Document ID: SEC-2018-1603-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2018-10-16T04:00Z

[Federal Register Volume 83, Number 200 (Tuesday, October 16, 2018)]
[Notices]
[Pages 52272-52283]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22430]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84389; File No. SR-NYSEARCA-2018-71]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Amendments to Rules Regarding 
Qualification, Registration and Continuing Education Applicable to 
Equity Trading Permit Holders, Options Trading Permit Holders or OTP 
Firms

October 10, 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 September 27, 2018, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') 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 regarding 
qualification, registration and continuing education requirements 
applicable to Equity Trading Permit (``ETP'') Holders, Options Trading 
Permit (``OTP'') Holders or OTP Firms. The Exchange's rule proposal is 
intended to harmonize its rules with Financial Regulatory Authority, 
Inc. (``FINRA'') rules and thus promote consistency within the 
securities industry, and therefore the Exchange is only adopting rules 
that are relevant to the Exchange's ETP Holders, OTP Holders or OTP 
Firms. The Exchange is not adopting registration categories that are 
not applicable to ETP Holders, OTP Holders or OTP Firms because they do 
not engage in the type of business that

[[Page 52273]]

would require such registration. As such, the Exchange is amending 
current Rules 2.23 and 2.24 regarding continuing education requirements 
to reflect the FINRA rule; adopting Commentary .06 to current Rule 2.23 
and 2.24 regarding fingerprint information; adopting new Rule 2.1210 
regarding registration requirements and related Commentary to new Rule 
2.1210; adopting new Rule 2.1220 regarding registration categories \4\ 
and related Commentary to new Rule 2.1220; and adopting new Rule 2.1230 
regarding associated persons exempt from registration and related 
Commentary to new Rule 2.1230. Each of these rule changes, which are 
[sic] described in more detail below, would become operative on October 
1, 2018. 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\ 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; (6) General Securities 
Sales Supervisor; and (7) Registered Options Principal. The relevant 
representative registration categories the Exchange proposes to 
adopt are (1) Representative; (2) General Securities Representative; 
and (3) Securities Trader.
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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 ETP Holders, OTP 
Holders or OTP Firms. 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 ETP Holders that engage in 
trading activities on the Exchange; (iii) harmonize the Exchange's 
qualification, registration and examination rules with those of FINRA 
\5\ so as to promote uniform standards across the securities industry; 
and (iv) add new definitions of terms and make other conforming changes 
to enhance the comprehensiveness and clarity of the Exchange's 
rules.\6\ The proposed changes are discussed below.
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    \5\ 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''). The Exchange notes that in order to 
maintain consistency with the FINRA Filing, the Exchange proposes to 
incorporate certain terms from the relevant FINRA rule into the 
Exchange's rule that may not be applicable to ETP Holders, OTP 
Holders or OTP Firms. For example, while ETP Holders, OTP Holders or 
OTP Firms may not be engaged in ``investment banking'' activity, the 
Exchange proposes to adopt that term within these registration rules 
to conform them to the FINRA rules.
    \6\ The conforming changes the Exchange proposes would 
substitute the term ``ETP Holder,'' ``OTP Holder'' or ``OTP Firm'' 
as applicable for ``member'' and the term ``Exchange'' for 
``FINRA.''
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A. Amendments to Current Rules 2.5, 2.23, 2.24, 6.43-O, 9.27-O and 
9.27-E
    Current Rules 2.5(A) and (B) currently require traders of ETP 
Holders to successfully complete the Series 7 Examination. The Exchange 
proposes to amend current Rules 2.5(A) and (B) by requiring traders of 
ETP Holders to successfully complete the Securities Industry Essentials 
(``SIE'') examination in addition to the Series 7 Examination in order 
to satisfy the Exchange's registration requirement, consistent with the 
proposed restructuring of the representative-level examinations 
proposed in the FINRA Filing.
    Current Rule 2.23(b)(1) similarly requires traders of OTP Holders 
and OTP Firms to successfully complete the Series 7 Examination. 
Consistent with the proposed restructuring of the representative-level 
examination proposed in the FINRA Filing, the Exchange proposes to 
amend current Rule 2.23(b)(1) to require traders of OTP Holders and OTP 
Firms to successfully complete the SIE examination and the Series 7 
Examination in order to satisfy the Exchange's registration 
requirement. Rule 2.23(b)(2) currently provides that the examination 
requirement in Rule 2.23(b)(1) does not apply to an individual who does 
not conduct business with the public and who is registered as a Market 
Maker or Market Maker Authorized Traders, pursuant to Rule 
2.23(b)(2)(A), or as a Securities Trader, pursuant to Rule 
2.23(b)(2)(C), in which case such individuals are required to 
successfully complete the Series 57 examination.
    Consistent with the proposed restructuring of the representative-
level examination proposed in the FINRA Filing, the Exchange proposes 
to amend current Rule 2.23(b)(2)(A) and (C) by requiring traders of OTP 
Holders and OTP Firms to successfully complete the SIE examination and 
the Series 57 Examination in order to satisfy the Exchange's 
registration requirement. Further, current Rule 2.23(b)(2)(C) provides 
the definition of a Securities Trader. The Exchange proposes to adopt 
FINRA's definition of Securities Trader (as described below) and, 
therefore, proposes to add a reference to Rule 2.1220(b)(3) as the 
appropriate rule in the Exchange's Rulebook where the definition of 
Securities Trader can be found. The Exchange also proposes to adopt 
rule text within the current rule that provides that a person 
registered as a Securities Trader would not be qualified to function in 
any other registration category unless he or she is also qualified and 
registered in such other registration category. Current Rule 
2.23(b)(3)(A) provides that a General Securities Principal engaged in 
supervisory activities must complete the Series 7 examination and the 
Series 24 examination. Consistent with the proposed restructuring of 
the representative-level examination proposed in the FINRA Filing, the 
Exchange proposes to amend current Rule 2.23(b)(3)(A) to require such 
persons to also complete the SIE examination.
    Current Rule 2.24(b)(iii) provides that employees of ETP Holders 
seeking limited registration as Securities Traders are required to 
complete the Series 57 examination. Consistent with the proposed 
restructuring of the representative-level examination proposed in the 
FINRA Filing, the Exchange proposes to amend current Rule 2.24(b)(iii) 
to require such persons to also complete the SIE examination in 
addition to the Series 57 examination. Further, current Rule 2.24, 
Commentary .03, provides the definition of a Securities Trader. With 
this proposed rule change, the Exchange proposes to adopt FINRA's 
definition of Securities Trader (as described below) and therefore, 
proposes to add a reference to Rule 2.1220(b)(3) as the appropriate 
rule in the Exchange's Rulebook where the definition of Securities 
Trader can be found. The Exchange also proposes to adopt rule text 
within the current rule that provides that a person registered as a 
Securities Trader would not be qualified to function in any other

