Notice2022-12170
Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Investigation, Disciplinary, Sanction, and Other Procedural Rules Modeled on the Rules of the Exchange's Affiliates
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 8, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 110 (Wednesday, June 8, 2022)</title>
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[Federal Register Volume 87, Number 110 (Wednesday, June 8, 2022)]
[Notices]
[Pages 35034-35066]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-12170]
[[Page 35033]]
Vol. 87
Wednesday,
No. 110
June 8, 2022
Part IV
Securities and Exchange Commission
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Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change To Adopt Investigation,
Disciplinary, Sanction, and Other Procedural Rules Modeled on the Rules
of the Exchange's Affiliates; Notice
Federal Register / Vol. 87 , No. 110 / Wednesday, June 8, 2022 /
Notices
[[Page 35034]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95020; File No. SR-NYSECHX-2022-10]
Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Adopt
Investigation, Disciplinary, Sanction, and Other Procedural Rules
Modeled on the Rules of the Exchange's Affiliates
June 1, 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 20, 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 self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt investigation, disciplinary,
sanction, and other procedural rules modeled on the rules of its
affiliates, and to make certain conforming and technical changes. The
proposed rule change is available on the Exchange's website at
<a href="http://www.nyse.com">www.nyse.com</a>, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to adopt investigation, disciplinary,
sanction, and other procedural rules modeled on the rules of its
affiliates, and to make certain conforming and technical changes.
Background and General Description of Proposed Rule Change
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'').\4\ To facilitate rule harmonization
among self-regulatory organizations (``SROs''), the Exchange proposes
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 below.
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\4\ 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) (``NYSE Arca Notice'').
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The Exchange notes that all but five Participants \5\ are already
subject to similar rules by virtue of their membership in the NYSE,
NYSE American, NYSE National, NYSE Arca, FINRA and/or the NASDAQ Stock
Market LLC (``NASDAQ''), whose disciplinary rules are similar to
FINRA's rules. The overwhelming majority of Exchange's Participant and
Participant Firms are thus already subject to rules similar to the
proposed rules described herein.
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\5\ There are currently 66 Participants on the Exchange. 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.
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Set forth below are (1) a description of the Exchange's current
disciplinary rules (current Article 12, Rules 1-10, and Article 13);
(2) a description of the proposed rule change and transition; (3) a
more detailed description of the proposed rules with a comparison to
the current rules; (4) a description of technical and conforming
amendments; and (5) a description of current rules that will not be
carried over into the proposed rule set and the reason(s) therefor.
Description of Current NYSE Chicago Article 12
The Exchange's current rules governing disciplinary proceedings and
appeals are set forth in Article 12 (Disciplinary Matters and Trial
Proceedings Investigation and Charges) in Rules 1 through 10.
Article 12, Rule 1 (Investigation and Charges)
Article 12, Rule 1 concerns investigations and the commencement of
disciplinary actions by the Exchange.
Article 12, Rule 1(a) governs investigations and the written report
of investigative findings. Under Article 12, Rule 1(a), the staff of
the Market Regulation Department has the authority to conduct
investigations of any possible violation of any Exchange rule or any
provision of the federal securities laws (or any rule thereunder) by
any Participant, associated person \6\ thereof or any other person or
organization subject to the jurisdiction of the Exchange. Except in
emergency situations, Article 12, Rule 1(a) requires staff to prepare a
written report of such investigation whenever seeking to institute a
proceeding pursuant to Article 12, Rule 1(b)(1) to be presented to the
Chief Regulatory Officer (``CRO'').
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\6\ ``Associated Person'' has the meaning set forth in Section
3(a)(21) of the Exchange Act. See Article 1, Rule 1(d). The term is
sometimes capitalized in the Exchange's rules and will be
capitalized herein.
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Article 12, Rule 1(b)(1)-(2) govern written charges. Under Article
12, Rule 1(b)(1), if in the CRO's judgment it appears from the written
investigative report that any Participant, Associated Person thereof or
any other person or organization subject to the Exchange's jurisdiction
(the ``Respondent'') is violating or has violated any provision of the
Bylaws, Exchange rules or of the federal securities laws or the
regulations thereunder, the CRO shall direct staff to prepare and
present written charges
[[Page 35035]]
against the Respondent, except as otherwise provided in the Exchange's
rules. The written charges must identify each Respondent and
specifically state each Exchange rule or provision of the federal
securities laws (or any rule thereunder) alleged to have been violated.
Charges must be served upon a Respondent and filed with the Secretary
of the Exchange (the ``Secretary'').
Article 12, Rule 1(b)(2) provides that, in addition to the process
set out in paragraph (1) above, the Board of Directors (the ``Board'')
and the Executive Committee each have the authority to direct the CRO
to authorize the institution of a disciplinary proceeding when, on
information and belief, either the Board or the Committee is of the
opinion that any Participant, Associated Person thereof or any other
person or organization subject to the jurisdiction of the Exchange is
violating or has violated any provision of the Bylaws or rules of the
Exchange or of the federal securities laws or the regulations
thereunder.
Article 12, Rule 1(c) governs service of charges, orders, notices
or any instrument on Respondents and provides that these may be served
upon the Respondent either personally or by leaving same at his or its
place of business during office hours or by deposit in the United
States post office, postage prepaid via registered or certified mail
with return receipt requested, addressed to the Respondent at the last
business address given by the Respondent to the Exchange.
The settlement procedure is set forth in Article 12, Rule 1(d). A
Respondent can settle a proceeding instituted pursuant to Article 12,
Rule 1, at any time by entering into a settlement agreement with the
Exchange without admitting or denying the charges, except as to
jurisdiction, which must be admitted. Under the rule, settlement
agreements must include a waiver by the Respondent of all rights of
appeal to the Executive Committee, the Board, Securities and Exchange
Commission (the ``Commission''), and United States Court of Appeals or
to otherwise challenge or contest the validity of the decision if the
offer of settlement is accepted. The rule also requires settlement
agreements to contain a proposed penalty to be imposed which must be
reasonable under the circumstances and consistent with the seriousness
of the alleged violations.
All settlement agreements require CRO approval. Where the CRO
rejects an offer of settlement, the offer of settlement is deemed
withdrawn and will not be given consideration in the determination of
the issues involved in the disciplinary proceeding. Moreover, the
Respondent will be granted an additional 10-day period from the time of
receipt of the non-acceptance of the offer to file any response
required under Article 12, Rule 5(b), described below.
Supplementary Material .01 to Article 12, Rule 1 provides that
prior to making a report pursuant to paragraph (a) of Rule 1, the staff
may notify the person(s) who is (are) the subject of the report of the
general nature of the allegations and of the specific provisions of the
Act, rules and regulations promulgated thereunder or constitutional
provisions, by-laws or rules of the Exchange or any interpretation
thereof or any resolution of the Board regulating the conduct of
business on the Exchange, that appear to have been violated. Under the
rule, the subject(s) may, within the time frame set forth in the notice
from the staff, submit a written statement to the Exchange setting
forth their interests and position in regard to the subject matter of
the investigation. To assist a subject in preparing such a written
statement he or she shall, upon request, have access to any documents
and other materials in the investigative file of the Exchange that were
furnished by him or her or his or her agents to the Exchange.
Article 12, Rule 2 (Summary Procedure)
Article 12, Rule 2 sets forth the Exchange's summary procedure
rules.
Under Article 12, Rule 2(a), if in the CRO's judgment it appears
from the investigation and report provided for in Article 12, Rule 1(a)
that the Respondent committed a minor infraction of the Bylaws or Rules
of the Exchange, the CRO may summarily censure the Respondent or impose
a fine not in excess of $500 or both.
Any fine imposed pursuant to subsection (a) of Article 12, Rule 2
and not contested shall not be publicly reported, except as may be
required by Rule 19d-1 under the Act, and as may be required by any
other regulatory authority.
Any contested fine will be publicly reported to the same extent
that Exchange disciplinary proceedings will be publicly reported. In
any action taken by the Exchange pursuant to Article 12, Rule 2, the
person against whom a fine is imposed shall be served (as provided in
Article 12, Rule 1(c)) with a written statement signed by the CRO or
his designee, setting forth the
(1) rule(s) or policy(ies) alleged to have been violated;
(2) act or omission constituting each such violation;
(3) fine imposed for each such violation;
(4) date on which such action is taken; and
(5) date on which such determination becomes final and such fine
becomes due and payable to the Exchange, or on which such action must
be contested as provided below.
Any person against whom a minor fine is imposed under the Rule may
contest the Exchange's determination by filing with the Secretary not
later than 30 days after the service of the Notice of Fines, a written
response meeting the requirements of an Answer as provided in Article
12, Rule 4(b) at which point the matter shall become a ``Disciplinary
Proceeding'' subject to the provisions of Article 12 applicable to
disciplinary proceedings.
Article 12, Rule 2(b)(1) governs collateral proceedings involving a
Participant, partner, officer, registered employee or Associated Person
that is suspended or expelled from any other securities exchange or any
national securities association, or is suspended or barred from being
associated with any member or member organization of such exchange or
association, or is suspended or barred by any governmental securities
agency from dealing in securities or being associated with any broker
or dealer in securities. In those circumstances, the CRO may suspend or
expel such person or organization as a Participant, partner, officer,
registered employee or Associated Person. Pursuant to the Rule, no such
suspension by the CRO may commence before or expire after the
suspension imposed by such other exchange, association or agency, and
no such expulsion may be imposed by the CRO unless such person or
organization has been expelled or barred by such other exchange,
association or agency. Finally, Article 12, Rule 2(b) does not preclude
any proceeding against any Participant, partner, officer, registered
employee or Associated Person under any other Rule of the Exchange.
Under Article 12, Rule 2(b)(2), the procedure required by Article
12, Rule 1 is inapplicable to contested proceedings under Article 12,
Rule 2(b). A Respondent in a collateral proceeding, however, must be
given not less than ten days' notice in writing that the Chief
Executive Officer (``CEO'') will appoint a Hearing Officer pursuant to
the provisions of Article 12, Rule 5 to conduct a hearing to determine
whether or not to suspend or expel the Respondent as provided in
Article 12, Rule 2(b).
At such hearing, the respondent Participant or any respondent
partner, officer, registered employee or associated person of a
Participant Firm
[[Page 35036]]
shall be afforded an opportunity to explain why it would be
inappropriate for the Hearing Officer to accept the finding of such
other exchange, association or agency or to suspend or expel the
Respondent notwithstanding the suspension, expulsion or bar by such
other exchange, association or agency. In the event that the Hearing
Officer determines not to accept the finding by such other exchange,
association or agency, he may order a proceeding under any other Rule
of Article 12. In the event that the Respondent fails or refuses to
appear before the Hearing Officer, the Hearing Officer may nevertheless
determine the matter and suspend or expel the Respondent as provided in
Article 12, Rule 2(b). A written notice of the result shall be served
upon the Respondent in a manner provided by Article 12, Rule 1(c) and a
copy shall be sent to each member of the Board.
Any action by the Hearing Officer pursuant to Article 12, Rule 2(b)
can be reviewed in accordance with the procedure specified in Article
12, Rule 6. In the event no request for review is filed within 15 days
after the Respondent is notified of the determination of the Hearing
Officer, such determination shall become final and not subject to
appeal at the Exchange.
Under Article 12, Rule 2(b)(3), a Participant, partner, officer,
registered employee or Associated Person may consent to the penalty or
suspension or expulsion from the Exchange solely by reason of the
imposition of the suspension, expulsion or bar by such other exchange,
association or agency, and without either the separate determination of
the Hearing Officer as provided above in Article 12, Rule 2(b)(2) or
the procedure provided by Article 12, Rule 1. The required consent
takes effect immediately and must be in writing, signed by the
Respondent, and delivered to the Exchange not later than two business
days after the Exchange gives the Respondent with written notice of a
proceeding under Article 12, Rule 2(b).
Article 12, Rule 3 (Admission of Charges by Respondent)
Article 12, Rule 3 governs admission of charges by a Respondent.
Under Article 12, Rule 3(a), where a respondent makes a written
admission of charges prepared and presented pursuant to Article 12 and
waives his or its right to be heard on the penalty to be imposed, the
CRO may determine and impose the penalty. The CRO's determination is
final.
Under Article 12, Rule 3(b), if a Respondent makes written
admission of the charges and also makes a written request for a hearing
on the penalty to be imposed, the CRO shall promptly order a hearing be
conducted pursuant to the procedures set forth in Article 12, Rule 5
that would be limited to such matters as are in extenuation or
aggravation of the circumstances or as shall have material bearing on
the penalty only. Under the Rule, the Respondent and the staff who
investigated the charges shall be given an opportunity to be heard at
such hearing conducted for the purpose of determining the penalty. A
written notice of the result shall be served upon the Respondent in a
manner provided by Rule 1(c) of this Article. Any penalty imposed under
this paragraph may be reviewed pursuant to Rule 6 of this Article.
Article 12, Rule 4 (Hearing Procedure)
Article 12, Rule 4 sets forth hearing procedures.
Article 12, Rule 4(a) provides that, in the absence of a written
admission by the Respondent or other settlement of charges pursuant to
Article 12, Rule 1(d), a hearing of the charges before a Hearing
Officer appointed by the CEO for the purpose of conducting the
particular hearing shall be held.
Subsection (b) governs the answer to charges, and provides that a
written answer to the charges shall be filed by the Respondent with the
Secretary (with copies to the Market Regulation Department) within 30
days from the date of service of the charges or within such further
time as the Hearing Officer may grant. The answer to the charges must
specifically admit or deny each charge, and any charge not specifically
denied is deemed to be admitted. Affirmative defenses must be asserted
in the answer or deemed waived. If a Respondent fails to file an answer
within the required timeframe, the allegations of the charging document
are deemed admitted, and the Hearing Officer will hold a hearing to
determine the appropriate sanctions.
Subsection (c) sets forth prehearing procedure. Article 12, Rule
4(c)(1) provides that the parties must exchange witness lists for the
hearing no less than 30 days prior to the hearing. No person who is not
identified on a witness list will be permitted to give evidence at the
hearing, unless the party requesting the testimony of such witness
shows good cause for failing to have previously included the person on
the witness list and the party requesting the testimony of such witness
can show that the failure to permit such testimony would result in
undue hardship.
Subsection (c)(2) provides that any party may request production of
all or some of the documents \7\ that its adversary intends to
introduce as evidence either in support of or to counter the charges
Production requests for some of the documents to be introduced as
evidence must reasonably specify which documents are to be produced,
and the party making the request shall do so at least 45 days prior to
the hearing and be responsible for paying all reasonable costs
associated with the production of such documents.
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\7\ For purposes of Article 12, Rule 4(c), the term
``documents'' means a writing, drawing, graph, report, table, chart,
photograph, video or audio recording, or any other data compilation,
including data stored by computer, from which information can be
obtained.
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Further, the rule provides that all documents must be produced at
least 30 days prior to the hearing. If a request is made to produce all
or some of the documents that are intended to be introduced as evidence
at the hearing, the party responding to the request will be precluded
from introducing at the hearing any documents that were not produced in
response to the request, unless (1) there is good cause shown for
failing to produce the document(s) 30 days prior to the hearing, and
(2) failure to permit introduction of such evidence would result in
undue hardship.
Upon request of any party, the Hearing Officer may shorten or
lengthen the time periods for the exchange of witness lists or the
production of documents.
Subsection (d) governs the conduct of the hearing. Under Article
12, Rule 4(d), the Hearing Officer must schedule the time and place at
which the Hearing shall be held within 30 days of the filing of an
answer by the Respondent.
The rule further provides that formal rules of evidence do not
apply in any part of any disciplinary proceedings, although the parties
may stipulate as to the rules relating to the introduction of evidence
at the hearing. Such stipulations must be in writing and filed with the
Hearing Officer and the Secretary no less than 5 days prior to the
scheduled date for the commencement of the hearing.
The Respondent has the right to be present at the hearing and be
permitted to examine and cross-examine all witnesses produced by the
Exchange, and also to present testimony, defense or explanation. The
rule affords the Market Regulation Department the right to produce
witnesses and other evidence in support of the charges, cross-examine
all witnesses produced
[[Page 35037]]
by the Respondent, and introduce additional witnesses and evidence
solely in rebuttal to the Respondent's evidence. The Respondent in turn
has the right to cross-examine any rebuttal witnesses and enter
additional evidence to counter any rebuttal evidence entered by the
Exchange staff. Both parties have the right to make opening and closing
oral arguments. The Market Regulation Department has the right to make
a rebuttal oral argument after Respondent's opening and closing
argument. Finally, Article 12, Rule 4(d) requires that a transcript of
the testimony at the proceedings be made.
Article 12, Rule 4(e) governs appointment of the Hearing Officer
and requires that the Hearing Officer for each particular matter be
selected by the CEO. Under the rule, prospective Hearing Officers must
disclose to the Exchange their employment history for the past 10
years, any past or current material business or other financial
relationships with the Exchange or any members of the Exchange, and any
other information deemed relevant by the Exchange. Disclosures relating
to the particular Hearing Officer selected by the CEO must be provided
to a Respondent upon request after the selection of the Hearing
Officer. In selecting a Hearing Officer for a particular matter, the
CEO should give reasonable consideration to the prospective Hearing
Officer's professional competence and reputation, experience in the
securities industry, familiarity with the subject matter involved, the
absence of bias and any actual or perceived conflict of interest, and
any other relevant factors.
