Notice2024-29143
Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Change To Amend Rule 342
Primary source
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Published
December 12, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 239 (Thursday, December 12, 2024)</title>
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[Federal Register Volume 89, Number 239 (Thursday, December 12, 2024)]
[Notices]
[Pages 100578-100581]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-29143]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101830; File No. SR-NYSEAMER-2024-75]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of Proposed Change To Amend Rule 342
December 6, 2024.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on December 3, 2024, NYSE American LLC (``NYSE American'' 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 amend Rule 342 to add clarity to the
process for a broker-dealer to become or remain a member organization
notwithstanding a statutory disqualification. 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 amend proposes to amend Rule 342 to add
clarity to the process to the process for a broker-dealer to become or
remain a member organization notwithstanding a statutory
disqualification.
Background and Proposed Rule Filing
Section 3(a)(39) of the Act defines the term ``statutory
disqualification'' and the circumstances that can cause a person
(either a Member, or a person associated with a Member) to be subject
to a statutory disqualification.\4\ Absent relief, a statutory
disqualification would preclude a broker-dealer or person associated
with a broker-dealer from certain activities, including membership in a
self-regulatory organization (``SRO'').
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\4\ 15 U.S.C. 78c(a)(39).
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There is, however, a well-established process through which a
broker-dealer (or a person associated with a broker-dealer) may
continue to operate in the securities industry (and either become a
member of, or continue as a member of, one or more SROs) despite being
subject to a statutory disqualification.\5\ In particular, SEC Rule
19h-1 \6\ describes several ways an SRO may seek relief for a member
(or prospective member) that is subject to a statutory
disqualification,
[[Page 100579]]
including whether an SRO must file a notice with the Commission in
order to allow the disqualified firm to become or continue as a member
with the SRO (a ``19h-1 Notice''). A 19h-1 Notice does not, for
instance, need to be filed by an SRO if the firm subject to a statutory
disqualification is a member of at least one other SRO, and that SRO
intends to file a 19h-1 Notice for the firm.\7\
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\5\ See FINRA Regulatory Notice 09-19 (``Amendments to FINRA
Rule 9520 Series to Establish Procedures Applicable to Firms and
Associated Persons Subject to Certain Statutory
Disqualifications'').
\6\ 17 CFR 240.19h-1.
\7\ Id. at (a)(3).
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Rule 342 (Association of Members, Member Organizations, and Persons
Associated With Member Organizations) of the Office Rules provides
that, except as otherwise permitted by the Exchange, no member, member
organization, approved person, employee, or any person directly or
indirectly controlling, controlled by or under common control with a
member or member organization shall have associated with him or it any
person who is known, or in the exercise of reasonable care should be
known, to be subject to any ``statutory disqualification'' defined in
Section 3(a)(39) of the Act.
Recently, a non-member broker-dealer firm subject to a statutory
disqualification that is currently under review by the Financial
Industry Regulatory Authority, Inc. (``FINRA'') applied for Exchange
membership.\8\
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\8\ The processing of new membership applications at the
Exchange includes statutory disqualification disclosures and
background investigations. Review, assessment, and processing of
these membership applications has been conducted on behalf of the
Exchange by FINRA pursuant to a regulatory services agreement.
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In reviewing this application, the Exchange determined that this
situation is not explicitly addressed in its rules as it is in the
rules of other exchanges.\9\ Specifically, BOX, Cboe BZX, Cboe BYX,
Cboe EDGX, and Cboe EDGA each amended their respective rules in 2016 to
provide more clarity as to the authority of each exchange to determine
whether to admit a prospective member that is subject to a statutory
disqualification.\10\ The 2016 rule change filings of these exchanges
also amended several other aspects of their application procedures, but
the Exchange only seeks to harmonize its rules insofar as they apply to
member organizations and prospective member organizations (and
associated persons of member organizations) that are subject to a
statutory disqualification in order to address the membership
application described herein.\11\
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\9\ See Cboe EDGX Exchange, Inc. (``Cboe EDGX'') Rule 2.5(a) &
Interpretation and Policies .04; Cboe BZX Exchange, Inc. (``Cboe
BZX'') Rule 2.5(a) & Interpretation and Policies .04; Cboe BYX
Exchange, Inc. (``Cboe BYX'') Rule 2.5(a) & Interpretation and
Policies .04; Cboe EDGA Exchange, Inc. (``Cboe EDGA'') Rule 2.5(a) &
Interpretation and Policies .04; and BOX Options Exchange LLC
(``BOX'') Rule 2040(a) & IM-2040-08.
