
[Federal Register Volume 75, Number 140 (Thursday, July 22, 2010)]
[Notices]
[Pages 42804-42809]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-17930]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62509; File No. SR-Phlx-2010-91]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by NASDAQ OMX PHLX, Inc., as Modified by Amendment No. 1 
Thereto, Relating to Registration and Qualification Requirements for 
PSX

July 15, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on June 29, 2010, NASDAQ OMX PHLX, Inc. (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II, 
and III, below, which Items have been prepared by the Exchange. On July 
13, 2010, Phlx filed Amendment No. 1 to the proposed rule change. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, 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, pursuant to Section 19(b)(1) of the Act \3\ and Rule 
19b-4 thereunder,\4\ proposes to amend Rule 604 to adopt several new 
provisions governing the registration and qualification of members and 
persons associated with member organizations that are registered with 
the Exchange for the purpose of trading NMS Stocks \5\ through the 
facilities of the Exchange. Specifically, the Exchange proposes to 
adopt Rule 604(h) to govern the registration of representatives and 
Supplementary Material .04 to Rule 604 regarding the category of such 
registration. In addition, with respect to principal registration, the 
Exchange proposes to adopt Rule 604(g), Principal Registration, and 
Supplementary Material .01--.03 governing the specific categories of 
principal registration, to require that every member organization 
covered by these rules has at least two registered Principals as well 
as a Financial/Operations Principal. The Exchange also proposes to 
adopt Rule 604(i) to establish which persons are exempt from 
registration.
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
    \5\ See Rule 1(t).

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[[Page 42805]]

    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings, 
on the Commission's Web site at http://www.sec.gov, 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 purpose of the proposed rule change is to adopt new 
registration provisions applicable to member organizations that are 
registered with the Exchange for the purpose of trading NMS Stocks 
through the facilities of the Exchange. Thus, these new provisions 
would cover members that trade on the Exchange's proposed new equity 
trading platform for NMS Stocks, NASDAQ OMX PSX (``PSX'').\6\ The 
proposed rules are substantially similar to the rules of The NASDAQ 
Stock Market, FINRA and NASDAQ OMX BX. As a result of the change, PSX 
users will be required to register representatives and principals with 
the Exchange in accordance with such rules. All such registered persons 
will be required to pass an appropriate qualification examination, as 
outlined below, all of which will be recorded in WebCRD. In sum, these 
new rules are intended to strengthen the Exchange's requirements to 
help ensure an effective supervisory structure for those conducting 
business on PSX.\7\
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    \6\ See SR-Phlx-2010-79. PSX will not be used for trading any 
securities other than NMS Stocks. Existing rules would continue to 
govern registration of associated persons of member organizations 
that trade options but not cash equities through Phlx. Phlx will, at 
a later date, amend these rules to reflect consistent registration 
standards being developed by Phlx and other self-regulatory 
organizations in consultation with the Commission.
    \7\ Currently, Rule 748, Supervision, establishes the 
supervisory requirement for member organizations, including that all 
locations and activities of a member organization be supervised by a 
qualified supervisor. Accordingly, the new principal registration 
requirement in proposed Rule 604(g) supplements this rule.
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Representative Registration

