Document ID: SEC-2019-0434-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2019-04-10T04:00Z

[Federal Register Volume 84, Number 69 (Wednesday, April 10, 2019)]
[Notices]
[Pages 14429-14438]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07050]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85513; File No. SR-NASDAQ-2019-022]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend and Restate the Exchange's Membership Rules

April 4, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 27, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to a proposal [sic] to amend and restate the 
Exchange's membership rules, as discussed below.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange has adopted Rules, as set forth in the Rule 1000 
Series, which prescribe the qualifications for and the procedures for 
applying for membership on the Exchange. The Exchange now proposes to 
update, reorganize and clarify these Rules, as described below.
    As a general matter, the proposal makes several categories of 
changes to the Exchange's membership rules. First, the proposal 
reorganizes the rules so that they are arranged in a more logical 
order. Second, the proposal removes duplicative provisions, eliminates 
unnecessary complexity in the membership process, and otherwise 
streamlines the membership rules and their associated procedures. 
Third, the proposal relaxes needlessly rigid deadlines that the rules 
prescribe for taking certain actions with respect to membership 
applications. Fourth and finally, the proposal makes technical 
corrections and updates to the Rules, including by updating obsolete 
references to the National Association of Securities Dealers (``NASD,'' 
now known as ``FINRA''), correcting the capitalization of defined terms 
(e.g., ``Member''), and generalizing references to the Exchange so as 
to facilitate harmonization of the Exchange's membership rules with 
those of its sister exchanges.
    The Exchange does not believe that any of the proposed changes will 
adversely impact the existing rights of prospective or existing Members 
or Associated Persons. Likewise, the Exchange does not believe that the 
proposed changes will compromise the ability of the Exchange or its 
Membership Department to scrutinize prospective or existing Members or 
Associated Persons.
    A summary of specific proposed changes follows.
Rule 1002
    The proposal amends Rule 1002 in several respects. First, it 
deletes existing paragraph (c), which pertains to the payment by 
Members and Associated Persons of dues, fees, assessments and other 
charges, because the requirement of Members and Associated Persons to 
make such payments is set forth elsewhere in the Rules, such that 
existing paragraph (c) is unnecessary.\3\ The Exchange also proposes to 
move existing paragraph (d), which governs the reinstatement of 
membership and registration, to a new Rule 1018 that will consolidate 
all provisions of the Rules relating to transfer, resignation, 
termination, and reinstatement of membership. Additionally, the 
Exchange proposes to consolidate and move to this Rule, as newly-
renumbered paragraph (d), largely duplicative provisions relating to 
the registration of branch offices and the designation of offices of 
supervisory jurisdiction, which presently reside in Rule 1012(j) and 
IM-1002-4, respectively.\4\ Within the new paragraph (d), the Exchange 
proposes to delete language from existing Rule 1012(j)(1) that requires 
a Member to pay dues, fees, and charges associated with a branch 
office--as that provision is superfluous for reasons discussed above. 
Under renumbered paragraph (d)(3)(A), the Exchange also proposes to 
simplify the existing rules for determining compliance with branch 
office registration and supervisory office designation requirements. 
Whereas the existing processes--as set forth in Rule 1012(j) and IM-
1002-4--provide that Exchange Members that are also FINRA members are 
deemed to comply with the branch office and designated supervisory 
office requirements to the extent that they comply with NASD-1000-4 and 
Article IV, Section 8 of the NASD's By-Laws, the proposal provides that 
such Exchange Members are deemed to comply to the extent that they keep 
current Form BR, which

[[Page 14430]]

