[Federal Register Volume 83, Number 196 (Wednesday, October 10, 2018)]
[Notices]
[Pages 51030-51040]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-21903]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84350; File No. SR-NYSENAT-2018-21]


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

    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on September 27, 2018, NYSE National, Inc. (the ``Exchange'' 
or ``NYSE National'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes amendments to the Exchange's rules regarding 
qualification, registration and continuing education requirements 
applicable to Equity Trading Permit (``ETP'') Holders. To the extent 
the Exchange's rule proposal is intended to harmonize with Financial 
Regulatory Authority, Inc. (``FINRA'') rules and thus promote 
consistency within the securities industry, the Exchange is only 
adopting rules that are relevant to the Exchange's ETP Holders. The 
Exchange is not adopting registration categories that are not 
applicable to ETP Holders because ETP Holders do not engage in the type 
of business that would require such registration. As such, the Exchange 
is amending current Rule 2.2 regarding continuing education 
requirements to reflect the FINRA rule; adopting Commentary .08 to 
current Rule 2.2 regarding fingerprint information; adopting new Rule 
2.1210 regarding registration requirements and related Commentary to 
new Rule 2.1210; adopting new Rule 2.1220 regarding registration 
categories \4\ and related Commentary to new Rule 2.1220; and adopting 
new Rule 2.1230 regarding associated persons exempt from registration 
and related Commentary to new Rule 2.1230. Each of these rule changes, 
which are [sic] described in more detail below, would become operative 
on October 1, 2018. The proposed rule change is available on the 
Exchange's website at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.
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    \4\ The relevant principal registration categories the Exchange 
proposes to adopt are (1) Principal; (2) General Securities 
Principal; (3) Compliance Officer; (4) Financial and Operations 
Principal and Introducing Broker-Dealer Financial and Operations 
Principal; (5) Securities Trader Principal; and (6) General 
Securities Sales Supervisor. The relevant representative 
registration categories the Exchange proposes to adopt are (1) 
Representative; (2) General Securities Representative; and (3) 
Securities Trader.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its qualification, registration, and 
continuing education requirements applicable to ETP Holders. The 
proposed amendments are intended to: (i) Provide transparency and 
clarity with respect to the Exchange's registration, qualification and 
examination requirements; (ii) amend its rules relating to categories 
of registration and respective qualification examinations required for 
ETP Holders that engage in trading activities on the Exchange; (iii) 
harmonize the Exchange's qualification, registration and examination 
rules with those of FINRA \5\ so as to promote uniform standards across 
the securities industry; and (iv) add new definitions of terms and make 
other conforming changes to enhance the comprehensiveness and clarity 
of the Exchange's rules.\6\ The proposed changes are discussed below.
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    \5\ See Securities Exchange Act Release No. 81098 (July 7, 
2017), 82 FR 32419 (July 13, 2017) (SR-FINRA-2017-007) (Approval 
Order) (the ``FINRA Filing''). The Exchange notes that in order to 
maintain consistency with the FINRA Filing, the Exchange proposes to 
incorporate certain terms from the relevant FINRA rule into the 
Exchange's rule that may not be applicable to all ETP Holders. For 
example, while ETP Holders may not be engaged in ``investment 
banking'' activity, the Exchange proposes to adopt that term within 
these registration rules to conform them to the FINRA rules.
    \6\ The conforming changes the Exchange proposes would 
substitute the term ``ETP Holder'' for ``member'' and the term 
``Exchange'' for ``FINRA.''
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A. Amendments to Rule 2.2(c)
    Rule 2.2(c)(1) currently provides, among other things, that an ETP 
Holder shall register with the Exchange as a Principal any Person who 
meets the definition of a Principal as described in Rule 1.1 and that 
each such Principal must be registered as such through the FINRA 
Central Registration Depository System (``CRD''), and must pass the 
general Securities Principal (Series 24) examination. The current rule 
further provides that a Principal must pass the Series 7 examination or 
an equivalent foreign examination module as a prerequisite to taking 
the Series 24 examination. The Exchange proposes to amend the current 
rule to reflect the change of the prerequisite examination requirements 
for Principals registered with the Exchange. The amended rule provides 
that the Exchange would require the Series 7 examination and the 
Securities Industry Essentials examination as a prerequisite to taking 
the Series 24 examination and would no longer accept a foreign 
examination module as a prerequisite given the elimination of the 
foreign examination module in the FINRA Filing.
    Rule 2.2(c)(2) currently provides, among other things, that each 
ETP Holder, other than a sole proprietorship or a proprietary trading 
firm that has 25 or fewer Authorized Traders, is required to register 
at least two Principals with the Exchange. Per the rule, a sole 
proprietorship or a proprietary trading firm with 25 or fewer 
Authorized Traders is required to register one Principal with the 
Exchange. The

[[Page 51031]]

Exchange proposes to make a drafting change to the text of the rule 
without any substantive change to the application of the current 
rule.\7\ As proposed, each ETP Holder would continue to be required to 
register at least two Principals unless the ETP Holder is a sole 
proprietorship or a proprietary trading firm, in which case, such ETP 
Holder would continue to be required to register one Principal with the 
Exchange.
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    \7\ The proposed change would align the text of the rule to the 
rules of other exchanges. See e.g., NASDAQ Stock Market Rule 
1021(e).
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B. Amendments to Rule 2.2(e)--Continuing Education Requirements
    Rule 2.2(e) provides the continuing education requirements of 
certain Registered Persons \8\ subsequent to their initial 
qualification and registration with the Exchange, and includes a 
Regulatory Element and a Firm Element. The Regulatory Element applies 
to Registered Persons and consists of periodic computer-based training 
on regulatory, compliance, ethical, supervisory subjects and sales 
practice standards. The Firm Element consists of at least an annual, 
member-developed and administered training programs designed to keep 
Registered Persons current regarding securities products, services and 
strategies offered by the member. For purposes of Rule 2.2(e), the 
Exchange proposes to include within the definition of a Registered 
Person any Person who is permissively registered pursuant to proposed 
Rule 2.1210, Commentary .01, and any Person designated as eligible for 
a waiver pursuant to proposed Rule 2.1210, Commentary .08.\9\ The 
purpose of this change is to ensure all Registered Persons, including 
those with permissive registrations, keep their knowledge of the 
securities industry current. The inclusion of persons designated as 
eligible for a waiver under the term ``Registered Person'' corresponds 
to the requirements of proposed Rule 2.1210, Commentary .08.
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    \8\ For purposes of Rule 2.2(e), the term ``Registered Person'' 
means any Person registered with the Exchange as a General 
Securities Representative, Securities Trader, Principal, Principal--
Financial and Operations (``FINOP''), Person Associated with an ETP 
Holder, Authorized Trader or Market Maker Authorized Trader. See 
Rule 2.2(e).
    \9\ The proposed change is substantially similar to that 
contained in FINRA Rule 1240(a)(5).
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1. Regulatory Element
    The Exchange proposes to amend Rule 2.2(e)(1) to provide, 
consistent with proposed Rule 2.1210, Commentary .08, that a waiver-
eligible person would be subject to a Regulatory Element program that 
correlates to his or her most recent registration category, and that 
the content of the Regulatory Element would be based on the same cycle 
had the individual remain [sic] registered.\10\ The proposed amendment 
to Rule 2.2(e)(1) also provides that if a waiver-eligible person fails 
to complete the Regulatory Element during the prescribed time frames, 
he or she would lose waiver eligibility.\11\
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    \10\ The proposed change is substantially similar to that 
contained in FINRA Rule 1240(a)(1).
    \11\ The proposed change is substantially similar to that 
contained in FINRA Rule 1240(a)(2).
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    Further, the Exchange proposes to amend Rule 2.2(e)(1) to provide 
that any person who registration has been deemed inactive under the 
rule may not accept or solicit business or receive any compensation for 
the purchase or sale of securities. The proposed amendment provides, 
however, that such person may receive trail or residual commissions 
resulting from transactions completed before the inactive status, 
unless the ETP Holder with which the person is associated has a policy 
prohibiting such trail or residual commissions.\12\
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    \12\ The proposed change is substantially similar to that 
contained in FINRA Rule 1240(a)(2).
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    Additionally, under Rule 2.2(e)(1), a Registered Person is required 
to retake the Regulatory Element in the event that such person (i) is 
subject to any statutory disqualification as defined in Section 
3(a)(39) of the Exchange Act; (ii) is subject to suspension or to the 
imposition of a fine of $5,000 or more for violation of any provision 
of any securities law or regulation, or any agreement with or rule or 
standard of conduct of any securities governmental agency, securities 
self-regulatory organization, or as imposed by any such regulatory or 
self-regulatory organization in connection with a disciplinary 
proceeding; or (iii) is ordered as a sanction in a disciplinary action 
to retake the Regulatory Element by any securities governmental agency 
or self-regulatory organization. The Exchange proposes to amend Rule 
2.2(e)(1) to provide an exception to a waiver-eligible person from 
retaking the Regulatory Element and satisfy [sic] all of its 
requirements.\13\
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    \13\ The proposed change is substantially similar to that 
contained in FINRA Rule 1240(a)(3).
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2. Firm Element
    Current Rule 2.2(e)(2)(B)(ii) provides that programs used to 
implement an ETP Holder's training program must be appropriate for the 
business of the ETP Holder and, at a minimum must cover specific 
matters concerning securities products, services, and strategies 
offered by the ETP Holder. The Exchange proposes to amend the current 
rule to expand the minimum standard for such training programs by 
requiring that, at a minimum, a firm's training program must also cover 
training in ethics and professional responsibility.\14\
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    \14\ The proposed change is substantially similar to that 
contained in FINRA Rule 1240(b)(2).
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C. Amendments to Rule 2.2, Commentary .01
    Current Rule 2.2, Commentary .01, states that the Exchange requires 
the General Securities Representative examination (``Series 7'') or an 
equivalent foreign examination module approved by the Exchange in 
qualifying Persons seeking registration as general securities 
representatives. As noted above, given the elimination of the foreign 
examination module in the FINRA Filing, the Exchange proposes to amend 
the current rule to remove a foreign examination module as an 
equivalent requirement to register as a general securities 
representative. As amended, Rule 2.2, Commentary .01, would provide 
that qualifying Persons seeking registration as a general securities 
representatives would be required to take the Series 7 examination and 
the Securities Industry Essentials examination.
D. Amendments to Rule 2.2, Commentary .02
    Current Rule 2.2, Commentary .02, states that the Exchange will 
accept the New York Stock Exchange Chief Compliance Officer Examination 
(``NYSE Series 14'') as an alternative qualification to register as 
Principal an individual identified as the Chief Compliance Officer on 
an ETP Holder's Form BD. The Exchange proposes a technical change to 
rename the NYSE Series 14 examination as the Compliance Official 
Examination which is the correct name of the examination.
E. Amendments to Rule 2.2, Commentary .03
    Current Rule 2.2, Commentary .03, provides that the definition of a 
Securities Trader is defined in Rule 1.1. With this proposed rule 
change, the Exchange is adopting FINRA's definition of Securities 
Trader (as described below) and therefore, proposes to replace the 
reference to Rule 1.1 to Rule 2.1220(b)(3) in current Rule 2.2(e), 
Commentary .03, as the appropriate rule in the Exchange's Rulebook 
where the definition of Securities Trader can be found. In doing so, 
the Exchange proposes to amend current Rule 1.1(ac) which provides the 
current definition of Securities Trader