[[Page 52274]]

registration category unless he or she is also qualified and registered 
in such other registration category.
    Current Rule 6.43-O(b)(1)(A) currently requires qualified Floor 
Brokers and Floor Clerks of qualified Floor Brokers that conduct a 
public business limited to accepting orders directly from Professional 
Customers for execution on the Floor of the Exchange must successfully 
complete the Series 7 examination or the Series 7A examination. 
Consistent with the proposed restructuring of the representative-level 
examination proposed in the FINRA Filing, the Exchange proposes to 
amend current Rule 6.43-O(b)(1)(A) by requiring qualified Floor Brokers 
and Floor Clerks of qualified Floor Brokers to successfully complete 
the SIE examination and the Series 7 Examination or the Series 7A 
examination in order to satisfy the Exchange's registration 
requirement.
    Current Rule 9.27-O, Commentary .01, and Rule 9.27-E, Commentary 
.01, each states that the Exchange considers the Uniform Registered 
Representative Examination \7\ (``Series 7'') as adequate in measuring 
an applicant's knowledge of the securities industry and satisfies the 
examination requirements prescribed in the rule. As noted below, given 
the adoption of the Securities Industry Essential (``SIE'') examination 
in the FINRA Filing, the Exchange proposes to amend the current rules 
to adopt the SIE exam as an additional requirement. As amended, Rule 
9.27-O, Commentary .01, and Rule 9.27-E, Commentary .01, would each 
provide that in addition to the Series 7 examination, the Exchange 
would also require an applicant to pass the SIE examination to register 
as a general securities representative.
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    \7\ The Exchange proposes to rename the Uniform Registered 
Representative Examination in Rule 9.27-O, Commentary .01, and in 
Rule 9.27-E, Commentary .01, as the General Securities 
Representative Examination to reflect the current name of the Series 
7 examination.
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B. Amendments to Rules 2.23 and Rule 2.24--Continuing Education 
Requirements
    Rules 2.23 and 2.24 provide the continuing education requirements 
of registered persons \8\ of an OTP Holder or OTP Firm, and ETP 
Holders, respectively, 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.
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    \8\ For purposes of Rule 2.24, the term ``registered person'' 
means any ETP Holder, Allied Person thereof, registered 
representative or other person registered or required to be 
registered under the Rules of the Exchange. See Rule 2.24, 
Commentary .01.
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1. Regulatory Element
    The Exchange proposes to amend Rules 2.23(d)(1) and 2.24(d)(1) to 
provide, consistent with proposed Rule 2.1210, Commentary .08, 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 [sic] registered.\9\ The proposed 
amendment to Rules 2.23(d)(1) and 2.24(d)(1) also provides that if a 
waiver-eligible person fails to complete the Regulatory Element during 
the prescribed time frames, he or she would lose waiver 
eligibility.\10\
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    \9\ The proposed change is substantially similar to that 
contained in FINRA Rule 1240(a)(1).
    \10\ The proposed change is substantially similar to that 
contained in FINRA Rule 1240(a)(2).
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    Further, the Exchange proposes to amend Rules 2.23(d)(1) and 
2.24(d)(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 OTP Holder or OTP Firm, or ETP 
Holder, with which the person is associated has a policy prohibiting 
such trail or residual commissions.\11\
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    \11\ The proposed change is substantially similar to that 
contained in FINRA Rule 1240(a)(2).
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    Additionally, under Rules 2.23(d)(1) and 2.24(d)(1), a registered 
person is required to retake the Regulatory Element in the event that 
such person (i) is subject to any statutory disqualification as defined 
in Section 3(a)(39) of the Exchange Act; (ii) 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 (iii) 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 Rules 2.23(d)(1) and 2.24(d)(1) to provide an 
exception to a waiver-eligible person from retaking the Regulatory 
Element and satisfy [sic] all of its requirements.\12\
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    \12\ The proposed change is substantially similar to that 
contained in FINRA Rule 1240(a)(3).
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2. Firm Element
    Current Rule 2.23(d)(2)(B)(ii) provides that programs used to 
implement an OTP Firm's or OTP Holder's training program must be 
appropriate for the business of the OTP Firm or OTP Holder and, at a 
minimum must cover specific matters concerning securities products, 
services, and strategies offered by the OTP Firm or OTP Holder. Current 
Rule 2.24(d)(2)(B)(ii) also provides that programs used to implement an 
ETP Holder's training program must be appropriate for the business of 
the ETP Holder and, at a minimum must cover specific matters concerning 
securities products, services, and strategies offered by the ETP 
Holder. The Exchange proposes to amend both Rules 2.23(d)(2)(B)(ii) and 
2.24(d)(2)(B)(ii) 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.\13\
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    \13\ The proposed change is substantially similar to that 
contained in FINRA Rule 1240(b)(2).
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C. Proposed Rule 2.23--Commentary .06 and Proposed Rule 2.24--
Commentary .06--Fingerprint Information \14\
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    \14\ The proposed rule is substantially similar to FINRA Rule 
1010(d).
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    The Exchange proposes to adopt Rule 2.23, Commentary .06 and Rule 
2.24, Commentary .06, regarding the submission of fingerprint 
information by OTP Firms or OTP Holders, and ETP Holders, respectively. 
As proposed, upon filing an electronic Form U4 on behalf of a person 
applying for registration, an OTP Firm or OTP Holder, or ETP Holder, as 
applicable, would be required to promptly submit fingerprint 
information for that person. If the OTP Firm or OTP Holder, or ETP 
Holder, as applicable, 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 and the person would be 
required to immediately cease all activities requiring registration and 
would be