Article 12, Rule 4(f) governs the decision of the Hearing Officer.
After considering the entire record, a Hearing Officer must prepare a
written Order setting forth the determination as to whether the
Respondent committed the violations alleged in the charging document or
otherwise established at the Hearing and, if so, the sanction(s) to be
imposed. The Hearing Officer must sign two copies of the written Order
and deliver one signed copy to the Respondent and file the other with
the Secretary (with copies to the Market Regulation Department).
The rule requires the Order to make specific findings as to each
charge brought by the Exchange and, where a violation is found, impose
appropriate sanctions, including expulsion or suspension of a
Participant's Trading Permit, the imposition of limitations on the
activities, privileges, functions, and/or operations of a Participant
or person associated with a Participant, the imposition of fine(s),
censure, suspending or barring a person or organization from being
associated with a Participant or any other fitting sanction. Absent the
granting of an extension of time by either the Board or the Executive
Committee for good cause shown, the Hearing Officer shall issue an
Order within 90 days of the conclusion of the hearing.
Article 12, Rule 4(g) governs a Respondent's right to counsel.
Under Article 12, Rule 4(g), Respondent shall have the right to be
represented by legal or other counsel at the Respondent's own expense
except in the case of summary procedure under Article 12, Rule 2(a),
Rule 3 or Rule 4(a), and under the Minor Rules Violation Plan
(``MRVP'') of Article 12, Rule 8.\8\ The rule also provides that
preparation of the charges and the presentation of evidence in support
of charges is the responsibility of the Market Regulation Department
and that Exchange counsel shall be counsel to the Hearing Officer.
Pursuant to Article 12, Rule 4(g), Exchange counsel must not be an
employee in the Market Regulation Department and must not have directly
participated in any examination, investigation or decision associated
with the initiation or conduct of the particular proceeding.
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\8\ Article 12, Rule 4(g) mistakenly refers to the MRVP as being
in Article 12, Rule 9 which, as noted below, is marked ``Reserved.''
See note 12 [sic], infra.
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Article 12, Rule 4(h) governs the impartiality of Hearing Officer.
The rule requires that when a Hearing Officer considers a disciplinary
matter, he or she is expected to function impartially and independently
of the staff members who prepared and prosecuted the charges. Under the
rule, Exchange counsel may assist the Hearing Officer in preparing his
written recommendations or judgments.
Within 15 days of the appointment of the Hearing Officer, a
Respondent may move for disqualification of the Hearing Officer based
upon bias or conflict of interest. Motions to disqualify a Hearing
Officer must be in writing, state with specificity the facts and
circumstances giving rise to the alleged bias or conflict of interest,
and filed with the Hearing Officer and the Secretary (with copies to
the Market Regulation Department). The Exchange may file a brief in
opposition to the Respondent's motion within 15 days of service.
Article 12, Rule 4(h) requires the Hearing Officer to rule on such
motions no later than 30 days from filing by the Respondent. Prior
adverse rulings against the Respondent or his attorney in other matters
do not, in and of themselves, constitute grounds for disqualification.
If a Hearing Officer believes the Respondent has provided satisfactory
evidence in support of the motion to disqualify, the Hearing Officer
shall remove himself or herself and request the CEO to reassign the
hearing to another Hearing Officer. If the Hearing Officer determines
that the Respondent's grounds for disqualification are insufficient,
the Hearing Office must deny the Respondent's motion for
disqualification by setting forth the reasons for the denial in
writing. The Hearing Officer will thereupon proceed with the hearing.
Ruling by the Hearing Officer on motions to disqualify are not subject
to interlocutory review.
Article 12, Rule 5 (Review)
Article 12, Rule 5 governs review of penalties and decisions.
Subsection (a) of Article 12, Rule 5 provides for review by the
Judiciary Committee. The Judiciary Committee is governed by Article 2,
Rule 3, which provides that whenever, in accordance with the Rules, a
disciplinary matter is to be reviewed by a Judiciary Committee, the CEO
shall appoint five disinterested Participants of the Exchange and/or
general partners or officers of Participant Firms as a Judiciary
Committee, for that purpose. A new Judiciary Committee is appointed to
consider and determine each such matter. In the event of a vacancy on a
Judiciary Committee after it has begun its proceedings, the remaining
members appointed by the CEO shall complete consideration and
disposition of the matter. Once a Judiciary Committee has determined
the matter for which it was appointed and has notified the Secretary in
writing of its decision, it shall be dissolved automatically.
Under Article 12, Rule 5(a), a Respondent has 15 days from the date
of service of notice of a penalty imposed under Article 12, Rule 2(b),
Rule 4(b) or Rule 5 to demand a review of the penalty imposed. The
Exchange in turn has 15 days from the date of service of notice of an
Order under Article 12, Rule 2(b), Rule 4(b) \9\ or Rule 5 containing a
decision with a finding that the Respondent did not commit any of the
violations as alleged in the charging document or imposing a penalty
that Exchange staff deems inadequate to demand a review thereof.
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\9\ Article 12, Rule 5(a) mistakenly refers to an Order under
Article 12, Rule 4(b). As discussed, Article 12, Rule 4(b) governs
answers to charges. The Hearing Officer's decision is governed by
subsection (f).
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Demand for review shall be made in writing and filed with the
Secretary, with copies to the opposing party. In the
[[Page 35038]]
event no request for review is filed within 15 days after the parties
are notified of the Hearing Officer's determination, such determination
becomes final and conclusive.
Under Article 12, Rule 5(a), a Judiciary Committee appointed by the
Board or the Executive Committee will review the terms of an Order
under Article 12, Rule 2(b), Rule 4(b) or Rule 5. Under Article 12,
Rule 5, the Judiciary Committee may not reverse, or modify, in whole or
in part, the decision of the Hearing Officer under Article 12, Rule
2(c), Rule 4(b) or Rule 5 if the factual conclusions in the decision
are supported by substantial evidence and such decision is not
arbitrary, capricious or an abuse of discretion. Modifications may
include an increase or decrease of the penalty imposed. Unless the
Judiciary Committee decides to open the record for the introduction of
evidence to hear argument, such review shall be upon the factual record
as certified to the Judiciary Committee by the Secretary.
Under Article 12, Rule 5(a), both the Respondent and the Exchange
staff have the right to file memoranda (not to exceed 25 pages,
inclusive of attachments). The appellant must file its memorandum with
the Secretary within 45 days of service of the notice of appeal, or
within such other time as directed by the Executive Committee. The
appellee must file its memorandum within 30 days of the filing of the
appellant's memorandum, or within such other time as directed by the
Executive Committee. In its sole discretion, the Judiciary Committee
may hear oral argument by the parties. The decision of the Judiciary
Committee must be in writing and address the principal arguments
forwarded by the appellant and appellee. The decision of the Judiciary
Committee will be the final decision of the Exchange, except as
provided in Article 12, Rule 5(b), described below.
Article 12, Rule 5(b) provides a process for review by the Board of
matters subject to Judiciary Committee review under Rule 5(a). Article
12, Rule 5(b) provides that, notwithstanding Article 12, Rule 5 (a), if
the Judiciary Committee determines that a matter presented to it for
review involves an issue of sufficient importance, it may request that
the Board, rather than the Judiciary Committee, conduct the review. The
Board may in its discretion determine to review any decision of the
Judiciary Committee. Under Article 12, Rule 5(b), any review by the
Board shall be upon the record as certified to the Board by the
Secretary, and the Board may not reverse or modify any decision if the
factual conclusions in the decision are supported by substantial
evidence and such decision is not arbitrary, capricious or an abuse of
discretion. The Board may also consider any memoranda submitted by the
Respondent or Exchange staff to the Judiciary Committee pursuant to
Article 12, Rule 5(a). The Board may, in its sole discretion, hear oral
argument by the parties. Under the rule, modifications may include an
increase or decrease of the penalty imposed on the Respondent. Any
decision by the Board shall be the final decision of the Exchange.
Article 12, Rule 6 (Effective Date of Judgment)
Article 12, Rule 6 governs the effective date of judgments. The
rule provides that enforcement of any Orders or penalties imposed under
Article 12 shall be stayed upon the filing of a notice of appeal under
Article 12, Rule 6(a) pending the outcome of final review by a
Judiciary Committee or the Board as provided for in Article 12 or until
the decision otherwise becomes final, subject, however, to the power of
the Hearing Officer to impose such limitations on the Respondent as are
necessary or desirable, in the Hearing Officer's judgment, for the
protection of the Respondent's customers, creditors or the Exchange or
for the maintenance of just and equitable principles of trade.
Article 12, Rule 7 (Disciplinary Jurisdiction)
Article 12, Rule 7 describes the Exchange's disciplinary
jurisdiction.
Article 12, Rule 7(a) provides that a Participant or a person
associated with a Participant alleged to have violated or aided and
abetted a violation of any provision of the Act, the rules and
regulations promulgated thereunder, or any constitutional provisions
by-law or rule of the Exchange or any interpretation thereof or
resolution of the Board of the Exchange regulating the conduct of
business on the Exchange is subject to the disciplinary jurisdiction of
the Exchange and, after notice and opportunity for a hearing, may be
appropriately disciplined by expulsion, suspension, limitation of
activities, functions, and operations, fine, censure, being suspended
or barred from being associated with a Participant or any other fitting
sanction, in accordance with the provisions of these Rules.
Subsection (b) of Article 12, Rule 7 provides that any Participant
or person associated with a Participant shall continue to be subject to
the disciplinary jurisdiction of the Exchange following such person's
termination of their Trading Permit or association with a Participant
with respect to any matter that occurred prior to such termination;
provided that written notice of the commencement of an inquiry into
such matters is given by the Exchange to such former Participant or
Associated Person within one year of receipt by the Exchange of written
notice of the termination of such person's status as a Participant or
person associated with a Participant.
Rule 8 (Minor Rule Violations)
Article 12, Rule 8 sets forth the Exchange's MRVP.\10\ Under
Article 12, Rule 8, in lieu of commencing a ``disciplinary proceeding''
as that term is used in Article 12 of the Exchange's rules, the
Exchange may, subject to the requirements set forth in this Rule,
impose a censure or fine, not to exceed $5,000,\11\ 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.\12\
For
[[Page 35039]]
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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\10\ 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 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/$1000 for 1st, 2nd and 3rd tier fines, respectively,
to $250/$750/$1500. The Exchange also recommended fines of $500/
$1000/$2500 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 $1000/$2500/$5000 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).
\11\ Proposed Rule 10.9217 would retain the Exchange's maximum
$5,000 fine for minor rule violations under current Article 12, Rule
8.
\12\ 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 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 on a periodic, rather than a current, basis, except
as may otherwise be required by Act Rule 19d-1 and by any other
regulatory authority. Under Article 12, Rule 8(b), the Chief
Enforcement Counsel or 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
Recommended Fine Schedule, the Exchange shall consider 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 this 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.
Finally, Article 12, Rule 8(h) sets forth the Exchange rules and
policies that are subject to the MRVP.
Rule 10 (Pending Proceedings) <SUP>13</SUP>
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\13\ Article 12, Rule 9 is marked ``Reserved.''
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Article 12, Rule 10 provides that the Exchange will report to the
Central Registration Depository (``CRD'') the initiation of, and all
significant changes in the status of, a formal disciplinary proceeding.
For purposes of this rule, significant changes in the status of a
pending formal disciplinary proceeding include, but are not limited to,
issuance of a decision by the Hearing Officer the filing of an appeal
to and/or the issuance of a decision by a Judiciary Committee or the
Exchange's Board.
Article 13 (Suspension--Reinstatement)
Article 13 addresses suspensions, and reinstatements.
Article 13, Rule 1 governs automatic suspensions. Under the rule, a
Participant failing to perform his or its contracts, or being
insolvent, shall immediately inform the Secretary of the Exchange in
writing that he or it is unable to perform his or its contracts or is
insolvent. Such Participant's Trading Permit shall thereupon be
suspended by the CEO and prompt notice of such suspension shall be
given to all Participants. Such suspension shall continue until the
Participant's Trading Permit is reinstated by the Board.
Article 13, Rule 2 governs emergency suspensions. Under Article 13,
Rule 2(a)(1), whenever it appears to the CRO (after verification and
with such opportunity for comment by the Participant as the
circumstances reasonably permit) that a Participant, or, with respect
to Article 13, Rule 2(a)(1)(B), any Associated Person has:
<bullet> Failed to perform his or its contracts or is insolvent or
is in such financial or operational condition or otherwise conducting
his or its business in such a manner that he or it cannot be permitted
to continue in business with safety to his or its customers or
creditors or to the Exchange, including but not limited to, the
reasonable belief that the Participant is violating and will continue
to violate any provision of the Rules of the Exchange, the federal
securities laws (or rules promulgated thereunder) or any condition or
restriction imposed pursuant to the provisions of Article 7, Rule 3(d)
or Article 7, Rule 8(a) (Article 13, Rule 2(a)(1)(A)); or
<bullet> failed to perform or is failing to perform any material
responsibility imposed on the Participant as a result of its
registration as an Institutional Broker or Market Maker (or an
associated person thereof who is registered as an Institutional Broker
Representative or Market Maker Authorized Trader, respectively) and, as
a result, cannot be permitted to continue in business with safety to
its customers or creditors or to the Exchange ((Article 13, Rule
2(a)(1)(B)); or
<bullet> been and is expelled or suspended from any self-regulatory
organization or barred or suspended from being associated with a member
of any self-
[[Page 35040]]
regulatory organization (Article 13, Rule 2(a)(1)(C)),
the CRO may suspend such Participant Firm Trading Permit or such
Participant's registration under Article 6 or limit or prohibit such
Participant, Participant Firm's or associated person with respect to
access to services offered by the Exchange, or limit or revoke such
Participant's registration as Institutional Broker or Market Maker and
if so suspended, revoked, limited or prohibited, prompt notice of
action shall be given to all Participants and the written statement
described below shall be provided to the person affected by the
suspension, limitation or prohibition.
Unless the CRO determines after further inquiry that lifting the
suspension, revocation, limitation or prohibition without further
proceedings is appropriate, such suspension, limitation, revocation or
prohibition shall continue until the Participant Firm's Trading Permit,
such Participant's registration or the access of the associated person
is reinstated or terminated pursuant to the provisions of Article 13,
Rule 3 or unless otherwise determined pursuant to Article 13, Rule
2(b).
Under Article 13, Rule 2(a)(2), whenever it appears to the CRO that
a person who is not a Participant (after verification and with such
opportunity for comment by the person as circumstances reasonably
permit) does not meet the qualification requirements or prerequisites
for access to services offered by the Exchange and such person cannot
be permitted to continue to have such access with safety to investors,
creditors, Participants or the Exchange, the CRO may limit or prohibit
any person with respect to such access.
Under Article 13, Rule 2(a)(3), the CRO shall, within two business
days of taking action pursuant to Article 13, Rule 2 (whether with
respect to a Participant, an associated person of a Participant or any
other person), furnish such person with a written statement setting
forth the reasons and specific grounds which constitute the basis for
the action taken.
Article 13, Rule 2(b) governs appeals of CRO action under Article
13, Rule 2(a). Subsection (b) provides that, in the event the CRO takes
any action pursuant to Article 13, Rule 2(a), any person named in such
action shall have the right to appeal. Appeals pursuant to Article 13,
Rule 2(b) shall be made by filing a written notice of appeal with the
secretary of the Exchange within five days after notification of the
action. The notice shall state with particularity the action complained
of, the appellant's reasons for taking exception to the decision and
the relief sought. Appeals filed under Article 13, Rule 2(b) are
considered and decided by a panel appointed by the Board, composed of
three Board members, at least two of whom shall be public members of
the Board. No member of such panel shall have any direct or indirect
interest in the matter presented before them which might preclude such
member from rendering an objective and impartial determination. All
appeals heard pursuant to Article 13, Rule 2(b) are expedited to the
maximum extent possible and, in any event, shall be heard within ten
days. Appellants are notified of the composition of the panel and the
time, place and date when the panel will meet. Written materials in
support of the appeal or requests to make an oral presentation shall be
filed with the panel prior to the date when the panel will meet. The
panel will grant requests for oral presentation. After consideration of
the appeal, the panel shall, by vote of a majority of its members,
affirm, reverse, or modify the action upon which the appeal was made.
All decisions by the panel are final.
Finally, under Article 13, Rule 2(c), any appeal from a decision of
the CRO shall be made pursuant to the procedures set out in Article 15
(Hearings and Reviews).
Commentary .01 to Article 13, Rule 2 provide that any Exchange
Officer designated by the CRO may suspend the trading privileges of a
Participant on the Exchange's facilities pursuant to the provisions of
Article 13, Rule 2 if a Qualified Clearing Agency refuses to act to
clear and settle the trades of that Participant. The CRO must approve
any such suspensions within two (2) days of the action. If the CRO does
not approve the action taken, the suspension shall be immediately
lifted as of the time of his or her decision or after the expiration of
two days, whichever is earlier.
