Document ID: SEC-2016-1543-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Stock Exchange, Inc.
Posted Date: 2016-08-31T04:00Z

[Federal Register Volume 81, Number 169 (Wednesday, August 31, 2016)]
[Notices]
[Pages 60083-60088]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-20883]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78676; File No. SR-NSX-2016-07]

Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rules Regarding Qualification, Registration and Continuing 
Education for Persons Associated With Equity Trading Permit Holders, To 
Add Definitions, Amend Definitions, and To Make Technical, Non-
Substantive and Conforming Amendments to Rules

 August 25, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that on August 24, 2016, National Stock 
Exchange, Inc. (``NSX'' or the ``Exchange'') filed with the Securities 
and Exchange Commission (``Commission'') the proposed rule change, as 
described in Items I, II, and III below, which Items have been prepared 
by the Exchange. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing amendments to its rules regarding 
qualification, registration and continuing education requirements 
applicable to Equity Trading Permit (``ETP'') Holders \3\ and Persons 
Associated with ETP Holders.\4\ The Exchange's rule proposal is 
intended to align its rules with those of other self-regulatory 
organizations (``SROs'') and thus promote consistency within the 
securities industry. The Exchange is also proposing to amend NSX Rule 
1.5, Definitions, and make technical or conforming changes to certain 
other NSX rules.
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    \3\ Exchange Rule 1.5E.(1) defines the term ``ETP,'' in relevant 
part, as ``. . . an Equity Trading Permit issued by the Exchange for 
effecting approved securities transactions on the Exchange's trading 
facilities. . . .''
    \4\ Exchange Rule 1.5P.(2) defines ``Person Associated with an 
ETP Holder'' as ``. . . any partner, officer, director, or branch 
manager of an ETP Holder (or any person occupying a similar status 
or performing similar functions), any person directly or indirectly 
controlling, controlled by, or under common control with an ETP 
Holder, or any employee of such ETP Holder, except that any person 
associated with an ETP Holder whose functions are solely clerical or 
ministerial shall not be included in the meaning of such terms.''
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    The Exchange has designated this rule proposal as a ``non-
controversial'' rule change pursuant to Section 19(b)(3)(A) of the Act 
\5\ and provided the Commission with the notice required by Rule 19b-
4(f)(6)(iii) under the Act.\6\
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    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nsx.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 parts of such 
statements.

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

1. Purpose
    The Exchange proposes to amend its qualification, registration, and 
continuing education requirements applicable to ETP Holders and Persons 
Associated with ETP Holders. The proposed amendments are intended to: 
(i) Provide transparency and clarity with respect to the Exchange's 
registration, qualification, and examination requirements; (ii) ensure 
that all persons engaging in trading on the Exchange or performing 
supervisory or operational functions are properly registered and 
subject to the examination and continuing education requirements 
necessary for their business function; (iii) align the Exchange's 
qualification, registration and examination rules with those of the 
Financial Industry Regulatory Authority (``FINRA'') and other SROs so 
as to promote uniform standards across the securities industry; (iv) 
provide for the Securities Trader registration (Series 57) and 
Securities Trader Principal registration; and (v) reorganize certain 
rules, add new definitions of terms, and make other conforming or 
ministerial, non-substantive amendments designed to enhance the 
comprehensiveness and clarity of the Exchange's rules. The proposed 
changes are discussed below.
Amendments to NSX Rule 1.5--Definitions
    The Exchange is proposing to amend NSX Rule 1.5 to add new 
definitions, revise certain definitions in the current rule, and make 
non-substantive changes to the rule text. The Exchange first proposes 
to amend the definition of an ETP in NSX Rule 1.5E.(1). As currently 
defined in the rule, the term ETP ``. . . shall refer to an Equity 
Trading Permit issued by the Exchange for effecting approved securities 
transactions on the Exchange's trading facilities. An ETP may be issued 
to a sole proprietor, partnership, corporation, limited liability 
company or other organization which is a registered broker or dealer 
pursuant to Section 15 of the Act, and which has been approved by the 
Exchange.''
    Under the Exchange's proposed amendment, the definition of an 
``ETP'' would retain the text that an ETP shall refer to an Equity 
Trading Permit issued by the Exchange for effecting approved securities 
transactions on the Exchange's trading facilities. However, the 
subsequent text in the current rule, which provides that an ETP may be 
issued to a sole proprietor, partnership, corporation, limited 
liability company or other organization which is a registered broker or 
dealer pursuant to Section 15 of the Act, will be moved to NSX Rule 
2.3, entitled ``ETP Holder Eligibility,'' where it is more logically 
placed given the content of that rule. Additionally, the relocated text 
will be amended to add a requirement that the prospective ETP Holder 
must be a member of another national securities exchange or national 
securities association in order to be eligible to become an ETP Holder 
of NSX. The Exchange is proposing this amendment because it will not 
act as the Designated Examining Authority for any ETP