[[Page 52275]]

prohibited from performing any duties and functioning in any capacity 
requiring registration. The proposed rule further provides [sic] allows 
the Exchange to administratively terminate a registration that is 
inactive for a period of two years. However, a person whose 
registration is administratively terminated may seek to reactivate his 
or her registration by reapplying for registration and meeting the 
qualification requirements under Exchange rules.
D. Proposed New Rules 2.1210 Through 2.1230
    As a general matter, FINRA administers qualification examinations 
that are designed to establish that persons associated with ETP 
Holders, OTP Holders or OTP Firm 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.\15\ Rule changes related to the adoption of the 
SIE and other proposed new rules are discussed below.
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    \15\ 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 Rule 2.1210--Registration Requirements \16\
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    \16\ The proposed rule is substantially similar to FINRA Rule 
1210.
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    Proposed Rule 2.1210 provides that each person engaged in the 
investment banking or securities business of an ETP Holder, OTP Holder 
or OTP Firm 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 Rule 2.1220, 
unless exempt from registration pursuant to proposed Rule 2.1230. 
Proposed Rule 2.1210 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 Rule 2.1210, Commentary .01--Permissive Registrations \17\
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    \17\ The proposed rule is substantially similar to FINRA Rule 
1210.02.
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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 rules, the Exchange proposes to adopt a 
specific rule regarding permissive registrations. Proposed Rule 2.1210, 
Commentary .01, allows any associated person to obtain and maintain any 
registration permitted by an ETP Holder, OTP Holder or OTP Firm. For 
instance, an associated person of an ETP Holder, OTP Holder or OTP Firm 
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 ETP Holder, OTP Holder 
or OTP Firm. As another example, an associated person of an ETP Holder, 
OTP Holder or OTP Firm who is registered, [sic] and functioning solely, 
as a General Securities Representative would be able to obtain and 
maintain a General Securities Principal registration with the ETP 
Holder, OTP Holder or OTP Firm. Further, proposed Rule 2.1210, 
Commentary .01, allows an individual engaged in the securities business 
of a foreign securities affiliate or subsidiary of an ETP Holder, OTP 
Holder or OTP Firm to obtain and maintain any registration permitted by 
the ETP Holder, OTP Holder or OTP Firm.
    The Exchange is proposing to permit the registration of such 
individuals for several reasons. First, an ETP Holder, OTP Holder or 
OTP Firm may foresee a need to move a former 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 ETP Holders, OTP Holder or 
OTP Firm 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 and subject 
to all Exchange rules, to the extent relevant to their activities. 
Additionally, consistent with the requirements of the Exchange's 
supervision rules, as proposed, ETP Holders, OTP Holder or OTP Firm 
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, an ETP Holder, OTP Holder or OTP Firm 
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.\18\
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    \18\ 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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3. Proposed Rule 2.1210, Commentary .02--Qualification Examinations and 
Waivers of Examinations \19\
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    \19\ The proposed rule is substantially similar to FINRA Rule 
1210.03.
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    Proposed Rule 2.1210, Commentary .02, provides that before the 
registration of a person as a representative can become effective under 
proposed Rule 2.1210, such person must pass the SIE and an appropriate 
representative-level qualification examination as specified in proposed 
Rule 2.1220.\20\ Proposed Rule 2.1210, Commentary .02, also provides 
that before the registration of a person as a principal can become 
effective under proposed Rule 2.1210, such person must pass an 
appropriate principal-level qualification