Article 13, Rule 3 governs failure to obtain reinstatement and
provides that if a Participant suspended under the provisions of
Article 13, Rule 1 or Article 13, Rule 2(a) fails to obtain
reinstatement within one year from the time of his or its suspension,
or within such further time as the Board may grant, or fails to obtain
reinstatement as hereinafter provided, his or its Trading Permit shall
be terminated. Any person suspended under Article 13 may, at any time,
be reinstated by the Board upon their own motion.
Article 13, Rule 4 sets forth the procedure for reinstatement.
Article 13, Rule 4(a) provides that when a Participant (or any
Associated Person) suspended under the provisions of Article 13, Rule 1
applies for reinstatement, he or it shall be investigated by the staff
to determine if the circumstances which brought about the suspension
have been corrected and if any specified requirements imposed as a
condition of reinstatement have been met, prior to the consideration of
the application by the Executive Committee.
Article 13, Rule 4(b) provides that if the staff recommends that
the applicant not be reinstated, the applicant shall be sent a
statement of reasons therefore and may, within 15 days of the receipt
thereof, file a request with the Executive Committee that it consider
his or its application together with a written statement indicating why
in his or its opinion the staff recommendation is in error or
insufficient to preclude his or its reinstatement.
Under Article 13, Rule 4(c), if the staff recommends that the
applicant be reinstated or if the applicant files a request with the
Executive Committee pursuant to Article 13, Rule 4(b), the Executive
Committee shall consider and vote upon the application for
reinstatement. An affirmative vote of two-thirds of the members of the
Executive Committee present at the time of voting shall be required for
reinstatement.
Under Article 13, Rule 4(d), in the event the applicant does not
receive two-thirds vote, he or it shall have the right to a hearing
before the Executive Committee, conducted in accordance with procedures
set forth in a notice of such hearing to be given to the applicant.
Following the hearing, the Executive Committee shall again vote upon
the applicant, a two-thirds vote of the members of the Executive
Committee present at the time of voting being required for
reinstatement. The applicant may petition the Board for review of any
adverse determination made by the Executive Committee following a
hearing, a two-thirds vote of the members of the Board present at the
time of voting being required for reinstatement. The Board shall not
reverse, modify or remand for further consideration any determination
made by the Executive Committee if the factual conclusions in such
determination are supported by substantial evidence and such
determination is not arbitrary, capricious or an abuse of discretion.
Finally, Article 13, Rule 5 governs termination of rights by
suspension and provides that a Participant suspended under the
provisions of Article 13 shall
[[Page 35041]]
be deemed not in good standing and shall be deprived during the term of
his or its suspension of all rights and privileges of a holder of a
Trading Permit, as provided in Article 3, Rule 2(b). The suspension of
a Participant or any Associated Person thereof shall create a vacancy
in any office or position held by him.
Proposed Rule Change
The Exchange proposes the Rule 10.8000 Series (Investigations and
Sanctions) and the Rule 10.9000 Series (Code of Procedure), which would
be based on the text of the NYSE Arca Rule 10.8000 and 10.9000 Series.
The Exchange proposes to include the new disciplinary rules in current
Rule 10 that would be renamed ``Disciplinary Proceedings; Suspension,
Cancellation and Reinstatement.''
Unless otherwise specified below, the individual rules in the
proposed Rule 10.8000 Series and Rule 10.9000 Series are based on the
individual rules of the counterpart NYSE Arca Rule 10.8000 and 10.9000
Series without any differences, except that the Exchange would:
<bullet> describe its own transition process in Article 12, Rule 10
and in proposed Rules 10.8001, 10.8130(d), and 10.9001 as well as for
Article 13, which governs suspension and reinstatement;
<bullet> use the terms ``Participant'' and ``Participant Firm,''
together or separately, as applicable, rather than ``ETP Holder,''
``OTP Holder'' and ``OTP Firm,'' consistent with the Exchange's other
rules;
<bullet> define ``covered person'' in proposed Rule 10.9120 to mean
an Associated Person \14\ and any other person subject to the
jurisdiction of the Exchange. The NYSE Arca rule is similar except for
the reference to Approved Persons, a registration category that has no
direct analogue on the Exchange;
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\14\ See Article 1, Rule 1(d). See also id. at (d) & note 7
[sic], supra.
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<bullet> not utilize Floor-Based Panelists referenced in NYSE Arca
Rules 9120(q), 9212(a)(2)(B), 9221(a)(3), 9231(b)(2) and (c)(2), and
9232(c) because the Exchange does not have a trading floor;
<bullet> retain the text of the Exchange's currently applicable
list of minor rule violations in proposed Rule 10.9217, move the
Recommended Fine Schedule for minor rule violations from the Fee
Schedule to proposed Rule 10.9217 and make certain corrections and
additions; \15\
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\15\ The Exchange has filed a separate notice and comment filing
to adopt proposed Rules 9216(b) and 9217 and 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.
See SR-NYSECHX-2022-08. These rules relating to minor rule
violations would not be operative until approval of the Exchange's
companion rule filing.
---------------------------------------------------------------------------
<bullet> adopt substantially the same appellate and call for review
processes as its affiliate NYSE Arca except that the Exchange will not
be adopting appeals panels as provided for in NYSE Arca Rule 3.3 (Board
Committees) and NYSE Arca Rule 10.9310(b). NYSE Arca retained appeals
panels from its legacy disciplinary rules. The Exchange does not have a
similar current process; and
<bullet> make certain other technical and conforming changes as
described below and herein.
The Exchange also proposes to adopt the following rules in order to
harmonize its rules with those of its affiliates, as described in
detail below:\16\
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\16\ The Exchange has filed a separate filing to adopt a new
Rule 11.2210 governing communications with the public that would
incorporate FINRA Rule 2210 by reference and rename and amend
Article 8, Rule 13 governing advertising, promotion and
telemarketing. See SR-NYSECHX-2022-09. The Exchange will also file a
request with the Commission for an exemption under Section 36 of the
Act from the rule filing requirements of Section 19(b) of the Act
with respect to the incorporation by reference of proposed Rule
11.2210 and to the extent Rule 11.2210 is effected solely by virtue
of a change to cross-referenced FINRA rule. To the extent any rules
in this proposed filing refer to Rule 11.2210, such rules would not
be effective with respect to Rule 11.2210 until such separate filing
is operative.
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<bullet> A new Rule 11.21 governing disruptive quoting and trading
activity modeled on NYSE Arca Rule 11.21; and
<bullet> a new Article 2, Rule 4 that would create a Committee for
Review (``CFR'') as a sub-committee of the Regulatory Oversight
Committee (``ROC'') that would replace the Judiciary Committee as the
Exchange's appellate body reviewing disciplinary decisions on behalf of
the Board under the proposed disciplinary rules.
Finally, the Exchange proposes certain changes to Article 7, Rule
12 governing non-payment of any debt for Trading Permit fees, fines,
transaction fees, or other sums owing the Exchange or its subsidiaries,
to reflect that failure to pay any fine, sanction or cost levied in
connection with a disciplinary action would be governed by proposed
Rule 10.8320.
First, the heading of Article 7, Rule 12 would become ``Failure to
Pay Fees.'' Second, the Exchange would replace ``any debt for Trading
Permit fees, fines, transaction fees, or other sums owing the Exchange
or its subsidiaries'' with ``a fee.'' For the avoidance of doubt, and
consistent with the requirements of Article 15 (Hearings and Reviews),
the Exchange would add text providing that Exchange actions under
Article 7, Rule 12 would be subject to the procedural safeguards set
forth in Article 15, which sets out the procedures to seek an
opportunity to be heard and to appeal from non-disciplinary actions
taken by the Exchange pursuant to its Rules. Amended Article 7, Rule 12
would also specify that failure to pay any fine levied in connection
with a disciplinary action shall be governed by proposed Rule 10.8320.
Finally, the Exchange would remove ``pursuant to Article 12'' following
``disciplinary proceedings.''
Transition
Once the proposed rule change is effective, the Exchange intends to
announce by Information Memorandum with at least 30 days advance notice
the effective date of the new rules.\17\ To further facilitate an
orderly transition from the current rules to the new rules, the
Exchange proposes that matters already initiated under the current
rules would be completed under such rules. The proposed transition is
substantially the same as the NYSE Arca transition to its Rule 10.8000
and 10.9000 Series.
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\17\ The proposed Information Memorandum would be substantially
the same as that published for NYSE Arca. See NYSE Arca Equities RB-
19-060 NYSE Arca Options RB-19-02 (April 26, 2019).
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Specifically, the Exchange proposes that current Article 12, whose
coverage overlaps the proposed Rule 10.8000 and Rule 10.9000 Series,
would continue to apply to an investigation or proceeding instituted
under Article 12, Rule 1 prior to the effective date of the new rules
and would continue to apply until such proceeding was final. Article 12
would also continue to apply to any Participant, Participant Firm or
person associated with a Participant or Participant Firm over whom the
Exchange asserted jurisdiction by providing written notice of the
commencement of an inquiry pursuant to Article 12, Rule 7(b) prior to
the effective date of the new rules. In all other cases, the proposed
Rule 10.8000 and Rule 10.9000 Series, as described below, would apply.
Until the effective date, the Exchange could suspend from trading
on the Exchange any Participant or Participant Firm that fails to pay
any debt for Trading Permit fees, fines, transaction fees, or other
sums owing the Exchange or its subsidiaries under current Article 7,
Rule 12, which would remain in effect until payment was made.
Thereafter, the Exchange would proceed against an individual or entity
subject to its jurisdiction that failed to pay a fine, monetary
sanction, or cost levied in connection with a disciplinary action under
proposed Rule 10.8320.
[[Page 35042]]
As described above, Article 13, Rule 1 governs automatic
suspensions by the CEO of the Exchange of Participants for failure to
perform its contracts or being insolvent. Article 13, Rule 2 governing
emergency regulatory suspensions by the CRO that overlap with the Rule
10.9500 Series. The Exchange proposes that emergency suspensions under
Article 13, Rule 2 would continue to apply to a proceeding for which
the Exchange has issued a written notice or statement thereunder prior
to the effective date of the new rules. Thereafter, the proposed Rule
10.9500 Series would govern all emergency suspensions. Automatic
suspensions under Article 13, Rule 1 would be unaffected by the
proposed changes.
When the transition is complete, the Exchange intends to submit a
proposed rule change that would delete the provisions of Article 12 and
Article 13 that are no longer necessary.
Jurisdiction
The Exchange proposes a new Rule 2.0 titled ``Disciplinary
Jurisdiction'' based on current Article 12, Rule 7, which describes the
Exchange's current disciplinary jurisdiction.\18\ Proposed Rule 2.0(a)
would be substantially the same as current Article 12, Rule 7(a) except
that the Exchange would:
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\18\ The new Rule 2.0 titled ``Rule 2.0. Disciplinary
Jurisdiction'' would appear below ``Rule 2 Trading Permits.''
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<bullet> add ``Participant Firm'' to the first sentence of the
proposed rule to explicitly include such firms and persons associated
with Participant Firms within the scope of the Exchange's jurisdiction;
<bullet> include the phrase ``or any other person or organization
subject to the jurisdiction of the Exchange'' in that same first
sentence of the proposed rule consistent with current Article 12, Rule
1 and in order to explicitly include such persons or organizations
within the scope of the Exchange's jurisdiction;
<bullet> omit the reference to ``constitutional provisions'' from
the list of potential violations as moot since the Exchange no longer
has a Constitution;
<bullet> conform the potential sanctions with NYSE Arca's Rule
2.0(a), that exchange's comparable jurisdiction rule;
<bullet> replace the reference to ``these Rules'' with ``the Rule
10.8000 and 10.9000 Series'' to add clarity and transparency;
<bullet> add the following sentence from NYSE Arca Rule 2.0 in
order to harmonize the Exchange's rules with that of its affiliates and
clarify the scope of the Exchange's disciplinary jurisdiction: ``A
Participant or Participant Firm may be charged with any violation
committed by its employees or other person associated with such
Participant or Participant Firm, as though such violation were its
own.''
Proposed Rule 2.0(b) would be based on NYSE Arca Rule 2.0(b) and
would provide that a Participant or Participant Firm that resigns or
has its membership canceled or revoked, and a person who is no longer a
covered person as defined in Rule 10.9120 or a covered person whose
registration has been revoked or canceled, shall continue to be subject
to the Exchange's disciplinary jurisdiction as set forth in proposed
Rule 10.8130.
Proposed Rule 2.0(c) would be based on NYSE Arca Rule 2.0(c). The
proposed rule would provide that the Board may authorize any officer,
on behalf of the Exchange, subject to the approval of the Board, to
enter into one or more agreements with another self-regulatory
organization to provide regulatory services to the Exchange to assist
the Exchange in discharging its obligations under Section 6 and Section
19(g) of the Act. The proposed rule would further provide that any
action taken by another self-regulatory organization, or its employees
or authorized agents, acting on behalf of the Exchange pursuant to a
regulatory services agreement shall be deemed to be an action taken by
the Exchange; provided, however, that nothing in this provision would
affect the oversight of such other self-regulatory organization by the
Commission. Finally, proposed Rule 2.0(c) would provide that,
notwithstanding the fact that the Exchange may enter into one or more
regulatory services agreements, the Exchange shall retain ultimate
legal responsibility for, and control of, its self-regulatory
responsibilities, and any such regulatory services agreement shall so
provide.
As proposed, Rule 2.0 would set forth the scope of the Exchange's
disciplinary jurisdiction under the Rule 10.8000 and 10.9000 Series. As
discussed below, proposed Rule 10.8130 would address the Exchange's
retention of jurisdiction, and would enable the Exchange to generally
retain jurisdiction to file a complaint against a Participant,
Participant Firm or a covered person for two years after such status
was terminated. Current Article 12 would continue to apply to any
Participant, Participant Firm or covered person over whom the Exchange
asserted jurisdiction by providing written notice of the commencement
of an inquiry under Article 12, Rule 7(b) prior to the effective date.
To continue the current coverage of the Exchange's disciplinary
rules, the proposed rule change would use the terms ``Participant,''
``Participant Firm'' and ``covered person,'' which would be defined in
proposed in Rule 10.9120 to mean an Associated Person \19\ and any
other person subject to the jurisdiction of the Exchange, to describe
the persons to which the proposed Rule 10.8000 and 10.9000 Series
apply. The NYSE Arca rule is similar except for the reference to
Approved Persons, a registration category that has no direct analogue
on the Exchange.
---------------------------------------------------------------------------
\19\ See Article 1, Rule 1(s). See also id. at (d) & note 6,
supra.
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Proposed Rule 10.8000 Series
The Proposed Rule 10.8000 Series would address Investigations and
Sanctions.
Proposed Rule 10.8001 (Effective Date of Rule 10.8000 Series) would
include the effective date of the proposed rule change for the Rule
10.8000 Series, noting the exception for the retention of jurisdiction
dates in proposed Rule 10.8130(d), as described below.
The text of NYSE Arca Rules 10.8110 through 10.8330 would be
adopted as Rules 10.8110 through 10.8330 with proposed changes to
reflect the Exchange's membership and to update the cross-references in
proposed Rule 10.8130(b)(1) to the rules governing termination of
registration (Article 6, Rule 2; Article 16, Rule 1; and Article 17,
Rule 1). Proposed Rule 10.8100 (General Provisions) would include
proposed Rules 10.8110 through 10.8130.\20\
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\20\ NYSE Arca Rules 10.8212, 10.8213, and 10.8312 are marked
``Reserved'' in the NYSE Arca's rulebook. As such, to maintain
consistency with NYSE Arca's rule numbering, the Exchange has
designated proposed Rules 10.8212, 10.8213, and 10.8312 as
``Reserved.''
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Proposed Rule 10.8110 (Availability of Rules for Customers) would
require Participants and Participant Firms to make available a current
copy of the Exchange's rules for examination by customers upon request.
Although there is no comparable requirement in the current Rules, the
Exchange's rules are currently available on the Exchange's website.\21\
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\21\ The rules are available at <a href="https://nysechicago.wolterskluwer.cloud/rules">https://nysechicago.wolterskluwer.cloud/rules</a>.
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Proposed Rule 10.8120 (Definitions) would provide cross-references
to definitions of the terms ``Adjudicator,'' ``covered person,'' and
``Regulatory Staff'' in proposed Rule 10.9120. Proposed Rule 10.8120 is
technical in nature.
Proposed Rule 10.8130 (Retention of Jurisdiction) would set forth
retention of
[[Page 35043]]
jurisdiction provisions that are substantially the same as NYSE Arca
Rule 10.8130, except for (1) references to reflect the Exchange's
membership, (2) the cross-references in paragraph (b)(1) and (d), and
(3) clarifying in paragraph (d) for purposes of the transition Article
12 would continue to apply to a Participant, Participant Firm or
covered person over whom the Exchange asserted jurisdiction by
providing written notice of the commencement of an inquiry pursuant to
Article 12, Rule 7(b) prior to the effective date of the new
disciplinary rules.
