Document ID: SEC-2018-2017-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2018-12-28T05:00Z

[Federal Register Volume 83, Number 248 (Friday, December 28, 2018)]
[Notices]
[Pages 67376-67390]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-28193]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84896; File No. SR-CHX-2018-07]

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Regarding Qualification, Registration and Continuing Education 
Requirements Applicable to Participants

December 20, 2018.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on December 18, 2018, the Chicago Stock Exchange, Inc. 
(``CHX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I and II below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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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 amendments to the Exchange's rules 
(``Rules'') regarding qualification, registration and continuing 
education requirements applicable to Participants,\4\ so as to 
harmonize such provisions with similar provisions under the rules of 
NYSE National, Inc. (``NYSE National''), a national securities exchange 
affiliated with the Exchange,\5\ and thus promote consistency within 
the securities industry. Like NYSE National,\6\ the Exchange is only 
adopting rules that are relevant to the Exchange's Participants. 
Specifically, the Exchange is not adopting registration categories 
under FINRA rules that are not applicable to Participants because 
Participants do not engage in the type of business that would require 
such registration. As such, the Exchange is amending current Article 1, 
Rule 1 to adopt a definition for the term ``Registered Person'' similar 
to NYSE National Rule 2.2(e); amending current Article 6, Rule 2 
regarding registration and approval of Participant personnel; amending 
current Article 6, Rule 3 regarding the training and examination of 
registrants; amending current Article 6, Rule 10 regarding

[[Page 67377]]

fingerprinting of securities industry personnel to be similar to 
Commentary .08 of NYSE National Rule 2.2; amending current Article 6, 
Rule 11 regarding continuing education requirements to be similar to 
NYSE National Rule 2.2(e); amending current Article 16, Rule 3(b)(2) to 
require that Market Maker Authorized Traders successfully complete, in 
addition to current examination requirements, the Securities Industry 
Essentials qualification examination; adopting new Article 6, Rule 13 
regarding registration requirements and related Interpretations and 
Policies to new Rule 13; adopting new Article 6, Rule 14 regarding 
registration categories \7\ and related Interpretations and Policies to 
new Rule 14; and adopting new Article 6, Rule 15 regarding associated 
persons exempt from registration and related Interpretations and 
Policies to new Rule 15. Each of these rule changes, which are 
described in more detail below, would become operative upon filing. The 
proposed rule change is available on the Exchange's website at 
www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.
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    \4\ A Participant is a ``member'' of the Exchange for purposes 
of the Act. See Article 1, Rule 1(s).
    \5\ The Exchange has four registered national securities 
exchange affiliates: NYSE National, NYSE Arca, Inc. (``NYSE Arca''), 
New York Stock Exchange LLC (``NYSE''), NYSE America LLC (``NYSE 
American'' and together with the Exchange, NYSE National, NYSE Arca 
and NYSE, the ``NYSE Group Exchanges'').
    \6\ The Financial Industry Regulatory Authority (``FINRA'') 
recently amended certain registration rules. See Securities Exchange 
Act Release No. 81098 (July 7, 2017), 82 FR 32419 (July 13, 2017) 
(SR-FINRA-2017-007) (Approval Order) (the ``FINRA Filing''). 
Thereafter, other self-regulatory organizations, such as NYSE 
National, submitted proposed rule changes to harmonize their 
registration rules with the corresponding FINRA rules amended 
pursuant to the FINRA Filing. See e.g., Securities Exchange Act 
Release No. 84350 (October 3, 2018), 83 FR 51030 (October 10, 2018) 
(SR-NYSENat-2018-21) (the ``NYSE National Filing'').
    \7\ The relevant principal registration categories the Exchange 
proposes to adopt are (1) Principal; (2) General Securities 
Principal; (3) Compliance Officer; (4) Financial and Operations 
Principal and Introducing Broker-Dealer Financial and Operations 
Principal; (5) Securities Trader Principal; and (6) General 
Securities Sales Supervisor. The relevant representative 
registration categories the Exchange proposes to adopt are (1) 
Representative; (2) General Securities Representative; and (3) 
Securities Trader. Upon filing of this proposed rule change, the 
Exchange's registration categories will be identical to those of 
NYSE National. See NYSE National Rule 2.1220.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

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

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

1. Purpose
    The Exchange proposes to amend its qualification, registration and 
continuing education requirements applicable to Participants. The 
proposed amendments are intended to: (i) Provide transparency and 
clarity with respect to the Exchange's registration, qualification and 
examination requirements; (ii) amend its rules relating to categories 
of registration and respective qualification examinations required for 
Participants that engage in trading activities on the Exchange; (iii) 
harmonize the Exchange's qualification, registration and examination 
rules with those of NYSE National so as to promote uniform standards 
across the securities industry; \8\ and (iv) add new definitions of 
terms and make other conforming changes to enhance the 
comprehensiveness and clarity of the Rules.\9\ The proposed changes are 
discussed below.
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    \8\ The Exchange notes that in order to maintain consistency 
with the NYSE National Filing, the Exchange proposes to incorporate 
certain terms from the relevant NYSE National rule into the 
Exchange's rule that may not be applicable to all Participants. For 
example, while Participants may not be engaged in ``investment 
banking'' activity, the Exchange proposes to adopt that term within 
these registration rules to conform them to the NYSE National rules.
    \9\ The conforming changes the Exchange proposes would 
substitute the term ``Participant'' for ``ETP Holder.''
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A. Proposed New Article 6, Rules 13-15
    As a general matter, FINRA administers qualification examinations 
that are designed to establish that persons associated with 
Participants have attained specified levels of competence and 
knowledge. Over time, the examination program has increased in 
complexity to address the introduction of new products and functions, 
and related regulatory concerns and requirements. As a result, today, 
there are a large number of examinations, considerable content overlap 
across the representative-level examinations and requirements for 
individuals in various segments of the industry to pass multiple 
examinations. To address these issues, FINRA has formulated a general 
knowledge examination called the Securities Industry Essential 
(``SIE'') that all potential representative-level registrants would 
take.\10\ Rule changes related to the adoption of the SIE and other 
proposed new rules are discussed below.
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    \10\ The SIE would assess basic product knowledge; the structure 
and function of the securities industry markets, regulatory agencies 
and their functions; and regulated and prohibited practices. In 
particular, the SIE will cover four major areas. The first, 
``Knowledge of Capital Markets,'' focuses on topics such as types of 
markets and offerings, broker-dealers and depositories, and economic 
cycles. The second, ``Understanding Products and Their Risks,'' 
covers securities products at a high level as well as associated 
investment risks. The third, ``Understanding Trading, Customer 
Accounts and Prohibited Activities,'' focuses on accounts, orders, 
settlement and prohibited activities. The final area, ``Overview of 
the Regulatory Framework,'' encompasses topics such as SROs, 
registration requirements and specified conduct rules.
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1. Proposed Article 6, Rule 13--Registration Requirements \11\
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    \11\ The proposed rule is substantially similar to NYSE National 
Rule 2.1210.
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    Proposed Rule 13 provides that each person engaged in the 
investment banking or securities business of a Participant must 
register with the Exchange as a representative or principal in each 
category of registration appropriate to his or her functions and 
responsibilities as specified in proposed Article 6, Rule 14, unless 
exempt from registration pursuant to proposed Article 6, Rule 15. 
Proposed Article 6, Rule 13 also provides that such person is not 
qualified to function in any registered capacity other than that for 
which the person is registered, unless otherwise stated in the Rules.
2. Proposed Paragraph .01 of the Interpretations and Policies of 
Article 6, Rule 13--Permissive Registrations \12\
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    \12\ The proposed rule is substantially similar to NYSE National 
Rule 2.120, Commentary .01.
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    The Exchange currently does not have a specific rule that provides 
for permissive registrations. With this proposed rule change, and to 
conform its rules to the FINRA and NYSE National rules, the Exchange 
proposes to adopt a specific rule regarding permissive registrations. 
Proposed paragraph .01 allows any associated person to obtain and 
maintain any registration permitted by a Participant. For instance, an 
associated person of a Participant working solely in a clerical or 
ministerial capacity, such as in an administrative capacity, would be 
able to obtain and maintain a General Securities Representative 
registration with the Participant. As another example, an associated 
person of a Participant who is registered and functioning solely as a 
General Securities Representative would be able to obtain and maintain 
a General Securities Principal registration with the Participant. 
Further, proposed paragraph .01 allows an individual engaged in the 
securities business of a foreign securities affiliate or subsidiary of 
a Participant to obtain and maintain any registration permitted by the 
Participant.
    The Exchange is proposing to permit the registration of such 
individuals for several reasons. First, a Participant may foresee a 
need to move a former

[[Page 67378]]

