
[Federal Register Volume 82, Number 45 (Thursday, March 9, 2017)]
[Notices]
[Pages 13161-13163]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-04606]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80154; File Nos. SR-NYSEMKT-2016-52 and SR-NYSEArca-
2016-103]


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

March 3, 2017.

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, 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.\5\ The Commission received 
two comment letters regarding the proposals.\6\ NYSE responded to the 
NASAA Letter on August 12, 2016.\7\
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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 (``NYSE MKT Notice'').
    \5\ See Securities Exchange Act Release No. 78381 (July 21, 
2016), 81 FR 49286 (``NYSE Arca Notice'').
    \6\ 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 (``OIA Letter''), to Brent J. Fields, 
Secretary, Securities and Exchange Commission.
    \7\ See letter from Elizabeth K. King, General Counsel and 
Corporate Secretary, New York Stock Exchange LLC (``NYSE'') dated 
August 12, 2016 (``NYSE Letter I''), to Brent J. Fields, Secretary, 
Commission.
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    On October 5, 2016, the Commission instituted proceedings to 
determine whether to approve or disapprove the proposed rule 
changes.\8\ The Commission received four additional comment letters 
regarding the proposals.\9\ NYSE responded to the OIA Letter on October 
26, 2016.\10\ On December 21, 2016, the Commission designated a longer 
period of time to determine whether to approve or disapprove the 
proposed rule changes.\11\ Thereafter the Commission received one 
additional comment letter.\12\ NYSE submitted a response on January 16, 
2017.\13\ This order approves the proposed rule changes.
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    \8\ See Securities Exchange Act Release No. 79055, 81 FR 70460 
(October 12, 2016).
    \9\ See letters from Kevin Zambrowicz, Associate General 
Counsel, Securities Industry and Financial Markets Association, 
dated October 19, 2016 (``SIFMA Letter''), Michele Van Tassel, 
President, Association of Registration Management (``ARM''), dated 
November 4, 2016 (``ARM Letter I''), Edwin L. Reed, Deputy Director, 
Alabama Securities Commission, dated November 14, 2016 (``ASC 
Letter''), and Mike Rothman, President, NASAA, dated November 16, 
2016 (``NASAA Response'') to Brent J. Fields, Secretary, Commission.
    \10\ See letter from Elizabeth K. King, General Counsel and 
Corporate Secretary, NYSE, dated October 26, 2016 (``NYSE Letter 
II'') to Brent J. Fields, Secretary, Commission.
    \11\ See Securities Exchange Act Release No. 79645, 81 FR 95679 
(December 28, 2016).
    \12\ See letter from Michele Van Tassel, President, ARM, dated 
January 4, 2017 (``ARM Letter II'') to Brent J. Fields, Secretary, 
Commission.
    \13\ See letter from Elizabeth K. King, General Counsel and 
Corporate Secretary, NYSE, dated January 16, 2017 (``NYSE Letter 
III'') to Brent J. Fields, Secretary, Commission.
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II. Description of the Proposals

NYSEMKT-2016-52

    As set forth in the NYSE MKT Notice, NYSE MKT proposes to amend its 
rules regarding when a member, member

[[Page 13162]]

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 who 
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 the 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 need to 
amend the Form. In addition, the proposed rule change would require 
that the Form U5 be provided to the terminated person concurrently with 
filing.