\10\ See Securities Exchange Act Release No. 78449 (August 1,
2016), 81 FR 51947 (August 5, 2016) (SR-BOX-2016-26); Securities
Exchange Act Release No. 79229 (November 3, 2016), 81 FR 78875
(November 9, 2016) (SR-BatsBZX-2016-67); Securities Exchange Act
Release No. 79233 (November 3, 2016), 81 FR 78869 (November 9, 2016)
(SR-BatsBYX-2016-28); Securities Exchange Act Release No. 79234
(November 3, 2016), 81 FR 78867 (November 9, 2016) (SR-BatsEDGA-
2016-23); Securities Exchange Act Release No. 79236 (November 3,
2016), 81 FR 78878 (November 9, 2016) (SR-BatsEDGX2016-59).
\11\ The 2016 rule filings also added some other conditions for
eligibility for exchange membership such as adding a restriction
that members must meet any condition the exchange placed on such
member, which the Exchange believes are adequately addressed in
other Exchange rules. See, e.g., Rule 310 (Formation of or Admission
to Member Organization or Membership Owner). Moreover, the Rule 9520
Series sets forth procedures for a covered person (defined in Rule
9120(g) as a member, principal executive, approved person,
registered or non-registered employee of a member organization or an
ATP Holder (an options permit holder, see Rule 900.2NY
(Definitions)), or other person (excluding a member organization)
subject to the jurisdiction of the Exchange) to become or remain
associated with a member organization or ATP Holder notwithstanding
the existence of a statutory disqualification as defined in Section
3(a)(39) of the Act, and for a current member organization or
covered person to obtain relief from the eligibility or
qualification requirements of the Exchange's Rules, referred to in
the Rule as ``eligibility proceedings.''
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The Exchange accordingly proposes to align its rule with these
other exchanges specifically with respect to the process of assessing
an applicant for membership that is subject to a statutory
disqualification.\12\ As discussed below, the Exchange is making the
proposed rule changes and seeks waiver of the 30-day operative delay in
order to address an unusual and time sensitive situation in which a
firm subject to a statutory disqualification seeks to become an
Exchange member organization during the pendency of the process by
which the firm is seeking relief from the statutory disqualification.
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\12\ The proposed changes mirror the language in the following
rules: BOX Rule 2040(a) and IM-2040-08; Cboe BZX Rule 2.5(a) and
Interpretation and Policies .04; Cboe BYX Rule 2.5(a) and
Interpretation and Policies .04; Cboe EDGA Rule 2.5(a) and
Interpretation and Policies .04; and Cboe EDGX Rule 2.5(a) and
Interpretation and Policies .04.
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To effectuate these changes, the Exchange proposes to add
Supplementary Material .01 to Rule 342 to provide that the Exchange
could approve an applicant for membership (or association with a member
organization) that is subject to a statutory disqualification when a
proceeding is pending before another SRO to determine whether to permit
a member, member organization, approved person, employee, or any person
directly or indirectly controlling, controlled by or under common
control with a member or member organization to become or continue
membership or association notwithstanding a statutory disqualification.
This provision, which is consistent with SEC Rule 19h-1(a)(3), would
provide as follows (additions italicized):
.01 Statutory Disqualification Proceedings Pending Before Another
SRO. The Exchange may waive the provisions of this Rule when a
proceeding is pending before another self-regulatory organization to
determine whether to permit a member or associated person of a member
to become or continue membership or association notwithstanding a
statutory disqualification. In the event the Exchange determines to
waive the provisions of this Rule with respect to an existing or
prospective member, member organization, approved person, employee, or
any person directly or indirectly controlling, controlled by or under
common control with a member or member organization, the Exchange shall
determine whether it will concur in any Exchange Act Rule 19h-1 filing
made by another self-regulatory organization with respect to such
person.