[[Page 51032]]

and proposes to mark that rule as `Reserved.'
    Further, current Rule 2.2, Commentary .03, states that each Person 
Associated with an ETP Holder meeting the definition of a Securities 
Trader under Rule 1.1 must pass the Securities Trader Qualification 
examination (``Series 57'') and register as such in CRD. The rule 
further provides that a Person registered as a Securities Trader shall 
not function in any other registration category unless he/she is also 
qualified in such other registration category. Given the formulation of 
the Securities Industry Essential examination which all potential 
representative-level registrants would be required to pass, the 
Exchange proposes to amend the current rule to require each Person 
Associated with an ETP Holder that meets the definition of a Securities 
Trader to take the Series 57 examination and the Securities Industry 
Essential examination and register as such in CRD.
F. Amendments to Rule 2.2, Commentary .04
    Current Rule 2.2, Commentary .04, provides that the definition of a 
Securities Trader Principal is defined in Rule 1.1. With this proposed 
rule change, the Exchange is adopting FINRA's definition of Securities 
Trader (as described below) and therefore, proposes to replace the 
reference to Rule 1.1 to Rule 2.1220(a)(5) in current Rule 2.2(e), 
Commentary .04, as the appropriate rule in the Exchange's Rulebook 
where the definition of Securities Trader Principal can be found. In 
doing so, the Exchange proposes to amend current Rule 1.1(ad) which 
provides the current definition of Securities Trader Principal and 
proposes to mark that rule as `Reserved.'
    Current Rule 2.2, Commentary .04, references by incorporation NASD 
Rule 1032(f).\15\ With this proposed rule change, the Exchange is 
adopting the content of Rule 1032(f) into the Exchange's rules and 
therefore would no longer need to reference by incorporation the NASD 
rule. The Exchange, therefore, proposes to replace reference to NASD 
Rule 1032(f) in Rule 2.2, Commentary .04, with Rule 2.1220(b)(3) which 
is a proposed new Exchange rule that is substantively similar to NASD 
Rule 1032(f).
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    \15\ NASD Rule 1032(f) was recently amended to expand the scope 
of individuals associated with a FINRA member broker-dealer who are 
required to register as Security Traders. See Securities Exchange 
Act Release No. 77551 (April 7, 2016), 81 FR 21914 (April 13, 2016) 
(SR-FINRA-2016-007) (Order Approving a Proposed Rule Change To 
Require Registration as Securities Traders of Associated Persons 
Primarily Responsible for the Design, Development, Significant 
Modification of Algorithmic Trading Strategies or Responsible for 
the Day-to-Day Supervision of Such Activities).
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G. Amendment to Rule 2.2--Commentary .06
    Rule 2.2, Commentary .06, currently provides that the Exchange may, 
in exceptional cases and where good cause is shown, waive a proficiency 
examination and accept other standards as evidence of an applicant's 
qualifications for registration. The rule further provides that 
advanced age or physical infirmity will not individually of themselves 
constitute sufficient grounds to waive a qualification examination and 
that experience in fields ancillary to the investment banking or 
securities business may constitute sufficient grounds to waive a 
qualification examination. In light of the Exchange's proposal to adopt 
proposed new Rule 2.1210, Commentary .02 (Qualification Examinations 
and Waivers of Examinations),\16\ which adopts revised language 
regarding the waiver of examinations (see below for a further 
discussion), the Exchange proposes to delete the text of current Rule 
2.2, Commentary .06, in its entirety.
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    \16\ The proposed rule is substantially similar to FINRA Rule 
1210.03.
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H. Proposed New Rule 2.2--Commentary .08--Fingerprint Information \17\
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    \17\ The proposed rule is substantially similar to FINRA Rule 
1010(d).
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    The Exchange proposes to adopt new Rule 2.2(e), Commentary .08, 
regarding the submission of fingerprint information by ETP Holders. As 
proposed, upon filing an electronic Form U4 on behalf of a person 
applying for registration, an ETP Holder would be required to promptly 
submit fingerprint information for that person. If the ETP Holder fails 
to submit the fingerprint information within 30 days after the Exchange 
receives the electronic Form U4, the person's registration shall be 
deemed inactive and the person would be required to immediately cease 
all activities requiring registration and would be prohibited from 
performing any duties and functioning in any capacity requiring 
registration. The proposed rule further provides allows [sic] the 
Exchange to administratively terminate a registration that is inactive 
for a period of two years. However, a person whose registration is 
administratively terminated may seek to reactivate his or her 
registration by reapplying for registration and meeting the 
qualification requirements under Exchange rules.
I. Proposed New Rules 2.1210 Through 2.1230
    As a general matter, FINRA administers qualification examinations 
that are designed to establish that persons associated with ETP Holders 
have attained specified levels of competence and knowledge. Over time, 
the examination program has increased in complexity to address the 
introduction of new products and functions, and related regulatory 
concerns and requirements. As a result, today, there are a large number 
of examinations, considerable content overlap across the 
representative-level examinations and requirements for individuals in 
various segments of the industry to pass multiple examinations. To 
address these issues, FINRA has formulated a general knowledge 
examination called the Securities Industry Essential (``SIE'') that all 
potential representative-level registrants would take.\18\ Rule changes 
related to the adoption of the SIE and other proposed new rules are 
discussed below.
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    \18\ The SIE would assess basic product knowledge; the structure 
and function of the securities industry markets, regulatory agencies 
and their functions; and regulated and prohibited practices. In 
particular, the SIE will cover four major areas. The first, 
``Knowledge of Capital Markets,'' focuses on topics such as types of 
markets and offerings, broker-dealers and depositories, and economic 
cycles. The second, ``Understanding Products and Their Risks,'' 
covers securities products at a high level as well as associated 
investment risks. The third, ``Understanding Trading, Customer 
Accounts and Prohibited Activities,'' focuses on accounts, orders, 
settlement and prohibited activities. The final area, ``Overview of 
the Regulatory Framework,'' encompasses topics such as SROs, 
registration requirements and specified conduct rules.
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1. Proposed Rule 2.1210--Registration Requirements \19\
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    \19\ The proposed rule is substantially similar to FINRA Rule 
1210.
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    Proposed Rule 2.1210 provides that each person engaged in the 
investment banking or securities business of an ETP Holder must 
register with the Exchange as a representative or principal in each 
category of registration appropriate to his or her functions and 
responsibilities as specified in proposed Rule 2.1220, unless exempt 
from registration pursuant to proposed Rule 2.1230. Proposed Rule 
2.1210 also provides that such person is not qualified to function in 
any registered capacity other than that for which the person is 
registered, unless otherwise stated in the rules.