    New Rule 604(h) will govern the registration of representatives \8\ 
with the Exchange. Specifically, new Rule 604(h)(1) will require that 
all persons engaged or to be engaged in the investment banking or 
securities business \9\ of a member organization who are to function as 
representatives shall be registered as such with the Exchange through 
WebCRD in the category of registration appropriate to the function to 
be performed as specified in Supplementary Material .04. Before their 
registration can become effective, they shall pass the Series 7 
examination.
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    \8\ The term ``representative'' will now be defined in Rule 1 as 
a member or an associated person of a registered broker or dealer, 
including assistant officers other than principals, who is engaged 
in the investment banking or securities business for the member 
organization including the functions of supervision, solicitation or 
conduct of business in securities or who is engaged in the training 
of persons associated with a broker or dealer for any of these 
functions. To the extent provided in Rule 604, all representatives 
are required to be registered with the Exchange, and representatives 
that are so registered are referred to herein as ``Registered 
Representatives.'' See proposed Rule 1(uu).
    \9\ The term ``investment banking or securities business'' means 
the business, carried on by a broker or dealer, of underwriting or 
distributing issues of securities, or of purchasing securities and 
offering the same for sale as a dealer, or of purchasing and selling 
securities upon the order and for the account of others. See 
proposed Rule 1(ww). Of course, the federal securities laws may 
require broker-dealers to become members of the Financial Industry 
Regulatory Authority (``FINRA'') in order to perform some of these 
functions. See e.g., 15 U.S.C. 78o(b)(8).
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    The rule also provides that a member organization shall not 
maintain a representative registration with the Exchange for any person 
(1) who is no longer active in the member organization's investment 
banking or securities business, (2) who is no longer functioning as a 
representative, or (3) where the sole purpose is to avoid the 
examination requirement. A member organization shall not make 
application for the registration of any person as representative where 
there is no intent to employ such person in the member organization's 
investment banking or securities business. A member may, however, 
maintain or make application for the registration as a representative 
of a person who performs legal, compliance, internal audit, back-office 
operations, or similar responsibilities for the member organization, or 
a person who performs administrative support functions for registered 
personnel, or a person engaged in the investment banking or securities 
business of a foreign securities affiliate or subsidiary of the member 
organization. This provision is intended to ensure that firms register 
only those persons to whom the requirement is pertinent.
    Pursuant to new paragraph (h)(2) of Rule 604, any person whose 
registration has been revoked by the Exchange as a disciplinary 
sanction or whose most recent registration as a Representative or 
Principal has been terminated for a period of two or more years 
immediately preceding the date of receipt by the Exchange of a new 
application shall be required to pass the Series 7 examination. This 
provision is intended to ensure that, in these situations, persons are 
subject to retesting to assure proper qualification.
    Furthermore, new Rule 604(h)(3), Qualification Requirements, states 
that no member organization shall permit any member or person 
associated with it \10\ to engage in the investment banking or 
securities business unless the member organization determines that such 
person satisfies the qualification requirements established by the 
Board and is not subject to statutory disqualification as defined in 
Section 3(a)(39) of the Act. Thus, firms are responsible for compliance 
with this registration requirement for their relevant employees.
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    \10\ The term ``associated person'' or ``person associated 
with'' a member organization means any partner, officer, director, 
or branch manager of an Exchange member organization or applicant 
(or person occupying a similar status or performing similar 
functions), any person directly or indirectly controlling, 
controlled by, or under common control with such member organization 
or applicant, or any employee of such member or applicant, except 
that any person associated with a member organization or applicant 
whose functions are solely clerical or ministerial shall not be 
included in the meaning of such term for purposes of the Exchange 
Rules. See proposed Rule 1(vv).
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    New Supplementary Material .04 to Rule 604 contains the basic 
requirement \11\ that each member and each person associated with a 
member organization who is included within the definition of a 
representative in Rule 1(uu) shall be required to register with the 
Exchange as a General Securities Representative and shall pass the 
Series 7 examination before such registration may become effective.\12\ 
The appropriate registration category on WebCRD is ``GS.''
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    \11\ This provision is the same as NASDAQ OMX BX Rule 1032.
    \12\ The Exchange is not currently adopting any limited 
registration provisions, but may determine to do so in the future.
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    This provision is intended to capture traditional securities 
personnel in a rule similar to that of several other SROs.\13\

[[Page 42806]]

The Exchange believes that the requirement is broad and should not 
generate gaps that permit a member organization to operate differently 
than under the registration rules of NASDAQ OMX BX, The NASDAQ Stock 
Market or FINRA.
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    \13\ See e.g., NASDQ [sic] OMX BX Rules 1031 and 1032, NASDAQ 
Rules 1031 and 1032, and NASD Rules 1031 and 1032.
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Principal Registration

