Document ID: SEC-2012-0347-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Amex LLC
Posted Date: 2012-03-01T05:00Z

[Federal Register Volume 77, Number 41 (Thursday, March 1, 2012)]
[Notices]
[Pages 12637-12640]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-4912]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66463; File No. SR-NYSEAMEX-2012-12]

Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing of 
Proposed Rule Change Amending the NYSE Amex Equities Definition of 
Approved Person To Exclude Foreign Affiliates, Eliminating the 
Application Process for Approved Persons, and Making Related Technical 
and Conforming Changes

 February 24, 2012.
    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 February 14, 2012, NYSE Amex LLC (the

[[Page 12638]]

``Exchange'' or ``NYSE Amex'') 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 amend the NYSE Amex equities [sic] 
definition of approved person to exclude foreign affiliates, eliminate 
the application process for approved persons, and make related 
technical and conforming changes. The text of the proposed rule change 
is available at the Exchange, the Commission's Public Reference Room, 
and www.nyse.com.

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 the NYSE Amex equities [sic] 
definition of approved person to exclude foreign affiliates, eliminate 
the application process for approved persons, and make related 
technical and conforming changes. Following approval of the proposed 
rule change, the Exchange will advise member organizations of the 
implementation date of the rule change via Information Memo.
Background
    The current rules governing the definition of and application 
process for an approved person are NYSE Amex Equities Rules 2 and 304. 
If the definition requirements under NYSE Amex Equities Rule 2 are met, 
then the person or entity has to apply to the Exchange for approval to 
register as an approved person. This requirement is intended to bring 
certain affiliates of Exchange member organizations within the 
Exchange's jurisdiction and to subject such affiliates' activities to 
Exchange rules to the extent their activities are related to the 
activities of the member organization.
    NYSE Amex Equities Rule 2(c) defines the term ``approved person'' 
as ``a person, other than a member, principal executive or employee of 
a member organization, who controls a member organization or is engaged 
in a securities or kindred business that is controlled by or under 
common control with a member or member organization who has been 
approved by the Exchange as an approved person.'' NYSE Amex Equities 
Rule 2(d) further defines ``person'' to include not only natural 
persons, but also corporations, limited liability companies, 
partnerships, associations and other organized groups of persons. NYSE 
Amex Equities Rule 2(e) defines the term ``control'' to mean the power 
to direct or cause the direction of management or policies, whether 
through ownership of securities, by contract or otherwise, and creates 
a rebuttable presumption of control if the person has a right to vote 
25 percent or more of the voting securities, is entitled to receive 25 
percent or more of the net profits, or is a director, general partner, 
or principal executive of the member organization. NYSE Amex Equities 
Rule 2(f) defines ``engage in a securities or kindred business'' to 
mean transacting business as a broker or dealer in securities. Thus, 
the current definition of approved person includes a foreign affiliate 
of a member organization that is engaged in a broker-dealer business, 
but does not include, for example, a registered investment company. 
NYSE Amex Equities Rules 2A(e) and (f) further provide that the 
Exchange has jurisdiction after notice and a hearing to discipline 
approved persons in connection with the member organization's business 
and has jurisdiction over any and all other functions of approved 
persons in connection with the member organization's business in order 
for the Exchange to comply with its statutory obligation as a self-
regulatory organization (``SRO'').
    NYSE Amex Equities Rules 304 and 311(a) require, with limited 
exceptions, that persons who meet the NYSE Amex Equities Rule 2(c) 
definition of an approved person must apply for approval by the 
Exchange as an approved person. NYSE Amex Equities Rule 304 further 
provides that no person may become or remain an approved person unless 
such person meets the standards prescribed in the Exchange's rules, and 
it prescribes the process that an applicant must follow to become an 
approved person. Among other things, this process involves submission 
to the Exchange of a completed Form AP-1 (in the case of a corporation 
or other legal entity) or Forms AD-G 2 and AD-G 3 (in the case of a 
natural person, collectively referred to as ``AD-G''), and other 
pertinent information regarding the candidate for approval. By 
executing the Form AP-1 or AD-G, as applicable, the approved person 
affirmatively consents to the Exchange's jurisdiction.
Proposed Rule Change
    The Exchange proposes to amend the definition of approved person in 
NYSE Amex Equities Rule 2 to revise the definition of which entities 
are deemed to be under ``common control'' with a member organization. 
The Exchange believes that the current definition, which includes 
certain foreign affiliates, is overbroad and it is unnecessary to 
assert jurisdiction over a foreign affiliate of a member organization 
that does not control a member organization. The Exchange notes that 
excluding such foreign affiliates from its jurisdiction would be 
consistent with Rule 19g2-1 under the Securities Exchange Act of 1934, 
as amended (the ``Act''), which provides that an exchange is not 
required to enforce compliance with its rules against certain persons; 
\4\ the Exchange has not identified a rule of any other SRO that 
asserts jurisdiction over a foreign affiliate under common control with 
a member of that SRO. As such, the Exchange proposes to amend the 
definition of approved person so that it would include any person, 
other than a member, principal executive or employee of a member 
organization, who controls a member organization, is engaged in a 
securities or kindred

