[Federal Register Volume 83, Number 102 (Friday, May 25, 2018)]
[Notices]
[Pages 24362-24364]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-11226]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83296]


Order Granting Application by NYSE National, Inc. for an 
Exemption Pursuant to Section 36(a) of the Exchange Act From the Rule 
Filing Requirements of Section 19(b) of the Exchange Act With Respect 
to Certain Rules Incorporated by Reference

May 21, 2018.
    NYSE National, Inc. (``NYSE National'' or ``Exchange'') has filed 
with the Securities and Exchange Commission (``Commission'') an 
application for an exemption under Section 36(a)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'') \1\ from the rule filing 
requirements of Section 19(b) of the Exchange Act \2\ with respect to 
certain rules of the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') that the Exchange seeks to incorporate by reference.\3\ 
Section 36 of the Exchange Act authorizes the Commission to 
conditionally or unconditionally exempt any person, security, or 
transaction, or any class thereof, from any provision of the Exchange 
Act or rule thereunder, if necessary or appropriate in the public 
interest and consistent with the protection of investors.
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    \1\ 15 U.S.C. 78mm(a)(1).
    \2\ 15 U.S.C. 78s(b).
    \3\ See Letter from Elizabeth K. King, General Counsel and 
Corporate Secretary, New York Stock Exchange, to Brent J. Fields, 
Secretary, Commission, dated May 18, 2018 (``Exemptive Request''). 
The Exchange submitted the Exemptive Request in connection with a 
proposed rule change, in connection with the re-launch of trading on 
NYSE National on the Pillar trading platform. The proposal, as 
amended by Amendment No. 1, which was filed by the Exchange on May 
16, 2018, includes: (1) Amendments to Article V, Sections 5.01 and 
5.8 of the Fourth Amended and Restated Bylaws of NYSE National 
(``Bylaws''); (2) new rules based on the rules of the Exchange's 
affiliates relating to (a) trading securities on an unlisted trading 
privileges basis (Rule 5), (b) trading on the Pillar trading 
platform (Rules 1 and 7), (c) disciplinary rules (Rule 10), and (d) 
administration of the Exchange (Rules 3, 12 and 13); (3) rule 
changes that renumber and update current Exchange rules relating to 
(a) membership (Rule 2), (b) order audit trail requirements (Rule 
6), and (c) trading practices (Rule 11); and (4) deletion of 
Chapters I-XVI and the rules contained therein.
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    On May 17, 2018, the Commission approved the Exchange's proposed 
rule change that would delete the Exchange's current rules and replace 
them with rules to accommodate the re-launch of trading on the Exchange 
through the Pillar platform.\4\ Among other things, the new rules 
include rules relating to the obligations and business conduct of the 
Exchange's members, referred to as ETP Holders.
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    \4\ See Securities Exchange Act Release No. 83289 (May 17, 
2018).
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    NYSE National has requested, pursuant to Rule 0-12 under the 
Exchange Act,\5\ that the Commission grant the Exchange an exemption 
from the rule filing requirements of Section 19(b) of the Act for 
changes to those Exchange rules that are effected solely by virtue of a 
change to a cross-referenced FINRA rule, including FINRA rules 
designated as NASD rules.\6\ Specifically, the Exchange requests that 
it be permitted to incorporate by reference changes made to each FINRA 
rule (or series of rules, in the case of FINRA's Code of Arbitration 
Procedure) that is cross-referenced in the following

[[Page 24363]]