contains the requisite information and which is accessible 
electronically to the Exchange. Members that are not FINRA members 
shall continue to submit to the Exchange a Branch Office Disclosure 
Form, as they have done previously.\5\ Lastly, the Exchange proposes to 
move IM-1002-1, which prohibits a Member or an Associated Person from 
filing with the Exchange misleading information in connection with 
membership or registration, and requires misleading information to be 
corrected, to proposed amended Rule 1012 (General Application 
Provisions), where the Exchange believes it more logically fits.\6\
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    \3\ See Rule 9553.
    \4\ In proposed subparagraph (d)(3)(B), the Exchange proposes to 
clarify the existing rule text in Rule 1012(j) and IM-1002-4, which 
provide that Members that are not FINRA members shall designate 
offices of supervisory jurisdiction and branch offices by submitting 
to the Exchange a ``written filing'' to the Exchange ``in such form 
as [the Exchange] may prescribe.'' The proposed change clarifies 
that this written filing is the ``Branch Office Disclosure Form.'' 
The Branch Office Disclosure Form is presently in use for this 
purpose and it is not a new form. Nevertheless, the Exchange 
believes that it will be helpful in the Rule to identify the 
specific form that must be filed rather than refer vaguely to a 
filing in such form as the Exchange may prescribe.
    \5\ The existing Rule states that Members that are not FINRA 
members shall designate offices of supervisory jurisdiction and 
branch offices by submitting to the Exchange ``a written filing in 
such form as [the Exchange] may prescribe.'' The form that the 
Exchange presently prescribes for this purpose is the Branch Office 
Disclosure Form. To improve clarity, the Exchange proposes to 
identify this form by name in the Rule. The Exchange proposes no 
substantive changes to this Form.
    \6\ The Exchange also amends the definition of a ``Proprietary 
Trading Firm'' in paragraph (o) to make clear that such entities may 
be both Applicants and Members of the Exchange for purposes of the 
Rules.
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Rule 1011
    In Rule 1011, which includes definitions for the Rule 1000 Series, 
the Exchange proposes to revise the defined term ``Investment banking 
or securities business'' to eliminate the reference to ``investment 
banking'' because the Exchange does not accept applications from firms 
that are engaged in the investment banking business but are not 
otherwise brokers or dealers in securities. The Exchange believes that 
references to the investment banking business in this provision and 
elsewhere in the Exchange's membership rules are unintended errors.
    In Rule 1011(g), the Exchange also proposes to delete the defined 
term ``material change in business operations'' and, as discussed 
below, to incorporate it into Rule 1017(a)(5), which is the only 
context in which it applies.
Rule 1012
    The Exchange proposes to revise Rule 1012, which is presently 
entitled ``General Provisions,'' in several ways. Principally, the 
Exchange proposes to limit the scope of this Rule to include only 
general provisions relating to applications, and it proposes to amend 
the title of the Rule to reflect that narrowed scope (``General 
Application Provisions''). It also proposes to remove several existing 
provisions that are outside of this scope, including existing 
paragraphs (b) (lapses in applications), (c) (ex parte communications), 
(d) (recusals and disqualifications from membership appeal 
proceedings), (g) (resignation of Exchange Members), (i) (transfer and 
termination of Exchange membership), and (j) (registration of branch 
offices). As is discussed in further detail below, the Exchange 
proposes to move these provisions to other Rules to which they more 
logically relate. The Exchange does not believe that moving these 
provisions as described will have any substantive effect.
    In Rule 1012(a), which is presently entitled ``Filing by Applicant 
or Service by Nasdaq,'' the Exchange proposes to retitle the paragraph 
for clarity purposes as ``Instructions for Filing Application Materials 
with the Exchange and Requirements for Service of Documents by the 
Exchange.'' In subparagraph (a)(1), which presently permits an 
Applicant to file an application only by first-class mail, overnight 
courier, or hand delivery, the Exchange proposes to modernize the 
provision by allowing for electronic filing as well. In a new 
subparagraph (a)(3)(E), the Exchange proposes to state that service by 
electronic filing shall be deemed complete on the day of transmission, 
except that service or filing will not be deemed to have occurred if, 
subsequent to transmission, the serving or filing party receives notice 
that its attempted transmission was unsuccessful.
    Furthermore, the Exchange proposes to eliminate existing paragraph 
(f) (similarity of membership names) because the Exchange believes that 
it is unnecessary for it to monitor for similarities in the names of 
prospective Members given that FINRA, through WebCRD, and the SEC 
monitor this.
    Finally, the Exchange proposes to relocate and restate IM-1002-1 
(regarding misleading information as to membership or registration) and 
the last paragraph of Rule 1013(a)(1) (requiring Members and Applicants 
to keep application materials current) to Rule 1012(c). Rather than 
state, as does IM-1002-1, that Applicants, Members, and Associated 
Persons shall not file false or misleading membership information with 
the Exchange, the Exchange proposes to state in paragraph (c)(1) that 
they shall have an affirmative duty to ensure that their membership 
information is accurate, complete, and current at the time of filing. 
The Exchange believes that the proposed formulation is more 
comprehensive than the existing one.\7\ Likewise, rather than merely 
require, as does existing Rule 1013(a)(1), that Applicants shall keep 
current their application materials after filing them, the Exchange 
proposes more broadly, in paragraph (c)(2), to require Applicants, 
Members, and Associated Persons to ensure that their membership 
applications and supporting materials remain accurate, complete, and 
current at all times, by filing supplementary amendments with the 
Department, as is necessary. (The Exchange proposes to remove the 
language in existing Rule 1013(a)(1) that specifies that supplementary 
amendments shall be filed by electronic means insofar as Rule 1012(a) 
will now specify the acceptable methods by which membership materials 
shall be filed with the Department.)
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    \7\ The reformatted text also removes the references in IM-1002-
1 to registration decisions (which are now covered elsewhere in the 
Exchange's Rules).
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Rule 1013
    The Exchange proposes to substantially restate Rule 1013, which 
sets forth procedures for filing applications for new membership on the 
Exchange.
    In paragraph (a) of Rule 1013, which describes the contents of new 
membership applications and procedures for filing, the Exchange 
proposes to amend subparagraphs (a)(1)(A) and (B), which require an 
Applicant to file a copy of its current Form BD as well as an Exchange-
approved fingerprint card for each Associated Person who will be 
subject to SEC Rule 17f-2,\8\ to provide that the Applicant must do so 
only if the Exchange is not able to access the Form itself or the 
fingerprints through the Central Registration Depository (``CRD'' or 
``WebCRD'') or a similar source. The Exchange proposes this amendment 
to relieve Applicants of the burden of filing a Form or fingerprint 
cards that the Exchange can readily retrieve itself.
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    \8\ The existing provision exempts Applicants from filing 
fingerprint cards if it has already filed them with another self-
regulatory organization.
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    In subparagraph (a)(1)(C), which presently requires an Applicant to 
provide a ``check'' for such fees as it may be required to pay under 
the Exchange's Rules, the Exchange proposes to delete the word 
``check'' and replace it with a more general term, ``payment,'' so as 
to afford an Applicant flexibility to pay the fee through additional 
means, such as wire transfer.
    In subparagraph (a)(1)(G), which requires disclosure of the 
Applicant's principal place of business and ``all other offices, if 
any, whether or not such offices would be required to be registered 
under the Nasdaq Rules,'' the Exchange proposes to clarify the 
provision by specifying that it applies to

[[Page 14431]]

