Notice2024-29145
Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Article 3
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
December 12, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 89 Issue 239 (Thursday, December 12, 2024)</title>
</head>
<body><pre>
[Federal Register Volume 89, Number 239 (Thursday, December 12, 2024)]
[Notices]
[Pages 100562-100564]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-29145]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101832; File No. SR-NYSECHX-2024-36]
Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Article 3
December 6, 20240
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, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Article 3, Rule 1 to add clarity to
the process for a broker-dealer to become or remain a Participant on
the Exchange notwithstanding the existence of 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 Article 3, Rule 1 to add clarity to
the process for a broker-dealer to become or remain a Participant on
the Exchange notwithstanding the existence of 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'').
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78c(a)(39).
---------------------------------------------------------------------------
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, 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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
Article 3, Rule 1 (Qualifications) governs the qualifications for
Participants to transact business on the Exchange, and provides in
subsection (b) that an applicant or Participant (including any
Associated Person) may not be subject to an order of the Commission (1)
denying, suspending or revoking the registration of such person as a
broker or dealer, or (2) barring or suspending such person from being
associated with a broker or dealer.\8\
---------------------------------------------------------------------------
\8\ See Article 3, Rule 1(b).
---------------------------------------------------------------------------
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.\9\ 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.\10\ 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.\11\ 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 Participants and prospective Participants (and
associated person of Participants) that are subject to a statutory
disqualification in order to
[[Page 100563]]
address the membership application described herein.\12\
---------------------------------------------------------------------------
\9\ The processing of new membership applications at the
Exchange includes statutory disqualification disclosures and
background investigations of prospective Participants and persons
associated with a Participant. Review, assessment, and processing of
these membership applications has been conducted on behalf of the
Exchange by FINRA pursuant to a regulatory services agreement.
\10\ 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.
\11\ 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).
\12\ 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., Article 3, Rule 1; Article 3, Rule
2 (Rights and Privileges of Participants); Article 6, Rule 2
(Registration and Approval of Participant Personnel). Moreover, the
Rule 10.9520 Series sets forth procedures for a covered person
(defined in Rule 10.9120(g) as an Associated Person as defined in
Article 1, Rule 1(d) and any other person subject to the
jurisdiction of the Exchange) 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 current Participant, Participant Firm 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.''
---------------------------------------------------------------------------
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.\13\ 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 Participant during the pendency of the process by which the
firm is seeking relief from the statutory disqualification.
---------------------------------------------------------------------------
\13\ 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.
---------------------------------------------------------------------------
To effectuate these changes, the Exchange proposes to add
Interpretation and Policy .02 to Article 3, Rule 1 to provide that the
Exchange could approve an applicant for membership (or association with
a member) that is subject to a statutory disqualification when a
proceeding is pending before another SRO to determine whether to permit
a Participant or associated person of a Participant 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):
.02 The Exchange may waive the provisions of Article 3, Rule 1(b)
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 Article 3, Rule 1(b) with respect
to an existing or prospective Participant or associated person of an
existing or prospective Participant, 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 the Participant or
associated person.
This Interpretation and Policy 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 Participants and associated persons of Participants.
The Exchange also proposes a conforming amendment to Article 3,
Rule 1(b) to delete the existing text providing that an applicant or
Participant (including any Associated Person) may not be subject to an
order of the Commission (1) denying, suspending or revoking the
registration of such person as a broker or dealer, or (2) barring or
suspending such person from being associated with a broker or dealer
since not every statutory disqualification requires a Commission
order.\14\ As proposed, Article 3, Rule 1(b) would read ``Except as
otherwise permitted by the Exchange, no person may become a Participant
or continue as a Participant in any capacity on the Exchange where such
person is subject to a statutory disqualification.'' The proposed
language is based on the rules of the Exchange's affiliates the New
York Stock Exchange LLC (``NYSE'') and NYSE American LLC (``NYSE
American''), specifically NYSE Rule 346 (Statutory Disqualification--
Association of Member Organizations, and Persons Associated With Member
Organizations) and NYSE American Rule 342 (Association of Members,
Member Organizations, and Persons Associated With Member
Organizations), and is also substantively identical to BOX Rule
2040(a)(3) and Cboe BZX, BYX, EDGX, and EDGA Rules 2.5(a)(3).
---------------------------------------------------------------------------
\14\ See the list of disqualifying events in Section 3(a)(39) of
the Act, 15 U.S.C. 78c(a)(39).
---------------------------------------------------------------------------
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 Participant or prospective Participant, it must
act consistent with the protection of investors and in the public
interest and cannot unfairly discriminate against Participants or
prospective Participants.\15\ Moreover, as noted above, a Participant
or Participant Firm can seek relief from the Exchange's eligibility or
qualification requirements pursuant to the Rule 10.9520 Series.\16\ In
addition, any prospective Participant that has been denied membership
in the Exchange or barred from becoming associated with a Participant
is entitled to certain due process pursuant to the procedures set forth
in Article 15 (Hearings and Reviews), which includes, but is not
limited to, potential review by the Commission.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(b)(5).
\16\ See note 12, supra.
---------------------------------------------------------------------------
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the Act
\17\ in general, and furthers the objectives of Section 6(b)(5),\18\ 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.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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 add clarity, transparency and
consistency to the Exchange's rules. The Exchange believes that market
participants would benefit from the increased clarity, thereby reducing
potential confusion.
[[Page 100564]]
The Exchange also believes is it reasonable to remove language in
Article 3, Rule 1(b) limiting statutory disqualification to a
Commission order because, as discussed above, not every statutory
disqualification requires a Commission order. In addition, the proposed
changes would align Article 3, Rule 1 with the equivalent rules of BOX,
Cboe BZX, Cboe BYX, Cboe EDGA, Cboe EDGX, as well as the rules of the
Exchange's affiliates.
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 \19\ and Rule 19b-
4(f)(6) thereunder.\20\
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78s(b)(3)(A).
\20\ 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 Chicago has satisfied this requirement.
---------------------------------------------------------------------------
A proposed rule change filed under Rule 19b-4(f)(6) \21\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(f)(6)(iii),\22\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. NYSE Chicago has asked
the Commission to waive the 30-day operative delay so that the proposed
rule change may become operative upon filing. NYSE Chicago 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.
---------------------------------------------------------------------------
\21\ 17 CFR 240.19b-4(f)(6).
\22\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------
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#5a282f363f77393537373f342e291a293f39743d352c"><span class="__cf_email__" data-cfemail="1c6e697079317f7371717972686f5c6f797f327b736a">[email protected]</span></a>. Please include
file number SR-NYSECHX-2024-36 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-NYSECHX-2024-36. 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 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-NYSECHX-2024-36 and
should be submitted on or before January 2, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
---------------------------------------------------------------------------
\23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-29145 Filed 12-11-24; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on December 12, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.