[[Page 51033]]

2. Proposed Rule 2.1210, Commentary .01--Permissive Registrations \20\
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    \20\ The proposed rule is substantially similar to FINRA Rule 
1210.02.
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    The Exchange currently does not have a specific rule that provides 
for permissive registrations. With this proposed rule change, and to 
conform its rules to the FINRA rules, the Exchange proposes to adopt a 
specific rule regarding permissive registrations. Proposed Rule 2.1210, 
Commentary .01, allows any associated person to obtain and maintain any 
registration permitted by an ETP Holder. For instance, an associated 
person of an ETP Holder working solely in a clerical or ministerial 
capacity, such as in an administrative capacity, would be able to 
obtain and maintain a General Securities Representative registration 
with the ETP Holder. As another example, an associated person of an ETP 
Holder who is registered, [sic] and functioning solely as a General 
Securities Representative would be able to obtain and maintain a 
General Securities Principal registration with the ETP Holder. Further, 
proposed Rule 2.1210, Commentary .01, allows an individual engaged in 
the securities business of a foreign securities affiliate or subsidiary 
of an ETP Holder to obtain and maintain any registration permitted by 
the ETP Holder.
    The Exchange is proposing to permit the registration of such 
individuals for several reasons. First, an ETP Holder may foresee a 
need to move a former representative or principal who has not been 
registered for two or more years back into a position that would 
require such person to be registered. Currently, such persons are 
required to requalify (or obtain a waiver of the applicable 
qualification examinations) and reapply for registration. Second, the 
proposed rule change would allow ETP Holders to develop a depth of 
associated persons with registrations in the event of unanticipated 
personnel changes. Finally, allowing registration in additional 
categories encourages greater regulatory understanding.
    Individuals maintaining a permissive registration under the 
proposed rule change would be considered Registered Persons and subject 
to all Exchange rules, to the extent relevant to their activities. 
Additionally, consistent with the requirements of the Exchange's 
supervision rules, as proposed, ETP Holders would be required to have 
adequate supervisory systems and procedures reasonably designed to 
ensure that individuals with permissive registrations do not act 
outside the scope of their assigned functions. With respect to an 
individual who solely maintains a permissive registration, such as an 
individual working exclusively in an administrative capacity, the 
individual's day-to-day supervisor may be a non-Registered Person. 
However, for purposes of compliance with the Exchange's supervision 
rules, an ETP Holder would be required to assign a registered 
supervisor who would be responsible for periodically contacting such 
individual's day-to-day supervisor to verify that the individual is not 
acting outside the scope of his or her assigned functions. If such 
individual is permissively registered as a representative, the 
registered supervisor must be registered as a representative or 
principal. If the individual is permissively registered as a principal, 
the registered supervisor must be registered as a principal.\21\
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    \21\ In either case, the registered supervisor of an individual 
who solely maintains a permissive registration would not be required 
to be registered in the same representative or principal 
registration category as the permissively-registered individual.
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3. Proposed Rule 2.1210, Commentary .02--Qualification Examinations and 
Waivers of Examinations \22\
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    \22\ The proposed rule is substantially similar to FINRA Rule 
1210.03.
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    Proposed Rule 2.1210, Commentary .02, provides that before the 
registration of a person as a representative can become effective under 
proposed Rule 2.1210, such person must pass the SIE and an appropriate 
representative-level qualification examination as specified in proposed 
Rule 2.1220.\23\ Proposed Rule 2.1210, Commentary .02, also provides 
that before the registration of a person as a principal can become 
effective under proposed Rule 2.1210, such person must pass an 
appropriate principal-level qualification examination as specified in 
proposed Rule 2.1220.
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    \23\ Proposed Rule 2.1220 sets forth each registration category 
and applicable qualification examination for ETP Holders on the 
Exchange.
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    Further, proposed Rule 2.1210, Commentary .02, provides that if a 
Registered Person's job functions change and he or she needs to become 
registered in another representative-level category, he or she would 
not need to pass the SIE again. Rather, the Registered Person would 
need to pass only the appropriate representative-level qualification 
examination.
    Moreover, proposed Rule 2.1210, Commentary .02, provides that all 
associated persons, such as associated persons whose functions are 
solely and exclusively clerical or ministerial, are eligible to take 
the SIE. Proposed Rule 2.1210, Commentary .02, also provides that 
individuals who are not associated persons of firms, such as members of 
the general public, are eligible to take the SIE. The Exchange believes 
that expanding the pool of individuals who are eligible to take the SIE 
would enable prospective securities industry professionals to 
demonstrate to prospective employers a basic level of knowledge prior 
to submitting a job application. Further, this approach would allow for 
more flexibility and career mobility within the securities industry. 
While all associated persons of firms as well as individuals who are 
not associated persons would be eligible to take the SIE pursuant to 
the proposed rule, passing the SIE alone would not qualify them for 
registration with the Exchange. Rather, to be eligible for registration 
with the Exchange, an individual must pass an applicable representative 
or principal qualification examination and complete the other 
requirements of the registration process.
    Proposed Rule 2.1210, Commentary .02, also provides that the 
Exchange may, in exceptional cases and where good cause is shown, 
pursuant to the Rule 10.9600 Series, waive the applicable qualification 
examination(s) and accept other standards as evidence of an applicant's 
qualifications for registration. The proposed rule further provides 
that the Exchange will only consider examination waiver requests 
submitted by an ETP Holder for individuals associated with the ETP 
Holder who are seeking registration in a representative- or principal-
level registration category. Moreover, the proposed rule states that 
the Exchange will consider waivers of the SIE alone or the SIE and the 
representative- and principal-level examination(s) for such 
individuals. The Exchange would not consider a waiver of the SIE for 
non-associated persons or for associated persons who are not 
registering as representatives or principals.
4. Proposed Rule 2.1210, Commentary .03--Requirements for Registered 
Persons Functioning as Principals for a Limited Period \24\
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    \24\ The proposed rule is substantially similar to FINRA Rule 
1210.04.
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    Proposed Rule 2.1210, Commentary .03, provides that an ETP Holder 
may designate any person currently registered, or who becomes 
registered, with the ETP Holder as a representative to function as a 
principal for a limited period, provided that such person has at least 
18 months of experience functioning as a registered representative with 
[sic] the five-year

