Document ID: SEC-2016-0090-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, LLC
Posted Date: 2016-01-19T05:00Z

[Federal Register Volume 81, Number 11 (Tuesday, January 19, 2016)]
[Notices]
[Pages 2928-2930]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-00785]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76880; File No. SR-Phlx-2015-118]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Section (a)(4) of Rule 640, Continuing Education for Registered Persons

January 12, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 30, 2015, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II, 
and III, below, of which Items I and II have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Section (a)(4) of Rule 640, 
Continuing Education for Registered Persons, to provide for web-based 
delivery of the Exchange's continuing education (``CE'') program. The 
proposed rule change would phase out the current option of completing 
the Regulatory Element in a test center, delete the current option for 
in-house delivery of the Regulatory Element of the CE program and also 
delete the existing text of Rule 640(a)(4), In-Firm Delivery of the 
Regulatory Element. The Exchange's proposal, which is being filed for 
immediate effectiveness and will be operative January 4, 2016, is 
materially similar to a recent FINRA filing to amend FINRA Rule 1250, 
which was recently approved by the Securities and Exchange Commission 
(``Commission'').
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The CE requirements under Rule 640 consist of a Regulatory Element 
\3\ and a Firm Element.\4\ The Regulatory Element applies to all 
registered persons and consists of periodic computer-based training on 
regulatory, compliance, ethical, and supervisory subjects and sales 
practice standards, which must be completed within prescribed 
timeframes.\5\ In addition, unless otherwise determined by the 
Exchange, a registered person is required to re-take the Regulatory 
Element of the program and satisfy the program's requirements in their 
entirety in the event such person: (i) Becomes subject to any statutory 
disqualification as defined in Section 3(a)(39) of the Securities 
Exchange Act of 1934; (ii) becomes 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 re-take the Regulatory Element by any securities governmental agency 
or securities self-regulatory organization.
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    \3\ See Rule 640(a) (Regulatory Element).
    \4\ See Rule 640(b) (Firm Element).
    \5\ Pursuant to Rule 640, each registered person shall complete 
the Regulatory Element of the continuing education program on the 
occurrence of their second registration anniversary date(s), and 
every three years thereafter or as otherwise prescribed by the 
Exchange. On each occasion, the Regulatory Element must be completed 
within 120 days after the person's registration anniversary date. A 
person's initial registration date, also known as the ``base date,'' 
shall establish the cycle of anniversary dates for purposes of this 
Rule.
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    Rule 640(a)(1) provides that the following Regulatory Elements 
administered by FINRA shall be required: The S201 Supervisor Program 
for registered principals and supervisors, the S501 Series 56 
Proprietary Trader continuing education program for Series 56 
registered persons, and the S101 General Program for Series 7 and all 
other registered persons. Currently, the Regulatory Element may be 
administered in a test center or in-firm subject to specified 
procedures.\6\
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    \6\ Under current Rule 640(a)(4), In-Firm Delivery of the 
Regulatory Element, members and member organizations are permitted 
to administer the continuing education Regulatory Element program to 
their registered persons by instituting an in-firm program 
acceptable to the Exchange. Among others, the following procedures 
are required in order to administer the Regulatory Element of the CE 
program in-house: (1) The firm must designate a principal/officer-
in-charge to be responsible for the in-firm delivery of the 
Regulatory Element; (2) the location of the delivery site must be 
under the control of the firm; (3) the communication links and firm 
delivery computer hardware must comply with standards defined by the 
Exchange or its designated vendor; (4) the firm's written 
supervisory procedures must contain the procedures implemented to 
comply with requirements of in-firm delivery of the Regulatory 
Element continuing education; (5) all sessions must be proctored by 
an authorized person during the entire Regulatory Element continuing 
education session and proctors must be present in the session room 
or must be able to view the person(s) sitting for Regulatory Element 
continuing education through a window or by video monitor; (6) all 
appointments must be scheduled in advance using the procedures and 
software specified by the Exchange to communicate with the 
Exchange's system and designated vendor; and (7) a Letter of 
Attestation for In-Firm Delivery of Regulatory Element CE must be 
delivered.