representative or principal who has not been registered for two or more 
years back into a position that would require such person to be 
registered. Currently, such persons are required to requalify (or 
obtain a waiver of the applicable qualification examinations) and 
reapply for registration. Second, the proposed rule change would allow 
Participants to develop a depth of associated persons with 
registrations in the event of unanticipated personnel changes. Finally, 
allowing registration in additional categories encourages greater 
regulatory understanding.
    Individuals maintaining a permissive registration under the 
proposed rule change would be considered Registered Persons, as defined 
under proposed Article 1, Rule 1(yy), as discussed below, and subject 
to all CHX Rules, to the extent relevant to their activities. 
Additionally, consistent with the requirements of the Exchange's 
supervision rules, as proposed, Participants would be required to have 
adequate supervisory systems and procedures reasonably designed to 
ensure that individuals with permissive registrations do not act 
outside the scope of their assigned functions. With respect to an 
individual who solely maintains a permissive registration, such as an 
individual working exclusively in an administrative capacity, the 
individual's day-to-day supervisor may be a non-Registered Person. 
However, for purposes of compliance with the Exchange's supervision 
rules, a Participant would be required to assign a registered 
supervisor who would be responsible for periodically contacting such 
individual's day-to-day supervisor to verify that the individual is not 
acting outside the scope of his or her assigned functions. If such 
individual is permissively registered as a representative, the 
registered supervisor must be registered as a representative or 
principal. If the individual is permissively registered as a principal, 
the registered supervisor must be registered as a principal.\13\
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    \13\ In either case, the registered supervisor of an individual 
who solely maintains a permissive registration would not be required 
to be registered in the same representative or principal 
registration category as the permissively-registered individual.
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    In light of proposed paragraph .01 under Article 6, Rule 13, the 
Exchange proposes to replace Article 6, Rule 2(e) with proposed Article 
6, Rule 2(d), as discussed below, which provides that Participants 
shall not register or maintain the registration of any person unless 
consistent with the requirements of proposed Article 6, Rule 13.
3. Proposed Paragraph .02 of the Interpretations and Policies of 
Article 6, Rule 13--Qualification Examinations and Waivers of 
Examinations \14\
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    \14\ The proposed rule is substantially similar to NYSE National 
Rule 2.120, Commentary .02.
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    Proposed paragraph .02, provides that before the registration of a 
person as a representative can become effective under proposed Article 
6, Rule 13, such person must pass the SIE and an appropriate 
representative-level qualification examination as specified in proposed 
Article 6, Rule 14(b).\15\ Proposed paragraph .02 also provides that 
before the registration of a person as a principal can become effective 
under proposed Article 6, Rule 13, such person must pass an appropriate 
principal-level qualification examination as specified in proposed 
Article 6, Rule 14(a).
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    \15\ Proposed Article 6, Rule 14 sets forth each registration 
category and applicable qualification examination for Participants 
on the Exchange.
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    Further, proposed paragraph .02 provides that if a Registered 
Person's job functions change and he or she needs to become registered 
in another representative-level category, he or she would not need to 
pass the SIE again. Rather, the Registered Person would need to pass 
only the appropriate representative-level qualification examination.
    Moreover, proposed paragraph .02 provides that all associated 
persons, such as associated persons whose functions are solely and 
exclusively clerical or ministerial, are eligible to take the SIE. 
Proposed paragraph .02 also provides that individuals who are not 
associated persons of firms, such as members of the general public, are 
eligible to take the SIE. The Exchange believes that expanding the pool 
of individuals who are eligible to take the SIE would enable 
prospective securities industry professionals to demonstrate to 
prospective employers a basic level of knowledge prior to submitting a 
job application. Further, this approach would allow for more 
flexibility and career mobility within the securities industry. While 
all associated persons of firms as well as individuals who are not 
associated persons would be eligible to take the SIE pursuant to the 
proposed rule, passing the SIE alone would not qualify them for 
registration with the Exchange. Rather, to be eligible for registration 
with the Exchange, an individual must pass an applicable representative 
or principal qualification examination and complete the other 
requirements of the registration process.
    Proposed paragraph .02 also provides that the Exchange may, in 
exceptional cases and where good cause is shown waive the applicable 
qualification examination(s) and accept other standards as evidence of 
an applicant's qualifications for registration. In light of these 
provisions, the Exchange proposes to delete current paragraph .02 under 
Article 6, Rule 3, as discussed below. The proposed rule further 
provides that the Exchange will only consider examination waiver 
requests submitted by a Participant for individuals associated with the 
Participant who are seeking registration in a representative- or 
principal-level registration category. Moreover, the proposed rule 
states that the Exchange will consider waivers of the SIE alone or the 
SIE and the representative- and principal-level examination(s) for such 
individuals. The Exchange would not consider a waiver of the SIE for 
non-associated persons or for associated persons who are not 
registering as representatives or principals.
4. Proposed Paragraph .03 of the Interpretations and Policies of 
Article 6, Rule 13--Requirements for Registered Persons Functioning as 
Principals for a Limited Period \16\
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    \16\ The proposed rule is substantially similar to NYSE National 
Rule 2.120, Commentary .03.
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    Proposed paragraph .03 provides that a Participant may designate 
any person currently registered, or who becomes registered, with the 
Participant as a representative to function as a principal for a 
limited period, provided that such person has at least 18 months of 
experience functioning as a registered representative with the five-
year period immediately preceding the designation. The proposed rule is 
intended to ensure that representatives designated to function as 
principals for the limited period under the proposal have an 
appropriate level of registered representative experience. The proposed 
rule clarifies that the requirements of the rule apply to designations 
to any principal category, including those categories that are not 
subject to a prerequisite representative-level registration 
requirement, such as the Financial and Operations Principal 
registration category.\17\
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    \17\ The Exchange notes that qualifying as a registered 
representative is a prerequisite to qualifying as a principal except 
with respect to the following principal-level registrations: (1) 
Compliance Official; (2) Financial and Operations Principal; and (3) 
Introducing Broker-Dealer Financial and Operations Principal.
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    The proposed rule also clarifies that the individual must fulfill 
all applicable prerequisite registration, fee and examination 
requirements before his or her designation as a principal. Further,

[[Page 67379]]

the proposed rule provides that in no event may such person function as 
a principal beyond the initial 120 calendar days without having 
successfully passed an appropriate principal qualification examination. 
The proposed rule also provides an exception to the experience 
requirement for principals who are designated by a Participant to 
function in other principal categories for a limited period. 
Specifically, the proposed rule states that a Participant may designate 
any person currently registered, or who becomes registered, with the 
Participant as a principal to function in another principal category 
for 120 calendar days before passing any applicable examinations.
5. Proposed Paragraph .04 of the Interpretations and Policies of 
Article 6, Rule 13--Rules of Conduct for Taking Examinations and 
Confidentiality of Examinations \18\
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    \18\ The proposed rule is substantially similar to NYSE National 
Rule 2.1210, Commentary .04.
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    Proposed paragraph .04 states that associated persons taking the 
SIE would be subject to the SIE Rules of Conduct, and associated 
persons taking a representative or principal examination would be 
subject to the Rules of Conduct for representative and principal 
examinations. Pursuant to proposed paragraph .04, a violation of the 
SIE Rules of Conduct or the Rules of Conduct for representative and 
principal examinations by an associated person would be deemed to be a 
violation of Article 9, Rule 2. Moreover, if an associated person is 
deemed to have violated the SIE Rules of Conduct or the Rules of 
Conduct for representative and principal examinations, the associated 
person may forfeit the results of the examination and may be subject to 
disciplinary action by the Exchange.
    Further, the proposed rule states that individuals taking the SIE 
who are not associated persons must agree to be subject to the SIE 
Rules of Conduct. Among other things, the SIE Rules of Conduct would 
require individuals to attest that they are not qualified to engage in 
the investment banking or securities business based on passing the SIE 
and would prohibit individuals from cheating on the examination or 
misrepresenting their qualifications to the public subsequent to 
passing the SIE. Moreover, non-associated persons may forfeit their SIE 
results and may be prohibited from retaking the SIE if the Exchange 
determines that they cheated on the SIE or that they misrepresented 
their qualifications to the public subsequent to passing the SIE.
    The proposed rule further notes that the Exchange considers all 
qualification examinations content to be highly confidential and that 
the removal of examination content from an examination center, 
reproduction, disclosure, receipt from or passing to any person, or use 
for study purposes of any portion of such qualification examination or 
any other use that would compromise the effectiveness of the 
examinations and the use in any manner and at any time of the questions 
or answers to the examinations is prohibited and would be deemed a 
violation of Article 9, Rule 2 (Just and Equitable Trade Principles).
6. Proposed Paragraph .05 of the Interpretations and Policies of 
Article 6, Rule 13--Waiting Periods for Retaking a Failed Examination 
\19\
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    \19\ The proposed rule is substantially similar to NYSE National 
Rule 2.120, Commentary .05.
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    Proposed paragraph .05 provides that any person who fails a 
qualification examination may retake that examination after 30 calendar 
days from the date of the person's last attempt to pass that 
examination. The proposed rule further provides that if a person fails 
an examination three or more times in succession within a two-year 
period, he or she would be prohibited from retaking the examination 
either until a period of 180 calendar days from the date of the 
person's last attempt to pass it. These waiting periods would apply to 
the SIE and the representative- and principal-level examinations. 
Moreover, the proposed rule provides that non-associated persons taking 
the SIE must agree to be subject to the same waiting periods for 
retaking the SIE.
7. Proposed Paragraph .06 Under the Interpretations and Policies of 
Article 6, Rule 13--All Registered Persons Must Satisfy the Regulatory 
Element of Continuing Education \20\
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    \20\ The proposed rule is substantially similar to NYSE National 
Rule 2.120, Commentary .06.
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    Pursuant to Article 6, Rule 11, the continuing education 
requirements applicable to Registered Persons consist of a Regulatory 
Element \21\ and a Firm Element.\22\ The Regulatory Element applies to 
Registered Persons and must be completed within prescribed time 
frames.\23\ The term ``Registered Person'' means any person registered 
with the Exchange under any registration categories specified under 
Articles 6 or 16, any person who is permissively registered or any 
person designated as eligible for a waiver pursuant to the Rules.\24\ 
The Firm Element consists of annual, Participant-developed and 
administered training programs designed to keep covered Registered 
Persons current regarding securities products, services and strategies 
offered by the Participant. For purposes of the Firm Element, the term 
covered Registered Persons means any Person registered with a 
Participant who has direct contact with customers in the conduct of the 
Participant's securities sales, trading and investment banking 
activities and to the immediate supervisors of such Persons.
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    \21\ See Article 6, Rule 11(a).
    \22\ See Article 6, Rule 11(b).
    \23\ Pursuant to amended Article 6, Rule 11(a), as described in 
detail below, each specified Registered Person is required to 
complete the Regulatory Element initially within 120 days after the 
person's second registration anniversary date and, thereafter, 
within 120 days after every third registration anniversary date. A 
Registered Person who has not completed the Regulatory Element 
program within the prescribed time frames will have his or her 
registrations deemed inactive and designated as ``CE inactive'' on 
the CRD system until such time as the requirements of the program 
have been satisfied. A CE inactive person is prohibited from 
performing, or being compensated for, any activities requiring 
registration, including supervision. Moreover, if a Registered 
Person is CE inactive for a two-year period, the Exchange will 
administratively terminate the person's registration status. The 
two-year period would be calculated from the date the person becomes 
CE inactive. In either case, such person must requalify (or obtain a 
waiver of the applicable qualification examination(s)) to be re-
eligible for registration.
    \24\ See proposed Article 1, Rule 1(yy).
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    The Exchange believes that all Registered Persons, regardless of 
their activities, should be subject to the Regulatory Element of the CE 
requirements so that they can keep their knowledge of the securities 
industry current. Therefore, the Exchange proposes to adopt proposed 
paragraph .06 to clarify that all Registered Persons, including those 
who solely maintain a permissive registration, are required to satisfy 
the Regulatory Element, as specified under Article 6, Rule 11(a). The 
Exchange is making corresponding changes to Article 6, Rule 11(a), as 
well as additional changes to harmonize the Article 6, Rule 11(a) with 
NYSE National Rule 2.2(e)(1), as discussed below. The Exchange is also 
proposing to the substantively amend the Firm Element requirement under 
Article 6, Rule 11(b)(B)(ii) to require that the program used to 
implement a Participant's training plan include at a minimum, in 
addition to the items already stated, training in ethics and 
professional responsibility, as described below. Individuals who have 
passed the SIE but not a representative- or principal-level examination 
and do not hold a registered position would not be subject to any CE 
requirements.