[[Page 52276]]

examination as specified in proposed Rule 2.1220.
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    \20\ Proposed Rule 2.1220 sets forth each registration category 
and applicable qualification examination for ETP Holders, OTP Holder 
or OTP Firm on the Exchange.
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    Further, proposed Rule 2.1210, Commentary .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 Rule 2.1210, Commentary .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 Rule 2.1210, Commentary .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 Rule 2.1210, Commentary .02, also provides that the 
Exchange may, in exceptional cases and where good cause is shown, 
pursuant to Rule 2.5(c), waive the applicable qualification 
examination(s) and accept other standards as evidence of an applicant's 
qualifications for registration. The proposed rule further provides 
that the Exchange will only consider examination waiver requests 
submitted by an ETP Holder, OTP Holder or OTP Firm for individuals 
associated with the ETP Holder, OTP Holder or OTP Firm 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 Rule 2.1210, Commentary .03--Requirements for Registered 
Persons Functioning as Principals for a Limited Period \21\
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    \21\ The proposed rule is substantially similar to FINRA Rule 
1210.04.
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    Proposed Rule 2.1210, Commentary .03, provides that an ETP Holder, 
OTP Holder or OTP Firm may designate any person currently registered, 
or who becomes registered, with the ETP Holder, OTP Holder or OTP Firm 
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 [sic] 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.\22\
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    \22\ 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, 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 an ETP Holder, OTP 
Holder or OTP Firm to function in other principal categories for a 
limited period. Specifically, the proposed rule states that an ETP 
Holder, OTP Holder or OTP Firm may designate any person currently 
registered, or who becomes registered, with the ETP Holder as a 
principal to function in another principal category for 120 calendar 
days before passing any applicable examinations.
5. Proposed Rule 2.1210, Commentary .04--Rules of Conduct for Taking 
Examinations and Confidentiality of Examinations \23\
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    \23\ The proposed rule is substantially similar to FINRA Rule 
1210.05.
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    Proposed Rule 2.1210, Commentary .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 Rule 2.1210, Commentary 
.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 Rule 11.1. 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 [sic] 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 Rule 11.1.

[[Page 52277]]

6. Proposed Rule 2.1210, Commentary .05--Waiting Periods for Retaking a 
Failed Examination \24\
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    \24\ The proposed rule is substantially similar to FINRA Rule 
1210.06.
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    Proposed Rule 2.1210, Commentary .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 [sic]. 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 Rule 2.1210, Commentary .06--All Registered Persons Must 
Satisfy the Regulatory Element of Continuing Education \25\
---------------------------------------------------------------------------

    \25\ The proposed rule is substantially similar to FINRA Rule 
1210.07.
---------------------------------------------------------------------------

    Pursuant to Rules 2.23(d) and 2.24(d), the CE requirements 
applicable to registered persons consist of a Regulatory Element \26\ 
and a Firm Element.\27\ The Regulatory Element applies to registered 
persons and must be completed within prescribed time frames.\28\ The 
Firm Element consists of annual, ETP Holder-, OTP Holder- or OTP Firm-
developed and administered training programs designed to keep covered 
registered persons current regarding securities products, services and 
strategies offered by the ETP Holder, OTP Holder or OTP Firm. For 
purposes of the Firm Element, the term covered registered persons means 
any registered Securities Trader and any registered person who has 
direct contact with customers in the conduct of the ETP Holder's, OTP 
Holder's or OTP Firm's securities sales, trading and investment banking 
activities and to the immediate supervisors of such persons.
---------------------------------------------------------------------------

