[Federal Register Volume 87, Number 106 (Thursday, June 2, 2022)]
[Notices]
[Pages 33542-33548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-11789]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94987; File No. SR-NYSECHX-2022-08]


Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of 
Filing and Order Granting Accelerated Approval of a Proposed Rule 
Change To Adopt Rules 10.9216(b) and 10.9217 in Connection With a 
Companion Filing To Adopt Investigation, Disciplinary, Sanction, and 
Other Procedural Rules Modeled on the Rules of Its Affiliates

May 26, 2022.
    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 May 13, 2022, the NYSE Chicago, Inc. (``NYSE Chicago'' 
or the ``Exchange'') 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 Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons and approving the proposal 
on an accelerated basis.
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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, in connection with a companion filing to 
adopt investigation, disciplinary, sanction, and other procedural rules 
modeled on the rules of its affiliates, to (1) adopt new Rules 
10.9216(b) and 10.9217 governing minor rule violations and fines; (2) 
add additional rules to the Exchange's list of current minor rule 
violations that would be transposed to proposed Rule 10.9217; and (3) 
move the Recommended Fine Schedule for minor rule violations from the 
Fee Schedule to proposed Rule 10.9217 and make certain amendments and 
corrections. The proposed 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 III 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
    In connection with a companion filing to adopt investigation, 
disciplinary, sanction, and other procedural rules modeled on the rules 
of its affiliates,\4\ the Exchange proposes to (1) adopt new Rules 
10.9216(b) and 10.9217 governing minor rule violations and fines; (2) 
add additional rules to the Exchange's list of current minor rule 
violations that would be transposed to proposed Rule 10.9217; and (3) 
move the Recommended Fine Schedule for minor rule violations from the 
Fee Schedule to proposed Rule 10.9217and make certain amendments and 
corrections.
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    \4\ See SR-NYSECHX-2022-10.
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Background
    Beginning in 2013, each of the Exchange's affiliates have adopted 
rules relating to investigation, discipline, sanction, and other 
procedural rules based on the rules of the Financial Industry 
Regulatory Authority (``FINRA'').\5\ To facilitate rule harmonization 
among the Exchange's affiliates, the Exchange has separately proposed 
the NYSE Chicago Rule 10.8000 and 10.9000 Series based on the text of 
the NYSE Arca Rule 10.8000 and Rule 10.9000 Series, with certain 
changes, as described in its companion filing. In connection with 
adoption of the proposed NYSE Chicago Rule 10.8000 and 10.9000 
Series,\6\ the Exchange proposes to adopt NYSE Arca rules related to 
issuance of minor rule fines that would replace the Exchanges current 
Article 12, Rule 8 which sets forth the Exchange's Minor Rules 
Violation Plan (``MRVP'').\7\
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    \5\ In 2013, the Commission approved the New York Stock Exchange 
LLC's (``NYSE'') adoption of FINRA's disciplinary rules. See 
Securities Exchange Act Release No. 69045 (March 5, 2013), 78 FR 
15394 (March 11, 2013) (SR-NYSE-2013-02). In 2016, NYSE American LLC 
(``NYSE American'') adopted its Rule 8000 and Rule 9000 Series based 
on the NYSE and FINRA Rule 8000 and Rule 9000 Series. See Securities 
Exchange Act Release Nos. 77241 (February 26, 2016), 81 FR 11311 
(March 3, 2016) (SR-NYSEMKT-2016-30). In 2018, the Commission 
approved NYSE National, Inc.'s (``NYSE National'') adoption of the 
NYSE National Rule 10.8000 and Rule 10.9000 Series based on the NYSE 
American and FINRA Rule 8000 and Rule 9000 Series. See Securities 
Exchange Act Release No. 83289 (May 17, 2018), 83 FR 23968 (May 23, 
2018) (SR-NYSENat-2018-02). In 2019, NYSE Arca, Inc. (``NYSE Arca'') 
adopted the NYSE Arca Rule 10.8000 and 10.9000 Series based on the 
NYSE American Rule 8000 and Rule 9000 Series. See Securities 
Exchange Act Release No. 85639 (April 12, 2019), 84 FR 16346 (April 
18, 2019) (SR-NYSEArca-2019-15).
    \6\ See note 4, supra.
    \7\ The Exchange adopted its current MRVP in 1996. See 
Securities Exchange Act Release No. 37255 (May 30, 1996), 61 FR 
28918 (June 6, 1996) (SR-CHX-95-25) (Order). The original procedure 
authorizing the Exchange, in lieu of commencing disciplinary 
proceeding, to impose a fine, not to exceed $2,500, on any member, 
member organization, associated person or registered or 
nonregistered employee of a member or member organization for any 
violation of an Exchange rule which the Exchange determines to be 
minor in nature was contained in as Article 12, Rule 9, now Article 
12, Rule 8. The recommended dollar amounts for the first, second, 
third and subsequent violations, as calculated on a twelve-month 
rolling basis, of a rule designated as a minor rule violation was 
contained in a separate Recommended Fine Schedule in the Fee 
Schedule. See id., 61 FR at 28918-19 & n. 10.
    In 2011, the Exchange increased the maximum fine pursuant to the 
MRVP from $2,500 to $5,000 and also increased the recommended fines 
from $100/$500/$1,000 for 1st, 2nd and 3rd tier fines, respectively, 
to $250/$750/$1,500. The Exchange also recommended fines of $500/
$1,000/$2,500 for other, more serious trading rule violations (i.e., 
ones involving the potential for customer harm), as well as 
violations of the obligation to establish, maintain and enforce 
written supervisory procedures, and to provide information to the 
Exchange in connection with regulatory inquiries or other matters. 
Recommended fines of $1,000/$2,500/$5,000 were reserved for Trading 
Ahead violations. The Exchange also expanded the rolling time period 
in which violations would result in escalation to the next highest 
tier from 12 to 24 months. See Securities Exchange Act Release No. 
64370 (April 29, 2011), 76 FR 25727, 25727 (May 5, 2011) (SR-CHX-
2011-07) (Notice); Securities Exchange Act Release 64686 (June 16, 
2011), 76 FR 36596 (June 22, 2011) (SR-CHX-2011-07) (Order). See 
also text accompanying note 20, infra.
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    Under current Article 12, Rule 8, in lieu of commencing a 
``disciplinary proceeding'' as that term is used in Article 12 of the 
Exchange Rules, the Exchange may, subject to the requirements set forth 
in this Rule, impose a censure or fine, not to exceed