[[Page 60084]]

Holder under Section 17(d) of the Act \7\ and Rules 17d-1 \8\ and 17d-2 
\9\ thereunder. In new NSX Rule 1.5E.(2), the Exchange proposes to add 
a new definition of ETP Holder as meaning ``the Exchange-approved 
holder of an ETP'' in order to clarify that term and add its definition 
to Rule 1.5.
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    \7\ 15 U.S.C. 78q(d).
    \8\ 17 CFR 240.17d-1.
    \9\ 17 CFR 240.17d-2.
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    The Exchange is also proposing to add new definitions for the terms 
``Person,'' ``Principal,'' ``Principal--Financial and Operations,'' 
``Securities Trader,'' and ``Securities Trader Principal.'' Proposed 
Rule 1.5P.(1) will define the term ``Person'' as a natural person, 
corporation, partnership, limited liability company, association, joint 
stock company, trustee of a trust fund, or any organized group of 
persons whether incorporated or not.\10\
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    \10\ The proposed definition of a ``Person'' is the same as that 
contained in NYSE Arca, Inc. Rule 1.1(v) and NYSE Arca Equities Inc. 
Rule 1.1(oo).
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    The term ``Principal'' will be defined in proposed Rule 1.5P.(3) as 
any person actively engaged in the management of the ETP Holder's 
securities business, including supervision, solicitation, the conduct 
of the ETP Holder's business, or the training of Authorized Traders 
\11\ and Persons Associated with the ETP Holder for any of these 
functions. Such persons shall include Sole Proprietors, Officers, 
Partners and Directors of Corporations. The definition of a 
``Principal'' in the proposed amendment aligns with the definition of 
Principal in NASD Rule 1021(b), Definition of Principal.\12\
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    \11\ Exchange Rule 1.5A.(2) defines ``Authorized Trader'' as ``. 
. . a person who may submit orders (or who supervises a routing 
engine that may automatically submit orders) to the Exchange's 
trading facilities on behalf of his or her ETP Holder or Sponsored 
Participant.'' No changes to that definition are proposed in this 
rule filing.
    \12\ NASD Rule 1021(b), and other NASD Rules regarding the 
qualification, registration and continuing education requirements 
for registered personnel, as applicable, are part of FINRA's 
Transitional Rule Book.
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    A Principal--Financial and Operations (``FINOP'') will be defined 
in proposed Rule 1.5P.(4) as a Person Associated with an ETP Holder 
whose responsibilities include final approval and responsibility for 
the accuracy of financial reports submitted to securities industry 
regulatory bodies and the final preparation of such reports; 
supervision of individuals who assist in the preparation of such 
reports; supervision of and responsibility for individuals who are 
involved in the maintenance of the ETP Holder's books and records from 
which such reports are derived; supervision and/or performance of the 
ETP Holder's responsibilities under all financial responsibility rules 
under the provisions of the Act; overall supervision of and 
responsibility for the individuals who are involved in the 
administration and maintenance of the ETP Holder's back office 
operations; or any other matter involving the financial and operational 
management of the ETP Holder.
    The Exchange proposes to add the terms Securities Trader and 
Securities Trader Principal to Exchange Rule 1.5S. Proposed Rule 
1.5S.(1) states that the term ``Securities Trader'' means any person 
engaged in the purchase or sale of securities or other similar 
instruments for the account of an ETP Holder with which such person is 
associated, as an employee or otherwise, and who does not transact any 
business with the public. Proposed Rule 1.5S.(2) states that the term 
``Securities Trader Principal'' means a person who has become qualified 
and registered as a Securities Trader and passes the General Securities 
Principal qualification examination. Each Principal with responsibility 
