[Federal Register Volume 84, Number 196 (Wednesday, October 9, 2019)]
[Notices]
[Pages 54193-54195]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22013]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87212; File No. SR-NYSE-2019-44]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Granting Approval of a Proposed Rule Change, as Modified by Amendment 
No. 1, To Add Certain Rules to the List of Minor Rule Violations in 
Rule 9217, Delete Obsolete Rules, and Increase the Maximum Fine for 
Minor Rule Violations

October 3, 2019.

I. Introduction

    On August 8, 2019, New York Stock Exchange LLC (``NYSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to (1) add certain rules to the list of minor rule 
violations in Rule 9217; (2) delete obsolete rules from Rule 9217; and 
(3) increase the maximum fine for minor rule violations to $5,000 in 
order to more closely align the Exchange's minor rule plan with that of 
its affiliates. The proposed rule change was published for comment in 
the Federal Register on August 22, 2019.\3\ On September 13, 2019, the 
Exchange filed Amendment No. 1 to the proposed rule change.\4\ The 
Commission received no comment letters on the proposed rule change. 
This order grants approval of the proposed rule change, as modified by 
Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 86696 (August 16, 
2019), 84 FR 43836.
    \4\ In Amendment No. 1, the Exchange: (1) Clarified that fines 
exceeding $2,500 would not be eligible for quarterly reporting under 
Commission Rule 19d-1(c) and (2) made technical and conforming 
changes. Because the changes in Amendment No. 1 do not materially 
alter the substance of the proposed rule change or raise unique or 
novel regulatory issues, Amendment No. 1 is not subject to notice 
and comment. Amendment No. 1 replaced and supercedes the original 
filing in its entirety and is available at https://www.sec.gov/comments/sr-nyse-2019-44/srnyse201944-6120985-192149.pdf.
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II. Description of the Proposal, as Modified by Amendment No. 1

    Rule 9217 sets forth the list of rules under which a member 
organization or covered person may be subject to a fine under a minor 
rule violation plan as described in proposed Rule 9216(b). The Exchange 
proposes to add the following introductory paragraph to Rule 9217: 
``Nothing in this Rule shall require the Exchange to impose a fine for 
a violation of any rule under this Minor Rule Plan. If the Exchange 
determines that any violation is not minor in nature, the Exchange may, 
at its discretion, proceed under the Rule 9000 Series rather than under 
this Rule.'' This language is based on NYSE Arca Rule 10.9217(d).
    The Exchange proposes to add the following rules to the list of 
rules in Rule 9217 eligible for disposition pursuant to a fine under 
Rule 9216(b):

 Rule 7.30 (Authorized Traders)
 Rule 76 (``Crossing'' Orders)
 Rule 103(a)(i) (Registration and Capital Requirements of DMM 
Units)
 Rule 1210 (Registration Requirements)
 Rule 3110(a) and (b)(1) (Supervision)

