Notice2022-19114
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt New Conflicts of Interest Rules
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Published
September 6, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 171 (Tuesday, September 6, 2022)</title>
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[Federal Register Volume 87, Number 171 (Tuesday, September 6, 2022)]
[Notices]
[Pages 54583-54586]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-19114]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 95637; File No. SR-ISE-2022-17]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Adopt New
Conflicts of Interest Rules
August 30, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 18, 2022, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I, II, and III, below,
which Items have been prepared by the Exchange. The Exchange filed the
proposed rule change as a ``non-controversial'' proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ 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\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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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 two new rules within Sections 26 and
27 of Options 10. Also, the Exchange proposes to make other technical
amendments.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/ise/rules">https://listingcenter.nasdaq.com/rulebook/ise/rules</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 Exchange 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 these 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 aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to adopt two new rules within Sections 26 and
27 of Options 10. Also, the Exchange proposes to make technical
amendments to General 2, Organization and Administration; Options 1,
Section 1, Definitions; and Options 4A, Section 12, Terms of Index
Options Contracts. Each change is described below.
Proposed Options 10, Section 26
The Exchange proposes to adopt a new Options 10, Section 26, titled
``Transactions Involving ISE Employees'' that is substantively
identical to FINRA Rule 2070. This proposed rule is intended to address
[[Page 54584]]
conflicts of interest involving ISE and its employees.
The Exchange proposes to adopt rule text within proposed Options
10, Section 26(a) that requires a Member, when it has actual notice
that an ISE employee has a financial interest or controls trading in an
account, to promptly obtain and implement an instruction from the
employee directing that duplicate account statements be provided by the
Member to ISE.
The Exchange proposes to adopt rule text within proposed Options
10, Section 26(b) that prohibits a Member from directly or indirectly
making any loan of money or securities to an ISE employee. This
proposed prohibition would not apply to loans made in the context of
disclosed, routine banking and brokerage agreements, or loans that are
clearly motivated by a personal or family relationship.
Finally, the Exchange proposes to adopt rule text within proposed
Options 10, Section 26(c) that prohibits any Member from directly or
indirectly giving, or permitting to be given, anything of more than
nominal value to any ISE employee who has responsibility for a
regulatory matter involving the Member. This prohibition would apply
regardless of the annual dollar limitation set forth in proposed
Options 10, Section 27, which is discussed below. The term ``regulatory
matter'' is proposed to be defined to include, without limitation,
examinations, disciplinary proceedings, membership applications,
listing applications, delisting proceedings, and dispute-resolution
proceedings that involve the Member.
The Exchange believes that requiring a Member to direct that
duplicate account statements be provided by the Member to ISE when it
has actual notice that an ISE employee has a financial interest or
controls trading in an account, prohibiting Members from making any
loan of money or securities to an ISE employee subject to the
exceptions set forth herein, and prohibiting Members from directly or
indirectly giving, or permitting to be given, anything above nominal
value to any ISE employee who has responsibility for a ``regulatory
matter'' involving the Member will avoid conflicts of interest for ISE
and its employees in the regulation of its Members. With this proposal,
ISE Members who are also FINRA members would be subject to this rule
which is substantively identical to FINRA Rule 2070. Additionally, ISE
Members who are not FINRA members would also be subject to proposed
Options 10, Section 26 to the extent that such Members conduct business
with the public.
Proposed Options 10, Section 27
The Exchange proposes to adopt a new Options 10, Section 27, titled
``Influencing or Rewarding Employees of Others'' that is substantively
identical to FINRA Rule 3220. This proposed rule is intended to provide
a limitation on gifts and thereby govern influencing or rewarding the
employees of others.
The Exchange proposes to adopt rule text within proposed Options
10, Section 27(a) that prohibits a Member or person associated with a
Member from directly or indirectly giving or permitting to be given
anything of value, including gratuities, in excess of one hundred
dollars per individual per year to any person, principal, proprietor,
employee, agent or representative of another person where such payment
or gratuity is in relation to the business of the employer of the
recipient of the payment or gratuity. A gift of any kind would be
considered a gratuity.
The Exchange proposes to adopt rule text within proposed Options
10, Section 27(b) that provides that Options 10, Section 27 shall not
apply to contracts of employment with or to compensation for services
rendered by persons enumerated in paragraph (a) provided that there is
in existence prior to the time of employment or before the services are
rendered, a written agreement between the Member and the person who is
to be employed to perform such services. Such agreement would include
the nature of the proposed employment, the amount of the proposed
compensation, and the written consent of such person's employer or
principal. The Exchange notes that this express exclusion for payments
made pursuant to a bone fide, prior written agreement in paragraph (b)
is excluded from the dollar value consideration in paragraph (a).
The Exchange proposes to adopt rule text within proposed Options
10, Section 27(c) that requires a separate record of all payments or
gratuities in any amount known to the Member, the employment agreement
referred to in paragraph (b) and further requires the Member to retain
any employment compensation paid as a result thereof for the period
specified by Rule 17a-4 of the Exchange Act.\5\
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\5\ 17 CFR 240.17a-4.