Generally, subject to proposed Rule 10.8130(d), under the proposed
rule change, the Exchange would retain jurisdiction to file a complaint
against a Participant, Participant Firm or a covered person for two
years after such Participant's, Participant Firm's or covered person's
status is terminated. This differs from current Article 12, Rule 7(b),
which provides that jurisdiction is retained if a written notice of the
commencement of an inquiry into such matters is given by the Exchange
to the former Participant or Associated Person within one year of
receipt by the Exchange of written notice of the termination of such
person's status as Participant or person associated with a Participant.
The Exchange believes that the period under the proposed rule is
appropriate because it will harmonize the Exchange's rule with NYSE
Arca's rule.
Proposed Rule 10.8200 (Investigations) would set forth the
following rules. Proposed Rule 10.8210 (Provision of Information and
Testimony and Inspection and Copying of Books) would set forth
procedures for the provision of information and testimony and
inspection and copying of books by the Exchange.
Proposed Rule 10.8210(a) would require Participant, Participant
Firm or a covered person to provide information and testimony and
permit the inspection of books, records, and accounts for the purpose
of an investigation, complaint, examination, or proceeding authorized
by the Exchange's rules. As noted above, under proposed Rule 10.8130,
the Exchange would retain jurisdiction over a Participant, Participant
Firm or a covered person to file a complaint or otherwise initiate a
proceeding for two years after such Participant's, Participant Firm's
or covered person's status is terminated; as such, the Exchange can
continue to obtain information and testimony during such period and
thereafter if a complaint or proceeding is timely filed. The Exchange's
current Article 6, Rule 9(a) similarly provides that a Participant or
partner, officer, director or other person associated with a
Participant or other person or entity subject to the jurisdiction of
the Exchange that fails to submit requested documents or information to
the Exchange is subject to formal disciplinary action.
Under current Article 6, Rules 9(b), no Participant, or partner,
officer, director or other person associated with a Participant or
other person or entity subject to the jurisdiction of the Exchange
shall refuse to appear and testify before another exchange or self-
regulatory organization in connection with a regulatory investigation,
examination or disciplinary proceeding or refuse to furnish documentary
materials or other information or otherwise impede or delay such
investigation, examination or disciplinary proceeding if the Exchange
requests such information or testimony in connection with an inquiry
resulting from an agreement entered into by the Exchange pursuant to
Article 6, Rule 9(c). The requirements of current Article 6, Rule 9(b)
shall apply regardless of whether the Exchange has itself initiated a
formal investigation or disciplinary proceeding. Proposed Rule
10.8210(b) provides Exchange staff may exercise the authority set forth
in 10.8210(a) for the purpose of an investigation, complaint,
examination, or proceeding conducted by another domestic or foreign
self-regulatory organization, association, securities or contract
market, or regulator of such markets with which the Exchange has
entered into an agreement providing for the exchange of information and
other forms of material assistance solely for market surveillance,
investigative, enforcement, or other regulatory purposes. The Exchange
believes that adopting the proposed rule is appropriate because it will
harmonize the Exchange's rules with its affiliate's rules with respect
to jurisdiction and obtaining books and records from Participants,
Participant Firms and persons associated with Participants and
Participant Firms. The Exchange accordingly proposes to delete the text
of current Article 6, Rules 9(a) and (b).
Finally, proposed Rule 10.8210(a) would provide that, in performing
the functions of investigation, complaint, examination, or proceeding
authorized by Exchange rules, the CRO and Regulatory Staff would
function independently of the commercial interests of the Exchange and
the commercial interests of Participants and Participant Firms. The
proposed rule would further provide that no member of the Board or non-
Regulatory Staff may interfere with or attempt to influence the process
or resolution of any pending investigation or disciplinary proceeding,
to proposed Rule 10.8210(a). The proposed language is based on NYSE
Arca Rule 10.8210(a) with no substantive changes. The Exchange does not
have a comparable rule and believes that adopting the proposed rule is
appropriate because it will harmonize the Exchange's rule with NYSE
Arca's rule in the important area of regulatory independence.\22\
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\22\ As noted below, the last sentence of proposed Rule
10.8210(a) will also be added to proposed Rule 10.9110(a).
---------------------------------------------------------------------------
Proposed Rule 10.8210(b)(2) would authorize Exchange staff to enter
into regulatory cooperation agreements with a domestic federal agency
or subdivision thereof, a foreign regulator, or a domestic or foreign
SRO. Under current Article 6, Rule 9(c), the Exchange may enter into
agreements with domestic and foreign SROs, but it does not cover
domestic agencies and foreign regulators. As such, the Exchange would
delete the text of current Article 6, Rule 9(c). The remainder of
Article 6, Rule 9, consisting of interpretations and policies in
Commentaries .01 and .02, would be deleted as well.
The remainder of proposed Rule 10.8210 would set forth certain
procedures for investigations. Proposed Rule 10.8210(c) would require
Participants, Participant Firms and covered person to comply with
information requests under the Rule.
Proposed Rule 10.8210(d) would provide that a notice under this
Rule would be deemed received by the Participant, Participant Firm or
covered person (including a currently or formerly registered person) to
whom it is directed by mailing or otherwise transmitting the notice to
the last known business address of the Participant or Participant Firm,
or the last known residential address of the covered person as
reflected in the Central Registration Depository (``CRD''). With
respect to a person who is currently associated with a Participant or
Participant Firm in an unregistered capacity, a notice under this Rule
would be deemed received by the person by mailing or otherwise
transmitting the notice to the last known business address of the
Participant or Participant Firm as reflected in CRD. With respect to a
person subject to the Exchange's jurisdiction who was formerly
associated with a Participant or Participant Firm in an unregistered
capacity, a notice under the proposed
[[Page 35044]]
Rule would be deemed received by the person upon personal service, as
set forth in Rule 10.9134(a)(1).
If the Adjudicator or Exchange staff responsible for mailing or
otherwise transmitting the notice to the Participant, Participant Firm
or covered person had actual knowledge that the address in CRD is out
of date or inaccurate, then a copy of the notice would be mailed or
otherwise transmitted to: (1) the last known business address of the
Participant or Participant Firm or the last known residential address
of the covered person as reflected in CRD; and (2) any other more
current address of the Participant, Participant Firm or covered person
known to the Adjudicator or Exchange staff responsible for mailing or
otherwise transmitting the notice. If the Adjudicator or Exchange staff
responsible for mailing or otherwise transmitting the notice to the
Participant, Participant Firm or covered person knew that the such
person or entity was represented by counsel regarding the
investigation, complaint, examination, or proceeding that is the
subject of the notice, then the notice would be served upon counsel by
mailing or otherwise transmitting the notice to the counsel in lieu of
such person or entity, and any notice served upon counsel would be
deemed received by the person or entity.
Current Article 12, Rule 1(c) governs service of charges, orders,
notices or any instrument on Respondents and provides that these may be
served upon a Participant, Associated Person thereof or any other
person or organization subject to the jurisdiction of the Exchange
(defined as the ``Respondent'') either personally or by leaving same at
his or its place of business during office hours or by deposit in the
United States post office, postage prepaid via registered or certified
mail with return receipt requested, addressed to the Respondent at the
last business address given by the Respondent to the Exchange. The
changes to proposed Rule 10.8210(d) would harmonize service of process
across affiliated exchanges.
Proposed Rule 10.8210(e) would provide that in carrying out its
responsibilities under this Rule, the Exchange may, as appropriate,
establish programs for the submission of information to the Exchange on
a regular basis through a direct or indirect electronic interface
between the Exchange and Participants and Participant Firms.
Proposed Rule 10.8210(f) would permit a witness to inspect the
official transcript of the witness's own testimony, and permit a person
who has submitted documentary evidence or testimony in an Exchange
investigation to obtain a copy of the person's documentary evidence or
the transcript of the person's testimony under certain circumstances.
Finally, proposed Rule 10.8210(g) would require any Participant,
Participant Firm or covered person who in response to a request
pursuant to this Rule provided the requested information on a portable
media device to ensure that such information was encrypted. The
Exchange's current rules do not contain comparable provisions.
Commentary .01 to proposed Rule 10.8210 would require Participants,
Participant Firms or covered persons to provide Exchange staff and
adjudicators with requested books, records and accounts. In specifying
the books, records and accounts `` `of such Participant or covered
person,' '' proposed paragraph (a) of the rule refers to books, records
and accounts that the broker-dealer or its covered persons makes or
keeps relating to its operation as a broker-dealer or relating to the
person's association with the Participant or Participant Firm. This
includes but is not limited to records relating to an Exchange
investigation of outside business activities, private securities
transactions or possible violations of just and equitable principles of
trade, as well as other Exchange rules and the federal securities laws.
It does not ordinarily include books and records that are in the
possession, custody or control of a Participant, Participant Firm or
covered person, but whose bona fide ownership is held by an independent
third party and the records are unrelated to the business of the
Participant, Participant Firm or covered person. The rule would
require, however, that a Participant, Participant Firm or covered
person must make available its books, records or accounts when these
books, records or accounts are in the possession of another person or
entity, such as a professional service provider, but the a Participant,
Participant Firm or covered person controls or has a right to demand
them. The Exchange's current rules do not contain comparable
provisions. The Exchange believes that the additional specificity would
provide better notice to persons subject to its jurisdiction.
Proposed Rule 10.8211 (Automated Submission of Trading Data
Requested by the Exchange) would set forth the procedures for
electronic blue sheets. Because FINRA now performs surveillance
functions based on the information gathered as a result of these rules,
the Exchange believes that its procedures for electronic blue sheets
should be harmonized with FINRA and across affiliated exchanges that
have adopted the FINRA rule. Proposed Rule 10.8211 is substantially the
same as NYSE Arca Rule 10.8211 except for references reflecting the
Exchange's membership.
Proposed Rule 10.8300 (Sanctions) would set forth the following
rules.
Proposed Rule 10.8310 (Sanctions for Violation of the Rules) would
set forth the range of sanctions that could be imposed in connection
with disciplinary actions under the proposed rule change. Such
sanctions would include censure, fine, suspension, revocation, bar,
expulsion, or any other fitting sanction. These sanctions are
substantially the same as the permitted sanctions set forth in current
Article 12, Rule 7(a), which are expulsion; suspension; limitation of
activities, functions and operations; fine; censure; being suspended or
barred from being associated with a Participant; or any other fitting
sanction. Although there is some difference between the text of the
current and proposed rules, the Exchange believes that in practice the
range of sanctions is the same due to the inclusion in both rules of
the general category ``any other fitting sanction.''
Proposed Rule 10.8310 would also permit the Exchange to impose a
temporary or permanent cease and desist order against a Participant,
Participant Firm or covered person. Under proposed Rule 10.8310, each
party to a proceeding resulting in a sanction is deemed to have
assented to the imposition of the sanction unless such party files a
written application for review or relief pursuant to the Rule 10.9000
Series.
Proposed Rule 10.8311 (Effect of a Suspension, Revocation,
Cancellation, Bar or Other Disqualification) would provide in
subsection (a) that if a person is subject to a suspension, revocation,
or cancellation of registration, bar from association with a
Participant or Participant Firm or other disqualification, a
Participant or Participant Firm shall not allow such person to be
associated with it in any capacity that is inconsistent with the
sanction imposed or disqualified status, including a clerical or
ministerial capacity. The proposed rule further provides that a
Participant or Participant Firm shall not pay or credit to any person
subject to a sanction or disqualification, during the period of the
sanction or disqualification or any period thereafter, any salary,
commission, profit, or any other remuneration that the person might
accrue during the period of the sanction
[[Page 35045]]
or disqualification. However, a Participant or Participant Firm may
make payments or credits to a person subject to a sanction that are
consistent with the scope of activities permitted under the sanction
where the sanction solely limits a covered person from conducting
specified activities (such as a suspension from acting in a principal
capacity) or a disqualified person has been approved (or is otherwise
permitted pursuant to Exchange rules and the federal securities laws)
to associate with a Participant or Participant Firm.
Proposed Rule 10.8311(b) would provide that, notwithstanding
proposed paragraph (a), a Participant or Participant Firm may pay to a
person that is subject to a sanction or disqualification described in
Rule 10.8311(a), any remuneration pursuant to an insurance or medical
plan, indemnity agreement relating to legal fees, or as required by an
arbitration award or court judgment. Proposed Commentary 01 of the Rule
clarified that, notwithstanding the Rule, a Participant or Participant
Firm may pay or credit to a person that is the subject of a sanction or
disqualification, salary, commission, profit or any other remuneration
that the Participant or Participant Firm can evidence accrued to the
person prior to the effective date of such sanction or
disqualification; provided, however, the Participant or Participant
Firm may not pay any salary, commission, profit or any other
remuneration that accrued to the person that relates to or results from
the activity giving rise to the sanction or disqualification, and any
such payment or credit must comply with applicable federal securities
laws.
The Exchange does not currently have similar rule that broadly
describes the effect of a suspension, revocation, cancellation, bar or
other disqualification.
Proposed Rule 10.8313 (Release of Disciplinary Complaints,
Decisions and Other Information) would provide, in part, that the
Exchange would publish all final disciplinary decisions issued under
the proposed Rule 10.9000 Series, other than minor rule violations, on
its website. The Exchange does not have a comparable rule.
Proposed Rule 10.8320 (Payment of Fines, Other Monetary Sanctions,
or Costs; Summary Action for Failure to Pay) would govern payment of
fines and other monetary sanctions or costs and provide for a summary
action for failure to pay by a Participant, Participant Firm or covered
person.
Proposed Rule 10.8320(a) would provide that all fines and other
monetary sanctions shall be paid to the Treasurer of the Exchange.
Proposed Rule 10.8320(b) and (c) would permit the Exchange, after
seven days' notice in writing, to summarily suspend or expel from
membership a Participant or Participant Firm or revoke the registration
of a covered person for failure to pay a fine or other monetary
sanction imposed pursuant to proposed Rule 10.8310 or a cost imposed
pursuant to proposed Rule 10.8330 when such fine, monetary sanction, or
cost becomes finally due and payable. As noted above, under current
Article 7, Rule 12, a Participant or Participant Firm can be suspended
for failing to pay a fine within 60 days, after written notice, until
payment is made. If payment is not made within six months after such
suspension, the Participant's status as a Participant may be terminated
by the CEO on at least 10 days' written notice mailed to the
Participant or Participant Firm at the address last registered with the
Exchange. As NYSE Arca explained in connection with its Rule 10.8320,
FINRA's rules do not set forth a notice period but, as a matter of
practice, FINRA typically provides a respondent at least 30 days to pay
a fine after the conclusion of a proceeding. As NYSE Arca reasoned, a
30-day period, along with the seven days' notice provided under Rule
10.8320, provides respondents with an adequate amount of time to pay a
fine and avoid any further sanction by the Exchange.\23\ The Exchange
proposes to follow the same reasoning for its proposed Rule 10.8320.
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\23\ See NYSE Arca Notice, 84 FR at 16360. NYSE and NYSE
American put forth similar arguments. See Securities Exchange Act
Release Nos. 68678 (January 16, 2013), 78 FR 5213, 5222 (January 24,
2013) (SR-NYSE-2013-02) (Notice); 2016 Notice, 81 FR at 11321.
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For clarity regarding the transition, proposed Rule 8320(d) would
provide that the Exchange may exercise the authority set forth in Rules
8320(b) and (c) with respect to non-payment of a fine, monetary
sanction, or cost assessed in a disciplinary action initiated under
Article 12 for which a decision was issued on or after the transition
date.
Proposed Rule 10.8330 (Costs of Proceedings) would provide that a
disciplined Participant, Participant Firm or covered person may be
assessed the costs of a proceeding, which are determined by the
Adjudicator. The Exchange believes that Adjudicators should have the
discretion to assess costs as they deem appropriate. The Exchange does
not have a comparable rule.\24\
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\24\ Rule 13.4 requires a Participant or Associated Person who
does not prevail in a lawsuit or other legal proceeding against the
Exchange or any of its Directors, officers, committee members,
employees or agents, and related to the business of the Exchange, to
pay the Exchange all reasonable expenses, including attorneys' fees,
incurred in the defense of such proceeding, but only where such
expenses exceed $50,000. This provision is by its terms inapplicable
to, among other things, disciplinary proceedings.
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Proposed Rule 10.9000 Series
The proposed Rule 10.9000 Series would set forth the Code of
Procedure.
Proposed Rules 10.9001 Through 10.9120
Proposed Rule 10.9001 (Effective Date of Rule 10.9000 Series) would
set forth the effective date of the Rule 10.9000 Series, noting the
transitional provisions described above. The text of proposed Rule
10.9001 would include similar introductory text as that proposed for
Rules 10.8001. While the transition would be structured in
substantially the same manner as NYSE Arca's transition, the Exchange's
proposed text would differ from NYSE Arca Rule 10.9001 due to
differences in terminology and cross-references. As noted above,
Article 12 would apply only to an investigation or proceeding
instituted under Article 12, Rule 1 prior to the effective date of the
proposed disciplinary rules and would continue to apply until such
proceeding is final. Article 12 would also continue to apply to any
Participant, Participant Firm or covered person over whom the Exchange
asserted jurisdiction by providing written notice of the commencement
of an inquiry under Article 12, Rule 7(b) prior to the effective date
of the proposed disciplinary rules.