[[Page 51034]]

period immediately preceding the designation. The proposed rule is 
intended to ensure that representatives designated to function as 
principals for the limited period under the proposal have an 
appropriate level of registered representative experience. The proposed 
rule clarifies that the requirements of the rule apply to designations 
to any principal category, including those categories that are not 
subject to a prerequisite representative-level registration 
requirement, such as the Financial and Operations Principal 
registration category.\25\
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    \25\ The Exchange notes that qualifying as a registered 
representative is a prerequisite to qualifying as a principal except 
with respect to the following principal-level registrations: (1) 
Compliance Official; (2) Financial and Operations Principal; and (3) 
Introducing Broker-Dealer Financial and Operations Principal.
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    The proposed rule also clarifies that the individual must fulfill 
all applicable prerequisite registration, fee and examination 
requirements before his or her designation as a principal. Further, the 
proposed rule provides that in no event may such person function as a 
principal beyond the initial 120 calendar days without having 
successfully passed an appropriate principal qualification examination. 
The proposed rule also provides an exception to the experience 
requirement for principals who are designated by an ETP Holder to 
function in other principal categories for a limited period. 
Specifically, the proposed rule states that an ETP Holder may designate 
any person currently registered, or who becomes registered, with the 
ETP Holder as a principal to function in another principal category for 
120 calendar days before passing any applicable examinations.
5. Proposed Rule 2.1210, Commentary .04--Rules of Conduct for Taking 
Examinations and Confidentiality of Examinations \26\
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    \26\ The proposed rule is substantially similar to FINRA Rule 
1210.05.
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    Proposed Rule 2.1210, Commentary .04 states that associated persons 
taking the SIE would be subject to the SIE Rules of Conduct, and 
associated persons taking a representative or principal examination 
would be subject to the Rules of Conduct for representative and 
principal examinations. Pursuant to proposed Rule 2.1210, Commentary 
.04, a violation of the SIE Rules of Conduct or the Rules of Conduct 
for representative and principal examinations by an associated person 
would be deemed to be a violation of Rule 11.3.1. Moreover, if an 
associated person is deemed to have violated the SIE Rules of Conduct 
or the Rules of Conduct for representative and principal examinations, 
the associated person may forfeit the results of the examination and 
may be subject to disciplinary action by the Exchange.
    Further, the proposed rule states that individuals taking the SIE 
who are not associated persons must agree to be subject to the SIE 
Rules of Conduct. Among other things, the SIE Rules of Conduct would 
require individuals to attest that they are not qualified to engage in 
the investment banking or securities business based on passing the SIE 
and would prohibit individuals from cheating on the examination or 
misrepresenting their qualifications to the public subsequent to 
passing the SIE. Moreover, non-associated persons may forfeit their SIE 
results and may be prohibited from retaking the SIE if the Exchange 
determines that they cheated on the SIE or that they misrepresented 
their qualifications to the public subsequent to passing the SIE.
    The proposed rule further notes that the Exchange considers all 
qualification examinations [sic] content to be highly confidential and 
that the removal of examination content from an examination center, 
reproduction, disclosure, receipt from or passing to any person, or use 
for study purposes of any portion of such qualification examination or 
any other use that would compromise the effectiveness of the 
examinations and the use in any manner and at any time of the questions 
or answers to the examinations is prohibited and would be deemed a 
violation of Rule 11.3.1.
6. Proposed Rule 2.1210, Commentary .05--Waiting Periods for Retaking a 
Failed Examination \27\
---------------------------------------------------------------------------

    \27\ The proposed rule is substantially similar to FINRA Rule 
1210.06.
---------------------------------------------------------------------------

    Proposed Rule 2.1210, Commentary .05 provides that any person who 
fails a qualification examination may retake that examination after 30 
calendar days from the date of the person's last attempt to pass that 
examination. The proposed rule further provides that if a person fails 
an examination three or more times in succession within a two-year 
period, he or she would be prohibited from retaking the examination 
either until a period of 180 calendar days from the date of the 
person's last attempt to pass it [sic]. These waiting periods would 
apply to the SIE and the representative- and principal-level 
examinations. Moreover, the proposed rule provides that non-associated 
persons taking the SIE must agree to be subject to the same waiting 
periods for retaking the SIE.
7. Proposed Rule 2.1210, Commentary .06--All Registered Persons Must 
Satisfy the Regulatory Element of Continuing Education \28\
---------------------------------------------------------------------------

    \28\ The proposed rule is substantially similar to FINRA Rule 
1210.07.
---------------------------------------------------------------------------

    Pursuant to Rule 2.2(e), the CE requirements applicable to 
Registered Persons consist of a Regulatory Element \29\ and a Firm 
Element.\30\ The Regulatory Element applies to Registered Persons and 
must be completed within prescribed time frames.\31\ For purposes of 
the Regulatory Element, a Registered Person is any person registered 
with the Exchange as a General Securities Principal, Securities Trader, 
Principal, FINOP, Person Associated with an ETP Holder, Authorized 
Trader or Market Maker Authorized Trader. The Firm Element consists of 
annual, ETP Holder-developed and administered training programs 
designed to keep covered Registered Persons current regarding 
securities products, services and strategies offered by the ETP Holder. 
For purposes of the Firm Element, the term covered Registered Persons 
means any Person registered with an ETP Holder who has direct contact 
with customers in the conduct of the ETP Holder's securities sales, 
trading and investment banking activities and to the immediate 
supervisors of such Persons.
---------------------------------------------------------------------------

    \29\ See Rule 2.2(e)(1).
    \30\ See Rule 2.2(e)(2).
    \31\ Pursuant to Rule 2.2(e)(1), each specified Registered 
Person is required to complete the Regulatory Element initially 
within 120 days after the person's second registration anniversary 
date and, thereafter, within 120 days after every third registration 
anniversary date. A Registered Person who has not completed the 
Regulatory Element program within the prescribed time frames will 
have his or her registrations deemed inactive and designated as ``CE 
inactive'' on the CRD system until such time as the requirements of 
the program have been satisfied. A CE inactive person is prohibited 
from performing, or being compensated for, any activities requiring 
registration, including supervision. Moreover, if a Registered 
Person is CE inactive for a two-year period, the Exchange will 
administratively terminate the person's registration status. The 
two-year period would be calculated from the date the person becomes 
CE inactive. In either case, such person must requalify (or obtain a 
waiver of the applicable qualification examination(s)) to be re-
eligible for registration.
---------------------------------------------------------------------------

    The Exchange believes that all Registered Persons, regardless of 
their activities, should be subject to the Regulatory Element of the CE 
requirements so that they can keep their knowledge of the securities 
industry current. Therefore, the Exchange proposes to adopt Rule 
2.1210, Commentary .06, to clarify that all Registered Persons, 
including those who solely maintain a permissive

[[Page 51035]]

registration, are required to satisfy the Regulatory Element, as 
specified in Rule 2.2(e)(1). The Exchange is making corresponding 
changes to Rule 2.2(e)(1). The Exchange is not proposing any changes to 
the Firm Element requirement at this time. Individuals who have passed 
the SIE but not a representative- or principal-level examination and do 
not hold a registered position would not be subject to any CE 
requirements.
    Proposed Rule 2.1210, Commentary .06, also provides that a 
Registered Person of an ETP Holder who becomes CE inactive would not be 
permitted to be registered in another registration category with the 
ETP Holder or be registered in any registration category with another 
ETP Holder, until the person has satisfied the Regulatory Element.
8. Proposed Rule 2.1210, Commentary .07--Lapse of Registration and 
Expiration of the SIE \32\
---------------------------------------------------------------------------

    \32\ The proposed rule is substantially similar to FINRA Rule 
1210.08.
---------------------------------------------------------------------------

