[Federal Register Volume 84, Number 85 (Thursday, May 2, 2019)]
[Notices]
[Pages 18895-18897]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-08922]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85738; File No. SR-NYSECHX-2019-06]


Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Relating to 
Fingerprint-Based Background Checks of Directors, Officers, Employees 
and Others

April 26, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19B-4 thereunder,\3\ notice is hereby given 
that, on April 17, 2019, the NYSE Chicago, Inc. (``NYSE Chicago'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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 a rule relating to fingerprint-based 
background checks of directors, officers, employees and others. 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.

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 a new Rule 3.11 codifying the current 
practice of conducting fingerprint-based background checks of 
prospective and current employees, temporary personnel, independent 
contractors, service providers and others. The proposed rule is 
substantially similar to Rule 3.11 of the Exchange's affiliate NYSE 
Arca, Inc.\4\ A number of other securities markets have also adopted a 
similar rule, permitting them to obtain fingerprints from certain 
enumerated parties.\5\ The proposed rule is also consistent with those 
rules.
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    \4\ See NYSE Arca Rule 3.11. There are no substantive 
differences between the proposed rule and NYSE Arca Rule 3.11. The 
one non-substantive difference between the proposed rule and the 
NYSE Arca rule relates to punctuation in proposed Rule 3.11(a), 
which has a comma following ``or restricted access to facilities and 
records'' and not a semi-colon as in NYSE Arca Rule 3.11(a). The 
Exchange's other affiliates New York Stock Exchange LLC (``NYSE'') 
and NYSE American LLC (``NYSE American'') have a substantially 
similar rule. See NYSE Rule 28; NYSE American Rule 3.11E. The 
Exchange notes that it proposes to retain references to ``principal 
subsidiaries'' in proposed Rule 3.11 in order to maintain 
consistency with its affiliates' rules.
    \5\ See, e.g., International Securities Exchange (``ISE'') Rule 
1408; Nasdaq Stock Market (``Nasdaq'') Rule 0140; Chicago Board 
Options Exchange (``CBOE'') Rule 15.10.
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Background and Proposed Rule Change
    Section 17(f)(2) of the Securities Exchange Act of 1934 (the 
``Act''), as amended by the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010 (``Dodd-Frank Act''),\6\ provides that every 
member of a national securities exchange, broker, dealer, registered 
transfer agent, registered clearing agency, registered securities 
information processors, national securities exchanges and national 
securities associations shall require each of its partners, directors, 
officers and employees of to be fingerprinted and submit those 
fingerprints (or cause the fingerprints to be submitted) to the 
Attorney General of the United States (``Attorney General'') for 
identification. Section 17(f)(2) explicitly directs the Attorney 
General to provide self-regulatory organizations (``SROs'') designated 
by the Commission with access to criminal history record information. 
Further, SEC Rule 17f-2 authorizes SROs to store criminal record 
information received from the Federal Bureau of Investigation 
(``FBI''), which maintains on behalf of the Attorney General a database 
of fingerprint-based criminal history records.
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    \6\ See 15 U.S.C. 78q(f)(2); Dodd-Frank Act Sect. 929S.
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    Consistent with these requirements, proposed Rule 3.11 would 
require the Exchange to obtain fingerprints of prospective and current 
employees, temporary personnel, independent contractors and service 
providers of the Exchange and its principal subsidiaries; submit those 
fingerprints to the Attorney General or his or her designee for 
identification and processing; and receive criminal history record 
information from the Attorney General for evaluation and use, in 
accordance with applicable law, in enhancing the security of the 
facilities, systems, data, and/or records of the Exchange and its 
principal subsidiaries.
    The Exchange would utilize a Live-Scan \7\ electronic system to 
capture and transmit fingerprints directly to the FBI. The capture and 
transmittal function, and corresponding receipt of criminal history 
information from the FBI, would be handled directly by Exchange 
personnel and/or an FBI-approved ``Channel Partner'' \8\ who would 
maintain and operate, on behalf of the Exchange, a Live-Scan and/or 
other electronic system(s) for the submission of fingerprints to the 
FBI; receive and maintain criminal history record information from the 
FBI; and disseminate such information, through secure systems, to a 
limited set of approved reviewing officials within the Exchange and its 
affiliates.
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    \7\ Live-Scan refers to the process of capturing fingerprints 
directly into a digitized format as opposed to traditional ink and 
paper methods. Live-Scan technology captures and transfers images to 
a central location and/or interface for identification processing.
    \8\ FBI-approved Channel Partners receive the fingerprint 
submission and relevant data, collect the associated fee(s), 
electronically forward the fingerprint submission with the necessary 
information to the FBI Criminal Justice Information Services 
Division (``CJIS'') for a national Criminal History Summary check, 
and receive the electronic summary check result for dissemination to 
the authorized employer entity. See Securities Exchange Act Release 
No. 71066 (December 12, 2013), 78 FR 76667 (December 18, 2013) (SR-
ISE-2013-66) (``Release No. 71066''). The Exchange would retain 
ultimate legal responsibility for the fulfillment of its statutory 
and self-regulatory obligations under the Act, including compliance 
with Section 17(f)(2) of the Act as amended by the Dodd-Frank Act.
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    Fingerprint-based background checks would enhance the ability to 
screen adequately employees and non-employees \9\ to determine better, 
in accordance with applicable law, whether there are unacceptable risks 
associated with granting such persons access to facilities and records. 
Through