Proposed Rule 10.9100 (Application and Purpose) would set forth the
following rules.
Proposed Rule 10.9110 (Application) would state the types of
proceedings to which the proposed Rule 10.9000 Series would apply (each
of which is described below) and the rights, duties, and obligations of
Participants, Participant Firms or covered persons, and would set forth
the defined terms and cross-references. The proposed rule would also
provide that, in performing the functions under the Rule 10.9000
Series, the CRO and Regulatory Staff shall function independently of
the commercial interests of the Exchange and the commercial interests
of the Participants and Participant Firms. The Exchange does not have a
comparable rule.
Proposed Rule 10.9120 (Definitions) would set forth definitions
applicable to the Rule 10.9000 Series. The definitions are
substantially the same as the definitions set forth in NYSE Arca Rule
[[Page 35046]]
10.9120, except that (1) references would reflect the Exchange's
membership, and (2) the Exchange would not define ``Floor-Based
Panelist'' in proposed subsection (q) because the Exchange does not
have a trading floor. The Exchange would therefore designate paragraph
(q) as ``Reserved.'' In order to maintain the same sequence as NYSE
Arca Rule 10.9120, paragraphs (b), (i) and (n) of the proposed rule
would also be marked ``Reserved.''
Proposed Rules 10.9130 Through 10.9138
Proposed Rule 10.9130 (Service; Filing of Papers) would govern the
service of a complaint or other procedural documents under the Rules.
Proposed Rule 10.9131 (Service of Complaint) would set forth the
requirements for serving a complaint or document initiating a
proceeding. Proposed Rule 10.9132 (Service of Orders, Notices, and
Decisions by Adjudicator) would cover the service of orders, notices,
and decisions by an Adjudicator. Proposed Rule 10.9133 (Service of
Papers Other Than Complaints, Orders, Notices, or Decisions) would
govern the service of papers other than complaints, orders, notices, or
decisions. Proposed Rule 10.9134 (Methods of, Procedures for Service)
would describe the methods of service and the procedures for service.
Proposed Rule 10.9135 (Filing of Papers with Adjudicator: Procedure)
would set forth the procedure for filing papers with an Adjudicator.
Proposed Rule 10.9136 (Filing of Papers: Form) would govern the form of
papers filed in connection with any proceeding under the proposed Rule
10.9200 and 10.9300 Series. Proposed Rule 10.9137 (Filing of Papers:
Signature Requirement and Effect) would state the requirements for and
the effect of a signature in connection with the filing of papers.
Finally, proposed Rule 10.9138 (Computation of Time) would establish
the computation of time.
With respect to service of process, under proposed Rule 10.9134,
papers served on a natural person could be served at the natural
person's residential address, as reflected in CRD, if applicable. When
a Party or other person responsible for serving such person had actual
knowledge that the natural person's CRD address was out of date,
duplicate copies would be required to be served on the natural person
at the natural person's last known residential address and the business
address in CRD of the entity with which the natural person is employed
or affiliated. Papers could also be served at the business address of
the entity with which the natural person is employed or affiliated, as
reflected in CRD, or at a business address, such as a branch office, at
which the natural person is employed or at which the natural person is
physically present during a normal business day. The Hearing Officer
could waive the requirement of serving documents (other than
complaints) at the addresses listed in CRD if there were evidence that
these addresses were no longer valid and there was a more current
address available. If a natural person were represented by counsel or a
representative, papers served on the natural person, excluding a
complaint or a document initiating a proceeding, would be required to
be served on the counsel or representative.
Similarly, under proposed Rule 10.9134, papers served on an entity
would be required to be made by service on an officer, a partner of a
partnership, a managing or general agent, a contact employee as set
forth on Form BD, or any other agent authorized by appointment or by
law to accept service. Such papers would be required to be served at
the entity's business address as reflected in CRD, if applicable;
provided, however, that when the Party or other person responsible for
serving such entity had actual knowledge that an entity's CRD address
was out of date, duplicate copies would be required to be served at the
entity's last known address. If an entity were represented by counsel
or a representative, papers served on such entity, excluding a
complaint or document initiating a proceeding, would be required to be
served on such counsel or representative.
By comparison, current Article 12, Rule 1(c), which governs service
of charges, orders, notices or any instrument on Respondents, is less
detailed. As noted, it provides that these may be served upon the
Respondent either personally or by leaving same at his or its place of
business during office hours or by deposit in the United States post
office, postage prepaid via registered or certified mail with return
receipt requested, addressed to the Respondent at the last business
address given by the Respondent to the Exchange. The Exchange believes
that the more detailed procedures for service of process in proposed
Rules 10.9130 through 10.9138 would increase the likelihood of
successful service of process while providing appropriate due process
protections to its Participants, Participant Firms and persons
associated with Participants and Participant Firms.
Proposed Rules 10.9140 Through 10.9148
Proposed Rule 10.9140 (Proceedings) would contain various rules
relating to the conduct of disciplinary proceedings.
Proposed Rule 10.9141 (Appearance and Practice; Notice of
Appearance) would govern appearances in a proceeding, notices of
appearance, and representation. Proposed Rule 10.9141 would permit a
Respondent to represent himself or herself, or be represented by an
attorney at law admitted to practice before the highest court of any
state of the United States, the District of Columbia, or any
commonwealth, territory, or possession of the United States. The
proposed rule also permits a partnership to be represented by a partner
and a corporation, trust, or association to be represented by an
officer of such entity. Proposed Rule 10.9141 requires an attorney or
representative to file a notice of appearance. Current Article 12, Rule
4(g) is more general; it permits a Respondent to be represented by
counsel but do not require a notice of appearance.
Proposed Rule 10.9142 (Withdrawal by Attorney or Representative)
would require an attorney or representative to file a motion to
withdraw. The Exchange currently does not have a comparable rule.
Subsection (a) of proposed Rule 10.9143 (Ex Parte Communications)
would prohibit certain ex parte communications with an Adjudicator or
Exchange employee. The Exchange does not have a comparable rule.
Under proposed Rule 10.9143(b), an Adjudicator participating in a
decision with respect to a proceeding, or an Exchange employee
participating or advising in the decision of an Adjudicator, who
received, made, or knowingly caused to be made a communication
prohibited by the rule would be required to place in the record of the
proceeding (1) all such written communications, (2) memoranda stating
the substance of all such oral communications, and (3) all written
responses and memoranda stating the substance of all oral responses to
all such communications.
Under proposed Rule 10.9143(c), upon receipt of a prohibited
communication made or knowingly caused to be made by any Party, any
counsel or representative to a Party, or any Interested Staff, the
Exchange or an Adjudicator may order the Party responsible for the
communication, or the Party who may benefit from the ex parte
communication made, to show cause why the Party's claim or interest
[[Page 35047]]
in the proceeding should not be dismissed, denied, disregarded, or
otherwise adversely affected by reason of such ex parte communication.
All participants in a proceeding could respond to any allegations or
contentions contained in a prohibited ex parte communication placed in
the record, and such responses would be placed in the record.
Under proposed Rule 10.9143(d), in a disciplinary proceeding
governed by the Rule 10.9200 Series and the Rule 10.9300 Series, the
prohibitions of the rule would apply beginning with the authorization
of a complaint as provided in Rule 10.9211, unless the person
responsible for the communication had knowledge that the complaint
would be authorized, in which case the prohibitions would apply
beginning at the time of his or her acquisition of such knowledge.
Under proposed Rule 10.9143(e), there would be a waiver of the ex
parte prohibition in the case of an offer of settlement; letter of
acceptance, waiver, and consent; or minor rule violation letter.
Proposed Rule 10.9144 (Separation of Functions) would establish the
separation of functions for Interested Staff and Adjudicators and
provide for waivers. The Exchange currently does not have a comparable
rule.
Proposed Rule 10.9145 (Rules of Evidence; Official Notice) would
provide that formal rules of evidence would not apply in any proceeding
brought under the proposed Rule 10.9000 Series. The proposed rule would
also provide that in a proceeding governed by the Rule 10.9000 Series,
an Adjudicator may take official notice of such matters as might be
judicially noticed by a court, or of other matters within the
specialized knowledge of the Exchange as an expert body, and that
before an Adjudicator proposes to take official notice of a matter, it
shall permit a Party the opportunity to oppose or otherwise comment
upon the proposal to take official notice. Current Article 12, Rule
4(d) also provides that formal rules of evidence do not apply. The
Exchange's rules do not currently contain a comparable provision to
proposed Rule 10.9145(b) governing official notice.
Proposed Rule 10.9146 (Motions) would govern motions a Party may
make and requirements for responses and formatting. A Party would be
permitted to make written and oral motions, although an Adjudicator
could require that a motion be in writing. An opposition to a written
motion generally would have to be filed within 14 days, but the moving
party would have no right to reply, unless an Adjudicator so permits,
in which case such reply generally would be due within five days.
Proposed Rule 10.9146 also would permit a Party, a person who is the
owner, subject, or creator of a Document subject to production under
proposed Rule 10.8210 or any other rule which may be introduced as
evidence in a disciplinary proceeding, or a witness who testifies at a
hearing in a disciplinary proceeding, to move for a protective order.
Article 12, Rule 4 governing hearing procedure does not contain the
same level of detail. The Exchange believes that the more detailed
provisions of the proposed rule would provide additional specificity
and clarity regarding motions to all Parties to a proceeding. Proposed
Rule 10.9146 is substantially the same as NYSE Arca Rule 10.9146.
Proposed Rule 10.9147 (Rulings On Procedural Matters) would provide
that Adjudicators may rule on procedural matters. The Exchange does not
have a comparable rule. Current Article 12, Rule 4 provides that a
Hearing Officer is appointed for the purpose of conducting a hearing
and describes the conduct of a hearing but does not contain an explicit
statement regarding the Hearing Officer's full authority to rule on a
procedural motion and any other procedural or administrative matter
arising during the course of a proceeding.
Finally, proposed Rule 10.9148 (Interlocutory Review) would
generally prohibit interlocutory review, except as provided in proposed
Rule 10.9280 for contemptuous conduct. The Exchange currently does not
have a comparable rule. Current Article 12, Rule 4(h) provides that
motion to disqualify a Hearing Officer is not subject to interlocutory
review.
Proposed Rules 10.9150 Through 10.9222
Proposed Rule 10.9150 would provide that a representative can be
excluded by an Adjudicator for unethical or improper conduct. The
proposed Rule is identical to NYSE Arca Rule 10.9150. The Exchange
currently does not have a comparable rule.
Proposed Rule 10.9160 (Recusal or Disqualification)
Proposed Rule 10.9160 would provide that no person may act as an
Adjudicator if he or she has a conflict of interest or bias, or
circumstances exist where his or her fairness could reasonably be
questioned. In such case, the person must recuse himself or herself, or
may be disqualified. The proposed rule would cover the recusal or
disqualification of an Adjudicator, the Chair of the Board, or a
Director. Disqualification of a Director or the Chair of the Board
would be governed by proposed Rule 10.9160(a). Disqualification of a
Panelist would be governed by Rule 10.9234 while disqualification of a
Hearing Officer would be governed by Rule 10.9233.\25\ The Exchange
currently does not have a strictly comparable rule. Article 12, Rule
4(h) requires a Hearing Officer to function impartially and
independently of the staff members who prepared and prosecuted the
charges and provides for a process for a respondent to make a motion
for disqualification of the Hearing Officer based upon bias or conflict
of interest. Unlike proposed Rule 10.9160, the Exchange's current rule
does not explicitly require recusal in the event of a conflict of
interest or bias, or other circumstance where a Hearing Officer's
fairness might reasonably be questioned. The Exchange's current Article
12, Rule 4(h) is also limited to Hearing Officers and there is no
comparable recusal or disqualification procedure described in Article
12, Rule 5, governing reviews of penalties and decisions. The Exchange
believes that the broader text of the proposed rule, applying the same
prohibition against bias and a procedure for disqualification at all
levels of review, would help to increase the fairness of and
consistency in its proceedings.
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\25\ See proposed Rules 10.9160(e) & (f).
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Proposed Rules 10.9160(b), (c), and (d) are designated as
``Reserved'' to maintain consistency with NYSE Arca's rule numbering.
Proposed Rules 10.9200 Through 10.9217
Proposed Rule 10.9200 (Disciplinary Proceedings) would cover
disciplinary proceedings. Proposed Rule 10.9211 (Authorization of
Complaint) would permit Enforcement to request the authorization from
the CRO to issue a complaint against any Participant, Participant Firm
and covered persons of a Participant or Participant Firm, thereby
commencing a disciplinary proceeding. Under Article 12, Rule 1(b)(1),
if in the CRO's judgment it appears from the written investigative
report that any Participant, Participant Firm or Associated Person is
violating or has violated any provision of the Bylaws, Exchange rules
or of the federal securities laws or the regulations thereunder, the
CRO directs staff to prepare and present written charges against the
Respondent.
[[Page 35048]]
Proposed Rule 10.9212 (Complaint Issuance--Requirements, Service,
Amendment, Withdrawal, and Docketing) would set forth the requirements
of the complaint, amendments to the complaint, withdrawal of the
complaint, and service of the complaint. The proposed rule also
requires the Office of Hearing Officers to promptly record each
complaint filed with it in the Exchange's disciplinary proceeding
docket, and record in the disciplinary proceeding docket each event,
filing, and change in the status of a disciplinary proceeding. Current
Article 12, Rule 1(b) does not contain a comparable detail. Further,
under the proposed rule, the form of the complaint would be more
prescribed than under current Article 12, Rule 1(b). For example,
current Article 12, Rule 1(b) does not provide for withdrawal of a
complaint.
Proposed Rule 10.9213 (Assignment of Hearing Officer and
Appointment of Panelists to Hearing Panel or Extended Hearing Panel)
would provide for the appointment of a Hearing Officer and Panelists by
the Chief Hearing Officer. As defined in proposed Rule 10.9120(r),
``Hearing Officer'' means a FINRA employee who is an attorney and who
is appointed by the Chief Hearing Officer to act in an adjudicative
role and fulfill various adjudicative responsibilities and duties
described in the Rule 10.9200 Series regarding disciplinary
proceedings, the Rule 10.9550 Series regarding expedited proceedings,
and the Rule 10.9800 Series regarding temporary cease and desist
proceedings brought against Participants, Participant Firms and covered
persons. Under current Article 12, Rule 4(a), the CEO appoints a
hearing officer to hear the matter. Although Article 12, Rule 4(e)
describes the vetting process for Hearing Officers under the current
rules, they are appointed by the CEO that includes an assessment of
professional competence and reputation, experience in the securities
industry, familiarity with the subject matter involved, and the absence
of bias and any actual or perceived conflict of interest, among other
things, there is no requirement that the Hearing Officer be an
attorney. The Exchange's current process also does not provide for the
appointment of panelists to adjudicate a disciplinary matter. The
Exchange believes that the participation of professional Hearing
Officers, which is a long-standing practice of other SROs, would add
legal and administrative expertise to the disciplinary process, and
would enhance the dispassionate application of the rules, promote
fairness in the disciplinary process, and help ensure that complex or
contentious cases are managed effectively.\26\ The use of Panelists
would help to ensure that market expertise and judgment would continue
to be brought to bear on the disciplinary process.\27\
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\26\ See Securities Exchange Act Release No. 38545 (April 24,
1997), 62 FR 25226, 25249-50 (May 8, 1997) (SR-NASD-97-28).
\27\ See id. & discussion of proposed Rule 10.9232, infra.
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Proposed Rule 10.9214 (Consolidation or Severance of Disciplinary
Proceedings) would permit the Chief Hearing Officer to sever or
consolidate two or more disciplinary proceedings under certain
circumstances and permit a Party to move for such action under certain
circumstances. The Exchange currently does not have a comparable rule.
Proposed Rule 10.9215 (Answer to Complaint) would set forth
requirements for answering a complaint, including form, service,
notice, content, affirmative defenses, motions for a more definite
statement, amendments and extensions of time to answer amended
complaints, default, and timing. A written answer to charges under
current Article 12, Rule 4(b) is due 30 days after service of the
Compliant, while under the proposed rule it would be due 25 days after
service. The proposed rule also allows for an extension of time for
good cause shown, while the current rule provides that the time to
answer can be extended by such further time as the Hearing Officer may
grant. Both the current and proposed rules treat charges as admitted if
no answer is filed, but the proposed rule would require that the
Respondent receive a second notice concerning the consequences of
failing to answer.
Minor Rule Fines and Process
As noted above, the Exchange has filed a separate notice and
comment filing to adopt proposed Rules 9216(b) and 9217 and move the
Recommended Fine Schedule for minor rule violations from the Fee
Schedule to proposed Rule 10.9217.\28\ The rules relating to minor rule
violations described herein would not be operative until approval of
the Exchange's companion rule filing.
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\28\ See SR-NYSECHX-2022-08.