``branch'' offices. The Exchange also proposes to delete the phrase 
``whether or not such offices would be required to be registered under 
the Nasdaq Rules,'' as the Exchange deems it unnecessary for the 
Applicant to list offices other than those that must be registered. 
Finally, the Exchange again proposes to state that an Applicant need 
not separately provide this branch office information to the Exchange 
to the extent that the information is otherwise available to the 
Exchange electronically through WebCRD or a similar source.
    Next, the Exchange proposes to consolidate subparagraphs (a)(1)(J) 
and (a)(1)(K). In subparagraph (a)(1)(J), where the Exchange presently 
requires the Applicant to state whether it is currently or has been in 
the prior ten years the subject of certain investigations or 
disciplinary proceedings that have not been reported to the CRD, the 
Exchange proposes to add language--currently in subparagraph 
(a)(1)(K)--which states that the obligation to disclose the Applicant's 
disciplinary history pertains, not only to the Applicant itself, but 
also ``any person listed on Schedule A of the Applicant's Form BD.'' 
\9\ With this amendment, subparagraph (a)(1)(K) is duplicative of 
(a)(1)(J), such that the Exchange proposes to delete it.
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    \9\ Such persons listed on Form BD include the Applicant's 
direct owners (as that term is defined on Form BD), and certain 
partners, trusts and trustees, and limited liability company 
members, and executive officers of the Applicant.
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    In subparagraph (a)(1)(N), which requires an Applicant to disclose 
how it complies with Rule 3011, the Exchange proposes to clarify that 
Rule 3011 requires Members to have anti-money laundering compliance 
programs.
    In subparagraph (a)(1)(P), the Exchange proposes to delete language 
that presently permits an Applicant to submit a Form U-4 for each 
person conducting and supervising the conduct of the Applicant's market 
making and other trading activities. The Exchange proposes to delete 
the requirement that an Applicant submit a Form U-4 because the 
information that the Form contains is otherwise accessible to the 
Exchange through WebCRD, such that submission of the Form itself is 
unnecessary.
    In subparagraph (a)(1)(Q), the Exchange proposes to delete the 
requirement that the Applicant provide to the Exchange a FINRA 
Entitlement Program agreement and Terms of Use and an Account 
Administration Entitlement Form, if not previously provided to FINRA. 
The Exchange proposes to delete this requirement because the Exchange 
has determined that the requirement is unnecessary. Any Applicant for 
membership will have already completed and submitted this agreement and 
form prior to applying to the Exchange. The completion and submission 
of the agreement and form will be evident to the Exchange from the fact 
that FINRA has granted the Applicant access to WebCRD. The Exchange 
understands that completion of the Account Administration Entitlement 
Form is a prerequisite to the creation of a registered BD and receiving 
WebCRD access.
    The Exchange proposes to amend subparagraphs (a)(1)(T), (U), and 
(V) of the Rule, which presently require an Applicant to submit to the 
Exchange an agreement to comply with the federal securities laws, the 
rules and regulations thereunder, the Exchange's Rules, and all 
rulings, orders, directions, decisions, and sanctions thereunder, as 
well as an agreement to pay such dues, assessments, and other charges 
in the manner and in the amount as the Exchange prescribes. The 
Exchange proposes to preface these requirements with a more general 
requirement that an Applicant submit a duly executed copy of the 
Exchange's Membership Agreement. The Membership Agreement comprises the 
foregoing commitments, among others, and Applicants presently submit an 
executed copy of the Membership Agreement to satisfy existing 
subparagraphs (a)(1)(T) and (U). The Exchange proposes to insert the 
new language in subparagraph (a)(1)(T) and move the language in 
existing subparagraphs (a)(1)(T) and (U) to new subparagraphs 
(a)(1)(T)(1) and (2). The Exchange proposes to renumber existing 
subparagraph (a)(1)(V) as subparagraph (a)(1)(U).
    The Exchange proposes to delete existing subparagraph (a)(2) of the 
Rule, which presently requires an Applicant to submit uniform 
registration forms, due to the fact that the information that these 
forms contain is readily accessible to the Exchange through WebCRD.
    Next, the Exchange proposes to restate its requirements and 
procedures for deeming applications to be filed, for dealing with 
incomplete applications, and for requesting additional information from 
an Applicant or a third party in connection with a pending application. 
The Exchange is restating these requirements and procedures to improve 
their clarity, to relax certain procedural deadlines that are 
needlessly rigid, and to provide additional due process to Applicants.
    First, in lieu of the deleted text in subparagraph (a)(2), the 
Exchange proposes to insert a new provision, entitled ``When an 
Application is Deemed to be Filed,'' which states what is now only 
implied in Rule 1013--that the Department will deem an application to 
be filed on the date when it is ``substantially complete,'' meaning the 
date on which the Department receives from the Applicant all material 
documentation and information required under Rule 1013. The Exchange 
believes that Applicants will benefit from this clarification, 
particularly because it affords the Department discretion to deem an 
application to be filed when it obtains sufficent information or 
documentation from the Applicant to enable the Department to commence 
processing the application. The new provision also would require the 
Department to inform the Applicant in writing when the Exchange deems 
an application to be substantially complete so that there will be no 
ambiguity as to when the Department will begin to process the 
application.
    Second, the Exchange proposes to delete existing subparagraph 
(a)(3), which presently governs the rejection of applications that are 
not substantially complete, and it proposes to replace the deleted text 
with two new provisions that deal with lapses in applications that are 
not substantially complete, and the rejection of filed applications 
that remain or become incomplete after filing.
    New subparagraph (a)(3)(A), which will govern lapses of 
applications, will also replace existing Rule 1012(b). The new 
provision states that if the Department does not deem an application to 
be substantially complete (and thereby filed, in accordance with 
proposed subparagraph (a)(2)) within 90 calendar days after an 
Applicant initiates it, then absent a showing of good cause by the 
Applicant, the Department may, at its discretion, deem the application 
to have lapsed without filing, such the Department will take no action 
in furtherance of the application. The proposal is conceptually 
different from existing Rule 1012(b). The proposal conceives of a 
lapsed application as one that an Applicant initiates but does not 
substantially complete even after a prolonged period of time, such that 
the Department treats it as having been abandoned prior to filing. 
Under existing Rule 1012(b), by contrast, the Exchange treats lapses 
more broadly as any unexcused failure of an Applicant to complete an 
application, to respond to the Department's requests for information or 
documents, to participate in a membership interview, or to file with

[[Page 14432]]

the Exchange an executed membership agreement. As is discussed below, 
the proposal will treat an Applicant's post-filing non-responsiveness 
to the Department's requirements as a basis for rejection of an 
application, not a lapse of an application, because once an application 
is deemed filed, the Department will begin to take action in 
furtherance of the application. Also unlike the existing Rule, the 
proposal provides that the Department merely has discretion to, but 
need not deem an application to have lapsed once it meets the 
requirements of the subparagraph. Moreover, the proposal requires that 
once the Department deems an application to have lapsed, then the 
Department must serve a written notice of that determination on the 
Applicant and refund any application fees that the Applicant paid to 
the Exchange (provided that the Exchange did not, in fact, take action 
in furtherance of the lapsed application). Finally, the proposal states 
that an Applicant that still wishes to apply for membership on the 
Exchange after receiving notice of a lapse in its application must 
submit a new application pursuant to these Rules and pay a new 
application fee for doing so, if applicable.
    Proposed subparagraph (a)(3)(B) will govern the circumstances in 
which the Department may reject an application that it already has 
deemed to be ``substantially complete'' and thus filed. Specifically, 
the Exchange proposes that if a pending application remains incomplete 
after filing, or becomes incomplete after filing due to the fact that 
the Applicant has not timely responded to the Department's request for 
supplemental information or documents, then the Department will serve 
notice on the Applicant of the nature of the incompleteness and afford 
the Applicant a reasonable time period in which to address it. If the 
Applicant fails to address the incompleteness within the time period 
that the Department prescribes in the notice, then, absent a showing of 
good cause by the Applicant, the Department may--but again it is not 
required to--deem the application to be rejected and it must serve 
written notice of any such determination upon the Applicant. The 
proposal states, moreover, that if the Department deems an application 
to be rejected, then the Applicant shall not be entitled to a refund of 
any fees that the Applicant may have paid in connection with its 
application so that the Exchange can recover its costs associated with 
processing the filed application prior to rejecting it. Finally, the 
proposal states that if an Applicant chooses to continue to pursue 
membership following a rejection of its application, then it must 
submit a new application and pay any associated fees that are required 
under the Rule.
    Third, the Exchange proposes to restate subparagraph (a)(4), which 
governs requests made by the Department for additional information or 
documents during its consideration of an application. The Exchange also 
proposes to restate and consolidate into subparagraph (a)(4) the 
provision of Rule 1013 that governs membership interviews and 
information pertinent to the application that the Department gathers 
from third party sources other than the Applicant (existing paragraph 
(b)). The Exchange believes that rules governing supplemental 
information and document requests, membership interviews, and third 
party information are related and should be consolidated into a single 
provision. Moreover, the Exchange notes that it does not, as a 
practical matter, opt to conduct formal membership interviews because 
it is more efficient and less onerous for all parties to instead engage 
in informal discussions when questions and concerns arise. Because the 
Exchange does not exercise its discretion to conduct formal interviews 
the Exchange believes that it is reasonable to eliminate the concept 
and the procedures that govern such interviews in the new subparagraph.
    In particular, the proposed restated subparagraph provides that at 
any time before the Department serves its decision on a membership 
application,\10\ it may issue a request for additional information or 
documents--either from the Applicant or from a third party--if the 
Department deems such information or documentation to be necessary to 
clarify, verify, or supplement the application materials. The proposal 
states that the Department may request that the information or 
documentation be provided in writing or through an in-person or 
telephonic interview. The proposal furthermore states that the 
Department shall serve its request in writing. The proposal states that 
the Department must afford the recipient a reasonable amount of time 
within which to respond to the request \11\ and that the failure of an 
Applicant to respond within the allotted time may serve as a basis for 
the Department to reject an application under subparagraph (a)(3)(B), 
described above. Finally, the proposal for the first time affords the 
Applicant due process in the event that the Department obtains 
information or documentation about the Applicant from a third party 
that the Department reasonably believes could adversely impact its 
decision on an application.\12\ In such a circumstance, the proposal 
requires the Department to promptly inform the Applicant in writing and 
describe the third party information or documentation that the 
Department obtained. The Department must also afford the Applicant a 
reasonable opportunity to discuss with it or object to the Department's 
use of the third party information or documentation in its application 
decision prior to the Department rendering the decision.
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    \10\ The restated provision eliminates the requirement in the 
existing Rule that the Department must serve an initial supplemental 
request for information or documents within 15 business days after 
an application is deemed to be filed. The Exchange finds no good 
reason to distinguish in the rule between an ``initial'' and a 
subsequent supplemental Departmental request or to impose a specific 
deadline for the Department to issue any such requests; the 
Department has a shared interest with the Applicant in issuing 
supplemental requests expeditiously such that no artificial deadline 
is necessary.
    \11\ Rather than impose a minimum time period for a response, 
the Exchange proposes to require only that the Department prescribe 
a reasonable deadline for a response. The Exchange believes that the 
appropriate response period will vary depending upon the nature of 
the information or documentation requested. Moreover, the Exchange 
again believes that the Department and the Applicant have a shared 
interest in ensuring that the Applicant has adequate time to respond 
to a request.
    \12\ The Department may consult third parties, such as other 
SROs of which an Applicant is or was a member previously, to obtain 
additional information about or to confirm aspects of an application 
or the Applicant's character or history. The Department might also 
consult third party services to investigate or verify the 
Applicant's financial condition or history.
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    Fourth, the Exchange proposes to establish a new Rule 1013(b), 
entitled ``Special Application Procedures,'' which restates and expands 
upon the existing special application procedures set forth in 
subparagraph (a)(5). Presently, subparagraph (a)(5)(A) states that when 
an Applicant is applying for FINRA membership and Exchange membership 
at the same time, then the Exchange will wait to process the 
application until the applicant becomes a FINRA member.\13\ Presently, 
subparagraph (a)(5)(C) states that expedited application procedures 
will apply to Applicants that are already members of FINRA and Nasdaq 
BX, Inc. or Nasdaq PHLX LLC. The Exchange proposes to delete 
subparagraph (a)(5)(A) and (B) because the Exchange, upon review, 
believes that these provision add little value, especially in light of 
other changes that the Exchange