    Proposed Rule 2.1210, Commentary .07, provides that any person who 
was last registered as a representative two or more years immediately 
preceding the date of receipt by the Exchange of a new application for 
registration as a representative is required to pass a qualification 
examination for representatives appropriate to the category of 
registration as specified in proposed Rule 2.1220(b). Proposed Rule 
2.1210, Commentary .07, also sets forth that a passing result on the 
SIE would be valid for up to four years. Therefore, under the proposed 
rule change, an individual who passes the SIE and is an associated 
person of an ETP Holder at the time would have up to four years from 
the date he or she passes the SIE to pass a representative-level 
examination to register as a representative with that ETP Holder, or a 
subsequent ETP Holder, without having to retake the SIE. In addition, 
an individual who passes the SIE and is not an associated person at the 
time would have up to four years from the date he or she passes the SIE 
to become an associated person of an ETP Holder and pass a 
representative-level examination and register as a representative 
without having to retake the SIE.
    Moreover, an individual holding a representative-level registration 
who leaves the industry after the effective date of this proposed rule 
change would have up to four years to re-associate with an ETP Holder 
and register as a representative without having to retake the SIE. 
However, the four-year expiration period in the proposed rule change 
extends only to the SIE, and not the representative- and principal-
level registrations. The representative- and principal-level 
registrations would continue to be subject to a two-year expiration 
period as is the case today.
    Finally, proposed Rule 2.1210, Commentary .07, clarifies that, for 
purposes of the proposed rule, an application would not be considered 
to have been received by the Exchange if that application does not 
result in a registration.
9. Proposed Rule 2.1210, Commentary .08--Waiver of Examinations for 
Individuals Working for a Financial Services Industry Affiliate of an 
ETP Holder \33\
---------------------------------------------------------------------------

    \33\ The proposed rule is substantially similar to FINRA Rule 
1210.09.
---------------------------------------------------------------------------

    Proposed Rule 2.1210, Commentary .08, provides the process for 
individuals working for a financial services industry affiliate of an 
ETP Holder \34\ to terminate their registrations with the ETP Holder 
and be granted a waiver of their requalification requirements upon re-
registering with an ETP Holder, provided the firm that is requesting 
the waiver and the individual satisfy the criteria for a Financial 
Services Affiliate (``FSA'') waiver.
---------------------------------------------------------------------------

    \34\ Proposed Rule 2.1210, Commentary .07 [sic], defines a 
``financial services industry affiliate of an ETP Holder'' as a 
legal entity that controls, is controlled by or is under common 
control with an ETP Holder and is regulated by the SEC, CFTC, state 
securities authorities, federal or state banking authorities, state 
insurance authorities, or substantially equivalent foreign 
regulatory authorities.
---------------------------------------------------------------------------

    Under the proposed waiver process, the first time a Registered 
Person is designated as eligible for a waiver based on the FSA 
criteria, the ETP Holder with which the individual is registered would 
notify the Exchange of the FSA designation. The ETP Holder would 
concurrently file a full Form U5 terminating the individual's 
registration with the firm, which would also terminate the individual's 
other SRO and state registrations. To be eligible for initial 
designation as an FSA-eligible person by an ETP Holder, an individual 
must have been registered for a total of five years within the most 
recent 10-year period prior to the designation, including for the most 
recent year with that ETP Holder. An individual would have to satisfy 
these preconditions only for purposes of his or her initial designation 
as an FSA-eligible person, and not for any subsequent FSA 
designation(s). Thereafter, the individual would be eligible for a 
waiver for up to seven years from the date of initial designation,\35\ 
provided that the other conditions of the waiver, as described below, 
have been satisfied. Consequently, an ETP Holder other than the ETP 
Holder that initially designated an individual as an FSA-eligible 
person may request a waiver for the individual and more than one ETP 
Holder may request a waiver for the individual during the seven-year 
period.\36\
---------------------------------------------------------------------------

    \35\ Individuals would be eligible for a single, fixed seven-
year period from the date of initial designation, and the period 
would not be tolled or renewed.
    \36\ The following examples illustrate this point:
    Example 1. Firm A designates an individual as an FSA-eligible 
person by notifying the Exchange and files a Form U5. The individual 
joins Firm A's financial services affiliate. Firm A does not submit 
a waiver request for the individual. After working for Firm A's 
financial services affiliate for three years, the individual 
directly joins Firm B's financial services affiliate for three 
years. Firm B then submits a waiver request to register the 
individual.
     Example 2. Same as Example 1, but the individual directly joins 
Firm B after working for Firm A's financial services affiliate, and 
Firm B submits a waiver request to register the individual at that 
point in time.
     Example 3. Firm A designates an individual as an FSA-eligible 
person by notifying the Exchange and files a Form U5. The individual 
joins Firm A's financial services affiliate for three years. Firm A 
then submits a waiver request to re-register the individual. After 
working for Firm A in a registered capacity for six months, Firm A 
re-designates the individual as an FSA-eligible person by notifying 
the Exchange and files a Form U5. The individual rejoins Firm A's 
financial services affiliate for two years, after which the 
individual directly joins Firm B's financial services affiliate for 
one year. Firm B then submits a waiver request to register the 
individual.
     Example 4. Same as Example 3, but the individual directly joins 
Firm B after the second period of working for Firm A's financial 
services affiliate, and Firm B submits a waiver request to register 
the individual at that point in time.
---------------------------------------------------------------------------

    An individual designated as an FSA-eligible person would be subject 
to the Regulatory Element of CE while working for a financial services 
industry affiliate of an ETP Holder. The individual would be subject to 
a Regulatory Element program that correlates to his or her most recent 
registration category, and CE would be based on the same cycle had the 
individual remained registered. If the individual fails to complete the 
prescribed Regulatory Element during the 120-day window for taking the 
session, he or she would lose FSA eligibility (i.e., the individual 
would have the standard two-year period after termination to re-
register without having to retake an examination). The Exchange is 
making corresponding changes to Rule 2.2(e).
    Upon registering an FSA-eligible person, a firm would file a Form 
U4 and request the appropriate registration(s) for the individual. The 
firm would also submit an examination waiver request

[[Page 51036]]

to the Exchange,\37\ similar to the process used today for waiver 
requests, and it would represent that the individual is eligible for an 
FSA waiver based on the conditions set forth below. The Exchange would 
review the waiver request and make a determination of whether to grant 
the request within 30 calendar days of receiving the request. The 
Exchange would summarily grant the request if the following conditions 
are met:
---------------------------------------------------------------------------

    \37\ The Exchange would consider a waiver of the representative-
level qualification examination(s), the principal-level 
qualification examination(s) and the SIE, as applicable.
---------------------------------------------------------------------------

    (1) Prior to the individual's initial designation as an FSA-
eligible person, the individual was registered for a total of five 
years within the most recent 10-year period, including for the most 
recent year with the ETP Holder that initially designated the 
individual as an FSA-eligible person;
    (2) The waiver request is made within seven years of the 
individual's initial designation as an FSA-eligible person by an ETP 
Holder;
    (3) The initial designation and any subsequent designation(s) were 
made concurrently with the filing of the individual's related Form U5;
    (4) The individual continuously worked for the financial services 
affiliate(s) of an ETP Holder since the last Form U5 filing;
    (5) The individual has complied with the Regulatory Element of CE; 
and
    (6) The individual does not have any pending or adverse regulatory 
matters, or terminations, that are reportable on the Form U4, and has 
not otherwise been subject to a statutory disqualification while the 
individual was designated as an FSA-eligible person with an ETP Holder.
    Following the Form U5 filing, an individual could move between the 
financial services affiliates of an ETP Holder so long as the 
individual is continuously working for an affiliate. Further, an ETP 
Holder could submit multiple waiver requests for the individual, 
provided that the waiver requests are made during the course of the 
seven-year period.\38\ An individual who has been designated as an FSA-
eligible person by an ETP Holder would not be able to take additional 
examinations to gain additional registrations while working for a 
financial services affiliate of an ETP Holder.
---------------------------------------------------------------------------

    \38\ For example, if an ETP Holder submits a waiver request for 
an FSA-eligible person who has been working for a financial services 
affiliate of the ETP Holder for three years and re-registers the 
individual, the ETP Holder could subsequently file a Form U5 and re-
designate the individual as an FSA-eligible person. Moreover, if the 
individual works with a financial services affiliate of the ETP 
Holder for another three years, the ETP Holder could submit a second 
waiver request and re-register the individual upon returning to the 
ETP Holder.
---------------------------------------------------------------------------

10. Proposed Rule 2.1210, Commentary .09--Status of Persons Serving in 
the Armed Forces of the United States \39\
---------------------------------------------------------------------------

    \39\ The proposed rule is substantially similar to FINRA Rule 
1210.10.
---------------------------------------------------------------------------