[[Page 33543]]

$5,000,\8\ on any Participant, Associated Person, or registered or non-
registered employee of a Participant, for any violation of a rule of 
the Exchange, which violation the Exchange shall have determined is 
minor in nature.\9\ For failures to comply with the Consolidated Audit 
Trail Compliance Rule requirements of the Rule 6.6800 Series, the 
Exchange may impose a minor rule violation fine of up to $2,500. For 
more serious violations, other disciplinary action may be sought.
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    \8\ Proposed Rule 10.9217 would retain the Exchange's maximum 
$5,000 fine for minor rule violations under current Article 12, Rule 
8. While proposed Rule 10.9217 would allow the Exchange to 
administer fines up to $5,000, the Exchange is only seeking relief 
from the reporting requirements of paragraph (c)(1) of Rule 19d-1 
for fines administered under proposed Rule 10.9217 that do not 
exceed $2,500.
    \9\ As set forth in Article 12, Rule 8(f), the Exchange is not 
required to impose a censure or fine with respect to the violation 
of any rule or policy included in any such listing and the Exchange 
shall be free, whenever it determines that any violation is not 
minor in nature, to proceed under other provisions of Article 12 
rather than under Article 12, Rule 8.
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    Any censure or fine imposed pursuant to Article 12, Rule 8 and not 
contested shall not be publicly reported, except as may be required by 
Rule 19d-1 under the Exchange Act, and as may be required by any other 
regulatory authority. Any censure or fine that is contested may be 
publicly reported to the same extent that Exchange disciplinary 
proceedings may be publicly reported. Any fine imposed pursuant to 
Article 12, Rule 8 that (1) does not exceed $2,500 and (2) is not 
contested, shall be reported by the Exchange to the Securities and 
Exchange Commission (the ``Commission'') on a periodic, rather than a 
current, basis, except as may otherwise be required by Exchange Act 
Rule 19d-1 and by any other regulatory authority. Under Article 12, 
Rule 8(b), the Chief Enforcement Counsel or Chief Regulatory Officer 
(``CRO'') have the authority to impose a fine pursuant to the rule.
    Under Article 12, Rule 8(c), in any action taken by the Exchange 
pursuant to the rule, the person against whom a censure or fine is 
imposed shall be served as provided in Article 12, Rule 1(c) with a 
written statement, signed by an Exchange officer setting forth (1) the 
rule(s) or policy(ies) alleged to have been violated; (2) the act or 
omission constituting each violation; (3) the sanctions imposed for 
each violation; (4) the date on which such action is taken; and (5) the 
date on which such determination becomes final and such fine, if any, 
becomes due and payable to the Exchange, or on which such action must 
be contested as provided in paragraph (e) of Article 12, Rule 8, such 
date to be not less than 15 days after the date of service of the 
written statement. Pursuant to Article 12, Rule 8(d), if the person 
fined pursuant to the rule pays the fine, such payment is deemed a 
waiver of any right to a disciplinary proceeding under Article 12 and 
any right to review or appeal. Commentary .01 to Article 12, Rule 8 
provides that, with respect to subsection (d), a failure to pay a fine 
imposed Article 12, Rule 8 by the time it is due, without timely 
contesting the action upon which such fine was based pursuant to 
Article 12, Rule 8(e), shall be deemed a waiver by the person against 
whom the fine is imposed of such person's right to a disciplinary 
proceeding under Article 12 and any right to review or appeal.
    Under Article 12, Rule 8(e), any person censured or fined pursuant 
to the rule may contest such censure or fine by filing with the 
Secretary a written response meeting the requirements of an Answer as 
provided in Article 12, Rule 4(b) no later than the date by which such 
determination must be contested. The Secretary may deny the answer if 
such answer is untimely or the answer fails to meet the standards of 
Article 12, Rule 4(b). If the Secretary denies the answer without leave 
to amend and refile, the sanction imposed by the Exchange pursuant to 
Article 12, Rule 8(b) shall become final and the censure shall be 
imposed and/or fine become due and payable. Unless denied by the 
Secretary, an answer filed by respondent is deemed accepted, at which 
point the matter shall become a ``Disciplinary Proceeding'' subject to 
the provisions of Article 12 applicable to disciplinary proceedings.
    Pursuant to Article 12, Rule 8(f), the Exchange must prepare and 
announce to its Participants from time to time a listing of the 
Exchange rules and policies as to which the Exchange may impose 
censures or fines as provided in this Rule that must also indicate the 
specific or recommended dollar amount that may be imposed as a fine 
hereunder with respect to any violation of such rule or policy, or may 
indicate the minimum and maximum dollar amount that may be imposed by 
the Exchange with respect to any such violation. In applying the 
current Recommended Fine Schedule set forth in the Fee Schedule, the 
Exchange considers a violation as having occurred at the time that the 
underlying conduct of the Participant occurred. Nothing in Article 12, 
Rule 8 requires the Exchange to impose a censure or fine pursuant to 
the Rule with respect to the violation of any rule or policy included 
in any such listing and the Exchange shall be free, whenever it 
determines that any violation is not minor in nature, to proceed under 
other provisions of Article 12 rather than under Rule 8. Under Article 
12, Rule 8(g), any fine assessed under Rule 8 cannot be deemed to 
satisfy any damages or liability incurred from the violation.
    Article 12, Rule 8(h) sets forth the Exchange rules and policies 
that are subject to the MRVP.
Proposed Rule Change
    The Exchange proposes to adopt new Rules 10.9216(b) and 10.9217 
based on NYSE Arca Rules 10.9216(b) and 10.9217. The Exchange would 
retain the text of the Exchange's currently applicable list of minor 
rule violations in proposed Rule 10.9217 and make certain corrections 
and additions, as described below. In addition, the Exchange would move 
the Recommended Fine Schedule for minor rule violations from the Fee 
Schedule to proposed Rule 10.9217 and make certain amendments and 
corrections. The Exchange proposes to add Rules 10.9216(b) and 10.9217 
to Rule 10 governing disciplinary proceedings, other hearings and 
appeals that will house the proposed Rule 10.8000 and 10.9000 Series 
based on the text of the NYSE Arca Rule 10.8000 and Rule 10.9000 Series 
that is the subject of the Exchange's companion immediately effective 
filing.
Proposed Rule 10.9216(b)
    Subsection (b) of proposed Rule 10.9216 (Acceptance, Waiver, and 
Consent; Procedure for Imposition of Fines for Minor Violation(s) of 
Rules) would set forth the procedure for the imposition of fine for 
minor rule violations under the Exchange's new disciplinary rules based 
on NYSE Arca Rule 10.9216(b).\10\ Proposed Rule 10.9216(b)(1) would 
provide that, notwithstanding Rule 10.9211,\11\ the Exchange may, 
subject to the