over securities trading activity on the Exchange shall become qualified 
and registered as a Securities Trader Principal. The Exchange's 
proposed definitions of the Securities Trader and Securities Trader 
Principal registration categories align with those contained in NASD 
Rules 1032 and 1022(a)(6)(A), respectively.
    The Exchange also proposes to make changes to the numbering and 
capitalization and other ministerial changes to Rule 1.5 in light of 
the additions that have been made to the Rule.
Amendments to Chapter II--ETP Holders of the Exchange
    The Exchange is proposing to make changes to Chapter II of its 
rules with respect to the eligibility, obligations and restrictions 
applicable to ETP Holders; and the qualification, registration and 
continuing education requirements applicable to Principals of ETP 
Holders, Authorized Traders, and Persons Associated with an ETP Holder. 
The proposed changes will align the Exchange's rules with those of 
other SROs and provide ETP Holders, their registered and non-registered 
personnel, and other market participants with reasonable notice of the 
requirements established by the Exchange in these subject areas.
Amendments to NSX Rule 2.2, Obligations of ETP Holders and the Exchange
    The Exchange proposes to amend NSX Rule 2.2, entitled Obligations 
of ETP Holders and the Exchange. The current text of the rule will be 
denoted as paragraph (a) and additional rule text will be added in new 
paragraphs (b) through (e). Proposed paragraph (b) provides that each 
ETP Holder shall require each Person Associated with such ETP Holder as 
defined in NSX Rule 1.5P.(2) to agree: (i) To supply the Exchange with 
such information as may be specified by the Exchange with respect to 
such person's relationships and dealings with the ETP Holder; (ii) to 
permit the examination by the Exchange of such person's books and 
records to verify the accuracy of the information so supplied; and 
(iii) to be regulated by the Exchange and recognize the Exchange's 
obligation under the Act to enforce compliance with the Exchange's 
Rules, By-Laws, Interpretations and Policies and the provisions of the 
Act and the rules and regulations thereunder. The Exchange is proposing 
these requirements in order to make more explicit in the Exchange's 
rules the obligation of ETP Holders, and all Persons Associated with 
the ETP Holder, to comply with Exchange information requests, to permit 
the examination of any books and records relevant to the subject matter 
of an Exchange inquiry, and to consent to the regulatory jurisdiction 
of the Exchange.\13\
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    \13\ See 15 U.S.C.78f(c)(3)(C).
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    Proposed new subparagraph (c)(i) of Rule 2.2 provides that an ETP 
Holder shall register through the Central Registration Depository 
System (``CRD System'') \14\ as a Principal all persons who meet the 
definition thereof under Rule 1.5P.(3), i.e., persons actively engaged 
in the management of the ETP Holder's securities business, including 
supervision, solicitation, the conduct of the ETP Holder's business, or 
the training of Authorized Traders and Persons Associated with the ETP 
Holder for any of these functions. Such persons shall include sole 
proprietors, officers, partners, and directors of corporations.
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    \14\ The CRD System is operated by FINRA and defined in proposed 
NSX Rule 2.2(c). ETP Holders are not required to be members of 
FINRA.
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    Further, pursuant to proposed subparagraph (c)(i), a Principal that 
is responsible for supervising Authorized Traders or any Principal 
designated as a Chief Compliance Officer on Schedule A of the ETP 
Holder's Form BD must pass the General Securities Principal 
qualification examination (``Series 24'') and be registered in CRD. 
Alternatively, proposed Interpretations and Policies provision .02 
provides that the Exchange will accept the New York Stock Exchange 
(``NYSE'') Chief Compliance Officer Examination