[[Page 67380]]

    Proposed paragraph .06, also provides that a Registered Person of a 
Participant who becomes CE inactive would not be permitted to be 
registered in another registration category with the Participant or be 
registered in any registration category with another Participant, until 
the person has satisfied the Regulatory Element.
8. Proposed Paragraph .07 of the Interpretations and Policies of 
Article 6, Rule 13--Lapse of Registration and Expiration of the SIE 
\25\
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    \25\ The proposed rule is substantially similar to NYSE National 
Rule 2.120, Commentary .07.
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    Proposed paragraph .07 provides that any person who was last 
registered as a representative two or more years immediately preceding 
the date of receipt by the Exchange of a new application for 
registration as a representative is required to pass a qualification 
examination for representatives appropriate to the category of 
registration as specified in proposed Article 6, Rule 14(b).\26\ 
Proposed paragraph .07 also sets forth that a passing result on the SIE 
would be valid for up to four years. Therefore, under the proposed rule 
change, an individual who passes the SIE and is an associated person of 
a Participant at the time would have up to four years from the date he 
or she passes the SIE to pass a representative-level examination to 
register as a representative with that Participant, or a subsequent 
Participant, without having to retake the SIE. In addition, an 
individual who passes the SIE and is not an associated person at the 
time would have up to four years from the date he or she passes the SIE 
to become an associated person of a Participant and pass a 
representative-level examination and register as a representative 
without having to retake the SIE.
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    \26\ In light of these provisions, the Exchange proposes to 
delete current Article 6, Rule 2(g), as discussed below.
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    Moreover, an individual holding a representative-level registration 
who leaves the industry after the effective date of this proposed rule 
change would have up to four years to re-associate with a Participant 
and register as a representative without having to retake the SIE. 
However, the four-year expiration period in the proposed rule change 
extends only to the SIE, and not the representative- and principal-
level registrations. The representative- and principal-level 
registrations would continue to be subject to a two-year expiration 
period as is the case today.
    Finally, paragraph .07, clarifies that, for purposes of the 
proposed rule, an application would not be considered to have been 
received by the Exchange if that application does not result in a 
registration.
9. Proposed Paragraph .08 of the Interpretations and Policies of 
Article 6, Rule 13--Waiver of Examinations for Individuals Working for 
a Financial Services Industry Affiliate of a Participant \27\
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    \27\ The proposed rule is substantially similar to NYSE National 
Rule 2.120, Commentary .08.
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    Proposed paragraph .08, provides the process for individuals 
working for a financial services industry affiliate of a Participant 
\28\ to terminate their registrations with the Participant and be 
granted a waiver of their requalification requirements upon re-
registering with a Participant, provided the firm that is requesting 
the waiver and the individual satisfy the criteria for a Financial 
Services Affiliate (``FSA'') waiver.
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    \28\ Proposed paragraph .08 of the Interpretations and Policies 
of Article 6, Rule 13 defines a ``financial services industry 
affiliate of an Participant'' as a legal entity that controls, is 
controlled by or is under common control with an Participant and is 
regulated by the SEC, CFTC, state securities authorities, federal or 
state banking authorities, state insurance authorities, or 
substantially equivalent foreign regulatory authorities.
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    Under the proposed waiver process, the first time a Registered 
Person is designated as eligible for a waiver based on the FSA 
criteria, the Participant with which the individual is registered would 
notify the Exchange of the FSA designation. The Participant would 
concurrently file a full Form U5 terminating the individual's 
registration with the firm, which would also terminate the individual's 
other SRO and state registrations. To be eligible for initial 
designation as an FSA-eligible person by a Participant, an individual 
must have been registered for a total of five years within the most 
recent 10-year period prior to the designation, including for the most 
recent year with that Participant. An individual would have to satisfy 
these preconditions only for purposes of his or her initial designation 
as an FSA-eligible person, and not for any subsequent FSA 
designation(s). Thereafter, the individual would be eligible for a 
waiver for up to seven years from the date of initial designation,\29\ 
provided that the other conditions of the waiver, as described below, 
have been satisfied. Consequently, a Participant other than the 
Participant that initially designated an individual as an FSA-eligible 
person may request a waiver for the individual and more than one 
Participant may request a waiver for the individual during the seven-
year period.\30\
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    \29\ Individuals would be eligible for a single, fixed seven-
year period from the date of initial designation, and the period 
would not be tolled or renewed.
    \30\ The following examples illustrate this point:
    Example 1. Firm A designates an individual as an FSA-eligible 
person by notifying the Exchange and files a Form U5. The individual 
joins Firm A's financial services affiliate. Firm A does not submit 
a waiver request for the individual. After working for Firm A's 
financial services affiliate for three years, the individual 
directly joins Firm B's financial services affiliate for three 
years. Firm B then submits a waiver request to register the 
individual.
    Example 2. Same as Example 1, but the individual directly joins 
Firm B after working for Firm A's financial services affiliate, and 
Firm B submits a waiver request to register the individual at that 
point in time.
    Example 3. Firm A designates an individual as an FSA-eligible 
person by notifying the Exchange and files a Form U5. The individual 
joins Firm A's financial services affiliate for three years. Firm A 
then submits a waiver request to re-register the individual. After 
working for Firm A in a registered capacity for six months, Firm A 
re-designates the individual as an FSA-eligible person by notifying 
the Exchange and files a Form U5. The individual rejoins Firm A's 
financial services affiliate for two years, after which the 
individual directly joins Firm B's financial services affiliate for 
one year. Firm B then submits a waiver request to register the 
individual.
    Example 4. Same as Example 3, but the individual directly joins 
Firm B after the second period of working for Firm A's financial 
services affiliate, and Firm B submits a waiver request to register 
the individual at that point in time.
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    An individual designated as an FSA-eligible person would be subject 
to the Regulatory Element of CE while working for a financial services 
industry affiliate of a Participant. The individual would be subject to 
a Regulatory Element program that correlates to his or her most recent 
registration category, and CE would be based on the same cycle had the 
individual remained registered. If the individual fails to complete the 
prescribed Regulatory Element during the 120-day window for taking the 
session, he or she would lose FSA eligibility (i.e., the individual 
would have the standard two-year period after termination to re-
register without having to retake an examination). The Exchange is 
making corresponding changes to Article 6, Rule 11, as described below.
    Upon registering an FSA-eligible person, a firm would file a Form 
U4 and request the appropriate registration(s) for the individual. The 
firm would also submit an examination waiver request to the 
Exchange,\31\ similar to the process used today for waiver requests, 
and it would represent that the individual is eligible for an FSA 
waiver based on the conditions set forth below. The Exchange would 
review the waiver request and make a determination of

[[Page 67381]]

whether to grant the request within 30 calendar days of receiving the 
request. The Exchange would summarily grant the request if the 
following conditions are met:
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    \31\ The Exchange would consider a waiver of the representative-
level qualification examination(s), the principal-level 
qualification examination(s) and the SIE, as applicable.
---------------------------------------------------------------------------

    (1) Prior to the individual's initial designation as an FSA-
eligible person, the individual was registered for a total of five 
years within the most recent 10-year period, including for the most 
recent year with the Participant that initially designated the 
individual as an FSA-eligible person;
    (2) The waiver request is made within seven years of the 
individual's initial designation as an FSA-eligible person by a 
Participant;
    (3) The initial designation and any subsequent designation(s) were 
made concurrently with the filing of the individual's related Form U5;
    (4) The individual continuously worked for the financial services 
affiliate(s) of a Participant since the last Form U5 filing;
    (5) The individual has complied with the Regulatory Element of CE; 
and
    (6) The individual does not have any pending or adverse regulatory 
matters, or terminations, that are reportable on the Form U4, and has 
not otherwise been subject to a statutory disqualification while the 
individual was designated as an FSA-eligible person with a Participant.
    Following the Form U5 filing, an individual could move between the 
financial services affiliates of a Participant so long as the 
individual is continuously working for an affiliate. Further, a 
Participant could submit multiple waiver requests for the individual, 
provided that the waiver requests are made during the course of the 
seven-year period.\32\ An individual who has been designated as an FSA-
eligible person by a Participant would not be able to take additional 
examinations to gain additional registrations while working for a 
financial services affiliate of a Participant.
---------------------------------------------------------------------------

    \32\ For example, if a Participant submits a waiver request for 
an FSA-eligible person who has been working for a financial services 
affiliate of the Participant for three years and re-registers the 
individual, the Participant could subsequently file a Form U5 and 
re-designate the individual as an FSA-eligible person. Moreover, if 
the individual works with a financial services affiliate of the 
Participant for another three years, the Participant could submit a 
second waiver request and re-register the individual upon returning 
to the Participant.
---------------------------------------------------------------------------

10. Proposed Paragraph .09 of the Interpretations and Policies of 
Article 6, Rule 13--Status of Persons Serving in the Armed Forces of 
the United States \33\
---------------------------------------------------------------------------

    \33\ The proposed rule is substantially similar to NYSE National 
Rule 2.1210, Commentary .09.
---------------------------------------------------------------------------

    Proposed paragraph .09 provides specific relief to Registered 
Persons serving in the Armed Forces of the United States. Among other 
things, the proposed rule permits a Registered Person of a Participant 
who volunteers for or is called into active duty in the Armed Forces of 
the United States to be registered in an inactive status and remain 
eligible to receive ongoing transaction-related compensation. The 
proposed rule also includes specific provisions regarding the deferment 
of the lapse of registration requirements for formerly Registered 
Persons serving in the Armed Forces of the United States. The proposed 
rule further requires that the Participant with which such person is 
registered promptly notify the Exchange of such person's return to 
employment with the Participant. The proposed rule would require a 
Participant that is a sole proprietor to also similarly notify the 
Exchange of his or her return to participation in the investment 
banking or securities business. The proposed rule also provides that 
the Exchange would defer the lapse of the SIE for formerly Registered 
Persons serving in the Armed Forces of the United States.
B. Proposed New Article 6, Rule 14--Registration Categories \34\
---------------------------------------------------------------------------

