Notice2022-01712
Order Granting Application by Nasdaq BX, 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
Primary source
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Published
January 28, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 19 (Friday, January 28, 2022)</title>
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[Federal Register Volume 87, Number 19 (Friday, January 28, 2022)]
[Notices]
[Pages 4691-4693]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-01712]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94034]
Order Granting Application by Nasdaq BX, 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
January 24, 2022.
Nasdaq BX, Inc. (``BX'' 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, subject to certain limitations, 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 Angela S. Dunn, Principal Associate General
Counsel, BX, to J. Matthew DeLesDernier, Assistant Secretary,
Commission, dated August 26, 2021 (``Exemptive Request'').
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The Exchange has requested, pursuant to Rule 0-12 under the
Exchange Act,\4\ that the Commission grant the Exchange an exemption
from the rule filing requirements of Section 19(b) of the Exchange Act
for changes to the Exchange's rules that are effected solely by virtue
of a change to a cross-referenced FINRA rule. Specifically, the
Exchange requests that it be permitted to incorporate by reference
changes made to the FINRA rules that are cross-referenced in the
Exchange's rules identified below, without the need for the Exchange to
file separately similar proposed rule changes pursuant to Section 19(b)
of the Exchange Act: \5\
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\4\ 17 CFR 240.0-12.
\5\ See Exemptive Request, supra note 3, at 6.
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<bullet> General 9, Section 1(b) (Prohibition Against Trading Ahead
of Customer Orders) cross-references FINRA Rule 5320 (except for FINRA
Rule 5320.02(b) and the reference to FINRA Rule 6420 in FINRA Rule
5320).
<bullet> General 9, Section 1(c) (Front Running Policy) cross-
references FINRA Rule 5270.
<bullet> General 9, Section 1(f) (Confirmation of Callable Common
Stock) cross-references FINRA Rule 2232.
<bullet> General 9, Section 1(g) (Interfering With the Transfer of
Customer Accounts in the Context of Employment Disputes) cross-
references FINRA Rule 2140.
<bullet> General 9, Section 2 (Customers' Securities or Funds)
cross-references FINRA Rule 2150.
<bullet> General 9, Section 3 (Communications with the Public)
cross-references FINRA Rule 2210 (except for FINRA Rule 2210(c)).
<bullet> General 9, Section 5 (Telemarketing) cross-references
FINRA Rule 3230.
<bullet> General 9, Section 6 (Forwarding of Proxy and Other
Issuer-Related Materials) cross-references FINRA Rule 2251.
<bullet> General 9, Section 7 (Disclosure of Financial Condition,
Control Relationship with Issuer and Participation or Interest in
Primary or Secondary Distribution) cross-references FINRA Rules 2261,
2262, and 2269.
<bullet> General 9, Section 8 (SIPC Information) cross-references
FINRA Rule 2266.
<bullet> General 9, Section 9 (Fairness Opinions) cross-references
FINRA Rule 5150.
<bullet> General 9, Section 10(a) (Recommendations to Customers
(Suitability)) cross-references FINRA Rule 2111 (except for the
references to FINRA Rule 2214 in FINRA Rule 2111).
<bullet> General 9, Section 10(c) (Know Your Customer) cross-
references FINRA Rule 2090.
<bullet> General 9, Section 12 (Customer Account Statements) cross-
references FINRA Rule 2231.
<bullet> General 9, Section 13 (Margin Disclosure Statement) cross-
references FINRA Rule 2264.
<bullet> General 9, Section 14 (Approval Procedures for Day-Trading
Accounts) cross-references FINRA Rules 2130 and 2270.
<bullet> General 9, Section 15 (Borrowing From or Lending to
Customers) cross-references FINRA Rule 3240.
<bullet> General 9, Section 16 (Charges for Services Performed)
cross-references FINRA Rule 2122.
<bullet> General 9, Section 17 (Net Transactions with Customers)
cross-references FINRA Rule 2124.