NYSEArca-2016-103

    As set forth in the NYSE Arca Notice, NYSE Arca also proposes to 
amend its rules regarding when an OTP Holder and an OTP Firm must file 
a Form U5 and amendments thereto. 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. 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 
who has been approved for admission to the trading floor or 
participation on any trading system. Similar to NYSE MKT, NYSE Arca 
proposes to amend its rules to require OTP Holders and OTP Firms to 
promptly file a Form U5 with CRD, but not later than 30 calendar days 
after the date of termination of an OTP or employee, as applicable. In 
addition, NYSE Arca proposes to 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 need to amend 
the Form U5 and add a requirement to the rules that the Form U5 be 
provided to the terminated person concurrently with filing. The 
Exchanges state that the proposed rule changes would harmonize their 
rules with the requirements of other exchanges and FINRA.\14\
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    \14\ See, e.g., NYSE Rule 345(a).17(a) (providing for prompt 
reporting but in any event no later than 30 days following 
termination, and concurrently to the person); BATS BZX Exchange, 
Inc. Rule 2.5 Interpretations and Policies .04(a) Termination of 
Employment (providing for immediate reporting but in no event later 
than 30 days following termination, and concurrently to the person); 
FINRA By-Laws Article 5 Sec. 3(a) (providing for giving notice not 
later than 30 days after termination, and concurrently to the 
person).
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
changes are consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\15\ In 
particular, the Commission finds that the proposed rule changes are 
consistent with Section 6(b)(5) of the Act,\16\ which requires, among 
other things, that the rules of a national securities exchange be 
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, to protect investors and the public interest, and not to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers. The proposed rule changes, which will provide additional time 
for Members to file Forms U5, should help to ensure more accurate 
information regarding the reasons for the termination of a registered 
person, which would serve to protect investors and the public interest.
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    \15\ In approving the proposed rule changes, the Commission has 
considered the proposed rules' impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
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    As noted above, the Commission received seven comment letters on 
the proposed rule changes and three letters from the NYSE responding to 
the comments.\17\ SIFMA and ARM support the proposed 30-day filing 
deadline \18\ because they think it is more reasonable than the current 
10-day period\19\ and would align the Form U5 filing requirement with 
the more broadly applicable FINRA standard.\20\ SIFMA also notes that 
the 10-day period may create challenges for firms in the process of 
collecting and reviewing information that may be relevant to the 
accuracy of the filing.\21\ ARM also supports the 30-day filing 
deadline and asserts that the 10-day Form U5 filing requirement imposes 
unnecessary urgency on the process, causing Members to rush to meet the 
deadline at the risk of being less thorough than a 30-day review period 
would allow.\22\
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    \17\ See NASAA Letter, OIA Letter, SIFMA Letter, ARM Letter I, 
ASC Letter, NASAA Response, and ARM Letter II and NYSE Letter I 
responding to the NASAA Letter, NYSE Letter II responding to the OIA 
Letter, and NYSE Letter III responding to all the comment letters.
    \18\ See SIFMA Letter, ARM Letter I, and ARM Letter II.
    \19\ See SIFMA Letter at 2, ARM Letter I at 2.
    \20\ See SIFMA Letter at 2.
    \21\ See id.
    \22\ See ARM Letter I at 2 and ARM Letter II at 2. SIFMA and ARM 
object to the use of the word ``promptly'' in the rule language 
because they believe it may create unnecessary ambiguity regarding 
the standard. SIFMA Letter at 3 and ARM Letter I at 2.
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    In contrast, NASAA, OIA, and the ASC object to extending the time 
for filing Form U5 because regulators use the information on the Form 
U5 and need the information on a timely basis.\23\ All three commenters 
argue that the 10-day filing requirement for Form U5 should be 
maintained, noting that any harmonization effort among self-regulatory 
organizations should focus on shortening the Form U5 filing deadlines 
across the industry, rather than on lengthening them.\24\
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    \23\ See NASAA Letter at 1-2, NASAA Response at 1-2, OIA Letter 
at 2-7, and ASC Letter.
    \24\ See NASAA Letter at 1-2, NASAA Response at 3, OIA Letter at 
6, and ASC Letter at 2.
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    NASAA, the OIA, and the ASC also raise concerns about the impact of 
the proposed rule changes on investor protection, including potential 
challenges the proposals would pose for state regulators trying to 
fulfill their regulatory responsibilities, and note that the Form U5 
contains valuable regulatory information relating to the termination of 
securities industry professionals, which is used by regulators in 
making licensing decisions, often under short timeframes.\25\ The OIA 
notes that the information on Form U5 is used by state regulators 
making licensing decisions, FINRA to identify and initiate 
investigations, firms when making hiring decisions, and the information 
alerts investors about potential red flags in a broker's employment 
history.\26\ NASAA states that a 30-day filing deadline for the Form U5 
poses significant challenges for state regulators, particularly due to 
the often

[[Page 13163]]