    \26\ See Rules 2.23(d)(1) and 2.24(d)(1).
    \27\ See Rules 2.23(d)(2) and 2.24(d)(1).
    \28\ Pursuant to Rules 2.23(d)(1) and 2.24(d)(1), 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.
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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 Rule 
2.1210, Commentary .06, to clarify that all registered persons, 
including those who solely maintain a permissive registration, are 
required to satisfy the Regulatory Element, as specified in Rules 
2.23(d)(1) and 2.24(d)(1). The Exchange is making corresponding changes 
to Rules 2.23(d)(1) and 2.24(d)(1). The Exchange is not proposing any 
changes to the Firm Element requirement at this time. 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.
    Proposed Rule 2.1210, Commentary .06, also provides that a 
registered person of an ETP Holder, OTP Holder or OTP Firm who becomes 
CE inactive would not be permitted to be registered in another 
registration category with the ETP Holder, OTP Holder or OTP Firm or be 
registered in any registration category with another ETP Holder, OTP 
Holder or OTP Firm, until the person has satisfied the Regulatory 
Element.
8. Proposed Rule 2.1210, Commentary .07--Lapse of Registration and 
Expiration of the SIE \29\
---------------------------------------------------------------------------

    \29\ The proposed rule is substantially similar to FINRA Rule 
1210.08.
---------------------------------------------------------------------------

    Proposed Rule 2.1210, Commentary .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 Rule 2.1220(b). Proposed Rule 
2.1210, Commentary .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 an ETP Holder, OTP Holder or OTP Firm 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 ETP Holder, OTP Holder or OTP Firm, or a subsequent ETP Holder, 
OTP Holder or OTP Firm, 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 an ETP Holder, OTP Holder or OTP Firm 
and pass a representative-level examination and register as a 
representative without having to retake the SIE.
    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 an ETP Holder, 
OTP Holder or OTP Firm 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, proposed Rule 2.1210, Commentary .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 Rule 2.1210, Commentary .08--Waiver of Examinations for 
Individuals Working for a Financial Services Industry Affiliate of an 
ETP Holder, OTP Holder or OTP Firm \30\
---------------------------------------------------------------------------

    \30\ The proposed rule is substantially similar to FINRA Rule 
1210.09.
---------------------------------------------------------------------------

    Proposed Rule 2.1210, Commentary .08, provides the process for 
individuals working for a financial services industry affiliate of an 
ETP Holder, OTP Holder or OTP Firm \31\ to terminate their 
registrations with the ETP Holder, OTP Holder or OTP Firm and be 
granted a waiver of their requalification requirements upon re-
registering with an ETP Holder, OTP Holder or OTP Firm, provided the 
firm that is requesting the waiver and the

[[Page 52278]]

individual satisfy the criteria for a Financial Services Affiliate 
(``FSA'') waiver.
---------------------------------------------------------------------------

    \31\ Proposed Rule 2.1210, Commentary .07 [sic], defines a 
``financial services industry affiliate of an ETP Holder, OTP Holder 
or OTP Firm'' as a legal entity that controls, is controlled by or 
is under common control with an ETP Holder, OTP Holder or OTP Firm 
and is regulated by the SEC, CFTC, state securities authorities, 
federal or state banking authorities, state insurance authorities, 
or substantially equivalent foreign regulatory authorities.
---------------------------------------------------------------------------

    Under the proposed waiver process, the first time a registered 
person is designated as eligible for a waiver based on the FSA 
criteria, the ETP Holder, OTP Holder or OTP Firm with which the 
individual is registered would notify the Exchange of the FSA 
designation. The ETP Holder, OTP Holder or OTP Firm 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 an ETP Holder, OTP Holder or OTP Firm, 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 ETP Holder, OTP Holder or OTP Firm. 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,\32\ provided that the other conditions of the waiver, as 
described below, have been satisfied. Consequently, an ETP Holder, OTP 
Holder or OTP Firm other than the ETP Holder, OTP Holder or OTP Firm 
that initially designated an individual as an FSA-eligible person may 
request a waiver for the individual and more than one ETP Holder, OTP 
Holder or OTP Firm may request a waiver for the individual during the 
seven-year period.\33\
---------------------------------------------------------------------------

    \32\ 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.
    \33\ 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.
---------------------------------------------------------------------------

    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 an ETP Holder, OTP Holder or OTP Firm. 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 Rule 2.23(d) and 2.24(d).
    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,\34\ 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 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:
---------------------------------------------------------------------------

    \34\ 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 ETP Holder, OTP Holder or OTP Firm 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 an ETP 
Holder, OTP Holder or OTP Firm;
    (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 an ETP Holder, OTP Holder or OTP Firm 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 an ETP Holder, 
OTP Holder or OTP Firm.
    Following the Form U5 filing, an individual could move between the 
financial services affiliates of an ETP Holder, OTP Holder or OTP Firm 
so long as the individual is continuously working for an affiliate. 
Further, an ETP Holder could submit multiple waiver requests for the 
individual, provided that the waiver requests are made during the 
course of the seven-year period.\35\ An individual who has been 
designated as an FSA-eligible person by an ETP Holder, OTP Holder or 
OTP Firm would not be able to take additional examinations to gain 
additional registrations while working for a financial services 
affiliate of an ETP Holder.
---------------------------------------------------------------------------