[[Page 14433]]

now proposes to adopt. Likewise, the Exchange proposes to delete 
(a)(5)(C) because it has become outdated in that it does not provide 
expedited application procedures for Applicants that are members of the 
Exchange's other affiliates; this provision also does not explain what 
an ``expedited'' application process entails.
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    \13\ Existing subparagraph (a)(5)(B) also specifies that 
Applicants that are already members of another registered securities 
association or exchange must submit a regular application form.
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    In lieu of the existing subparagraph (a)(5), the Exchange proposes 
to adopt two types of special applications in new Rule 1013(b). First, 
proposed Rule 1013(b)(1) prescribes a special application process for 
Applicants that are already FINRA members. Specifically, the proposal 
states that such an Applicant will have the option to ``waive-in'' to 
become an Exchange Member and to register with the Exchange all persons 
associated with it whose registrations FINRA has approved (in 
categories recognized by the Exchange's rules). The proposal defines 
the term ``waive-in'' to mean that the Department will rely 
substantially upon FINRA's prior determination to approve the Applicant 
for FINRA membership when the Department evaluates the Applicant for 
Exchange membership. That is, the Department will normally permit a 
FINRA member to waive-into Exchange membership without conducting an 
independent examination of the Applicant's qualifications for 
membership on the Exchange, provided that the Department is not 
otherwise aware of any basis set forth in Rule 1014 to deny or 
condition approval of the application.
    Procedurally, the proposal states that a FINRA member that wishes 
to waive-into Exchange membership must do so by submitting to the 
Department an application form (the standard application form contains 
an option to select waive-in membership) and an executed Exchange 
Membership Agreement. The Department, in turn, will act upon a duly 
submitted waive-in application within a reasonable time frame not to 
exceed 20 days from submission of the application, unless the 
Department and the Applicant agree to a longer time frame for issuing a 
decision.\14\ If the Department fails to issue a decision on a waive-in 
application within the prescribed time frame, then the Applicant may 
petition the Exchange's Board of Directors to force the Department to 
act, as set forth in Rule 1014(c)(3). Finally, the proposal states that 
a decision issued under this provision shall have the same 
effectiveness as set forth in Rule 1014 and shall be subject to review 
as set forth in Rules 1015 and 1016.
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    \14\ The Exchange proposes this time frame to accommodate FINRA, 
which will review waive-in applications on behalf of the Exchange to 
verify that the Applicants are FINRA members in good standing. As a 
practical matter, the Exchange expects to act on waive-in 
applications prior to the 20 day deadline.
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    The second proposed special application process, to be set forth in 
Rule 1013(b)(2), will permit Applicants for Exchange membership that 
are already approved members of one or more of the Exchange's 
affiliated exchanges \15\ to waive-into the Exchange membership. In 
this context, ``waive-in'' means that the Department will rely 
substantially upon an Affiliated Exchange's prior determination to 
approve the Applicant for membership on the Affiliated Exchange when 
the Department evaluates the Applicant for Exchange membership. The 
proposed procedures for an Applicant to submit a waive-in application 
under this provision and for the Department to issue a decision based 
upon such an application are identical to the procedures described 
above for FINRA members that seek to waive-into Exchange membership. 
The Exchange proposes to amend its application form to reflect the fact 
that Applicants may waive-into membership on the Exchange based upon 
their membership on any of the other five Affiliated Exchanges.
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    \15\ The Nasdaq Stock Exchange, LLC, Nasdaq BX, Inc., Nasdaq 
PHLX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, and Nasdaq GEMX, LLC 
are all affiliated exchanges (the ``Affiliated Exchanges'').
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Rule 1014
    In several respects, the Exchange proposes to amend Rule 1014, 
which governs the issuance of membership application decisions by the 
Department.
    First, to improve clarity, the Exchange proposes to reorganize the 
Rule. Rather than begin the Rule with a paragraph that describes the 
bases for the Department to issue a decision on an application, as is 
the case presently, the Exchange proposes to begin with a paragraph (a) 
to be entitled ``Authority of Department to Approve, Approve with 
Restrictions, or Deny an Application.'' This new paragraph sets forth 
the general authority of the Department to act on an application by 
approving it, denying it, or approving it subject to restrictions: (1) 
That are reasonably designed to address a specific (financial, 
operational, supervisory, disciplinary, investigatory, or other 
regulatory) concern; or (2) that mirror a restriction placed upon the 
Applicant by FINRA or an Affiliated Exchange. It incorporates elements 
of what is now Rule 1014(b) (which the Exchange proposes to delete 
going forward).
    Second, the Exchange proposes to renumber existing paragraph (a) as 
new paragraph (b). This paragraph will be retitled ``Bases for 
Approval, Conditional Approval, or Denial'' but will otherwise remain 
the same.
    Third, as noted above, existing paragraph (b) will be deleted.
    Fourth, the Exchange proposes to amend paragraph (c), which 
prescribes the time period within which the Department must issue and 
serve a written decision on a membership application. Presently, the 
provision requires the Department to serve a written decision within 15 
business days after the Applicant concludes its membership interview 
(if any) or files all of its required information or documents, 
whichever is later. The Exchange proposes to relax this requirement by 
stating that the Department must respond in a reasonable time period, 
not to exceed 45 (calendar) days after the Applicant files and provides 
to the Exchange all required and requested information or documents in 
connection with the application, unless the Department and the 
Applicant agree to further extend the decision deadline.\16\ The 
Exchange proposes these amendments because it adjudges the existing 
timeframe to be needlessly short and inflexible. In certain instances 
where the Department has outstanding questions or concerns associated 
with an application, the existing Rule may force the parties to rush to 
address outstanding questions and resolve outstanding issues. The 
proposal would allow for such questions and issues to be addressed with 
less time pressure involved. The Exchange notes that it does not intend 
for this proposal to routinely lengthen the Department's timeframe for 
serving application decisions. Under the existing Rule, the Exchange 
typically issues decisions far in advance of the 15 business day 
deadline and the Exchange expects that it will continue to do so in 
most instances. Indeed, the Exchange has a self-interest in issuing 
decisions as soon as is possible. The proposed 45 day decision period 
is merely intended to allow for the parties to have flexibility in 
unusual circumstances.
---------------------------------------------------------------------------