[[Page 12639]]

business that is controlled by a member or member organization, or is a 
U.S. registered broker-dealer under common control with a member 
organization.
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    \4\ See 17 CFR 240.19g2-1. Under Rule 19g2-1, a national 
securities exchange is not required to enforce compliance, within 
the meaning of Section 19(g) of the Act, with the Act and the rules 
and regulations thereunder, to [sic] with respect to persons 
associated with a member, other than securities persons or persons 
who control a member. Under Rule 19g2-1(b)(1), a ``securities 
person'' is defined as a ``person who is a general partner or 
officer (or person occupying a similar status or performing similar 
functions) or employee of a member; provided, however, that a 
registered broker or dealer which controls, is controlled by, or is 
under common control with, the member and the general partners and 
officers (and persons occupying similar status or performing similar 
functions) and employees of such a registered broker or dealer shall 
be securities persons if they effect, directly or indirectly, 
transactions in securities through the member by use of facilities 
maintained or supervised by such exchange or association.'' A 
foreign broker-dealer not registered in the United States that is 
under common control with an NYSE Amex member organization falls 
outside of the definition of ``securities person.''
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    By changing the definition of approved person to exclude certain 
foreign affiliates, the Exchange does not intend to eliminate certain 
controls in Exchange rules related to potential conflicts of interest 
associated with having a foreign affiliate under common control with a 
member organization. Accordingly, the Exchange proposes several 
amendments to its Rules. First, the Exchange proposes to amend NYSE 
Amex Equities Rule 22 to provide that a member of certain NYSE boards 
and committees may not participate in the consideration of any matter 
if there are certain types of indebtedness between the board or 
committee member and a member organization's affiliate or other related 
parties. Second, the Exchange proposes to amend NYSE Amex Equities Rule 
98A, which provides that no issuer, or partner or subsidiary thereof, 
may become an approved person of a Designated Market Maker (``DMM'') 
unit that is registered in the stock of that issuer, to provide instead 
that a DMM unit may not be registered in a stock of an issuer, or a 
partner or subsidiary thereof, if such entity is either an approved 
person or an affiliate of the DMM unit's member organization. Finally, 
the Exchange proposes to amend Supplementary Material .30(c) of Rule 
402 to provide that when securities are callable in part under the 
Rule, a member organization may not allocate any called securities to 
the account of an affiliate until all customer positions have been 
satisfied.\5\
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    \5\ The Exchange does not believe any amendment to NYSE Amex 
Equities Rules 22, 91, 96, 112, 422, 410A, or 460 is necessary as a 
result of the proposed rule change; the Exchange believes such Rules 
would continue to be consistent with the requirements of the 
Exchange Act and the manner in which such they address potential 
conflicts of interest is appropriate under the circumstances.
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    The Exchange also proposes to amend its rules to remove the 
requirement that the Exchange affirmatively approve each application to 
become an approved person. If a person meets the definition of an 
approved person, as proposed, the Exchange will obtain jurisdiction by 
consent as described below. The Exchange believes that the current 
application process requires the submission of a substantial amount of 
information and documents related to member organization affiliates 
that is unnecessary to carry out the Exchange's regulatory 
responsibilities. In particular, because the Exchange is no longer the 
Designated Examining Authority (``DEA'') for Exchange member 
organizations,\6\ the Exchange does not believe that it needs to engage 
in a detailed financial review of approved persons of its member 
organization applicants. The Exchange further notes that other SROs do 
not require that such persons undergo such an application and approval 
process.\7\ The Exchange, therefore, proposes to remove all references 
to an approval process and the submission of an application for such 
approval from NYSE Amex Equities Rules 304, 308, and 311. The Exchange 
also would eliminate use of the Forms AP-1 and AD-G.
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    \6\ Prospective member organization applicants must be either a 
member of FINRA or, if the applicant does not transact business with 
public customers or conduct business on the Floor of the Exchange, a 
member of another registered securities exchange, before being 
approved as an Exchange member organization. See NYSE Amex Equities 
Rule 2(b)(i). Generally, FINRA or the other exchange already is, or 