[[Page 33544]]

requirements set forth in paragraphs (b)(2) through (b)(4), impose a 
fine in accordance with the fine amounts and fine levels set forth in 
proposed Rule 10.9217 and/or a censure on any Participant,\12\ 
Participant Firm or covered person \13\ with respect to any rule listed 
in Rule 10.9217. If Enforcement has reason to believe a violation has 
occurred and if the Participant, Participant Firm or covered person 
does not dispute the violation, Enforcement may prepare and request 
that the Participant, Participant Firm or covered person execute a 
minor rule violation letter accepting a finding of violation, 
consenting to the imposition of sanctions, and agreeing to waive such 
Participant's, Participant Firm's or covered person's right to a 
hearing before a Hearing Panel or, if applicable, an Extended Hearing 
Panel,\14\ and any right of review by the Exchange Board of Directors 
(``Board''), the Commission, and the courts, or to otherwise challenge 
the validity of the letter, if the letter is accepted. The letter would 
describe the act or practice engaged in or omitted, the rule, 
regulation, or statutory provision violated, and the sanction or 
sanctions to be imposed. Unless the letter states otherwise, the 
effective date of any sanction(s) imposed would be a date to be 
determined by Regulatory Staff.\15\
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    \10\ Proposed subsection (a) would establish the procedures by 
which a Participant, Participant Firm or covered person, prior to 
the issuance of a complaint, could execute a letter of acceptance, 
waiver, and consent accepting a finding of violation, consenting to 
the imposition of sanctions and waiving the right to a hearing or 
appeal. Proposed Rule 10.9216(a) would be adopted as part of the 
Exchange's companion filing. See note 4, supra.
    \11\ Proposed Rule 10.9211 (Authorization of Complaint) would be 
adopted as part of the Exchange's companion filing and would permit 
Enforcement to request the authorization from the Chief Regulatory 
Officer (``CRO'') to issue a complaint against any Participant, 
Participant Firm and covered persons of a Participant or Participant 
Firm, thereby commencing a disciplinary proceeding.
    \12\ The term ``Participant'' is defined in Article 1, Rule 1(s) 
to mean, among other things, any Participant Firm that holds a valid 
Trading Permit and that a Participant shall be considered a 
``member'' of the Exchange for purposes of the Act. If a Participant 
is not a natural person, the Participant may also be referred to as 
a Participant Firm, but unless the context requires otherwise, the 
term Participant shall refer to an individual Participant and/or a 
Participant Firm. For the avoidance of doubt, this rule filing and 
the proposed disciplinary rules will use the phrase Participant and/
or Participant Firm.
    \13\ ``Covered person'' would be defined in proposed Rule 
10.9120(g) in the companion filing as an Associated Person as 
defined in Article 1, Rule 1(d) and any other person subject to the 
jurisdiction of the Exchange.
    \14\ ``Hearing Panel'' and ``Extended Hearing Panel'' would be 
defined in proposed Rule 10.9120(s) and (p), respectively, in the 
companion filing. The term ``Hearing Panel'' would mean an 
Adjudicator that is constituted under proposed Rule 10.9231 to 
conduct a disciplinary proceeding governed by the proposed Rule 
10.9200 Series, that is constituted under the proposed Rule 10.9520 
Series or the proposed Rule 10.9550 Series to conduct a proceeding, 
or that is constituted under the Rule 10.9800 Series to conduct a 
temporary cease and desist proceeding. The term ``Extended Hearing 
Panel'' would mean an Adjudicator that is constituted under proposed 
Rule 10.9231(c) to conduct a disciplinary proceeding that is 
classified as an ``Extended Hearing'' and is governed by the 
proposed Rule 10.9200 Series.
    \15\ ``Regulatory Staff'' would be defined in proposed Rule 
10.9120(x) in the companion filing as (1) any officer or employee 
reporting, directly or indirectly, to the CRO of the Exchange; and 
(2) FINRA staff acting on behalf of the Exchange in connection with 
the proposed Rule 10.8000 Series and Rule 10.9000 Series.
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    Proposed Rule 10.9216(b)(2)(A)(i) would provide that if a 
Participant, Participant Firm or covered person submits an executed 
minor rule violation letter, the submission of such a letter by the 
Participant, Participant Firm or covered person also waives any right 
to claim bias or prejudgment of the CRO, the Board, Counsel to the 
Board, or any Director, in connection with such person's or body's 