    \16\ The Exchange also proposes conforming amendments to Rule 
1014(c)(3), which addresses failures of the Department to serve a 
decision within the prescribed time frame.
---------------------------------------------------------------------------

    Fifth, the Exchange proposes to delete existing paragraph (d), 
which states that a decision by the Department to approve an 
application is contingent upon the

[[Page 14434]]

Applicant filing with the Department an executed written membership 
agreement that contains the Applicant's agreement to abide by any 
restriction specified in the Department's decision and to obtain the 
Department's approval prior to undertaking a change in ownership, 
control, or business operations, or prior to modifying or removing a 
membership restriction. The Exchange proposes to delete this provision 
because, as explained above, the Exchange proposes in Rule 1013 to 
expressly require an Applicant to file a duly executed copy of the 
Membership Agreement as part of its application. The existing 
Membership Agreement contains the undertakings described in paragraph 
(d). Accordingly, paragraph (d) is superfluous.
Rule 1015
    The Exchange proposes to amend Rule 1015, which states that the 
Department's membership decisions are subject to review by the Exchange 
Review Council. Specifically, the Exchange proposes to move from 
existing Rule 1012(c) to new Rule 1015(k) a provision that prohibits ex 
parte communications involving membership decisions subject to review 
among certain Exchange staff, members of the Exchange Review Council, 
members of a Subcommittee of the Council, and the Board of Directors. 
Similarly, the Exchange proposes to move from existing Rule 1012(d) to 
new Rule 1015(l) a provision that governs the recusal and 
disqualification of a member of the Exchange Review Council, a 
Subcommittee thereof, or the Board of Directors from participating in a 
review of a membership decision. The Exchange proposes these moves 
because it believes that these two provisions fit logically within the 
section of the membership rules that govern appeals of membership 
decisions. The Exchange proposes no substantive changes to these 
provisions \17\ and it does not believe that moving them will have any 
substantive effect.
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    \17\ The Exchange proposes to remove the requirement from Rule 
1015(a) that an applicant file a request for review ``by first-class 
mail.'' Rule 1012(a) now provides for a more modern array of filing 
options that includes electronic submission.
---------------------------------------------------------------------------

Rule 1017
    The Exchange proposes substantial changes to Rule 1017, which 
requires Members to obtain approval prior to effecting a change in 
ownership, control, or business operations. These changes are generally 
intended to streamline and simplify the existing Rule, which the 
Exchange believes are unnecessary onerous and complex. As much as 
possible, the Exchange proposes to apply the same procedures to these 
applications for approval as it does to its applications for membership 
under Rules 1013 and 1014.
    The first change that the Exchange proposes involves Rule 1017(a), 
which defines the events that require Members to file applications. The 
existing paragraph states that a Member shall file an application for 
approval prior to effecting the following changes: (1) A merger of the 
Member with another Member (unless both are members or the surviving 
member will continue to be a member of the New York Stock Exchange 
(``NYSE'')); (2) a direct or indirect acquisition by the Member of 
another Member (unless the acquiring Member is a member of the NYSE); 
(3) direct or indirect acquisitions or transfers of 25% or more in the 
aggregate of the Member's assets or any asset, business line or line of 
operations that generates revenues comprising 25% or more in the 
aggregate of the Member's earnings measured on a rolling 36 month basis 
(unless both the seller and acquirer are members of the NYSE); (4) a 
change in the equity ownership or partnership capital of the Member 
that results in one person or entity directly or indirectly owning or 
controlling 25 percent or more of the equity or partnership capital; or 
(5) a ``material change in business operations.'' Existing Rule 
1011(g), in turn, defines a ``material change in business operations'' 
to mean, among other things: (1) Removing or modifying a membership 
restriction; (2) acting as a dealer for the first time; (3) market 
making for the first time on the Exchange (except when the member's 
market making has been approved previously by FINRA or Nasdaq BX); (4) 
adding business activities that require higher minimum net capital 
under SEC Rule 15c3-1; and (5) adding business activities that would 
cause a proprietary trading firm no longer to meet the definition of 
that term contained in the rule.
    For ease of reference, the Exchange proposes to incorporate into 
Rule 1017(a)(5) the definition of a ``material change in business 
operations'' rather than define it separately in Rule 1011(g). The 
Exchange also proposes to take the existing exclusion from that 
definition--excluding first time market makers on the Exchange whose 
market making activities have been approved previously by FINRA or 
Nasdaq BX--and apply it more broadly to all of Rule 1017(a). That is, 
the Exchange proposes that none of the changes enumerated in Rule 
1017(a) would require prior Departmental approval to the extent that 
the Member's Designated Examining Authority (``DEA''), or an Affiliated 
Exchange, has approved the change previously in accordance with their 
respective rules and provided that the Member provides written evidence 
to the Department of such prior approval. The Exchange believes that 
this proposal is prudent because in all instances in which a Member's 
DEA or any Affiliated Exchange \18\ have already approved a change, the 
Exchange can be reasonably confident that such prior approval would be 
consistent with its own judgment on the matter, such that no purpose 
would be served in requiring the Department to independently approve 
the same change.\19\ The proposal would also ease burdens on Members 
that wish to make changes to their businesses and which presently 
require multiple approvals to do so. The Exchange notes that it 
proposes to retain authority to require approval of a proposed change 
where the nature, terms, or conditions of the change have altered since 
the Member's DEA or an Affiliated Exchange approved it.
---------------------------------------------------------------------------

