[Federal Register Volume 83, Number 102 (Friday, May 25, 2018)]
[Notices]
[Pages 24362-24364]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-11226]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83296]
Order Granting Application by NYSE National, Inc. for an
Exemption Pursuant to Section 36(a) of the Exchange Act From the Rule
Filing Requirements of Section 19(b) of the Exchange Act With Respect
to Certain Rules Incorporated by Reference
May 21, 2018.
NYSE National, Inc. (``NYSE National'' or ``Exchange'') has filed
with the Securities and Exchange Commission (``Commission'') an
application for an exemption under Section 36(a)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'') \1\ from the rule filing
requirements of Section 19(b) of the Exchange Act \2\ with respect to
certain rules of the Financial Industry Regulatory Authority, Inc.
(``FINRA'') that the Exchange seeks to incorporate by reference.\3\
Section 36 of the Exchange Act authorizes the Commission to
conditionally or unconditionally exempt any person, security, or
transaction, or any class thereof, from any provision of the Exchange
Act or rule thereunder, if necessary or appropriate in the public
interest and consistent with the protection of investors.
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\1\ 15 U.S.C. 78mm(a)(1).
\2\ 15 U.S.C. 78s(b).
\3\ See Letter from Elizabeth K. King, General Counsel and
Corporate Secretary, New York Stock Exchange, to Brent J. Fields,
Secretary, Commission, dated May 18, 2018 (``Exemptive Request'').
The Exchange submitted the Exemptive Request in connection with a
proposed rule change, in connection with the re-launch of trading on
NYSE National on the Pillar trading platform. The proposal, as
amended by Amendment No. 1, which was filed by the Exchange on May
16, 2018, includes: (1) Amendments to Article V, Sections 5.01 and
5.8 of the Fourth Amended and Restated Bylaws of NYSE National
(``Bylaws''); (2) new rules based on the rules of the Exchange's
affiliates relating to (a) trading securities on an unlisted trading
privileges basis (Rule 5), (b) trading on the Pillar trading
platform (Rules 1 and 7), (c) disciplinary rules (Rule 10), and (d)
administration of the Exchange (Rules 3, 12 and 13); (3) rule
changes that renumber and update current Exchange rules relating to
(a) membership (Rule 2), (b) order audit trail requirements (Rule
6), and (c) trading practices (Rule 11); and (4) deletion of
Chapters I-XVI and the rules contained therein.
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On May 17, 2018, the Commission approved the Exchange's proposed
rule change that would delete the Exchange's current rules and replace
them with rules to accommodate the re-launch of trading on the Exchange
through the Pillar platform.\4\ Among other things, the new rules
include rules relating to the obligations and business conduct of the
Exchange's members, referred to as ETP Holders.
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\4\ See Securities Exchange Act Release No. 83289 (May 17,
2018).
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NYSE National has requested, pursuant to Rule 0-12 under the
Exchange Act,\5\ that the Commission grant the Exchange an exemption
from the rule filing requirements of Section 19(b) of the Act for
changes to those Exchange rules that are effected solely by virtue of a
change to a cross-referenced FINRA rule, including FINRA rules
designated as NASD rules.\6\ Specifically, the Exchange requests that
it be permitted to incorporate by reference changes made to each FINRA
rule (or series of rules, in the case of FINRA's Code of Arbitration
Procedure) that is cross-referenced in the following
[[Page 24363]]
proposed NYSE National Rules, without the need for the Exchange to file
separately the same proposed rule changes pursuant to Section 19(b) of
the Act: \7\
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\5\ 17 CFR 240.0-12.
\6\ See Exemptive Request, supra note 3, at 1-2.
\7\ Id.