participation in discussions regarding the terms and conditions of the 
minor rule violation letter or other consideration of the minor rule 
violation letter, including acceptance or rejection of such minor rule 
violation letter.
    Proposed Rule 10.9216(b)(2)(A)(ii) would provide that if a 
Participant, Participant Firm or covered person submits an executed 
minor rule violation letter, by the submission such Participant, 
Participant Firm or covered person also waives any right to claim that 
a person violated the ex parte prohibitions of proposed Rule 10.9143 or 
the separation of functions prohibitions of proposed Rule 10.9144, in 
connection with such person's or body's participation in discussions 
regarding the terms and conditions of the minor rule violation letter 
or other consideration of the minor rule violation letter, including 
acceptance or rejection of such minor rule violation letter.\16\
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    \16\ Rule 10.9143 (Ex Parte Communications) would prohibit 
certain ex parte communications. Proposed 10.9144 (Separation of 
Functions) would establish separation of functions and provide for 
waivers.
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    Proposed Rule 10.9216(b)(2)(B) would provide that if a minor rule 
violation letter is rejected, the Participant, Participant Firm or 
covered person would be bound by the waivers made under proposed 
paragraphs (b)(1) and (b)(2)(A) for conduct by persons or bodies 
occurring during the period beginning on the date the minor rule 
violation letter was executed and submitted and ending upon the 
rejection of the minor rule violation letter.
    Proposed Rule 10.9216(b)(3) would provide that if the Participant, 
Participant Firm or covered person executes the minor rule violation 
letter, it would be submitted to the CRO. The CRO, on behalf of the SRO 
Board, may accept or reject such letter.
    Proposed Rule 10.9216(b)(4) would provide that if the letter is 
accepted by the CRO, it would be deemed final and that any fine imposed 
pursuant to the proposed Rule and not contested would not be publicly 
reported, except as may be required by Rule 19d-61 under the Act, and 
as may be required by any other regulatory authority.
    Proposed Rule 10.9216(b)(4) would further provide that if the 
letter is rejected by the CRO, the Exchange may take any other 
appropriate disciplinary action with respect to the alleged violation 
or violations. Subsection (b)(4) would also provide that if the letter 
is rejected, the Participant, Participant Firm or covered person would 
not be prejudiced by the execution of the minor rule violation letter 
under proposed paragraph (b)(1) and that the letter may not be 
introduced into evidence in connection with the determination of the 
issues set forth in any complaint or in any other proceeding.
    As noted above, proposed Rule 10.9216(b) is substantially the same 
as NYSE Arca Rule 10.9216(b).
Proposed Rule 10.9217
    The Exchange also proposes to adopt Rule 10.9217 based on NYSE Arca 
Rule 10.9217, which would be titled ``Violations Appropriate for 
Disposition Under Rule 10.9216(b)''.
    Proposed Rule 10.9217(a) would provide that any Participant, 
Participant Firm or covered person may be subject to a fine, not to 
exceed $5,000,\17\ under Rule 10.9216(b) with respect to any rules 
listed below and that the fine amounts and fine levels set forth below 
would apply to the fines imposed.
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    \17\ See note 8, supra.
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    Proposed Rule 10.9217(b) would provide that Regulatory Staff 
designated by the Exchange would have the authority to impose a fine 
pursuant to the proposed Rule.
    Proposed Rule 10.9217(c) would provide that any person or 
organization found in violation of a minor rule would not be required 
to report such violation on SEC Form BD or Form U-4 if the sanction 
imposed consists of a fine not exceeding $2,500 and the sanctioned 
person or organization has not sought an adjudication, including a 
hearing, or otherwise exhausted the administrative remedies available 
with respect to the matter. Subsection (c) would further provide that 
any fine imposed in excess of $2,500 would be subject to current rather 
than quarterly reporting to the Commission pursuant to Rule 19d-1 under 
the Act.
    Proposed Rule 10.9217(d) would provide that nothing in the proposed 
Rule would require the Exchange to impose a fine for a violation of any 
rule under this Minor Rule Plan and that if the Exchange determines 
that any violation is not minor in nature, the