[[Page 60085]]

(``NYSE Series 14'') as an alternative examination to qualify as a 
Principal a registrant who is identified as the Chief Compliance 
Officer on the ETP Holder's Form BD. This provision recognizes that 
potential registrants cannot register with the Exchange as a Principal 
using the Series 14 qualification through the CRD System. Except as 
provided in Interpretations and Policies provisions .04, described 
below, a Principal must pass the General Securities Representative 
examination (``Series 7 examination'') or an equivalent foreign 
examination module as a prerequisite to taking the Series 24 
examination.
    Proposed subparagraphs (c)(ii) and (iii) of Rule 2.2 require each 
ETP Holder, except a sole proprietorship or a proprietary trading firm 
with 25 or fewer Authorized Traders (such entity defined as a ``Limited 
Size Proprietary Firm''), to have a minimum of two registered 
Principals. A Person registered solely as a FINOP, as defined in Rule 
1.5P.(4), does not count toward the two-Principal requirement and shall 
not be qualified to function in a Principal capacity with 
responsibility over any area of business activity not described in Rule 
1.5P.(4).\15\
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    \15\ The provisions of the proposed rule align with those of 
other SROs. See e.g., NASD Rule 1022; Bats BZX Exchange, Inc. 
(``BZX'') Rule 2.5, Interpretations and Policies .01(d).
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    Proposed subparagraph (c)(iii) states that for purposes of the 
Rule, the Exchange proposes to define a proprietary firm as an ETP 
Holder that trades its own capital and conducts all of its trading 
activity using exclusively firm accounts and firm funds; does not have 
customer accounts; whose traders are owners of, employees of, or 
contractors of the firm; and is not a FINRA member.\16\ The Exchange 
submits that it is appropriate and consistent with the goal of 
promoting consistency and uniformity in SRO rules, to allow for an 
exemption from the two-Principal requirement for those ETP Holders that 
only engage in proprietary trading and have 25 or fewer Authorized 
Traders. Accordingly, as proposed, such ETP Holders will be required to 
maintain one Series 24 Registered Principal.
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    \16\ The definition of ``proprietary trading firm'' proposed in 
subparagraph (c)(iii) is identical to that provided in BZX Rule 2.5, 
Interpretations and Policies 01(g).
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    The Exchange further proposes to include a waiver provision that 
will permit the Exchange to waive the requirements of this proposed 
subparagraph in situations that indicate conclusively that only one 
person associated with an applicant for membership should be required 
to register as a Principal. The Exchange is proposing this amendment to 
align Rule 2.2(c)(ii) with NASD Rule 1021(e)(2), which contains the 
same waiver provision.
    The Exchange proposes in paragraph (d) of amended NSX Rule 2.2 to 
require that ETP Holders designate and register with the Exchange 
through the CRD System a FINOP, as described in proposed NSX Rule 
1.5P.(5). The FINOP will be required by the Exchange to pass the 
Financial and Operations Principal examination (``Series 27'') 
examination'').\17\ The proposed rule will allow a FINOP to be either 
an employee of the ETP Holder or an independent contractor.
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    \17\ See NASD Rule 1022(b), (c).
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    The Exchange is further proposing to adopt NSX Rule 2.2(e), 
Continuing Education Requirements, describing such requirements for all 
Registered Persons of ETP Holders. The requirements proposed in Rule 
2.2(e) are identical to those in the rules of other SROs. For the 
purposes of paragraph (e) the term ``Registered Person'' means any 
Person registered with the Exchange as a General Securities 
Representative, Securities Trader, Principal, FINOP, Person Associated 
with an ETP Holder, Authorized Trader, or Market Maker Authorized 
Trader pursuant to Exchange Rules.\18\ Proposed NSX Rule 2.2(e), which 
