CODE 8011-01-P