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[[Page 2929]]

    The Firm Element consists of annual, member-developed and 
administered training programs for covered registered persons,\7\ which 
must be appropriate for the business of the member organization and, at 
a minimum, must cover the following matters concerning securities 
products, services and strategies offered by the member organization: 
(a) General investment features and associated risk factors; (b) 
suitability and sales practice considerations; and (c) applicable 
regulatory requirements.
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    \7\ Under Rule 640(b) (Persons Subject to the Firm Element), a 
``covered registered person'' means any registered person who has 
direct contact with customers in the conduct of the member 
organization's securities sales, trading or investment banking 
activities, and to the immediate supervisors of such persons.
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    Currently, most registered persons complete the Regulatory Element 
in a test center rather than in-firm. Given the advances in Web-based 
technology, the Exchange believes that there is diminishing utility in 
the test center and in-firm delivery methods. Moreover, according to 
FINRA,\8\ registered persons have raised concerns with the test center 
delivery method because of the travel involved, the limited time 
currently available to complete a Regulatory Element session \9\ and 
the use of rigorous security measures at test centers, which are 
appropriate for taking qualification examinations but onerous for a CE 
program.\10\ Also, according to FINRA, the test center is expensive to 
operate.\11\
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    \8\ FINRA is currently responsible for the operation of the test 
centers used for test center delivery method of the Regulatory 
Element.
    \9\ The current session time is three-and-a-half hours.
    \10\ See Securities Exchange Act Release No. 75154 (June 11, 
2015), 80 FR 34777 (June 17, 2015) (Notice of Filing of a Proposed 
Rule Change To Provide a Web-Based Delivery Method for Completing 
the Regulatory Element of the Continuing Education Requirements) 
(SR-FINRA-2015-015).
    \11\ Id. at 34779.
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    In response to the issues noted above, FINRA engaged in extensive 
outreach with the industry and completed a pilot of a Web-based 
delivery system for administering the Regulatory Element.\12\ According 
to FINRA, the proposed Web-based system performed well during the pilot 
in terms of both performance and accessibility.\13\ FINRA also received 
positive feedback from firms and the individual pilot participants.\14\ 
FINRA noted that among other things, pilot participants appreciated the 
expanded time to focus on the provided learning materials without the 
pressure of a timed session and the ability to resume or complete their 
session from where they left off.\15\
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    \12\ Id.
    \13\ Id.
    \14\ Id.
    \15\ Id.
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Proposal
    Based on the recent amendments to FINRA Rule 1250,\16\ the Exchange 
proposes to amend Rule 640(a)(4) to provide for a Web-based delivery 
method for completing the Regulatory Element. Specifically, the 
Exchange proposes to amend Rule 640(a)(4) to provide that the 
continuing education Regulatory Element set forth in paragraph (a) of 
Rule 640 will be administered through Web-based delivery or such other 
technological manner and format as specified by the Exchange. Should 
the Exchange determine to administer the Regulatory Element through a 
delivery mechanism other than Web-based delivery, however, the Exchange 
would notify the Commission and would need to file a further rule 
change with the Commission.
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    \16\ See FINRA Rule 1250 (Continuing Education Requirements). 
See also Securities Exchange Act Release No. 75581 (July 31, 2015) 
80 FR 47018 (August 6, 2015) (Order Approving a Proposed Rule Change 
to Provide a Web-based Delivery Method for Completing the Regulatory 
Element of the Continuing Education Requirements) (SR-FINRA-2015-
015).
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    The first phase of the Web-based delivery system was launched 
October 1, 2015 and includes the Regulatory Element of the S201 
Supervisor Program for registered principals and supervisors. The 
second phase of the Web-based delivery system will be launched January 
4, 2016 and include the Regulatory Element of the S101 General Program 
for Series 7 and all other registered persons, including, but not 
limited to Securities Traders. The Exchange is proposing to phase out 
test-center delivery by no later than six months after January 4, 2016. 
Registered persons will continue to have the option of completing the 
Regulatory Element in a test center, but they will be required to use 
the Web-based system after the test-center delivery is phased out.\17\
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    \17\ The Exchange intends to amend its fee schedule to reduce 
the cost for Regulatory Element CE from $100 to $55 if administered 
by Web-delivery. Fees for completing the Regulatory Element at a 
test center will remain $100.
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    Further, the Exchange is proposing to eliminate the current option 
for in-firm delivery and is deleting the current text of Rule 640(a)(4) 
relating to in-firm delivery of the Regulatory Element of the CE 
programs. The proposed Web-based delivery method will provide 
registered persons the flexibility to complete the Regulatory Element 
at a location of their choosing, including their private residence, at 
any time during their 120-day window for completion of the Regulatory 
Element.\18\
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    \18\ Although the proposed rule change provides flexibility, 
firms may choose to impose their own conditions based on their 
supervisory and compliance needs. For instance, a firm that wishes 
to have registered persons complete CE on the firm's premises can do 
so by having the registered person access Web-based CE from a firm 
device and location. Moreover, firms would have to update their 
written policies and procedures regarding the Regulatory Element to 
reflect the transition to Web-based CE and communicate the update to 
registered persons.
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    The Exchange notes that the Web-based format will include 
safeguards to authenticate the identity of the CE candidate. For 
instance, prior to commencing a Web-based session, the candidate will 
be asked to provide a portion of their [sic] SSN (either first five or 
last four digits) and their [sic] date of birth. This information will 
only be used for matching data in FINRA's Web-CRD system. The Web CE 
system will discard this information after the matching process. 
Further, before commencing a Web-based session, each candidate will be 
required to agree to the Rules of Conduct for Web-based delivery. Among 
other things, the Rules of Conduct will require each candidate to 
attest that he or she is in fact the person who is taking the Web-based 
session. The Rules of Conduct will also require that each candidate 
agree that the Regulatory Element content is intellectual property and 
that the content cannot be copied or redistributed by any means. If the 
Exchange discovers that a candidate has violated the Rules of Conduct, 
the candidate will forfeit the results of the Web-based session and may 
be subject to disciplinary action by the Exchange. Violation of the 
Rules of Conduct will be considered conduct inconsistent with just and 
equitable principles of trade, in violation of Rule 707, Conduct 
Inconsistent with Just and Equitable Principles of Trade. The Exchange 
is not proposing any changes to the Firm Element requirements under 
Rule 640(b).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \19\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \20\