    Proposed Rule 2.1210, Commentary .09 provides specific relief to 
Registered Persons serving in the Armed Forces of the United States. 
Among other things, the proposed rule permits a Registered Person of an 
ETP Holder who volunteers for or is called into active duty in the 
Armed Forces of the United States to be registered in an inactive 
status and remain eligible to receive ongoing transaction-related 
compensation. The proposed rule also includes specific provisions 
regarding the deferment of the lapse of registration requirements for 
formerly Registered Persons serving in the Armed Forces of the United 
States. The proposed rule further requires that the ETP Holder with 
which such person is registered promptly notify the Exchange of such 
person's return to employment with the ETP Holder. The proposed rule 
would require an ETP Holder that is a sole proprietor to also similarly 
notify the Exchange of his or her return to participation in the 
investment banking or securities business. The proposed rule also 
provides that the Exchange would defer the lapse of the SIE for 
formerly Registered Persons serving in the Armed Forces of the United 
States.
J. Proposed New Rule 2.1220--Registration Categories \40\
---------------------------------------------------------------------------

    \40\ The Exchange is not adopting the following categories from 
the FINRA Filing because ETP Holders do not engage in the type of 
business that would require registration with the Exchange: 
Investment Banking Principal, Research Principal, Registered Options 
Principal, Government Securities Principal, Investment Company and 
Variable Contracts Products Principal, Direct Participation Programs 
Principal, Private Securities Offerings Principal, Supervisory 
Analyst, Operations Professional, Investment Banking Representative, 
Research Analyst, Investment Company and Variable Contracts Products 
Representative, Direct Participation Programs Representative, and 
Private Securities Offering Representative. The Exchange is also not 
adopting the following categories because the FINRA Filing 
eliminated them: Order Processing Assistant Representative, United 
Kingdom Securities Representative, Canadian Securities 
Representative, Options Representative, Corporate Securities 
Representative and Government Securities Representative.
---------------------------------------------------------------------------

1. Proposed Rule 2.1220(a)(1)--Principal
    Rule 1.1(y) currently defines the term ``Principal'' to mean any 
Person Associated with an ETP Holder actively engaged in the management 
of the ETP Holder's securities business, including supervision, 
solicitation, conduct of the ETP Holder's business, or the training of 
Authorized Traders and Persons Associated with an ETP Holder for any of 
these functions. Such Persons include Sole Proprietors, Officers, 
Partners, and Directors of Corporations. The Exchange is not proposing 
any change to the current definition for purposes of the proposed new 
registration rules.
    The Exchange does, however, propose to codify the phrase ``actively 
engaged in the management of the ETP Holder's securities business'' to 
include the management of, and the implementation of corporate policies 
related to, such business. The term also includes managerial decision-
making authority with respect to the ETP Holder's securities business 
and management-level responsibilities for supervising any aspect of 
such business, such as serving as a voting member of the ETP Holder's 
executive, management or operations committee.
2. Proposed Rule 2.1220(a)(2)--General Securities Principal \41\
---------------------------------------------------------------------------

    \41\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(2).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(a)(2)(A) states that each principal as defined 
in proposed Rule 2.1220(a)(1) is required to register with the Exchange 
as a General Securities Principal, subject to the following exceptions. 
The proposed rule provides that if a principal's activities include the 
functions of a Compliance Officer, a Financial and Operations Principal 
(or an Introducing Broker-Dealer Financial and Operations Principal, as 
applicable), a Principal Financial Officer, a Principal Operations 
Officer, or a Securities Trader Principal, then the principal must 
appropriately register in one or more of these categories.
    Proposed Rule 2.1220(a)(2)(A) further provides that if a 
principal's activities are limited solely to the functions of a General 
Securities Sales Supervisor, then the principal may appropriately 
register in that category in lieu of registering as a General 
Securities Principal.
    Proposed Rule 2.1220(a)(2)(B) requires that an individual 
registering as a General Securities Principal satisfy the General 
Securities Representative prerequisite registration and pass the 
General Securities Principal qualification examination. Proposed Rule 
2.1220(a)(2)(B) also clarifies that an individual may register as a 
General Securities Sales Supervisor and pass the General Securities 
Sales Supervisor

[[Page 51037]]

qualification examination in lieu of passing the General Securities 
Principal examination.
    As a general matter, the Exchange currently recognizes the 
Corporate Securities Representative but would no longer recognize this 
registration category given its elimination by FINRA. Proposed Rule 
2.1220(a)(2)(B), however, provides that, subject to the lapse of 
registration provisions in proposed Rule 2.1210, Commentary .07, each 
person registered with the Exchange as a Corporate Securities 
Representative and a General Securities Principal on October 1, 2018 
and each person who was registered with the Exchange as a Corporate 
Securities Representative and a General Securities Principal within two 
years prior to October 1, 2018 would be qualified to register as a 
General Securities Principal without having to take any additional 
qualification examinations, provided that such person's supervisory 
responsibilities in the investment banking and securities business of 
an ETP Holder are limited to corporate securities activities of the ETP 
Holder. The proposed rule further provides that all other individuals 
registering as General Securities Principals after October 1, 2018 
shall, prior to or concurrent with such registration, become registered 
as a General Securities Representative and either (1) pass the General 
Securities Principal qualification examination; or (2) register as a 
General Securities Sales Supervisor and pass the General Securities 
Sales Supervisor qualification examination.
3. Proposed Rule 2.1220(a)(3)--Compliance Officer \42\
---------------------------------------------------------------------------

    \42\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(3).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(a)(3) establishes a Compliance Officer 
registration category and requires all persons designated as CCOs on 
Schedule A of Form BD to register as Compliance Officers, subject to an 
exception for ETP Holders engaged in limited investment banking or 
securities business. The proposed rule only addresses the registration 
requirements for CCOs. However, consistent with proposed Rule 2.1210, 
Commentary .01 relating to permissive registrations, a firm may allow 
other associated persons to register as Compliance Officers.
    In addition, the Exchange is proposing to provide CCOs of firms 
that engage in limited investment banking or securities business with 
greater flexibility to satisfy the qualification requirements for CCOs. 
Specifically, proposed Rule 2.1220(a)(3) set forth the following 
qualification requirements for Compliance Officer registration:
     Subject to the lapse of registration provisions in 
proposed Rule 2.1210, Commentary .07, each person registered with the 
Exchange as a General Securities Representative and a General 
Securities Principal on October 1, 2018 and each person who was 
registered with the Exchange as a General Securities Representative and 
a General Securities Principal within two years prior to October 1, 
2018 would be qualified to register as Compliance Officers without 
having to take any additional examinations. In addition, subject to the 
lapse of registration provisions in proposed Rule 2.1210, Commentary 
.07, individuals registered as Compliance Officials in the CRD system 
on October 1, 2018 and individuals who were registered as such within 
two years prior to October 1, 2018 would also be qualified to register 
as Compliance Officers without having to take any additional 
examinations; [sic]
     All other individuals registering as Compliance Officers 
after October 1, 2018 would have to: (1) Satisfy the General Securities 
Representative prerequisite registration and pass the General 
Securities Principal qualification examination; or (2) pass the 
Compliance Official qualification examination.
     An individual designated as a CCO on Schedule A of Form BD 
of an ETP Holder that is engaged in limited investment banking or 
securities business may be registered in a principal category under 
proposed Rule 2.1220(a) that corresponds to the limited scope of the 
ETP Holder's business.
4. Proposed Rule 2.1220(a)(4)--Financial and Operation Principal and 
Introducing Broker-Dealer Financial and Operations Principal \43\
---------------------------------------------------------------------------