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Exchange may, at its discretion, proceed under the proposed Rule 
10.9000 Series rather than under proposed Rule 10.9217.
    The next section would be titled ``List of Rule Violations and 
Fines Applicable Thereto'' and would provide that any Participant, 
Participant Firm or covered person may be subject to a fine under 
proposed Rule 10.9216(b) with respect to any rules listed below.
    Proposed Rule 10.9217(e) would be titled ``Exchange Rules and 
Policies subject to a Minor Rule Violation'' and would set forth the 
list of rules under which a Participant, Participant Firm or covered 
person may be subject to a fine under a minor rule violation letter as 
described in proposed Rule 10.9216(b). The Exchange would retain the 
list of rules currently set forth in Article 12, Rule 8(h) under the 
existing headings for ``Reporting and Record Retention Violations'' and 
``Minor Trading Rule Violations'' with the following additions and 
changes.
    First, the Exchange would add subsection (b) of Article 6, Rule 2 
(Registration and Approval of Participant Personnel) to proposed Rule 
10.9217(e)(13).
    Article 6, Rule 2 currently sets forth certain employee 
registration, approval and other exchange requirements. Specifically, 
Article 6, Rule 2(a) governs registration of representatives, as 
defined in Article 6, Rule 14(b)(1), with the Exchange and is currently 
eligible for a minor rule fine under Article 12, Rule 8(h). Article 6, 
Rule 2(b) provides for the registration of principals, as defined in 
Article 6, Rule 14(a)(1). The Exchange proposes that the registration 
requirements of principals set forth in Article 6, Rule 2(b) be 
eligible for a minor rule fine. The proposed change would be consistent 
with the practice on the Exchange's affiliates whose comparable rule 
requiring the registration of principals is eligible for a minor rule 
fine.\18\
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    \18\ See, e.g., NYSE National Rules 2.2(c) (Obligations of ETP 
Holders and the Exchange) and 10.9217(f). The entirety of NYSE 
National Rule 2.2 is eligible for minor rule treatment; registration 
of principals under NYSE Nationals' rules is governed by subsection 
(c).
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    Second, the Exchange would add subsections (a) and (b) of Article 
6, Rule 5 (Supervision of Representatives and Branch and Resident 
Offices) to proposed Rule 10.9217(e)(14). As discussed below, the 
Exchange's current minor rule incorrectly references Article 6, Rule 
5(b) for violations relating to written supervisory procedures. The 
correct reference should be to Article 6, Rule 5(c), which the Exchange 
proposes to retain as proposed Rule 10.9217(e)(15).
    Article 6, Rule 5(a) (Adherence to Law) provides that no 
Participant shall engage in conduct in violation of the Act, as 
amended, rules or regulations thereunder, the Bylaws or the Rules of 
the Exchange, or any written interpretation thereof and that every 
Participant is responsible for reasonably supervising its associated 
persons to prevent such violations. The requirement to reasonably 
supervise individuals to ensure compliance with applicable laws, rules 
and regulations, is currently eligible for minor rule fines in the 
rules of the Exchange's affiliate NYSE Arca.\19\
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    \19\ See NYSE Arca Rule 11.18(a) (Supervision) and 
10.9217(g)(8).
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    Article 6, Rule 5(b) (Designation of persons with supervisory 
authority) provides that each Participant Firm must designate a 
principal executive officer, general partner or managing partner to 
hold overall authority and responsibility for the firm's internal 
supervision and compliance with securities laws and regulations. This 
designated supervisor may formally delegate his or her supervisory 
duties and authority to other persons within the firm. The Rule further 
provides that Participants must maintain, for a period of not less than 
six years (the first two years in an easily accessible place), records 
of the names of all persons who are designated as supervisory personnel 
and the dates for which those designations are effective. In the 
absence of such designation by a Participant Firm, the Firm's General 
Partner(s), President, Chief Executive Officer or other principal 
executive officer shall be deemed to be responsible for a Firm's 
internal supervision and compliance function. In addition, each 
Participant Firm shall designate and specifically identify to the 
Exchange on Schedule A of Form BD one or more principals to serve as a 
Chief Compliance Officer. The requirement in Article 6, Rule 5(b) to 
designate and specifically identify persons with supervisory 
responsibility is currently eligible for minor rule fines in the rules 
of the Exchange's affiliate NYSE Arca.\20\ The Exchange accordingly 
proposes to permit minor rule fines for violations of Article 6, Rule 
5(b).
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    \20\ See NYSE Arca Rule 11.18(b)(2) & (4) (Supervision) and 
10.9217(g)(8).
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    As noted, Article 12, Rule 8(h)(1)(N) of the Exchange's current 
minor rule plan makes failure to establish, maintain and enforce 
written supervisory procedures under Article 6, Rule 5(b) eligible for 
a minor rule fine. However, as described above Article 6, Rule 5(b) 
relates to the designation of persons with supervisory authority and 
not written supervisory procedures, which is governed by Article 6, 
Rule 5(c). In 2011, Article 12, Rule 8 was amended to include, among 
other things, new reporting and recordkeeping provisions, which 
included ``written supervisory procedures (Article 6, Rule 5(b)).'' 
\21\ At the time, Article 6, Rule 5(b) was titled ``Written supervisory 
procedures'' and contained the text of current subsection (c). In 2013, 
the Exchange filed to amend Article 6, Rule 5. As part of that filing, 
subsection (a), which was titled ``Designation of persons with 
supervisory authority,'' became new subsection (b), and old subsection 
(b), which was titled ``Written supervisory procedures,'' became 
current subsection (c).\22\ The Exchange did not, however, update 
Article 12, Rule 8 to reflect that Article 6, Rule 5(b) had become 
Article 6, Rule 5(c). The Exchange proposes to make that correction in 
the text of proposed Rule 10.9217(e)(15). The Exchange notes that the 
requirement to establish, maintain and enforce written procedures is 
also currently eligible for minor rule fines in the rules of the 
Exchange's affiliate NYSE Arca.\23\
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    \21\ See Securities Exchange Act Release No. 64370 (April 29, 
2011), 76 FR 25727, 25727 (May 5, 2011) (SR-CHX-2011-07) (Notice); 
Securities Exchange Act Release 64686 (June 16, 2011), 76 FR 36596 
(June 22, 2011) (SR-CHX-2011-07) (Order). See generally note 7, 
supra.
    \22\ See Securities Exchange Act Release No. 70597 (October 2, 
2013), 78 FR 62728, 62732 (October 22, 2013) (SR-CHX-2013-14) 
(Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change).
    \23\ See NYSE Arca Rule 11.18(c) (Supervision) and 
10.9217(g)(8).
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    Finally, the Exchange proposes a new subsection (f) titled 
``Recommended Fine Schedule'' that would reproduce the current 
Recommended Fine Schedule from the Fee Schedule with the following 
changes and corrections. The Recommended Fine Schedule in the Fee 
Schedule would be deleted:
     The Exchange would add a new sub-heading titled 
``Reporting and Record Retention Violations'' \24\ that would set forth 
the corresponding fines for first, second and third and subsequent 
violations for the rules set forth under the heading ``Reporting and 
Record Retention Violations'' in proposed Rule 10.9217(e).
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    \24\ Immediately before the new sub-heading, the Exchange would 
include the following text based on NYSE Arca Rule 10.9217: ``These 
fines are intended to apply to minor violations. For more serious 
violations, other disciplinary action may be sought.''
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     The first 12 entries as well as entries 16 through 23 
would be reproduced without change from the