[[Page 2930]]

in particular, in that it is designed to promote just and equitable 
principles of trade, 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. Additionally, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \21\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers and Section 6(c)(3) \22\ of the Act, which 
authorizes the Exchange to, among other things, prescribe standards of 
financial responsibility or operational capability and standards of 
training, experience and competence for its members and persons 
associated with members.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
    \21\ 15 U.S.C. 78f(b)(5).
    \22\ 15 U.S.C. 78f(c)(3).
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    In particular, the Exchange believes that the proposed rule change 
will improve members' compliance efforts and will allow registered 
persons to spend a greater amount of time on the review of CE materials 
and potentially achieve better learning outcomes, which will in turn 
enhance investor protection. Further, while the proposed rule change 
will provide more flexibility to members and registered persons, it 
will maintain the integrity of the Regulatory Element of the CE program 
and the CE program in general.

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 not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange notes that the 
proposed rule change is specifically intended to reduce the burden on 
firms while preserving the integrity of the CE program. As described 
above, the Web-based delivery method will provide registered persons 
the flexibility to complete the Regulatory Element at any location that 
they choose. Further, Web-based delivery is efficient and offers 
significant cost savings over test-center and in-firm deliveries. With 
respect to the authentication process for Web-based delivery, the CE 
candidate's personal identifying information will be masked and will be 
submitted to FINRA through a secure, encrypted, network. The personal 
identifying information submitted via the Web-based system will be used 
for authentication purposes only--the information will not be stored in 
the Web-based system.

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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \23\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\24\
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    \23\ 15 U.S.C. 78s(b)(3)(a)(iii).
    \24\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    The Exchange has requested that the Commission waive the thirty-day 
operative delay so that the proposal may become operative as of January 
4, 2016. The Commission believes that waiving the thirty day delay is 
consistent with the protection of investors and the public interest, as 
it will enable the Exchange to have the new requirements in effect at 
the same time as the other SROs. Therefore, the Commission hereby 
waives the thirty-day operative delay and designates the proposal 
operative as of January 4, 2016.\25\
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    \25\ For purposes of waiving the 30-day operative delay, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2015-118 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2015-118. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml).
    Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for Web site viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE., Washington, 
DC 20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly.
    All submissions should refer to File Number SR-Phlx-2015-118 and 
should be submitted on or before February 9, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-00785 Filed 1-15-16; 8:45 am]
 BILLING CODE 8011-01-P