    \43\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(4).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(a)(4) provides that each principal who is 
responsible for the financial and operational management of an ETP 
Holder that has a minimum net capital requirement of $250,000 under SEA 
Rules 15c3-1(a)(1)(ii) and 15c3-1(a)(2)(i), or an ETP Holder that has a 
minimum net capital requirement of $150,000 under SEA Rule 15c-3-
1(a)(8) must be designated as a Financial and Operations Principal. In 
addition, proposed Rule 2.1220(a)(4) provides that a principal who is 
responsible for the financial and operational management of an ETP 
Holder that is subject to the net capital requirements of SEA Rule 
15c3-1, other than an ETP Holder that is subject to the net capital 
requirements of SEA Rules 15c3-1(a)(1)(ii), (a)(2)(i) or (a)(8), must 
be designated and registered as either a Financial and Operations 
Principal or an Introducing Broker-Dealer Financial and Operations 
Principal. Financial and Operations Principals and Introducing Broker-
Dealer Financial and Operation Principals are not subject to a 
prerequisite representative registration, but they must pass the 
Financial and Operations Principal or Introducing Broker-Dealer 
Financial and Operations Principal examination, as applicable.
    Additionally, proposed Rule 2.1220(a)(4)(B) requires an ETP Holder 
to designate a Principal Financial Officer with primary responsibility 
for the day-to-day operations of the business, including overseeing the 
receipt and delivery of securities and funds, safeguarding customer and 
firm assets, calculation and collection of margin from customers and 
processing dividend receivable and payables and reorganization 
redemptions and those books and records related to such activities. 
Further, the proposed rule requires that a firm's Principal Financial 
Officer and Principal Operations Officer qualify and register as 
Financial and Operations Principals or Introducing Broker-Dealer 
Financial and Operations Principals, as applicable.
    Because the financial and operational activities of ETP Holders 
that neither self-clear nor provide clearing services are more limited, 
such ETP Holders may designate the same person as the Principal 
Financial Officer, Principal Operations Officer and Financial and 
Operations Principal or Introducing Broker-Dealer Financial and 
Operations Principal (that is, such ETP Holders are not required to 
designate different persons to function in these capacities).
    Given the level of financial and operational responsibility at 
clearing and self-clearing members, the Exchange believes that it is 
necessary for such ETP Holders to designate separate persons to 
function as Principal Financial Officer and Principal Operations 
Officer. Such persons may also carry out the other responsibilities of 
a Financial and Operations Principal, such as supervision of 
individuals engaged in financial and operational activities. In 
addition, the proposed rule provides that a clearing or self-clearing 
ETP Holder that is limited in size and resources may request a waiver 
of the requirement to designate separate persons to function as 
Principal Financial Officer and Principal Operations Officer.

[[Page 51038]]

5. Proposed Rule 2.1220(a)(5)--Securities Trader Principal \44\
---------------------------------------------------------------------------

    \44\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(7).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(a)(5) requires that a principal responsible 
for supervising the securities trading activities specified in proposed 
Rule 2.1220(b)(3) register as a Securities Trader Principal. The 
proposed rule requires that individuals registering as Securities 
Trader Principals must be registered as Securities Traders and pass the 
General Securities Principal qualification examination.
6. Proposed Rule 2.1220(a)(6)--General Securities Sales Supervisor \45\
---------------------------------------------------------------------------

    \45\ The proposed rule is substantially similar to FINRA Rule 
1220(a)(10).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(a)(6) provides that a principal may register 
with the Exchange as a General Securities Sales Supervisor if his or 
her supervisory responsibilities in the investment banking or 
securities business of an ETP Holder are limited to the securities 
sales activities of the ETP Holder, including the approval or customer 
accounts, training of sales and sales supervisory personnel and the 
maintenance of records of original entry or ledger accounts of the ETP 
Holder required to be maintained in branch offices by Exchange Act 
record-keeping rules.
    A person registering as a General Securities Sales Supervisor must 
satisfy the General Securities Representative prerequisite registration 
and pass the General Securities Sales Supervisor examinations.\46\ 
Moreover, a General Securities Sales Supervisor is precluded from 
performing any of the following activities: (1) Supervision of the 
origination and structuring of underwritings; (2) supervision of 
market-making commitments; (3) supervision of the custody of firm or 
customer funds or securities for purposes of SEA Rule 15c3-3; or (4) 
supervision of overall compliance with financial responsibility rules.
---------------------------------------------------------------------------

    \46\ An individual may also register as a General Securities 
Sales Supervisor by passing a combination of other principal-level 
examinations.
---------------------------------------------------------------------------

7. Proposed Rule 2.1220(b)(1)--Representative \47\
---------------------------------------------------------------------------

    \47\ The proposed rule is substantially similar to FINRA Rule 
1220(b)(1).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(b)(1) defines a representative as any person 
associated with an ETP Holder, including assistant officers other than 
principals, who is engaged in the ETP Holder's investment banking or 
securities business, such as supervision, solicitation, conduct of 
business in securities or the training of persons associated with an 
ETP Holder for any of these functions.
8. Proposed Rule 2.1220(b)(2)--General Securities Representative \48\
---------------------------------------------------------------------------

    \48\ The proposed rule is substantially similar to FINRA Rule 
1220(b)(2).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(b)(2)(A) states that each representative as 
defined in proposed Rule 2.1220(b)(1) is required to register with the 
Exchange as a General Securities Representative, subject to the 
following exceptions. The proposed rule provides that if a 
representative's activities include the function of a Securities 
Trader, then the representative must appropriately register in that 
category.
    The proposed rule further provides that, subject to the lapse of 
registration provisions in proposed Rule 2.1210, Commentary .07, each 
person registered with the Exchange as a General Securities 
Representative on October 1, 2018 and each person who was registered 
with the Exchange as a General Securities Representative within two 
years prior to October 1, 2018 would be qualified to register as a 
General Securities Representative without having to take any additional 
qualification examinations. Additionally, the proposed rule would 
require that individuals registering as General Securities 
Representatives after October 1, 2018 shall, prior to or concurrent 
with such registration, pass the SIE and the General Securities 
Representative examination.
9. Proposed Rule 2.1220(b)(3)--Securities Trader \49\
---------------------------------------------------------------------------

    \49\ The proposed rule is substantially similar to FINRA Rule 
1220(b)(4).
---------------------------------------------------------------------------

    Proposed Rule 2.1220(b)(3) provides that each representative as 
defined in proposed Rule 2.1220(b)(1) is required to register as a 
Securities Trader if, with respect to transactions in equity (including 
equity options), preferred or convertible debt securities, such person 
is engaged in proprietary trading, the execution of transactions on an 
agency basis, or the direct supervision of such activities. The 
proposed rule provides an exception from the registration requirement 
for any associated person of an ETP Holder whose trading activities are 
conducted primarily on behalf of an investment company that is 
registered with the SEC pursuant to the Investment Company Act and that 
controls, is controlled by, or is under common control with an ETP 
Holder. The Exchange proposes to adopt FINRA's definition of Securities 
Trader in proposed Rule 2.1220(b)(3) in order to align the text of the 
rule to that adopted by FINRA and other exchanges.\50\
---------------------------------------------------------------------------

    \50\ See e.g., MIAX International Stock Exchange, LLC Rule 
203(d).
---------------------------------------------------------------------------

    The proposed rule also requires that associated persons primarily 
responsible for the design, development or significant modification of 
algorithmic trading strategies (or responsible for the day-to-day 
supervision or direction of such activities) register as Securities 
Traders. Individuals registering as Securities Traders must pass the 
SIE and the Securities Trader examination.
    Finally, the proposed rule provides that, subject to the lapse of 
registration provisions in proposed Rule 2.1210, Commentary .07, each 
person registered with the Exchange as a Securities Trader on October 
1, 2018 and each person who was registered with the Exchange as a 
Securities Trader within two years prior to October 1, 2018 would be 
qualified to register as a Securities Trader without having to take any 
additional qualification examinations. Additionally, the proposed rule 
would require that individuals registering as Securities Traders after 
October 1, 2018 shall, prior to or concurrent with such registration, 
pass the SIE and the Securities Trader qualification examination.
10. Proposed Rule 2.1220, Commentary .01--Foreign Registrations \51\
---------------------------------------------------------------------------

    \51\ The proposed rule is substantially similar to FINRA Rule 
1220.01 and 1220.06.
---------------------------------------------------------------------------