    In summary, new Rule 604(g) \14\ will provide that every member 
organization must register two Principals with the Exchange,\15\ unless 
an exception applies. As a result, each Principal must successfully 
complete the General Securities Principal Examination (``Series 24'') 
and submit a Form U4 via WebCRD reflecting registration as such, using 
the category ``GP,'' unless a different category of Principal 
registration applies to such person.
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    \14\ This new rule is similar to NASDAQ Rule 1021, NASDAQ OMX BX 
Rule 1021 and NASD Rule 1021.
    \15\ All persons who engage in specified supervisory functions 
will be registered as Principals.
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    Specifically, Rule 604(g)(1) provides that all persons engaged or 
to be engaged in the investment banking or securities business of a 
member organization who are to function as Principals shall be 
registered as such with the Exchange through WebCRD in the category of 
registration appropriate to the function to be performed as specified 
in new Supplementary Material .01-.03 of Rule 604. Before their 
registration can become effective, they shall pass a Qualification 
Examination for Principals appropriate to the category of registration 
as specified by the Board, which is further explained below, in 
proposed Supplementary Material .01-.03 to Rule 604.
    Rule 604(g)(1) further provides that a member organization shall 
not maintain a Principal registration with the Exchange for any person 
(1) who is no longer active in the member organization's investment 
banking or securities business, (2) who is no longer functioning as a 
Principal, or (3) where the sole purpose is to avoid the examination 
requirement of this rule. A member organization shall not make 
application for the registration of any person as Principal where there 
is no intent to employ such person in the member organization's 
investment banking or securities business. A member organization may, 
however, maintain or make application for the registration as a 
Principal of a person who performs legal, compliance, internal audit, 
back-office operations, or similar responsibilities for the member 
organization or a person engaged in the investment banking or 
securities business of a foreign securities affiliate or subsidiary of 
the member organization. Similar to a provision in proposed Rule 
604(h)(1) above applicable to registered representatives, this 
provision is intended to ensure that firms register only those persons 
to whom the requirement is pertinent.
    New Rule 604(g)(2) states that persons associated with a member 
organization who are actively engaged in the management of the member 
organization's investment banking or securities business, including 
supervision, solicitation, conduct of business or the training of 
persons associated with a member organization for any of these 
functions are designated as Principals. Such persons shall include: 
Sole proprietors, officers, partners, managers of offices of 
supervisory jurisdiction,\16\ and directors of corporations.
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    \16\ The Exchange is defining this term to mean any office of a 
member organization at which any one or more of the following 
functions take [sic] place: Order execution and/or market making; 
structuring of public offerings or private placements; maintaining 
custody of customers' funds and/or securities; final acceptance 
(approval) of new accounts on behalf of the member organization; 
review and endorsement of customer orders; final approval of 
advertising or sales literature for use by persons associated with 
the member organization, pursuant to Rule 605, except for an office 
that solely conducts final approval of research reports; or 
responsibility for supervising the activities of persons associated 
with the member organization at one or more other branch offices of 
the member organization. This definition is drawn from NASD Rule 
3010. The Exchange is adopting the reference to this term in order 
to cover these managers in the new principal registration 
requirement. The Exchange is not, at this time, adopting a 
comprehensive program with regard to such offices, such as that 
found in NASD Rule 3010.
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    New Rule 604(g)(3), Requirements for Examination on Lapse of 
Registration, states that any person whose registration has been 
revoked by the Exchange as a disciplinary sanction or whose most recent 
registration as a Principal has been terminated for a period of two or 
more years immediately preceding the date of receipt by the Exchange of 
a new application shall be required to pass a Qualification Examination 
for Principals appropriate to such person's category of registration. 
This is similar to the provision applicable to registered 
representatives and is intended to ensure that persons' qualifications 
are properly tested.
    Pursuant to new Rule 604(g)(4), Application for Principal Status, 
any person associated with a member organization as a Registered 
Representative whose duties are changed by the member organization so 
as to require registration in any Principal classification shall be 
allowed a period of 90 calendar days following the change in his or her 
duties during which to pass the appropriate Qualification Examination 
for Principals. Upon elevation, the member organization shall submit to 
the Exchange an amended ``Uniform Application for Securities Industry 
Registration or Transfer'' and any applicable fees. In no event may a 
person function as a Principal beyond the initial 90 calendar day 
period following the change in his or her duties without having 
successfully passed the appropriate Qualification Examination. This 
provision shall apply to a person: (i) Associated with a member 
organization of another registered national securities exchange or 
association who is required to register in a Principal classification 
under Exchange Rules but who is not required to be so registered under 
the rules of the other exchange or association; and (ii) associated 
with a member organization who was not required to register with the 
Exchange as a Principal prior to the adoption of this Rule 604(g) by 
the Exchange. This provision is intended to be a catch-all to cover 
persons who become subject to Principal registration rules for 
different reasons, whether a job change or a change in exchange rules.
    Further, any person not presently associated with a member 
organization as a Registered Representative seeking registration as a 
Principal shall submit the appropriate application for registration and 
any required registration and examination fees, pursuant to new Rule 
604(g)(4)(B). Such person shall be allowed a period of 90 days after 
all applicable prerequisites \17\ are fulfilled to pass the appropriate 
Qualification Examination for Principals. In no event may a person 
previously unregistered in any capacity applying for Principal status 
function as a Principal until fully qualified.
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    \17\ Principals are subject to prerequisite registration and 
qualification requirements pursuant to proposed Rule 604(h).
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    New Rule 604(g)(5) contains a requirement of at least two 
Registered Principals.\18\ Specifically, an Exchange member 
organization, except a sole proprietorship, shall have at least two 
officers or partners who are registered as Principals with respect to 
each aspect of the member organization's investment banking and 
securities business pursuant to the applicable provisions of Rule 
604(g); provided, however, that a proprietary trading firm with 25 or 
fewer registered representatives shall only be required to have one 
officer or