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Proposed Options 10, Section 27 prevents gifts in excess of a fixed
amount, currently $100. The Exchange believes that there is no business
need to justify giving gifts in amounts greater than the limit
specified in the rule. With this proposal, ISE Members who are also
FINRA members would be subject to this rule which is substantively
identical to FINRA Rule 3220. Additionally, ISE Members who are not
FINRA members would also be subject to proposed Options 10, Section 27
to the extent that such Members conduct business with the public. The
Exchange believes this proposed rule appropriately protects against
improprieties that might arise when substantial gifts or monetary
payments are given to certain persons.
Technical Amendments
The Exchange proposes to reserve rules within General 2,
Organization and Administration in addition to currently reserved
Sections 13 through 22, to harmonize ISE's rules with those of Nasdaq
affiliate exchanges. Specifically, the Exchange proposes to reserve new
Sections 23 and 24 within General 2 and add an ``s'' to the word
``Section.''
The Exchange proposes to amend a citation within the definition of
``proprietary trading'' at Options 1, Section 1(a)(41). The citation to
``General 4, Section 1.1210'' is incorrect. The citation should be to
``General 4, Section 1210''. Correcting this citation will avoid
confusion.
The Exchange proposes to remove the word ``pilot'' within
Supplementary Material to Options 4A, Section 12. Options 4A, Section
12 describes the options listing rules. The Quarterly Options Series
pilot program was approved in 2009.\6\ The Exchange proposes to remove
this updated reference to the pilot.
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\6\ See Securities Exchange Act Release No. 60275 (July 9,
2009), 74 FR 34809 (July 17, 2009) (SR-ISE-2009-50) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To
Permanently Establish the Quarterly Options Series Pilot Program).
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\7\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\8\ in particular, in that it is designed to promote
just and equitable principles of trade, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general to protect investors and the public interest.
Together, proposed Options 10, Sections 26 and 27 address conflicts of
interest by adopting rules that govern influencing or rewarding the
employees of others and transactions involving ISE
[[Page 54585]]
employees. The Exchange believes that adopting rules substantively
identical to FINRA will help avoid confusion among Members of the
Exchange who conduct business with the public that are also members of
FINRA and would harmonize the Exchange's rules with FINRA rules with
respect to conflicts of interest, resulting in greater uniformity and
less burdensome and more efficient regulatory compliance. As such, the
proposed rule change would foster cooperation and coordination with
persons engaged in facilitating transactions in securities and would
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
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Proposed Options 10, Section 26 is consistent with the Act and
protects investors and the general public by requiring a Member to
direct that duplicate account statements be provided by the Member to
ISE when it has actual notice that an ISE employee has a financial
interest or controls trading in an account, prohibiting Members from
making any loan of money or securities to an ISE employee subject to
the exceptions set forth herein, and prohibiting Members from directly
or indirectly giving, or permitting to be given, anything above nominal
value to any ISE employee who has responsibility for a ``regulatory
matter'' involving the Member. These proposed rules are intended to
avoid conflicts of interest for ISE and its employees in the regulation
of its Members.
Proposed Options 10, Section 27 is consistent with the Act and
protects investors and the general public by preventing gifts in excess
of a fixed amount, currently $100, because there is no business need to
justify giving gifts in amounts greater than the limit specified in the
rule. Options 10, Section 27 in conjunction with Options 10, Section
26, as proposed, protects investors and the general public by
addressing conflicts of interest and governs influencing or rewarding
the employees of others and transactions involving ISE employees.
Technical Amendments
The Exchange's proposal to reserve new Sections 23 and 24 within
General 2, amend a citation within the definition of ``proprietary
trading'' within Options 1, Section 1, and remove the word ``pilot''
within Supplementary Material to Options 4A, Section 12 are non-
substantive amendments.
B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
Proposed Options 10, Sections 26 and 27
The proposed rule change is not designed to address any competitive
issues but rather to provide greater harmonization among Exchange and
FINRA rules of similar purpose, resulting in less burdensome and more
efficient regulatory compliance for common members. The Exchange's
proposal to adopt new Options 10, Sections 26 and 27 does not impose an
undue burden on competition as all Members that conduct business with
the public would be subject to the proposed rules. Further, ISE Members
who are also FINRA members would be subject to these rules which are
substantively identical to FINRA Rules 2070 and 3220.
Technical Amendments
The Exchange's proposal to reserve new Sections 23 and 24 within
General 2, amend a citation within the definition of ``proprietary
trading'' within Options 1, Section 1, and remove the word ``pilot''
within Supplementary Material to Options 4A, Section 12 are non-
substantive amendments.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \9\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\10\
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\9\ 15 U.S.C. 78s(b)(3)(A)(iii).
\10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#146661787139777b7979717a6067546771773a737b62"><span class="__cf_email__" data-cfemail="d5a7a0b9b0f8b6bab8b8b0bba1a695a6b0b6fbb2baa3">[email protected]</span></a>. Please include
File Number SR-ISE-2022-17 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-ISE-2022-17. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit
[[Page 54586]]
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-ISE-2022-17 and should be
submitted on or before September 27, 2022.
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\11\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19114 Filed 9-2-22; 8:45 am]
BILLING CODE 8011-01-P
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