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access to state-of-the-art information systems administered and 
maintained by the FBI, the Exchange would receive centrally-maintained 
``criminal history record information,'' which includes arrest-based 
data and derivative information, and may include personal descriptive 
data; FBI number; conviction status; sentencing, probation and parole 
information; and such other information as the FBI may make available. 
This information is supplied to the FBI by various local, state, 
federal and/or international criminal justice agencies. The information 
obtained through fingerprint-based background checks would thus provide 
a more exhaustive and reliable profile of a candidate's criminal 
record, and thereby better facilitate risk assessment, than a physical 
review of court records based on information provided by the candidate.
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    \9\ Under the proposed rule, the Exchange would also obtain 
fingerprints from service providers, including employees of 
affiliates of the Exchange. See CBOE Rule 15.10; Securities Exchange 
Act Release No. 69496 (May 2, 2013), 78 FR 26671, 26671 (May 7, 
2013) (SR-CBOE-2013-044) (CBOE conducts fingerprint-based criminal 
record checks of directors, officers and employees as well as, 
without limitation, ``temporary personnel, independent contractors, 
consultants, vendors and service providers . . . who have or are 
anticipated to have access to facilities and records.'').
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    The proposed access to criminal history information is consistent 
with federal law. As noted, Section 17(f)(2) was amended by the Dodd-
Frank Act to also require partners, directors, officers and employees 
of registered securities information processors, national securities 
exchanges and national securities associations to be fingerprinted. 
Although Section 17(f)(2) does not require the fingerprinting of 
contractors, the statute specifically permits SROs designated by the 
SEC to have access to ``all criminal history record information.''
    The Exchange accordingly believes that fingerprint-based background 
checks of employees and non-employees would promote the objectives of 
investor protection, business continuity and workplace safety by 
providing the Exchange with an effective tool for identifying and 
excluding persons with felony or misdemeanor conviction records that 
may pose a threat to the safety of Exchange personnel or the security 
of facilities and records.
    The Exchange will comply with all applicable laws relating to the 
use and dissemination of criminal history record information obtained 
from the FBI.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \10\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\11\ in particular, because it 
is designed to prevent fraudulent and manipulative acts and practices, 
promote just and equitable principles of trade, remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and protect investors and the public interest. In 
particular, the Exchange believes fingerprint-based background checks 
of directors, officers, employees and contractors is consistent with 
the Section 6(b)(5) requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest in that they would help identify and exclude persons with 
felony or misdemeanor conviction records that may pose a threat to the 
safety of Exchange personnel or the security of facilities and records, 
thereby enhancing business continuity, workplace safety and the 
security of the Exchange's operations and helping to protect investors 
and the public interest. The proposed rule is substantially similar to 
the rules of the Exchange's affiliates NYSE Arca, NYSE and NYSE 
American and the fingerprinting rules of other SROs.\12\ The proposed 
amendment would also conform the Exchange's fingerprinting practices 
with Section 17(f)(2) of the Act.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ See, e.g., International Securities Exchange Rule 1408. See 
generally Release No. 71066, 78 FR at 76668, n. 12 (noting that 
``[a]n FBI-approved Channel Partner simply helps expedite the 
delivery of Criminal History Summary information on behalf of the 
FBI'', and that the ``process for making a request through an FBI-
approved Channel Partner is consistent with FBI submission 
procedures'').
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
not intended to address competitive issues but rather to enhance the 
security and continuity of the Exchange's facilities and records by 
adopting a fingerprinting rule that codifies the Exchange's current 
practice in compliance with Section 17(f)(2) of the Act as amended by 
the Dodd-Frank Act.\13\ As discussed below, the Exchange notes that the 
proposed rule change is based on the fingerprinting rules of other 
SROs.
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    \13\ See Section 929S of the Dodd-Frank Act.
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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 \14\ and Rule 19b-
4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of such 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.

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 rule-comments@sec.gov. Please include 
File Number SR-NYSECHX-2019-06 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-NYSECHX-2019-06. 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/

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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-NYSECHX-2019-06 and should 
be submitted on or before May 23, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-08922 Filed 5-1-19; 8:45 am]
BILLING CODE 8011-01-P