[[Page 42807]]

partner who is registered as a Principal. This exception to the two 
Principal requirement is similar to that of several other exchanges and 
reflects that such firms do not necessitate the same level of 
supervisory structure as firms who have customers or larger firms.
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    \18\ All persons who engage in specified supervisory functions 
must be registered as Principals.
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    The term ``proprietary trading firm'' means a member organization 
or applicant with the following characteristics: (A) The applicant is 
not required by Section 15(b)(8) of the Exchange Act to become a FINRA 
member but is a member of another registered securities exchange not 
registered solely under Section 6(g) of the Exchange Act; (B) all funds 
used or proposed to be used by the applicant for trading are the 
applicant's own capital, traded through the applicant's own accounts; 
(C) the applicant does not, and will not have customers; and (D) all 
Principals and Representatives of the applicant acting or to be acting 
in the capacity of a trader must be owners of, employees of, or 
contractors to the applicant.
    The rule also provides that the Exchange may waive the two 
Principal requirement in situations that indicate conclusively that 
only one person should be required to register as a Principal. This 
provision is identical to that of several other exchanges, and the 
Exchange believes that such waiver is appropriate in certain 
situations, but should be carefully applied; for example, the Exchange 
may determine to apply this provision to a very small firm, with only a 
few employees in one location.
    In addition, the Exchange proposes to adopt a requirement that 
certain member organizations register a Limited Principal--Financial 
and Operations, or FINOP, as described below. Specifically, pursuant to 
new Rule 604(g)(5)(C), an applicant for membership shall have at least 
one person qualified for registration as a FINOP, which is described in 
detail below.
    To help determine how specifically a person should register as a 
Principal, the Exchange is proposing to adopt Supplementary Material 
.01-.03 to Rule 604 to enumerate the three categories of Principal 
registration. First, Rule 604.01 provides that each member or person 
associated with a member organization to which Rule 604(g) applies and 
who is included within the definition of Principal in Rule 604(g), and 
each person designated as a Chief Compliance Officer on Schedule A of 
Form BD of a member organization to which Rule 604(g) applies shall be 
required to register with the Exchange as a General Securities 
Principal and shall pass the Series 24 examination before such 
registration may become effective unless such person's activities are 
so limited as to qualify such person for one or more of the limited 
categories of Principal registration specified hereafter.\19\ A person 
whose activities in the investment banking or securities business are 
so limited is not, however, precluded from attempting to become 
qualified for registration as a General Securities Principal, and if 
qualified, may become so registered. The Exchange believes that 
offering these categories of Principal registration, including limited 
Principal registration, should help ensure that Principals are properly 
qualified.
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    \19\ However, pursuant to proposed Rule 604.01(c), a person 
registered solely as a General Securities Principal shall not be 
qualified to function as a FINOP or a Limited Principal--General 
Securities Sales Supervisor unless that person is also qualified and 
registered as such.
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    Each person seeking to register and qualify as a General Securities 
Principal must, prior to or concurrent with such registration, become 
registered either as a General Securities Representative or as a 
Limited Representative--Corporate Securities. A person who has been 
designated as a Chief Compliance Officer on Schedule A of Form BD for 
at least two years immediately prior to January 1, 2002, and who has 
not been subject within the last ten years to any statutory 
disqualification as defined in Section 3(a)(39) of the Act; a 
suspension; or 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, shall be required to register as a General 
Securities Principal, but shall be exempt from the requirement to pass 
the Series 24 examination.\20\
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    \20\ In addition, except as provided in Rule 604(g)(3), a person 
who was registered with FINRA as a Principal, shall not be required 
to pass the Series 24 examination and shall be qualified as a 
General Securities Principal. See proposed Rule 604.01(b).
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    Secondly, in addition to the basic Principal requirement, the 
Exchange also proposes to adopt as new Rule 604.02 a requirement that 
each member organization of the Exchange that is subject to Rule 604(g) 
and that is operating pursuant to the provisions of SEC Rule 15c3-
1(a)(1)(ii), (a)(2)(i) or (a)(8), designate as Limited Principal--
Financial and Operations (``FINOP'') those persons associated with it, 
at least one of whom shall be its chief financial officer, who perform 
the following duties: Final approval and responsibility for the 
accuracy of financial reports submitted to any duly established 
securities industry regulatory body; final preparation of such reports; 
supervision of individuals who assist in the preparation of such 
reports; supervision of and responsibility for individuals who are 
involved in the actual maintenance of the member organization's books 
and records from which such reports are derived; supervision and/or 
performance of the member organization's responsibilities under all 
financial responsibility rules promulgated pursuant to the provisions 
of the Act; overall supervision of and responsibility for the 
individuals who are involved in the administration and maintenance of 
the member organization's back office operations; or any other matter 
involving the financial and operational management of the member 
organization. Each FINOP must register with the Exchange and pass the 
Series 27 examination. This provision is intended to ensure that 
persons handling the financial affairs of a firm are properly 
registered and qualified.
    Third, the Exchange also proposes to adopt a limited Principal 
requirement in new Rule 604.03, Limited Principal--General Securities 
Sales Supervisor, to provide that each person associated with a member 
organization who is included in the definition of Principal in Rule 
604(g) may register with the Exchange as a Limited Principal--General 
Securities Sales Supervisor, or ``SU,'' if: (A) His or her supervisory 
responsibilities in the investment banking and securities business are 
limited to the securities sales activities of a member organization, 
including the training of sales and sales supervisory personnel and the 
maintenance of records of original entry and/or ledger accounts of the 
member organization required to be maintained in branch offices by SEC 
recordkeeping rules; (B) he or she is registered pursuant to Exchange 
Rules as a General Securities Representative; and (C) he or she is 
qualified to be so registered by passing an appropriate examination, 
which is the Series 9 or 10. Nevertheless, Rule 604.03(b) provides that 
a person registered in this category solely on the basis of having 
passed the Series 9 or 10 examination shall not be qualified to: 
Function in a Principal capacity with responsibility over any area of 
business activity not described above; be included for purposes of the 
Principal numerical requirements of Rule 604(g)(5); or perform for a 
member organization any or all of the following

[[Page 42808]]