    The Exchange also proposes that all of the registration and other 
requirements set forth in Rule 345 be eligible for a minor rule fine.
    Rule 7.30 establishes requirements for member organizations 
relating to Authorized Traders. The rule is based on NYSE Arca Rule 
7.30-E (Authorized Traders), which is eligible for NYSE Arca's Minor 
Rule Plan.\5\
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    \5\ See Securities Exchange Act Release No. 81225 (July 27, 
2017), 82 FR 36033, 36035 (August 2, 2017) (SR-NYSE-2017-35). See 
also NYSE Arca Rule 10.12(i)(4) (NYSE Arca Rule 7.30-E); NYSE Arca 
Rule 10.9217(f)(4). NYSE Arca Rule 10.12 is NYSE Arca's legacy minor 
rule plan and applies only to matters for which a written statement 
was served under Rule 10.12 prior to May 27, 2019; thereafter, Rules 
10.9216(b) and 10.9217 apply. See generally NYSE Arca Rules 10.0 
(preamble) and 10.9001.
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    Rule 76 is substantially similar to NYSE American Rule 934NY(a)(1) 
(Crossing) and NYSE Arca Rule 6.47-O(a)(1) (``Crossing'' Orders--OX), 
which govern manual crosses on those respective exchanges' options 
trading Floors. NYSE American Rule 934NY(a)(1) is eligible for NYSE 
American's Minor Rule Plan, and NYSE Arca Rule 6.47-O(a)(1) is eligible 
for NYSE Arca's Minor Rule Plan.\6\
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    \6\ See NYSE American Rule 9217 (Rule 934NY); NYSE Arca Rules 
10.12(h)(3) and 10.9217(e)(3). See note 5, supra.
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    Rule 103(a)(1) provides that no member organization shall act as a 
Designated Market Maker (``DMM'') unit in any security unless such 
member organization is registered as a DMM unit in such security with 
the Exchange and unless the Exchange has approved of the member 
organization acting as a DMM unit and not withdrawn such approval. The 
rule is substantially similar to NYSE Arca Rule 7.20-E(a) (Registration 
of Market Makers) and NYSE National Rule 7.20 (Registration of Market 
Makers), which similarly require that market makers on those exchanges 
be registered in a security and that the registration has not been 
suspended or cancelled. Both NYSE Arca Rule 7.20-E(a) and NYSE National 
Rule 7.20 are eligible for minor rule fines.\7\
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    \7\ See NYSE Arca Rules 10.12(i)(5) and 10.9217(f)(5); NYSE 
National Rule 10.9217(d).
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    Similarly, Rule 1210, which was adopted in October 2018,\8\ sets 
forth the requirements for persons engaged in the investment banking or 
securities business of a member organization to be registered with the 
Exchange as a representative or principal in each category of 
registration appropriate to his or her functions and responsibilities 
as specified in Rule 1220. The Exchange proposes to add Rule 1210 to 
the list of minor rules in Rule 9217. The Exchange states that having 
the ability to issue a minor rule fine for failing to comply with the 
registration requirements of Rule 1210 would be consistent with and 
complement the Exchange's current ability to issue minor rule fines for 
other registration violations (e.g., Rule 345).
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    \8\ See Securities Exchange Act Release No. 84336 (October 2, 
2018), 83 FR 50727 (October 9, 2018) (SR-NYSE-2018-44).
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    Rule 3110 is the Exchange's supervision rule. The Exchange proposes 
to add subsections (a) and (b)(1) of Rule 3110, governing failure of a 
member organization to establish and maintain a supervisory system and 
failure to establish, maintain, and enforce written supervisory 
procedures, respectively, to Rule 9217. Failure to supervise 
individuals and accounts is currently eligible for minor rule fines in 
the rules of the Exchange's affiliate NYSE Arca.\9\
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    \9\ See NYSE Arca Rules 11.18 (Supervision), 10.12(j)(8) and 
10.9217(g)(8).
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    Finally, Rule 345 sets forth certain employee registration, 
approval and other exchange requirements, including the requirements 
pertaining to the registration of a securities lending representative, 
Securities Trader or direct supervisor thereof. Currently, the only 
violation of Rule 345 that is eligible for a minor rule fine is failure 
of a member organization to have individuals responsible and qualified 
for the position of Securities Lending Supervisor. The Exchange 
proposes that all of registration and other requirements set forth in 
Rule 345 be

[[Page 54194]]