    \34\ Like NYSE National, the Exchange is not adopting the 
following categories from the FINRA Filing because Participants do 
not engage in the type of business that would require registration 
with the Exchange: Investment Banking Principal, Research Principal, 
Registered Options Principal, Government Securities Principal, 
Investment Company and Variable Contracts Products Principal, Direct 
Participation Programs Principal, Private Securities Offerings 
Principal, Supervisory Analyst, Operations Professional, Investment 
Banking Representative, Research Analyst, Investment Company and 
Variable Contracts Products Representative, Direct Participation 
Programs Representative, and Private Securities Offering 
Representative. Also, like NYSE National, the Exchange is also not 
adopting the following categories because the FINRA Filing 
eliminated them: Order Processing Assistant Representative, United 
Kingdom Securities Representative, Canadian Securities 
Representative, Options Representative, Corporate Securities 
Representative and Government Securities Representative.
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1. Proposed Rule 14(a)(1)--Principal
    Article 6, Rule 2(c)(1) currently defines the term ``Principal'' to 
mean any Person associated with a Participant who are actively engaged 
in the management of the Participants' securities business, including 
supervision, solicitation, conduct of business or the training of 
persons associated with a member for any of these functions are 
designated as Principals and such persons include: (A) Sole 
Proprietors; (B) Officers; (C) Partners; (D) Branch office managers; 
and (E) Directors.
    The Exchange is proposing to move the definition of ``Principal'' 
to proposed Article 6, Rule 14(a)(1), which is similar to current 
Article 6, Rule 2(c)(1), except that proposed Rule 14(a)(1) codifies 
the phrase ``actively engaged in the management of the Participant's 
securities business'' to include the management of, and the 
implementation of corporate policies related to, such business. The 
term also includes managerial decision-making authority with respect to 
the Participant's securities business and management-level 
responsibilities for supervising any aspect of such business, such as 
serving as a voting member of the Participant's executive, management 
or operations committee. In addition, the term ``principal'' is 
lowercase to be stylistically consistent with the use of the term 
throughout NYSE National rules \35\ and therefore the Exchange propose 
to replace a reference to ``Principal'' under current Article 6, Rule 
2(c) with ``principal.'' Correspondingly, the Exchange propose to 
delete current Article 6, Rule 2(c)(1) as repetitive.
---------------------------------------------------------------------------

    \35\ See e.g., NYSE National Rule 2.1210, Commentary .09.
---------------------------------------------------------------------------

2. Proposed Rule 14(a)(2)--General Securities Principal \36\
---------------------------------------------------------------------------

    \36\ The proposed rule is substantially similar to NYSE National 
Rule 2.1220(a)(2).
---------------------------------------------------------------------------

    Proposed Rule 14(a)(2)(A) states that each principal as defined in 
proposed Rule 14(a)(1) is required to register with the Exchange as a 
General Securities Principal, subject to the following exceptions. The 
proposed rule provides that if a principal's activities include the 
functions of a Compliance Officer, a Financial and Operations Principal 
(or an Introducing Broker-Dealer Financial and Operations Principal, as 
applicable), a Principal Financial Officer, a Principal Operations 
Officer, or a Securities Trader Principal, then the principal must 
appropriately register in one or more of these categories.
    Proposed Rule 14(a)(2)(A) further provides that if a principal's 
activities are limited solely to the functions of a General Securities 
Sales Supervisor, then the principal may appropriately register in that 
category in lieu of registering as a General Securities Principal.
    Proposed Rule 14(a)(2)(B) requires that an individual registering 
as a

[[Page 67382]]

General Securities Principal satisfy the General Securities 
Representative prerequisite registration and pass the General 
Securities Principal qualification examination. Proposed Rule 
14(a)(2)(B) also clarifies that an individual may register as a General 
Securities Sales Supervisor and pass the General Securities Sales 
Supervisor qualification examination in lieu of passing the General 
Securities Principal examination.
    Proposed Rule 14(a)(2)(B) also provides that, subject to the lapse 
of registration provisions in proposed paragraph .07 under Article 6, 
Rule 13, each person registered with the Exchange as a General 
Securities Principal on October 1, 2018 and each person who was 
registered with the Exchange as a Corporate Securities Representative 
and a General Securities Principal within two years prior to October 1, 
2018 would be qualified to register as a General Securities Principal 
without having to take any additional qualification examinations, 
provided that such person's supervisory responsibilities in the 
investment banking and securities business of a Participant are limited 
to corporate securities activities of the Participant. The proposed 
rule further provides that all other individuals registering as General 
Securities Principals after October 1, 2018 shall, prior to or 
concurrent with such registration, become registered as a General 
Securities Representative and either (1) pass the General Securities 
Principal qualification examination; or (2) register as a General 
Securities Sales Supervisor and pass the General Securities Sales 
Supervisor qualification examination.
    In light of proposed Rule 14(a)(2), the Exchange proposes to delete 
the portion of current Article 6, Rule 2(c) requiring that a person 
pass the ``Series 24'' exam as prerequisite to registering as a General 
Securities Principal, as discussed below.
3. Proposed Rule 14(a)(3)--Compliance Officer \37\
---------------------------------------------------------------------------

    \37\ The proposed rule is substantially similar to NYSE National 
Rule 2.1220(a)(3).
---------------------------------------------------------------------------

    Proposed Rule 14(a)(3) establishes a Compliance Officer 
registration category and requires all persons designated as CCOs on 
Schedule A of Form BD to register as Compliance Officers, subject to an 
exception for Participants engaged in limited investment banking or 
securities business. The proposed rule only addresses the registration 
requirements for CCOs. However, consistent with proposed paragraph .01 
under Article 6, Rule 13 relating to permissive registrations, a firm 
may allow other associated persons to register as Compliance Officers.
    In addition, the Exchange is proposing to provide CCOs of firms 
that engage in limited investment banking or securities business with 
greater flexibility to satisfy the qualification requirements for CCOs. 
Specifically, proposed Rule 14(a)(3) set forth the following 
qualification requirements for Compliance Officer registration:
     Subject to the lapse of registration provisions in 
proposed paragraph .07 under Article 6, Rule 13, each person registered 
with the Exchange as a General Securities Representative and a General 
Securities Principal on October 1, 2018 and each person who was 
registered with the Exchange as a General Securities Representative and 
a General Securities Principal within two years prior to October 1, 
2018 would be qualified to register as Compliance Officers without 
having to take any additional examinations. In addition, subject to the 
lapse of registration provisions in proposed paragraph .07 under 
Article 6, Rule 13, individuals registered as Compliance Officials in 
the CRD system on October 1, 2018 and individuals who were registered 
as such within two years prior to October 1, 2018 would also be 
qualified to register as Compliance Officers without having to take any 
additional examinations.
     All other individuals registering as Compliance Officers 
after October 1, 2018 would have to: (1) Satisfy the General Securities 
Representative prerequisite registration and pass the General 
Securities Principal qualification examination; or (2) pass the 
Compliance Official qualification examination.
     An individual designated as a CCO on Schedule A of Form BD 
of a Participant that is engaged in limited investment banking or 
securities business may be registered in a principal category under 
proposed Article 6, Rule 14(a) that corresponds to the limited scope of 
the Participant's business.
    In light of proposed Rule 14(a)(3), the Exchange proposes to delete 
the portion of current Article 6, Rule 2(c) permitting a person pass 
the ``Series 14'' Compliance Official qualification exam in lieu of the 
``Series 24'' exam as prerequisite to registering as a General 
Securities Principal, as discussed below.
4. Proposed Rule 14(a)(4)--Financial and Operation Principal and 
Introducing Broker-Dealer Financial and Operations Principal \38\
---------------------------------------------------------------------------

    \38\ The proposed rule is substantially similar to NYSE National 
Rule 2.1220(a)(4).
---------------------------------------------------------------------------

    Proposed Rule 14(a)(4) provides that each principal who is 
responsible for the financial and operational management of a 
Participant that has a minimum net capital requirement of $250,000 
under SEA Rules 15c3-1(a)(1)(ii) and 15c3-1(a)(2)(i), or a Participant 
that has a minimum net capital requirement of $150,000 under SEA Rule 
15c-3-1(a)(8) must be designated as a Financial and Operations 
Principal (``FINOP'').\39\ In addition, proposed Rule 14(a)(4) provides 
that a principal who is responsible for the financial and operational 
management of a Participant that is subject to the net capital 
requirements of SEA Rule 15c3-1, other than a Participant that is 
subject to the net capital requirements of SEA Rules 15c3-1(a)(1)(ii), 
(a)(2)(i) or (a)(8), must be designated and registered as either a 
Financial and Operations Principal or an Introducing Broker-Dealer 
Financial and Operations Principal.\40\ Financial and Operations 
Principals and Introducing Broker-Dealer Financial and Operation 
Principals are not subject to a prerequisite representative 
registration, but they must pass the Financial and Operations Principal 
or Introducing Broker-Dealer Financial and Operations Principal 
examination, as applicable.
---------------------------------------------------------------------------

    \39\ In light of these provisions, the Exchange proposes to 
delete current Article 6, Rule 2(c)(3), as discussed below.
    \40\ The Exchange does not currently recognize the Introducing 
Broker-Dealer Financial and Operations Principal registration 
category.
---------------------------------------------------------------------------

    Additionally, proposed Rule 14(a)(4)(B) requires a Participant to 
designate a Principal Financial Officer with primary responsibility for 
the day-to-day operations of the business, including overseeing the 
receipt and delivery of securities and funds, safeguarding customer and 
firm assets, calculation and collection of margin from customers and 
processing dividend receivable and payables and reorganization 
redemptions and those books and records related to such activities. 
Further, the proposed rule requires that a firm's Principal Financial 
Officer and Principal Operations Officer qualify and register as 
Financial and Operations Principals or Introducing Broker-Dealer 
Financial and Operations Principals, as applicable.
    Because the financial and operational activities of Participants 
that neither self-clear nor provide clearing services

[[Page 67383]]

are more limited, such Participants may designate the same person as 
the Principal Financial Officer, Principal Operations Officer and 
Financial and Operations Principal or Introducing Broker-Dealer 
Financial and Operations Principal (that is, such Participants are not 
required to designate different persons to function in these 
capacities).
    Given the level of financial and operational responsibility at 
clearing and self-clearing members, the Exchange believes that it is 
necessary for such Participants to designate separate persons to 
function as Principal Financial Officer and Principal Operations 
Officer. Such persons may also carry out the other responsibilities of 
a Financial and Operations Principal, such as supervision of 
individuals engaged in financial and operational activities. In 
addition, the proposed rule provides that a clearing or self-clearing 
Participant that is limited in size and resources may request a waiver 
of the requirement to designate separate persons to function as 
Principal Financial Officer and Principal Operations Officer.
    In light of proposed Rule 14(a)(4), the Exchange proposes to delete 
current Article 6, Rule 2(c)(3), which describes the Limited 
Principal--Financial and Operations registration category, as discussed 
below.
5. Proposed Rule 14(a)(5)--Securities Trader Principal \41\
---------------------------------------------------------------------------