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Proposed Rule 10.9216(a)
Subsection (a) of proposed Rule 10.9216 (Acceptance, Waiver, and
Consent; Procedure for Imposition of Fines for Minor Violation(s) of
Rules) would establish the acceptance, waiver, and consent (``AWC'')
procedures by which a Respondent, prior to the issuance of a complaint,
could execute a letter accepting a finding of violation, consenting to
the imposition of sanctions, and agreeing to waive such Respondent's
right to a hearing, appeal, and certain other procedures.\29\
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\29\ Proposed Rule 10.9270 would address settlement procedures
after the issuance of a complaint.
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The CRO would be authorized to accept or reject an AWC. If the AWC
were accepted by the CRO, it would be deemed final and constitute the
complaint, answer and decision in the matter 10 days after the AWC is
sent to each Exchange Director and each member of the CFR, unless
review by the Board is requested pursuant to proposed Rule
10.9310(a)(1)(B)(i).\30\ If the AWC were rejected by the CRO, the
Exchange would be permitted to take any other appropriate disciplinary
action with respect to the alleged violation or violations. If the
letter were rejected, the Participant, Participant Firm or covered
person would not be prejudiced by the execution of the AWC and such
document could not be introduced into evidence in connection with the
determination of the issues set forth in any complaint or in any other
proceeding. Under proposed Rule 10.9310(a)(1)(B)(ii) discussed below,
any Party may require a review by the Exchange Board of any rejection
by the CRO of an AWC letter under Rule 10.9216 or an offer of
settlement determined to be uncontested before a hearing on the merits
has begun under Rule 10.9270(f), by filing with the Secretary of the
Exchange a written request therefor, which states the basis and reasons
for such review, within 25 days after notification pursuant to Rule
10.9216(a)(3) or Rule 10.9270(h).
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\30\ In 2020, NYSE Arca shortened the time period before an AWC
under NYSE Arca Rule 10.9216 and an uncontested offer of settlement
under NYSE Arca Rule 10.9270(f) become final as well as the
corresponding time period to request review of these settlements
under NYSE Arca Rule 10.9310 from 25 days to 10 days. See Securities
Exchange Act Release No. 90678 (December 15, 2020), 85 FR 83136
(December 21, 2020) (SR-SR-NYSEARCA-2020-111) (Notice). The
Exchange's proposes to omit certain transition language added to the
NYSE Arca Rules 10.9216(a)(4), 10.9270(f)(3), and
10.9310(a)(1)(B)(i) relating to the applicability of the legacy 25
day time period in its proposed version of these rules.
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The Exchange notes that the AWC process is substantially similar to
the Exchange's current process for settlements prior to a hearing on
the merits under Article 12, Rule 1(d). The Exchange believes that the
proposed process provides appropriate controls to assure consistency
and protect against aberrant settlements. Specifically, the CRO would
be reviewing all proposed
[[Page 35049]]
AWCs. The Exchange believes that when both Parties to a proceeding
agree to a settlement, a review by the CRO would be sufficient and it
is not necessary to bring such matters to an Adjudicator. The Exchange
believes that the CRO can provide objectivity and an appropriate check
and balance to the settlement process, particularly in light of the
call for review process set forth in proposed Rule 10.9310.
Proposed Rule 10.9216(b)
As set forth in the companion notice and comment filing to adopt
proposed Rules 9216(b) and 9217,\31\ 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).
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\31\ See SR-NYSECHX-2022-08.
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Proposed Rule 10.9216(b)(1) would provide that, notwithstanding
proposed Rule 10.9211, the Exchange may, subject to the 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, Participant Firm or
covered person 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, 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.
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.\32\
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\32\ 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-1 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
As set forth in the companion notice and comment filing to adopt
proposed Rules 9216(b) and 9217,\33\ 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)''.
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\33\ See SR-NYSECHX-2022-08.
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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,\34\ 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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\34\ See note 10, 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 Exchange may, at its
discretion, proceed under the proposed Rule 10.9000 Series
[[Page 35050]]
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.\35\
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\35\ 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.\36\
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\36\ 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.\37\ The Exchange accordingly
proposes to permit minor rule fines for violations of Article 6, Rule
5(b).
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\37\ 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)).''
\38\ 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).\39\ 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.\40\
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\38\ 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 10,
supra.
\39\ 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).
\40\ 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:
<bullet> The Exchange would add a new sub-heading titled
``Reporting and Record Retention Violations'' \41\ 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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\41\ 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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<bullet> The first 12 entries as well as entries 16 through 23
would be reproduced without change from the current Recommended Fine
Schedule in the Fee Schedule.
[[Page 35051]]
<bullet> 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).
<bullet> 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).
<bullet> 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.'' \42\ 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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\42\ 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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<bullet> 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.\43\
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\43\ 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.\44\ 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.\45\
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\44\ See id.
\45\ 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.\46\ 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.\47\
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\46\ See Securities Exchange Act Release No. 87264 (October 9,
2019), 84 FR 55345, 55349 (October 16, 2019) (SR-CHX-2019-08).
\47\ 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).\48\
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\48\ See note 10, 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.\49\ 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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\49\ See proposed Rule 10.9216(b)(4).
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Proposed Rule 10.9220 (Request for Hearing; Extensions of Time,
Postponements, Adjournments)
Proposed Rule 10.9220 would set forth the following rules.
Proposed Rules 10.9221 (Request for Hearing) and 10.9222
(Extensions of Time, Postponements, and Adjournments) would describe
the process for a Respondent to request a hearing; the notice of a
hearing; timing considerations; and the authority of a Hearing Officer,
Hearing Panel or Extended Hearing Panel to order a hearing. Proposed
Rule 10.9221 provides that a Hearing Officer generally must provide at
least 28 days' notice of the hearing. Current Article 12, Rule 4
governing hearing procedures does not provide for a respondent to
request a hearing. Rather, Article 12, Rule 4(d) provides that within
30 days of the filing of a respondent's answer, the Hearing Officer
will schedule the time and place at which the Hearing shall be held.
Similarly, current Article 12, Rule 4 also does not provide for
extensions of time, postponements, and adjournments like proposed Rule
10.9222.
Proposed Rules 10.9230 Through 10.9235
Proposed Rule 10.9231 (Appointment by the Chief Hearing Officer of
Hearing Panel or Extended Hearing Panel or Replacement Hearing Officer)
would govern appointment of a Hearing Panel or Extended Hearing Panel,
and would also govern appointment of a replacement Hearing Officer and
the designation of an observer to a Hearing Panel or an Extended
Hearing Panel. As proposed, under proposed Rule 10.9231(a) the Exchange
would rely on FINRA's Chief Hearing Officer to appoint a Hearing Panel
or an Extended Hearing Panel to conduct disciplinary proceedings and
issue a decision. The Chief Hearing Officer and the Hearing Officers
would all be FINRA employees. Under proposed Rule 10.9231(b), a Hearing
Panel would be composed of a
[[Page 35052]]
Hearing Officer and two Panelists, except as provided in paragraph (e)
and in proposed Rule 10.9234(a), (c), (d), or (e). The Hearing Officer
would serve as the chair of the Hearing Panel. The Chief Hearing
Officer would appoint Panelists pursuant to the criteria in proposed
Rule 10.9232.\50\ The proposed procedure would differ from the current
procedure under Article 12, Rule 4(e) where the Exchange CEO appoints a
Hearing Officer to conduct a hearing but the rule does not provide for
the appointment of panelist.
---------------------------------------------------------------------------
\50\ NYSE Arca Rule 10.9231(b)(1) incorrectly states that the
Hearing Officer would appoint the Panelists pursuant to the criteria
of Rule 10.9232. The rules adopted by the Exchange's other
affiliates contain the same error. See NYSE Rule 9231(b)(1); NYSE
American Rule 9231(b)(1); NYSE National Rule 10.9231(b)(1). The
Exchange understands that its affiliates will submit separate rule
filing to conform their version of proposed Rule 10.9231(b)(1).
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Proposed Rule 10.9231(c) describes Extended Hearing Panels. As
proposed, upon consideration of the complexity of the issues involved,
the probable length of the hearing, or other factors that the Chief
Hearing Officer deems material, the Chief Hearing Officer may determine
that a matter shall be designated an Extended Hearing, and that such
matter shall be considered by an Extended Hearing Panel. The Extended
Hearing Panel shall be composed of a Hearing Officer and two Panelists,
except as provided in proposed Rule 10.9234(a), (c), (d), or (e). The
Hearing Officer would serve as the chair of the Extended Hearing Panel.
The Chief Hearing Officer would have discretion to compensate any or
all Panelists of an Extended Hearing Panel at the rate then in effect
for FINRA arbitrators. The Chief Hearing Officer shall select as a
Panelist a person who meets the criteria set forth in Rule 10.9232.
Proposed Rule 10.9231(d) provides for the appointment of an
observer. As proposed, a person who is qualified to serve as a Panelist
may be designated by the Chief Hearing Officer to serve as an observer
to a Hearing Panel or an Extended Hearing Panel. If the Chief Hearing
Officer designates more than two people to serve as observers to a
Hearing Panel or an Extended Hearing Panel, the Chief Hearing Officer
would obtain the consent of the Parties. An observer may attend any
hearing of a disciplinary proceeding and observe the proceeding, but
may not vote or participate in any other manner in the hearing or the
deliberations of the Hearing Panel or the Extended Hearing Panel, or
participate in the administration of the disciplinary proceeding.
Proposed Rule 10.9231(e) provides for the appointment of a
replacement Hearing Officer. As proposed, in the event that a Hearing
Officer withdraws, is incapacitated, or otherwise is unable to continue
service after being appointed, the Chief Hearing Officer shall appoint
a replacement Hearing Officer. To ensure fairness to the parties and
expedite completion of the proceeding when a replacement Hearing
Officer is appointed after the hearing has commenced, the proposed Rule
provides that a replacement Hearing Officer would have the discretion
to (1) allow the Hearing Panelists to resolve the issues in the
proceeding and issue a decision without the participation of the
replacement Hearing Officer in the decision. The replacement Hearing
Officer may advise the Hearing Panelists regarding legal issues, and
shall exercise the powers of the Hearing Officer under Rule 10.9235(a),
including preparing and signing the decision on behalf of the Hearing
Panel, in accordance with Rule 10.9268; or (2) certify familiarity with
the record and participate in the resolution of the issues in the case
and in the issuance of the decision. In exercising this power, the
replacement Hearing Officer may recall any witness before the Hearing
Panel.
Proposed Rule 10.9231(c)-(e) would be substantially the same as
NYSE Arca Rule 10.9231 except that the proposed rule would not provide
for the selection of a Floor-Based Panelist because the Exchange does
not have a trading floor.
Proposed Rule 10.9232 (Criteria for Selection of Panelists and
Replacement Panelists) would set forth the criteria for the selection
of Panelists and Replacement Panelists. Proposed Rule 10.9232 would be
substantially the same as NYSE Arca Rule 10.9232. As is the case under
the NYSE Arca Rule, Panelists would be required to be persons of
integrity and judgment and, other than the Hearing Officer, would be a
member of the Exchange hearing board. Moreover, at least one Panelist
would be engaged in securities activities differing from that of the
Respondent or, if retired, was so engaged in differing activities at
the time of retirement. Proposed Rule 10.9232 would also provide that
the Exchange Board would from time to time appoint a hearing board to
be composed of such number of permit holders of the Exchange that are
not members of the Exchange Board and registered employees and
nonregistered employees of Participants and Participant Firms. In order
to have the largest number of potential Panelists available, the
proposed Rule would further provide that former Participants and
registered and non-registered employees of Participants and Participant
Firms who have retired from the securities industry may be appointed to
the hearing board. The Exchange believes that there are well-qualified
persons, in particular retirees, who would be valuable members of the
hearing board. The members of the hearing board would also be appointed
annually and would serve at the pleasure of the Exchange Board. As
reflected in Article 12, Rule 4, Exchange hearings are currently
conducted by a Hearing Officer appointed by the CEO acting alone.
Finally, proposed Rule 10.9232 would include Panelist selection
criteria, which would be expertise, absence of any conflict of interest
or bias or any appearance thereof, availability, and the frequency with
which a person has served as a Panelist in the last two years, favoring
the selection of a person as a Panelist who has never served or who has
served infrequently as a Panelist during the period. Article 12, Rule 4
contains similar provisions with respect to Hearing Officers appointed
by the CEO.
Proposed Rules 10.9233 (Hearing Panel or Extended Hearing Panel:
Recusal and Disqualification of Hearing Officers) and 10.9234 (Hearing
Panel or Extended Hearing Panel: Recusal and Disqualification of
Panelists) would establish the processes for recusal and
disqualification of Hearing Officers or Panelists.
Under proposed Rule 10.9233(a), if at any time a Hearing Officer
determines that he or she has a conflict of interest or bias or
circumstances otherwise exist where his or her fairness might
reasonably be questioned, the Hearing Officer would notify the Chief
Hearing Officer and the Chief Hearing Officer would issue and serve on
the Parties a notice stating that the Hearing Officer has withdrawn
from the matter. In the event that a Hearing Officer withdraws, is
incapacitated, or otherwise is unable to continue service after being
appointed, the Chief Hearing Officer would appoint a replacement
Hearing Officer. In such a case, the replacement Hearing Officer would
proceed according to proposed Rule 10.9231(e).
Proposed Rule 10.9233(b) governs motions for disqualification.
Under the proposed Rule, a Party may move for the disqualification of a
Hearing Officer. Such a motion must be based upon a reasonable, good
faith belief that a conflict of interest or bias exists or
circumstances otherwise exist where the Hearing Officer's fairness
might reasonably be questioned, and must be accompanied by an affidavit
setting forth in detail the facts alleged to
[[Page 35053]]
constitute grounds for disqualification, and the dates on which the
Party learned of those facts. Under the proposed Rule, such motions
shall be filed not later than 15 days after the later of (1) when the
Party learned of the facts believed to constitute the disqualification;
or (2) when the Party was notified of the assignment of the Hearing
Officer.
Finally, proposed Rule 10.9233(c) describes the disposition of a
disqualification motion. Under the proposed Rule, a motion for
disqualification of a Hearing Officer shall be decided by the Chief
Hearing Officer who shall promptly investigate whether disqualification
is required and issue a written ruling on the motion. In the event of a
disqualification of the Hearing Officer, the Chief Hearing Officer
shall appoint a replacement Hearing Officer.
Proposed Rule 10.9234 sets forth similar procedures for the recusal
of panelists on a Hearing Panel and Extended Hearing Panel. Under
proposed Rule 10.9234(a), if at any time a Panelist of a Hearing Panel
or an Extended Hearing Panel determines that he or she has a conflict
of interest or bias or circumstances otherwise exist where his or her
fairness might reasonably be questioned, the Panelist must notify the
Hearing Officer and the Hearing Officer would issue and serve on the
Parties a notice stating that the Panelist has withdrawn from the
matter. In the event that a Panelist withdraws, is incapacitated, or
otherwise is unable to continue service after being appointed, the
Chief Hearing Officer may, in the exercise of discretion, determine
whether to appoint a replacement Panelist. In the event that both
Panelists withdraw, are incapacitated, or otherwise are unable to
continue service after being appointed, the proposed Rule permits the
Chief Hearing Officer to appoint two replacement Panelists.
Proposed Rule 10.9234(b) provides that a Party may file a motion to
disqualify a Panelist of a Hearing Panel or an Extended Hearing Panel.
Such a motion must be based upon a reasonable, good faith belief that a
conflict of interest or bias exists or circumstances otherwise exist
where the Panelist's fairness might reasonably be questioned, and shall
be accompanied by an affidavit setting forth in detail the facts
alleged to constitute grounds for disqualification, and the dates on
which the Party learned of those facts. As proposed, such motions shall
be filed not later than 15 days after the later of (1) when the Party
learned of the facts believed to constitute the disqualification; or
(2) when the Party was notified of the appointment of the Panelist. As
proposed, the Chief Hearing Officer may order the disqualification of a
Panelist of a Hearing Panel or an Extended Hearing Panel if the Chief
Hearing Officer determines that a conflict of interest or bias exists
or circumstances otherwise exist where the Panelist's fairness might
reasonably be questioned, and shall state the facts constituting the
grounds for disqualification.
Under proposed Rule 10.9234(c), if a Party files a motion to
disqualify a Panelist of a Hearing Panel or an Extended Hearing Panel,
the Hearing Officer shall promptly investigate whether disqualification
is required and shall issue a written ruling on the motion. In the
event a Panelist is disqualified, the Chief Hearing Officer may, in the
exercise of discretion, appoint a replacement Panelist.
Under subsection (d) of proposed Rule 10.9234, if a Party files a
motion to disqualify both Panelists of a Hearing Panel or an Extended
Hearing Panel, the Hearing Officer shall promptly investigate whether
disqualification is required and issue a written ruling on the motion.
I n the event one Panelist is disqualified, the Chief Hearing Officer
may, in the exercise of discretion, appoint a replacement Panelist. In
the event both Panelists are disqualified, the Chief Hearing Officer
will promptly appoint two persons as replacement Panelists.