eligible for a minor rule fine. The proposed change would be consistent 
with the practice on the Exchange's affiliates whose comparable rule is 
eligible for a minor rule fine.\10\
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    \10\ See, e.g., NYSE Arca Rules 2.24 (Registration--Employees of 
ETP Holders), 10.12(j)(11) and 10.9217(g)(11). See also NYSE 
National Rules 2.2 (Obligations of ETP Holders and the Exchange) and 
10.9217(e).
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    The Exchange proposes to delete the following rules from Rule 9217 
as they are obsolete:
     Rule 706, which was deleted in 2014.\11\
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    \11\ See Securities Exchange Act Release No. 72916 (August 26, 
2014), 79 FR 52094 (September 2, 2014) (SR-NYSE-2014-44).
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     Rule 312(h), which is marked ``Reserved'' in the 
Exchange's rules and was deleted in 2010.\12\
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    \12\ See Securities Exchange Act Release No. 61557 (February 22, 
2010), 75 FR 9472 (March 2, 2010) (SR-NYSE-2010-10). NYSE Rule 
4110(c)(2), based on the comparable FINRA rule, incorporates Rule 
312(h) in part. The Exchange is not proposing to add Rule 4110(c)(2) 
to Rule 9217.
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     Rule 382(a). Rule 382 is also marked ``Reserved'' and was 
deleted in 2011.\13\
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    \13\ See Securities Exchange Act Release No. 64888 (July 14, 
2011), 76 FR 43368 (July 20, 2011) (SR-NYSE-2011-33). NYSE Rule 
4311, based on the comparable FINRA rule, was based in part on NYSE 
Rule 382. The Exchange is not proposing to add Rule 4311 to Rule 
9217.
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     Rule 791(c), which was also deleted in 2014.\14\
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    \14\ See Release No. 72916, supra note 11, at 52094.
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     Rules 352(b) and (c). Rule 352 is marked ``Reserved'' and 
was deleted in 2009.\15\
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    \15\ See Securities Exchange Act Release No. 61158 (December 11, 
2009), 74 FR 67942 (December 21, 2009) (SR-NYSE-2009-123). Rule 352 
was replaced by Rule 2150. Violations of Rule 2150(b) and (c) are 
currently eligible for a minor rule fine under Rule 9217.
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     Rule 392, which is also marked ``Reserved'' and was 
deleted in 2009.\16\
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    \16\ See Securities Exchange Act Release No. 59965 (May 21, 
2009), 74 FR 25783 (May 29, 2009) (SR-NYSE-2009-25).
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     Rule 410A, which was deleted in 2013.\17\
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    \17\ See Securities Exchange Act Release No. 68678 (January 16, 
2013), 78 FR 5213 (January 24, 2013) (SR-NYSE-2013-02) (Notice); see 
also Securities Exchange Act Release No. 69045 (March 5, 2013), 78 
FR 15394 (March 11, 2013) (SR-NYSE-2013-02) (Approval Order). Rule 
410A was replaced by Rule 8211. Both rules were initially retained 
in Rule 9217, but there is no longer any reason to retain Rule 410A 
in Rule 9217.
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     Rule 445(4), which is marked ``Reserved'' and was deleted 
in 2009.\18\
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    \18\ See Securities Exchange Act Release No. 61273 (December 31, 
2009), 75 FR 1091 (January 8, 2010) (SR-NYSE-2009-134).
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    The Exchange also proposes to correct a typographical error in Rule 
9217. Rule 9217 refers to Rule 3010(a). The correct reference should be 
to Rule 3110(a), the Exchange's supervision rule, which was added to 
Rule 9217 in 2014.\19\
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    \19\ See Securities Exchange Act Release No. 73554 (November 6, 
2014), 79 FR 67508 (November 13, 2014) (SR-NYSE-2014-56).
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Eligible Fine Amounts
    The maximum fine for minor rule violations under Rule 9216(b) is 
currently $2,500. The maximum fine under the Exchange's legacy minor 
rule plan set forth in Rule 476A previously was $5,000. In adopting its 
current disciplinary rules in 2013, the Exchange stated that it was 
appropriate to lower the maximum fine amount to achieve harmony with 
the rules of the Financial Industry Regulatory Authority 
(``FINRA'').\20\ The Exchange's affiliates NYSE American, NYSE National 
and NYSE Arca, however, have since harmonized their disciplinary rules 
with the Exchange and adopted or retained a $5,000 maximum fine for 
minor rule violations.\21\ The Exchange accordingly proposes to adopt 
the same maximum fine amount in order to harmonize the maximum fine 
level with its affiliated exchanges. The Exchange also proposes to 
adopt the same 24-month rolling period to calculate second and 
subsequent fines as that used by its affiliated exchanges.
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    \20\ See Release No. 68678, supra note 17, at 5226.
    \21\ For instance, the maximum fine for minor rule violations 
under NYSE Arca's legacy Minor Rule Plan set forth in Rule 10.12 is 
$5,000. NYSE Arca retained the $5,000 maximum when it adopted its 
new disciplinary rules. See NYSE Arca Rule 10.9217(a). See also NYSE 
American Rule 9217 and NYSE National Rule 10.9217.
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    To effectuate this change, the Exchange proposes to add the 
following fine chart contained in Rule 476A, the Exchange's legacy rule 
governing the imposition of minor rule fines, to Rule 9217: \22\
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    \22\ When the Exchange adopted Rule 9217 as part of its adoption 
of FINRA's disciplinary rules, the Exchange retained the list of 
rules set forth in Rule 476A. See Release No. 69045, supra note 17, 
at 15396. The Exchange did not retain the chart in Rule 476A 
because, as noted above, the maximum fine under Rule 476A previously 
was $5,000.

------------------------------------------------------------------------
                       Fine Amount                          Individual
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First Time Fined........................................          $1,000
Second Time Fined \**\..................................           2,500
Subsequent Fines \**\...................................           5,000
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                       Fine Amount                            Member
                                                            Organization
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First Time Fined........................................          $2,500
Subsequent Fines \**\...................................           5,000
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** Within a ``rolling'' 24-month period.