    \35\ For example, if an ETP Holder, OTP Holder or OTP Firm 
submits a waiver request for an FSA-eligible person who has been 
working for a financial services affiliate of the ETP Holder, OTP 
Holder or OTP Firm for three years and re-registers the individual, 
the ETP Holder, OTP Holder or OTP Firm 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 ETP Holder, OTP Holder or OTP Firm for another 
three years, the ETP Holder, OTP Holder or OTP Firm could submit a 
second waiver request and re-register the individual upon returning 
to the ETP Holder, OTP Holder or OTP Firm.
---------------------------------------------------------------------------

10. Proposed Rule 2.1210, Commentary .09--Status of Persons Serving in 
the Armed Forces of the United States \36\
---------------------------------------------------------------------------

    \36\ The proposed rule is substantially similar to FINRA Rule 
1210.10.
---------------------------------------------------------------------------

    Proposed Rule 2.1210, Commentary .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 an 
ETP Holder, OTP Holder or OTP Firm 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

[[Page 52279]]

the Armed Forces of the United States. The proposed rule further 
requires that the ETP Holder, OTP Holder or OTP Firm with which such 
person is registered promptly notify the Exchange of such person's 
return to employment with the ETP Holder, OTP Holder or OTP Firm. The 
proposed rule would require an ETP Holder, OTP Holder or OTP Firm 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.
E. Proposed New Rule 2.1220--Registration Categories \37\
---------------------------------------------------------------------------

    \37\ The Exchange is not adopting the following categories from 
the FINRA Filing because ETP Holders, OTP Holders or OTP Firms do 
not engage in the type of business that would require registration 
with the Exchange: Investment Banking Principal, Research 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. 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.
---------------------------------------------------------------------------

1. Proposed Rule 2.1220(a)(1)--Principal
    As set forth in proposed Rule 2.1220(a)(1), for purposes of these 
registration rules, the term ``Principal'' to mean any Person 
Associated with an ETP Holder, OTP Holder or OTP Firm actively engaged 
in the management of the ETP Holder's, OTP Holder's or OTP Firm's 
securities business, including supervision, solicitation, conduct of 
the ETP Holder's, OTP Holder's or OTP Firm's business, or the training 
of Authorized Traders and Persons Associated with an ETP Holder, OTP 
Holder or OTP Firm for any of these functions. Such Persons include 
Sole Proprietors, Officers, Partners, and Directors of Corporations.
    For purposes of proposed Rule 2.1220(a)(1), the phrase ``actively 
engaged in the management of the ETP Holder's, OTP Holder's or OTP 
Firm's securities business'' includes 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 ETP Holder's, OTP Holder's or OTP Firm's securities business and 
management-level responsibilities for supervising any aspect of such 
business, such as serving as a voting member of the ETP Holder's, OTP 
Holder's or OTP Firm's executive, management or operations committee.
2. Proposed Rule 2.1220(a)(2)--General Securities Principal \38\
---------------------------------------------------------------------------

    \38\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(2).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(a)(2)(A) states that each principal as defined 
in proposed Rule 2.1220(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, a Securities Trader Principal, or a Registered Options 
Principal then the principal must appropriately register in one or more 
of these categories.
    Proposed Rule 2.1220(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 2.1220(a)(2)(B) requires that an individual 
registering as a General Securities Principal satisfy the General 
Securities Representative prerequisite registration and pass the 
General Securities Principal qualification examination. Proposed Rule 
2.1220(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.
    As a general matter, the Exchange currently recognizes the 
Corporate Securities Representative but would no longer recognize this 
registration category given its elimination by FINRA. Proposed Rule 
2.1220(a)(2)(B), however, provides that, subject to the lapse of 
registration provisions in proposed Rule 2.1210, Commentary .07, each 
person registered with the Exchange as a Corporate Securities 
Representative and 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 
an ETP Holder, OTP Holder or OTP Firm are limited to corporate 
securities activities of the ETP Holder, OTP Holder or OTP Firm. 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.
3. Proposed Rule 2.1220(a)(3)--Compliance Officer \39\
---------------------------------------------------------------------------

    \39\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(3).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(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 ETP Holders, OTP Holders or OTP Firms engaged in limited 
investment banking or securities business. The proposed rule only 
addresses the registration requirements for CCOs. However, consistent 
with proposed Rule 2.1210, Commentary .01 relating to permissive 
registrations, a firm may allow other associated persons to register as 
Compliance Officers. Chief Compliance Officers at OTP Holders or OTP 
Firms, who are currently not subject to a registration requirement, 
would be excluded from the requirements of the proposed rule.
    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 2.1220(a)(3) set forth the following 
qualification requirements for Compliance Officer registration:
     Subject to the lapse of registration provisions in 
proposed Rule 2.1210, Commentary .07, 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

[[Page 52280]]

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 Rule 2.1210, Commentary .07, 
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; 
[sic]
     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 an ETP Holder, OTP Holder or OTP Firm that is engaged in limited 
investment banking or securities business may be registered in a 
principal category under proposed Rule 2.1220(a) that corresponds to 
the limited scope of the ETP Holder's, OTP Holder's or OTP Firm's 
business.
4. Proposed Rule 2.1220(a)(4)--Financial and Operation Principal and 
Introducing Broker-Dealer Financial and Operations Principal \40\
---------------------------------------------------------------------------