aligns with FINRA Rule 1250, establishes both a ``Regulatory Element'' 
(applicable to Principals, Authorized Traders and General Securities 
Representatives) and a ``Firm Element'' (applicable to those registered 
persons that have direct customer contact).
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    \18\ The proposed definition of ``Registered Person'' is 
substantially similar to that contained in FINRA Rule 1250(a)(5).
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    The Exchange submits that its proposed adoption of the uniform 
securities industry rules regarding continuing education requirements 
will promote uniformity among SRO rules.\19\
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    \19\ See, e.g., NYSE Rule 345A; NYSE Arca Equities Rule 2.21; 
BZX and Bats BZY Exchange, Inc. Rules 2.5, Interpretations and 
Policies .02.
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Amendments to NSX Rule 2.2, Interpretations and Policies
    The Exchange proposes to amend the Interpretations and Policies of 
NSX Rule 2.2 to add new provisions and to relocate and amend certain 
text currently found in the Interpretation and Policies provisions of 
current NSX Rule 2.4 (Restrictions) as Interpretations and Policies to 
NSX Rule 2.2. Currently, NSX Rule 2.4 Interpretations and Policies 
describe the qualification requirements that align with NSX Rule 2.2, 
as proposed to be amended by this rule filing, and the Exchange 
believes that relocating these provisions will result in a better 
organizational structure and greater clarity in its rules. The Exchange 
also proposes to add to the amended NSX Rule 2.2 Interpretations and 
Policies new provisions relating to the Securities Trader and 
Securities Trader Principal categories of registration.\20\
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    \20\ See Securities Exchange Act Release No. 75783 (August 28, 
2015), 80 FR 53369 (September 3, 2015) (SR-FINRA-2015-17), Order 
Approving a Proposed Rule Change To Establish the Securities Trader 
and Securities Trader Principal Registration Categories.
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    As amended, the NSX Rule 2.2 Interpretations and Policies include 
the following: In provision .01, the Exchange states that it requires 
the Series 7 or an equivalent foreign examination module approved by 
the Exchange in qualifying persons seeking registration as General 
Securities Representatives. The Exchange is relocating this clause from 
NSX Rule 2.4 Interpretations and Policies, provision .01(c) and adding 
the text allowing for an equivalent foreign examination module, which 
will align the Exchange's requirements with those of other SROs.\21\
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    \21\ See, e.g., NASD Rule 1032(a)(2); BZX Rule 2.5, 
Interpretations and Policies .01(c).
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    In proposed provision .02, the Exchange states that it will accept 
the NYSE Series 14 as an alternative qualification to the Series 24 to 
register as a Principal an individual identified as the Chief 
Compliance Officer on ETP Holder's Form BD. Additionally, in order to 
conform to the rules of other SROs, the Exchange specifies in provision 
.05 that it uses the Uniform Application for Securities Industry 
Registration or Transfer (``Form U4''), and the Uniform Termination 
Notice for Securities Industry Registration (``Form U5''), through the 
CRD System as part of its procedure for registration of ETP Holder 
personnel. Form U4 shall be amended by the ETP Holder no later than 30 
days after an event that would require an amendment to Form U4.
    In proposed provision .06, the substance of which is being 
relocated from NSX Rule 2.4 Interpretations and Policies .01(b), the 
Exchange will have the authority to waive the requirement of a 
proficiency examination in exceptional cases, upon a written request 
and a showing of good cause by an applicant. Advanced age or physical 
infirmity will not individually of themselves constitute sufficient 
grounds to waive a qualification examination. Experience in fields 
ancillary to the investment banking or securities business may 
constitute sufficient