proposed NYSE National Rules, without the need for the Exchange to file 
separately the same proposed rule changes pursuant to Section 19(b) of 
the Act: \7\
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    \5\ 17 CFR 240.0-12.
    \6\ See Exemptive Request, supra note 3, at 1-2.
    \7\ Id.
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     Rule 2.2 (Obligations of ETP Holders and the Exchange) 
cross-references NASD Rule 1032(f)(1),
     Rule 6.7440 (Recording of Order Information) cross-
references FINRA Rule 7740,
     Rule 6.7450 (Order Data Transmission Requirements) cross-
references FINRA Rule 7450,
     Rule 11.2111 (Suitability) cross-references FINRA Rule 
2111,
     Rule 11.2210 (Communications with the Public) cross-
references FINRA Rule 2210 (except FINRA Rule 2210(c)),
     Rule 11.2232 (Customer Confirmations) cross-references 
FINRA Rule 2232,
     Rule 11.3310 (Anti-Money Laundering Compliance Program) 
cross-references FINRA Rule 3310,
     Rule 11.5320 (Prohibition Against Trading Ahead of 
Customer Orders) cross-references FINRA Rule 5310,
     Rule 11.5320 Commentary .01 (Large Orders and 
Institutional Account Exceptions) cross-references FINRA Rule 4512(c), 
and
     Rule 12 (Code of Arbitration Procedure for Customer and 
Industry Disputes) cross-references the 12000 and the 13000 Series of 
the FINRA Code of Arbitration and FINRA Rule 2268.
    The Exchange states that the direct incorporations by reference of 
FINRA rules, certain of which are regulatory in nature,\8\ are intended 
to be a comprehensive integration of the relevant FINRA rules into NYSE 
National's rules.\9\ The Exchange represents that, as a condition to 
the requested exemption from Section 19(b) of the Act, the Exchange 
agrees to provide written notice to its members whenever FINRA proposes 
a change to a cross-referenced rule.\10\ Such notice will alert 
Exchange members to the proposed rule change and give them an 
opportunity to comment on the proposal. The Exchange further represents 
that it will inform members in writing when the Commission approves any 
such proposed rule changes.\11\
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    \8\ The Exchange represents that the FINRA rules proposed to be 
incorporated by reference are not trading rules. In addition, the 
Exchange notes that several other self-regulatory organizations 
(``SROs'') incorporate by reference certain regulatory rules of 
another SRO and have received from the Commission similar exemptions 
from Section 19(b) of the Exchange Act. See Exemptive Request, supra 
note 3, at 2, n. 5.
    \9\ See Exemptive Request, supra note 3, at 2-3.
    \10\ See Exemptive Request, supra note 3, at 3. The Exchange 
represents that it will provide such notice via a posting on the 
same website location where the Exchange will post its own rule 
filings pursuant to Rule 19b-4(1) within the time frame required by 
such Rule. The website posting will include a link to the location 
on FINRA's website where the applicable proposed rule change is 
posted. Id.
    \11\ See Exemptive Request, supra note 3, at 3.
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    According to the Exchange, this exemption is necessary and 
appropriate because it would result in the Exchange's rules being 
consistent with the relevant cross-referenced FINRA rules at all times, 
thus ensuring identical regulation of joint members of the Exchange and 
FINRA with respect to such rules. Without such an exemption, joint 
members of the Exchange and FINRA could be subject to two different 
standards.\12\ Moreover, the Exchange believes that by incorporating 
the above-referenced FINRA rules in the Exchange's rulebook as rules of 
the Exchange, the exemption would ensure consistent regulation of 
Exchange ETP Holders that are not FINRA members and Exchange ETP 
Holders that are FINRA members.\13\ In addition, the Exchange believes 
that the exemption would ensure consistency between certain Exchange 
and FINRA rules that are covered by the Exchange's regulatory services 
agreement (``RSA'') with FINRA, which would facilitate FINRA's 
provision of services to the Exchange under the RSA within the scope of 
those rules.\14\
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    \12\ See Exemptive Request, supra note 3, at 2.
    \13\ Id.
    \14\ Id.
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    The Commission has issued exemptions similar to the Exchange's 
request.\15\ In granting one such exemption in 2010, the Commission 
repeated a prior, 2004 Commission statement that it would consider 
similar future exemption requests from other SROs, provided that:
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    \15\ See, e.g., Securities Exchange Act Release Nos. 83040 
(April 12, 2018), 75 FR 17198 (April 18, 2018)(order granting MIAX 
PEARL, LLC's exemptive request relating to rules of the Miami 
International Securities Exchange, LLC incorporated by reference); 