    \41\ The proposed rule is substantially similar to NYSE National 
Rule 2.1220(a)(5).
---------------------------------------------------------------------------

    Proposed Rule 14(a)(5) requires that a principal responsible for 
supervising the securities trading activities specified in proposed 
Rule 14(b)(3) register as a Securities Trader Principal. The proposed 
rule requires that individuals registering as Securities Trader 
Principals must be registered as Securities Traders and pass the 
General Securities Principal qualification examination.
    In light of proposed Rule 14(a)(5), the Exchange proposes to delete 
current Article 6, Rule 2(c)(2), which describes the Securities Trader 
Principal registration category, as discussed below.
6. Proposed Rule 14(a)(6)--General Securities Sales Supervisor \42\
---------------------------------------------------------------------------

    \42\ The proposed rule is substantially similar to NYSE National 
Rule 2.1220(a)(6).
---------------------------------------------------------------------------

    Proposed Rule 14(a)(6) provides that a principal may register with 
the Exchange as a General Securities Sales Supervisor if his or her 
supervisory responsibilities in the investment banking or securities 
business of a Participant are limited to the securities sales 
activities of the Participant, including the approval of customer 
accounts, training of sales and sales supervisory personnel and the 
maintenance of records of original entry or ledger accounts of the 
Participant required to be maintained in branch offices by Exchange Act 
record-keeping rules.\43\
---------------------------------------------------------------------------

    \43\ The Exchange does not currently recognize the General 
Securities Sales Supervisor registration category.
---------------------------------------------------------------------------

    A person registering as a General Securities Sales Supervisor must 
satisfy the General Securities Representative prerequisite registration 
and pass the General Securities Sales Supervisor examinations.\44\ 
Moreover, a General Securities Sales Supervisor is precluded from 
performing any of the following activities: (1) Supervision of the 
origination and structuring of underwritings; (2) supervision of 
market-making commitments; (3) supervision of the custody of firm or 
customer funds or securities for purposes of SEA Rule 15c3-3; or (4) 
supervision of overall compliance with financial responsibility rules.
---------------------------------------------------------------------------

    \44\ An individual may also register as a General Securities 
Sales Supervisor by passing a combination of other principal-level 
examinations.
---------------------------------------------------------------------------

7. Proposed Rule 14(b)(1)--Representative \45\
---------------------------------------------------------------------------

    \45\ The proposed rule is substantially similar to NYSE National 
Rule 2.1220(b)(1).
---------------------------------------------------------------------------

    Proposed Rule 14(b)(1) defines a representative as any person 
associated with a Participant, including assistant officers other than 
principals, who is engaged in the Participant's investment banking or 
securities business, such as supervision, solicitation, conduct of 
business in securities or the training of persons associated with a 
Participant for any of these functions.
    In light of proposed Rule 14(b)(1), the Exchange proposes to delete 
definition of ``Representative'' under current Article 6, Rule 2(b), as 
discussed below.
8. Proposed Rule 14(b)(2)--General Securities Representative \46\
---------------------------------------------------------------------------

    \46\ The proposed rule is substantially similar to NYSE National 
Rule 2.1220(b)(2).
---------------------------------------------------------------------------

    Proposed Rule 14(b)(2)(A) states that each representative as 
defined in proposed Rule 14(b)(1) is required to register with the 
Exchange as a General Securities Representative, subject to the 
following exceptions. The proposed rule provides that if a 
representative's activities include the function of a Securities 
Trader, then the representative must appropriately register in that 
category.
    The proposed rule further provides that, subject to the lapse of 
registration provisions in proposed paragraph .07 under Article 6, Rule 
13, each person registered with the Exchange as a General Securities 
Representative on October 1, 2018 and each person who was registered 
with the Exchange as a General Securities Representative within two 
years prior to October 1, 2018 would be qualified to register as a 
General Securities Representative without having to take any additional 
qualification examinations. Additionally, the proposed rule would 
require that individuals registering as General Securities 
Representatives after October 1, 2018 shall, prior to or concurrent 
with such registration, pass the SIE and the General Securities 
Representative examination.
9. Proposed Rule 14(b)(3)--Securities Trader \47\
---------------------------------------------------------------------------

    \47\ The proposed rule is substantially similar to NYSE National 
Rule 2.1220(b)(3).
---------------------------------------------------------------------------

    Proposed Rule 14(b)(3) provides that each representative as defined 
in proposed Rule 14(b)(1) is required to register as a Securities 
Trader if, with respect to transactions in equity (including equity 
options), preferred or convertible debt securities, such person is 
engaged in proprietary trading, the execution of transactions on an 
agency basis, or the direct supervision of such activities. The 
proposed rule provides an exception from the registration requirement 
for any associated person of a Participant whose trading activities are 
conducted primarily on behalf of an investment company that is 
registered with the SEC pursuant to the Investment Company Act and that 
controls, is controlled by, or is under common control with a 
Participant. The Exchange proposes to adopt NYSE National's definition 
of Securities Trader in proposed Rule 14(b)(3) in order to align the 
text of the rule to that adopted by NYSE National and other 
exchanges.\48\
---------------------------------------------------------------------------

    \48\ See e.g., NYSE National Rule 2.1220(b)(3); see also e.g., 
MIAX International Stock Exchange, LLC Rule 203(d).
---------------------------------------------------------------------------

    The proposed rule also requires that associated persons primarily 
responsible for the design, development or significant modification of 
algorithmic trading strategies (or responsible for the day-to-day 
supervision or direction of such activities) register as Securities 
Traders. Individuals registering as Securities Traders must pass the 
SIE and the Securities Trader Examination.
    Finally, the proposed rule provides that, subject to the lapse of 
registration provisions in proposed paragraph .07 under Article 6, Rule 
13, each person registered with the Exchange as a

[[Page 67384]]

Securities Trader on October 1, 2018 and each person who was registered 
with the Exchange as a Securities Trader within two years prior to 
October 1, 2018 would be qualified to register as a Securities Trader 
without having to take any additional qualification examinations. 
Additionally, the proposed rule would require that individuals 
registering as Securities Traders after October 1, 2018 shall, prior to 
or concurrent with such registration, pass the SIE and the Securities 
Trader qualification examination.
10. Proposed Paragraph .01 of the Interpretations and Policies of Rule 
14--Foreign Registrations \49\
---------------------------------------------------------------------------

    \49\ The proposed rule is substantially similar to NYSE National 
Rule 2.1220, Commentary .01.
---------------------------------------------------------------------------

    Proposed paragraph .01 states that individuals who are in good 
standing as representatives with the Financial Conduct Authority in the 
United Kingdom or with a Canadian stock exchange or securities 
regulator would be exempt from the requirement to pass the SIE, and 
thus would be required only to pass a specialized knowledge examination 
to register with the Exchange as a representative. The proposed 
approach would provide individuals with a United Kingdom or Canadian 
qualification more flexibility to obtain a representative-level 
registration. Additionally, proposed paragraph .01 provides that, 
subject to the lapse of registration provisions in proposed paragraph 
.07 under Article 6, Rule 13, each person who is registered with the 
Exchange as a United Kingdom Securities Representative or a Canada 
Securities Representative on October 1, 2018 and each person who was 
registered with the Exchange in such categories within two years prior 
to October 1, 2018 would be eligible to maintain such registrations 
with the Exchange. However, if persons registered in such categories 
subsequently terminate such registration(s) with the Exchange and the 
registration remains terminated for two or more years, they would not 
be eligible to re-register in such categories.
11. Proposed Paragraph .02 of the Interpretations and Policies of Rule 
14--Additional Qualification Requirements for Persons Engaged in 
Security Futures \50\
---------------------------------------------------------------------------

    \50\ The proposed rule is substantially similar to NYSE National 
Rule 2.1220, Commentary .02.
---------------------------------------------------------------------------

    Proposed paragraph .02 states that each person who is registered 
with the Exchange as a General Securities Representative, United 
Kingdom Securities Representative, Canada Securities Representative, or 
General Securities Sales Supervisor shall be eligible to engage in 
security futures activities as a representative or principal, as 
applicable, provided that such individual completes a Firm Element 
program as set forth in Article 6, Rule 11(b) that addresses security 
futures products before such person engages in security futures 
activities.\51\
---------------------------------------------------------------------------

    \51\ FINRA Rule 1220.02 also includes Options Representative and 
Registered Options Principal registration categories. Like NYSE 
National, the Exchange does not trade options and Participants of 
the Exchange therefore would not be required to register with the 
Exchange in those categories and therefore the Exchange is not 
adopting those categories within proposed paragraph .02.
---------------------------------------------------------------------------

12. Proposed Paragraph .03 of the Interpretations and Policies of Rule 
14--Scope of General Securities Sales Supervisor Registration Category 
\52\
---------------------------------------------------------------------------

    \52\ The proposed rule is substantially similar to NYSE National 
Rule 2.1220, Commentary .03.
---------------------------------------------------------------------------

    Proposed paragraph .03 explains the purpose of the General 
Securities Sales Supervisor registration category. The General 
Securities Sales Supervisor category is an alternate category of 
registration designed to lessen the qualification burdens on principals 
of general securities firms who supervise sales. Without this category 
of limited registration, such principals would be required to 
separately qualify pursuant to the rules of FINRA, the MSRB, the NYSE 
and the options exchanges. While persons may continue to separately 
qualify with all relevant self-regulatory organizations, the General 
Securities Sales Supervisor examination permits qualification as a 
supervisor of sales of all securities through one registration 
category. Persons registered as General Securities Sales Supervisors 
may also qualify in any other category of principal registration. 
Persons who are already qualified in one or more categories of 
principal registration may supervise sales activities of all securities 
by also qualifying as General Securities Sales Supervisors.
    The proposed rule further provides that any person required to be 
registered as a principal who supervises sales activities in corporate, 
municipal and option securities, investment company products, variable 
contracts, and security futures (subject to the requirements of 
paragraph .02 under Rule 14) may be registered solely as a General 
Securities Sales Supervisor. In addition to branch office managers, 
other persons such as regional and national sales managers may also be 
registered solely as General Securities Sales Supervisors as long as 
they supervise only sales activities.
C. Proposed Article 6, Rule 15--Associated Persons Exempt From 
Registration \53\
---------------------------------------------------------------------------

    \53\ The proposed rule is substantially similar to NYSE National 
Rule 2.1230.
---------------------------------------------------------------------------