[[Page 33546]]

current Recommended Fine Schedule in the Fee Schedule.
     Item 13 would be ``Registration and Approval of 
Participant Personnel (Article 6, Rule 2(a) & (b))''. The proposed 
first, second and third level fines for violations of Article 6, Rule 
2(b) of $250 for the first violation, $750 for the second violation and 
$1,500 for the third and subsequent violations would be the same as 
those in the Exchange's current Recommended Fine Schedule in the Fee 
Schedule for violations of Article 6, Rule 2(a).
     Items 14 and 15--``Failure to Comply with Supervision 
Requirements (Article 6, Rule 5(a) & (b))'' and ``Written Supervisory 
Procedures (Article 6, Rule 5(c)),'' respectively--would be added to 
proposed Rule 10.9271(f) consistent with the changes to proposed Rule 
10.9217(e)(14) and (15) described above. The proposed first, second and 
third level fines for violations of Article 6, Rule 5(a) and (b) in 
proposed Rule 10.9217(e)(14) and Article 6, Rule 5(c) in proposed Rule 
10.9217(e)(15) would be $500 for the first violation, $1,000 for the 
second violation and $2,500 for the third and subsequent violations. 
These fine levels would be the same as the current fines in the 
Recommended Fine Schedule in the Fee Schedule for violations of Article 
6, Rule 5(b).
     Finally, item 24 would be ``Consolidated Audit Compliance 
Rule (Rule 6.6800 Series).'' The corresponding fine ``Up to $2,500.00'' 
would be transposed from current Article 12, Rule 8 to new footnote ** 
following ``Rule 6.6800 Series.'' \25\ The Exchange would also add the 
current text from Article 12, Rule 8(a) providing that ``For failures 
to comply with the Consolidated Audit Trail Compliance Rule 
requirements of the Rule 6.6800 Series, the Exchange may impose a minor 
rule violation fine of up to $2,500. For more serious violations, other 
disciplinary action may be sought'' to new footnote **.
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    \25\ In 2020, the Exchange added the Consolidated Audit Trail 
(``CAT'') industry member compliance rules to the list of minor rule 
violations in Article 12, Rule 8 and the corresponding fine up to 
$2,500. At the time, the Exchange inadvertently did not amend the 
Recommended Fine Schedule in the Fee Schedule. See Securities 
Exchange Act Release No. 89410 (July 28, 2020), 85 FR 46741 (August 
3, 2020) (SR-CHX-2020-21).
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     The Exchange would add a new second sub-heading titled 
``Minor Trading Rule Violations'' that would set forth the 
corresponding fines for first, second and third and subsequent 
violations for the 11 rules set forth under the heading ``Minor Trading 
Rule Violations'' in proposed Rule 10.9217(e), with the following 
changes and corrections:
    [cir] The entry for ``Failure to clear the Matching System (Article 
20, Rule 7)'' and corresponding fines would not be included. This rule 
was deleted from Article 12, Rule 8 8(h)(2)(F) in 2019 as part of the 
transition of trading on the Exchange to the Pillar trading platform 
but the Exchange inadvertently failed to update the Recommended Fine 
Schedule in the Fee Schedule.\26\
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    \26\ See Securities Exchange Act Release No. 87264 (October 9, 
2019), 84 FR 55345, 55349 (October 16, 2019) (SR-CHX-2019-08).
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    [cir] The Exchange would include ``Short Sales (Rule 7.16)'' as 
item 10. Rule 7.16 was added to Article 12, Rule 8 in 2019 as part of 
the transition of trading on the Exchange to the Pillar trading 
platform but the Exchange inadvertently failed to update the 
Recommended Fine Schedule in the Fee Schedule.\27\ The proposed first, 
second and third level fines for violations of Rule 7.16 of $500 for 
the first violation, $1,000 for the second violation and $2,500 for the 
third and subsequent violations are the same as those in NYSE Arca Rule 
10.9217(i)(1)1. for violations of NYSE Arca Rule 7.16-E.\28\
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    \27\ See id.
    \28\ See NYSE Arca Rule 7.16-E (Short Sales) & 10.9217(i)(1)1.
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    [cir] Finally, the Exchange would include ``Failure to comply with 
Authorized Trader requirements (Rule 7.30)'' as item 11. Rule 7.30 was 
also added to Article 12, Rule 8 as part of the transition to Pillar in 
2019 but the Exchange inadvertently failed to update the Recommended 
Fine Schedule in the Fee Schedule.\29\ The proposed first, second and 
third level fines for violations of Rule 7.30 of $1,000 for the first 
violation, $2,500 for the second violation and $3,500 for the third and 
subsequent violations are the same as those in NYSE Arca Rule 
10.9217(i)(1)5. for violations of NYSE Arca Rule 7.30-E.\30\
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    \29\ See Securities Exchange Act Release No. 87264 (October 9, 
2019), 84 FR 55345, 55349 (October 16, 2019) (SR-CHX-2019-08).
    \30\ See NYSE Arca Rule 7.30-E (Authorized Traders) & 
10.9217(i)(1)5.
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    As noted, proposed subsection (a) of proposed Rule 10.9217 is 
substantially the same as NYSE Arca Rule 10.9217(a) except for changes 
reflecting the Exchange's membership. The Exchange proposes that a fine 
thereunder would not exceed $5,000 (the amount reflected in current 
Article 12, Rule 8).\31\
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    \31\ See note 8, supra.
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    Proposed subsections (b), (c) and (d) are also substantially the 
same as NYSE Arca Rule 10.9217(b), (c) and (d) with the only changes 
reflecting the Exchange's membership.
    Unlike current Article 12, Rule 8(e) described above, proposed Rule 
10.9216(b) and Rule 10.9217 would not permit a Respondent to contest a 
minor rule violation letter. Rather, as proposed, if the Respondent 
rejects the minor rule violation letter, then a complaint must be filed 
under proposed Rule 10.9211, and the minor rule violation letter may 
not be introduced into evidence.\32\ The Exchange believes the proposed 
rule is appropriate because it will harmonize the Exchange's minor rule 
violation process with its affiliates' rules.
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    \32\ See proposed Rule 10.9216(b)(4).
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\33\ in general, and furthers the objectives of Section 6(b)(5) of 
the Act,\34\ in particular, in that 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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    \33\ 15 U.S.C. 78f(b).
    \34\ 15 U.S.C. 78f(b)(5).
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    Minor rule fines provide a meaningful sanction for minor or 
technical violations of rules. The Exchange believes that the proposed 
rule change will strengthen the Exchange's ability to carry out its 
oversight and enforcement responsibilities in cases where full 
disciplinary proceedings are unwarranted in view of the minor nature of 
the particular violation. Specifically, the proposed rule change is 
designed to prevent fraudulent and manipulative acts and practices 
because it will provide the Exchange the ability to issue a minor rule 
fine for violations of its rules governing reporting, record retention 
and trading in situations where either a cautionary action letter or a 
more formal disciplinary action may not be warranted or appropriate.
    As noted, the Exchange would retain its list of minor rule 
violations with certain technical and conforming amendments, while 
adopting its affiliates' process for imposing minor rule violation 
fines.\35\ In addition, as set forth in the Exchange's companion filing 
and herein, the Exchange believes that adding certain rules to its list 
of eligible minor rule violations based on