    \40\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(4).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(a)(4) provides that each principal who is 
responsible for the financial and operational management of an ETP 
Holder, OTP Holder or OTP Firm 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 an ETP Holder, OTP Holder or OTP Firm that has a minimum 
net capital requirement of $150,000 under SEA Rule 15c3-1(a)(8) must be 
designated as a Financial and Operations Principal. In addition, 
proposed Rule 2.1220(a)(4) provides that a principal who is responsible 
for the financial and operational management of an ETP Holder, OTP 
Holder or OTP Firm that is subject to the net capital requirements of 
SEA Rule 15c3-1, other than an ETP Holder, OTP Holder or OTP Firm 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. 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.
    Additionally, proposed Rule 2.1220(a)(4)(B) requires an ETP Holder, 
OTP Holder or OTP Firm 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 ETP Holders, 
OTP Holders or OTP Firms that neither self-clear nor provide clearing 
services are more limited, such ETP Holders, OTP Holders or OTP Firms 
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 ETP Holders, OTP Holders or OTP Firms 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 ETP Holders, OTP Holders or OTP Firms 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 ETP Holder, OTP Holder or OTP Firm 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.
5. Proposed Rule 2.1220(a)(5)--Securities Trader Principal \41\
---------------------------------------------------------------------------

    \41\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(7).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(a)(5) requires that a principal responsible 
for supervising the securities trading activities specified in proposed 
Rule 2.1220(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.
6. Proposed Rule 2.1220(a)(6)--General Securities Sales Supervisor \42\
---------------------------------------------------------------------------

    \42\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(10).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(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 an ETP Holder, OTP Holder or OTP Firm are 
limited to the securities sales activities of the ETP Holder, OTP 
Holder or OTP Firm, 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 ETP Holder, OTP 
Holder or OTP Firm required to be maintained in branch offices by 
Exchange Act record-keeping rules.
    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.\43\ 
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.
---------------------------------------------------------------------------

    \43\ An individual may also register as a General Securities 
Sales Supervisor by passing a combination of other principal-level 
examinations.
---------------------------------------------------------------------------

7. Proposed Rule 2.1220(a)(7)--Registered Options Principal \44\
---------------------------------------------------------------------------

    \44\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(8).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(a)(7) provides that each OTP Holder or OTP 
Firm engaged in options transactions with the public have at least one 
Registered Options Principal. The proposed rule further requires that a 
principal responsible for supervising an OTP

[[Page 52281]]

Holder or OTP Firm's options sales practices with the public, including 
a person designated pursuant to Rule 11.18(b)(2) register with the 
Exchange as a Registered Options Principal, unless such principal's 
options activities are limited solely to those activities that may be 
supervised by a General Securities Sales Supervisor, in which case, 
such person may register as a General Securities Sales Supervisor in 
lieu of registering as a Registered Options Principal.
    Proposed Rule 2.1220(a)(7)(B) further provides that, subject to the 
lapse of registration provisions in proposed Rule 2.1210, Commentary 
.07, each person registered with the Exchange as a Registered Options 
Principal on October 1, 2018 and each person who was registered with 
the Exchange as a Registered Options Principal within two years prior 
to October 1, 2018 would be qualified to register as a Registered 
Options Principal without having to pass any additional qualification 
examinations. The proposed rule further provides that all other 
individuals registering as Registered Options Principals after October 
1, 2018 shall, prior to or concurrent with such registration, become 
registered as a General Securities Representative and pass the 
Registered Options Principal qualification examination.
8. Proposed Rule 2.1220(b)(1)--Representative \45\
---------------------------------------------------------------------------

    \45\ The proposed rule is substantially similar to FINRA Rule 
1220(b)(1).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(b)(1) defines a representative as any person 
associated with an ETP Holder, OTP Holder or OTP Firm, including 
assistant officers other than principals, who is engaged in the ETP 
Holder's, OTP Holder's or OTP Firm's investment banking or securities 
business, such as supervision, solicitation, conduct of business in 
securities or the training of persons associated with an ETP Holder, 
OTP Holder or OTP Firm for any of these functions.
9. Proposed Rule 2.1220(b)(2)--General Securities Representative \46\
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    \46\ The proposed rule is substantially similar to FINRA Rule 
1220(b)(2).
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    Proposed Rule 2.1220(b)(2)(A) states that each representative as 
defined in proposed Rule 2.1220(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 Rule 2.1210, Commentary .07, 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.
10. Proposed Rule 2.1220(b)(3)--Securities Trader \47\
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    \47\ The proposed rule is substantially similar to FINRA Rule 
1220(b)(4).
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    Proposed Rule 2.1220(b)(3) provides that each representative as 
defined in proposed Rule 2.1220(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 an ETP Holder, OTP Holder or OTP Firm 
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 an ETP Holder, OTP Holder or OTP Firm. The Exchange 
proposes to adopt FINRA's definition of Securities Trader in proposed 
Rule 2.1220(b)(3) in order to align the text of the rule to that 
adopted by FINRA and other exchanges.\48\
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    \48\ See e.g., MIAX International Stock Exchange, LLC Rule 
203(d).
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    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 Rule 2.1210, Commentary .07, each 
person registered with the Exchange as a 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.
11. Proposed Rule 2.1220, Commentary .01--Foreign Registrations \49\
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    \49\ The proposed rule is substantially similar to FINRA Rule 
1220.01 and 1220.06.
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    Proposed Rule 2.1220, Commentary .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 Rule 2.1220, Commentary .01, 
provides that, subject to the lapse of registration provisions in Rule 
2.1210, Commentary .07, 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.
12. Proposed Rule 2.1220, Commentary .02--Additional Qualification 
Requirements for Persons Engaged in Security Futures \50\
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    \50\ The proposed rule is substantially similar to FINRA Rule 
1220.02.
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    Proposed Rule 2.1220, Commentary .02, states that each person who 
is