    Proposed Rule 15 provides an exemption from registration with the 
Exchange for certain associated persons. Specifically, the proposed 
rule provides that persons associated with a Participant whose 
functions are solely and exclusively clerical or ministerial would be 
exempt from registration.\54\
---------------------------------------------------------------------------

    \54\ FINRA Rule 1230 provides an exemption from registration 
with FINRA to persons associated with a FINRA member whose functions 
are solely and exclusively clerical or ministerial and persons 
associated with a FINRA member whose functions are related solely 
and exclusively to (i) effecting transactions on the floor of a 
national securities exchange and who are appropriately registered 
with such exchange; (ii) effecting transactions in municipal 
securities; (iii) effecting transactions in commodities; or (iv) 
effecting transactions in security futures, provided that any such 
person is registered with a registered futures association. 
Participants of the Exchange do not solely and exclusively engage in 
any of the foregoing transactions and therefore, like NYSE National, 
the Exchange is not adopting that portion of FINRA Rule 1230.
---------------------------------------------------------------------------

1. Proposed Paragraph .01 of the Interpretations and Policies of 
Article 6, Rule 15--Registration Requirements for Associated Persons 
Who Accept Customer Orders \55\
---------------------------------------------------------------------------

    \55\ The proposed rule is substantially similar to NYSE National 
Rule 2.1230, Commentary .01.
---------------------------------------------------------------------------

    Proposed paragraph .01, clarifies that the function of accepting 
customer orders is not considered clerical or ministerial and that 
associated persons who accept customer orders under any circumstances 
are required to be appropriately registered. However, the proposed rule 
provides that an associated person is not accepting a customer order 
where occasionally, when an appropriately Registered Person is 
unavailable, the associated person transcribes the order details and 
the Registered Person contacts the customer to confirm the order 
details before entering the order.
    In light of proposed Rule 15, the Exchange proposes conforming 
amendments to current Article 6, Rule 2(d)--Persons Exempt from 
Registration (proposed Article 6, Rule 2(c)), as discussed below.
D. Amendments to Article 1, Rule 1 (Definitions)
    Current paragraph .01 under Article 6, Rule 11 provides that 
``[f]or the purposes of this Rule, the term `registered person' means 
any Participant, registered representative or other person registered 
required to be registered under Exchange rules.'' The Exchange now 
proposes to amend the

[[Page 67385]]

definition to include, in addition to those persons required to 
register with the Exchange, those persons that are permissively 
registered under proposed paragraph .01 under Article 6, Rule 13 or any 
person that received a waiver under the Rules, such as pursuant to 
paragraphs .02 or .08 under Article 6, Rule 13. Accordingly, the 
Exchange proposes to (1) amend current paragraph .01 under Article 6, 
Rule 11 to provide that the term ``Registered Person'' is defined under 
proposed Article 1, Rule 1(yy); (2) adopt a new definition of 
``Registered Person'' similar to NYSE National Rule 2.2(e) under 
proposed Article 1, Rule 1(yy) (as the term is used throughout Article 
6 and not only under Article 6, Rule 11), which provides that 
``Registered Person'' shall mean any person registered with the 
Exchange under any registration categories specified under proposed 
Articles 6 and 16, any person who is permissively registered or any 
person designated as eligible for a waiver pursuant to the Rules; and 
(4) capitalize all references to ``registered person'' throughout 
amended Article 6.
E. Amendments to Article 6, Rule 2 (Registration and Approval of 
Participant Personnel)
1. Proposed Rule 2(a)--Registration of Representatives
    Current Rule 2(a) provides, among other things, that all 
Representatives shall be registered as such with the Exchange in the 
category of registration appropriate to the function to be performed 
and requires individual associated persons to submit the appropriate 
application for registration, pass appropriate qualification 
examinations, submit required registration and examination fees and 
comply with continuing education requirements.
    In light of the new definition of ``representative'' under proposed 
Article 6, Rule 14(b)(1), as described above, the Exchange proposes to 
amend the current rule to provide that the term ``representative'' is 
defined under proposed Article 6, Rule 14(b)(1) and that 
representatives shall be registered as such with the Exchange in the 
category of registration appropriate to the function to be performed, 
pursuant to amended Article 6, Rule 3, as described below, and proposed 
Article 6, Rule 13, as described above. Moreover, the Exchange proposes 
to delete the current definition of ``representative'' under current 
Article 6, Rule 2(b) \56\ and replace all references to 
``Representative'' or ``Representatives'' under Article 6 with 
``representative'' or ``representatives,'' respectively. The Exchange 
notes that the term ``representative'' is not capitalized under the 
NYSE National rules.\57\
---------------------------------------------------------------------------

    \56\ Subsequent paragraphs under amended Article 6, Rule 2 will 
be revised accordingly.
    \57\ See NYSE National Rule 2.1220(b)(1).
---------------------------------------------------------------------------

2. Proposed Rule 2(b)--Registration of Principals
    Current Rule 2(c) provides that all persons engaged or to be 
engaged in the securities business of a Participant who are to function 
as a Principal shall be registered with the Exchange as a General 
Securities Principal, unless the Principal meets the requirements under 
current Rule 2(c) and each Principal shall pass the Series 24 or Series 
14 exam, as applicable, pursuant to current Article 6, Rule 3(b).
    In light of the new definition of ``principal'' under proposed 
Article 6, Rule 14(a)(1), as described above, and the provisions 
related to principal registration categories and requirements are now 
under proposed Article 6, Rule 14(a)(1), proposed Rule 2(b) provides 
that the term ``principal'' is defined under proposed Article 6, Rule 
14(a)(1) and that all persons engaged or to be engaged in the 
securities business of a Participant who are to function as a principal 
shall be registered with the Exchange in the category of registration 
appropriate to the function to be performed, pursuant to amended 
Article 6, Rule 3 and proposed Article 6, Rule 13. Moreover, the 
Exchange proposes to omit provisions requiring each principal to pass 
the Series 24 or Series 14 exam, as applicable, under proposed Rule 
2(b) as repetitive of new provisions under proposed Article 6, Rules 
14(a)(2)--General Securities Principal and (a)(3)--Compliance Officer, 
as described above.
    In addition, the Exchange proposes to delete the current definition 
of ``Principal'' under current Rule 2(c)(1) given the new definition of 
``principals'' under proposed Article 6, Rule 14(a)(1) and to replace a 
reference to ``Principal'' with ``principal'' under current Rule 2(c) 
(proposed Rule 2(b)). The Exchange notes that the term ``principal'' is 
not capitalized under the NYSE National rules.\58\
---------------------------------------------------------------------------

    \58\ NYSE National Rule 2.1220(a)(1).
---------------------------------------------------------------------------

    Furthermore, the Exchange propose to delete current Rule 2(c)(2), 
which describes the Securities Trader Principal registration category, 
as repetitive of proposed Article 6, Rule 14(a)(5); and delete current 
Rule 2(c)(3), which describes the Limited Principal--Financial and 
Operations registration category, as repetitive of proposed Article 6, 
Rule 14(a)(4). In light of these deletions, current Rule 2(c)(4) will 
become proposed Rule 2(b)(1).
    Finally, the Exchange proposes to consolidate current Rules 
2(c)(5)--Requirement of Two Registered Principals for Participants and 
(c)(6)--Waiver of Two Principal Requirement into proposed Rule 2(b)(2). 
Specifically, current Rule 2(c)(5) provides that a Participant shall 
have at least two officers or partners who are registered as principals 
with respect to each aspect of the Participant's securities business 
pursuant to the applicable provisions of Rule 3 of this Article and 
this requirement applies to applicants seeking admission as 
Participants and existing Participants. Current Rule 2(c)(5) also 
provides that in addition to the two registered principals, 
Participants shall also have at least one person qualified for 
registration as a FINOP pursuant to current Article 6, Rule 3(c). In 
turn, current Rule 2(c)(6) provides that based upon the written 
application of the Participant or prospective Participant, the Exchange 
may waive the requirement to maintain two principals if the Participant 
demonstrates conclusively that only one individual acting in such 
capacity should be required to register. Current Rule 2(c)(6) also 
provides that a Participant that conducts a proprietary trading 
business only and has 25 or fewer representatives shall only be 
required to have one officer or partner who is registered as a 
Principal. Current Rule 2(c)(6) further provides that a Participant 
shall be considered to conduct only proprietary trading if the 
Participant has the following characteristics: (A) The Participant is 
not required by Section 15(b)(8) of the Exchange Act to become a FINRA 
member; (B) All funds used or proposed to be used by the Participant 
are the Participant's own capital, traded through the Participant's own 
accounts; (C) The Participant does not, and will not, have customers; 
and (D) All persons registered on behalf of the Participant acting or 
to be acting in the capacity of a trader must be owners of, employees 
of, or contractors to the Participant.
    Proposed Rule 2(b)(2) is similar to NYSE National Rule 2.2(c)(2) 
and largely retains the substance of current Rules 2(c)(5) and (6). 
Specifically, proposed Rule 2(b)(1) provides as follows:
    Each Participant, other than a sole proprietorship is required to 
register at least two Principals with the Exchange; provided, however, 
that a proprietary trading firm with 25 or fewer representatives shall 
only be required to register one principal with the

[[Page 67386]]

Exchange. A person registered solely as a Financial and Operations 
Principal or an Introducing Broker-Dealer Financial and Operations 
Principal (``FINOP''), as defined under Article 6, Rule 14(a)(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 under Article 6, Rule 
14(a)(4). The Exchange may waive the provisions of this paragraph 
(b)(2) in situations that indicate conclusively that only one person 
associated with an applicant for membership should be required to 
register as a principal. For purposes of this paragraph (b)(2), a 
``proprietary trading firm'' shall mean a Participant meeting the 
following characteristics: It trades its own capital, does not have 
customers, excluding broker-dealers, and is not a FINRA member. To 
qualify for this definition, the funds used by a proprietary trading 
firm must be exclusively firm funds, all trading must be in the firm's 
accounts, and traders must be owners of, employees of, or contractors 
to the firm.
3. Proposed Rule 2(c)--Persons Exempt From Registration \59\
---------------------------------------------------------------------------

    \59\ See supra note 56.
---------------------------------------------------------------------------

