
[Federal Register Volume 81, Number 197 (Wednesday, October 12, 2016)]
[Notices]
[Pages 70460-70462]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-24580]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79055; File Nos. SR-NYSEMKT-2016-52 and SR-NYSEArca-
2016-103]


Self-Regulatory Organizations; NYSE MKT LLC; NYSE Arca, Inc.; 
Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove Proposed Rule Changes To Extend the Time Within Which a 
Member, Member Organization, an ATP Holder, an OTP Holder, or an OTP 
Firm Must File a Uniform Termination Notice for Securities Industry 
Registration (``Form U5'')

October 5, 2016.

I. Introduction

    On June 16, 2016, NYSE MKT LLC (``NYSE MKT'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 (``Act'') 
\2\ and Rule 19b-4 thereunder,\3\ a proposed rule change to extend the 
time within which a member or member organization, or an Amex Trading 
Permit Holder (``ATP Holder'') must file a Form U5, or any amendments 
thereto. The proposed rule change was published for comment in the 
Federal Register on July 7, 2016.\4\ On July 14, 2016, NYSE Arca, Inc. 
(``NYSE Arca'') (NYSE MKT and NYSE Arca, each an ``Exchange'') filed 
with the Commission, pursuant to Section 19(b)(1) \5\ of the Act and 
Rule 19b-4 thereunder,\6\ a proposed rule change to extend the time 
within which an Options Trading Permit Holder (``OTP Holder'') or 
Options Trading Permit Firm (``OTP Firm'') must file a Form U5, or any 
amendments thereto. The proposed rule change was published for comment 
in the Federal Register on July 27, 2016.\7\ The Commission received 
two comment letters regarding the proposals.\8\ NYSE responded to the 
NASAA Letter on August 12, 2016.\9\ This order institutes proceedings 
under Section 19(b)(2)(B) of the Act \10\ to determine whether to 
approve or disapprove the proposed rule changes.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 78198 (June 30, 
2016), 81 FR 44363.
    \5\ 15 U.S.C.78s(b)(1).
    \6\ 17 CFR 240.19b-4.
    \7\ See Securities Exchange Act Release No. 78381 (July 21, 
2016), 81 FR 49286.
    \8\ See letters from Judith Shaw, President, North American 
Securities Administrators Association, Inc., dated August 3, 2016 
(``NASAA Letter'') and Rick A. Fleming, Investor Advocate and Tracey 
L. McNeil, Ombudsman, Office of the Investor Advocate, Commission, 
dated October 3, 2016, to Brent J. Fields, Secretary, Commission 
(``OIA Letter'').
    \9\ See letter from Elizabeth K. King, General Counsel and 
Corporate Secretary, New York Stock Exchange LLC, to Brent J. 
Fields, Secretary, Securities and Exchange Commission, dated August 
12, 2016 (``NYSE Letter'').
    \10\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Changes

NYSEMKT-2016-52

    NYSE MKT proposes to amend its rules regarding when a member, 
member organization, or an ATP Holder must file a Form U5 and 
amendments thereto. Under Commentary .01 to NYSE MKT Rule 340, members 
and member organizations (collectively, ``Members'') are required to 
file a Form U5 and any amendment thereto with the Central Registration 
Depository (``CRD'') within 10 days of the date of termination of an 
employee that has been approved for admission to the trading floor. 
Under Commentary .09 to NYSE MKT Rule 341, Members must submit 
information concerning the termination of employment of a member, 
registered employee, or an officer on Form U5 within 10 days of the 
date of termination. Under NYSE MKT Rule 359(a), an ATP Holder that 
terminates an ATP Holder or approved person must file a Form U5 within 
10 days of such termination.
    NYSE MKT proposes to amend these rules by replacing the 10-day 
deadline with a requirement to promptly file a Form U5 with CRD, but 
not later than 30 calendar days after the date of termination of a 
member, ATP Holder, registered employee, officer, or approved person. 
Further, the proposed rule change would require that any amendment to a 
Form U5 be promptly filed with CRD, but not later than 30 calendar days 
after learning of the facts or circumstances giving rise to the 
amendment. In addition, the proposed rule change would require that all 
Form U5s be provided to the terminated person concurrently with filing.

NYSEArca-2016-103

    Under NYSE Arca Rule 2.17(c), an OTP Holder that terminates an OTP 
is required to file a Form U5 or any amendment thereto within 10 
business days of the termination or the occurrence requiring the 
amendment.