[[Page 60086]]

grounds to waive a qualification examination.\22\ The Exchange is 
further proposing to add Interpretations and Policies provision .07. 
This proposed provision states that any costs borne by the Exchange 
with respect to registration and examination may be passed through to 
the applicable ETP Holder. The Exchange believes this addition is 
necessary to provide ETP Holders with notice that costs may be assessed 
by the Exchange to comply with the changes to its registration 
rules.\23\
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    \22\ Proposed provision .06 aligns with NASD Rule 1070(d). The 
Exchange proposes this provision, in part, to allow for experience 
in fields ancillary to the investment banking or securities business 
to potentially constitute sufficient grounds to waive a 
qualification examination, which is in line with FINRA registration 
rules. Under current Exchange rules, such experience cannot 
individually of itself constitute sufficient grounds to waive a 
qualification examination.
    \23\ The Exchange is not proposing to add a specific fee to its 
Fee and Rebate Schedule at this juncture and would make a filing 
with the Commission pursuant to Section 19(b) of the Act, 15 U.S.C. 
78s, prior to implementing any such fee.
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Securities Trader and Securities Trader Principal Registrations
    The Exchange is proposing to add Interpretations and Policies 
provisions .03 and .04 to adopt the Securities Trader and Securities 
Trader Principal registrations.
    In proposed provision .03, the Exchange will require the Securities 
Trader Qualification Examination (``Series 57'') and registration for 
persons meeting the definition of a Securities Trader as set forth in 
Rule 1.5S.(1). A person registered as a Securities Trader will not be 
able to function in any other registration category unless he or she is 
also qualified in such other registration category. For example, a 
person registered solely as a Securities Trader would not be able to 
perform all of the functions of a General Securities Representative 
(Series 7), unless such person had obtained that registration as well.
    Proposed provision .04 would further require that a Principal who 
will have supervisory responsibility for securities trading activity on 
the Exchange to become qualified and registered as a Securities Trader 
Principal. Qualification as a Securities Trader Principal would require 
the Series 57 examination as a prerequisite to taking the Series 24 
examination. A Person who is qualified and registered as a Securities 
Trader Principal may only have supervisory responsibilities for the 
trading activity described in NASD Rule 1032(f)(1), unless such person 
is separately qualified and registered in another appropriate principal 
registration category. A person who is registered as a General 
Securities Principal shall not be qualified to supervise the trading 
activities described in NASD Rule 1032(f)(1), unless such person has 
also become qualified and registered as a Securities Trader under NASD 
Rule 1032(f) by passing the Securities Trader qualification examination 
and becoming registered as a Securities Trader Principal.\24\ Adopting 
the Securities Trader and Securities Trader Principal qualification and 
registration categories will promote consistency and uniformity within 
the securities industry.
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    \24\ Proposed provision .04 aligns with NASD Rule 1022(a)(6)(B).
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Amendments to NSX Rule 2.4, Restrictions
    The Exchange is proposing amendments to NSX Rule 2.4, Restrictions, 
that are intended to streamline and clarify the rule requirements. In 
light of other changes contained in this rule proposal, the text of 
current NSX Rule 2.4(e) and Interpretations and Policies .01 and .02 
has been relocated to NSX Rule 2.2 and the Interpretations and Policies 
to such rule. In certain areas, the repositioned rule text has been 
further amended. These changes are proposed to better organize the 
Exchange's requirements for the qualification, registration and 
continuing education requirements applicable to registered persons. 
With respect to the remaining text of NSX Rule 2.4, the Exchange is 
proposing certain non-substantive amendments designed to enhance the 
clarity of the rule.
Amendments to NSX Rules 2.5, 2.6, 2.7 and 2.11
    The Exchange is proposing certain non-substantive, technical or 
conforming amendments to NSX Rules 2.5, 2.6, 2.7 and 2.11. Current NSX 
Rule 2.5, Application Procedures for an ETP Holder or to become an 
Associated Person of an ETP Holder, provides in paragraph (b) that 
``[a]pplications for association with an ETP Holder shall be made on 
Form U4 and such other forms as the Exchange may prescribe, and shall 
be delivered to the Exchange's Vice President of Regulation or such 
other officer or employee as designated by the Exchange.'' In view of 
the Exchange's proposed amendments to NSX Rule 2.2, the text of 
paragraph (b) is no longer needed and the Exchange proposes to delete 
this text and denote paragraph (b) as ``Reserved.''
    Similarly, paragraph (f) currently provides that ``[e]xcept where, 
pursuant to Section 17(d) of the Act, the Exchange has been relieved of 
its responsibility to review and act upon applications for associated 
persons of an ETP Holder, the procedure set forth in this Chapter shall 
govern the processing of any such applications.'' The Exchange is 
proposing to delete this provision because it retains the authority and 
responsibility to review and approve applications for associated 
persons of ETP Holders, and the proposed amendments to the 
qualification and registration requirements discussed in this filing 
make this current rule text inapposite. Moreover, were the Exchange to 
enter into an agreement with another SRO to review and act upon 
applications for associated persons of ETP Holders, such an agreement 
would be subject to a filing with the Commission pursuant to Section 
17(d) of the Act. Accordingly, the Exchange proposes to delete the 
current text and make paragraph (f) ``Reserved.''
    The Exchange is proposing ministerial, non-substantive amendments 
to NSX Rule 2.6, entitled Revocation of an ETP or an Association with 
an ETP Holder, NSX Rule 2.7, entitled Voluntary Termination of Rights 
as an ETP Holder and NSX Rule 2.11, entitled NSX Securities, LLC. NSX 
Rule 2.6 currently states, in relevant part, that ``[i]n connection 
with any revocation or voluntary termination of an ETP pursuant to Rule 
2.7, the ETP shall be cancelled.'' The Exchange proposes to delete the 
text referencing a voluntary termination of an ETP from NSX Rule 2.6 
and add it to NSX Rule 2.7, where it is more logically placed.
    Finally, the Exchange proposes a ministerial amendment to Rule 
2.11(a)(2) to remove an obsolete reference to the National Association 
of Securities Dealers (``NASD'') as the unaffiliated SRO having 
oversight responsibilities for NSX Securities, LLC, the Exchange's 
outbound order routing facility. The correct reference should be to the 
Financial Industry Regulatory Authority and the Exchange proposes to 
amend the rule to denote that fact.
Amendments to Chapter XI--Trading Rules
    The Exchange is proposing to make several amendments to Chapter XI, 
Trading Rules. First, the Exchange proposes to amend Rule 11.6, 
Obligations of Market Maker Authorized Traders, to align the text of 
the rule with the Exchange's proposed rule changes regarding the 
qualification and registration of Persons Associated with

[[Page 60087]]