    Current Rule 2(d) (Persons Exempt from Registration) the following 
persons associated with a Participant are not required to be registered 
with the Exchange: (1) Persons associated with a Participant whose 
functions are solely and exclusively clerical or ministerial; (2) 
persons associated with a Participant who are not actively engaged in 
the securities business; (3) individual Participants and individual 
associated persons whose functions are related solely and exclusively 
to the Participant's need for nominal corporate officers or for capital 
participation; and (4) individual associated persons whose functions 
are related solely and exclusively to: (A) Transactions in commodities; 
or (B) transactions in security futures; or (C) effecting transactions 
at another national securities exchange and who are registered as 
members with such exchange.
    In light of proposed Article 6, Rule 15 (Associated Persons Exempt 
from Registration), the Exchange does not propose to maintain the 
current exemption from registration provisions as it is inconsistent 
with NYSE National Rule 2.1230. Accordingly, proposed Rule 2(c) 
provides that only persons who qualify for exemption from registration 
pursuant to proposed Article 6, Rule 15 shall be exempt from 
registration with the Exchange.
4. Proposed Rule 2(d)--Impermissible Registrations \60\
---------------------------------------------------------------------------

    \60\ Id.
---------------------------------------------------------------------------

    Current Rule 2(e) (Other Registration Requirements) provides 
several bases upon which a person may not be registered with a 
Participant. The rule provides that a Participant shall not make 
application for the registration of any person associated with the 
Participant where there is no intent to employ such person in the 
securities business of the Participant. The rule also states that a 
Participant shall not maintain a registration with the Exchange for any 
person who is no longer active in the Participant's securities 
business; who is no longer functioning in the registered capacity; or 
where the sole purpose is to avoid an examination requirement. However, 
proposed paragraph .01 of Article 6, Rule 13 provides that a 
Participant may make application for or maintain the registration as a 
representative or principal of any associated person of a Participant 
and any individual engaged in the securities business of a foreign 
securities affiliate or subsidiary of the Participant. Therefore, 
without amending current Rule 2(e), a person may be eligible for 
permissive registration pursuant to proposed paragraph .01 under 
Article 6, Rule 13, but may be prohibited from such registration 
pursuant to current Rule 2(e).
    In light of proposed paragraph .01 under Article 6, Rule 13, the 
Exchange proposes to delete current Rule 2(e) in its entirety and to 
adopt proposed Rule 2(d), which provides that Participants shall not 
register or maintain the registration of any person unless consistent 
with the requirements of proposed Article 6, Rule 13.\61\
---------------------------------------------------------------------------

    \61\ The proposed change is substantially similar to that 
contained in FINRA Rule 1210.10.
---------------------------------------------------------------------------

F. Amendments to Article 6, Rule 3--Training and Examination of 
Registrants
1. Proposed Rule 3(a)--Registration Requirements of Representatives
    Current Rule 3(a)(1) provides the current registration requirements 
of representatives. The Exchange now proposes to amend Rule 2(a) to 
replace references to the ``Series 7 General Securities Representative 
examination'' and the ``Series 57 Securities Trader Examination'' with 
``General Securities Representative qualification examination (`Series 
7')'' and ``Securities Trader Examination (`Series 57'),'' 
respectively, so as to be consistent with references to the 
examinations under NYSE National Rule 2.2, Commentaries .01 and .03. 
The Exchange also proposes to amend the rule to require that 
representatives pass the SIE in addition to the Series 7 or Series 57, 
as applicable, which is consistent with proposed Article 6, Rules 
14(b)(2)(B) and 14(b)(3)(B). Finally, the Exchange proposes replace 
language describing persons who must register with the Exchange as a 
Securities Trader with new language providing that each representative 
meeting the definition of a Securities Trader under proposed Article 6, 
Rule 14(b)(3) must pass the Series 57 and the SIE.
    Current Rule 3(a)(2) provides that a representative that is engaged 
solely in ``securities trading activities'' shall not be required to 
registered as a General Securities Representative. In light of proposed 
Article 6, Rule 14(b)(3), which outlines the types of trading 
activities that would require a representative to register as a 
Securities Trader, the Exchange proposes to amend Rule 3(a)(2) to 
clarify that ``securities trading activities'' are described under 
proposed Article 6, Rule 14(b)(3).
2. Proposed Rule 3(b)--Supervisory Requirements and Registration
    Current Rule 3(b) provides general registration and supervisory 
requirements of principals. The Exchange now proposes to replace 
references to the ``General Securities Principal examination, Series 
24'' with ``General Securities Principal qualification examination 
(`Series 24'),'' so as to be stylistically consistent with the proposed 
references to the Series 7 and Series 57 exams under proposed Article 
6, Rule 3(a)(1). In addition, the Exchange proposes to replace 
citations to the current definition of ``Principal'' under current 
Article 6, Rule 2(c)(1) with the amended definition of ``principal'' 
under proposed Article 6, Rule 14(a). Finally, the Exchange proposes 
replace the references to ``successfully complete and maintain'' with 
the word ``pass,'' so as to be stylistically consistent with references 
under proposed Article 6, Rule 14 to ``passing'' or having to ``pass'' 
a qualification examination.
    Current Rule 3(b)(1) provides a ``Securities Trading Exception'' 
permitting the Chief Compliance Officer of a Participant Firm that 
engages solely in securities trading activities to complete and 
maintain the Compliance Officer Exam (Series 14) as an alternative 
qualification to the Series 24. The Exchange now proposes to eliminate 
this exception and to generally provide that the Exchange will accept 
the New York Stock Exchange

[[Page 67387]]

(``NYSE'') Compliance Official Examination (``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 the 
Participant's Form BD.\62\
---------------------------------------------------------------------------

    \62\ The proposed rule is substantially similar to NYSE National 
Rule 2.2, Commentary .02.
---------------------------------------------------------------------------

3. Proposed Rule 3(c)--Financial and Operations Principals
    Current Rule 3(c) requires that each Participant designate one 
individual as a FINOP, who must pass the Financial Operations Principal 
examination, Series 27. The Exchange now proposes to replace reference 
to ``Limited Principal--Financial and Operations (`FINOP')'' with 
``FINOP,'' as the abbreviation is already established under proposed 
Article 6, Rule 2(b)(2). In addition, the Exchange proposes to adopt 
additional language permitting a Participant to designate an 
``Introducing Broker-Dealer FINOP,'' in lieu of a FINOP, if applicable, 
and requiring all Registered Persons designated as an Introducing 
Broker-Dealer FINOP to pass the Introducing Broker-Dealer Financial and 
Operations Principal qualification examination (``Series 28''). 
Finally, the Exchange propose to replace a reference to the ``Financial 
and Operations Principal examination, Series 27'' with ``Financial and 
Operations Principal qualification examination (`Series 27'),'' so as 
to be stylistically consistent with the proposed references to other 
examinations, such as the Series 7 and Series 57 exams under proposed 
Article 6, Rule 3(a)(1).
4. Proposed Rule 3(d)--Institutional Broker Representatives
    Current Rule 3(d) provides registration requirements for 
Institutional Broker Representatives, which is a registration category 
unique to CHX.\63\ In addition, current paragraph .01(a) under Article 
6, Rule 3 provides that all applicants seeking to register as 
Institutional Broker Representatives must successfully complete the 
Institutional Broker Exam. The Exchange now proposes to amend current 
Rule 3(d) by adding an introductory sentence that consolidates and 
replaces current paragraph .01(a) under Article 6, Rule 3 and the first 
sentence of current Rule 3(d), which states that all applicants seeking 
to register as Institutional Broker Representatives, as defined under 
current Article 1, Rule 1(gg), must pass the Exchange's Institutional 
Broker Examination and comply with the provisions of Article 17. The 
Exchange also proposes to replace references to ``Series 7 General 
Securities Representative examination,'' ``Series 57 Securities Trader 
Exam'' and the General Securities Principal Series 24 exam'' with 
``General Securities Representative qualification examination,'' 
``Securities Trader qualification examination'' and the ``General 
Securities Principal qualification examination,'' which is 
stylistically consistent with references to the examinations under 
proposed Article 6, Rules 3(a) and 3(b). In addition, the Exchange 
proposes to amend the rule to require that Institutional Broker 
Representatives that are required to register with the exchange as a 
representative pass the SIE in addition to the Series 7 or Series 57, 
as applicable, which is consistent with proposed Article 6, Rules 
14(b)(2)(B) and 14(b)(3)(B). Also, in light of the amendments to Rule 
3(b)(1) described above, the Exchange proposes to replace reference to 
the Securities Trading Exception, which will be eliminated, with a 
reference to the NYSE Compliance Official Examination. Finally, the 
Exchange proposes to clarify that the term ``Firm'' refers to 
``Participant Firm.''
---------------------------------------------------------------------------

    \63\ See CHX Article 1, Rule 1(gg) defining ``Institutional 
Broker Representative.''
---------------------------------------------------------------------------

5. Deleting Current Paragraph .02 Under Article 6, Rule 3--Waiver of 
the Examination Requirement
    In light of proposed paragraph .02 under Article 6, Rule 13, which 
adopts new requirements related to, among other things, waiver of 
examination requirements, as described above, the Exchange propose to 
delete current paragraph .02 in its entirety.
G. Amendments to Article 6, Rule 10 (Fingerprinting)
    Current Rule 10 provides that each Participant is responsible for 
ensuring compliance with Section 17(f)(2) of the Exchange Act and Rule 
17f-2 under the Exchange Act, regarding the fingerprinting of 
securities industry personnel. The rule further provides that each 
Participant shall submit the fingerprints of its associated persons to 
the FINRA Web CRD prior to such persons performing the functions listed 
under Rule 17f-2 under the Exchange Act. The Exchange now propose to 
amend the fingerprinting requirement to be substantively similar to 
NYSE National Rule 2.2, Commentary .08 and FINRA Rule 1010(d). 
Specifically, the Exchange propose to replace the second sentence under 
current Rule 10 with the following:
    Upon filing an electronic Form U4 on behalf of a person applying 
for registration, a Participant shall promptly submit fingerprint 
information for that person. The Exchange may make a registration 
effective pending receipt of the fingerprint information. If a 
Participant fails to submit the fingerprint information within 30 days 
after the Exchange receives the electronic Form U4, the person's 
registration shall be deemed inactive. In such case, the Exchange shall 
notify the Participant that the person must immediately cease all 
activities requiring registration and is prohibited from performing any 
duties and functioning in any capacity requiring registration. The 
Exchange shall administratively terminate a registration that is 
inactive for a period of two years. A person whose registration is 
administratively terminated may reactivate the registration only by 
reapplying for registration and meeting the qualification requirements 
under the Rules. Upon application and a showing of good cause, the 
Exchange may extend the 30-day period.
H. Amendments to Article 6, Rule 11--Continuing Education for 
Registered Persons
    Current Article 6, Rule 11 provides the continuing education 
requirements of certain Registered Persons subsequent to their initial 
qualification and registration with the Exchange, and includes a 
Regulatory Element and a Firm Element. The Regulatory Element applies 
to Registered Persons and consists of periodic computer-based training 
on regulatory, compliance, ethical, supervisory subjects and sales 
practice standards. The Firm Element consists of at least an annual, 
member-developed and administered training programs designed to keep 
Registered Persons current regarding securities products, services and 
strategies offered by the member.
    As noted above,\64\ proposed Article 1, Rule 1(yy) includes within 
the definition of a Registered Person any person who is permissively 
registered pursuant to proposed paragraph .01 under Article 6, Rule 13 
and any person designated as eligible for a waiver pursuant to proposed 
paragraph .08 under Article 6, Rule 13.\65\ The purpose of this change 
is to ensure all Registered Persons, including those with permissive 
registrations, keep their knowledge of the securities industry current. 
The inclusion of persons