[[Page 52282]]

registered with the Exchange as a General Securities Representative, 
United Kingdom Securities Representative, Canada Securities 
Representative, Options Representative, Registered Options Principal 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 Rule 2.23(d)(2) for ETP Holders and in Rule 
2.24(d)(2) for OTP Holders or OTP Firms that addresses security futures 
products before such person engages in security futures activities.
13. Proposed Rule 2.1220, Commentary .03--Scope of General Securities 
Sales Supervisor Registration Category \51\
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    \51\ The proposed rule is substantially similar to FINRA Rule 
1220.04.
---------------------------------------------------------------------------

    Proposed Rule 2.1220, Commentary .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 Rule 
2.1220, Commentary .02) 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.
14. Proposed Rule 2.1220, Commentary .04--OTP Holders and OTP Firms 
With One Registered Options Principal \52\
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    \52\ The proposed rule is substantially similar to FINRA Rule 
1220.03.
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    Proposed Rule 2.1220, Commentary .03, requires that an OTP Holder 
or OTP Firm that have one Registered Options Principal promptly notify 
the Exchange and agree to specified conditions if such person is 
terminated, resigns, becomes incapacitated or is otherwise unable to 
perform his or her duties.
F. Proposed New Rule 2.1230--Associated Persons Exempt From 
Registration \53\
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    \53\ The proposed rule is substantially similar to FINRA Rule 
1230.
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    Proposed Rule 2.1230 provides an exemption from registration with 
the Exchange for certain associated persons. Specifically, the proposed 
rule provides that persons associated with an ETP Holder, OTP Holder or 
OTP Firm whose functions are solely and exclusively clerical or 
ministerial would be exempt from registration.\54\
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    \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. ETP 
Holders, OTP Holder or OTP Firms do not solely and exclusively 
engage in any of the foregoing transactions and therefore the 
Exchange is not adopting that portion of FINRA Rule 1230.
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1. Proposed Rule 2.1230, Commentary .01--Registration Requirements for 
Associated Persons Who Accept Customer Orders \55\
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    \55\ The proposed rule is substantially similar to FINRA Rule 
1230.01.
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    Proposed Rule 2.1230, Commentary .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.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\56\ in general, and 
furthers the objectives of Section 6(b)(5),\57\ 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.
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    \56\ 15 U.S.C. 78f(b).
    \57\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change will 
streamline, and bring consistency and uniformity to, the registration 
rules, which will, in turn, assist ETP Holders, OTP Holders or OTP 
Firms 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 ETP Holders, OTP Holders or OTP Firms 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 an ETP Holder, OTP Holder or 
OTP Firm, 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

[[Page 52283]]

necessary or appropriate in furtherance of the purposes of the Act. The 
proposed amendments are intended to promote transparency in the 
Exchange's rules, and consistency with the rules of other SROs with 
respect to the examination, qualification, and continuing education 
requirements applicable to ETP Holders, OTP Holders or OTP Firms 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

    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) of the Act \58\ and Rule 19b-
4(f)(6) thereunder.
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    \58\ 15 U.S.C. 78s(b)(3)(A).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days from the date of filing. However, Rule 
19b-4(f)(6)(iii) \59\ permits the Commission to 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 on 
October 1, 2018 to coincide with the effective date of FINRA's proposed 
rule change on which the proposal is based.\60\ The waiver of the 
operative delay would make the Exchange's qualification requirements 
consistent with those of FINRA, as of October 1, 2018. Therefore, the 
Commission believes that the waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest and 
hereby waives the 30-day operative delay and designates the proposal 
operative on October 1, 2018.\61\
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    \59\ 17 CFR 240.19b-4(f)(6)(iii).
    \60\ See supra note 5.
    \61\ 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.

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-NYSEARCA-2018-71 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-NYSEARCA-2018-71. 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-NYSEARCA-2018-71 and should be submitted 
on or before November 6, 2018.
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    \62\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\62\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22430 Filed 10-15-18; 8:45 am]
 BILLING CODE 8011-01-P