<bullet> General 9, Section 19 (Discretionary Accounts) cross-
references FINRA Rule 3260.
<bullet> General 9, Section 20 (Supervision) cross-references FINRA
Rules 3110 and 3170.
<bullet> General 9, Section 21 (Supervisory Control System, Annual
Certification of Compliance and Supervisory Processes) cross-references
FINRA Rules 3120 and 3130 (except for the references to MSRB rules in
FINRA Rule 3130).
<bullet> General 9, Section 23 (Outside Business Activities of an
Associated Person) cross-references FINRA Rule 3270.
<bullet> General 9, Section 24 (Private Securities Transactions of
an Associated Person) cross-references FINRA Rule 3280.
<bullet> General 9, Section 25 (Transactions for or by Associated
Persons) cross-references FINRA Rule 3210.
<bullet> General 9, Section 26 (Influencing or Rewarding Employees
of Others) cross-references FINRA Rule 3220.
<bullet> General 9, Section 27 (Reporting Requirements) cross-
references FINRA Rule 4530 (except for FINRA Rule 4530(h)).
<bullet> General 9, Section 28 (Disclosure to Associated Persons
When Signing Form U4) cross-references FINRA Rule 2263 (except for
subsection (2) of FINRA Rule 2263).
<bullet> General 9, Section 30 (Books and Records) cross-references
FINRA Rule 4511.
<bullet> General 9, Section 31 (Use of Information Obtained in
Fiduciary
[[Page 4692]]
Capacity) cross-references FINRA Rule 2060.
<bullet> General 9, Section 33 (Reporting Requirements for Clearing
Firms) cross-references FINRA Rule 4540.
<bullet> General 9, Section 34 (Extensions of Time Under Regulation
T and SEC Rule 15c3-3) cross-references FINRA Rule 4230.
<bullet> General 9, Section 37 (Anti-Money Laundering Compliance
Program) cross-references FINRA Rule 3310.
<bullet> General 9, Section 38(b) (Margin Requirements) cross-
references FINRA Rule 4210.
<bullet> General 9, Section 39(b) (Fidelity Bonds) cross-references
FINRA Rule 4360.
<bullet> General 9, Section 40 (Capital Compliance) cross-
references FINRA Rule 4110.
<bullet> General 9, Section 41 (Regulatory Notification and
Business Curtailment) cross-references FINRA Rule 4120.
<bullet> General 9, Section 42 (Audit) cross-references FINRA Rule
4140.
<bullet> General 9, Section 43 (General Requirements) cross-
references FINRA Rule 4511.
<bullet> General 9, Section 44 (Records of Written Customer
Complaints) cross-references FINRA Rule 4513.
<bullet> General 9, Section 45 (Customer Account Information)
cross-references FINRA Rule 4512.
<bullet> General 9, Section 46 (Authorization Records for
Negotiable Instruments Drawn From a Customer's Account) cross-
references FINRA Rule 4514.
<bullet> General 9, Section 47 (Approval and Documentation of
Changes in Account Name or Designation) cross-references FINRA Rule
4515.
<bullet> General 9, Section 48 (Notifications, Questionnaires and
Reports) cross-references FINRA Rule 4521.
<bullet> General 9, Section 64 (Account Approval) cross-references
FINRA Rule 2360(b)(16).
<bullet> Equity 9, Section 15 (Suitability) cross-references FINRA
Rule 2360(b)(19).
<bullet> Equity 9, Section 16 (Discretionary Accounts) cross-
references FINRA Rule 2360(b)(18).
<bullet> Equity 9, Section 17 (Supervision of Accounts) cross-
references FINRA Rule 2360(b)(20).
<bullet> Equity 9, Section 18 (Customer Complaints) cross-
references FINRA Rule 2360(b)(17)(A).
<bullet> Equity 9, Section 19 (Communications with the Public and
Customers Concerning Index Warrants, Currency Index Warrants, and
Currency Warrants) cross-references FINRA Rule 2220 (except for FINRA
Rule 2220(c)).