ETP Holders. The Exchange proposes to amend subparagraph (b)(2) of the 
rule to add text stating that a person who successfully completes the 
Series 57 qualification examination will be qualified to be registered 
as a Market Maker Authorized Trader (``MMAT''). The Exchange proposes 
to remove the Series 7 qualification for registration as an MMAT. The 
Exchange further proposes to amend subparagraph (b)(2) to eliminate a 
provision that would allow the Exchange to waive such qualification 
requirements if the person applying for MMAT status had served as a 
dealer-specialist or market maker on a registered national securities 
exchange or association for at least two consecutive years within three 
years of the date of application. The Exchange believes that requiring 
the Series 57 as the qualification for registration as an MMAT and the 
elimination of the waiver provision currently in NSX Rule 11.6(b)(2) 
will operate to clarify the requirements necessary to qualify as an 
MMAT and will further promote consistency and uniformity in the rules 
regarding registration of Associated Persons.
    The Exchange is further proposing amendments to NSX Rule 11.10, 
Authorized Traders, to add new paragraph (e). As proposed, the new rule 
text will state that, to be eligible for registration as an Authorized 
Trader of an ETP Holder, a person must successfully complete the Series 
57 examination and any other training and/or certification programs as 
may be required by the Exchange.
    The Exchange believes that the proposed amendments to NSX Rules 
11.6 and 11.10 will provide internal consistency within NSX's rules and 
eliminate a fragmented qualification standard for individuals engaged 
in trading on the Exchange. Currently under Rule 11.6, an individual is 
required to pass the Series 7 examination to register as an MMAT. 
Current Rule 11.10 does not include a similar requirement for an 
Authorized Trader that will not act as an MMAT. The Exchange proposes 
to replace the Series 7 qualification with the Series 57 qualification 
for both Authorized Traders and MMATs, thereby providing a uniform 
registration requirement.
    Additionally, the Exchange proposes to change Rule 11.6(b) to 
clarify that the Exchange will register an MMAT upon receiving a 
written application from a Market Maker and subject to the eligibility 
criteria described in the rule. This change is intended to clarify that 
the MMAT applicant must meet the eligibility criteria set forth in the 
Rule before the Exchange will register the MMAT.

2. Statutory Basis

    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \25\ in general, and furthers the objectives of 
Sections 6(b)(5) \26\ and 6(c)(3)(B) \27\ in particular, in that the 
amendments are intended to promote just and equitable principles of 
trade, foster cooperation, and coordination among the SROs responsible 
for the qualification, registration, and continuing education 
requirements for registered securities industry personnel, and in 
general are designed to protect investors the public interest. In 
addition, the proposed amendments further the objectives of Section 
6(c)(3)(B) of the Act, which provides that it is the Exchange's 
responsibility to prescribe in its rules the standards of training, 
experience, and competence for ETP Holders and Persons Associated with 
ETP Holders; the Exchange has the authority under Section 6(c)(3)(B) to 
bar an individual from becoming an ETP Holder or a person Associated 
with an ETP Holder, or condition the individual's status as such, if 
such person does not meet the standards of training, experience and 
competence that the Exchange prescribes.
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    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(5).
    \27\ 15 U.S.C. 78f(c)(3)(B).
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    The proposed amendments to NSX Rule 1.5, whereby the Exchange 
proposes to add new definitions for the terms ``ETP Holder,'' 
``Person,'' ``Principal,'' ``Principal--Financial and Operational,'' 
``Securities Trader,'' and ``Securities Trader Principal,'' are 
consistent with the statutory provisions in that they add clarity and 
context to the Exchange's rules regarding securities industry personnel 
to whom the proposed amended qualification and registration 
requirements will apply.
    The Exchange's proposed amendments to certain provisions contained 
in Chapter II of the NSX rules, entitled ``ETP Holders of the 
Exchange,'' also satisfy the requirements of Sections (6)(b)(5) and 
6(c)(3)(B) of the Act in that, among other things, they prescribe the 
standards of training, experience, and competence for ETP Holders and 
their Associated Persons. Specifically, the proposed amendments to NSX 
Rule 2.2(b)(i) through (iii), providing that each ETP Holder shall 
require its Associated Persons to agree: (i) To supply the Exchange 
with information as requested; (ii) to permit the examination by the 
Exchange of the person's books and records; and (iii) to be regulated 
by the Exchange and recognize the Exchange's obligations to enforce 
compliance with its rules, by-laws and policies and the provisions of 
the Act, are consistent with Section 6(b)(5) in that they are designed 
to establish standards of conduct for proposed Associated Persons. The 
provisions will operate to promote cooperation and coordination among 
persons regulating the securities markets, which is one of the 
objectives of Section 6(b)(5).
    Proposed NSX Rule 2.2(c)(i)-(iii) addresses the requirements for 
ETP Holders to register Principals, and provides an exemption from the 
two-Principal registration requirement for sole proprietorships and 
proprietary trading firms, the latter as defined in NSX Rule 
2.2(c)(iii). Proposed NSX Rule 2.2(d) contains the requirement for each 
ETP Holder to register a FINOP. These proposed rule provisions are 
consistent with the rules of other SROs; their adoption by the Exchange 
is designed to further enhance cooperation and coordination among those 
entities responsible for regulating the securities industry, thereby 
meeting the statutory requirement set forth in Section 6(b)(5).
    In proposed NSX Rules 2.2(e)(i) and (ii) the Exchange will adopt 
the uniform industry rules establishing continuing education 
requirements for the registered personnel. The proposed revisions will 
contribute to the consistency of application of continuing education 
requirements and meet the statutory mandate of Section 6(c)(3)(B) that 
the Exchange's rules be designed to prescribe standards of training and 
competence for registered personnel associated with its ETP Holders. 
The proposed continuing education requirements will contribute to 
uniform standards across the securities industry and avoid unnecessary 
duplication or inconsistencies among SRO rules.
    The Exchange's proposed amendments to Interpretations and Policies 
.01 through .07 of NSX Rule 2.2 also meet the requirements of Sections 
6(b)(5) and 6(c)(3)(B) pursuant to the Act. These proposed amendments 
specify that: (i) The Exchange requires the Series 7 or an equivalent 
foreign examination module in qualifying persons as General Securities 
Representatives; (ii) the NYSE Series 14 can be used as a qualification 
for Principals designated as an ETP Holder's Chief Compliance Officer; 
(iii) those who meet the qualifications of a Securities Trader must 
pass the Series 57; (iv) any Principal who supervises Securities 
Trading activity must qualify as a Securities Trader Principal, and 
only a Principal qualified as a Securities