[[Page 70461]]

Under NYSE Arca Rule 2.23(i), OTP Holders and OTP Firms are required to 
file a Form U5 and any amendment thereto within 10 business days of the 
termination date of an employee that has been approved for admission to 
the trading floor or participation on any trading system.
    NYSE Arca proposes to extend these deadlines to 30 days in the same 
manner that NYSE MKT has proposed to amend its rules. The Exchanges 
stated that the proposed rule changes would harmonize their rules with 
similar requirements of other exchanges and FINRA.\11\ In addition, the 
Exchanges believe that by adding a requirement that Form U5 be filed 
promptly, the proposals may lead to Form U5s being filed sooner than 
the current 10-day requirement.
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    \11\ See New York Stock Exchange LLC Rule 345(a).17(a) and (b) 
(requiring that a Form U5 shall be reported promptly, but in any 
event not later than 30 days following termination, that any 
amendment to the Form U5 shall be filed not later than 30 days after 
learning of the facts or circumstances giving rise to the amendment, 
and that any termination notice must be provided concurrently to the 
person whose association has been terminated); BATS BZX Exchange, 
Inc. Rule 2.5 Interpretations and Policies .04(a) and (b) (requiring 
that a Form U5 be reported immediately following the date of 
termination, but in no event later than 30 days following 
termination, that any amendment to the Form U5 shall be filed no 
later than 30 days after learning of the facts or circumstances 
giving rise to the amendment, and that any termination notice or 
amendment shall be provided concurrently to the person whose 
association has been terminated); FINRA By-Laws Article 5 Sec. 3(a) 
and (b) (requiring that notice of termination be filed not later 
than 30 days after termination, that an amendment to a Form U5 be 
filed not later than 30 days after learning of the facts or 
circumstances giving rise to the amendment, and that notice be 
provided concurrently to the person whose association has been 
terminated within the time periods prescribed).
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III. Comment Letters and NYSE's Response

    The Commission received two comments on the proposed rule changes, 
one from NASAA and one from the Commission's Office of the Investor 
Advocate.\12\ The Commission also received a response to the NASAA 
comment letter from the NYSE.\13\ NASAA and OIA raise concerns about 
extending the time that firms would have to submit Form U5 to 30 days. 
NASAA states that the 10-day filing requirement for Form U5 should be 
maintained, noting that the form ``contains valuable regulatory 
information, relating to the termination of securities industry 
professionals, which is used by regulators in making licensing 
decisions and by securities firms in making hiring decisions.'' \14\ 
NASAA also states that timely access to the information on Form U5 is 
critical, noting that state regulators use the information from Form U5 
filings when making decisions regarding whether to register a person in 
that state.\15\ NASAA further notes that state regulators often must 
make such decisions in short timeframes.\16\ In addition, NASAA notes 
that information and money flow through the economy very quickly and 
``regulators making registration determinations and securities firms 
making hiring decisions should not have to do so without a full picture 
of the facts and circumstances and should have access to information in 
the most timely manner possible.'' \17\
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    \12\ See supra note 8.
    \13\ See supra note 9.
    \14\ See NASAA Letter at 1.
    \15\ Id.
    \16\ Id.
    \17\ Id. at 2.
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    NYSE responded that the proposed rule change would harmonize its 
rules with the existing rules of the other exchanges and FINRA.\18\ 
With respect to NASAA's concerns, NYSE referenced a proposed rule 
change which amended FINRA's rules to reduce the time period within 
which information disclosed on Form U5 is made available to the public 
via BrokerCheck.\19\ Finally, NYSE stated that unless FINRA moves to a 
shorter timeframe it would be a burden on competition for NYSE Arca and 
NYSE MKT to continue to maintain a different standard.\20\
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    \18\ See NYSE Letter at 1.
    \19\ Id. at 2.
    \20\ Id.
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    The OIA objects to the proposed amendments, stating its view that 
the amendments ``. . . are not in the public interest and may be 
designed to contribute to, rather than to prevent, fraudulent and 
manipulative acts and practices in the markets.'' \21\ Like NASAA, the 
OIA argues that the appropriate way to harmonize the requirement would 
be to shorten the filing timeframes to 10 days across the industry.\22\ 
The OIA notes that the information on Form U5 is used by state 
regulators making licensing decisions, FINRA to identify and initiate 
investigations of firms and brokers that pose risks, firms when making 
hiring decisions, and, ``perhaps most important, the information alerts 
retail investors about potential red flags in a broker's employment 
history.'' \23\
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    \21\ See OIA Letter at 2-3.
    \22\ See OIA Letter at 6 and NASAA Letter at 1.
    \23\ See OIA Letter at 4.
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IV. Proceedings to Determine Whether To Approve or Disapprove SR-
NYSEMKT-2016-52 and NYSEArca-2016-103 and Grounds for Disapproval Under 
Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \24\ to determine whether the proposed rule 
changes should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule changes, as discussed below. 
Institution of proceedings does not indicate that the Commission has 
reached any conclusions with respect to any of the issues involved. 
Rather, as described in greater detail below, the Commission seeks and 
encourages interested persons to provide additional comment on the 
proposed rule changes.
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    \24\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also 
provides that proceedings to determine whether to disapprove a 
proposed rule change must be concluded within 180 days of the date 
of publication of notice of the filing of the proposed rule change. 
The time for conclusion of the proceedings may be extended for up to 
60 days if the Commission finds good cause for such extension and 
publishes its reasons for so finding.
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    Pursuant to Section 19(b)(2)(B) of the Act,\25\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings because the proposals raise 
important issues that warrant further public comment and Commission 
consideration. Specifically, the Commission is instituting proceedings 
to allow for additional analysis of, and input from commenters with 
respect to, the proposed rule changes' consistency with Section 6(b)(5) 
of the Act,\26\ which requires that the rules of a national securities 
exchange be 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.
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    \25\ 15 U.S.C. 78s(b)(2)(B).
    \26\ 15 U.S.C. 78f(b)(5).
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    The Commission seeks comment on whether the proposals to extend the 
deadline that firms have to file Form U5 would undermine the ability of 
the Exchanges, the state securities regulators and the public to use 
information required on Form U5. As a practical matter, would such a 
change result in less timely filing of Form U5? If so, would the 
proposals compromise investor protection, degrade the ability of state 
securities regulators to vet