activities: (i) Supervision of the origination and structuring of 
underwritings; (ii) supervision of market making commitments; (iii) 
final approval of advertisements as these are defined in Rule 605; (iv) 
supervision of the custody of firm or customer funds and/or securities 
for purposes of SEC Rule 15c3-3; or (v) supervision of overall 
compliance with financial responsibility rules for broker/dealers 
promulgated pursuant to the provisions of the Act.
    In order to make clear how this category of limited Principal 
registration operates, the Exchange proposes to adopt an explanation in 
subparagraph (c) to Supplementary Material .03 to state that the 
Limited Principal--General Securities Sales Supervisor 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 could be 
required to separately qualify pursuant to the rules of multiple 
exchanges. While persons may continue to separately qualify with all 
relevant SROs, the Limited Principal--General Securities Sales 
Supervisor Examination permits qualification as a supervisor of sales 
of all securities by one examination. Persons registered as Limited 
Principals--General Securities Sales Supervisor 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 
Limited Principals--General Securities Sales Supervisor.\21\
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    \21\ As stated above, a person registered solely as a General 
Securities Principal shall not be qualified to function as a Limited 
Principal--Financial and Operations or Limited Principal--General 
Securities Sales Supervisor unless that person is also qualified and 
registered as such. See proposed Rule 604.01(c).
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    The explanation in subparagraph (c) further spells out the 
functions that may be performed by Limited Principals--General 
Securities Sales Supervisors, as well as the functions that may 
not,\22\ emphasizing that such Principal may supervise only sales 
activities. The commentary also states that qualification as a General 
Securities Representative is a prerequisite for registration as a 
Limited Principal--General Securities Sales Supervisor, and that 
persons qualified only as Limited Principals--General Securities Sales 
Supervisor are not included for purposes of the two principals 
requirements of Rule 604(g)(5). The Exchange believes that this 
category of principal registration should be useful to persons whose 
supervisory functions are limited in this way and should help ensure 
that such persons are properly qualified for those functions.
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    \22\ These include supervisory responsibility for the 
origination and structuring of underwritings, market-making, final 
approval of advertising, custody of firm or customer funds and/or 
securities for purposes of SEC Rule 15c3-3 and overall compliance 
with financial responsibility rules for broker/dealers.
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    In total, these principal registration requirements are new to the 
Exchange, although various other supervisory rules currently operate, 
such as Phlx Rule 748. The Exchange believes that the proposed new 
principal registration requirement, particularly the General Securities 
Principal category, should strengthen the framework of supervisory 
rules that will apply to Exchange member organizations doing business 
on PSX.

Other Rules

    The Exchange proposes to adopt new Rule 604(i), Persons Exempt from 
Registration, to state that the following persons associated with a 
member organization are not required to be registered with the 
Exchange: (1) Persons associated with a member organization whose 
functions are solely and exclusively clerical or ministerial; (2) 
persons associated with a member organization who are not actively 
engaged in the investment banking or securities business; (3) persons 