[[Page 60088]]

Trader Principal may supervise Securities Trading activity; (v) ETP 
Holders must use the Form U4 and Form U5 for registration and 
termination of ETP Holder personnel; (vi) the Exchange may grant a 
waiver of an examination requirement in exceptional cases and upon a 
showing of good cause; and (vii) the Exchange may pass through the 
reasonable costs associated with such examinations and qualifications 
to ETP Holders. All of these proposed amendments to the NSX Rule 2.2 
Interpretations and Policies are designed to align the Exchange's rules 
with the qualification and registration requirements of other SROs and 
thus are designed to promote uniformity and certainty in the securities 
industry, which is consistent with the statutory mandate of Section 
6(b)(5) of the Act that the rules of the Exchange foster coordination 
and cooperation among those entities regulating the securities markets.
    The Exchange's proposed amendments to NSX Rules 2.5, 2.6, 2.7, and 
2.11 are designed as conforming amendments that resulted from the 
proposed changes to the Exchange's qualification and registration 
rules, or are ministerial, non-substantive changes designed to correct 
deficient or obsolete text and promote clarity and consistency in the 
Exchange's rules. Such amendments are consistent with Section 6(b)(5) 
of the Act in that, by enhancing the organization and clarity of the 
Exchange's rules, they operate to promote just and equitable principles 
of trade.
    The Exchange has further proposed amendments Chapter XI, Trading 
Rules, and specifically to NSX Rules 11.6 and 11.10. The proposed 
amendments codify the qualification standards for MMATs and for 
Authorized Traders. The proposed amendments are designed to establish 
the standard of competence and knowledge required of those categories 
of registered personnel, which is consistent with the requirements of 
Section 6(c)(3)(B) of the Act. The adoption of these rule amendments 
will conform the Exchange's standards those of FINRA and other SROs.

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 ETP Holders and their registered personnel. The Exchange 
believes 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 FINRA and 
exchanges have adopted 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

    The Exchange has not solicited or received any comments on the 
proposed rule change from market participants or others.

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

    Because the foregoing proposed rule change does not:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. 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) \28\ of the Exchange 
Act and Rule 19b-4(f)(6) thereunder.\29\
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    \28\ 15 U.S.C. 78(s)(b)(3)(A).
    \29\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description of the text of the proposed rule change, at least 
five business days prior to the date of the filing of the proposed 
rule change, or such other time as designated by the Commission. The 
Exchange provided the Commission with the required notice.
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    At any time within sixty (60) days of the filing of such proposed 
rule change, the Commission may summarily 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 rule-comments@sec.gov. Please include 
File Number SR-NSX-2016-07 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 No. SR-NSX-2016-07. This file 
number should be included in the subject line if email is used. To help 
the Commission process and review 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 a.m. and 3 
p.m. eastern time. Copies of such filings will also 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-NSX-2016-07 and should be 
submitted on or before September 21, 2016.

    For the Commission by the Division of Trading and Markets, 
pursuant to the delegated authority.\30\
Robert W. Errett,
Deputy Secretary.
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    \30\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-20883 Filed 8-30-16; 8:45 am]
 BILLING CODE 8011-01-P