    \18\ Exchange notes that the existing Rule is under-inclusive in 
that it does not account for prior approvals granted by all of the 
Affiliated Exchanges. The Exchange believes that there is no 
reasonable basis for it to defer to a prior approval granted by 
Nasdaq BX and to not do the same with respect to prior approvals 
granted by the other Affiliated Exchanges.
    \19\ In Rule 1017(a), the Exchange also proposes to eliminate 
exceptions relating to NYSE membership. The Exchange believes that 
this proposal is reasonable insofar as the NYSE's rules may, at 
times, diverge with those of the Exchange. Going forward, the 
Exchange feels more confident deferring to the prior judgment of a 
Member's DEA or of an Affiliated Exchange as to the specific change 
event at issue than it does to the mere fact that a Member or its 
counterparty in a business transaction are NYSE members.
---------------------------------------------------------------------------

    Next, the Exchange proposes to make several organizational and 
clarifying amendments to Rule 1017(b), which governs the filing and 
content of applications filed under Rule 1017. It proposes to preface 
subparagraph (b)(2)--which presently states vaguely that the 
``application'' shall contain certain items--with language clarifying 
that the provision pertains to applications for approval of a change in 
ownership or control or a material change in the business operations of 
a member. It also breaks out the last sentence of (b)(2) into new 
subparagraphs (2)(A) and (2)(B). Furthermore, it proposes clarifying 
changes in (2)(A) (proposing to specify that a description of a 
``change in ownership, control, or business operations'' means a 
``proposed'' change in ownership, control, or ``material'' business 
operations) and (2)(B)

[[Page 14435]]

(specifying that the Member must ``attach'' rather than ``include'' a 
business plan, pro forma financials, an organizational chart, and 
written supervisory procedures relating to the ``proposed'' change). 
Finally, the Exchange proposes to renumber the remainder of the Rule.
    The Exchange proposes to amend Rule 1017(c) to limit its scope. 
Specifically, it proposes to eliminate from subparagraph (c)(1) the 
ability of a Member to effect a change in ownership or control prior to 
receiving approval from the Department and the ability of the 
Department to impose interim restrictions on the Member pending final 
Department approval. The Exchange believes that the concepts of interim 
changes and restrictions are overly complex, potentially disruptive, 
and ultimately unnecessary given the short time frames that the Rules 
prescribe for the Department to act on applications.\20\ Additionally, 
the Exchange notes that in its experience reviewing applications under 
Rule 1017, these provisions never have been invoked. Finally, the 
Exchange proposes to change the title of this provision to reflect the 
deletion of the foregoing. Whereas now, the title is ``Effecting Change 
and Imposition of Interim Restrictions,'' the Exchange proposes to re-
title it as ``When Applications Shall or May Be Filed.''
---------------------------------------------------------------------------

    \20\ The Exchange also notes that FINRA is also publicly 
contemplating eliminating the concept of allowing its members to 
effect business changes on an interim basis. See FINRA, Regulatory 
Notice 18-23: Membership Application Proceedings (Request for Public 
Comment), Attachment B (July 26, 2018), available at http://www.finra.org/sites/default/files/Attachment-B_Regulatory-Notice-18-23.pdf.
---------------------------------------------------------------------------

    Existing paragraphs (d), (e), and (f) of Rule 1017, prescribes 
standards for rejecting applications that are not substantially 
complete, authorizes the Department to serve a request for additional 
documents and information, and permits the Department to conduct 
interviews of Applicants, respectively. The Exchange proposes to delete 
these provisions and replace them with provisions that are more 
consistent with proposed amended Rule 1013(a)(2), (3), and (4). That 
is, new Rule 1017(d) will state that the Department will deem an 
application to be filed on the date when it is substantially complete, 
meaning the date on which the Department receives from the Applicant 
all material documentation and information required under the Rule. It 
also requires the Department to inform the Applicant in writing when 
the Department deems an application to be substantially complete. New 
Rule 1017(d) will state that the Department may treat an application 
filed under this Rule as having lapsed, and the Department may reject 
an application filed under this Rule, in accordance with Rule 
1013(a)(3), except that the Department may treat an application as 
having lapsed if it is not substantially complete for 30 days or more 
after the applicant initiates it.\21\ Finally, proposed Rule 1017(f) 
will state that at any time before the Department serves its decision 
on an application filed under Rule 1017, the Department may request 
additional information or documentation from the Applicant or from a 
third party in accordance with Rule 1013(a)(4).\22\
---------------------------------------------------------------------------

    \21\ The Exchange notes that this 30 day time period for deeming 
an application to have lapsed derives from existing Rule 1017(d).
    \22\ As stated previously, circumstances where the Department 
may consult a third party include to seek additional information 
about or to verify aspects of an application. For example, the 
Department may consult another SRO to verify the financial status or 
prior disciplinary history of a Member's prospective new ownership.
---------------------------------------------------------------------------

    Existing Rule 1017(g) prescribes a complex system for the 
Department to issue decisions in response to applications filed under 
Rule 1017. For example, it differentiates between decisions issued with 
respect to Members that are and are not FINRA members (or required to 
be FINRA members). With respect to Members that are FINRA members, the 
Rule requires the Department to consider whether the Applicant and its 
Associated Persons meet the standards set forth in NASD (FINRA) Rule 
1014(a). It also prescribes specific criteria for issuing decisions 
where the Applicant seeks a modification or removal of a membership 
restriction. The Exchange believes that this complex system is 
unnecessary and can be simplified considerably, particularly in light 
of the proposal described above to exempt a Member from obtaining the 
Exchange's approval to effect a change in ownership or control or a 
material change in its business operations when FINRA has already 
approved the change previously. That is, there is no reason for the 
Exchange to make an independent assessment of whether the proposed 
change complies with FINRA rules if FINRA has already made that 
determination.
    In lieu of the existing provisions, the Exchange proposes to state 
that the Department will render a decision on an application filed 
under Rule 1017 in accordance with the standards set forth in Rule 
1014, except with respect to applications to modify or remove a 
membership restriction, in which case the Department will consider the 
factors presently set forth in existing Rule 1017(g)(1)(D) (the 
Exchange proposes to renumber this provision as subparagraph (g)(1)).
    Additionally, in lieu of existing Rule 1017(g)(2), which requires 
the Department to serve a written decision on an application filed 
under Rule 1017 within 30 (calendar days) after conclusion of a 
membership interview or the filing of additional information or 
documents (whichever is later), the Exchange proposes to state that the 
Department will serve a written decision in accordance with Rule 
1013(c).\23\ The Exchange proposes this change to 1017(g)(2) for the 
same reasons that it discussed above with respect to Rule 1013(c).
---------------------------------------------------------------------------

    \23\ The Exchange notes that the proposed cross-reference to 
Rule 1013(c) also addresses the Applicant's rights in the event that 
the Department does not serve it with a timely written decision. 
Accordingly, the Exchange proposes to delete existing subparagraph 
(g)(3), which covers the same topic.
---------------------------------------------------------------------------