<bullet> Equity 9, Section 20 (Maintenance of Records) cross-
references FINRA Rule 2360(b)(17)(B).
<bullet> Equity 10, Section 2 (Investment Company Securities)
cross-references FINRA Rule 2341 (except for the reference to FINRA
Rule 2320 in FINRA Rule 2341).
<bullet> Equity 11, Rule 11860 (Acceptance and Settlement of COD
Orders) cross-references FINRA Rule 11860.
<bullet> Equity 11, Rule 11870 (Customer Account Transfer
Contracts) cross-references FINRA Rule 11870.
The Exchange represents that the FINRA rules listed above are
regulatory rules and not trading rules.\6\ The Exchange represents
that, as a condition to the requested exemption from Section 19(b) of
the Exchange Act, the Exchange will provide written notice to its
members whenever FINRA proposes a change to a cross-referenced rule.\7\
The Exchange states that such notice will alert its members and persons
associated with a member to the proposed FINRA rule change and give
them an opportunity to comment on the proposal.\8\ The Exchange further
represents that it will inform members in writing when the Commission
approves any such proposed rule changes.\9\
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\6\ See id. at 6, n.14. The Exchange also states that it is not
``cherry picking'' because the Exchange would be incorporating
categories of rules. See id.
\7\ See id. at 6. The Exchange represents that it will provide
such notice via a posting on the same website location where the
Exchange posts its own rule filings pursuant to Rule 19b-4(l) within
the time frame required by such rule. See id. at 6-7, n.15. The
website posting will include a link to the location on FINRA's
website where the applicable proposed rule change is posted. See id.
\8\ See id. at 6-7.
\9\ See id. at 7.
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According to the Exchange, this exemption is appropriate because it
would result in the Exchange's rulebook being consistent with the
relevant cross-referenced FINRA rules at all times, thus ensuring
consistent regulation of joint members of BX and FINRA.\10\ The
Exchange further states that, even if members are not joint members of
BX and FINRA, the exemption is appropriate because it will permit its
rules to remain consistent with FINRA's rules and ensure consistent
treatment of industry members with respect to the aforementioned
rules.\11\
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\10\ See id. at 6.
\11\ See id.
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The Commission has issued exemptions similar to the Exchange's
request.\12\ In granting similar exemptions, the Commission stated that
it would consider similar future exemption requests, provided that:
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\12\ See, e.g., Securities Exchange Act Release Nos. 83296 (May
21, 2018), 83 FR 24362 (May 25, 2018) (order granting NYSE National,
Inc.'s exemptive request relating to rules of FINRA incorporated by
reference); 83040 (April 12, 2018), 83 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
and exemptive request relating to rules of certain self-regulatory
organizations (``SROs'') (including FINRA) incorporated by
reference); 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''); 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 and
exemptive request relating to rules of the Chicago Board Options
Exchange, Incorporated, incorporated by reference).
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<bullet> 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; \13\
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\13\ 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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<bullet> 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
<bullet> 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.\14\
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\14\ See BATS Options Market Order, supra note 12 (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 the
Commission's and the Exchange's resources by avoiding duplicative rule
filings based on simultaneous changes
[[Page 4693]]
to identical rule text sought by more than one SRO.\15\ 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 FINRA rules it has incorporated by
reference. This exemption is conditioned upon the Exchange promptly
providing written notice to its members whenever FINRA changes a rule
that the Exchange has incorporated by reference.
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\15\ See BATS Options Market Order, supra note 12, 75 FR at
8761; see also 2004 Order, supra note 14, 69 FR at 8502.
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Accordingly, it is ordered, pursuant to Section 36 of the Exchange
Act,\16\ 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 the Exemptive Request, 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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\16\ 15 U.S.C. 78mm.
\17\ 17 CFR 200.30-3(a)(76).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-01712 Filed 1-27-22; 8:45 am]
BILLING CODE 8011-01-P
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