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Rule 2.2 (Obligations of ETP Holders and the Exchange)
cross-references NASD Rule 1032(f)(1),
Rule 6.7440 (Recording of Order Information) cross-
references FINRA Rule 7740,
Rule 6.7450 (Order Data Transmission Requirements) cross-
references FINRA Rule 7450,
Rule 11.2111 (Suitability) cross-references FINRA Rule
2111,
Rule 11.2210 (Communications with the Public) cross-
references FINRA Rule 2210 (except FINRA Rule 2210(c)),
Rule 11.2232 (Customer Confirmations) cross-references
FINRA Rule 2232,
Rule 11.3310 (Anti-Money Laundering Compliance Program)
cross-references FINRA Rule 3310,
Rule 11.5320 (Prohibition Against Trading Ahead of
Customer Orders) cross-references FINRA Rule 5310,
Rule 11.5320 Commentary .01 (Large Orders and
Institutional Account Exceptions) cross-references FINRA Rule 4512(c),
and
Rule 12 (Code of Arbitration Procedure for Customer and
Industry Disputes) cross-references the 12000 and the 13000 Series of
the FINRA Code of Arbitration and FINRA Rule 2268.
The Exchange states that the direct incorporations by reference of
FINRA rules, certain of which are regulatory in nature,\8\ are intended
to be a comprehensive integration of the relevant FINRA rules into NYSE
National's rules.\9\ The Exchange represents that, as a condition to
the requested exemption from Section 19(b) of the Act, the Exchange
agrees to provide written notice to its members whenever FINRA proposes
a change to a cross-referenced rule.\10\ Such notice will alert
Exchange members to the proposed rule change and give them an
opportunity to comment on the proposal. The Exchange further represents
that it will inform members in writing when the Commission approves any
such proposed rule changes.\11\
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\8\ The Exchange represents that the FINRA rules proposed to be
incorporated by reference are not trading rules. In addition, the
Exchange notes that several other self-regulatory organizations
(``SROs'') incorporate by reference certain regulatory rules of
another SRO and have received from the Commission similar exemptions
from Section 19(b) of the Exchange Act. See Exemptive Request, supra
note 3, at 2, n. 5.
\9\ See Exemptive Request, supra note 3, at 2-3.
\10\ See Exemptive Request, supra note 3, at 3. The Exchange
represents that it will provide such notice via a posting on the
same website location where the Exchange will post its own rule
filings pursuant to Rule 19b-4(1) within the time frame required by
such Rule. The website posting will include a link to the location
on FINRA's website where the applicable proposed rule change is
posted. Id.
\11\ See Exemptive Request, supra note 3, at 3.
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According to the Exchange, this exemption is necessary and
appropriate because it would result in the Exchange's rules being
consistent with the relevant cross-referenced FINRA rules at all times,
thus ensuring identical regulation of joint members of the Exchange and
FINRA with respect to such rules. Without such an exemption, joint
members of the Exchange and FINRA could be subject to two different
standards.\12\ Moreover, the Exchange believes that by incorporating
the above-referenced FINRA rules in the Exchange's rulebook as rules of
the Exchange, the exemption would ensure consistent regulation of
Exchange ETP Holders that are not FINRA members and Exchange ETP
Holders that are FINRA members.\13\ In addition, the Exchange believes
that the exemption would ensure consistency between certain Exchange
and FINRA rules that are covered by the Exchange's regulatory services
agreement (``RSA'') with FINRA, which would facilitate FINRA's
provision of services to the Exchange under the RSA within the scope of
those rules.\14\
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\12\ See Exemptive Request, supra note 3, at 2.
\13\ Id.
\14\ Id.