[[Page 33547]]

the rules of its affiliate will strengthen the Exchange's ability to 
carry out its oversight and enforcement responsibilities in cases where 
full disciplinary proceedings are unwarranted in view of the minor 
nature of the particular violation.
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    \35\ See NYSE Arca Rule 10.9216(b), NYSE Rule 9216(b), & NYSE 
American Rule 9216(b). See also generally FINRA Rule 9216(b).
---------------------------------------------------------------------------

    Specifically, the proposed additions are designed to prevent 
fraudulent and manipulative acts and practices because it will provide 
the Exchange the ability to issue a minor rule fine for violations of 
its rules governing general registration and supervision requirements 
in situations where a more formal disciplinary action may not be 
warranted or appropriate. As provided for in proposed Rule 10.9217(d), 
nothing in proposed Rule 10.9217 would require the Exchange to impose a 
minor rule fine for a violation of any eligible rule and that if the 
Exchange determines that any violation is not minor in nature, the 
Exchange may, at its discretion, proceed with formal disciplinary 
action rather than under proposed Rule 10.9217.
    The Exchange also believes that adding rules based on the rules of 
its affiliate to its list of eligible minor rule violations would 
promote fairness and consistency in the marketplace by permitting the 
Exchange to issue a minor rule fine for violations of substantially 
similar rules that are eligible for minor rule treatment on the 
Exchange's affiliate, thereby harmonizing minor rule plan fines across 
affiliated exchanges for the same conduct. As noted above, Article 6, 
Rule 2(b), 5(a) and 5(b) are substantially similar to NYSE National and 
NYSE Arca rules of similar purpose, which are each separately eligible 
for a minor rule fine under the respective market's version of proposed 
Rule 10.9217.\36\
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    \36\ See text accompanying notes 18-23, supra.
---------------------------------------------------------------------------

    Further, the Exchange believes that the proposed additions to its 
list of rules eligible for minor rule fines based on the rules of its 
affiliate are consistent with Section 6(b)(6) of the Act,\37\ 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. As 
noted, the proposed rule change would provide the Exchange ability to 
sanction minor or technical violations pursuant to the Exchange's rules 
and would increase the amounts of fines in order for the Exchange to 
better deter violative activity and to harmonize its rules with that of 
its affiliates.
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 78f(b)(6).
---------------------------------------------------------------------------