will be, designated as the DEA under SEC Rule 17d-1 and the Exchange 
will not be designated as such. Currently, the Exchange is not the 
DEA for any of its member organizations, but if it were designated 
as the DEA, the Exchange has retained FINRA to perform services 
related to meeting the Exchange's DEA responsibilities for a member 
organization.
    \7\ For example, the rules of FINRA and The NASDAQ Stock Market, 
Inc. do not impose application and approval requirements on member 
affiliates. See also note 9, infra.
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    Nevertheless, the Exchange's jurisdiction over approved persons in 
accordance with the revised definition would remain. Thus, the Exchange 
proposes to amend NYSE Amex Equities Rule 304 to provide specifically 
that a member organization would be required to identify all of its 
approved persons to the Exchange and each such approved person would 
continue to be required to consent to the Exchange's jurisdiction. 
Specifically, an approved person would continue to have to agree to (i) 
inform the Exchange of any statutory disqualification of the approved 
person under Section 3(a)(39) of the Act, (ii) abide by the Rules of 
the Exchange relating to approved persons, and (iii) permit examination 
by the Exchange, or any person designated by it, of its books and 
records to verify the accuracy of the information required to be 
supplied under Exchange Rules.\8\
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    \8\ The Exchange proposes to eliminate the text in current Rule 
304(e)(1), which requires an approved person to supply information 
concerning its relationship with the member organization. This 
provision relates to information required to be submitted on Form 
AP-1 or AD-G, and as such it is not necessary to retain it in 
proposed Rule 304.
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    The focus on identification of approved persons by each member 
organization and consent to jurisdiction by each approved person, 
instead of review and approval of applications by the Exchange, would 
make the entire process more efficient while maintaining appropriate 
regulatory standards. The proposed rule change would remove unnecessary 
paperwork in the process while holding each member organization 
accountable for identifying to the Exchange its affiliates and approved 
persons. The remaining jurisdictional requirements for approved persons 
would enable the Exchange to continue to pursue matters involving or 
affecting its member organizations.\9\
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    \9\ The Exchange notes that FINRA is in the process of 
harmonizing legacy NASD and NYSE Rules, and has published a proposal 
to harmonize membership rules. See FINRA Regulatory Notice 10-01. 
While FINRA has proposed that a member firm be required to provide 
certain information about affiliates, FINRA has not proposed to 
adopt the approved person definition or application process, or 
assert jurisdiction over such persons. When FINRA completes that 
harmonization process for the membership rules, the Exchange will 
consider whether further amendments to its approved person rules are 
advisable. Until such time, the Exchange believes that the narrowing 
of the approved person definition and the elimination of the 
approved person application process will remove unnecessary 
complexities and excessive informational requirements and thereby 
reduce burdens on membership applicants and member organizations 
while still maintaining high regulatory standards consistent with 
the Act.
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    The Exchange also proposes to make technical and conforming changes 
to other rules that reference the approved person application process. 
The Exchange further proposes to make technical amendments to correct 
an error in the spelling of ``principal executive,'' which is spelled 
``principle executive'' in NYSE Amex Rule 476A and NYSE Amex Equities 
Rules 308, 410A, 422, and 460. In addition, because the Exchange does 
not have an approval process or qualification examination requirements 
for principal executives, the Exchange proposes to delete references to 
``principle executive'' from NYSE Amex Equities Rules 304 and 304A. The 
Exchange notes that these proposed changes are consistent with similar 
amendments to NYSE Rules 304 and 304A.\10\
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    \10\ See SR-NYSE-2012-06.
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    The focus on identification of approved persons by each member 
organization and consent to jurisdiction by each approved person, 
instead of review and approval of applications by the Exchange, would 
make the entire process more efficient while maintaining appropriate 
regulatory standards. The proposed rule change would remove unnecessary 
paperwork in the process while holding each member organization 
accountable for identifying to the Exchange its affiliates and approved 
persons. The remaining jurisdictional requirements for approved persons 
would enable the Exchange to