automatic nature of the registration process in many states where, 
under a 30-day standard, a state may not have Form U5 information 
before it is required to make a new licensing decision.\27\ NASAA 
further suggests that it is time for a comprehensive review of Form U5 
filing deadlines.\28\ In addition, NASAA asserts that the importance of 
state licensing decisions outweigh any arguable burden of the shorter 
filing deadline.\29\ NASAA also asserts that because ``approximately 
73% of Form U5s are already filed within 10 days of a representative's 
termination,'' the burden of maintaining a shorter filing deadline is 
demonstrably minimal, as the vast majority of firms already comply with 
the deadline.\30\ Thus, NASAA does not believe that the 10-day 
requirement imposes a competitive disadvantage on the Exchanges' 
members.\31\ NASAA also asserts that Commission approval of the 
proposal would be premature, as NASAA's ongoing work in this area may 
lead to an industry-wide examination of Form U5 filing issues, and 
ultimately a recommendation to shorten the deadlines for filing the 
Form U5.\32\ OIA supports a harmonized approach among the self-
regulatory organizations but argues that the appropriate way to 
harmonize the requirement would be to shorten the filing timeframes to 
10 days across the industry.\33\
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    \25\ See NASAA Letter at 1-2, OIA Letter at 2--7, and ASC 
Letter.
    \26\ See OIA Letter at 3.
    \27\ See NASAA Letter at 2 and NASAA Response at 2. See also ASC 
Letter at 2 (stating it is far more efficient for a state to prevent 
an agent with disqualifying history from becoming registered than it 
is to revoke or suspend a registered agent).
    \28\ See NASAA Response at 2.
    \29\ See id.
    \30\ See id.
    \31\ See id. at 2-3.
    \32\ See id. at 3.
    \33\ See OIA Letter at 3.
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    NYSE responds by stating that the proposed rule changes would 
harmonize the Exchanges' rules with the existing rules of the other 
exchanges and FINRA and thereby ensure uniformity and promote clarity 
and consistency.\34\ In addition, the Exchange believes that 
maintaining a requirement for NYSE MKT and NYSE Arca Members different 
from the requirement for FINRA members results in a burden on 
competition.\35\ With respect to concerns regarding timely access to 
information by investors, NYSE references a proposed rule change that 
amended FINRA's rules to reduce the time period within which 
information disclosed on Form U5 is made available to the public via 
BrokerCheck from 15 days to three days.\36\ In this regard, NYSE 
suggests that the relevant timing is when information provided on the 
Form U5 is made available on BrokerCheck. NYSE also states that unless 
FINRA moves to a shorter timeframe it would be a burden on competition 
for NYSE MKT and NYSE Arca to continue to maintain a different standard 
than is required of members of other self-regulatory organizations.\37\
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    \34\ See NYSE Letter III at 2.
    \35\ See NYSE Letter I at 1, NYSE Letter II at 2.
    \36\ See NYSE Letter I at 2. But see OIA Letter at 6 noting 
``that, while timelier disclosure of Form U5 information on 
BrokerCheck impacts the speed in which a retail investor may be 
alerted to red flag conduct, it has no impact on the speed in which 
regulators are alerted to, and can respond to, the information in 
the Form U5.''
    \37\ See NYSE Letter I at 2, NYSE Letter II at 3.
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    Finally, NYSE asserts its belief that the proposals are consistent 
with the Act because they conform to the rules of other self-regulatory 
organizations.\38\ Further, NYSE believes that the proposals should 
eliminate potential reporting inaccuracies caused by any such 
disparities among exchanges' regulatory reporting requirements and 
ensure greater accuracy in Form U5 reporting because the proposed 
timeframes would provide Members with sufficient time to perform due 
diligence before reporting a termination.\39\ Specifically responding 
to SIFMA and ARM, NYSE states that the proposed rule language is not 
ambiguous, adding that the ``prompt'' requirement is consistent with 
rules of other self-regulatory organizations and should encourage 
prompt filing of Form U5, but does not shorten the deadline of 30 
days.\40\
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    \38\ See NYSE Letter I at 1-2, NYSE Letter II at 1-2, NYSE 
Letter III at 1-2. NYSE refers to similar exchange rules featuring a 
30-day time limit for the filing and amending of the Form U5, 
including two rules adopted in 2016. See NYSE Letter II at 2. The 
Commission approved a rule change, SR-NYSEArca-2016-104, which 
amended one rule to add ``calendar'' to modify the 30-day time frame 
within which to submit Form U5 and a second rule to shorten the time 
within which to submit the Form U5 from 30 business days to 30 
calendar days. See Securities Exchange Act Release No. 78809 
(September 9, 2016), 81 FR 63543 (September 15, 2016).
    \39\ See NYSE Letter III at 2.
    \40\ See id.
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    As discussed above, the Commission believes that the changes, which 
will provide additional time for Members to file Forms U5, may result 
in more accurate information describing the reasons for the termination 
of a registered person, which would serve to protect investors and the 
public interest. Certain commenters appear to be concerned that Members 
may require additional time to accurately and completely respond to 
questions on the Form U5.\41\ The additional time associated with the 
proposed rule change should contribute to the accuracy of information 
contained in the Form U5. The Commission notes that Forms U5 must be 
accurate and complete so that investors have the information that they 
need to determine if they wish to work with a particular registered 
person, and regulators have the information they need to properly 
oversee the associated persons engaged in the securities business in 
their jurisdictions, as soon as possible. In addition, the Commission 
notes that proposed time limits are consistent with the rules of other 
self-regulatory organizations.\42\
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    \41\ See SIFMA letter at 2, ARM Letter I at 1-2 and ARM Letter 
II at 2.
    \42\ See supra, note 14 and accompanying text.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\43\ that the proposed rule changes (SR-NYSEMKT-2016-52 and SR-NYSE 
Arca 2016-103) be, and hereby are, approved.
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    \43\ 15 U.S.C. 78s(b)(2).
    \44\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\44\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-04606 Filed 3-8-17; 8:45 am]
BILLING CODE 8011-01-P