This Supplementary Material is substantively identical to IM-2040-8
to BOX Rule 2040 and Interpretation and Policies .04 to Cboe BZX, BYX,
EDGX, and EDGA Rules 2.5, except for language clarifying that the new
supplementary material would apply to both prospective and existing
members, member organizations, approved persons, employees, or any
person directly or indirectly controlling, controlled by or under
common control with a member or member organization.
The Exchange believes that the proposed rule change would
appropriately align its rules with the Commission's rules regarding
statutory disqualifications and harmonize the Exchange's process with
several other SROs. The Exchange notes that in assessing the statutory
disqualification of a member organization or a prospective member
organization, it must act consistent with the protection of investors
and in the public interest and cannot unfairly discriminate against
existing or prospective member organizations.\13\ Moreover, as noted
above, a current member organization or covered person can seek relief
from the Exchange's eligibility or qualification requirements pursuant
to the Rule 9520 Series.\14\ In addition, any prospective
[[Page 100580]]
member organization that has been denied membership in the Exchange or
barred from becoming associated with a member organization is entitled
to certain due process pursuant to the Rule 308--Equities
(Acceptability Proceedings), which includes, but is not limited to,
potential review by the Commission.
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\13\ 15 U.S.C. 78f(b)(5).
\14\ See note 11, supra.
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the Act
\15\ in general, and furthers the objectives of Section 6(b)(5),\16\ in
particular, because it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to, and perfect the mechanism of, a free and open market
and a national market system and, in general, to protect investors and
the public interest.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change would better
align the Exchange's rules with the Commission's rules regarding
statutory disqualifications and enable a consistent process across the
Exchange and several other SROs to make appropriate filings with
respect to persons subject to a statutory disqualification, thereby
protecting investors and the public interest by providing more clarity
and consistency with respect to the process of seeking relief from a
statutory disqualification and in general enabling the Exchange to more
efficiently administer membership applications involving statutory
disqualifications. The Exchange further believes that the proposed
change would remove impediments to and perfect the mechanism of a free
and open market and a national market system and, in general, protect
investors and the public interest, and add clarity, transparency and
consistency to the Exchange's disciplinary rules. The Exchange believes
that market participants would benefit from the increased clarity,
thereby reducing potential confusion.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed rule change is
not intended to address competitive issues but rather is concerned
solely with aligning the Exchange's rules with those of other exchanges
and with the Commission's approach to handling firms that are subject
to statutory disqualification.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. 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) of the Act \17\ and Rule 19b-
4(f)(6) thereunder.\18\
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 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, along
with a brief description and text of 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.
NYSE American has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(f)(6)(iii),\20\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. NYSE American has
asked the Commission to waive the 30-day operative delay so that the
proposed rule change may become operative upon filing. NYSE American
states that waiving the 30-day delay in this manner would allow the
Exchange to address an unusual and time sensitive situation in which a
firm subject to a statutory disqualification seeks to become an
Exchange member organization during the pendency of the process by
which the firm is seeking relief from the statutory disqualification.
For this reason, the Commission believes that waiving the 30-day
operative delay is consistent with the protection of investors and the
public interest. Therefore, the Commission hereby waives the operative
delay and designates the proposal operative upon filing.
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\19\ 17 CFR 240.19b-4(f)(6).
\20\ 17 CFR 240.19b-4(f)(6)(iii).
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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#f280879e97df919d9f9f979c8681b2819791dc959d84"><span class="__cf_email__" data-cfemail="9defe8f1f8b0fef2f0f0f8f3e9eeddeef8feb3faf2eb">[email protected]</span></a>. Please include
file number SR-NYSEAMER-2024-75 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-NYSEAMER-2024-75. 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information
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that you wish to make available publicly. We may redact in part or
withhold entirely from publication submitted material that is obscene
or subject to copyright protection. All submissions should refer to
file number SR-NYSEAMER-2024-75 and should be submitted on or before
January 2, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-29143 Filed 12-11-24; 8:45 am]
BILLING CODE 8011-01-P
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