[[Page 12640]]

continue to pursue matters involving or affecting its member 
organizations.\11\
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    \11\ The Exchange notes that FINRA is in the process of 
harmonizing legacy NASD and NYSE Rules, and has published a proposal 
to harmonize membership rules. See FINRA Regulatory Notice 10-01. 
While FINRA has proposed that a member firm be required to provide 
certain information about affiliates, FINRA has not proposed to 
adopt the approved person definition or application process, or 
assert jurisdiction over such persons. When FINRA completes that 
harmonization process for the membership rules, the Exchange will 
consider whether further amendments to its approved person rules are 
advisable. Until such time, the Exchange believes that the narrowing 
of the approved person definition and the elimination of the 
approved person application process will remove unnecessary 
complexities and excessive informational requirements and thereby 
reduce burdens on membership applicants and member organizations 
while still maintaining high regulatory standards consistent with 
the Act.
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    The Exchange also proposes to make technical and conforming changes 
to other rules that reference the approved person application process. 
The Exchange further proposes to make technical amendments to correct 
an error in the spelling of ``principal executive,'' which is spelled 
``principle executive'' in NYSE Amex Rule 476A and NYSE Amex Equities 
Rules 308, 410A, 422, and 460. In addition, the Exchange proposes to 
delete ``principle executive'' from NYSE Amex Equities Rules 304 and 
304A for consistency with similar amendments to NYSE Rules 304 and 
304A.\12\
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    \12\ See SR-NYSE-2011-02.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \13\ of 
the Act, in general, and furthers the objectives of Section 6(b)(5) 
\14\ in particular in that 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. More specifically, the Exchange believes that the 
proposed approved person definition and consent to jurisdiction process 
would remove unnecessary complexities and excessive informational 
requirements and create a more efficient and less burdensome process 
for membership applicants and member organizations while maintaining 
appropriate regulatory standards. As such, the proposed rule change 
would contribute to removing impediments to and perfecting the 
mechanism of a free and open market and a national market system.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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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.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEAmex-2012-12 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEAmex-2012-12. 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 20549-1090, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of the filing will also be available for 
inspection and copying at the NYSE's principal office and on its 
Internet Web site at www.nyse.com. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NYSEAmex-2012-12 and should be submitted on or before 
March 22, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-4912 Filed 2-29-12; 8:45 am]
BILLING CODE 8011-01-P