76998 (January 29, 2016), 81 FR 6066, 6083-84 (February 4, 2016) 
(order granting application for registration as a national 
securities exchange of ISE Mercury, LLC (now known as Nasdaq MRX, 
LLC) and exemptive request relating to rules of the International 
Securities Exchange, LLC (now known as Nasdaq ISE, LLC) (``ISE'') 
incorporated by reference, including index options rules); 70050 
(July 26, 2013), 78 FR 46622, 46642 (August 1, 2013) (order granting 
application for registration as a national securities exchange of 
Topaz Exchange, LLC (now known as Nasdaq GEMX, LLC) and exemptive 
request relating to rules of ISE incorporated by reference, 
including index options rules); 61152 (December 10, 2009), 74 FR 
66699, 66709-10 (December 16, 2009) (order granting application for 
registration as a national securities exchange of C2 Options 
Exchange, Incorporated (``C2'') and exemptive request relating to 
rules of the Chicago Board Options Exchange, Incorporated (``CBOE'') 
incorporated by reference, including index options rules). See also, 
e.g., Securities Exchange Act Release No. 61534 (February 18, 2010), 
75 FR 8760 (February 25, 2010) (order granting BATS Exchange, Inc.'s 
exemptive request relating to rules incorporated by reference by the 
BATS Exchange Options Market rules) (``BATS Options Market Order'').
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     An SRO wishing to incorporate rules of another SRO by 
reference has submitted a written request for an order exempting it 
from the requirement in Section 19(b) of the Exchange Act to file 
proposed rule changes relating to the rules incorporated by reference, 
has identified the applicable originating SRO(s), together with the 
rules it wants to incorporate by reference, and otherwise has complied 
with the procedural requirements set forth in the Commission's release 
governing procedures for requesting exemptive orders pursuant to Rule 
0-12 under the Exchange Act;\16\
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    \16\ See 17 CFR 240.0-12 and Securities Exchange Act Release No. 
39624 (February 5, 1998), 63 FR 8101 (February 18, 1998) 
(``Commission Procedures for Filing Applications for Orders for 
Exemptive Relief Pursuant to Section 36 of the Exchange Act; Final 
Rule'').
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     The incorporating SRO has requested incorporation of 
categories of rules (rather than individual rules within a category) 
that are not trading rules (e.g., the SRO has requested incorporation 
of rules such as margin, suitability, or arbitration); and
     The incorporating SRO has reasonable procedures in place 
to provide written notice to its members each time a change is proposed 
to the incorporated rules of another SRO.\17\
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    \17\ See BATS Options Market Order, supra note 15 (citing 
Securities Exchange Act Release No. 49260 (February 17, 2004), 69 FR 
8500 (February 24, 2004) (order granting exemptive request relating 
to rules incorporated by reference by several SROs) (``2004 
Order'')).
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    The Commission believes that the Exchange has satisfied each of 
these conditions. The Commission also believes that granting the 
Exchange an exemption from the rule filing requirements under Section 
19(b) of the Exchange Act will promote efficient use of Commission and 
Exchange resources by avoiding duplicative rule filings based on 
simultaneous changes to identical rule text sought by more than one 
SRO.\18\ The Commission therefore finds it appropriate in the public 
interest and consistent with the protection of investors to exempt the 
Exchange from the rule filing requirements under Section 19(b) of the 
Exchange Act with respect to the above-described rules it has 
incorporated by reference. This exemption is conditioned upon the 
Exchange

[[Page 24364]]

promptly providing written notice to its members whenever FINRA changes 
a rule that the Exchange has incorporated by reference.
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    \18\ See BATS Options Market Order, supra note 15, 75 FR at 
8761; see also 2004 Order, supra note 17, 69 FR at 8502.
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    Accordingly, it is ordered, pursuant to Section 36 of the Exchange 
Act,\19\ that the Exchange is exempt from the rule filing requirements 
of Section 19(b) of the Exchange Act solely with respect to changes to 
the rules identified in its request that incorporate by reference 
certain FINRA rules that are the result of changes to such FINRA rules, 
provided that the Exchange promptly provides written notice to its 
members whenever FINRA proposes to change a rule that the Exchange has 
incorporated by reference.
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    \19\ 15 U.S.C. 78mm.
    \20\ 17 CFR 200.30-3(a)(76).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-11226 Filed 5-24-18; 8:45 am]
 BILLING CODE 8011-01-P