Under proposed Rule 10.9234(e), if a Party files a motion to
disqualify both Panelists of a Hearing Panel or an Extended Hearing
Panel and the Hearing Officer, the Chief Hearing Officer shall promptly
investigate whether disqualification is required and issue a written
ruling on the motion. Under the proposed Rule, in the event a Panelist
is disqualified, the Chief Hearing Officer may, in the exercise of
discretion, appoint a replacement Panelist. In the event both Panelists
are disqualified, the Chief Hearing Officer shall promptly appoint two
persons as replacement Panelists. In the event a Hearing Officer and a
Panelist are disqualified, the Chief Hearing Officer shall promptly
appoint a replacement Hearing Officer. In the event both Panelists and
the Hearing Officer are disqualified, the Chief Hearing Officer shall
promptly appoint a replacement Hearing Officer and two persons as
replacement Panelists.
Finally, proposed subsection (f) would provide that if a Chief
Hearing Officer appoints a replacement Panelist by operation of the
proposed Rule, the Chief Hearing Officer would do so using the criteria
set forth in Rule 10.9232.
Current Article 12, Rule 4(h) does not address recusal of a Hearing
Officer but does permit a party to move for disqualification of the
Hearing Officer within 15 days of the appointment of the Hearing
Officer based upon bias or conflict of interest. The proposed Rule is
broader and permits recusal as well as motions for disqualification.
Moreover, the proposed Rule permits motions for disqualification not
later than 15 days after the later of (1) when the Party learned of the
facts believed to constitute the disqualification, or (2) when the
Party was notified of the assignment of the Hearing Officer or the
appointment of the Panelist, respectively. The Exchange's current rule
permits motions to disqualify based upon bias or conflict of interest
within 15 days of the appointment of the Hearing Officer.
Proposed Rule 10.9235 (Hearing Officer Authority) would set forth
the Hearing Officer's duties and authority in detail. The Exchange does
not have a comparable rule.
Proposed Rules 10.9240 Through 10.9242
Proposed Rule 10.9240 would set forth the following rules.
Proposed Rules 10.9241 (Pre-hearing Conference) and 10.9242 (Pre-
hearing Submission) would govern the substantive and procedural
requirements for pre-hearing conferences and pre-hearing submissions.
Proposed Rule 10.9242 would also prohibit former Regulatory Staff,
within a period of one year immediately following termination of
employment with the Exchange or FINRA, from providing expert testimony
on behalf of any other person in any proceeding under the Rule 10.9000
Series. Nothing in the proposed Rule would prohibit former Regulatory
Staff from testifying as a witness on behalf of the Exchange or FINRA.
As noted above, current Article 12, Rule 4 gives the Hearing Officer
general authority in procedural matters, but there are no specific
provisions in the current Rules relating to pre-hearing conferences and
submissions.
Proposed Rules 10.9250 Through 10.9253
Proposed Rule 10.9250 (Discovery) through 10.9253 would address
discovery, including the requirements and limitations relating to the
inspection and copying of documents in the possession of Exchange
staff, requests for information and limitations on such requests, and
the production of witness statements and any harmless
[[Page 35054]]
error relating to the production of such witness statements.
Proposed Rule 10.9251 (Inspection and Copying of Documents in
Possession of Staff) would require Enforcement to make available to a
Respondent any documents prepared or obtained in connection with the
investigation that led to the proceedings, except that certain
privileged or other internal documents, such as examination or
inspection reports or documents that would reveal an examination,
investigation, or enforcement technique or confidential source, or
documents that are prohibited from disclosure under federal law, are
not required to be made available. A Hearing Officer may require that a
withheld document list be prepared. Proposed Rule 10.9251 also sets
forth procedures for inspection and copying of produced documents. In
addition, if a Document required to be made available to a Respondent
pursuant to the proposed Rule was not made available by Enforcement, no
rehearing or amended decision of a proceeding already heard or decided
would be required unless the Respondent establishes that the failure to
make the Document available was not harmless error. The Hearing
Officer, or, upon review under proposed Rule 10.9310, the Exchange
Board, would determine whether the failure to make the document
available was not harmless error, applying applicable Exchange, FINRA,
SEC, and federal judicial precedent. The proposed Rule would not
establish any preference for Exchange versus other precedent in this
respect; rather the Adjudicators could determine in their discretion
what precedent to apply. The Exchange's current rules do not include a
comparable provision.
Under proposed Rule 10.9252 (Requests for Information), a
Respondent could request that the Exchange invoke proposed Rule 10.8210
to compel the production of Documents or testimony at the hearing if
the Respondent can show that certain standards are met, e.g., that the
information sought is relevant, material, and non-cumulative. Under
proposed Rule 10.9253 (Production of Witness Statements), a Respondent
could file a motion to obtain certain witness statements. Current
Article 12, Rule 4(c)(2) permits any party to request production of all
or some of the documents that its adversary intends to introduce as
evidence either in support of or to counter the charges but does not
specify that such production can be compelled. Rather, under Article
12, Rule 4(c)(2), a party responding to a request to produce all or
some of the documents that are intended to be introduced as evidence at
the hearing will be precluded from introducing at the hearing any
documents that were not produced in response to the request, unless
there is good cause shown for failing to produce the document(s) 30
days prior to the hearing and the failure to permit the introduction of
such evidence would result in undue hardship to the party requesting to
introduce such document.
Proposed Rules 10.9260 Through 10.9269
Proposed Rules 10.9260 (Hearing and Decision) through 10.9269 would
govern hearings and decisions.
Proposed Rule 10.9261 (Evidence and Procedure in Hearing) would
generally require the Parties to submit copies of documentary evidence
and the names of the witnesses each Party intends to present at the
hearing no later than 10 days before the hearing. Current Article 12,
Rule 4(c) (1) requires the parties to exchange a list of witnesses that
they each plan to call to testify at the hearing no less than 30 days
prior to the hearing. The proposed Rule would also provide that if a
hearing is held, a Party shall be entitled to be heard in person, by
counsel, or by the Party's representative. The Exchange's current rule
does not include such an explicit provision. Finally, under the
proposed rule, a Party, for good cause shown, may seek to submit any
additional evidence at the hearing as the Hearing Officer, in his or
her discretion, determines may be relevant and necessary for a complete
record. The Exchange's current rules do not contain a comparable
provision. Under Article 12, Rule 4(d), the Market Regulation
Department and the Respondent can introduce additional witnesses and
evidence solely in rebuttal to the respondent's evidence.\51\
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\51\ In 2020, NYSE Arca filed to harmonize Rules 10.9261 and
10.9830 with certain changes by FINRA that temporarily granted the
Chief or Deputy Chief Hearing Officer the authority to order that
hearings be conducted by video conference if warranted by public
health risks posed by in-person hearings during the ongoing COVID-19
pandemic. See Securities Exchange Act Release No. 90088 (October 5,
2020), 85 FR 64186 (October 9, 2020) (SR-NYSEArca-2020-85). The
expiration of the temporary amendments to NYSE Arca Rules 10.9261
and 10.9830 have been extended to July 31, 2022. See Securities
Exchange Act Release No. 94663 (April 11, 2022), 87 FR 22587 (April
15, 2022) (SR-NYSEArca-2022-18). NYSE, NYSE American and NYSE
National made similar filings. The amended NYSE Arca rules will
revert back to their original state at the conclusion of the
temporary relief period and any extension thereof. See 87 FR at
22588, n.5 The Exchange does not propose to incorporate these
temporary amendments to NYSE Arca Rule 10.9261 and 10.9830 into the
proposed rule text and will evaluate the need for such temporary
relief once the current rule filing is operative.
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Proposed Rule 10.9262 (Testimony) would require persons subject to
the Exchange's jurisdiction to testify under oath or affirmation at a
hearing. The Exchange's current rules do not contain comparable
provisions.
Proposed Rule 10.9263 (Evidence: Admissibility) would authorize the
Hearing Officer to exclude irrelevant, immaterial, or unduly
repetitious or prejudicial evidence and permit a Party to object to the
admission of evidence. Under the proposed Rule, objections to the
admission or exclusion of evidence would be made on the record and
would succinctly state the grounds relied upon; excluded material would
be deemed a supplemental document and would be attached to the record
and retained under proposed Rule 10.9267. The Exchange's current rules
do not contain a comparable provision.
Proposed Rule 10.9264 (Motion for Summary Disposition) would allow
Parties to file a motion for summary disposition under certain
circumstances and would describe the procedures for filing and ruling
on such motion. Under current Article 12, Rule 4, the Hearing Officer
regulates the hearing, but the Rule does not specifically provide for
motions for summary disposition.
Proposed Rule 10.9265 (Record of Hearing) would require that the
hearing be recorded by a court reporter, that a transcript be prepared
and made available for purchase, and that a Party or a witness be
permitted to seek a correction of the transcript from the Hearing
Officer. Current Article 12, Rule 4(d) provides generally that the
Exchange must make a transcript of the hearing.
Proposed Rule 10.9266 (Proposed Findings of Fact, Conclusions of
Law, and Post-Hearing Briefs) would authorize the Hearing Officer to
require a post-hearing brief or proposed findings of fact and
conclusions of law and would outline the form and timing for such
submissions. There is no comparable current rule, although the Hearing
Officer generally regulates the conduct of a hearing under Article 12,
Rule 4.
Proposed Rule 10.9267 (Record; Supplemental Documents Attached to
Record; Retention) would detail the required contents of the hearing
record and the treatment of any supplemental documents attached to the
record. The Exchange's current rules do not contain a similar
provision.
Proposed Rule 10.9268 (Decision of Hearing Panel or Extended
Hearing Panel) would set forth the timing and
[[Page 35055]]
the contents of a decision of the Hearing Panel or Extended Hearing
Panel and the procedures for a dissenting opinion, service of the
decision, and any requests for review. Under proposed Rule 10.9268, the
decision would be issued within 60 days after the final date allowed
for filing proposed findings of fact, conclusions of law, and post-
hearing briefs, or by a date established at the discretion of the Chief
Hearing Officer. Under current Article 12, Rule 4(f), a decision must
be issued within 90 days after the conclusion of the hearing. The
Exchange believes that the shorter period of time is appropriate to
allow the Hearing Panel or Extended Hearing Panel adequate time to
reach its decision and agree on the text of the decision and would not
prejudice any Party.\52\
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\52\ Under the proposed rule, a dissenting opinion must be
served within 65 days after such final date. The Exchange does not
have a comparable current rule.
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The Exchange proposes to include text providing that a disciplinary
decision concerning an affiliate of the Exchange as such term is
defined in Rule 12b-2 under the Act would not be subject to review
under proposed Rule 10.9310 but instead would be treated as a final
disciplinary action subject to SEC review. The Exchange does not
believe that an appeal by an affiliate to the Exchange Board is
appropriate, but rather such affiliate should be permitted to appeal
directly to the SEC. The proposed text is identical to NYSE Arca Rule
10.9268(e)(2).
The proposed Rule would further provide that, unless otherwise
provided in the majority decision issued under proposed Rule
10.9268(a), a sanction (other than a bar or an expulsion) specified in
a decision constituting final disciplinary action of the Exchange for
purposes of Act Rule 19d-1(c)(1) would become effective on a date to be
determined by the Exchange, and a bar or an expulsion specified in a
decision would become effective immediately upon the decision becoming
the final disciplinary action of the Exchange for purposes of Act Rule
19d-1(c)(1).
Finally, proposed Rule 10.9269 (Default Decisions) would establish
the process for the issuance and review of default decisions by a
Hearing Officer when a Respondent fails to timely answer a complaint or
fails to appear at a pre-hearing conference or hearing where due notice
has been provided. A Party may, for good cause shown, file a motion to
set aside a default decision. Under Article 12, Rule 4(b), if a
Respondent fails to file an answer within the required timeframe, the
allegations of the charging document are deemed admitted and the
Hearing Officer will hold a hearing to determine the appropriate
sanctions. Under Article 12, Rule 5(a), a party can request review by
the Judiciary Committee of such default decision. Proposed Rule 10.9269
would provide a robust process for the issuance and content of default
decisions.
Proposed Rule 10.9270 (Settlement Procedure)
Proposed Rule 10.9270 would provide for a settlement procedure for
a Respondent who has been notified that a proceeding has been
instituted against him or her. The proposed settlement procedure is
similar to the settlement procedures in current Article 12, Rule 1(d),
except that the Exchange's rule does not distinguish between contested
and uncontested settlements.
Under proposed Rule 10.9270(a), a Respondent notified of the
institution of a disciplinary proceeding could make a written offer of
settlement at any time, but the proposal would not stay the proceeding
unless otherwise decided by the Hearing Officer. If a Respondent
proposes an offer of settlement after the hearing on the merits has
begun, the making of an offer of settlement shall not stay the
proceeding, unless otherwise decided by the Hearing Panel or, if
applicable, the Extended Hearing Panel. Current Article 12, Rule 1(d)
does not explicitly provide that a proceeding is not stayed.
Under proposed Rule 10.9270(b), a Respondent making an offer of
settlement would also be required to do so in conformity with the
provisions of the proposed Rule and would be prohibited from making a
frivolous settlement offer or one that was inconsistent with the
seriousness of the violations. Current Article 12, Rule 1(d) does not
contain a similar prohibition.
Proposed Rule 10.9270(c) would provide that an offer of settlement
shall be in writing and signed by the person making the offer, and, if
the person is represented by counsel or a representative, signed also
by the counsel or representative. Under the proposed Rule, the offer of
settlement should contain in reasonable detail the required content of
the proposal, which would include, among other things, a statement
consenting to findings of fact and violations, a description of the
proposed sanction and the effective date of any sanction(s) imposed, or
a statement that the effective date of the sanction(s) will be a date
to be determined by Regulatory Staff. Current Article 12, Rule 1(d) is
not as detailed but specifies that the settlement agreement must admit
jurisdiction and contain a proposed penalty that must be reasonable and
consistent with the seriousness of the alleged violations.
Proposed Rule 10.9270(d) would provide that submission of a
settlement offer waives a Respondent's right to a hearing, to claim
bias or ex parte communication violations, any right to claim that a
person or body violated the ex parte prohibitions of proposed Rule
10.9143 or the separation of functions prohibitions of proposed Rule
10.9144, and the right to review by the Board, the Commission, or the
courts. Under current Article 12, Rule 1(d), settlement agreements must
include a waiver by the respondent of all rights of appeal to the
Executive Committee, Board, the Commission and United States Court of
Appeals or to otherwise challenge or contest the validity of the
decision if the offer of settlement is accepted.
Proposed Rule 10.9270(e) would address contested settlement offers.
Under the proposed rule, if a Respondent made an offer of settlement
and Enforcement opposed it, the offer of settlement would be contested
and thereby deemed rejected, and thus the proceeding would continue to
completion under the proposed Rule 10.9200 Series. The contested offer
of settlement would not be transmitted to the Office of Hearing
Officers, CRO, or Hearing Panel or Extended Hearing Panel, and would
not constitute a part of the record in any proceeding against the
Respondent making the offer. Current Article 12, Rule 1(d) does not
contain a comparable provision. The Exchange believes that its proposed
rule would encourage Respondents to make reasonable offers of
settlement that would be acceptable to Enforcement.
Proposed Rule 10.9270(f) and (h) would address uncontested
settlement offers. Under the proposed rule, if a hearing on the merits
had not begun, the CRO could accept the settlement offer; if a hearing
on the merits had begun, the Hearing Panel or Extended Hearing Panel
could accept the settlement offer.\53\ If they did not, the offer would
be deemed withdrawn and the matter would proceed under the proposed
Rule 10.9200 Series and the settlement offer would not be part of the
record. Under current Article 12, Rule 1(d), where an offer of
settlement is rejected by the CRO, the offer of settlement shall be
deemed withdrawn and it will not be given consideration in the
[[Page 35056]]
determination of the issues involved in the disciplinary proceeding.
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\53\ The CRO, Hearing Panel, or Extended Hearing Panel, as
applicable, would consider Exchange precedent or such other
precedent as it deemed appropriate in determining whether to accept
the settlement offer.
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As described below, if the offer of settlement were accepted by the
CRO, Hearing Panel or Extended Hearing Panel, it would become final 10
days after being sent, together with an order of acceptance, to each
Director and each member of the CFR, unless review by the Exchange
Board is required pursuant to proposed Rule 10.9310(a)(1)(A) or (B).
The Exchange anticipates that the required acceptance by the CRO,
Hearing Panel, or Extended Hearing Panel would help ensure objectivity
and consistency among offers of settlement that are issued. The
proposed rule change would also allow an offer of settlement to be
called for review by the Exchange Board. The Exchange believes that
this review mechanism provides an additional, appropriate check and
balance to the proposed settlement process.
Proposed Rule 10.9270(g) would provide that the proceeding under
the proposed rule would conclude as of the date the order of acceptance
is final, and the order of acceptance would constitute final
disciplinary action of the Exchange. The sanction would take effect as
set forth in the order.
Proposed Rule 10.9270(i) would address disciplinary proceedings
with multiple Respondents and permit settlement offers to be accepted
or rejected as to any one or all of such Respondents. Current Article
12, Rule 1(d) does not contain similar authorizations.