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The Commission has issued exemptions similar to the Exchange's
request.\15\ In granting one such exemption in 2010, the Commission
repeated a prior, 2004 Commission statement that it would consider
similar future exemption requests from other SROs, provided that:
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\15\ See, e.g., Securities Exchange Act Release Nos. 83040
(April 12, 2018), 75 FR 17198 (April 18, 2018)(order granting MIAX
PEARL, LLC's exemptive request relating to rules of the Miami
International Securities Exchange, LLC incorporated by reference);
76998 (January 29, 2016), 81 FR 6066, 6083-84 (February 4, 2016)
(order granting application for registration as a national
securities exchange of ISE Mercury, LLC (now known as Nasdaq MRX,
LLC) and exemptive request relating to rules of the International
Securities Exchange, LLC (now known as Nasdaq ISE, LLC) (``ISE'')
incorporated by reference, including index options rules); 70050
(July 26, 2013), 78 FR 46622, 46642 (August 1, 2013) (order granting
application for registration as a national securities exchange of
Topaz Exchange, LLC (now known as Nasdaq GEMX, LLC) and exemptive
request relating to rules of ISE incorporated by reference,
including index options rules); 61152 (December 10, 2009), 74 FR
66699, 66709-10 (December 16, 2009) (order granting application for
registration as a national securities exchange of C2 Options
Exchange, Incorporated (``C2'') and exemptive request relating to
rules of the Chicago Board Options Exchange, Incorporated (``CBOE'')
incorporated by reference, including index options rules). See also,
e.g., Securities Exchange Act Release No. 61534 (February 18, 2010),
75 FR 8760 (February 25, 2010) (order granting BATS Exchange, Inc.'s
exemptive request relating to rules incorporated by reference by the
BATS Exchange Options Market rules) (``BATS Options Market Order'').
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An SRO wishing to incorporate rules of another SRO by
reference has submitted a written request for an order exempting it
from the requirement in Section 19(b) of the Exchange Act to file
proposed rule changes relating to the rules incorporated by reference,
has identified the applicable originating SRO(s), together with the
rules it wants to incorporate by reference, and otherwise has complied
with the procedural requirements set forth in the Commission's release
governing procedures for requesting exemptive orders pursuant to Rule
0-12 under the Exchange Act;\16\
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\16\ See 17 CFR 240.0-12 and Securities Exchange Act Release No.
39624 (February 5, 1998), 63 FR 8101 (February 18, 1998)
(``Commission Procedures for Filing Applications for Orders for
Exemptive Relief Pursuant to Section 36 of the Exchange Act; Final
Rule'').
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The incorporating SRO has requested incorporation of
categories of rules (rather than individual rules within a category)
that are not trading rules (e.g., the SRO has requested incorporation
of rules such as margin, suitability, or arbitration); and
The incorporating SRO has reasonable procedures in place
to provide written notice to its members each time a change is proposed
to the incorporated rules of another SRO.\17\
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\17\ See BATS Options Market Order, supra note 15 (citing
Securities Exchange Act Release No. 49260 (February 17, 2004), 69 FR
8500 (February 24, 2004) (order granting exemptive request relating
to rules incorporated by reference by several SROs) (``2004
Order'')).
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The Commission believes that the Exchange has satisfied each of
these conditions. The Commission also believes that granting the
Exchange an exemption from the rule filing requirements under Section
19(b) of the Exchange Act will promote efficient use of Commission and
Exchange resources by avoiding duplicative rule filings based on
simultaneous changes to identical rule text sought by more than one
SRO.\18\ The Commission therefore finds it appropriate in the public
interest and consistent with the protection of investors to exempt the
Exchange from the rule filing requirements under Section 19(b) of the
Exchange Act with respect to the above-described rules it has
incorporated by reference. This exemption is conditioned upon the
Exchange
[[Page 24364]]
promptly providing written notice to its members whenever FINRA changes
a rule that the Exchange has incorporated by reference.
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\18\ See BATS Options Market Order, supra note 15, 75 FR at
8761; see also 2004 Order, supra note 17, 69 FR at 8502.
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Accordingly, it is ordered, pursuant to Section 36 of the Exchange
Act,\19\ that the Exchange is exempt from the rule filing requirements
of Section 19(b) of the Exchange Act solely with respect to changes to
the rules identified in its request that incorporate by reference
certain FINRA rules that are the result of changes to such FINRA rules,
provided that the Exchange promptly provides written notice to its
members whenever FINRA proposes to change a rule that the Exchange has
incorporated by reference.
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\19\ 15 U.S.C. 78mm.
\20\ 17 CFR 200.30-3(a)(76).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-11226 Filed 5-24-18; 8:45 am]
BILLING CODE 8011-01-P