    As noted, rather than the 12-month rolling period in Rule 476A, the 
Exchange proposes a 24-month ``rolling'' period from the date of the 
violation in order to harmonize with its affiliates.\23\
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    \23\ See NYSE Arca Rule 10.9217 (violations applied in a rolling 
24-month period); NYSE American Rule 9217 (same).
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    In order to add clarity to the Exchange's rules, the Exchange also 
proposes to add a paragraph immediately before the proposed chart based 
on NYSE Arca Rule 10.9217(h) that sets forth how the beginning and end 
of the 24-month rolling period is to be determined. Except for 
references that reflect the Exchange's membership and use of the phrase 
``minor rule violation plan letter'' rather than ``Notice of Minor Rule 
Plan Fine,'' the paragraph is substantially the same as NYSE Arca Rule 
10.9217(h).\24\
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    \24\ As discussed above, the Exchange is not required to impose 
a fine for a violation under its Minor Rule Plan. Instead, the 
Exchange may, at its discretion, bring formal disciplinary action 
against a member or associated person that has violated its rules.
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    In order to further harmonize the Exchange's rules with those if 
its affiliates, and because a fine of $5,000 would exceed the maximum 
amount in Rule 19d-1(c)(2) under the Act for a minor rule plan,\25\ the 
Exchange proposes to change the titles of Rules 9216 and 9217. 
Specifically, the phrase ``Plan Pursuant to SEA Rule 19d-1(c)(2)'' 
would be replaced with ``Procedure for Imposition of Fines for Minor 
Violation(s) of Rules'' in the title of Rule 9216. The same phrase in 
Rule 9217 would be replaced with ``Rule 9216(b).'' The titles of both 
rules would thereby be the same as the titles of NYSE Arca Rules 
10.9216 and 10.9217 and NYSE National Rules 10.9216 and 10.9217, 
respectively. The Exchange proposes to make similar conforming changes 
to Rule 9216(b)(1) by removing references to ``SEA Rule 19d-1(c)(2)'' 
and the maximum fine level of $2,500, and by adding language specifying 
that the Exchange may impose a fine in accordance with the fine amounts 
and fine levels set forth in Rule 9217.
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    \25\ 17 CFR 240.19d-1(c)(2). The Exchange recognizes that fines 
exceeding $2,500 would not be eligible for quarterly reporting under 
Commission Rule 19d-1(c). Fines that do not exceed $2,500 would 
continue to be reported quarterly in compliance with Commission Rule 
19d-1(c).
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\26\ In particular, the

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Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\27\ which requires, among other things, 
that the rules of a national securities exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to 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. The Commission further believes that 
the proposed amendments to Rule 9217 are consistent with Section 
6(b)(6) of the Act,\28\ which provides that members and persons 
associated with members shall be appropriately disciplined for 
violation of the provisions of the rules of the exchange, by expulsion, 
suspension, limitation of activities, functions, and operations, fine, 
censure, being suspended or barred from being associated with a member, 
or any other fitting sanction.
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    \26\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \27\ 15 U.S.C. 78f(b)(5).
    \28\ 15 U.S.C. 78f(b)(6).
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    The Commission believes that Rule 9216(b) is an effective way to 
discipline a member for a minor violation of a rule. The Commission 
finds that the Exchange's proposal to add rules to Rule 9217 is 
consistent with the Act because it may help the Exchange's ability to 
carry out its oversight and enforcement responsibilities in cases where 
full disciplinary proceedings may not be warranted. The Commission also 
believes that the Exchange's proposal to delete obsolete rules is also 
consistent with the Act because it will clarify the Exchange's rule 
book. Finally, the Commission believes that the Exchange's proposed 
fine schedule is appropriate. The Commission notes that the proposed 
fine schedule aligns with the fine schedules of the Exchange's 
affiliates.
    In approving the propose rule change, the Commission in no way 
minimizes the importance of compliance with the Exchange's rules and 
all other rules subject to fines under Rule 9216(b). The Commission 
believes that a violation of any self regulatory organzation's rules, 
as well as Commission rules, is a serious matter. However, Rule 9216(b) 
provides a reasonable means of addressing rule violations that may not 
rise to the level of requiring formal disciplinary proceedings, while 
providing greater flexibility in handling certain violations. The 
Commission expects that the Exchange will continue to conduct 
surveillance with due diligence and make a determination based on its 
findings, on a case-by-case basis, whether a fine of more or less than 
the recommended amount is appropriate for a violation under Rule 
9216(b) or whether a violation requires formal disciplinary action.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\29\ that the proposed rule change (SR-NYSE-2019-044), as modified 
by Amendment No. 1, be, and hereby is, approved.
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    \29\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22013 Filed 10-8-19; 8:45 am]
 BILLING CODE 8011-01-P