    Proposed Rule 2.1220, Commentary .01, states that individuals who 
are in good standing as representatives with the Financial Conduct 
Authority in the United Kingdom or with a Canadian stock exchange or 
securities regulator would be exempt from the requirement to pass the 
SIE, and thus would be required only to pass a specialized knowledge 
examination to register with the Exchange as a representative. The 
proposed approach would provide individuals with a United Kingdom or 
Canadian qualification more flexibility to obtain a representative-
level registration. Additionally, proposed Rule 2.1220, Commentary .01, 
provides that, subject to the lapse of registration provisions in Rule 
2.1210, Commentary .07, each person who is registered with the Exchange 
as a United Kingdom Securities Representative or a Canada Securities 
Representative on October 1, 2018 and each person who was registered 
with the Exchange in such categories within two years prior to October 
1, 2018 would be eligible to maintain such registrations with the 
Exchange. However, if persons

[[Page 51039]]

registered in such categories subsequently terminate such 
registration(s) with the Exchange and the registration remains 
terminated for two or more years, they would not be eligible to re-
register in such categories.
11. Proposed Rule 2.1220, Commentary .02--Additional Qualification 
Requirements for Persons Engaged in Security Futures \52\
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    \52\ The proposed rule is substantially similar to FINRA Rule 
1220.02.
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    Proposed Rule 2.1220, Commentary .02, states that each person who 
is registered with the Exchange as a General Securities Representative, 
United Kingdom Securities Representative, Canada Securities 
Representative, or General Securities Sales Supervisor shall be 
eligible to engage in security futures activities as a representative 
or principal, as applicable, provided that such individual completes a 
Firm Element program as set forth in Rule 2.2(e)(2) that addresses 
security futures products before such person engages in security 
futures activities.\53\
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    \53\ FINRA Rule 1220.02 also includes Options Representative and 
Registered Options Principal registration categories. NYSE National 
does not trade options and ETP Holders of NYSE National therefore 
would not be required to register with the Exchange in those 
categories and therefore the Exchange is not adopting those 
categories within proposed Rule 2.1220, Commentary .03 [sic].
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12. Proposed Rule 2.1220, Commentary .03--Scope of General Securities 
Sales Supervisor Registration Category \54\
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    \54\ The proposed rule is substantially similar to FINRA Rule 
1220.04.
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    Proposed Rule 2.1220, Commentary .03, explains the purpose of the 
General Securities Sales Supervisor registration category. The General 
Securities Sales Supervisor category is an alternate category of 
registration designed to lessen the qualification burdens on principals 
of general securities firms who supervise sales. Without this category 
of limited registration, such principals would be required to 
separately qualify pursuant to the rules of FINRA, the MSRB, the NYSE 
and the options exchanges. While persons may continue to separately 
qualify with all relevant self-regulatory organizations, the General 
Securities Sales Supervisor examination permits qualification as a 
supervisor of sales of all securities through one registration 
category. Persons registered as General Securities Sales Supervisors 
may also qualify in any other category of principal registration. 
Persons who are already qualified in one or more categories of 
principal registration may supervise sales activities of all securities 
by also qualifying as General Securities Sales Supervisors.
    The proposed rule further provides that any person required to be 
registered as a principal who supervises sales activities in corporate, 
municipal and option securities, investment company products, variable 
contracts, and security futures (subject to the requirements of Rule 
2.1220, Commentary .02) may be registered solely as a General 
Securities Sales Supervisor. In addition to branch office managers, 
other persons such as regional and national sales managers may also be 
registered solely as General Securities Sales Supervisors as long as 
they supervise only sales activities.
K. Proposed New Rule 2.1230--Associated Persons Exempt From 
Registration \55\
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    \55\ The proposed rule is substantially similar to FINRA Rule 
1230.
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    Proposed Rule 2.1230 provides an exemption from registration with 
the Exchange for certain associated persons. Specifically, the proposed 
rule provides that persons associated with an ETP Holder whose 
functions are solely and exclusively clerical or ministerial would be 
exempt from registration.\56\
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    \56\ FINRA Rule 1230 provides an exemption from registration 
with FINRA to persons associated with a FINRA member whose functions 
are solely and exclusively clerical or ministerial and persons 
associated with a FINRA member whose functions are related solely 
and exclusively to (i) effecting transactions on the floor of a 
national securities exchange and who are appropriately registered 
with such exchange; (ii) effecting transactions in municipal 
securities; (iii) effecting transactions in commodities; or (iv) 
effecting transactions in security futures, provided that any such 
person is registered with a registered futures association. ETP 
Holders of NYSE National do not solely and exclusively engage in any 
of the foregoing transactions and therefore the Exchange is not 
adopting that portion of FINRA Rule 1230.
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1. Proposed Rule 2.1230, Commentary .01--Registration Requirements for 
Associated Persons Who Accept Customer Orders \57\
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    \57\ The proposed rule is substantially similar to FINRA Rule 
1230.01.
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    Proposed Rule 2.1230, Commentary .01, clarifies that the function 
of accepting customer orders is not considered clerical or ministerial 
and that associated persons who accept customer orders under any 
circumstances are required to be appropriately registered. However, the 
proposed rule provides that an associated person is not accepting a 
customer order where occasionally, when an appropriately Registered 
Person is unavailable, the associated person transcribes the order 
details and the Registered Person contacts the customer to confirm the 
order details before entering the order [sic]
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\58\ in general, and 
furthers the objectives of Section 6(b)(5),\59\ in particular, because 
it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, to remove impediments to, and perfect the 
mechanism of, a free and open market and a national market system and, 
in general, to protect investors and the public interest.
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    \58\ 15 U.S.C. 78f(b).
    \59\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change will 
streamline, and bring consistency and uniformity to, the registration 
rules, which will, in turn, assist ETP Holders and their associated 
persons in complying with these rules and improve regulatory 
efficiency. The proposed rule change will also improve the efficiency 
of the examination program, without compromising the qualification 
standards. In addition, the proposed rule change will expand the scope 
of permissive registrations, which, among other things, will allow ETP 
Holders to develop a depth of associated persons with registrations to 
respond to unanticipated personnel changes and will encourage greater 
regulatory understanding. Further, the proposed rule change will 
provide a more streamlined and effective waiver process for individuals 
working for a financial services industry affiliate of an ETP Holder, 
and it will require such individuals to maintain specified levels of 
competence and knowledge while working in areas ancillary to the 
investment banking and securities business.
    Finally, the Exchange believes that, with the introduction of the 
SIE and expansion of the pool of individuals who are eligible to take 
the SIE, the proposed rule change has the potential of enhancing the 
pool of prospective securities industry professionals by introducing 
them to securities laws, rules and regulations and appropriate conduct 
before they join the industry in a registered capacity.

[[Page 51040]]

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed amendments are 
intended to promote transparency in the Exchange's rules, and 
consistency with the rules of other SROs with respect to the 
examination, qualification, and continuing education requirements 
applicable to ETP Holders and their registered personnel. The Exchange 
believes that in that regard that any burden on competition would be 
clearly outweighed by the important regulatory goal of ensuring clear 
and consistent requirements applicable across SROs, avoiding 
duplication, and mitigating any risk of SROs implementing different 
standards in these important areas.
    Further, the Exchange does not believe that the proposed amendments 
will affect competition among securities markets since all SROs are 
expected to adopt similar rules with uniform standards for 
qualification, registration and continuing education requirements.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the proposed rule change does not: (i) Significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6) thereunder.
    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days from the date of filing. However, Rule 
19b-4(f)(6)(iii) \60\ permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange has asked the Commission to waive the 
30-day operative delay so that the proposal may become operative on 
October 1, 2018 to coincide with the effective date of FINRA's proposed 
rule change on which the proposal is based.\61\ The waiver of the 
operative delay would make the Exchange's qualification requirements 
consistent with those of FINRA, as of October 1, 2018. Therefore, the 
Commission believes that the waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest and 
hereby waives the 30-day operative delay and designates the proposal 
operative on October 1, 2018.\62\
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    \60\ 17 CFR 240.19b-4(f)(6)(iii).
    \61\ See supra note 5.
    \62\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \63\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \63\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSENAT-2018-21 on the subject line.

Paper comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSENAT-2018-21. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSENAT-2018-21 and should be submitted 
on or before October 31, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\64\
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    \64\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-21903 Filed 10-9-18; 8:45 am]
 BILLING CODE 8011-01-P