    Finally, the Exchange proposes to delete Rule 1017(k). This 
provision presently states that if an application for approval of a 
change in ownership lapses or is denied and all appeals are exhausted 
or waived, the Member must, within 60 days, submit a new application, 
unwind the transaction, or file a Form BDW. It also provides for the 
Department to shorten or lengthen the 60 day period under certain 
circumstances. Due to the fact that the Exchange--as explained 
previously--proposes to eliminate the ability of a Member to effect a 
change in ownership while its application for Departmental approval is 
pending, this provision will no longer be necessary. That is, there 
will be no interim change in ownership that will need to be unwound or 
otherwise addressed if the Department denies an application or it 
lapses.
Rule 1018
    The Exchange proposes to consolidate within Rule 1018, which is 
presently reserved, existing provisions of the Rules pertaining to the 
resignation of members (existing Rule 1012(g), transfer of membership 
(existing Rule 1012(i)(1)), termination of membership (existing Rule 
1012(i)(2)), and reinstatement of membership (existing Rule 1002(d)). 
The Exchange believes that these provisions are logically related and 
belong together in a single Rule. The Exchange generally proposes to 
maintain the substance of these consolidated provisions unchanged from 
their existing state, except that the Exchange proposes that 
resignations will no longer require a 30 day time period to become 
effective. Also, the provision on reinstatement will apply to

[[Page 14436]]

membership only and not to registration, which is covered separately in 
the Exchange's Rules.
Other Miscellaneous Changes
    Lastly, the Exchange proposes to make non-substantive changes 
throughout the Rule 1000 Series, as follows. Where the Rules refer 
specifically to ``Nasdaq,'' the Exchange proposes to replace such 
references with more general terms ``Exchange'' or ``the Exchange.'' 
The Exchange proposes this change to make it easier in the future to 
harmonize the Exchange's membership rules with those of the other 
Affiliated Exchanges. The Exchange also proposes to update obsolete 
references to the ``NASD'' to reflect the fact that the NASD is now 
known as ``FINRA.'' Finally, where applicable, the Exchange proposes to 
renumber the Rules and update or correct cross-references.
Implementation
    To facilitate an orderly transition from the existing membership 
rules to the new rules, the Exchange is proposing to apply the existing 
rules to all applications which have been submitted to the Exchange 
(including applications that are not yet complete) and are pending 
approval prior to the operative date. The Exchange also will apply the 
existing rules to any appeal of an Exchange membership decision or any 
request for the Board to direct action on an application is pending 
before the Exchange Review Council, the Board, or the Commission, as 
applicable. As a consequence of this transition process, the Exchange 
will retain the existing processes during the transition period until 
such time that there are no longer any applications or matters 
proceeding under the existing rules. To facilitate this transition 
process, the Exchange will retain a transitional Rulebook that will 
contain the Exchange's membership rules as they are at the time that 
this proposal is filed with the Commission. This transitional Rulebook 
will apply only to matters initiated prior to the operational date of 
the changes proposed herein and it will be posted to the Exchange's 
public rules website. When the transition is complete, the Exchange 
will remove the transitional Rulebook from its public rules website.
    The Exchange will announce and explain this transition process in a 
regulatory alert.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\24\ in general, and furthers the objectives of Section 
6(b)(5) and of the Act,\25\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest. It is also consistent with Section 6(b)(7) of the Act in that 
it provides for a fair procedure for denying Exchange membership to any 
person who seeks it, barring any person from becoming associated with 
an Exchange Member, and prohibiting or limiting any person with respect 
to access to services offered by the Exchange or a Member thereof.\26\
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(5).
    \26\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

    As a general matter, the Exchange believes that its proposal to 
amend its membership Rules will promote a free and open market, and 
will benefit investors, the public, and the markets, because it will 
render the Rules clearer, better organized, simpler, and easier to 
comply with.
    The proposal is just and equitable because it will render the 
Exchange's membership rules easier for Applicants and Members to read 
and understand, including by doing the following:
     Establishing a ``roadmap'' paragraph in proposed Rule 
1014(a) that sets forth the basic authority of the Department to 
approve, approve with conditions, or deny applications for membership 
before the Rule goes on to enumerate criteria for the Department to 
apply when taking each of those actions;
     Making the titles of the Rules more accurate and 
descriptive (e.g., proposed Rule 1014(b) (amending the existing title 
``Bases for Denial'' to also include bases for approval and conditional 
approval to make it more accurate and complete));
     Grouping logically-related provisions together in the 
Rules (e.g., provisions governing resignation, termination, transfer, 
and reinstatement of membership (moving them from Rule 1002(d) and 
1012(g) and (i) to proposed Rule 1018); provisions relating to ex parte 
communications (existing Rule 1012(c)) and recusals and 
disqualifications (existing Rule 1012(d) (moving them into Rule 1015, 
which governs reviews of membership decisions));
     Rationalizing and consolidating provisions that presently 
govern lapses and rejections of applications, including by making 
clearer conceptual distinctions between lapses (i.e., applications that 
are not substantially complete and which the Department may deem to be 
abandoned, such that the Department will refund any application fees 
paid by the Applicant) and rejections (i.e., applications that the 
Department deemed to be filed but which it refuses to act upon due to 
lingering incompleteness, in which case the Department will not refund 
application fees paid to it), and by consolidating Rules 1012(b) and 
1013(a)(3) into proposed Rule 1013(a)(3)(A) and (B);
     Consolidating overlapping provisions that govern the 
registration of branch offices and office of supervisory jurisdiction 
into a single provision (consolidating Rule 1012(j) and IM-1002-4 into 
Rule 1002(d));
     Eliminating references in Rule 1002(c), Rule 1012(j), and 
Rule 1013(a)(1)(U) to the obligation of Members (and their branch 
offices) to pay fees, charges, dues, and assessments to the Exchange 
insofar as those obligations are duplicative of Rule 9553;
     Converting IM-1002-1 and IM-1002-4 into rule text;
     Clarifying when the Department will deem an application to 
be filed (when the application is ``substantially complete,'' as set 
forth in proposed Rule 1013(a)(2)) and by requiring the Department to 
notify an Applicant in writing of the filing date;
     Clarifying what the Exchange means when it states that an 
Applicant may ``waive-in'' to Exchange membership (as set forth in 
proposed Rule 1013(b)); and
     Updating obsolete cross-references throughout the Rules 
from NASD to FINRA.
    The proposal will also make compliance with the membership rules 
simpler and less burdensome for Applicants and Members by doing the 
following:
     Eliminating obsolete requirements to submit paper copies 
of Forms U-4 and BD or explain information listed on the forms (Rule 
1013(a)(1)(A), (J), (K), and (P) and Rule 1013(a)(2)) where the 
Department already has electronic access to the Forms and the 
information contained therein;
     Permitting electronic filing of applications (proposed 
Rule 1012(a)(1);
     Allowing payment of application fees by means other than 
paper check (proposed Rule 1013(a)(1)(C));
     Relaxing deadlines that needlessly rush the process of 
responding to the Department's questions and concerns about an 
application \27\ or that force the

[[Page 14437]]

Department to render a decision when the Applicant is not ready for the 
Department to do so; \28\
---------------------------------------------------------------------------