    The Exchange believes that moving the Recommended Fine Schedule for 
minor rule violations from the Fee Schedule to proposed Rule 10.9217 
and removing it from the Fee Schedule would add clarity and 
transparency to the Exchange's rules by reflecting the recommended 
fines for minor rule violations in the same place in the Exchange's 
rules. Similarly, updating the Recommended Fine Schedule to delete 
obsolete rules and add recommended fines for rules that were added to 
the list of minor rules but inadvertently omitted from the Recommended 
Fine Schedule would also add clarity and transparency to the Exchange's 
rules. The Exchange believes that adding such clarifying language would 
also be consistent with the public interest and the protection of 
investors because investors will not be harmed and in fact would 
benefit from increased transparency, thereby reducing potential 
confusion.
    Further, the Exchange believes that adding recommended fines for 
Rule 7.16 and Rule 7.30 that were inadvertently omitted from the 
current Recommended Fine Schedule based on the fines for the same rules 
set forth in the rules of its affiliate would promote fairness and 
consistency in the marketplace by permitting the Exchange to issue a 
minor rule fine for violations of substantially similar rules that are 
eligible for minor rule treatment on the Exchange's affiliate, thereby 
harmonizing minor rule plan fines across affiliated exchanges for the 
same conduct. As noted above, the proposed first, second and third 
level fines for violations of Rule 7.16 are the same as those in NYSE 
Arca Rule 10.9217(i)(1)1. for violations of NYSE Arca Rule 7.16-E, and 
the proposed first, second and third level fines for violations of Rule 
7.30 are the same as those in NYSE Arca Rule 10.9217(i)(1)5. for 
violations of NYSE Arca Rule 7.30-E.\38\
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    \38\ See notes 27-29, supra.
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    Finally, the Exchange also believes that the proposed changes are 
designed to provide a fair procedure for the disciplining of members 
and persons associated with members consistent with Sections 6(b)(7) 
and 6(d) of the Act.\39\ Proposed Rules 10.9216(b) and 10.9217 would 
not preclude a Participant, Participant Firm or covered person from 
rejecting an alleged violation and receiving a hearing on the matter 
with the same procedural rights through a litigated disciplinary 
proceeding.
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    \39\ 15 U.S.C. 78f(b)(7) & 78f(d).
---------------------------------------------------------------------------

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 change is not 
designed to address any competitive issue but rather to update the 
Exchange's rules to strengthen the Exchange's ability to carry out its 
oversight and enforcement functions and deter potential violative 
conduct and to harmonize its rules with the rules of its affiliate.

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. 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-NYSECHX-2022-08 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-2022-08. 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

[[Page 33548]]

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-2022-08 and should be submitted 
on or before June 23, 2022.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\40\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\41\ which requires that the 
rules of an exchange be designed to promote just and equitable 
principles of trade, to remove impediments and to 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 
also believes that the proposal is consistent with Sections 6(b)(1) and 
6(b)(6) of the Act \42\ which require that the rules of an exchange 
enforce compliance with, and provide appropriate discipline for, 
violations of Commission and Exchange rules. Finally, the Commission 
finds that the proposal is consistent with the public interest, the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act, as required by Rule 19d-1(c)(2) under the Act,\43\ which 
governs minor rule violation plans.
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    \40\ 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).
    \41\ 15 U.S.C. 78f(b)(5).
    \42\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
    \43\ 17 CFR 240.19d-1(c)(2).
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    The Commission believes that Rules 10.9216(b) and 10.9217, which 
are based on the rules of an affiliate exchange, are an effective way 
to discipline a member for a minor violation of a rule. The Commission 
also believes that the proposed addition of certain rules to the 
Exchange's list of current minor rule violations provides a reasonable 
means of addressing violations that do not rise to the level of 
requiring formal disciplinary proceedings, while providing greater 
flexibility in handling certain violations. In addition, the Commission 
believes that the Exchange's proposal to move the Recommended Fine 
Schedule for minor rule violations from the Fee Schedule to proposed 
Rule 10.9217 and make certain amendments and corrections are consistent 
with the Act because these changes will add clarity to the Exchange's 
rules.
    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 Rules 10.9216(b) and 10.9217. 
The Commission believes that a violation of any self-regulatory 
organization's rules, as well as Commission rules, is a serious matter. 
However, Rules 10.9216(b) and 10.9217 provide 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 Rules 10.9216(b) and 10.9217 or whether a violation 
requires formal disciplinary action.
    For the same reasons as discussed above, the Commission finds good 
cause, pursuant to Section 19(b)(2) of the Act,\44\ for approving the 
proposed rule change prior to the thirtieth day after the date of 
publication of the notice of the filing thereof in the Federal 
Register.\45\ The proposal will assist the Exchange in preventing 
fraudulent and manipulative practices by allowing the Exchange to 
adequately enforce compliance with, and provide appropriate discipline 
for, violations of Exchange rules. Moreover, the proposed changes 
raises no new or novel issues. Accordingly, the Commission believes 
that a full notice-and-comment period is not necessary before approving 
the proposal.
---------------------------------------------------------------------------

    \44\ 15 U.S.C. 78s(b)(2).
    \45\ As stated above, the Commission notes that the proposed 
rule change was submitted in connection with an immediately 
effective companion filing, SR-NYSECHX-2022-10, adopting 
investigation, disciplinary, sanction and other procedural rules 
modeled on the rules of the Exchange's affiliates. See supra note 4 
and accompanying text. In SR-NYSECHX-2022-10, the Exchange states 
that it intends to announce by Information Memorandum with at least 
30 days advance notice the operative date of the rules proposed in 
SR-NYSECHX-2022-10, which also includes proposed Rules 10.9216(b) 
and 10.9217. Thus, proposed Rules 10.9216(b) and 10.9217 will be 
operative at the same time as all the rules proposed in SR-NYSECHX-
2022-10.
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\46\ and Rule 19d-1(c)(2) thereunder,\47\ that the proposed rule change 
(SR-NYSECHX-2022-08) be, and hereby is, approved on an accelerated 
basis.
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    \46\ 15 U.S.C. 78s(b)(2).
    \47\ 17 CFR 240.19d-1(c)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\48\
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    \48\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-11789 Filed 6-1-22; 8:45 am]
BILLING CODE 8011-01-P