Proposed Rule 10.9270(j) would provide that a Respondent may not be
prejudiced by a rejected offer of settlement nor may it be introduced
into evidence. Current Article 12, Rule 1(d) contains a substantially
similar provision.
Proposed Rule 10.9280 (Contemptuous Conduct)
Proposed Rule 10.9280 would set forth sanctions for contemptuous
conduct by a Party or attorney or other representative, which may
include exclusion from a hearing or conference, and would set forth a
process for reviewing such exclusions. The proposed Rule would also
provide for adjournments in the event an exclusion is upheld to allow
for the retention of new counsel or selection of a new representative,
and would set forth the criteria for determining whether to grant an
adjournment and the length of an adjournment.
The Chief Hearing Officer would review exclusions. The Exchange
believes that Respondents and their attorneys and representatives would
have adequate procedural protections with a review by the Chief Hearing
Officer. The Exchange's current rules do not have similar procedures
addressing contemptuous conduct.
Proposed Rule 10.9290 (Expedited Disciplinary Proceedings)
Under proposed Rule 10.9290, for any disciplinary proceeding, the
subject matter of which also is subject to a temporary cease and desist
proceeding initiated pursuant to proposed Rule 10.9810 or a temporary
cease and desist order, hearings would be required to be held and
decisions rendered at the earliest possible time. The proposed Rule is
identical to NYSE Arca Rule 10.9290. The Exchange does not currently
have a similar rule.
Proposed Rule 10.9291 (Permanent Cease and Desist Orders) would
govern the content, scope, form and delivery requirements of permanent
cease and desist orders. Under proposed Rule 10.9291(a), when a
decision issued under proposed Rule 10.9268 or proposed Rule 10.9269 or
an order of acceptance issued under proposed Rule 10.9270 imposes a
permanent cease and desist order, the decision shall: Order a
Respondent (and any successor of a Respondent, where the Respondent is
a Participant or Participant Firm) to cease and desist permanently from
violating a specific rule or statutory provision; set forth the
violation; and describe in reasonable detail the act or acts the
Respondent (and any successor of a Respondent, where the Respondent is
a Participant or Participant Firm) shall take or refrain from taking.
The proposed Rule would also require Respondents that are a Participant
or Participant Firm to deliver a copy of a permanent cease and desist
order, within one business day of receiving it, to its covered persons.
With the exception of conforming changes reflecting the Exchange's
membership, the text of the proposed Rule is substantially same as NYSE
Arca Rule 10.9291. The Exchange currently does not have a similar rule.
Proposed Rules 10.9300 Through 10.9310
The Exchange's appellate and call for review processes would be set
forth in the Rule 10.9300 Series (Review of Disciplinary Proceeding by
Exchange Board) and would be substantially the same as the current NYSE
Arca process.
Proposed Rule 10.9310 (Review by Exchange Board of Directors) would
provide for one review at the Board of Directors level, and discontinue
the current practice under Article 12, Rule 5 whereby a decision by the
Judiciary Committee is the final decision of the Exchange under
subsection (a) except where the Board in its discretion determines to
review a Judiciary Committee decision, as provided for in subsection
(b). Under proposed Rule 10.9310(b), upon review, and with the advice
of the CFR, the Board may, by the affirmative vote of a majority of the
Board then in office, sustain any determination or penalty imposed,
(including the terms of any permanent cease and desist order), or both,
modify or reverse any such determination, and increase, decrease or
eliminate any such penalty, or impose any penalty permitted under the
Exchange's rules, as it deems appropriate. Unless the Board otherwise
specifically directs, the determination and penalty, if any, of the
Board after review shall be final and conclusive subject to the
provisions for review of the Act. The Exchange believes that the
proposed appellate review process would be fair and efficient and
harmonize the Exchange's appellate process with the process of the
Exchange's affiliates who have adopted similar disciplinary rules.
Under proposed Rule 10.9310(a)(1)(A), any Party, any Director, and
any member of the CFR could require a review by the Exchange Board of
any determination or penalty, or both, imposed by a Hearing Panel or
Extended Hearing Panel under the proposed Rule 10.9200 Series, except
that none of the aforementioned persons could request a review by the
Exchange Board of a decision concerning an affiliate of the Exchange as
that term is defined in Rule 12b-2 under the Act. Under current Article
12, Rule 5, there is no similar call for review process; only a
Respondent or the Exchange may request review and that review is
conducted by the Judiciary Committee, subject to the exceptions in
Article 12, Rule 5(b).
Moreover, under proposed Rule 10.9310(a)(1)(A), a request for
review would be made by filing with the Secretary a written request
stating the basis and reasons for such review, within 25 days after
notice of the determination and/or penalty was served upon the
Respondent. However, any request for review of an offer of settlement
determined to be uncontested after a hearing on the merits has begun
under proposed Rule 10.9270(f) that has been accepted by a Hearing
Panel or Extended Hearing Panel would be governed by Rule
10.9310(a)(1)(B)(i). The Secretary of the Exchange would give notice of
any such request for review to the Parties.
Under proposed Rule 10.9310(a)(1)(B)(i), any Director and any
[[Page 35057]]
member of the CFR could require a review by the Board of any
determination or penalty, or both, imposed in connection with an AWC
under Rule 10.9216 or an offer of settlement determined to be
uncontested before a hearing on the merits has begun under Rule
10.9270(f), except for a determination or penalty concerning an
Exchange affiliate as defined in Rule 12b-2 under the Act. Under the
proposed rule, a request for review shall be made by filing with the
Secretary of the Exchange a written request therefor, which states the
basis and reasons for such review, within 10 days after a letter of
acceptance, waiver, and consent or an offer of settlement has been sent
to each Director and each member of the CFR pursuant to proposed Rule
0.9216(a)(4) or Rule 10.9270(f)(3). The Secretary would give notice of
any such request for review to the Parties.
Under proposed Rule 10.9310(a)(1)(B)(ii), any Party could require a
review by the Exchange Board of any rejection by the CRO of a letter of
acceptance, waiver, and consent under Rule 10.9216 or an offer of
settlement determined to be uncontested before a hearing on the merits
has begun under Rule 10.9270(f), except that no Party may request Board
review of a rejection of an AWC or an offer of settlement concerning an
Exchange affiliate as defined in Rule 12b-2 under the Act. As proposed,
a request for review shall be made by filing with the Secretary a
written request stating the basis and reasons for such review within 25
days after notification pursuant to proposed Rule 10.9216(a)(3) or Rule
10.9270(h) that a letter of acceptance, waiver, and consent, or an
uncontested offer of settlement or an order of acceptance is not
accepted by the CRO. The Secretary would provide notice of any such
request for review to the Parties.
Under current Article 12, Rule 5(a), the parties have 15 days from
the date of service of notice of a decision, while under Article 12,
Rule 5(b) the Board has no time period in which to request
discretionary review of a Judiciary Committee decision. The proposed
rule would apply a longer period to requests to review of contested
determinations.
Under proposed Rule 10.9310(a)(2), the Secretary would direct the
Office of Hearing Officers to complete and transmit a record of the
disciplinary proceeding in accordance with Rule 10.9267. Within 21 days
after the Secretary gives notice of a request for review to the
Parties, or at such later time as the Secretary could designate, the
Office of Hearing Officers would assemble and prepare an index to the
record, transmit the record and the index to the Secretary, and serve
copies of the index upon all Parties. The Hearing Officer who
participated in the disciplinary proceeding, or the Chief Hearing
Officer, would certify that the record transmitted to the Secretary was
complete. Under Article 12, Rule 5(a), unless the Judiciary Committee
decides to open the record for the introduction of evidence to hear
argument, its review must be based on the factual record as certified
to the Judiciary Committee by the Secretary and Board review of matters
as provided in Article 12, Rule 5(b) must be upon the record as
certified to the Board by the Secretary.
Under proposed Rule 10.9310(b), review by the Exchange Board would
be based on oral arguments and written briefs and limited to
consideration of the record before the Hearing Panel or Extended
Hearing Panel. Under current Article 12, Rule 5, the Judiciary
Committee has the discretion but is not required to hear oral argument.
Moreover, the Judiciary Committee is not bound by the factual record as
certified by the Secretary but can open the record for the introduction
of evidence to hear argument.
Proposed Rule 10.9310(b) further provides that, upon review, and
with the advice of the CFR, the Board, by the affirmative vote of a
majority of the Exchange Board then in office, could sustain any
determination or penalty imposed, (including the terms of any permanent
cease and desist order), or both, could modify or reverse any such
determination, and could increase, decrease or eliminate any such
penalty, or impose any penalty permitted under the Exchange's rules, as
it deems appropriate. Unless the Board otherwise specifically directs,
its determination and penalty, if any, after review shall be final and
conclusive subject to the provisions for review of the Act.
As noted above, the Exchange would discontinue the current practice
under Article 12, Rule 5 whereby a decision by the Judiciary Committee
is a final decision of the Exchange except where the Board determines
to review the Judiciary Committee's decision on a discretionary basis.
As proposed, under Rule 10.9310(b), the Board's determination, with the
advice of the CFR, if any, would be final and conclusive subject to the
provisions for review of the Act unless the Board specifically directs
otherwise. In addition, NYSE Arca Rule 10.9310(b) permits the CFR to
appoint an Appeals Panel to conduct a review and make a recommendation
to the CFR. NYSE Arca retained appeals panels from its legacy
disciplinary rules. The Exchange does not currently have a similar
process and does not propose to follow NYSE Arca on this point.
Proposed Rule 10.9310(b) accordingly omits a comparable provision.
Under proposed Rule 10.9310(c), notwithstanding the foregoing, if
either Party upon review applied to the Exchange Board for leave to
adduce additional evidence, and showed to the satisfaction of the
Exchange Board that the additional evidence was material and that there
were reasonable grounds for failure to adduce it before the Hearing
Panel or Extended Hearing Panel, the Exchange Board could remand the
case for further proceedings, in whatever manner and on whatever
conditions the Exchange Board considered appropriate. Article 12, Rule
5 does not contain a remand provision.
Under proposed Rule 10.9310(d), notwithstanding any other
provisions of the proposed Rule 10.9000 Series, the CEO could not
require a review by the Exchange Board under this rule and would be
recused from deliberations and actions of the Exchange Board with
respect to such matters. Current Article 12, Rule 5 does not have a
comparable provision.
Proposed Rules 10.9500 Through 10.9527
The proposed Rule 10.9500 Series (Other Proceedings) would relate
to other proceedings under the Exchange Rules.
The proposed Rule 10.9520 Series would set forth procedures for a
covered person to become or remain associated with a Participant or
Participant Firm notwithstanding the existence of a statutory
disqualification as defined in Section 3(a)(39) of the Act, and for a
Participant, Participant Firm or covered person to obtain relief from
the eligibility or qualification requirements of the Exchange's Rules,
which the proposed rule refers to as ``eligibility proceedings.'' The
proposed rules are substantially similar to the NYSE Arca Rule 10.9520
Series.
Proposed Rule 10.9521 (Purpose and Definitions) would add certain
definitions relating to eligibility proceedings that are not currently
part of the Exchange's definitions, including ``Application,''
``disqualified Participant,'' ``disqualified Participant Firm,''
``disqualified person,'' ``sponsoring Participant,'' and ``sponsoring
Participant Firm.''
Proposed Rule 10.9522 (Initiation of Eligibility Proceeding; Member
Regulation Consideration) would govern the initiation of an eligibility
proceeding by the Exchange and the obligation for
[[Page 35058]]
a Participant or Participant Firm to file an application or, for
matters set forth in proposed Rule 10.9522(e)(1), a written request for
relief if the Participant or Participant Firm determines prior to
receiving a notice under Rule 10.9522(a) that (1) it has become a
disqualified Participant or Participant Firm; (2) a person associated
with such Participant or Participant Firm or whose association is
proposed by an applicant for membership under Exchange rules has become
a disqualified person; or (3) the Participant or Participant Firm or
applicant for membership under Exchange rules wishes to sponsor the
association of a covered person who is a disqualified person. The
proposed rule also contains provisions governing withdrawal of an
application or written request for relief as well as the application of
the prohibitions against ex parte communications set forth in Rule
10.9143 to the Rule 10.9520 Series.
Finally, the proposed rule describes the matters that may be
approved by the Department of Member Regulation (``Member Regulation'')
without the filing of an application and after filing an application,
and the rights of a disqualified Participant or Participant Firm,
Sponsoring Participant or Participant Firm, Disqualified Person, and
Member Regulation where Member Regulation does not approve a written
request for relief from the eligibility requirements pursuant to
proposed Rule 10.9522(e)(1) or an application pursuant to proposed Rule
10.9522(e)(2).
Proposed Rule 10.9523 (Acceptance of Member Regulation
Recommendations and Supervisory Plans by Consent Pursuant to Exchange
Act Rule 19h-1) would generally allow Member Regulation to recommend a
supervisory plan to which a disqualified Participant or Participant
Firm, or sponsoring Participant or Participant Firm and/or disqualified
person, as the case may be, could consent and by doing so, waive the
right to hearing or appeal if the plan is accepted and the right to
claim bias or prejudgment, prohibited ex parte communications or the
separation of functions prohibitions.
Specifically, under subsection (a), which would apply to all
disqualifications except those arising solely from findings or orders
specified in Section 15(b)(4)(D), (E) or (H) of the Act or arising
under Section 3(a)(39)(E) of the Act, a disqualified Participant or
Participant Firm, sponsoring Participant or Participant Firm, and/or
disqualified person (the ``Disqualified Person''), would execute a
letter consenting to the imposition of the supervisory plan. By
submitting such a letter, the Disqualified Person waive the right to a
hearing before a Hearing Panel and any right of appeal to the Exchange
Board, the Commission, and the courts, or otherwise challenge the
validity of the supervisory plan, if the supervisory plan is accepted;
any right to claim bias or prejudgment by Member Regulation, the CRO,
the Board, or any member of the Board, in connection with such person's
or body's participation in discussions regarding the terms and
conditions of Member Regulation's recommendation or the supervisory
plan, or other consideration of the recommendation or supervisory plan,
including acceptance or rejection of such recommendation or supervisory
plan; and 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 recommendation or supervisory plan, or other
consideration of the recommendation or supervisory plan, including
acceptance or rejection of such recommendation or supervisory plan.
If a recommendation or supervisory plan is rejected, the
Disqualified Person would be bound by the waivers made under proposed
paragraph (a)(1) for conduct by persons or bodies occurring during the
period beginning on the date the supervisory plan was submitted and
ending upon the rejection of the supervisory plan and would have the
right to proceed under the proposed rule and proposed Rule 10.9524, as
applicable. Under subsection (a), if a Disqualified Person executes a
letter consenting to the supervisory plan, such letter would be
submitted to the CRO by Member Regulation with a proposed Notice under
Act Rule 19h-1, where required. The CRO may accept or reject Member
Regulation's recommendation and the supervisory plan. If accepted, the
recommendation and supervisory plan would be deemed final and, where
required, the proposed Notice under Rule 19h-1 of the Act would be
filed by the Exchange. If rejected by the CRO, the Exchange would be
able to take any other appropriate action with respect to the
Disqualified Person. The Disqualified Person would not be prejudiced by
the execution of the letter consenting to the supervisory plan, and the
letter could not be introduced into evidence in any proceeding.
Under subsection (b), which would apply to disqualifications
arising solely from findings or orders specified in Section
15(b)(4)(D), (E) or (H) of the Act or arising under Section 3(a)(39)(E)
of the Act, in approving an application under proposed Rule
10.9522(e)(2)(F), Member Regulation would be authorized to accept the
membership or continued membership of a Disqualified Person or the
association or continuing association of a Disqualified Person pursuant
to a supervisory plan where the Disqualified Person would consent to
the imposition of the supervisory plan. The Disqualified Person would
execute a letter consenting to the imposition of the supervisory plan
and Member Regulation would prepare a proposed Notice under Rule 19h-1
of the Act where required to be filed by the Exchange.
By submitting an executed letter consenting to a supervisory plan,
a Disqualified Person would waive the right of appeal to the Board, the
Commission, and the courts, or otherwise challenge the validity of the
supervisory plan, if the supervisory plan is accepted; any right to
claim bias or prejudgment by Member Regulation or the CRO in connection
with such person's or body's participation in discussions regarding the
terms and conditions of Member Regulation's recommended supervisory
plan, or other consideration of the supervisory plan, including
acceptance or rejection of such recommendation or supervisory plan; and
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
supervisory plan, or other consideration of the supervisory plan,
including acceptance or rejection of such supervisory plan. If the
supervisory plan is rejected, the Disqualified Person would be bound by
the waivers made under proposed paragraph (b)(1) for conduct by persons
or bodies occurring during the period beginning on the date the
supervisory plan was submitted and ending upon the rejection of the
supervisory plan and would have the right to proceed under proposed
Rule 10.9524 (Exchange Board Consideration), which would allow a
request for review by the applicant to the Exchange Board. Proposed
Rule 10.9527 would provide that a filing of an application for review
would not stay the effectiveness of final action by the Exchange unless
t
[…truncated; see source link]Indexed from Federal Register on June 8, 2022.
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