    \27\ Rather than require an Applicant to file a response to a 
supplemental request for documents or information within 15 business 
days, proposed Rule 1013(a)(3) states that the Applicant must 
respond within a ``reasonable period of time'' to be prescribed by 
the Department. Even then, Rule 1013(a)(3)(B) states that the 
Department must serve upon the Applicant a notice of incompleteness 
if it fails to respond to a supplemental request and then afford the 
Applicant an additional reasonable time period to remedy the failure 
before it may reject the Applicant's application.
    \28\ Rather than require the Department to serve a written 
decision within 15 business days, proposed Rule 1014(c) states that 
it must issue a decision within a reasonable period of time, not to 
exceed 45 calendar days after the application is filed and complete, 
unless the parties agree to a later date. As explained above, the 
Exchange does not intend for this change to result in the Department 
routinely issuing decisions later than it does presently. The 
Exchange presently issues decisions, in most instances, well in 
advance of the current 15 business day deadline and it has a self-
interest in continuing to do so whenever possible. However, the 
Exchange believes that it is in the interest of Applicants for the 
Department to have discretion to respond at a later time in the 
event that the Applicant needs to address or resolve outstanding 
questions or concerns associated with its application.
---------------------------------------------------------------------------

     Eliminating formal membership interviews and procedures 
related thereto, which the Exchange has not utilized historically (Rule 
1013(b)); \29\
---------------------------------------------------------------------------

    \29\ The elimination of the formal membership interview process 
will have no practical effect on the membership process insofar as 
the Department otherwise has authority to request additional 
information from the Applicant. Under the proposed Rule 1014(a)(4), 
this authority may include a request for the Applicant to provide 
information or documents in-person or by telephone. In other words, 
the Department will retain authority to conduct an informal 
interview of the Applicant.
---------------------------------------------------------------------------

     Harmonizing disparate procedures under Rules 1013 and 1017 
for filing, evaluating, and responding to initial membership 
applications and applications for approval of business changes, 
including by streamlining the Rule 1017 procedures;
     Broadening the circumstances in which an Applicant may 
waive-into Exchange membership to include the Applicant's membership in 
any of the Affiliated Exchanges \30\ and defining procedures for 
processing and responding to waive-in applications (proposed Rule 
1013(b));
---------------------------------------------------------------------------

    \30\ As noted above, the Exchange believes that it is reasonable 
to permit reciprocity in membership among all of the Affiliated 
Exchanges. The Exchange believes that there is no reasonable basis 
for it to defer to a prior approval granted by Nasdaq BX and to not 
do the same with respect to prior approvals granted by the other 
Affiliated Exchanges.
---------------------------------------------------------------------------

     Narrowing the circumstances in which a Member must obtain 
prior Department approval before effecting a change in ownership, 
control, or material business operations by excluding changes for which 
a Member has obtained prior approval from the Member's DEA, or an 
Affiliated Exchange (proposed Rule 1017(a)); \31\
---------------------------------------------------------------------------

    \31\ As is discussed above, the Exchange believes that deference 
to prior approvals of a proposed business change made by an 
Affiliated Exchange or the Exchange's DEA is reasonable because the 
judgment of these entities on such matters is likely to be the same 
as that which the Exchange would itself employ. The Exchange 
assesses that any marginal benefit that might be gained from it 
applying its own independent judgment outweighs the burden to 
Applicants of obtaining multiple approvals for the same proposed 
change. The Exchange notes that it will require a Member to obtain 
approval for such a change if the nature, terms, or conditions of 
the proposed change have altered since its DEA or an Affiliated 
Exchange approved it.
---------------------------------------------------------------------------

     Eliminating the unused, unnecessary, and potentially 
disruptive ability of Members, pursuant to Rule 1017(c), to effect 
ownership changes on an interim basis while an application for 
Department approval is pending; and
     Eliminating the 30 day waiting period for Members that 
seek to resign their memberships under proposed Rule 1018(a).
    In sum, the foregoing changes will update, rationalize, and 
streamline the Exchange's membership rules and processes, all to the 
benefit of Applicants and Members. Moreover, these changes will not 
adversely impact the rights of Applicants or Members to appeal adverse 
Departmental decisions under these Rules or to request Board action to 
compel the Department to render decisions on applications.
    Last, the Exchange believes that its proposal to phase-in the 
implementation of the new membership rules and processes is consistent 
with Section 6(b)(7) of the Act \32\ because both the current and 
proposed processes provide fair procedures for granting and denying 
applications for becoming an Exchange Member, becoming an Associated 
Person, and making material changes to the business operations of a 
Member. The Exchange is proposing to provide advanced notice of the 
implementation date of the new processes, and will apply the new 
processes to new applications, appeals, and requests for Board action 
that are initiated on or after that implementation date. Any 
application, appeal, or request for Board action initiated prior to the 
implementation date will be completed using the current processes. As a 
consequence, the Exchange will maintain a transitional Rulebook on the 
Exchange's public rules website which will contain the Exchange Rules 
as they are at the time of filing this rule change. These transitional 
rules will apply exclusively to applications, appeals, and requests for 
Board action initiated prior to the implementation date. Upon 
conclusion of the last decision on a matter to which the transitional 
rules apply, the Exchange will remove the defunct transitional rules 
from its public rules website. Thus, the transition will be conducted 
in a fair, orderly, and transparent manner.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange does not expect 
that its proposed changes to the membership rules will have any 
competitive impact on its existing or prospective membership. The 
proposed changes will apply equally to all similarly situated 
Applicants and Members and they will confer no relative advantage or 
disadvantage upon any category of Exchange Applicant or Member. 
Moreover, the Exchange does not expect that its proposal will have an 
adverse impact on competition among exchanges for members; to the 
contrary, the Exchange hopes that by clarifying, reorganizing, and 
streamlining its membership rules, and by making the Exchange's 
membership process less burdensome for Applicants and Members, the 
Exchange will improve its competitive standing relative to other 
exchanges.

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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \33\ and Rule 
19b-4(f)(6) thereunder.\34\
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \34\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization 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) \35\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to

[[Page 14438]]

Rule 19b-4(f)(6)(iii),\36\ 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 upon 
filing. The Exchange states that the proposed changes are primarily 
intended to update and reorganize the Exchange's existing membership 
rules and processes. Further, the Exchange states these rules are 
intended to streamline and clarify processes and also eliminate unused 
and outdated provisions. The Exchange states the effect of these 
changes will make the membership process less burdensome for 
Applicants, Members, and Associated Persons while not limiting the 
Exchange's ability to appropriately scrutinize prospective and existing 
Members and Associated Persons. For the foregoing reasons, the 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
and, therefore, the Commission designates the proposed rule change to 
be operative upon filing.\37\
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    \35\ 17 CFR 240.19b-4(f)(6).
    \36\ 17 CFR 240.19b-4(f)(6)(iii).
    \37\ 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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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2019-022 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-NASDAQ-2019-022. 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 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-NASDAQ-2019-022 and should be submitted on or before May 1, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-07050 Filed 4-9-19; 8:45 am]
 BILLING CODE 8011-01-P