[[Page 70462]]

potential registrants and affect the hiring decisions of firms, as the 
commenters suggest?
    The Commission also seeks comment on whether all exchanges and 
FINRAshould pursue an initiative to harmonize their respective 
requirements and, if so, what is the appropriate timeframe? Would a 10-
day standard unduly burden firms and potentially compromise the quality 
or integrity of the information reported on Form U5? \27\ The 
Commission is interested in any additional burdens or benefits a 
requirement to file Form U5 within 10 days might impose on the public 
or the participants in the securities industry.
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    \27\ See FINRA Regulatory Notice 10-39, which states that when 
providing explanations for reasons for terminations, firms must 
answer all disclosure questions accurately and provide enough 
information so the reader can understand the conduct that led to the 
termination and that the failure to do so may result in sanctions; 
see also In the matter of Wedbush Securities Inc., Securities 
Exchange Act Release No. 78568 (August 12, 2016) (noting that Form 
U5 serves as a warning mechanism to member firms of the potential 
risks and accompanying supervisory responsibilities they must assume 
if they decide to employ an individual with a suspect history and 
provides FINRA with information useful in deciding whether to 
initiate an investigation, and that failure to file these forms 
accurately and on time frustrates these objectives).
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    The Commission believes the proposals raise questions as to whether 
they are consistent with the requirements of Section 6(b)(5) of the 
Act,\28\ including whether the proposals are designed 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.
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    \28\ 15 U.S.C. 78f(b)(5).
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V. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data and arguments with respect to the 
concerns identified above, as well as any other concerns they may have 
with the proposed rule changes. In particular, the Commission invites 
the written views of interested persons concerning whether the 
proposals are consistent with Sections 6(b)(5) \29\ or any other 
provision of the Act, or the rules and regulations thereunder. Although 
there does not appear to be any issue relevant to approval or 
disapproval which would be facilitated by an oral presentation of 
views, data, and arguments, the Commission will consider, pursuant to 
Rule 19b-4 under the Act,\30\ any request for an opportunity to make an 
oral presentation.\31\ Interested persons are invited to submit written 
data, views, and arguments regarding whether the proposal should be 
approved or disapproved by November 2, 2016. Any person who wishes to 
file a rebuttal to any other person's submission must file that 
rebuttal by November 16, 2016. In light of the concerns raised by the 
proposed rule changes, as discussed above, the Commission invites 
additional comment on the proposed rule changes as the Commission 
continues its analysis of the proposed rule changes' consistency with 
Sections 6(b)(5) and 6(b)(8),\32\ or any other provision of the Act, or 
the rules and regulations thereunder. The Commission asks that 
commenters address the sufficiency and merit of NYSE MKT's and/or NYSE 
Arca's statements in support of the proposed rule changes, in addition 
to any other comments they may wish to submit about the proposed rule 
changes.
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    \29\ Id.
    \30\ 17 CFR 240.19b-4.
    \31\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants to 
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is 
appropriate for consideration of a particular proposal by a self-
regulatory organization. See Securities Act Amendments of 1975, 
Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 
94th Cong., 1st Sess. 30 (1975).
    \32\ 15 U.S.C. 78f(b)(5), (b)(8).
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    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or

 Send an email to rule-comments@sec.gov. Please include File 
No. SR-NYSEMKT-2016-52 and File No. SR-NYSEArca-2016-103 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 No. SR-NYSEMKT-2016-52 and SR-
NYSEArca-2016-103. The file numbers 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submissions, all subsequent 
amendments, all written statements with respect to the proposed rule 
changes that are filed with the Commission, and all written 
communications relating to the proposed rule changes 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 10:00 a.m. and 3:00 p.m. Copies of 
the filings also will be available for inspection and copying at the 
principal office of each respective Exchange. All comments received 
will be posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File No. SR-NYSEMKT-2016-52 and File No. SR-NYSEArca-
2016-103, and should be submitted by November 2, 2016. Rebuttal 
comments should be submitted by November 16, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(57).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-24580 Filed 10-11-16; 8:45 am]
 BILLING CODE 8011-01-P