[[Page 67388]]

designated as eligible for a waiver under the term ``Registered 
Person'' corresponds to the requirements of proposed paragraph .08 
under Article 6, Rule 13.
---------------------------------------------------------------------------

    \64\ See supra Section 3(a)(D).
    \65\ The proposed change is substantially similar to that 
contained in NYSE National Rule 2.2(e).
---------------------------------------------------------------------------

1. Regulatory Element
    The Exchange propose to amend Article 6, Rule 11(a) to provide that 
the content of the Regulatory Element of the program shall be 
determined by the Exchange and shall be appropriate to the status of 
the person subject to this Rule, which is consistent with NYSE National 
Rule 2.2(e)(1)(A).
    Also, the Exchange proposes to amend Article 6, Rule 11(a) to 
provide, consistent with proposed paragraph .08 under Article 6, Rule 
13, that a waiver-eligible person would be subject to a Regulatory 
Element program that correlates to his or her most recent registration 
category, and that the content of the Regulatory Element would be based 
on the same cycle had the individual remain registered.\66\
---------------------------------------------------------------------------

    \66\ The proposed change is substantially similar to that 
contained in NYSE National Rule 2.2(e)(1)(A).
---------------------------------------------------------------------------

    Furthermore, the Exchange proposes to amend Article 6, Rule 
11(a)(1) to provide that any person whose registration has been deemed 
inactive under the rule may not accept or solicit business or receive 
any compensation for the purchase or sale of securities. The proposed 
amendment provides, however, that such person may receive trail or 
residual commissions resulting from transactions completed before the 
inactive status, unless the Participant with which the person is 
associated has a policy prohibiting such trail or residual 
commissions.\67\ The proposed amendment also provides that a 
registration that is inactive for a period of two years will be 
administratively terminated and that a person whose registration is so 
terminated may reactivate the registration only by reapplying for 
registration and meeting the qualification requirements of the 
applicable provisions of these Rules. Accordingly, the Exchange 
proposes to delete current paragraph .05 under Article 6, Rule 11 as 
repetitive. Finally, the amended rule also states that the Exchange 
may, upon application and a showing of good cause, allow for additional 
time for a Registered Person satisfy the program requirements and if a 
person designated as eligible for a waiver pursuant to paragraph .08 
under Article 6, Rule 13 fails to complete the Regulatory Element 
within the prescribed time frames, the person shall no longer be 
eligible for such a waiver.\68\
---------------------------------------------------------------------------

    \67\ The proposed change is substantially similar to that 
contained in NYSE National Rule 2.2(e)(1)(B).
    \68\ The proposed change is substantially similar to that 
contained in NYSE National Rule 2.2(e)(1)(B).
---------------------------------------------------------------------------

    In addition, under current Article 6, Rule 11(a)(2), a Registered 
Person is required to retake the Regulatory Element in the event that 
such person (A) is subject to any statutory disqualification as defined 
in Section 3(a)(39) of the Exchange Act; (B) is subject to suspension 
or to the imposition of a fine of $5,000 or more for violation of any 
provision of any securities law or regulation, or any agreement with or 
rule or standard of conduct of any securities governmental agency, 
securities self-regulatory organization, or as imposed by any such 
regulatory or self-regulatory organization in connection with a 
disciplinary proceeding; or (C) is ordered as a sanction in a 
disciplinary action to retake the Regulatory Element by any securities 
governmental agency or self-regulatory organization. The Exchange 
proposes to amend Rule 11(a)(2) to provide an exception to a waiver-
eligible person from retaking the Regulatory Element and satisfy all of 
its requirements.\69\
---------------------------------------------------------------------------

    \69\ The proposed change is substantially similar to that 
contained in NYSE National Rule 2.2(e)(1)(C).
---------------------------------------------------------------------------

    Current Rule 11(a)(2) also provides that re-taking of the 
Regulatory Element shall commence with participation within 120 days of 
the Registered Person becoming subject to the statutory 
disqualification, pursuant to Rule 11(a)(2)(A), or the disciplinary 
action becoming final, pursuant to either Rule 11(a)(2)(B) or (C). To 
better comport to Rule 11(a)(2), the Exchange proposes to amend current 
paragraph .03 under Article 6, Rule 11 to clarify that the new base 
date for a Registered Person subject to statutory disqualification is 
the date on which such person became subject to statutory 
disqualification. Specifically, amended paragraph .03 provides that a 
Registered Person who becomes subject to a disciplinary action as 
enumerated in subsections (a)(2)(A)-(C) of the Rule, will be required 
to satisfy the requirements of the Regulatory Element of the continuing 
education program with the date that the person becomes subject to 
statutory disqualification, in the case of subsection (a)(2)(A) of the 
Rule, or the person's disciplinary action becomes final, in the case of 
subsections (a)(2)(B) or (C) of the Rule, as the person's new base 
date.
    Also, the Exchange proposes to update current Article 6, Rule 
11(a)(3) to provide that the ``S201 Supervisor Program,'' which is the 
Regulatory Element program for Principals, is required for those 
persons registered with the Exchange as either an Introducing Broker-
Dealer Financial and Operations Principals or General Securities Sales 
Supervisors, which are two registration categories that the Exchange is 
proposing to adopt under proposed Article 6, Rules 14(a)(4) and 
14(a)(6), respectively.
    Moreover, the Exchange proposes to adopt Article 6, Rule 11(a)(5) 
related to reassociation in a registered capacity, which is 
substantively similar to NYSE National Rule 2.2(e)(1)(D) and provides 
that any Registered Person who has terminated association with a 
Participant and who has, within two years of the date of termination, 
become reassociated in a registered capacity with a Participant shall 
participate in the Regulatory Element at such intervals that may apply 
(second anniversary and every three years thereafter) based on the 
initial registration anniversary date rather than based on the date of 
reassociation in a registered capacity. Accordingly, the Exchange 
proposes to delete the first paragraph under current paragraph .04 
under Article 6, Rule 11 as repetitive.
    Finally, the Exchange propose to adopt Article 6, Rule 11(a)(6), 
which is substantively similar to NYSE National Rule 2.2(e)(1)(E) and 
provides that each Participant shall designate and identify to the 
Exchange (by name and email address) an individual or individuals 
responsible for receiving email notifications provided via Web CRD 
regarding when a Registered Person is approaching the end of his or her 
Regulatory Element time frame and when a Registered Person is deemed 
inactive due to failure to complete the requirements of the Regulatory 
Element program. The rule also provides that each Participant shall 
identify, review, and, if necessary, update the information regarding 
the Regulatory Element contact person(s) with Web CRD.
2. Firm Element
    The Exchange propose to capitalize the term ``Covered Registered 
Persons'' defined under current Article 6, Rule 11(b)(1), which is also 
capitalized under NYSE National Rule 2.2(e)(2), and to make conforming 
amendments throughout Rule 11(b).
    Also, current Article 6, Rule 11(b)(2)(B) provides that programs 
used to implement a Participant's training program must be appropriate 
for the business of the Participant and, at a minimum must cover 
specific matters concerning securities products, services, and 
strategies offered by the Participant. The Exchange proposes to amend 
the

[[Page 67389]]

current rule to expand the minimum standard for such training programs 
by requiring that, at a minimum, a firm's training program must also 
cover training in ethics and professional responsibility.\70\
---------------------------------------------------------------------------

    \70\ The proposed change is substantially similar to that 
contained in NYSE National Rule 2.2(e)(2)(ii).
---------------------------------------------------------------------------

I. Amendments to Article 16, Rule 3--Obligations of Market Maker 
Authorized Traders (``MMATs'')
    Current Article 16, Rule 3(b)(2) provides that to be eligible for 
registration as a MMAT, a person must successfully complete the Series 
57 Securities Trader Examination and complete any other training and/or 
certification programs as may be required by the Exchange. In light of 
the adoption of the SIE, the Exchange now proposes to amend the rule to 
require that MMATs successfully complete both the Securities Trader 
Examination and the SIE. In addition, the Exchange proposes to delete a 
reference to the ``Series 57'' such that reference to the ``Securities 
Trader Examination'' is stylistically similar to a reference to the 
examination under proposed Article 6, Rule 3(a).
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (the 
``Act''),\71\ in general, and furthers the objectives of Section 
6(b)(5),\72\ in particular, because it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, to 
remove impediments to, and perfect the mechanism of, a free and open 
market and a national market system and, in general, to protect 
investors and the public interest.
---------------------------------------------------------------------------

    \71\ 15 U.S.C. 78f(b).
    \72\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

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

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \73\ and Rule 19b-4(f)(6) thereunder.\74\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
---------------------------------------------------------------------------

    \73\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \74\ 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.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \75\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\76\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange has 
represented that, to the Exchange's knowledge, the waiver of the 
operative delay would not adversely or unfairly affect current or 
prospective Participants, and would make the Exchange's qualification 
requirements consistent with those of NYSE National and FINRA, which 
were implemented on October 1, 2018. Waiver of the 30-day operative 
delay will allow the Exchange to harmonize its registration, 
examination and continuing education requirements with the rules of 
FINRA and the exchanges, as of the date of filing so that registered 
persons will be subject to consistent requirements across the industry. 
Therefore, the Commission believes that the wavier is consistent with 
the protection of investors and hereby waives the 30-day operative 
delay and designates the proposal operative on December 18, 2018.\77\
---------------------------------------------------------------------------

    \75\ 17 CFR 240.19b-4(f)(6).
    \76\ 17 CFR 240.19b-4(f)(6)(iii).
    \77\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).

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[[Page 67390]]

    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \78\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \78\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CHX-2018-07 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CHX-2018-07. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CHX-2018-07 and should be submitted on 
or before January 18, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\79\
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    \79\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2018-28193 Filed 12-27-18; 8:45 am]
 BILLING CODE 8011-01-P