associated with a member organization whose functions are related 
solely and exclusively to the member organization's need for nominal 
corporate officers or for capital participation; and (4) persons 
associated with a member organization whose functions are related 
solely and exclusively to: (A) Effecting transactions on the floor of 
another national securities exchange and who are registered as floor 
members with such exchange; (B) transactions in municipal securities; 
(C) transactions in commodities; (D) transactions in security futures, 
provided that any such person is registered with FINRA or a registered 
futures association; (E) transactions in variable contracts and 
insurance premium funding programs and other contracts issued by an 
insurance company; (F) transactions in direct participation programs; 
(G) transactions in government securities; or (H) effecting sales as 
part of a primary offering of securities not involving a public 
offering pursuant to Section 3(b), 4(2), or 4(6) of the Securities Act 
of 1933 and the rules and regulations thereunder. These registration 
exemptions are intended to make clear that registration of certain, 
specific persons is not necessary and is based on exemptions contained 
in, for example, NASDAQ Rule 1060 and NASDAQ OMX BX Rule 1060. 
Furthermore, the persons described in (E) through (H) immediately above 
\23\ are covered within the proposed new definitions in Rule 1(uu)-(ww) 
thereby triggering the Series 7/Registered Representative requirement 
in proposed new Rule 604(h); the registration of such persons would 
inadvertently result in a Series 7/Registered Representative 
requirement on the Phlx for persons who, under FINRA rules, rather than 
the Series 7/Registered Representative category, register in that 
specific, limited capacity in categories not available in WebCRD for 
Phlx registrants.\24\ Of course, the federal securities laws may 
require broker-dealers to become members of FINRA in order to perform 
these functions.\25\ Thus, the Exchange believes that these 
registration exemptions are appropriate and any applicable FINRA 
registration requirements would continue to apply to firms that are 
members/member organizations of both Phlx and FINRA.
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    \23\ This correlates to proposed Rule 604(i)(D)(v)-(viii).
    \24\ Specifically, the IR/Series 6, DR/Series 22, RG/Series 72 
and PR/Series 82 categories are not available to Phlx, as well as 
many other exchanges, through WebCRD.
    \25\ See e.g., 15 U.S.C. 78o(b)(8).
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    Rule 604(i)(2) provides that member organizations, and persons 
associated with a member organization, may pay to nonregistered foreign 
persons transaction-related compensation based upon the business of 
customers they direct to member organizations under certain conditions 
detailed in the rule. This provision is intended to cover the payment 
of fees to finders.\26\
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    \26\ This provision is identical to NASDAQ Rule 1060(b) and 
NASDAQ OMX BX Rule 1060(b).
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    Rule 604(j) provides that the Exchange may, in exceptional cases 
and where good cause is shown, waive the applicable Qualification 
Examination and accept other standards as evidence of an applicant's 
qualifications for registration. Advanced age or physical infirmity 
will not individually of themselves constitute sufficient grounds to 
waive a Qualification Examination. Experience in fields ancillary to 
the investment banking or securities business may constitute sufficient 
grounds to waive a Qualification Examination. The rule is based on 
corresponding rules of FINRA, NASDAQ and NASDAQ OMX BX.
    Lastly, the Exchange proposes to amend Rule 640, Continuing 
Education For Registered Persons, to delete

[[Page 42809]]

reference to ``XLE'' from Commentary .01. Currently, Commentary .01 
provides that, for purposes of this Rule, the term ``registered 
person'' means any member, registered representative or other person 
registered or required to be registered under Exchange rules, but does 
not include such person whose activities are limited solely to the 
transaction of business on the floor or XLE, with members or registered 
broker-dealers. XLE was the Exchange's old trading system for NMS 
Stocks, which ceased operations in 2008.\27\ Accordingly, the Exchange 
is removing reference to that system; any new trading system for NMS 
Stocks, such as the Exchange's proposed PSX System, would not be 
exempt, such that registered persons would be subject to the continuing 
education requirements of Rule 640.
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    \27\ See Securities Exchange Act Release No. 58613 (September 
22, 2008), 73 FR 57181 (October 1, 2008) (SR-Phlx-2008-65).
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Conclusion

    The Exchange believes that these proposed new rules should form a 
solid framework for registration with respect to PSX.\28\ As a result 
of the new registration requirements, additional persons will become 
subject to the Exchange's continuing education requirement in Rule 640. 
The Exchange believes that the new requirements will cover the scope of 
persons who do business on PSX and should provide a solid framework for 
Representative and Principal registration and qualification. The 
proposal specifies which qualification examinations are required for 
each category of registration.
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    \28\ The Exchange intends to separately revise its registration 
and qualification rules related to activity other than business 
conducted on PSX, including its options business. The Exchange 
understands that other self-regulatory organizations are expected to 
adopt a framework that requires more fulsome registration and 
qualification requirements clearly spelled out in rules. The 
Exchange supports the Commission's commitment to ensure that such 
rules are adopted by all self-regulatory organizations on a 
consistent basis.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \29\ in general, and furthers the objectives of: (1) 
Section 6(c)(3)(B) of the Act,\30\ pursuant to which a national 
securities exchange prescribes standards of training, experience and 
competence for members and their associated persons; and (2) Section 
6(b)(5) of the Act,\31\ in that it is designed, among other things, to 
prevent fraudulent and manipulative acts and practices, 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, by 
adopting provisions requiring principals to register and pass 
qualification examinations and by enhancing the registration 
requirements covering persons trading NMS Stocks through the facilities 
of the Exchange.
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    \29\ 15 U.S.C. 78f(b).
    \30\ 15 U.S.C. 78f(c)(3)(B).
    \31\ 15 U.S.C. 78f(b)(5).
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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.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
such proposed rule change, or (b) institute proceedings to determine 
whether the proposed rule change should be 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 e-mail to rule-comments@sec.gov. Please include 
File No. SR-Phlx-2010-91 on the subject line.

Paper Comments

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

All submissions should refer to File No. SR-Phlx-2010-91. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of Phlx. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File No. SR-Phlx-2010-91 and should be 
submitted on or before August 12, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-17930 Filed 7-21-10; 8:45 am]
BILLING CODE 8010-01-P


